Welcome to Aperam Q1 Podcast. I'm Tim Di Maulo, Aperam CEO, and together with Aperam CFO Sudhakar Sivaji, I will share some more details on current trading and the numbers. We will hold a webcast and conference call today at 2:00 P.M. Central European Time, where we will answer your questions. The dial-in details are on our website and on the last slide of this presentation. Please take note of the disclaimer on page 2. The first quarter of 2024 just brought just more of the same. While we matched the guidance of EUR 55 million EBITDA, the European stainless steel industry experienced the seventh recessionary quarter in a row. Yes, there was a seasonal volume increase from a low base, but prices went sideways and depressed at depressed levels. In steel production, it is positive that Europe reached break-even as a result of the changes we are applying.
Unfortunately, Brazil is going the other direction with a seasonal volume trough and some production disruption. This is relevant for the outlook later. The non-steel making activities of our differentiated value chain are all performing solidly, in line with normalized earnings, and are on track for realizing the 2025 improvements targets. In Europe, imports remain largely absent from the market, with the market share clearly below the historic 22%. This in itself is also a statement about the attractiveness of the market. In the anti-circumvention case, the EU Commission released preliminary measures. New duty will be introduced next month on cold-rolled material from Taiwan, Vietnam, and Turkey. We are pleased with the European Commission keeping a level playing field. We see this case as an introduction of a melt-and-pour concept, as a milestone that will make potential future circumvention cases faster.
In Brazil, stainless steel products were not included in the recent duty hike. However, due to the additional 30% volume allowance, the quotas were set very loose. Inclusion would not have made any difference. We continue the dialogue with the government and count on more structural threat defense measures in the future. Self-help remains the name of the game, and Q1 was the first quarter of the fifth phase of the Leadership Journey. We started slowly, with gains of EUR 3 million. But as Sud will detail later, we remain on track to realize EUR 75 million gains this year, and Q2 is expected to already bring a step change. In the ESG space, we publish our 2023 sustainability report, and I'm happy to report good progress towards our communicated targets, as you can see in the next slides. Decarbonation is still at the center of attention.
Conventional wisdom assumes it means high CapEx, higher costs, and a challenging technology transition for the steel industry. However, Aperam's differentiated value chain comprises recycling and forestry. Our decarbonization roadmap is therefore CapEx- light, and technologically easy. Our carbon intensity dropped by another 12% year-over-year to below 280 kilos per ton of steel. We maintain our best-in-class position, and more importantly, we already reached the 2030 goal early. We also like to remind you that our Brazil operations are carbon neutral on Scope 1 + 2 basis today. But there is more. Decarbonization is not just an obligation for Aperam and achievable with stable production costs. We demonstrated at our recent Capital Market Day that decarbonization is a source of new earning streams, for example, in bio-oil and offset certificates. We are convinced that Aperam is a major beneficiary of the energy transition and decarbonization.
Looking at the bigger picture, we continue with best practice and zero tolerance regarding breaches in the governance area. I'm very happy that we are on track to fulfill all our goals in the environmental and social categories as well. We made very good progress in health and safety despite an already extremely low recordable incident rate. In gender diversity, we successfully raised the share of women in our exempt workforce further towards the 30% target we have for 2030. Both KPIs are also directly reflected in management compensation. In the environment category, we lowered dust emissions and water intake in absolute terms by 2% and 70% year-on-year, respectively. Unfortunately, our low production volumes work against the intensity on a per-ton basis. But new initiatives will bring further progress.
For example, Brazil has developed a new individual bag filter model that will cut emissions from damaged or non-performing filters. The installation of a diabatic tower at our Gueugnon site reduced our water intake. In just four months, it reduced water consumption by 25,000 cubic meters. Regarding our forest and the energy, I would invite you to watch the three movie episodes that we produced for the Capital Market Day this year. They are available on our website and explain how we work in Brazil. As a reminder, we use special eucalyptus breeds that don't propagate and hence don't impact local biodiversity. We also voluntarily keep one-third of our land as untouched natural habitat. This is 60% more than the legal requirement in Brazil, and we continuously strive to minimize our impact further.
We continue with the systematic biodiversity monitoring at all our industrial sites, and we started to work with local experts and NGOs to develop proactive biodiversity plans for our sites. You find more project details in the ESG report. Our performance is transparent and shows that we take sustainability and our responsibility for improvement seriously, and this puts us in a best-class position. Let's move from ESG to the market environment from high to low. The first quarter brought no change to the European market. There was the usual seasonal volume increase from a low base, and absolute tonnage remained about 15% below the historical normal. Price just moved sideways, leaving margin at their depressed level. Also, the demand by segment has not changed in a major way. Construction showed no signs of life. The project pipeline is thin, so we don't expect any quick change.
Automotive demand remains solid, and we also expect this to continue. There has been some positive development in industrial demand. While business in energy and oil and gas has been good for some time, this is now at a level to fully compensate the weakness that persists in the wider industry. We see it as temporarily positive, but without a brightening of the industrial sentiment, this will not last. Food, health, and catering demand, as well as white goods demand, both improve slowly. The stocking has been completed, and there is some small-scale restocking in the value chain. However, European consumer spending is still low, and an uptick will be required for further normalization. EU distributor inventory remains below the historical seasonal average, and days' inventory has also fully normalized. The good news is that the distribution chain is clean.
However, despite the LME nickel rally in Q1, we did not see much restocking activity. For us, this is a clear indication that Brazil's distribution segment acts cautiously in the face of uncertainty, demand, and high financing costs. We see slowly improving sentiment and a careful stock replenishment. We would expect this to strengthen if interest rate cuts materialize in Europe. In Brazil, Q1 is the seasonal trough, and the unsatisfactory international price environment weighs on margins. Demand remains solid, but there are more recent signs of caution. The capital goods space that has been on fire for several quarters seems to return to a more normal pace. Distributors are also more cautious. All other segments, that means white goods, automotive, and transport, consumer, and even construction, are stable with solid demand. Steel and steel imports into Brazil have clearly retreated from previous peaks.
In Europe, we welcome the further strengthening of the protection against unfair trade, especially with the introduction of the melt-and-pour concept. This means that to benefit from exemptions, imports will have to provide a melt-and-pour certificate showing the melt-and-pour origin of the material. This will help the Commission to monitor the balance between cold-rolled, hot-rolled, and slabs, and facilitate additional measures. The market share of imports at 14% remains far below the historical normal, and we stick to our view that the import disruptions are a story of the past. I hand it to Sud for the financial review.
Thank you, Tim, and a warm welcome, everyone. In line with guidance and expectations, Adjusted EBITDA came in flat quarter-on-quarter. The normalization of the Recycling and Renewables result was compensated by higher volumes, a better mix, especially with alloys performing, and a favorable price-input cost development. There was no relief from inventory valuation that remained at a comparable low to middle double-digit level. There's not much else remarkable in the P&L for Q1. Adjusted EBITDA was a clean number. Depreciation increased slightly due to bioenergy expansion. The financial result was almost free of valuation effects and reflects the higher net debt, and the tax rate was a bit lower than guided due to a combination of several smaller items. Cash flow might be more interesting with the EUR 81 million net working capital increase that we will analyze deeper on the next slide.
Also, CapEx was front-loaded, and we spent more than half of the 2024 budget in the first quarter already. This pays the last part of the Leadership Journey 5 investments, including the Brazil hot-rolling mill upgrade and some other European footprint items that were completed last year. These are the two main drivers for the -EUR 141 million free cash flow. Moving to the next slide. Even at a depressed earnings level, Aperam covers the dividend and the normalized CapEx. However, with additional net working capital and half the annual CapEx budget in a quarter, net debt increased by EUR 182 million quarter-over-quarter to EUR 673 million after paying dividends. As a consequence, net debt-to-EBITDA ratio is temporarily elevated. This chart shows you how, over the next quarters, it moves back again. So why did net working capital increase in a low-volume environment?
The main reasons for the temporary high net working capital are: number 1, raw materials have moved slightly higher again, the trading inventory in the recycling business, and lastly, the increase in net working capital with acquisitions in the renewables business. First, we recorded 8% higher shipments, and that is reflected in trade receivables. Also, the nickel price increased by almost $200 during the first quarter, and that requires some additional net working capital. However, the second item is the major driver. You might recall that the scrap market was tight in the fourth quarter, and we faced some limitations on the available material. One could say that in relation to the stainless steel market, across the world, recycling material gets built up a quarter earlier in inventories.
The increase in trading inventory over the quarter accounts for almost a complete increase in group net working capital, but it should ease again going forward through this year. Adding these three items, you can deduct that we actually did a great job in reducing net working capital in the European and Brazil stainless steel businesses. We will continue on this path as promised, and together with the reversal in the other entities, we expect EUR 120 million net working capital release until the end of the year. A solid balance sheet is at the core of our financial policy, and just looking at a single quarter might lead to wrong conclusions, especially with the large trading business. Deducting the trading inventory in the recycling segment from Aperam's gross net financial debt shows that we run a negligible net debt position.
Again, as guided earlier, we do not intend to finance the net working capital of the trading business with hard-earned cash from our business. This is one change with regards to the outlook, and that relates to the alloys LNG business. You might recall that this is a high-margin business for which we have a full order book for the next three years. To safeguard production, we decided to build some buffer stocks. We plan to maintain about EUR 50 million additional net working capital for the next three years to serve this business. You can trust me that this capital investment will carry a high return, and this is the delta to the previously shared number. As always, the whole net working capital net debt analysis assumes stable raw material prices. Moving to the next slide to talk about the segments. The segments developed as expected during Q1.
Stainless and Electrical moved towards break-even. Recycling and Renewables normalized while distribution and alloys performed at a solid level. R&R generated EUR 80 million EBITDA this quarter. This is a normal result in line with the recurring underlying earnings power. The quarter-on-quarter decline is largely due to the lack of valuation effects that were contained in the previous quarter. For R&R, we guide to a normalized EUR 80 million-EUR 85 million annual EBITDA, which we intend to double till 2030. In this perspective, the Q1 is a normal quarter with a solid contribution from the recycling business. This is an outstanding result in light of the woes in the global stainless industry with soft volumes in the U.S. and strikes in Europe. BioEnergia had a normal seasonality, and the new earnings streams, bio-oil and CO2 offset certificates, are ramping up as planned.
We expect Q2 to be another normal quarter for the segment. Stainless and Electrical Adjusted EBITDA turned marginally positive, which was a bit better than expected due to a less negative inventory valuation charge, a better mix, and temporarily favorable price and input costs materialized as expected in Europe. This was partially compensated by a lower EBITDA in Brazil due to the seasonal volume decline. High margin pressure persists in Europe, but global prices also continue to weigh on Brazil. For Q2, we project a segment to benefit from a neutral inventory valuation and a seasonal volume improvement in Europe. This will be partly offset by a price-cost squeeze in Europe. In Brazil, the delayed ramp-up of the hot-rolling mill was followed by operational instability. This will fully impact Q2 and allow Brazil only to roll over EBITDA from Q1 to Q2.
Services and Solutions delivered a solid EUR 15 million EBITDA in Q1. The slight quarter-on-quarter decrease is due to a higher inventory valuation charge. Shipments improved, and although prices remain under pressure, Q1 demonstrates that our distribution business can perform solidly in a difficult stainless market. Assuming no further distortion from raw material prices, we expect a comparable EBITDA in Q2, and the year should demonstrate a clear step towards the 2025 improvement target. Alloys and Specialties delivered a record result at EUR 24 million EBITDA. A high inventory valuation charge was balanced by higher volumes and a better mix. Both factors relate to a special one-time high-margin project that was completed during the quarter. For Q2, we expect somewhat lower EBITDA in line with Q4 2023. The investments into the alloys growth plan are raising the normalized earning capacity of the segment.
The ramp-up of the Indian plant and the ability to process solid LNG order book are major drivers. In the absence of inventory valuation effects, the Q2 level might reflect current normality. However, as guided already, we expect 2024 to be a successful ramp-up year to meet the 2025 improvement target. Others and Eliminations reflects the intercompany eliminations and the corporate costs. Q1 was consistent with the high single-digit negative EBITDA that should be expected. For Q2, it could be a low double-digit number. Moving to the next slide to talk about our Leadership Journey.
Phase 5 of the Leadership Journey has started this quarter. Let me start with a short recap. The Leadership Journey is the key transformation initiative for our company with a particular emphasis on cost and efficiency in Phase 5. Target gains totaled EUR 200 million, including a EUR 50 million classic cost-cutting program in our European footprint.
Other elements are the mixed improvement from the numerous upgrades and the specific CapEx spent in our footprint over the past three years. These include the forest expansion that drives new earning streams, the recycling synergies raised to EUR 40 million, the alloys growth with the new plant in India ramping up, and the distribution debottlenecking and mixed improvement. Phase 5 will add to the transformation of Aperam. In addition to a strict cost focus, we add and grow non-commoditized and stable businesses. Over the time, this will balance the stainless steel cycle and turn Aperam into a more flexible and more resilient company. While the start of a new Leadership Journey phase is always a bit slow, Q1 was additionally impacted from Brazil, where the hot-rolling mill ramp-up faced difficulties. This noticeably impacted our Phase 5 target gains in Q1.
The volume impact was limited in Q1 due to the existing buffer stocks, but a gap emerged in April that needs to be considered in the Q2 outlook. The problems now have been resolved, and we will be able to catch up some of the lost volumes in June. However, we will not recover all tonnages, and some extra costs due to quality issues remain in the P&L also in Q2. We actually work very hard to realize the Leadership Journey 5 program, as evidenced by some strike action in Europe. Contrary to what is happening in other countries, the strikes are not about governmental action but very specific against our strategic restructuring program. Our plant in Genk, that is in urgent need of higher productivity, is at the center of this. While it may delay the inevitable, it will not stop it.
Assuming no end to the strike, the associated volume impact will become visible in the third quarter. The slow start leaves a quarterly run rate of EUR 24 million for the rest of the year on the Leadership Journey in order to reach the EUR 75 million gains target for 2024. I can confirm to you that we are on track, and you should see the step change in target gains realization in Q2 already. Tim, over to you for the outlook.
Thank you, Sud. Q2 is a seasonal, stronger quarter, so in the absence of a real demand improvement, we guide for slightly higher volumes. In Europe, we expect a normal seasonality from a low level, which keeps absolute tonnage at a depressed level. In Brazil, the ramp-up of the refurbished hot-rolling mill was low and unsteady, with a significant cost and volume impact in Q2.
Although the mill is now running smoothly, we will not be able to recoup all the lost volumes. Raw material prices have moved higher. Based on today's spot data of Q2, inventory valuation should be close to zero, which would yield some upside in the quarter-on-quarter bridge. However, this could still change as there is a lot of quarter left, where raw material price can move and impact the inventory valuation. This indication, therefore, does not constitute guidance, which we can provide only after raw material prices are known. Against the positive drivers are three balancing items to consider. Most importantly, base price has not improved, and input costs have increased again. This keeps pressure on Europe, high in Q2. Second, there is an additional cost impact from the Brazil hot-rolling mill in April.
This is substantial as the line was stop-started, required a higher share of manual labor, and produced a low yield. Third, the already mentioned completion of the project, the temporary boosted EBITDA alloys segment in Q1. After considering all this, we still guide for higher EBITDA in Q2. However, the absolute EBITDA change should be less than what an undistorted quarter would have yielded and less than what is today reflected in Bloomberg consensus. Sud has already talked in detail about the cash flow and the debt development, so I just repeat that we expect net debt to decrease during the second quarter. All other guidance items remain unchanged. Again, some moving parts that might need some further explanation. As usual, we are extensively on the road and will be happy to continue the dialogue at the listed events. We can accommodate additional requests for corporate access.
Your feedback is valuable to us, so please contact our IR team if you would like to talk to us. The times remain challenging, but our differentiated value chains task to make an impact. The stable growth business performed well, limited the downside, and secured the dividend. The 7% dividend yield is a good buffer to start with. To this adds our unrivaled ESG position with new businesses that are built on and benefit from tighter environmental regulation. The cyclical steel business still gets the attention while it remains at the trough. With the 2025 improvement program, a new edition of the Leadership Journey, we do our part to transform the business, remain cost leader, and prepare it to fully leverage the benefit once the cycle turns. Thank you for listening to our Q1 management podcast.
We wish you a pleasant day and look forward to your question in our conference call.