Ladies and gentlemen, welcome to the Aperam first quarter 2025 results conference call. I am Valentina, the call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Timoteo Di Maulo, CEO. Please go ahead.
Thank you for joining our conference call today. You could listen to our podcast about Q1 or read the transcript of the podcast. Aperam delivered a quarterly result as guided. Adjusted EBITDA, it declined in a still really challenging quarter, and again, we were able to prove the value of our differentiated value chain. There is some hope for a recovery coming from the German plan, but we are realistic and will take it some time for this hope to materialize in our other books and in our results. Across the globe, unpredictable things are happening and make any serious outlook impossible. Now, Sudh and I look forward to your question. Operator, please open the lines.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from Bastian Synagowitz from Deutsche Bank. Please go ahead.
Yeah, yes, good afternoon all. Thanks for taking my questions. I've got a couple. Maybe starting off with regulation, actually. When you, I guess, look at the European trade protection, most of the time you actually felt that trade protection for Europe was actually decent and sufficient. I guess when we look at the Safeguard Review and trade protection, I think movements recently, there has not been much which has been done on stainless to tighten while things obviously have been tightened on the carbon steel side. While actually in stainless steel, I guess the profitability and margin pressure, at least for the moment, is actually more severe. Have you been disappointed by the fact that the EU has so far not actually taken another step forward?
What is your expectation in particular with regards to the possible further, I guess, announcements which could come in the third quarter as part of the EU action plan? That's my first question.
Thank you, Bastian, for the question. It's a complicated matter, but in synthesis. The safeguard has not been improved or changed for stainless steel on the fact that the imports that were discovered for last year were low, and this was not the case for other products. In fact, there has been no change into the trade defense measure linked to safeguard for stainless steel. It's not better, not worse. What is happening in stainless steel is that we have a lot of other measures which are much more important for us than simple safeguard, which is one of the measures. These measures are the most important in particular to protect against Indonesia, which is the main, let's say, challenger for the stainless steel. Okay?
Now it is not finished because the steel action plan is still something which is an intention for action and will go on. Measure will come into the next future. It's clear that today the only move that you can see is the safeguard, and the safeguard is a simple stability for us.
Okay. Can you maybe also update us on what the situation is on the Brazilian side? Is there still any further work stream which is ongoing to further strengthen, I guess, the trade situation there?
Brazil, just remember that they have one of the most efficient trade measures because they have the import duties at 12.6%. On top, Brazil is protected naturally by their own, let's say, logistic distance and complexity to arrive there. The fact that they are a small market with also anti-dumping, anti-subsidy against China and Taiwan and Indonesia, sorry. This is Brazil. For Brazil, other, let's say, files are not in the next future, but we are very happy on Brazil. We have a market which is very solid. Brazil is delivering sound results in line with what it was their promises. Now that we have the hot rolling mill in full activity, we are really booking well on stainless steel.
Okay, got you. Understood. Lastly, maybe moving over to the end market picture, particularly in Europe, I guess for Brazil, I guess from what I could hear out of your podcast, things are actually still very decent. I think in Europe, you're talking about a possible improvement here in the, I guess, in the construction segment. Could you maybe just briefly update us on whether this is a possibly stronger dynamic or whether this is like at the very early innings at this point?
When you look into your, say, longer duration order books, such as in the Alloys business, are there any signs of, I would say, risk you see evolving here from client conversations that they are maybe pushing back some of the projects because of the tariff uncertainty given the, I guess, higher uncertainty you're citing in your outlook generally as well?
Construction is an important sector for us because, as you remember, we have explained many times, it's not only what is directly in construction, but all what is around the new houses, for example, all what is the white goods, the list, and all what is, let's say, inside the new houses. Construction is showing the first signs of improvement, but as usual, this will be translated in all the infrastructure investments into the products that I just named that will be inside the houses in the next future. What we see is a positive momentum in construction. When we see what is, let's say, the German plan and the EUR 500 billion they are looking at for infrastructure, construction, etc., this is really promising.
Okay, understood. Thank you. I'll jump back into the queue.
Thank you.
The next question comes from Maxime Kogge from Oddo BHF. Please go ahead.
Yeah, good afternoon, Olian. I have a first question. It's regarding the breakdown between Brazil and Europe within S&E because you never break down on a quarterly basis, at least as a contribution of each region. You said in the podcast comment that Brazil would achieve higher H1 EBITDA than the full year EBITDA did last year. That implies quite a strong contribution from Brazil, at least in Q1. Am I right to assume that actually Brazil was really the overwhelming share of EBITDA realized in Q1 while Europe was very low? Should we assume this trend to continue in Q2?
Maxim, this is Sudh here. Hi. Thanks for that question. There are two fundamental factors in play here. One is the fact that Europe, we did say that in Q1 was positive, but this was not the biggest contributor, you're right. Brazil, despite the seasonality, thanks to the decent demand, has been the larger contributor in the Stainless and electrical segment. Okay? If you're trying to base off into Q2, how you look at it is basically you see the seasonality improvement in Brazil. Plus, in Europe, there was a valuation impact, and this valuation impact will be, as we have guided, less negative is what we expect going into Q2. These are the two factors, but the trend will be in Q2 also same that Brazil, which will have its strongest quarter, will continue to deliver into the stainless and electrical segment.
We had given you a guidance also in our podcast, which is that our Brazil for H1, again, stainless and electrical Brazil for H1 would be higher than the entire year Brazil for last year, which, if you remember, was plagued by our investment ramp-up delays in the first half of the year. This should give you the values to play with, so to speak.
Thank you.
Our product in Brazil is.
No, no, that's helpful. Second question related to that is on the guidance that you guide for higher EBITDA. I think that typically, I mean, based on your typical communication, that implies at least 10% increase versus Q1. Would you be able to quantify the progress we should expect? I think that consensus is at close to EUR 130 million. Is that the ballpark number that seems achievable to us? Is there any way for you to perhaps quantify the building blocks that allow to bridge Q1 to Q2?
Maxim, first of all, let's take it this way that we have guided to higher, and that is true that we follow rules of this plus 10% or more. That is a good guidance to start with. I've given you two factors. The third, first is the factor that Brazil will improve seasonally from already high level. Second is that the inventory valuation in Europe will probably half and even lower, the negative effect from Q1. The third one is that we did have Universal consolidation for one extra quarter, sorry, one extra month. If you remember, we had only February and March in Q1, so there will be one extra month. And the Alloys and Specialty segments slight improvement. These are the three factors.
If you take these three factors into account, and I've given you more or less the quantum of improvement, you should be able to then model it. An additional piece of data which we have already provided is that our Alloys and specialties is on track for the whole year. This is before Universal of about EUR 100 million. You get the quarterly approximate run rate, not accounting for seasonality. Next quarter will be indeed one of the stronger quarters. I think you have enough parameters to work out the guidance there.
No, that's helpful.
In summary, Max, just want to understand, I think, because there's a lot of numbers out there, right? And Aperam has consistently over the last quarters ever since 2023, thanks to its diversified value chain, delivered close to EUR 100 million EBITDA every quarter. This is what we are looking at, and this is what we have said in the podcast as well. Even in the worst stainless Europe scenario, even worse than 2019 or the COVID quarters. Basically, the European recovery that Tim was talking with Bastian about, even in that absence, with all other businesses, we are talking at this run rate. That is something to keep in mind when you model your calculations and think about Aperam, where the EBITDA, dividends, and deleveraging is coming from.
Okay, okay. Interesting. The last one is on the U.S., also given the very much trend defense system there, given now that you have a full-fledged footprint, is that leading you to consider other investments in the country and perhaps going into commodity grades of stainless and become a full-fledged player there? Perhaps not immediately, but that could be a plan in the medium term.
Sorry, this is, first of all, Universal is very recent. We have been very short in closing it. The normal time that you take to explore the company from the signing of the SPA and the closing, we have not had it because it was so short. We are exploring, and we will see what are the plans for the future. For sure, Universal is a base for further expansion, and we are very confident, very confident that there is a lot more value in Universal. Now, our priority is, first of all, to deleverage, to be sure that we extract all the synergies which are without CapEx into the Alloys. We have already invested in Alloys, and then you will see the result of what we have done into the European Alloys part.
From the EUR 50 million this year, we will reach the EUR 100 million, and this is granted. All this will contribute to make our, let's say, sustainable level of result in low cycle different and better than in the past. Now, there is no plan to enter in stainless steel, and there is no plan to make a big CapEx there in the United States for that reason.
Okay, that's clear. Thank you, and I'll come back.
The next question comes from Tom Zhang from Barclays. Please go ahead.
Yes, hi. Thanks for taking our questions. First one for me, just on European stainless scrap prices. From what I can see on my screen, there's quite a bit of a leg down again this month, about EUR 100. I know demand in Europe is pretty weak, but it's not been great for a while. Are there any particular drivers for this move down in scrap prices? Is it something we could expect to reverse, similar to 2022 when it was just destocking, or is this something a bit more structural?
No, I think that the scrap market is a real market. It depends a lot on supply and demand. Today, the demand and the price of raw material in general are low. You have seen that there is a trend, and this is one of the issues globally in the world. Prices globally are low, but are low also for raw material. Scrap as a raw material is aligning to the parity with the most important, let's say, raw material for nickel vector, which is nickel pig iron. There is no surprise in the fact that the scrap price is going down.
Okay, fair enough. Just on USAP, could you give us the contribution this quarter and particularly how we should extrapolate that into Q2, given the extra month? I think at acquisition, it was a $60 million a year EBITDA business. Obviously, with the U.S. aerospace market and the kind of destocking where it is, just curious what that kind of run rate is and if there's any thoughts you have on how long this aerospace destocking situation is going to last. I suspect it's quite a long cycle and might take a few more quarters to fully shake out, but would be interested in your thoughts.
Hi, Tom. On the aerospace cycle in the U.S., there's two things to consider. One is the fact that the destocking, which you talk about, is a reaction to the Boeing discussion from last fall, right? At this point in time, the destocking is something which we look at the first couple of quarters, like we have guided previously. As we understand, Boeing is back to building planes on a daily basis, not at the run rate before the strike, but actually the trend is upwards. In this case, we do expect that destocking to slow down as the first half of the year concludes and starting the second half, things to take a positive turn into restocking.
Thank you. Any quantification possible around the EBITDA contribution or no comment?
No, we had planned it when we had guided it, and when we finished the closing, we knew we were three months when we finished the transaction, we were three months after the Boeing strikes and the whole discussion on Boeing reducing its plane builds. When we guided to the market for this year, how we are going to look at it, we had actually guided with that knowledge. There is nothing changes with respect.
Okay. And then maybe just last question on USAP. You mentioned it in the press release that was considered fatality last month. I think it's actually the second one in recent months. The first one was prior to you actually completing the deal. Obviously, it's very different to how you've run the rest of your business. There's been some articles around safety conditions there and talks that OSHA could even potentially force a plant idling or temporary closure for maintenance CapEx. Could you just talk around a little bit what you're doing to introduce or improve health and safety practices? In particular, do you see any risk that there could actually be an idling or forced shutdown or also any extra maintenance CapEx that might be needed to bring things up to standard?
First of all, we had no fatality last year, and I don't know what you were referring to. This accident has been, so I cannot disclose so much because the investigation is still ongoing, but this action, what I can say is that this was a clear respect from one person of some, let's say, standard protocol that we have. What is clear is that the culture of safety of Aperam and the resources that we have in Aperam in terms of health and safety are much larger, much bigger. We have the possibility to have a lot of experience in intersite, and we have worked a lot. Everything that we know and we have applied to Aperam is going to be applied to Universal. This is something that will happen, that is happening today.
There is nothing today that we have detected that should lead to any, let's say, mothballing or closing plans or anything you can refer to.
Okay.
It's a question really, really safety is what we see as experience that safety is a question of culture and way of the people respect their protocol and go to that.
Okay, understood. It is more a sort of culture rather than anything equipment related. That is clear.
Absolutely.
Thank you. Thank you. I'll turn it back.
The next question comes from Dominic O'Kane from JPMorgan. Please go ahead.
Hi. I had two questions. The first follows on Universal. Now that you have made the acquisition and you were able to sort of complete your review, could you maybe just comment on working capital? Is the working capital position of Universal complementary to Aperam? And do you see opportunities to maybe optimize any of the working capital within Universal that you've acquired? My second question on Universal, again, slightly similar question, but as you now have made the completion, do you have any kind of more visibility that you can share on the synergy timeline and realization and potentially whether there's any upside to the $30 million annual synergy number that you estimated pre-acquisition?
Go on, Sudh .
Let me take the synergy part maybe, and then Tim can probably take up the first part. Tim, the synergy part, if you look at it, just to give you an update from the initial days, what you've looked at and the teams are working, we do not have anything to surprise us negatively on the synergy side. We had given a $30 million plan over the next four to five years, and that plan continues to follow.
When you ask for an upside, the only upside which we believe will materialize into the future and was not factored in our synergy plans is that if there is going to be defense spend in our European business, because of the know-how, the homologation, and the kind of products that USAP has produced in the past, this knowledge can be transferable to our European business, and that is a significant upside if this defense spell comes into the picture. We are very excited about it. As you know, by looking at our portfolio, aerospace and defense is something in which we are not present in a meaningful fashion. That is an upside to a synergy, but with a lead time. Tim, for your.
Okay. On the working capital, the two footprints are different. It is not like having Universal in Europe that you can easily transfer stocks from one side to another. Of course, as always, whenever you have this kind of acquisition, we have benchmark and best practice, and this will be put in place. For the moment, we cannot disclose anything about what can be possible in terms of direct working capital and Universal. What is interesting is that part of the synergies and also part of the synergy in working capital will be leveraged because we have the presence of the scrap collection in the United States. As you remember, we are an important scrap collector, and in particular for scrap coming from the aerospace business. This will be part of the synergy, even in inventory that we can leverage there.
Thanks. One further question. Just on the bridge loan, so the $500 million bridge loan, could you maybe just elaborate on what the refinancing intention and timeline is?
Dominico, for us, the bridge loan, we have a bridge loan for 18 months. We will continue to look at it and see over the next period of time at an opportune period to start refinancing this. Not that we need to, because I am sure you know that we already have rolling credit facilities, which can also be used beyond the bridge loan, unused completely, so of more than EUR 500 million. We are taking it one step at a time to see how the markets develop and how the interest rates move forward and what are the right instruments to refinance this.
Okay. Thank you. That's helpful.
The next question comes from Adanha Ekoku from Morgan Stanley. Please go ahead.
Good afternoon, and thank you for taking my questions. Just another follow-up on Universal's earnings contribution. In Q1, you'd previously guided for this to be between $9 million-$11 million. Is this the correct ballpark? Is this kind of the run rate that we should be extrapolating for the rest of the year, plus the $9 million synergies that had been guided for the first year? Thank you.
The Q1 number did come in around, and I can give you the number directly, around $9 million. The point is that it is explicitly already stated for Q1, but you do have to keep in mind that's the run rate for just two months because we integrated Universal at the last few days of January. That's a good number to start with, first thing, but for two months. Additionally, the synergy run rate is more or less in the ballpark figure.
Perfect. Thank you. About $15 million if we think of it on a quarter basis plus synergies.
My earlier answer to Tom, considering that in the second half of the year, depending on when the restocking starts post the aerospace supply chain recovering in the U.S., there might be a slight upside to it.
Perfect. Thank you very much.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question comes from Tristan Gresser from BNP Paribas Exane. Please go ahead.
Yes. Thank you for taking my question. Just wanted to go back on Brazil. With what you said with stainless electrical Europe being positive EBITDA in Q1 and Brazil surpassing 2024 results in EBITDA in H1, it seems clear that you'll hit triple-digit EBITDA number for stainless electrical in Q2, which will be the first time in three years. I just wanted to make sure I'm not missing something there in the math.
I'm sorry, Tom. Sorry. In Q2, you're talking about Q2 or H2? Sorry, I missed that.
Q2, stainless and electrical hitting triple-digit EBITDA.
In Q2? No, because I had earlier spoken to Maxim, and I clearly said based on his question that stainless Europe was operating at a very low level. We could just say that it's just profitable. This was my clear guidance to him already for Q1. I told him also that Q2, I do not expect that trend to change. Brazil is the one with its excellent demand and our competitiveness there in Brazil with our four multi-product setup, which is providing the uplift for the stainless and electrical segment in Q2.
With Brazil, did you?
I do not see a triple-digit for I do not see it at all. Sorry.
Okay. Brazil did EUR 126 million EBITDA last year, right? You are going to do more than that in H1. I guess Brazil was the vast majority of the EUR 28 million adjusted EBITDA you did in Q1. Hence my question. Just.
No. Okay. I think your baseline there, I do not know, because last year in 2024, if you look at our annual report published in the first week of April, Brazil did EUR 49 million because of the investment delays in the first half of the year. Last year, Brazil was EUR 49 million, 2024. Yeah.
Got it.
I believe you're referring to the year before, so.
Yeah. No, maybe Europe and Brazil got mixed up there. Apologies. All right. That's clear. Just maybe on the trade policy, you mentioned Safeguards Review hasn't really moved the needle. What about melt and pour? Can you share some thoughts on the timing of that, when it could happen? Are there current discussions? The form it would take, do you believe it can already be there in 2025? In your view, this kind of melt and pour requirement that is being discussed, could it even be more important than the CBAM itself? I'd like to have your thought there.
I think sometimes there is a misunderstanding on what is a melt and pour. Melt and pour is not a trade measure. It's only a tracking of the origin of the coils. Okay? So melt and pour means that you have exactly the know-how or what is the origin of the coils by the fact that it has been melted and poured in a certain country. From that point on, the specific measure that can be traded, that can be environment or any other, apply starting from the origin. I give you an example. Why melt and pour is now very important and very much discussed in the implementation for the future is because when there is the CBAM, the CBAM has to track the emission linked to the production of a certain coil, certain steel product.
You can do it only if you know exactly the origin where it has been melted and poured. Okay? It is this, melt and pour. It will not change, but it will be a necessary tool to implement all the trade measure or environmental measure like the CBAM.
Okay. That's clear. Lastly, on the German infrastructure plan, I know you mentioned that there will be, of course, a timing lag, but what would be the impact in your view? I mean, when we think about infrastructure, usually we think of carbon more than stainless, but can you discuss that a little bit? If you can remind us also how much Germany is as a percentage of the group, that'd be helpful. Thank you.
Germany for us is our first market in absolute. We are the closest producer of stainless steel in the market because remember that our biggest plants are in Belgium, and Belgium is the only one producer close to Germany. Second, it is not only the biggest market for us, but it is the biggest market by far in Europe. Now, all the infrastructure is much broader than what is the simple, let's say, bridges and railways. There are infrastructure which are linked to energy, to elevators, to all the infrastructure that are linked to hospitality, to hospital, to general infrastructure. In every single, let's say, investment, there will be stainless. On top, you have to understand that whatever it is done in an economy which is growing, it will need tools. It will need machinery that are built with stainless steel.
In global, what we consider very positive of this plan is the fact that it is relaunching the economy and the confidence, and we'll have a large margin impact on the consumption that it is for the simple infrastructure.
All right. Perfect. Thank you. Apologies again on the mix-up on Brazil. That's clear now.
No, no. Okay. No problem.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Timoteo Di Maulo for any closing remarks.
Thank you very much for attending to this conference call today. We have a lot of uncertainty and issue in Europe, and this has been a part of your question. Here in Europe, we are waiting for a recovery of the market. We have some good news because one of the major segments for us, as we have discussed, which is construction, is signing that it is in good trend. There are other elements that show that there will be a much better environment in the next future. Lower interest rates also are a good step forward. We are confident that whenever the economy, whenever the political situation will stabilize, Europe will go back to good results. Our position as cost leader and all the investment we have done in the past for going there will show up.
Now, you see that Aperam is based on new segments which are showing up. Europe is not the only way to make money for Aperam. Alloys, Brazil are very important, the renewable, recycling and renewable. Our target, our focus today is to generate the cash, deliver, and granting, as we have always done, granting the dividend for the shareholders. I wish you a good day, and I hope to see you soon in our roadshow. Thank you very much.
Ladies and gentlemen, the conference is now over. Thank you for choosing Aperam, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.