Hi, good morning, a warm welcome to Aperam's Q2 podcast. My name is Sud Sivaji, I'm Aperam CEO, and I really hope you're having a good start to the day. Today, together with our Chief Financial Officer, Nicolas Changeur, we are happy to explain our second quarter performance, give our view on the current markets, an update on Aperam's transformation, of course, give our outlook on Q3. To echo how I concluded our last call, we're building Aperam into a diversified high-value materials player, despite the current global landscape presenting unexpected challenges. I told you then that against these headwinds, our confidence in a strong 2026 would carry into Q2, we delivered. Not only did our momentum continue, in fact, Q2 2026 has officially delivered our best quarterly performance in four years.
As is our standard practice, we will host the conference call with the Q&A later today. It will take place, as always, at 2:00 P.M., Central European Summer Time. We look forward to addressing your questions then. The registration link for the call is available on our website and can also be found on the penultimate side of this podcast presentation. Aperam is providing the following information as part of its earnings release documentation. This material supports our quarterly financial reporting and, where applicable, our disclosure of regulated information. Please take note of the disclaimer on page two. Moving to page three, I'm pleased to share our Q2 2026 key figures, making our best single-quarter performance in four years. EBITDA reached EUR 159 million, reflecting a 77% sequential increase, bolstered by strong performance in all segments and positive tax effects in Brazil.
Adjusted EBITDA surged by 44% to EUR 130 million, driven by strong performance in all our businesses, with the stainless steel and recycling segments returning to strength. Our strategic initiatives are gaining momentum as well. Leadership Journey® Phase 6 is ramping up strongly, delivering EUR 20 million in quarterly gains and bringing our total to EUR 38 million, keeping us firmly on track towards our EUR 150 million target by 2028. Finally, with capital expenditure discipline at EUR 33 million, our strong cash generation reinforces our commitment to a robust progressive dividend policy, paying out EUR 36 million to shareholders each single quarter. On cash generation and balance sheet strength, the results speak to themselves. Cash generation and return on invested capital are core principles on how we run Aperam, the second quarter was no exception.
We returned our free cash flow around from negative EUR 44 million in Q1 to a positive EUR 106 million this quarter, despite rising raw material prices. Through stronger earnings and disciplined working capital management, we reduced our net financial debt further by EUR 64 million, down to EUR 993 million. Our deleveraging is well and truly on course, establishing a solid foundation for our progressive dividend policy. Moving to the next slide to talk about our markets and key topics that are on top of your mind. One of the primary reasons we are evolving into a diversified value chain is not just to shield ourselves from shocks, to seize opportunities from across the world and a wider range of end markets. The conflicts near the Strait of Hormuz and the resulting energy shock have brought new inflationary pressures, delaying expected interest rates cuts from central banks.
The elevated energy costs did create headwinds, but our strategic diversification proved its resilience. While energy remains a volatile end market, regionalization of aerospace and defense and demand for infrastructure on electricity are key trends that are new opportunities for us. Looking at our key business drivers on this slide, the overarching story of the quarter is our operational momentum offsetting macro headwinds. On the growth side, Europe and Brazil delivered strong operational lift driven by favorable pricing and solid post-holiday momentum, but underlying demand remained weak. The recycling segment remains a clear highlight, with strength across aerospace and stainless recycling globally. In alloys, broad-based progress continues across most subsegments and Universal integration is fully on track. While oil and gas remains weak, we view this as a timing issue before recovery kicks in. Aerospace has a strong outlook and visible signs of recovery.
On the regulatory front, EU imports came in well below last year's levels before the safeguards were in place as of 1st of July, offering a stable trade defense backdrop. Energy volatility remains our main headwind, now impacting quarterly EBITDA in a low double-digit million amount. Looking at our EBITDA breakdown in the second quarter on the right, there is a lot of discussion about the stainless environment in Europe, which we are happy about, and I will again give you an update today. Stainless & Electrical Steel indeed delivered a strong performance from rating from EUR 35 million EBITDA in Q1 to EUR 59 million in Q2. What is notable, it represents only 42% of our total EBITDA pie. In the past, this business carried the vast majority of our earnings. Today, the remaining 58% of our earnings power is generated by the other segments.
Every single segment is a meaningful contributor to our bottom line. The key takeaway is simple. We are no longer tied to the fate of a single market or segment. Aperam has generated value without exceptions across every business in the past three years with no demand support. Looking forward, even the slightest demand momentum in Europe will serve as a significant upside in the current regulatory environment. Let us discuss this in a bit more detail in the next slide. The new TRQ system was announced with country-specific quotas for the 1st of July 2026. This system replaces the past system, with the most evident change being the reduction in the amount of quotas for cold rolled stainless from 220 kilotons to 124 kilotons per quarter. This is a significant decrease, by itself constitutes a structural improvement against unfair trade flows of stainless into Europe.
There is a similar decrease for hot rolled stainless as well. The other crucial detail is that the new quotas have been defined by the Commission at country level with specific players like China and Taiwan, who have sent significant imports into Europe in the past, receiving a lower quota than countries which have free trade agreements with Europe. While this was done with a view on our trade agreements, it also presents a curve that reflects the fact that unfair trade flows are treated correctly. As demand increases and as imports exceed the quota level of 124 kilotons per quarter for cold rolled stainless, for example, the 50% duty comes into effect at the most expensive imported product. For H1 2026, CBAM was effective, but the real values will be audited only next year, and the new TRQ system was not yet in place.
Shipping times and low demand ensured that we experienced low imports at nearly post TRQ levels already in H1. There are four additional factors at play. A significant overhang of volumes from Q4 2025 for some domestic players in Europe. Real utilization being 75%-80% across Europe with low underlying demand. Increasing raw material prices due to Indonesian nickel quota announcements. Lastly, the energy cost headwind from the Iran crisis. Despite these factors, I can update that the margin improvement stands currently at about EUR 75 per ton. I would like to remind you of the EUR 200 per ton structural improvement estimate over the cycle that we communicated in Q3 2025. Three of these four factors are one-offs that should roll back or affect all global players equally, and the other one is a low point in the demand cycle.
Especially with all these headwinds, this margin improvement is proof of structural change and welcome news for our stainless businesses in Europe, which was profitable even before these trade measures. As discussed earlier, while all eyes are on European stainless steel, Aperam continues to deliver on its transformation, capturing value in Europe and beyond. To unpack the performance across our four segments, I will now hand it over to our CFO. Nicolas, the floor is yours.
[Non-English content] to everyone. I am very pleased now to walk you through the performance of Aperam's four business segments in the second quarter, as well as our outlook for the third quarter. Looking at the figures, Recycling & Renewables adjusted EBITDA came in strong at EUR 32 million, representing a 39% increase quarter-on-quarter. This strong performance was primarily driven by higher scrap prices and favorable valuation effects. On a year-on-year basis, we continue to see positive development compared to Q2 2025, supported by increased volumes and pricing. Zooming into the market dynamics within scrap recycling, global demand for stainless steel scrap is surging, thanks to a focus on carbon footprint and recycling, driving solid overall market strengths. Our operations across the U.S., APAC, and Europe maintain high level volumes while performance was further headed by favorable valuation effects.
I would like to remind you that we are the largest recycler of specialty aerospace alloys in the world. For us, crucially, the destocking phase in the aerospace alloys recycling sector is winding down, setting the stage for an order book recovery moving forward. Turning to our BioEnergia business in Brazil. We saw regular demand for charcoal during the quarter. Seedling and biochar sales are ramping up into H2, and overall fundamentals remain steady. Looking ahead into the third quarter, EBITDA is expected to be lower compared to Q2. This expected sequential change is primarily driven by seasonal effects typical for the quarter for the recycling part of the business in the northern hemisphere, as well as the absence of the valuation support we enjoyed in Q2. Turning to the next slide. The figures for Stainless & Electrical Steel segment show significant sequential improvement.
Adjusted EBITDA for Q2 reached EUR 59 million, a 69% increase quarter-on-quarter. This quarter-on-quarter jump was supported by valuation effects and modest price recovery. On a year-on-year basis, adjusted EBITDA was slightly lower, mainly due to higher positive valuation effects present in Q2 2025. PIS/Cofins tax credits related to prior periods in Brazil have been recognized in the consolidated statement of operation for a total amount of EUR 83 million, of which EUR 59 million in EBITDA as exceptional items and EUR 24 million in financing cost. These credits are expected to be offset against cash taxes over the next four years, resulting in additional cash inflows. Our shipment remained stable compared to the previous quarter as volume increased in Europe offset inventory builds in Brazil. In Europe, we strategically reallocated supply toward independent distributors to maximize value.
Meanwhile, in Brazil, we built in inventory levels ahead of the upcoming debottlenecking project announced last quarter, which will expand capacity by 5% to support growing domestic demand for high-value stainless. Looking at our end markets. Construction. In Europe, a recovery is still pending. In Brazil, we saw an uptick in demand following the previous quarter seasonal low. Consumer goods. Europe experienced a slight softening in demand, whereas Brazil saw an acceleration in buyer interest post-holidays. Automotive and transport. The slowdown in European car production continues. In Brazil, demand remains resilient, supported by government measures. One is [Move Brasil]. It provides low-interest, long-term financing to help professional drivers such as rideshare drivers, cabbies, and delivery workers. They can upgrade their vehicles to newer, safer, and more eco-friendly models. Food, health, and catering. In Europe, static demand has effectively plateaued over the past few quarters. Industry, energy, and chemical.
The European energy sector is currently awaiting a solution for the Iran war, while Brazil maintains solid activity despite some postponed projects. Looking at our outlook for the third quarter, development in Europe is experiencing, as always, a seasonal slowdown due to the summer holidays. Performance in Brazil remains solid. While the seasonal impact in Europe may result in lower overall activity, Group EBITDA for this segment in Q3 is expected to remain stable. Moving to the next slide. Alloys & Specialties. The segment where high-performance materials serve the world's most demanding industries. Performance in Q2 remained solid, with adjusted EBITDA reaching EUR 29 million, up 7% quarter-on-quarter. This improvement was driven by better volumes and strong mix effects, where we see increased contribution from innovation in electrical and electronics.
On a year-on-year basis, adjusted EBITDA was lower compared to Q2 2025 due to a weaker oil and gas market. Looking at our key end markets. Aerospace. The aerospace order book is showing a strong recovery for year-end, with first signs of structural recovery as supply chain normalization gets underway, both at Boeing and Airbus. Boeing transitioned its baseline production from 42 to 47 planes per month in late Q2, and they have announced that they have activated a fourth 737 production line. The north line in Everett, Washington, is critical to Boeing's plans to ramp up to 52 aircraft per month. Energy and chemical. LNG demand remains consistently high. While the oil and gas sector continues to see subdued demand, we expect positive momentum post-Iran war. Demand for chemicals remains below historical average. Automotive and electrical and electronics. We continue to see strong demand in displays and magnetics.
While overall vehicle production is flat, the ongoing shift to electric vehicles is creating additional demand for our solutions. Looking ahead to the third quarter, while demand fundamentals remain robust, particularly in aerospace, third quarter results will temporarily reflect our scheduled annual plant maintenance during the European summer holiday period. This planned downtime ensures long-term operational reliability in a business running at full capacity. We anticipate a strong rebound in production and an expanding order book as we enter the fourth quarter, especially in aerospace. Turning to the next slide with our four segments, let's dive into Services & Solutions, our direct link to the end market and our customer base. As a reminder, this is a business that is directly dependent on underlying demand. Performance in Q2 was very solid.
We adjusted EBITDA reaching EUR 21 million, a 5% increase quarter-on-quarter, despite slightly lower volumes due to weaker underlying demand. This higher quarter-on-quarter result confirms our strong segments performance, making our best quarter since Q3 2022. On a year-on-year basis, adjusted EBITDA was significantly higher compared to Q2 2025, driven by partial price recovery and positive valuation effects. Looking at the market environment for distribution. Pricing. Spot prices were driven higher by raw material price increases. Inventory. We saw distributor competitors restocking take place during the second quarter before the July 1st deadline for the new quotas. Demand. There are still no signs of a broader underlying market recovery visible. Looking ahead to our outlook for the third quarter, Q3 EBITDA is expected to be lower than in Q2, primarily reflecting lower seasonal volumes typical for the summer period. Moving to the next slide.
While we have discussed how market dynamics and trade defense mechanisms continue to support our financial results, I want to focus now on our internal lever for performance, our self-help initiatives. We are actively progressing with Leadership Journey® Phase 6, spanning 2026 through 2028. This structured self-help framework is engineered to safeguard our industry-leading value creation, keeping our operations competitive and cash accretive even through the lowest point of the market cycle. This strategic phase resets on three foundation pillars. One, Aperam synergies. Establishing the industry's most integrated supply chain where shared efficiency ensures our operations stay resilient and cash positive across all market conditions. Circularity. Positioning Aperam as a sole industry player, treating circularity strictly as a value driver rather than a cost burden, scaling sustainable operations into clear, tangible financial returns. Innovation.
Driving product differentiation from bio-oil to high-tech OLED screens to capture market share and unlock value across our entire portfolio throughout the economic cycle. We are off to a very strong start with Leadership Journey® Phase 6. In the second quarter alone, we secured EUR 20 million in gains, bringing our first half total to EUR 38 million toward our overall EUR 150 million target for the three years 2026, 2028. This momentum secures our structural growth path early on, maintaining both profitability and operational competitiveness. Looking at our key operating segments, these gains are well-balanced across the business. Recycling & Renewables gains were driven by enhanced raw material efficiency and deeper operational synergies with Stainless Europe. Stainless & Electrical Steel, we capture significant purchasing gains in Brazil while maintaining strict cost control and delivering stronger productivity performance across Europe. Alloys & Specialties.
Progress was underpinned by the ongoing integration of Universal and upstream synergy capture alongside Stainless Europe. Services & Solutions results benefited from accelerated digitalization initiatives and targeted cost reduction actions. The Leadership Journey® remains the cornerstone of our long-term strategy. By combining circular economics, innovation, and end-to-end integration, we are positioning Aperam to navigate market cycles effectively and deliver consistent structural returns. Turning to the next slide. Last but not least from my side today. As last quarter, I want to highlight key facets of our transformation, which are part of our Leadership Journey® Phase 6. We get asked about the potential of the Leadership Journey® continuing as the next phase. The answer is rooted in our focus on detail in realizing value across each of our businesses. First, within our Recycling segment, Aperam Recycling has launched the Titanium Center of Excellence in Frankfort, New York State.
Located right in the heart of Central New York's vibrant Mohawk Valley, this facility gives us a strong footprint to directly serve the booming U.S. aerospace and defense market. By leveraging optimized logistics and proprietary automation, this center accelerates turnaround times, solidifying our position as a leading circular economy provider and a key supplier to titanium smelters. It gives us a strong, high-performance foothold to capture continuous growth in the aerospace sector, helping us even more to participate in the growth of the aerospace industry, especially in the United States. Secondly, within Stainless steel, we are introducing our new duplex grade for pulp and paper targeted at pulp and paper application in Brazil. It is a high-performance duplex grade offering high strength and superior stress corrosion resistance.
Strategically, it provides a stronger and more cost-effective alternative to Duplex 2304, while also serving as an advantageous replacement for the standard steel grade 304. Designed specifically for critical equipment like digesters, tanks, and piping, this product positioned us to capture expanding demand as Brazil's pulp and paper industry continues to grow. Thirdly, in our Renewables business in Brazil, we are advancing our sustainability footprint through a major water sustainability project in the Jequitinhonha Valley. In a strategic partnership with the state government of Minas Gerais, we are treating and reusing water from sanitary effluents. This provides 35 liters per second of treated effluent for reuse. In total, 1.1 million cubic meters of water per year. This initiative guarantees a continuous, reliable water supply for our forestry operations at Aperam BioEnergia and demonstrates significant progress in sustainability, water solidarity, and productivity.
On sustainability, by reducing water collection from natural resources and transforming previously discarded waste into an essential resource for operations. On water solidarity, by reducing the discharge of sanitary effluence into the water resources used by the communities. On productivity, by reducing costs and securing water supply for Aperam's forestry operations. In summary, one project accelerates our recycling capabilities in the very attractive U.S. aerospace market. Another delivers advanced value-added steel solutions tailored to industrial growth in Brazil. And the third strengthens our sustainable operations in BioEnergia by turning wastewater into an essential resource. These developments showcase our transformation from our European core into realizing the full value of our businesses across the materials value chain. Together, they demonstrate how we continue to build a stronger, more resilient Aperam, one high-value strategic brick at a time. Now, I will hand it over to Sud.
He will give us the outlook for the third quarter.
Turning to our guidance. Following the strong momentum in Q2, let's talk about what we expect as we enter the third quarter. In H1, we delivered what we promised. We targeted a run rate of EUR 100 million quarterly in H1 2026 and achieved even more. As always, this third quarter is the seasonal weakest quarter in Europe, and in total, we foresee an adjusted EBITDA in Q3 lower compared to Q2. Despite this, we expect that Q3 EBITDA will be slightly above a strong Q1 2026 as Brazil continues to see seasonally strong activity, partially offsetting lower seasonal demand in Europe across Stainless, Recycling, and Services & Solutions. The scheduled annual maintenance in Alloys and no additional support from valuation effects.
Net financial debt is expected to remain flat at quarter end, and we remain firmly on track with our deleveraging target to keep year-end net debt below 2025 levels. In an environment characterized by seasonal summer lulls and ongoing macroeconomic complexity, Aperam continues to deliver based on cost leadership, structural self-help, and balance sheet discipline. We have the right roadmap, strong structural safeguards, and a clear path towards our long-term goals. As our Leadership Journey® ramps up and the trade defense measures start translating in a normalized demand environment going forward, we remain confident in our progress towards our target of EUR 700 million-EUR 800 million. Q2 clearly shows that even with macro headwinds, our philosophy of self-help and our practice of converting performance into cash will translate into shareholder value.
Looking ahead, after the summer break, we will be available for meetings to discuss our ongoing strategic execution and market dynamics in detail. Starting at the end of August, Nicolas, the investor relations team, and I will be hitting the road for an extensive series of conferences and road shows spanning major financial hubs across Europe and North America. Our upcoming calendar reflects our commitment to face-to-face dialogue in as many places as possible. We are eager to catch up with you in person. Please reach out to the IR team to set up a discussion or share any questions you may have. We look forward to connecting with you soon. Finally, as the saying goes, saving the best for last. I'd like to cordially invite all of you to our Aperam Capital Markets Day in 2026.
It will take place on Wednesday, the 18th of November 2026, in Paris. During the event, our leadership from all our business segments will present our key growth drivers and detail the execution strategies designed to support our group targets. It will be a fantastic opportunity to deep dive into Aperam's transformation. Expect more details to understand our markets and how we plan to reach our target of EUR 700 million-EUR 800 million in EBITDA until 2028. If you want to register, please send an email to ir@aperam.com. We look forward to seeing all of you in Paris. Thank you very much for listening to Aperam's Q2 management podcast. We wish you a pleasant day and look forward to your questions in our conference call this afternoon at 2:00 P.M. Central European Time.