Welcome to Aperam Q2 2023 podcast. I am Tim Di Maulo, CEO of Aperam. Together with Sudhakar Sivaji, Aperam CFO, I will guide you to a second quarter that turned out to be much more challenging than expected. We will answer your question at the webcast conference call today at 1:00 P.M., Central European Time. I mean, details are on our website and on the last slide of this presentation. Please take note of our disclaimer regarding forward-looking statements on page two, then we move to the highlights on slide three. The second quarter shows why we are investing in a differentiated value chain. Brazil delivered a solid set of results. Alloy and our recycling activity also performed well and added stability. On the other hand, the European stainless market, the situation is consistent with the recession. This is true for both volumes and prices.
There was no end to the stocking, and underlying demand is consistent with weak manufacturing data. Price made new all-times low. As a consequence, inventory valuation charge also burdened the EBITDA. Different to previous price cycle, this is not related to actual imports, but a homegrown problem, as imports are down 60% year-over-year and stable. On the positive side, the European Commission had a new quota from Malaysia that should limit imports further. As said previously, we are convinced that the measure put in place since 2018 are effective in maintaining a fair global trade playing field. What is disappointing in this cycle is non-performing industry structure in Europe. For Aperam, this means one thing: to improve what we can control and to rely on self-help measures. We added another EUR 70 million gains with the Leadership Journey Phase IV.
Having realized a total of EUR 150 million gains since the start, we reached the target six months early. We are working on the Phase V program, for which we will share detail together with our Q3 results. What you should expect, however, is a continuing run rate of at least EUR 50 million gains per annum. We also appreciate the severity of the situation in Europe. We are therefore additionally finalizing a short-term action plan for cutting costs, increasing flexibility and competitiveness of our operations. The program will be implemented in the second half of this year. We will provide detailed results also in Q3. In the ESG space, we are happy that our improvement efforts find wider external recognition.
We see a clear upward trajectory in our external ESG rating, in particular with the award of Platinum by EcoVadis, who also placed us in the top 100% of sustainable companies. Generally, external ratings are clearly improving and see us in a leading position within our industry. For example, Sustainalytics or ISS. This before we have revealed the full potential of BioEnergia. We are creating extremely advantageous new business models that combine unbeatable ESG excellence with very attractive shareholder returns. If you go to next page, I'm less excited about the current state of the market. Q2 is the seasonally stronger quarter normally. This year, however, volumes declined from Q1, and Aperam recorded the lowest shipment of the second quarter ever. European demand suffers from the combined effect of an inventory cycle, paired with a soft real demand.
Sector-wise, not much has changed with the higher interest rates and cost inflation weighing on demand. In Europe, construction was very weak and remains so, with no indication of change. Consumer goods have weakened further, and manufacturers have excess inventories. Food, beverage, and catering suffer from a weaker restaurant activity, and investments in the industrial chain are low, except for all energy-related project. Demand is normal only in the automotive industry. Shipment in Brazil, we are solid, we are reasonable, white goods demand, healthy buying in capital goods and transport, and early sign of an improvement in construction. In the distribution chain, the stocking continued, even though inventory levels have dropped substantially and are now running at 10% below the historical average. Continuous slide in raw material and the deteriorating economic sentiment did not incentivize distributors to stock up into the usual summer low.
As a consequence, used stainless steel prices marked new all-time lows. This is a homegrown problem because imports remain well in check with a medium low market share. Both demand and pricing are this time driven by domestic factor. Both could therefore change rather quickly for the better. In Brazil, prices normalized because of the link with the global price system, a healthy product mix support earnings. I hand over to Sudha for the review of the financial performance.
Thank you, Tim, and a warm welcome to all of you. Low shipments, low product prices are important factors to consider this quarter, especially the latter one turned out to be a defining factor for the quarter, via its impact on inventory valuation. In the Q2 outlook, we assumed an unchanged inventory valuation charge from Q1, the low to mid-double-digit range. However, due to falling raw material and product prices, the actual charge doubled compared to the forecast, and we recorded a high double-digit number. Why was the inventory valuation effect so high? On top of the very negative price development, inventories have also to be taken into account. Because of the AOD investment and the associated buffer stocks we were carrying, higher than the normal inventory in a period where raw material prices were moving lower and stainless prices in Europe fell off a cliff.
With today's forecast, the third quarter inventory valuation will remain unchanged. There's not much to say about the rest of the P&L. We had no exceptional items. The hedging impact and the tax rate were also normal. Despite the margin pressure, higher CapEx, and building buffer stocks for the AOD, we reached free cash flow breakeven. Due to the dividend payment, net debt increased by EUR 42 million - EUR 461 million, the level we started the year with, and that we are happy to carry. It gives us a solid and efficient balance sheet. One reminder on the net debt of Aperam. Aperam's net debt is equivalent to the net working capital on ELG CR. As discussed in the previous quarters, since ELG entered our value chain, we are looking a little bit different on net debt compared to our pre-acquisition levels.
Aperam Recycling, as it's now called, has a trading inventory. This is commodity raw material that, at the time of reporting, has been mostly sold already. The material has a high turn ratio, is sellable to a wide range of customers, and self-balancing during the economic cycle. This networking capital has primarily been driven up or down because of price movements. It does not make sense to put hard-earned cash to finance such a volatile inventory. Be assured that we see value in having a strong and efficient balance sheet. We are solidly financed with high liquidity, and this will continue as we are committed to maintaining ratios that are consistent with an investment-grade rating. Post the completion of AOD, after the beginning of Q4, we expect to release working capital during the last quarter of the year. Moving to the next page.
There is a big spread in the segment performance this quarter. Recycling and Renewables achieved, again, a very solid set of results. At EUR 29 million, EBITDA decreased in line with guidance, but mainly due to lower volumes and normalizing prices. The segment generated EUR 74 million EBITDA in the first six months and has already matched our guidance of normalized segment annual earnings. This is proof that ELG integration, the realization of synergies, and the development of new business streams, a topic that we'll talk much more about in future in relation to bioenergy, are all progressing very well. The Q3 outlook is for a below-average quarter, simply because it's holiday season and volumes are low due to destocking from customers in Europe and Americas. We expect Q4 to be better again. S&E's EBITDA decreased further, which mainly reflects a significantly higher inventory valuation charge.
Soft demand in Europe and lower realized prices also contributed. Brazil's EBITDA remained at a good level, although global price pressure has started having a small impact. For Q3, we expect EBITDA to decrease further. Current rock bottom prices will move through the P&L and more than compensate for lower costs and slightly higher volumes. There will be also some effects from the second phase of the AOD construction-related standstill in Genk. As we close the first half of the year, we now have a better clarity on the significant effect of inventory valuation, timing, and energy hedging for the European part of the business in 2023. Our baseline profitability in Europe is expected to be negatively affected, up to EUR 150 million for the full year due to these one-time effects.
We expect S&E Europe to remain profitable despite these effects, thanks to our focus on competitiveness and variabilization. At SNS, the negative EBITDA is a reflection of the state of the European market, with extreme price pressure that led to a high inventory valuation charge, a reversal of the 2021, 2022 gains. As SNS's business closes to the market, volumes were extremely low for the seasonal peak and only undercut by the COVID quarter Q2 in 2020. Yes, SNS is spot market dependent, and yes, the destocking streak can end quickly, and the home ground irrational pricing can change. A realistic outlook for Q3 is that the spot market remains challenging, as Europe is on summer holidays, and most likely allows for a break-even result due to inventory valuation as well. ANS achieved one of its best quarters ever.
Solid volumes, better prices, and a lower inventory valuation charge were the main drivers for this. Alloys remains fully booked and on track for a better 2023 result year-over-year. Q3 is the seasonal trough quarter, and so we guide for a decrease in EBITDA in the next quarter. Others and eliminations saw another positive quarter at EUR 12 million EBITDA. This is again, a reflection of the intercompany elimination in times when sales prices move down faster than raw material costs. Because of corporate costs and inter-segment profit elimination, a negative number is usually the norm here. Due to the state of the European market, depending on how prices develop, we expect another positive but much more lower result in Q3.
Moving to the next slide, our strategy over the past 3 years has been to increase the competitiveness of our global footprint and to further differentiate our value chain. This remains the right strategy that we will further work towards the Leadership Journey. We realized another EUR 16 million gains this quarter. Major contributions came from sourcing, the scrap integration, and the alloys growth plan. With accumulated gains of EUR 150 million, we reached the target Phase IV half a year early. You can be sure that we will not stop here and maintain the usual EUR 50 million annual run rate. On one hand, we will continue to work towards realizing the EUR 300 million like-for-like EBITDA improvement under the twenty twenty-five growth and improvement plan.
Key projects that fall into Leadership Journey Phase V, I just want to mention the upgrade of hot rolling mills in most of our segments, have already been shared with you. We will provide more details about Leadership Journey Phase V with Q3 results. On the other hand, we recognize that we live in challenging times that require an additional response. Cost competitiveness is a must in this difficult market, and we are implementing an additional action plan. We will share scope and results with the Q3 earnings release. Why did we cut the 2023 CapEx guidance by EUR 50 million- EUR 250 million? The major reason is that extremely low production level requires substantially less maintenance and replacement CapEx. Let me stress again that the 2025 plan and the associated growth and improvement spend remains unchanged.
I now pass over to Tim to share the outlook.
Thank you, Sudha. Q2 was very challenging. The relevant economic leading indicators in Europe, like the manufacturing PMI or construction indicators, remain solidly negative. We do not expect any help from the microeconomic side. Additionally, we are moving from the seasonal peak into the normal seasonal fourth quarter. In Europe, volumes might have some slightly upside in Q3. This is versus an extremely low base and remain insufficient in absolute term. COVID shipments in 2020 will remain a point of reference. For Brazil, we expect good volumes to continue. Scale effect might be slightly positive. We have a flexible electric arc furnace for footprint, so scale effects are usually secondary to price effect. Spot prices tanked during Q2 in Europe. Brazil is linked to global pricing. We therefore project a clear decline in realized pricing in Q3.
This will more than eat up easing input costs and our planned self-help. As Sudha said, in assuming spot price persist, we also don't expect relief from the inventory valuation side. In a nutshell, we expect a further decrease in adjusted EBITDA. We also expect the net debt to increase. On one end, the lower profitability takes its toll, and on the other end, the AOD project will allow us to realize sizeable working capital only in the fourth quarter. As Sudha already mentioned, we have cut the 2023 CapEx budget by EUR 50 million. Assuming stable raw material price, we project the net debt at the end of the year to be comparable to what we started with. Times are challenging and volatile. We appreciate the need for more frequent information.
We are on the road in September and try to ensure easy points of access for those who are invested in Aperam and follow us regularly. In addition, please feel free to contact Aperam Investor Relations. We are happy to accommodate additional requests for corporate access, and your feedback is valuable for us. Times are tough, but we successfully managed situations similar to this one. We are much better prepared now. We have an experienced leadership team. We are aware of what is expected of us, and we know that cost improvement and further value chain amendments are part of the solution. What we promise, we keep, and I can promise you that we will use this crisis to further strengthen our structural competitiveness and our differentiated business model. Thank you for listening to Aperam Q2 management podcast.
We will host a conference call today at 1:00 P.M., Central European Time, to answer your question. Wish you a pleasant day, and hope to see you again in the Q&A.