The substitution should happen regardless whether the string has the UTF-8 flag set or not.
However, what is important is how the "'A with circumflex" is encoded in the source code, and what Perl thinks the encoding is.
To avoid problems, I always try to not have any characters with code points over 127 in my source code, and specially avoid the code points 128-255. If I were to write the line, I would write it as:
my $str = "Th\x{92}t \x{92}pple";
that should work regardless whether perl thinks my source code is in UTF-8 format or not. (It may still get confused if it thinks my source code is written in EBCDIC, but that's no worry for me).
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