Befesa S.A.

Good morning. My name is Lydia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bethesda Preliminary Full Year 2020 results. After the speaker's presentation, there will be a question and answer session. To enter the queue, you can press 01 on your telephone keypad at any point during the call. Now, I would like to turn the call over to Rafael Perez, Director of Investor Relations and Strategy. Please, sir, go ahead.

Good morning and welcome to the preliminary full year 2020 results conference call of Befesa. I am Rafael Perez, head of strategy and investor relations of Befesa. And today, as usual, we have with us Javier Molina, CEO of Befesa, and Wolf Lehman, CFO of Befesa. Javier will start with an executive summary of the full year, covering the main highlights of the period. Then Wolf will review the full year financials in total and by business unit, as well as cash flow. Javier will close this presentation providing an update on our growth projects as well as preliminary view on the outlook for 2021. Finally, we will open the lines for the Q&A session. Before getting started, let me remind you that this conference call is being webcasted live. You can find the link to the webcast and the preliminary full year results presentation on our website, www.defesa.com. Now, let me turn this call over to our CEO. Javier, please.

Thank you, Rafael. Good morning, and thank you for attending this conference call. 2020 has been certainly a challenging year for BFESA. Nevertheless, we have been able to manage the crisis well, making strong strategic progress and delivering within the upper part of the guidance. The fourth quarter has been the strongest quarter in 2020. confirming the continuation of the gradual recovery that we started already in the third quarter. In the fourth quarter of 2020, we have achieved an EBITDA of 42 million euros, which is similar to the last quarter of the previous year. Looking at the quarter-on-quarter development in 2020, over the last two quarters, we have increased our EBITDA by 35% in the third one and by 45% in the fourth one. The main drivers for this increase has been a recovery in the plant utilization, reaching nearly 90% in the case of steel dust and 84% in the case of aluminum solid glass, as well as a recovery in seed price during the last quarter with an average of 2,203 euros. compared with 1,997 euros in the previous quarter. This strong performance on the last quarter of the year has enabled us to achieve a total EBITDA of 127 million euros in the full year 2020, which is in the upper third of the initial guidance provided and better than the consensus of our analysts of 120 million euros. Compared to the previous year, 2020 EBITDA has been mainly impacted by a decrease in average fee price of 13%, as well as higher treatment charge of $300 compared with 245 in 2019. Additionally, the volume in the aluminum solid slag division has been 10% lower than the previous year, driven by a weak automotive industry in Europe, which has been partially offset by a slight increase in steel volume mainly driven by Turkey. In 2020, we have run our plants at an average capacity utilization of around 85%. The main industries that represent our markets have seen during the fourth quarter a recovery in their level of activity. As such, the production of steel in Europe in the last quarter has increased 5% compared to 2019. However, for the full year, the production of steel in Europe has decreased 12%. As in the past, The part of the steel industry that we serve, the electric earth furnace steel produce, has performed better than the overall steel industry, as demonstrated by Germany, where the blast furnace steel production has decreased 13%, compared to the electric earth furnace steel production, which has decreased only 3% in 2020. The automotive industry in Europe has seen a better second half of the year than the first one, ending the year with a decrease of 24% in car sales compared to the previous year. This has affected the volume of aluminum solid slag that we have been able to process in 2020. Metal prices have suffered great volatility during 2020 and have recovered during the last quarter from the low levels achieved during the second quarter because of COVID-19. As such, average SIN LME has been 1,979 euros per tonne, compared to 2,276 euros in 2019. This has been partially offset by our hedges, as Wal will explain later in more detail. quarter of 2020 and early 2021, we have extended our hedging book until October 2023 at attractive prices, and today we enjoy more than 2.5 years of hedging going forward, which provides high visibility and predictability. The generation of cash during last year has been very strong. and this has enabled us to finish the year with more than 150 million on cash on hand and a leverage ratio slightly above three times. Despite the challenging environment of 2020 created by COVID-19, due to our strong liquidity and capital structure, we have continued our growth plans with our investments in China. we continue the construction work of our two steel dust recycling plants in Jansu and Henan on time and on budget. We expect to have the first plant ready over the coming weeks and to carry out the cold and hot commissioning in March and April. The plant in Henan is expected to be finished after the summer of this year. Finally, on ESG, 2020 has been a year where we have made significant progress. It is very clear that society and investors put more and more for sustainable solutions, which is very much aligned with the FESA. What we do is a vital part of the circular economy. We recycle 1.5 million tons of hazardous residues for our customers in the steel and aluminum industries. to extract value natural resources like zinc, aluminum, and salt. Furthermore, and especially over the last five years, we focus on all the aspects of ESG, compliance, environmental, health and safety, employees, and governance. The efforts that the entire organization is making across these areas are being reflected in our ESG ratings improvements. We are very proud of the progress we are making on ESG, which is a recognition from the market on the contribution Bethesda makes to a more sustainable world. Now, Warren Lehman will explain the financials in more detail.

Good morning. Please turn to page six, the 2020 consolidated financial highlights. As Javier explained, the quarter-over-quarter recovery is on track, and the fourth quarter of 2020 has been strong at 42.4 million euros EBITDA back to the level of fourth quarter 2019. Resulting in a full year adjusted EBITDA of 127 million, down 32.6 or 20% compared to 2019. The main drivers of the year over year EBITDA bridge are as follows. One, a minor 0.6 volume impact. higher volume in electric arc furnace dust due to turkey was offset through less volume in stainless and alu salt slags and spl second a material 32.5 impact on prices the different price impacts are as follows 45 million lower ebda from lme marketing prices 24 positive from hedging thus offsetting more than half of the zinc market price pressure. Negative 12 from treatment charges at record high unfavorable levels of $300 per ton. Third, on cost other, we achieved a positive plus 0.5 year over year. We executed and tracked more than 50 operational excellence projects, and those efficiencies more than offset any inflationary and other pressures. In summary, the miner down in volume is being offset with the miner up in cost other. Net-net, the year was impacted by 32.5 million due to unfavorable metal prices in the wake of COVID pandemic. Aligned with EBITDA, net profit is down 35.1 million year-over-year and stands at 47.6 million for 2020, equal to 1 euro per earnings per share. We achieved a very good cash net debt and leverage results, which I will explain later on page 9. Turning to page 7, the steel dust recycling services results. Steel dust recycling services achieved 97.7 million EBITDA, down 27.6 year-over-year, or 22%. The levers volume and cost other were positive, each around 2.5 million to 3 million year over year, and partially offset the negative 33 million from the COVID impacted price. Looking at selected operational metrics on the lower part of the page, volume or electric arc furnace dust throughput slightly improved to 687,000 tons, 3% up year over year. with our operation in Turkey back online after the expansion the year before. Plant utilization stood resilient at 83%. The average zinc LME market price was 1,979 euros per ton in 2020, down 13% year-over-year. But our hedges were favorable and in the money at 2,239 euros per ton and improved our zinc blended price to come in at 2,136 euros per ton, down 6% year-over-year. Correspondingly, the EBITDA impact from the lower zinc LME market price of gross 45 million was offset by 24 million due to the favorable hedges, resulting in a negative 21 impact. In addition, treatment charges were unfavorable at a record high of $300 per ton of works in 2020, impacting EBITDA year-over-year by negative 12 million. We expect this to normalize in 2021 in this year. Overall, steel dust recycling services delivered 98 million EBITDA at resilient 28% margin and solid 83% capacity utilization. Going now to page 8, the results of our aluminum salt slag recycling services segment. 2020 adjusted EBITDA is 28.8 million, down 4.2 million or 12.7%. The EBITDA decrease was mainly driven by volume, impacting by around 3.5 million euros year over year. Salt slacks and spent pot lining volume treated was 445,000 tons, down 9.7% year-over-year, still at a resilient 84% capacity utilization rate. And secondary aluminum volume produced was 174,000 tons, down only 1% year-over-year, with capacity utilization at a solid 85%. Furthermore, EBITDA year-over-year was impacted slightly positive by 0.6 million through moderately higher aluminum alloy prices, which partly offset the minor 1.3 million negative year-over-year impact in cost and other. Overall, aluminum SaltFlex recycling services delivered 29 million EBITDA at resilient 25% margin for the SaltFlex and SpendPoint Lightning hazardous waste recycling core business, and demonstrated resilient 84%, 85% plant capacity utilization levels during this COVID-impacted year. Turning to page nine, the cash flow, net debt, and leverage results. On the EBITDA to total cash flow bridge we're showing, starting with 127 million EBITDA on the left-hand side and walking to the right. Working capital was approximately flat year-over-year, and both interest and taxes, as expected, around 17 million each, resulting in solid operating cash flow of 92.5 million. We spent maintenance capex of 25 million plus growth capex of 29 million for a total of 54 million capex, of which 15 million was funded through the China local loans for our two plants at Changsu and Henan. 25 million dividend was paid out in two steps, 50 million in July and 10 million in December, resulting in a total cash flow of positive 29 million. The 29 million total cash flow improved cash on hand from 125.5 million euros at year end 2019 to a $154.6 million at year-end 2020. Cash on hand at $155 million plus our entirely unused $75 million revolving credit line provides strong $230 million liquidity to Bethesda. Net debt improved from $417 million to $394 million and with 127 million EBITDA results in a temporary higher but very, very manageable 3.1 times leverage. We target and expect to return to around the leverage levels of 2019 as we go through this year, 2021. We continue to be compliant with all debt covenants and have no applicable covenants. The capital structure remains unchanged and long-term set up to July 2026 and we cannot be prized above 2% interest. Summarizing, the backbone of the FESA is strong and we manage very conservatively based on three levers. Number one, the capital structure is long-term up to mid-2026 and at efficient rates as we cannot be charged more than 2% interest. Secondly, cash. we manage cash and liquidity conservatively. Even at the peak of corona, we had more than 100 million cash, and at year end, even more than 150 million. Three, hedging. Our strong and long-term hedge book, and we're hedged for more than 2.5 years, and I will explain on the next page in more detail. Those three levers form the strong backbone of the FASO's financial and capital structure and serve us very well in crisis situations like the COVID-19 pandemic. This allowed and allows us to continue to go full speed ahead on our growth expansion in China and stay on budget and time schedule. Turning to page 10 on hedging. During fourth quarter 2020 and early 2021, we extended zinc hedges further up to and including October 2023. thus for the next more than 2.5 years. Hedges for this year, for 2021, are at around 2,150 tons sold forward prices, 2022 at around 2,200, and 2023 at 2,300 euros per ton. The hedging provides the phaser with improved pricing, earnings, and cash flow visibility to allow to fund our growth initiatives organically. Our hedging strategy remains unchanged. We hedge one to three years out. We target 60 to 75% of our zinc equivalent volume. The majority, about 80%, is in Euro, the rest in Korean Won. No collateral. The risks are transferred entirely to our hedging partners. Our hedging approach very much worked. In 2020, The average LME Zinc price was 1,979 euros per ton. Our hedges were in the money and locked in at 2,239 euros per ton, which stabilized the blended Zinc price to a total of 2,136 euros per ton. Note, we added various financial and operational data tables with quarterly, annual, and multi-year views for your reference in the appendix. Summarizing the financial section before we turn to the growth and outlook, three points. One, our quarter-over-quarter recovery is on track. Second quarter was low at 22 million. In Q3, we delivered 29 million, and Q4 EBITDA is at 42 million euros and back at 2019 levels. Second, our financial backbone is strong. We extended our hedges out to October 2023. Our capital structure is efficient and long-term, resulting in stable and strong liquidity. Three, we funded our expansion in China, even during this challenging pandemic, full speed, which serves us well in this year in 2021 and over the coming years. Back to Javier to review our growth projects and initial outlook.

Thanks, Wolf. Please move to page 12 and 13 of the presentation. I would like to finish the call providing some thoughts on our growth projects, the market environment, and the outlook for this year, 2021. Let me start by providing some thoughts about our business opportunity in China. 2020 has been a very challenging year in many regards. However, on the other hand, 2020 has proven that the decision to invest in China we made in 2018 was the right thing to do. Firstly, over the last five years, China more than doubled its electric alpha-nate steel production to more than 100 million tons. Today, China is by far the largest electric alpha-nate steel market in the world, representing a market of near 2 million tons of steel dust. Second, China has navigated the COVID crisis pretty well. And while most of the countries in the world are suffering decrease in the GDP, China has increased its GDP by more than 2%. Similarly, China has continued to grow its steel production by 5% year on year. Third, China is very committed to reducing its CO2 footprint. Primary steel making from black furnace produce seven times more CO2 per ton of steel compared to the secondary steel makers using a steel scrap, which are our customer base. And today, only 10% of the steel produced in China is from scrap, compared to 30% as an average in the world, 40% in Europe, or near 70% in US. Strong rules and regulations have been put in place in China in order to favor secondary electrical furnace steel makers, our customers. And according to the latest market forecast, the steel dust market in China will continue to grow from the current size of 2 million tons or near 2 million tons to more than 5 million tons over the next 5 to 7 years. This means that the market in China is already the biggest market in the world, but also is a rapidly growing market. 2021 is an exciting year for Befesa, and truly an important milestone in the development of the company, as we will complete the construction and start the operations of our first two electric air-furnace steel-air recycling plants at the Jiangsu and Henan province. At the Jiangsu province, we are basically done with constructions, as you can see from the pictures in the presentation. Right after the Chinese New Year break, so this week, we will start the cold and hot conditions in March and April. The construction is progressing as expected on budget and on time. We are investing 42 million euros in each of the two plans, and we have closed the long-term local financing. Regarding the ramp-up for Jansu, we reserved the entire first half of the year for commissioning, pilot batches, and commercial contract negotiations. We plan for commercial output and positive earnings contributions in the second part of this year. We have already secured the steel dust volume from customers to do their trials. Our second plant in the province of Henan is developing as planned, on budget and on time, and which is scheduled around six months after Jansu. We expect to complete the construction by the end of the summer. Moving now to the market environment, We have seen over the last quarter a recovery of the steel production industry in Europe, and we expect the current levels of the steel production to be maintained throughout this 2021, which will represent a higher production over last year. The automotive industry in Europe is also showing signs of recovery, and we expect this to continue over the coming quarter in 2021. and support secondary aluminum as well as solid slag volumes. This recovery in Europe should be supported by a strong demand from second aluminum alloys in Asia as well. Let me share now some initial thoughts on the outlook for this year 2021. As in the past, we will provide detailed guidance in our Q1 earnings presentation end of April. we know what level of treatment charge is being agreed in the single-dash grid. On volume and capacity utilization, we expect a good year and an improvement over 2020 based in two drivers. First, for 2021, the base volume of a steel-dash grid is expected to be higher. achieving more regular levels and capacity utilizations. Additionally, on steel dust in China, Bethesda expects to have volume contribution from the second half of 2021, coming from the start of commercial operations in the first plant of Bethesda in the Chinese province of Yanzhou. Second, in aluminum solid slag, the company also expects some volume recovery, driving up capacity utilizations compared to the level achieved in 2020. With regard to prices of zinc and aluminum, 2020 was characterized by high volatility throughout the year, with very low price levels in the second and third quarters and prices only recovering in the fourth quarter. In 2021, the market has started with a more normalized price environment. we expect higher average price than 2020, returning to pre-COVID levels. Similarly, we expect some normalization in the level of treatment charge for teens, which were extraordinarily high and unpowerable in 2020. This will represent a very positive earnings contribution for Bethesda in 2021. In summary, considering the above-mentioned operational growth and the expected price environment plus treatment charge, we expect substantial earning growth in 2021. Regarding recurrent maintenance capital expenditures, we expect similar levels to the years pre-COVID, around 25 million euros. On growth capital expenditures in 2021, the focus will remain on funding the growth in China. For this year, 50 to 60 million euros will be invested in China in the two plants that we are building in Jiangsu and Henan. On dividend, we will continue to carefully manage the dividend stability and dividend yield, cash flow, leverage, and the funding of the organic growth. We maintain Our dividend policy to distribute between 40% to 50% of debt profits as dividend. But for 2021, we want to propose a dividend distribution between 30 million to 40 million euros. This would consider our regular dividend and additionally a catch-up on the lower dividend distribute last year. We will make the final decision after the first quarter results once guidance has been provided at the end of April. From the leverage point of view, BESESA expects to return to maintain levels below three times net debt EBITDA, similar to 2019. Finally, I would like to highlight that we are doing a lot of efforts to make sure that the market understands how EFESA is part of the circular economy and contributes with its business to environmental protection by recycling more than 1.5 million tons of hazardous residues annually and producing more than 1.3 million tons of new materials, reducing the consumption of natural resources. This has been the backbone of the business since the company started more than three decades ago. So, in summary, 2020 was challenging, but we delivered some results. And we are looking forward to 2021, which we expect to be a growth year for Bethesda, financially, operationally, as well as from the strategic point of view. Thank you very much.

Thank you, Javier. We will now open the lines for your questions.

Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press 01 on your telephone keypad. Thank you. The first question comes from Ingo Sechell from Colors Bank.

My question would be on China, and specifically I would be interested to understand a bit better what we... should expect to see between now and the next time we speak on the 29th of April? I mean, you're doing the hot commissioning, you're doing the first trials. Can you tell us what the expected quantity of steel dust would be that you process in April? And also whether it's, let's say, very specially selected high zinc dust samples that you're taking, or would you already... expect to have a good visibility on the technical operational performance of the plant by the end of April, or does it really take a more and more random selection of steel dust samples before you can really comment on the operational performance?

Thanks, Ingo. Okay, now we are finishing the New Year break in China. The constructions will restart next week, really, because, as you know, New Year is really the yearly holidays for the construction sector in the country. So now, next step, we are working in different levels at the same time. The most important one, construction, where we are focused to finish totally the plan and to start whole commissioning that will happen in March and whole commissioning that probably will be in April. At the same time, we are securing the steel dust that we need to run the trials, which is a very important part of the ramp-up. It's really the moment where we are going to confirm all the progress in the plant. Just to give you an example, we are going to send a solid team of European people from Germany and Spain to China, and all of them will need to do a quarantine period of 14 days to be able to work there. But this is essential. This part of the process is essential. So now the main focus is to run properly cold and hot commissionings and do the trials and So our initial idea is to dedicate the second quarter of the year to do the runtime, to do the trial, et cetera. At the same time, we are in the middle of the negotiations with the steelmakers regarding the supply of steel dust. As you can imagine, this is a tough negotiation. It's a case-by-case negotiation with each steelmaker. So as I have explained, In our times, we are not talking with 1,000 customers, we are talking with 20, in the case of Yanshu. So it's a real individual negotiation that will depend on different factors. The quality of the steel dust that they produce, the thing contained, the distance to the plant, the position of the landfills around the producers, et cetera, et cetera, et cetera. So my expectation for the next earning calls end of April is that we will be able to confirm that the plan is running properly and that we are making progress with the steelmakers. Probably it will be soon to confirm which are the type of contract we are signing, the collection fee, or the quality of the steel dust. That will be provided with more certainty in the earnings call that we will hold in July. Okay?

Okay, yeah, thanks for the very clear roadmap, and maybe one question on the numbers, and thanks for making it very transparent what the swing factors and the earnings bridge for steel dust recycling and I think the contribution of the 2.6 million operational excellence and other things was quite positive and maybe overlooked to a certain degree in all this metal price volatility. Just looking at next year, do you think you can report a positive number again as an operational excellence swing factor in 2021 compared to 2020, or would you rather see some of those costs coming back after a few instruments like short-term work have expired?

I think we will be in a similar situation than the previous year. It's clear that every year it's more difficult for us to find ways to reduce costs or to get earnings increase through operational excellence. And which is clear at the same time is that we need to invest some money to get these cost reductions or earnings improvement. But still we are in a position to say that in 2020 we will get similar figures in that regard than the previous year.

Okay. Just a quick one on the Salt Flakes plant closure in the UK. Can you remind us what the EBITDA contribution of the Salt Flakes UK plant has been and whether you expect any major cash outflows this year, for example, for environmental remediation in context of this plant closure?

The first thing we would like to highlight is that the plant is totally closed. We have only three people there That will be one quarter more, basically, just to finish all the last actions we need to do there. But the plan is totally closed. Second, the Vita contribution in the past, on average, has been around €1 million per year, so it's not a big figure. And we don't expect any further investment regarding remediation, et cetera, et cetera. Okay, Veritya. Thanks very much. Thank you, Ingo.

Thank you. The next question comes from Michael Hoffman from Stifel.

Thank you, Javier, Wolf, Rafael, for taking the questions. Good morning. Wolf, where is your thinking with regards to not only the negotiating for volume from China but beginning to introduce your hedging strategy? on that future volume. When do you think you'll start including that into the hedges from a tonnage standpoint?

Good morning, Michael. Thank you very much. When we have stable plant output, we will start topping up the hedges also for the China volume. So as Javier mentioned, Michael, we'll have commercial output for the first plant in Changsu in the second half of the year. and we're now looking at preparing hedging. But as you know, we never do speculative hedges. We always do operational hedges. So when we see the stable plant output in the second half of the year, we'll then start hedging additional volume.

So from our standpoint, and I understand we need to wait until April to get a full year detail, but we have the task of having to build models. Should we... uses a conservative approach. We'll get one full quarter of 110,000. So sort of the fourth quarter is a normal quarter. And the first half is about the shakedown, three queues about ramping slowly. In four queue, you're at your full pace.

I think, you know, for the second half of the year, we would say we plan for about 70% capacity utilization. That's normally what we do uh, when after ramp up and that would mean, you know, for six months, 70%. So you're talking somewhere around 30, 35,000 tons or so. And again, we'll come, come back to you with more guidance on that after the successful cold and hot commissioning. But this is a ballpark first number.

Okay. And given where everything is landed at the end of this year, and I know I'm trying to front-run guidance, but what I'm really looking for is a framework. It would appear the data would support that you ought to be able to at least replicate 2019, that we're fully back there on a profit basis.

I guess you first passed off the sentence, Michael was right, you're a little bit ahead of the game. Yeah, I know. But that's what I've got to do for a living. I think Javier already... highlighted the framework. Look, it's different factors. Volume. Base volume, we're clearly continuing the recovery as Javier explained. So that is positive. Then on top of that, you have incremental volume from China. Metal prices, we have a great start in the year, right? So obviously that's a little bit early to tell. That's why we want to go through the first quarter. And then on top of that, learn about treatment charges, which indications are that treatment charges are normalizing, so that's also positive. And as such, yeah, we feel good. And we will validate the guidance after the first quarter and earnings call.

Let me add, Michael, that We are seeing a strong start of the year. January has been a solid month, and February will be as well. So I think we are in a good case.

Yep. Okay. That helps. And I do appreciate that. From your perspective, what are you hearing from the auto customer today? So I guess it's downstream from your production, but what are you hearing from the auto production side? Do you think that auto production will get back to a more normalized level and then sales can sort of pick back up again?

Yes, this is what we are hearing in the market, clearly, and what we are seeing in the first month of the year. So clearly we expect to see that at pre-COVID levels.

Okay.

All right. Okay.

Thank you.

Thank you, Michael.

Thank you. The next question comes from Charlie Mortimer from Citibook. Please go ahead.

Morning, everyone. Thanks for the presentation. Very good presentation, I must agree. And a question starting on the growth capex and the 50 to 60 million What of that is included? What of the current two plants does that account for? What is the additional growth capex? If we could just break that down a bit, please.

Sure, please. Good morning, Charlie. I'll just give you the full picture on the capex as Javier mentioned on this year in 2021. Let's start with the usual bucket, which is maintenance. Maintenance in the broader sense, Charlie. This is IT, productivity, compliance, as well as classic maintenance. We spent $25 million last year, in 2020, and this year we're thinking $25 to $30, somewhere in that ballpark. For growth, we've penciled in $40 to $50 million. and this is primarily for China, for our two plants in China. So you come to an overall 65 to 80 gross, but please note that 45 million of that is funded through the China local loans that are in place and that we already started to draw on last year, at the end of last year. So you're talking about 25 to 35 net capex.

after uh the funding through the local loans of the two plants in china yeah does that answer the question yeah that's just just to confirm that the growth capex that you've alluded to only refers to capex that is going into the two plants currently under construction yeah that's correct yeah okay um and another question on on the utilization i mean back to Do you just remind us what the maximum capacity utilization you feel is for the steel dust plants and the aluminum plants?

Yes, around 90% is quite full utilization. You need to understand that when we talk about plant utilization, we include the annual maintenance shutdown of the plant. maintenance shutdown would be between three four weeks so to to to get more than 94 percent is uh impossible for that reason so to get 90 percent is we can consider which is quite full utilization really okay that's very clear and um just again uh helping slightly with the model on the

treatment charge. Do you have an expectation of a ballpark of where it might land for this year?

Okay. We are in the middle of the negotiations. There are a lot of rumors in the market. The first movement we have seen is apparently mining companies are offering 100. and smelters companies are talking about 300. So the solution will be in the middle. But it's difficult to say today it will be 200, 240, I don't know, something in that range.

Okay, that's a wide range, but a good one. Thank you. And just finally, you mentioned collection fees with the contract negotiations, isn't it? Do you feel there's an expectation that you will be able to get collection fees from the plants in China?

It's too soon to give you an answer. We are discovering that Chinese people are good negotiators, you know? And we are in the middle of this process. And it's difficult because it's... It's an individual negotiation, but at the same time, it's a filmmaker looking at what's happening around themselves. So probably in the next conference call, we will be able to provide a better view than today.

Okay, excellent. Thank you very much for answering all those questions. Thank you, Charlie.

Thank you. The next question comes from Sylvia Barker from JP Morgan. Please go ahead.

Good morning. I'll take them one by one. Could you maybe just comment on South Korea and Turkey volumes in full year 2020 and also your expectations for 2021? Okay.

Thank you for the question. Volumes last year in both Europe, in Turkey, We finish in the year with a good utilization level, around 70,000 tons in the year. And our expectation for the next year is to stay at those levels. In Turkey, we are suffering for the last, it's something that is happening in the last five years, there is an import ban to import steel dust that is putting some troubles in the market. So 100% of utilization before to get out the import will be difficult. a stable market and similar amounts for this year than the previous year. And regarding South Korea, remember that in South Korea in 2020, we treat 60% of our supply from the local market. And this has been, this figure is very stable. It's likely growing every day. and we didn't suffer any major problems in 2020. Where we suffered some issues was in the imports of steel dust around the surrounding countries, but more for logistic and transport cost issues due to the COVID crisis than for production problems. So this year we expect to recover or even to improve the levels we achieved in South Korea in 2019.

Could you share just the tons, roughly? Excuse me? I was just wondering if you could just share the full year 20 kind of final outcome in terms of the tons or the utilization.

We prefer don't split the figures in the different geographies, you know, because we manage that internally, and we don't like to confuse our investors, because sometimes we split some quantities in one geography or in other, depending logistic issues, et cetera. So that's why we prefer to provide total figures. In that sense, in 2020, at the end, we improved the throughput of steel dust in 3%, from 65,000 tons in 19 to near 690 in 20, and we expect to improve these figures this year.

Okay, thank you. And then two more quick questions. One just on China and further expansion. Obviously, now they were coming to the end of the construction for the first two plants. When could we expect further news flow around you looking to either expand these existing locations or look for new provinces? And then secondly, just thinking about, I guess, the green spend in Europe. Is there any shift there from BOF to kind of EAF where your clients might be required to shift or their clients might be required to shift anything that might actually drive that penetration of EAF further within Europe? Thank you.

Thank you, Silvia. Thank you. Okay, regarding the additional expansion in China. First, I would like to remark the market opportunity we have in front of us. Today, China is producing more than 1.5 million tons of steel dust. This is more than the total European production. On the other hand, the quality of the dust will be still clearly below the European standards they are using different and not only a scratch some pick iron as well but clearly we have a a a big market opportunity in front of us and additionally the expected market growth in china regarding electrical furnace as i during the presentation is that in the next five to seven years, the proportion of steel produced in China from scrap will go from less than 10% today to more than 30%. That means that we will have in front of us a market of around 5 billion tons of steel dust. This is the name of the game in China. So clearly, we want to build more than two plants in China. It's difficult to say today how many plants we'll be able to build in the country. That will depend on many different factors. It's not only on our side. But clearly, we want to build more than two plants. First thing we need to do is to start operations of at least the first plant to confirm all the hypotheses we analyze when we took the decision to invest in China some years ago. And then that will be the moment to decide or to announce the construction of the third plan. Remember that probably before to go to a new province, we have the opportunity to build new kilns in the province of Jiangsu and Henan. As we have explained in the past, we have acquired enough land to add new things to both plants in both geographies. When will be the exact moment? Well, let me be prudent. Let us start operations, confirm the hypothesis, and then will be the right moment to take the decision.

It's okay? Maybe I can, Sylvia, if you want, on the second question on Europe, on the EF penetration, I think at some point in time, Sylvia, we had shared the study of the International Energy Agency, who had reviewed deeply the impact of the various countries looking to reduce the CO2 footprint And fact is, for your question, basic oxygen furnaces, primary steelmaking takes seven times more CO2 per ton of steel production compared to electric arc furnace steelmaking, which is our customer base. So the energy agency had forecasted that there is, over the next years, a structural change happening. I think their forecast was to gradually change from currently in Europe you have 40% of the steel is produced through electric arc furnaces, that would gradually increase to about 50%.

Yes, but I think I would like to create big expectations regarding that point because What Wolf is saying is totally true, clearly, and this is what the energy agency is explaining. But on the other side, the growth of the electrical furnace production in Europe is totally linked with the availability of scrap. And this is what it is. And so we will see an increase in the coming years, but will be a slight increase. And that will happen as well in the U.S., The area, and that's why I consider we took a great decision some years ago when we decided to invest in China, the area where the production of steel will change dramatically is China. Because China is producing only 8% of the steel from electric car furniture production, and that will change in five years to more than 30%.

Very interesting. Thank you very much.

Thank you.

Thank you. The next question comes from Olivier Calbet from Kepler. Go ahead.

Thank you. Good morning, all. I just had a follow-up on this particular aspect of the China EEF output ratio growth. Whose forecast is it to see the output ratio go up to 30% or more than 30%

Well, there are many different, Oliver, there are many different studies explaining that. And this is based, if you, probably Rafael Perez can provide you some exact reports, very interesting, about that topic. But this is, there are a lot of information about the production of a scrap in the coming year. And based on that, it's totally, it's very clear, totally clear that the percentage of steel from scrap in China will change dramatically. On the other hand, this will be support from the solid environmental regulation that China has implemented and is applying. So there is no doubt about it. We will have The only thing that we need to confirm is that if we will need five years or seven. In my opinion, it will be more five years. We will see that China will be producing a very similar percentage of steel from scrap than Europe.

All right, fair enough. Then a second follow-up on hedging in China. I understand that it is too soon to really hedge speculatively or anything, but can you already give us an indication on which Zinc price you would actually hedge?

Olivier, it's a little bit too early to tell. But at the end of the day, you know the hedges that we have closed in the first quarter of last year or beginning of this year. And those hedges were the last hedges we added to the hedge book. And those have been for 2023. And those were all consistently at or slightly above 2,300 euros per tonne. And we will see where prices are when we get there in the second half, when we have stable plant output.

Yeah. No, no, I meant Chinese, you know, SHFE prices or LME.

Olivier, I think zinc is a global market. So quite frankly, whether we have, as you know, we have hedged. Korean volume in Korean won or European volume in euros, ultimately it's a global base metal prices. So I don't see a dramatic difference there.

Okay, fair enough. And then I was just wondering if you have seen any moves by competitors in China, maybe local competitors or international competitors moving in?

Okay, we didn't see any international competitor at least investing or trying to invest. We have seen some people visiting local people, but not really any real movement. Well, we have clearly local competition. Well, it is not very clear what are the local people doing with the Sildag. There is not any, let me say, modern plan, state-of-the-art plan like the ones we are building. But for sure we find local competition. And we need to fight with this local competition when we negotiate with the filmmakers, as you can imagine. But again, I think the market opportunity is very big. and we will be able to feed totally our plants. The question is, will we be able to get collection fee or not? That will be the second part of the discussion.

Okay, fair enough. And do you have any update in Germany on the Hartz metal plant? Is it operating right now as far as you understand?

As far as we understand, They are still running the administrative process. So the plan is running, but not with the new armor steel. Yes.

OK. And I was just wondering if you were considering the option of going beyond the six potential kilns in China in steel dust?

Let's finish the two first plans. Let's start with the two followings and heads we will take from there.

Okay, fair enough. Thank you. And I have a few more. Do you have any sign on other geographies like India that regulation is about to change?

Well, India is clearly an opportunity. I think we need... But to have in front of us a real opportunity in the short term, we will need two things, more regulations and more scrap. And we have been following this geography as close as possible. Let me say that during the COVID period has been extremely difficult to do it. So once the COVID permit us to move again, will be the moment to analyze again the Indian opportunity.

I'm just wondering if you saw any disruptions. You mentioned South Korea and the volumes that you import of field dust. Did you see any impact so far this year from the tightness in transport capacity that we are seeing in other fields?

No, this year in South Korea our expectation is that we will have less problems in logistics than the previous year. So our expectation is to improve the figures we achieved last year.

And we've also seen some plant shutdowns in the auto industry in Europe. Do you see any impact on secondary aluminum demand?

No, contrary, what we are seeing in the beginning of this year is a very strong aluminum market in Europe. The levels of activity in the first quarter of the automotive industry has been very high, and the expectations for the second quarter are really very high as well. So, frankly speaking, we don't see any supply problems in the aluminum side.

Okay, and just a final one on the Q4 EBITDA. Can you comment maybe on what the 3 million corporate and elimination contribution was? Just give us a sense of what that was.

Wolf, can you explain please?

I think those were similar to last year. This is the normal intercompany eliminations as some of the, I think you're referring to on the aluminum side, where some of the salts like we produce in the secondary aluminum business, we also treat ourselves. If that's not what you're referring to, then send me a note and I'll answer your question. Thanks. Thank you.

Okay, thanks, Oliver.

Thank you. The next question comes from Clarissa Quack from M&G Investing. Please go ahead.

Morning. Thank you for the presentation. I think, like other lenders have said, I appreciate the transparency. So just a few questions. First, to follow up on other than South Korea, have you seen any impact of COVID restrictions in your other geographies in transport, logistics, or raw materials or anything? And then a couple of other questions, the first one, The stainless steel division, can you just share some color on how it ended the year? And finally, on working capital, how should I expect it to develop over the course of the year? And have you seen any pressure on receivable, payable inventory days? Thank you.

Thank you. Thank you for both questions. Regarding the first question, the area where we have seen some troubles in the last year regarding COVID and in the logistic area has been South Korea. Out of South Korea, well, you know what's happened. Out of the 40% that we import from the surrounding countries in South Korea, in the rest of the geographies, we create the steel dust, which is produced in the same area where we have the plants. So we didn't have logistic problems because we don't have and we are not transporting a lot of material. So the answer is clearly the problem has been basically in the South Korean geography for the 40% that we import from the surrounding countries. And regarding the second, okay. Regarding the stainless steel market, well, stainless steel has suffered in 2020 more than crude steel, clearly. And you know what's happened? It's something that we don't explain enough times, in my opinion. We are treating the fortune of crude steel that is produced by the electric furnace, and the decrease of this production in the last year has been really very small. a decrease in the total production of around 12%, but the decreasing in, well, regarding electric carbonation, we don't have the final figures from the industry, but has been the range of two to 4%. So quite, despite the deep crisis of COVID, we have seen a very stable producing product. But this is not what has happened in the stainless steel, which has suffered more. So for us, was not a very good year in China. Still, we have been able to do some positive EBITDA, but not very high. And we have been able to not destroy any cash. And based on the recovery we expect in the industry this year, and what we are learning from our customers, Autocompo, Acerinox, Aperang, et cetera, we expect a better year 2021 and 2020 in the stainless steel division.

Okay, sorry, just to confirm, so the stainless steel ended the year with positive EBITDA without any sort of use of cash?

Yes, yes.

Okay, thank you. Thank you. Then the last one was just on working capital?

Sure. So it's on working capital. So one part of the question was, whether in the COVID pandemic year in 2020, so far we had seen any changes in receivables or payable days. Absolutely not, no. And as you've seen from the results, we managed cash very rigorously, and 2020 was a very strong performance on cash. In terms of working capital for 2021, for this year, At the end of the day, 2020 working capital was flat. Obviously, we'll try our best to achieve this again as we grow. If you want to be conservative, you can put in a buffer of $50 million or so as sometimes in the last years or so we used because 2021 will clearly be an exciting year because we're growing. We're continuing to invest in China, ramping up the Chinese operations. If you want, you can put in a small buffer or so in working capital.

All right. Understood. It's very clear. Thank you very much. Thank you.

Thank you. The next question comes from Benjamin from Barenberg.

Go ahead. Hi. Good morning. Just a few follow-ups from me, please, on China. My first question was the potential ramp of the second plant Changsu, sorry, in Henan, rather. Is there a chance that that one could ramp slightly faster than the first plant? For example, can you start already the negotiations with the steel producers there on the basis that you have the first plant running or constructed at least in Changsu?

Thanks, Benjamin. Well, the schedule for Henan is basically six months later than Jiangsu. That means that we expect to do the commissioning of the plan, let me say, around September of this year. So, to use the last quarter of the year to do commissioning trials, rampant etc., and to try to start normal operations at the beginning of 2022. And regarding the contact with the steelmakers in that area, we have started the contact with them. We know all the customers. We have a good relationship with them. But we didn't start really the negotiations. To start negotiations, we need to be more at the latest part of the construction period.

Okay, thanks. And then looking at the acceleration of the roll-up, just to try and understand the strategy there, did I understand correctly that you prioritize filling out each plot first before considering a new province? Or how should we think about the strategy there?

Well, the initial strategy was less focus in two areas. These are the – Jansu, without any doubt, is the best possible location, I would say worldwide, because in a small territory we have a huge concentration of steelmakers and with a high proportion of scrap. So no doubt about it. So I think the right decision will be to build a second or even a third field in Jansu. Regarding Enam, well, it's probably the second best location, and I don't know if I would see three kings, but for sure, probably we will see two kings. Any case, we are totally open to considering any new opportunity, but as of today, we think that the strategy we defined at the beginning is still the right one.

Okay. Last question just on steel dust on stockpiles. Presumably, I mean, in the past you've had a sufficient stockpile of dust to smooth out the maintenance shutdowns. Is that something that you've been able to replenish or should we expect a bit more volatility in volumes processed this year with maintenance shutdown?

No. You know, we have been lucky because what we are seeing is a very strong activity in the market in the beginning of the year. So we are able to run the plant at full capacity. What is difficult is being at the same time to create again a raw material. So that we don't see, we don't expect any volatility because the markets seem to be very strong. Okay.

Thank you. Thank you, Benjamin. Thank you.

Thank you. The next question comes from Jaime Scribano from Banco Santander. Please go ahead.

Hello, good morning. So a couple of questions from my side. In terms of margins, looking to Q4, margins at salt slag came at 41%, I guess, due to the UK shutdown. And also, the secondary aluminum margin came at 8%, which are also very good margins. So how should we think about these margins going forward? Are they sustainable? particularly the one of salt slag, but also the secondary aluminum. And then a question regarding when you look to consensus of 150 million EBITDA for 2021, based on all the outlook you have provided, do you think it's conservative? It could be a good base case, or what do you have in mind? Without telling us your guidance, but maybe qualitatively. It would be interesting to know.

Thank you. Good trial, Jaime, in any case. Okay. Regarding the first question, the margins. Well, you know, one thing to explain clearly the very good margins in the last quarter has been the aluminum prices. In the aluminum prices, we have seen a rally in the last part of the year that we are seeing right now again. So in the secondary aluminum business, we have on one hand a very good price and on the other hand, a high level of activity in the automotive industry in Europe. And the same aspect to the solid slag business. In the solid slag business, the effect of the high aluminum prices is even more relevant than in the secondary aluminum. So all in all, In the first quarter of this year, we are seeing, again, strong margins in both business, even better than, or at sell level than in the last part of the year, so very good margins. And how long will we stay in the, how long will we enjoy this situation? It will depend on the activity of the automotive industry and on the second hand, in the aluminum prices. OK? And regarding the second question, well, we are at the very beginning of the year. But I will try to say something about your question. I think that if the treatment chart moves more to levels of 200, as some people are telling the market, the levels of zinc prices and aluminum prices stay at the levels we are having in these two first months, I would say that the consensus could be conservative.

Okay. Thank you.

Thank you.

Thank you. Ladies and gentlemen, we have now reached the end of the conference call. I will now give back the floor to our speakers. Thank you.

Thank you very much. You can contact the investor relations team of EFESA for any further clarification. We will now conclude the conference call and the Q&A session. Let me remind you that you can find the webcast and the dial-in details to access the recording of this conference call on our website, www.efesa.com. Thank you very much.