Befesa S.A.

Good morning and welcome to the preliminary full year 2021 of BFESA. I am Rafael Pérez, Head of Strategy and Investment Relations of BFESA. And today, as usual, we have with us Javier Molina, CEO of BFESA, and Wolf Lehmann, CFO of BFESA. 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 flows. Javier will close the presentation providing an update on our growth plans as well as a preliminary view on the outlook for 2022. And 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.befesa.com. Now, let me turn this call over to our CEO.

Javier, please. Good morning. 2021 has been certainly a very good year for BFESA in many aspects. We have delivered the strongest result in the history of BFESA and made great developments in the execution of our growth strategy that will enable us to grow a double digit in the coming years. The fourth quarter of 2021 has been the strongest quarter in the year with a total EBITDA of more than 60 million euros. In the full year, we have achieved a total EBITDA of 198 million euros, above the last guidance we provide of around 195. This represents an increase of 56% compared to last year, but more importantly, 24% more than 2019, which was the last year before the COVID pandemic started. The main drivers for this growth have been a combination of a strong increase in volume, combined with positive metal price development through the year. Volume of steel dust recycle increased by nearly 30 percent, especially in the U.S., driving by the acquisition of American zinc recycling in Novos, as well as a recovery in the plant utilization in the rest of the business, reaching nearly 85% in the case of steel gas. In the aluminum solid slag business, plant utilization was around 90%. Average seam price in 2021 was 2,544 euros per ton, which represents an increase of 29% compared to the previous year. Similarly, average aluminum price in 2021 was 2,137 12 euros per tonne, which is 48% higher than last year. Also, the lower treatment charge of zinc in the year contributed positively to earning growth last year. The main industries and markets where we operate have seen during 2021 a gradual recovery in their level of activity. As such, the production of steel in Europe in the last year increased by 15% compared to 2020, with an unstrong production level from electric car furnace steel makers. Steel production in USA increased by 18%, while it decreased by 3% in China last year. On the other hand, the automotive industry in Europe suffered a weak last quarter, ending the year with a small decrease of 2% on car sales compared to last year. This compares with China, where car sales increased by 7% or the U.S. with 3% increase. In 2021, we have taken advantage of the strong SIN price to extend our hedging book until October 2024 at increased prices. And today, we enjoy around three years of hedging going forward, which provide high visibility and predictability. In the second part of last year, energy prices in Europe increased significantly, which has a negative impact, especially in our aluminum business, which use natural gas and electricity as main energy sources. This impact in 2021 was limited and was offset with higher metal prices. From the strategy execution point of view, last year has been an extraordinary year. We have entered in one of the most important markets of steel dust recycling in the world, like the North American market, of which we now have around 50% of the market. Also, we have been able to complete and start operations in our first plant in China in the province of Jiangsu, as well as make great progress in our second plant in the province of Henan. These two developments in the US and China will set the foundation for double-digit growth for the coming years. From the capital market's point of view, 2021 has also been a very positive year. We successfully carried out a sizable capital increase to fund the position of American Zinc Recycling, which was greatly welcomed by our investors. The market cap increase enabled Bethesda to enter MDAX last September. The generation of cash during the year has been very strong, and this has enabled us to finish the year with more than $220 million of cash on hand. and leverage ratio below 2.2 times. Finally, on ESG, 2021 has been a year where we have made significant progress. It is very clear that society and investors push more and more for sustainable solutions, which is very much aligned with Bethesda. What we do is a vital part of the circular economy. We recycled 2.2 million tons of hazardous residues for our customers in the steel and aluminum industries to extract valuable natural materials like zinc, aluminum, and salt. We are very proud of the progress we are making on ESG, which is a recognition from the market of the contribution that FESA makes to a more sustainable world. Now Wolf will explain the financials in more detail.

Thank you, Javier. Please turn to page six, the 2021 consolidated financial highlights. As explained by Javier, Befisa delivered record earnings in 2021 with 197.6 million adjusted EBITDA, up 56% for 71 million euros year-over-year, with 2020 at 127 million euros. Also, well above the pre-pandemic levels, up 24%, or 38 million euros, versus 2019, which was 160 million euros of EBITDA. The main drivers of the year-over-year 71 million EBITDA improvement are price and volume, including the acquisition in the US. On price, the overall 64 million positive price year-over-year impact has the following components. 24 million from the reference zinc treatment charges settled favorably at $159 per ton versus $300 per ton in 2020. 25 million euros from higher zinc prices at 2,544 euros per ton, up 29% year-over-year. Negative aid from lower zinc hedging prices Those were at 2,151 euros per ton in 2021 versus 2,239 euros per ton in 2020, which partially offset the zinc LME price increase. Also, 25 million euros increase from higher aluminum alloy pre-metal building prices, which averaged 2,112 euros per ton, up 48% year-over-year, as well as better aluminum metal margins. On volume, the volume lever was also positive by 14.5 million euros year-over-year. 14 million from electric arc furnace dust throughput, higher year-over-year by 29% for 199,000 tons, including the positive contribution from the acquired U.S. operations, delivering as expected from mid-August onwards. Also half a million positive from higher secondary alloys partially offset by lower salt flecks and spent pot lining volume due to the UK plant closure at year end 2020. Overall, good volume performance with overall solid plant fertilizations at pre-pandemic levels. Steel dust at around 83%, aluminum salt flecks and spent pot lining at around 90%. On cost, another. The $8 million Negative impact from cost other reflects the higher inflation energy cost trends, as well as China expansion costs, which then are partially offset by operational excellence. Adjusted, a quick comment on adjusted with this reported EBITDA. The reported EBITDA amounted to $189.6 million, up $66 million, or 54% compared to the $123.5 million reported EBITDA in 2020. After normalizing for two items, $14 million for add-back for the one-time American Zinc Recycling acquisition cost, and then $6 million negative deduction from the one-time cost recovery referring to the Hannover plant as a result of the fire occurred in November 2021. So, net-net, an $8 million add-back for, ultimately, for the AZR one-time acquisition cost. As a result, the adjusted EBITDA in 2021 amounted to $197.6 million, as represented on the page, and which very well represents the run rate of EFESA in 2021. On a fourth quarter standalone view, we continue to deliver strong earnings growth with Q4 adjusted, as mentioned by Javier, at 60.8 million, which is the highest quarter on record, up 43% or 80 million euros year-over-year, also growing 43% compared to the fourth quarter 2019 pre-pandemic. In summary, Bifesa delivered solid pre-pandemic plant utilization levels, successfully accomplished the acquisition of AZR, and benefited from a strong and favorable market price environment in 2021, which enabled us to deliver our all-time high EBITDA of $198 million at a strong 24% EBITDA margin. Referring to the lower half of page six, net profit more than doubled year-over-year from $47.6 million to $99.7 million in 2021, equal to two 6.68 euros earnings per share based on weighted average number of shares of 37.3 million in 2021. We also improved our strong cash to a new high level of 224 million euros, which I'll explain later together with a net depth and leverage performance on page 9. We're proposing a dividend distribution of 50 million euros or 1 euro 25 per share. which is 3 million above the 47 million distributed last year and representing 50% of our 2021 roughly 100 million net profit. We are very pleased with our 2021 results, the successful acquisition of AZR. As such, we feel comfortable suggesting the 50 million euro dividend distribution and sharing the success with our shareholders. On a three-year basis, we have distributed €117 million total dividend, which over the three-year total net profit of €221 billion represents 53% dividend distribution, thus approximately at the upper end of the 40% to 50% of our dividend guidance, normalized for one-time effect, certainly within the range. We are very pleased to propose to continue to distribute also this year's dividend at the upper end of the 40% to 50% range. Please note, in the appendix of this presentation, you will find various financial and operational data tables with quarterly, annual, and multi-year views for your reference. Turning now to page seven, the Steel Dust Recycling Services results. Steel Dust Recycling Services continued to perform at strong earnings levels and achieved 148.3 million adjusted EBITDA in 2021, up 51 million, or 52% year-over-year, as well as 18% or 23 million up versus 2019, clearly demonstrating the recovery to above pre-pandemic levels. The corresponding adjusted EBITDA margin amounts to 33%. The net price level was positive by 39 million euros year-over-year. The volume level was positive by 14 million EBITDA year-over-year impact, as explained, driven by the higher electrical and stuff throughput year-over-year, and the positive contribution from the U.S. operations, the acquired XAZR business. The cost other lever had a minor 2.5 million year-over-year negative impact, which is the higher inflation, including energy and China expansion costs were partially offset by operational excellence and other. Looking at selected operational metrics on the lower part of the page. Volume for electric aqua and steel-dust throughput increased 29% year-over-year to 886,000 tons, mainly driven by the contribution from the acquired US recycling plants, but also by the better performance of existing operations year-over-year. Overall, plant utilization continued at solid pre-pandemic levels of around 83% of the extended circa 1,555 kiloton installed annual recycling capacity which includes about 620,000 tons annual capacity contributed by the acquired U.S. recycling assets. Taking a more detailed look at the price side, the zinc LME market price continued at high levels and averaged 2,544 euros per ton in 2021, up 29% year-over-year. Our zinc hedging price in 2021 were 2,151 euros per ton lower than year-over-year versus the 2,239 euros per ton in 2020, also lower compared to the strong LME spot price in 2021. Combined, the resulting zinc blended price came in at 2,275 euros per ton, up 139 euros per ton, or 6.5% year-over-year. Correspondingly, the positive EBITDA effect from the higher zinc LME market prices of cross-positive 25 million was partially offset by negative 8 million due to the lower hedge prices. In addition, the zinc reference treatment charge favorably impacted our polio EBITDA by 24 million euros year-over-year. As you know, treatment charge was settled at $159 per ton in 2021, being valid 1st of January. Overall, steel dust recycling services delivered a record €148 million adjusted EBITDA in 2021, with a strong 33% adjusted EBITDA margin and solid plant utilizations at around 83%. Going now to page 8, the results of our aluminum salt flex recycling services segment. Aluminum salt flex recycling services delivered 48.8 million adjusted EBITDA in 2021. Also, a new record high level, up 20 million euros or 69% year-over-year, compared to 2019, up 16 million or 48%, clearly demonstrating the recovery well above pre-pandemic levels. On price, the aluminum alloy pre-metal bulletin market prices showing a 48% year-over-year increase, as well as better aluminum metal margins, which combined drove a positive net 25 million EBITDA effect year-on-year. On volume, the volume level was slightly positive by about half a million EBITDA effect year-over-year. Overall, higher secondary aluminum lawyers were partially offset by lower source tax volume due to the UK plant closure at year-end 2020. was negative by about 5.5 million EBITDA effectively over a year, which was driven by the higher inflation and energy cost trends. Overall, aluminum salt tax recycling services delivered the highest EBITDA on record at 49 million, benefiting from the strong base metal price environment, which more than offset the higher inflation energy cost trends. Plant fertilization continued at solid pre-pandemic levels at around 90%. Turning to page 9, the cash flow, net debt, and leverage results. On the EBITDA total cash flow bridge, starting with 197.6 million adjusted EBITDA on the left and walking to the right. Working capital was up by 48 million euros, which was very much driven by the one-time impact of our AZR acquisition in the U.S., about 14 million of the mentioned one-time AZR acquisition costs, and about $34 million working capital for the acquired AZR operations. Interest and taxes with $17 million and $15 million respectively, both as expected, resulting in an operating cash flow of $117.9 million in 2021, also the highest on record, up 25 million or 27% year-to-year versus $92.5 million last year. In 2021, we spent 32 million maintenance capex plus 46 million growth capex, equaling a total of 78 million total capex, partially funded through approximately 27 million China local loans for our two plants at Changsu and Hina. Also, as you know, on 17 August, Befisa successfully completed the acquisition of 100% of American Zinc recycling. at a purchase price of $450 million and a minority stake in its refining business for $10 million, with an option to acquire the remaining business once certain operational and financial performance milestones are fulfilled. The AZR acquisition was financed through a capital increase of new ordinary shares from the existing authorized equity offering and a term loan B add-on of $100 million. 46.8 million dividend was distributed in July. After funding working capital, interest tax, capex, the AZR acquisition, and also the 47 million dividend, total cash flow amounted to a positive 69.5 million in 2021. Hence, our cash on hand improved to 224 million.1 euros at year end 2021. A new high and record for buffets are up from the $154.6 million at year-end 2020. The cash on hand of $224 million, together with our entirely undrawn $75 million revolving credit line, provides Befesa with a strong liquidity of around $300 million. Net debt increased to $471 million at year-end 2021 versus $394 million at year-end 2020. mainly due to the 100 million term loan B add-on to partly fund the AZR acquisition as well as China local loans. The 218 million last 12 months rolling EBITDA incorporates full 12 months rolling months of the U.S. operations. The 471 million net debt with the 218 million last 12 months adjusted EBITDA results in a 2.16 net leverage at year-end 2021. improving from 3.1 at year end 2020. Normalizing and including synergies leverage is even lower for debt covenant reporting. We continue to be compliant with all debt covenants and have no applicable covenants. The capital structure remains unchanged and long-term, all set to July 2026, and we cannot be charged more than 2% interest rate. Turning to page 10 on hedging. In 2021, we continued our hedging rigor and extended our zinc hedge book further, up to and including October 2024 for the classic or non-U.S. operations, and up to and including July 2024 for the U.S. operations, thus with approximately two and a half to three years of hedges on the books. The acquired zinc U.S. operations came with a hedge book in place up to and including first quarter of 23, at hedging price of around $2,500 for the remaining of 2021, and around $2,750 for the full year 22 and first quarter 23. Following the closing of the acquisition and Underway Fisher's more competitive hedging program, we extended the hedges for the U.S. operations up to and including July 2024, locking in 15,000 tons of zinc equivalent output per quarter at approximately 2,950 to 2,975 per ton. We continue to work on extending the Hatchbook for the U.S. operations by one more quarter to be fully synchronized with the hedging of FIFISA's European and Asian operations. Overall, considering the combined global Hatchbook, Europe plus Korea plus U.S. operation, the year 2021 was hedged at around 2,151 euros per ton, sold-forward prices the year 2022 at around €2,250 per ton, the year 2023 at around €2,350, and the first three-quarters of 2024 at around €2,400 per ton. The hedging provides the face-off 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 percent of our global zinc equivalent volumes, and if it provides no collateral, the risk is transferred entirely to our hedging partners. Referring to our zinc blender prices, the lower left section on page 10, in 2021, our zinc hedges were locked in at approximately 2,151 euros per ton on average. below water compared to the strong zinc LME spot prices, which averaged approximately 2,554 euros per ton. Overall, the zinc blender price in 2021 averaged 2,275 euros per ton, up 7%, or 139 euros per ton. Summarizing the financial section before we turn to the growth and outlook, three points. Bifesa delivered in 2021 the highest earnings in the history of the company, at 198 million adjusted EBITDA, up 56% over last year, which translated into very strong developments in terms of operating cash flow, cash and leverage. Secondly, our financial backbone is strong. We extended our hedges out to October 2024. Our capital structure is efficient and long-term, resulting in a stable and strong liquidity. And three, based on this strong backbone, we funded our global expansion In China, even during this challenging pandemic, we go full speed and are progressing on target. In addition, we entered the U.S. market through the acquisition of AZR. Now, back to Javier, who will provide you the latest on our China expansion, our Zinc U.S. operations, and an initial outlook for the year 2022.

Thanks, Wolf. As you know, we will provide full-year guidance when we report our first quarter figures in April, once the treatment charges on zinc are settled. Nevertheless, I will take you through the main drivers of earnings for 2022 and provide some comments about them. Last year, we set the foundation for future growth in the years to come, and 2022 will be clearly a year of strong growth for Bethesda, driven mainly by a strong volume growth in our steel dust recycling business, supported by strong metal prices. We expect double-digit growth in our EBITDA, although to more precise, we need to wait more to see the evolution of certain elements that drive our earnings, like treatment charge, metal prices, and energy costs. But even in the current situation, I feel very positive. From the volume point of view, we will deliver a strong growth in our steel dust recycling business, driving by the contribution of the two plants in China, as well as the full year of operation in the U.S. In China, 2022 marks the first year of commercial operations of the face in this market, which is the biggest market in the world. In Jiangsu, after the successful commissioning and ramp-up of the plant, we expect 12 months of full production, with an average capacity utilization of around... I can confirm that we have been operating as normal for the first two months of the year, and we have secured around 100,000 tons of steel dust. In January, we treat 8,600 tons, which is almost full capacity utilization. In a month, We expect to complete the commissioning and the ramp-up of the plan during the first half of the year and run commercial operations during the second half. In this plan, we are working on securing the volume and expect to run the plan at a high capacity utilization. So all in all, we expect a positive EBITDA contribution from China this year. Moving now to America. As explained at the beginning of the call, things in the U.S. are going well, and I'm very happy with the integration of American Sins Recycling into Bethesda. Since November last year, we are regularly traveling to U.S. and working across all the different aspects of the business, from the operational side to the commercial side. The team is working very well with the rest of the organization, and we can confirm that we will capture the scenarios synergies that we announced of $20 million approximately over this and next year. In 2021, we consolidate around four months of operations from the U.S., which delivered around 10 million euros of EBITDA. In 2022, we are going to benefit from the full year of operations in North America, which will represent a significant EBITDA growth. driving by better hedging prices and the contribution of part of the synergies. This will be partially offset by slightly lower volume of steel dust compared to the previous year, which we will recover over the next years. Beyond China and U.S., in the rest of the traditional business of Bethesda, we expect a strong volume in steel dust, secondary aluminum and solid slag, supported by a strong performance on the underlying industries, mainly steel production. From the metal prices point of view, we also expect a positive contribution this year. The hedge price for 2022 is around 250 euros per ton, which is 100 euros higher than last year. Additionally, we are enjoying sink prices higher than in 2021, and it seems that it will stay high for the rest of the year, driving by strong demand and constrained supply. If this is the case, this will drive airing up significantly. On the other hand, it seems that treatment charge will increase this year, driving by lower demand from smelters. In 2021, the treatment charge was 159 euros per ton, and any increase of $10 will have an impact of around $2.5 million in our EBITDA. We are living in times of volatility and very high energy prices in Europe, which has an impact on our European operations and especially on our aluminum business. Our steel dust business is very well diversified from the geographic point of view, and the main energy cost is mainly coke, most of the contracts having limited impact. However, our aluminum business is impacted by the high energy prices, especially gas prices, which represent around two-thirds of the total energy cost in that business. But this is partially compensated by the slightly higher aluminum price than last year. Summarizing all these aspects, we see clearly a strong double-digit growth in EBITDA for this year. Regarding the announcement of further plans in China, I would like to say that we are very confident and positive about how things are developing in the country. Environmental authorities are committed to fulfill the environmental regulation. Steelmakers are seeing recycling as a real solution. and we are starting to see real possibilities for new plants in China. We will announce our growth plan in China during this year. Finally, on ESG, we are proud to actively contribute to the circular economy by recycling more hazardous waste for our customers year on year. producing more valuable new materials and preventing destruction of video resources, as we keep delivering attractive returns for our shareholders. In our next ESG report, we will include a detailed chapter about climate change and how EFESA is committed to the protection. Although BEFESA avoids CO2 emissions versus the alternatives, we are going beyond by defining a plan to reduce our own CO2 emissions by 20% in 2030, with the ambition to achieve net zero emissions by 2050. Thank you very much. Thank you, Javier.

We will now open the line for your questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, Please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. Our first question today comes from Michael Hoffman of Stiefel. Please go ahead.

Hi, good morning, and thank you very much for the questions. If we could start with geopolitical for a minute, can you frame how you think about what's happening on your eastern border, what the implications are to the business?

Wait a minute. Thanks, Michael, and thanks for the question. Frankly speaking, we don't expect or we are not going to have any direct implications regarding what is happening in the eastern part of Europe. We don't have any interest in the area, any interest in Ukraine, neither in Russia. Well, we can have, let's say, indirect effects, for example, in the energy side or the inflation cost or in the macroeconomic side, but not any direct effect. I would like to say that in any way regarding energy, in our main business, which is still that, the energy cost inflation will have a limited effect in our P&L because our main energy source is coke. And well, there is not a direct correlation between coal prices and gas prices. So summarizing, we don't expect any direct effect. We would have all the indirect effects regarding the macroeconomic evolution of the situation.

Okay. And then I appreciate not giving full guidance, but can we frame things like what should we expect as tonnage in, say, electric arc furnace if we broke it down into the three components of legacy, the VESA, USA, and then China?

Okay, well, in Europe, we expect solid, good volume, very good volumes. The What we are seeing in the production of the filmmakers in Europe is a very solid and good situation. Exactly the same is happening in the US. And I think we could say the same regarding our Asian operations. So all in all, We expect a good volume for the full year, and this is what we are seeing in the first two months of the year. On the other hand, the orders we have from our customers are very solid, so we feel very positive regarding volumes in the steel side.

But can you frame that in numbers in the U.S.? What would you expect as tonnage in the U.S. so we at least get sort of that annualized number?

I don't have these figures in my mind right now, but for tour will be volume about 450,000 tons during the year. In Europe, we will have similar figures, and we have in 2021. And regarding China, Turkey and South Korea, more or less the same, slightly better, let me say. And regarding China, thinking in the Jiangsu plan, as I said during the presentation, we have secured around 100,000 tons which means near full capacity for the plant during the year. And regarding Enam, well, we will start commercial operations mid-year, and we are now in conversation with the seed makers, and we expect a good volume for the year. So, again, all in all, even in the current situation, we feel very positive with our volume for this year.

Okay. Thank you very much.

I appreciate it. Thank you, Michael.

Our next question today comes from Jake O'Brien of Goldman Sachs. Please go ahead.

Good morning, gentlemen, and congratulations on the strong year. Two questions, if I may. The first on China. It sounds from your commentary that the demand is coming through strongly for these two plants, which is great to see. Can you just give us a sense on how you're seeing the economics, two months, how are things like recoveries coming through? What's the situation with collection fees? margin on this business similar to Europe. I think previously you'd mentioned that maybe each plant could contribute around 10 to 15 million euros of EBITDA on an annual basis and I appreciate this is the first year, but just would be fascinated to hear any insights of actually the economics of the business so far and your learnings to date.

Okay. Thanks, Jacob. Well, the We are still on February. We have closed only the first month of operations. As I said in the presentation, the volume has been very good. The final figure we achieved has been more or less our budget figures. You said we were talking about 10 to 15 If I remember properly, we were talking about from 8 to 14 million, which is similar. And we will be in that range. And to precise more, it will depend especially on the quality of the steel dust. I mean, on the amount of zinc contained in the steel dust, which is yet the variable that we don't know very well. Regarding collection fee, well, we are using formulas, which means that depending on the sink price and sink content. At the current levels of sink price, steel dust, we are paying for the steel dust with high sink content, and we are and we get money from the steel dust with low zinc content. So trying to summarize, the first month has been a good month with costs in the right side, volumes in the right side. Zinc content is still slightly low, but we think it's normal. We are starting with operation with our customer. We expect to improve the quality of the thing during the incoming month. We feel really very positive about the evolution of the Chinese plant.

Thank you very much. And perhaps just one follow-up on China. So there's nothing you've seen from a market perspective. that should concern at all. It sounds like you're very confident. Obviously, utilization sounds like it will be very strong through 2022. And as I understand it, Bufesa has a first mover advantage in the country. So it sounds like things are going well from that front.

Yes, really. As you said, we are the first mover. Frankly speaking, we are not seeing... any foreign competition in China today. We are seeing some local competition, but not a real, at least a good competition from an environmental point of view. The perspectives are really very positive, so that's why I said during the presentation we feel very confident about the future of our operations in China, not only thinking in the first two plans, but we are now, once we have more time to think to grow the market, that we are starting to see real possibilities in other areas, other provinces with new and existing customers. So I think that during the year we should be able to announce new projects in this area.

That's great to hear. And one more, if I may, just on the US and obviously a transformational year for Professor in 2021. Now that you've owned AZR six months and you've been able to look underneath the bonnet, has Has your perspective on that business changed at all in terms of, you know, if we think about the synergy potential, for example, or the quality of the business, what have you learned since owning the business and do you still remain fully confident on ramping the capacity utilization? Yes.

Well, what we are seeing in US after, as you say, six months of operation is basically what we discovered during the the due diligence that we did. We had the opportunity to run a very deep due diligence, so we are not seeing any negative surprise after six months. We are really happy with the situation of the plants. We have bought four good plants in terms of steel dust treatment. We have an excellent local team, which runs the business very well. We have a very strong position in the market. It's true that during the last year of operation, they lost some quantities, but we are in the way to recovering during this and the following year. So all in all, we feel really very positive. Regarding the synergies, as I said during the presentation, we feel that the first step of our thing is what we were talking about, $20 million. we will capture, we will get during the first two years as expected. So all in all, really very positive. Then we are now in a process to analyze deeply the market, to analyze deeply the plan, the cap is to be able to improve the profitability of the American operations to be able to achieve the levels of profitability that we have in Europe. But that will need more time.

Great. Thank you very much. Okay, Jacob. Thank you. Cheers. Cheers.

We will now take a question from Oscar of JP Morgan. Please go ahead.

Yes, good morning, Wolf and Javier. I have two questions. I'll take them one by one. The first one on secondary aluminium and energy costs. In secondary aluminium, you did 10 million of EBITDA in Q4, which is higher than what you've ever done, which seems like you're managing to offset higher energy costs with a higher aluminium price. How should we think about that next year, are there any hedges that roll off in natural gas? So that's really the first question, the phasing of secondary aluminum next year if energy prices remain high.

Well, we don't have hedge in our secondary aluminum business. We are living with spot prices. So even in that situation, as you said, we achieved record results in the last quarter of the year. It's true that the first month of the year has been a difficult month because we have had very high energy costs, but in any way we have been able to achieve positive and good results. And we expect – let's see what's happening with the energy costs regarding all this Ukraine crisis, et cetera. But we – what we are – at the same time, we are seeing that, for example, today the aluminum prices are going up 5 percent. So what we have learned in the past is that there is a certain correlation between energy costs and aluminum costs. So I don't know if we will be able to achieve the same excellent results we achieved last year, that frankly speaking was a record year in our aluminum business with 49 million euros, but we feel comfortable that we will be able to achieve very effective results.

Okay, thank you. Okay, okay. Go ahead. I don't know if you were finishing.

No, well, I will tell you that at the same time in our steel dust recycling business, even in the current situation with high energy costs, but in that case with less effect in Bethesda because our main energy resource is coal and there is not a direct correlation between coal and energy, but with the current excellent sink prices and our excellent hedging prices, we feel really very comfortable. All in all, even in this very difficult situation, especially today, I would like to say that I feel really very comfortable thinking in the P&L that we have from the past four years. Okay.

That's useful. My second question is on AZR's zinc refining assets. And I don't know if you can comment, but are they achieving the milestones? And how should we think about Bethesda potentially buying that business? Do you have any sense of if the business is recovering and improving?

Yes, it is. We now, as you know, we own 7% of the stake of the company. So we have We have a director in the board of American Single Products. American Single Products is the name of the company. And I can say that the evolution in the production is being really very positive. They are achieving the low factor. And now they are fighting to get the level of cost which is needed to figure the milestones. But yes, I think they will be able to achieve both low factor and cost that will trigger the following milestones.

And can I just check when will those milestones be?

Well, that will be more difficult because they need to achieve in our contract, they need to achieve the levels during six months without a stop, et cetera, et cetera. So it's something that will happen, in my opinion, during 2023, probably, likely.

Great. Thank you very much, Javier.

Thank you, Oscar.

Ladies and gentlemen, as a reminder, to ask a question, please press Star 1 on your telephone keypad. Our next question today comes from Jaime Escribano of Banco Santander. Please go ahead.

Hello. Good morning. So, a couple of questions from my side. The first one is if you could tell us what is the ABDA contribution from Americans in Recycling in Q4? And what could we expect, more or less, or give us a range in terms of a BDA for 2022? I'm asking this in order to understand what has been the BDA, like for like, excluding the acquisition. And also, related with the acquisition, how are you doing with the hedging? Because I remember one... a relevant catalyst for American single recycling was to change the hedges to hedges more in line with Befesa. Have you implemented this?

Thank you. Okay. I will answer the first question and Wolf will explain the hedging situation in the US. Regarding the first question, the winter contribution of the U.S. operation was around 10 million euros for the fourth quarter. Our expectation for 2022, remember when we did the presentation of the deal, we were talking about the full year contribution for the first year of operation of around 40 $45 million, more or less. And this is what we have in front of us, and we feel positive that we will be able to achieve or even improve slightly this figure.

Okay.

Okay?

Great. And then on hedging, yes, absolutely. We now apply the VIFISA rigor on hedging. Timing. When we acquired the company, hedges were on the books roughly until the first quarter of 2023. As I mentioned earlier, now we're hedged for U.S. operations up to and including July 2024. So the classic BFISA hedge book is up to and including October 2024. U.S. operations were already extended to July 2024. There's only three months pending to fully synchronize the hedge books. In terms of pricing of hedges, yes, what we have now on the books, the hedges that we added are more competitive. When we acquired the company, hedges were on the books for 2021, last year for roughly $2,500. For 2022 and the first quarter 23, roughly $2,750 per ton. And the last hedges and the extension that we've done are more than $2,900. The last hedges, rather, $2,950, $2,975. So all of that contributes, as I mentioned on the page on hedging, that really we now see for the next years clearly the hedge fund contributing to earnings. If you look at this year, last year was 2,150 euros per ton. This year, 2,250 euros per ton on average for the total business. It doesn't sound like much. It's 100 euros per ton more, but you need to multiply Heimer with roughly 150,000 tons hedge. So that's 15, 1,500,000 euros incremental EBITDA coming only for this year. And then next year will be 2,350, will be another 15 million, et cetera. Overall, we continue the hedging rigor, and it provides stability in earnings.

Okay. Thank you very much. And just a couple of more questions, if I may. The first one is more related to guidance, and I laugh because maybe, Javier, you won't be able to tell us, but let me ask you in a different way. So you have done, in Q4 2021, a run rate, a VBA of around 60 million, more or less. So if you multiply by four, just very easy number, we get to 240 and you have the upside from Chinese volumes coming and all the upside that was just mentioned about, for example, the hedging and synergies and so on. So this 240, would you think about like a starting point doing this run rate?

Well, I would say be patient. Finally, we will provide the guidance as promised in April. But, okay, your calculations are well made, but you have to take in consideration some ideas. We didn't have any maintenance shutdown in the Q4, which has a very positive impact. Yes, we will have positive impacts. Taking account of that and on top of that we will have positive impacts like China and the hedging. We will have some negative impacts as could be energy costs in the aluminum side or the increase in the treatment chart that we expect for the year. So I would like to summarize telling we feel very positive. We will have clearly a strong WDG growth in front of us. permit us to wait until April to precise more about the guidance of the year.

Okay, thank you very much. And final question from my side. So in terms of Chinese expansion plans, I know you cannot anticipate anything, but if you were to expand capacity in China, when do you think you would be in a position to announce it? Is it something we can hear about in Q2, more closer to July mid-year or second half? And what are the main variables that could trigger an announcement of expansion? So what is what you are waiting or what is what you are doing right now in thinking about expanding capacity?

Thank you. Well, until now, we have been Let me take into consideration two ideas. First is that we have a limited human resource team there that has been basically focused in the construction and feeding of the first two plants. Jiangsu is basically done. Now we are finishing the construction of Henan, and we are totally concentrated in feeding the raw material for the plant. On the other hand, we have had, as you know, in China, the COVID restrictions are much higher than probably the rest of the world, so to travel, to visit areas has been really very difficult. Now we are starting to do all these kind of things, and we feel positive because we see Now we are starting to work seriously in those opportunities. When are we going to announce? We will announce something to the market when we have something real on our hands. We don't want to announce ideas. We will announce real projects. When that will happen? I'm thinking more in the second part of the year than the first part of the year, frankly speaking. But let's see the evolution of things during the year.

Okay, very good. Thank you, Javier. Thank you, Jaime.

Our next question today comes from Joan Rodriguez of Kepler. Please go ahead.

Hi, thank you. Good morning. Thank you for your questions. Apologies on my side if some of these have been already asked as I've been having problem connections here and my call continues dropping. But I have two on my side. One is on the energy side and the second one on volumes. So on the first one, how are margins holding up on your aluminum business? In other words, are you seeing that metal price increases are fully capturing your higher energy cost? And in that sense, more clarity as well on the energy cost side, how are you designing your contracts with gas suppliers? So you only buy on the spot or do you have some kind of yearly review tariff with gas suppliers? So this is on the energy side. The second one is on volumes. And if the macroeconomic condition deteriorates further, as we see the news flows today, what is your confidence that the volumes treated would hold? In other words, do you have some contractual protections in that sense? Any sensitivity could be useful as well. Thank you.

Okay. You have made two difficult questions, frankly speaking. Regarding the first one, we don't have today long-term contracts in energy, in the aluminum business. We are using the export prices. So January has been a difficult month. February has been better than January and March. will be better than February. So in January we have been below the previous year figures in terms of margin, but anyway we are having positive margins. To define more precisely the margin is really difficult because there are two variables that we don't know which will be the correlation between them, energy prices and metal prices. What you can think is that energy represents around 20, something slightly more than 20 percent of our cost, and the sale of of metals represent more than 50% of our income. So, the effect of these metal prices is higher than the effect of the energy cost. So, we don't need the perfect correlation to observe totally. Let's see how the situation evolves, but, well, I feel positive at that moment. And then regarding your second question, I don't know. You guys are the specialists. We only know about our small business, and for us it's really difficult to forecast what is going to happen with the current geopolitical situation. What I can say is that what we have seen in the first month of the year has been a very positive evolution of the industry, especially in the steel side. We are enjoying very good volumes, and we don't forecast in the short time any different situation. If something changes dramatically because of the geopolitical situation, let's see. If that happens, well, the contract protection, I think, We have something, but I'm not sure that in this exceptional situation that protection could be used.

Okay, quite clear. Thank you. Just as a follow-up on the energy side, so you said that you don't have any long-term contracts on energy prices. Not today.

Not today in the aluminum business.

Okay. Okay. But you buy everything on the spot or you have some yearly kind of contracts?

We have some. It's not totally a spot. We have a stable relationship with the electric companies with different bases, but not with today, not with the long-term contracts.

Okay. So we can say that the movements on energy prices have a couple of months lagged.

As there are no further questions at this point of time, I would like to turn the call back to Rafael Perez for any additional or concluding remarks.

Thank you all for your questions. You can also contact the investor relations teams 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 in our website, www.reface.com. Thank you very much to everyone.