Befesa S.A.

Good morning and welcome to the first quarter 2022 results conference call of BFESA. I am Rafael Pérez, Head of the Strategy and Investor Relations of BFESA, and today, as usual, we have with us Javier Molina, CEO of BFESA, and Wolf Lehmann, CFO of BFESA. Javier Molina will start with an executive summary of the first quarter, covering the main highlights of the period. Then Wolf will review the first quarter financials in total and by business unit, as well as cash flow. Javier will close this presentation providing an update on our growth plans as well as the details of the guidance for 2022. Finally, we will open the lines for the Q&A session. Before getting started, let me remind you that this conference call is being webcast live. You can find the link to the webcast and the first quarter results presentation on our website, www.thefestival.com. Now, let me turn this call over to our CEO. Javier, please.

Thank you, Rafael. Good morning, everybody. The first quarter of 2022 has been another good quarter for Bethesda. Despite the challenging microeconomic environment and the volatility in the commodity price, we have delivered another record quarter, supported by strong volumes and high metal prices, which have more than offset the high inflation, especially in energy prices in Europe. We are living in a very challenging macroeconomic environment. The war in Ukraine is creating great instability in the global economy. In Bethesda, we don't have any direct operation nor customers in Ukraine nor Russia. However, we are very concerned about the development of the situation there and the long-term consequences and budget for civil today. International ban to the import of Russian commodities like coal, steel, oil and gas is also putting pressure on European commodities and alternative sources of supply are being used. As a consequence of this, we are seeing great instability in the energy market in Europe, with prices of electricity and natural gas achieving all-time high levels. This is also impacting the metal prices, which are reaching as well all-time high levels. Additionally, the global pandemic caused by COVID-19, which started more than two years ago, has not completely finished and is creating disruptions in the global supply chains across multiple industries. In China, the government is following a zero-COVID strategy, which is creating a very challenging situation in the business. as shutdowns are happening frequently. This is making very difficult to develop commercial activities with new customers as traveling around the country is heavily restricted. Also, we are starting to see some temporary decrease in the deliveries of steel dust from our customers. We are monitoring the situation to see how it evolves over the coming weeks. These two factors, the war in Ukraine and the COVID situation in Asia are causing great uncertainty in the global economy and concerns about a potential slowdown of the economy are starting to appear, which could eventually affect also the industries in the value chain of Bethesda and ultimately our volume in an economic crisis scenario. In Bethesda, We are facing this challenging environment positively, and overall, we are managing well all these difficulties across our businesses. Befesa today is a much more diversified business than one year ago, with a significant part of our earnings coming from markets outside of Europe, mainly North America and Asia. Nevertheless, these challenges are making the management of the day-to-day business especially difficult. In this environment, during the first quarter of 2022, we have achieved a total EBITDA of €61 million, which represents an increase of 25% over the same period of last year. The main driver for this earnings growth has been a combination of a strong increase in volume, combined with positive metal price development through the quarter. Volume of steel dust recycled increased by 86%, driving by the contribution of the U.S. operations and the start of the first plant in China, as well as a strong utilization in the rest of the markets where we operate, reaching nearly 90% of low factor. In the case of aluminum solid slag, the volume has decreased 16%, driving by pressure on the automotive industry in Europe. Average zinc price in the first quarter of this year was about 3,300 euros per ton, which represents an increase of more than 45% compared to the previous year. Similarly, average aluminum price in the first quarter was about 2,600 euros per ton, which is more than 30%. Regarding treatment charge for zinc, The benchmark has been settled at $230 per ton with a reference price of $3,800 and escalators, which represents an increase of 45% year-on-year. The market environment in the main industries where we operate have also seen a high level of volatility in the activity during the first quarter, driving by the challenging microeconomic environment. As such, the production of steel in Europe in the first quarter has decreased 4% compared to the first quarter of the previous year, while in North America it has remained almost flat, and in China has decreased 10% in the previous. The automotive industry in Europe continues to experience many challenges. caused by the semiconductor situation as well as the war in Ukraine, which is creating disruptions in the production of many auto components. Car registration in Europe were down by 12% during the first quarter, with a sharp decrease of 20% in March compared to the previous year. The generation of cash in our company during the first quarter has been very strong, and this has enabled us to finish the quarter with a leverage of 2.1 times. In China, the plant in Jiangsu has been working at a good capacity utilization during the first quarter. The plant is operating well, and we have signed a contract with steelmakers to secure the volume of raw material for this year. However, the third COVID strategy of the government is creating a challenging situation, and there is uncertainty about the development over the coming weeks and months, and we are starting to see a decrease in the deliveries of steel, thus from customers, as the transportation and logistics in the country are heavily impacted. We are monitoring the situation closely and see the future. In Henan, we have started the commissioning and ramp-up of the plant, and we expect to run commercial operations during the second half of the year. Although we are working on contracting the steel dust volume, again, the COVID situation is making this very challenging and may put some delay in the ramp-up of the plant. On the positive side, the environmental authorities are committed to enforcing and fulfilling the environmental regulations, with the steel makers seeing recycling as a real solution. In North America, the integration into EFESA is developing well across all fronts. The team is working well with the rest of the organization, and we can confirm that we will capture the synergies that we announced of $20 million over this and next year. We have developed a detailed action plan in order to capture all the synergies on the operational area mainly, but also in the general expenses and commercial fields. Regarding the outlook of this year, 2022, despite the uncertainty in the global economy, we expect a strong growth driving by the volume contribution from the U.S. and China operations supported by favorable meter price environment that will more than offset the high energy prices. Based on this, we expect full year 2022 EBITDA to be between 220 and 270 millions, which means between 11 to 35% of growth year on year. At the lower part of the guidance, we still expect to achieve at least double-digit growth, while the high end of the guidance will deliver a strong growth of 35%. I will provide more details on the full-year guidance later in the presentation. Now, Warren Lehman will explain the financials in more detail.

Thank you, Javier. Please turn to page six, our first quarter 2022 consolidated financial highlights. As explained by Javier, BFISA delivered record earnings in first quarter 2022 with 61.1 million euros EBITDA, up 25.1% or 12.2 million euros year-over-year versus first quarter last year at 48.8 million euros. Overall, our growth initiatives are delivering results, and even in this volatile environment, we're able to offset inflationary pressures mainly energy, through higher prices. Reviewing the main drivers of the year-over-year 12 million EBITDA improvement in more detail. On volume, overall, approximately 13 million net positive volume impact, 14 million positive from the higher steel dust recycling throughput, including the positive contribution from the acquired US link operations, as well as our China operations. a minor 1 million negative impact from lower secondary aluminum alloys, salt flecks, and SPL volumes, mainly driven by the current market volatility impacting the European aluminum industry. On price, the overall 16 million positive yearly impact with about 12 million from steel dust and around 4 million from our aluminum salt flecks. I will explain in more detail on the following pages. On cost other, About $60 million negative in the cost other level reflects the higher inflation, primarily energy cost, resulting from the current energy price volatility, which is in balance with higher prices. In summary, adjusted EBITDA is at our all-time high of $61 million at a strong 23% adjusted EBITDA margin. Net profit increased by 8%. about 9% year-over-year to 27 million euro in first quarter 2022, equal to 0.67 euros earnings per share based on the full new post-US acquisition 40 million shares outstanding. We also improved our cash to a new high level of 237 million euros and reduced our leverage further to 2.13 times leverage. I'll explain. More on page 9. Note in the appendix, as always, of this presentation, you will find various financial and operational data tables with quarterly, annual, and multi-year views for your reference. Turning to page 7, the Steel Dust Recycling Services results. Steel Dust Recycling Services continued to perform strongly and delivered $54.8 million euros adjusted EBITDA in the first quarter of 2022, up 18.3 million, or 50.1% year-over-year, representing the highest quarterly EBITDA on record. The corresponding adjusted EBITDA margin amounted to a strong 35%. Overall, the steel dust growth initiatives are delivering results, and even in this volatile environment, we're able to more than offset inflationary pressures, mainly energy, through higher prices. The volume lever was positive by around 14 million year-over-year impact. As explained, this includes the positive contribution from the U.S. operations, the acquired AZR business, and China. The net price lever was positive by around 12 million euros year-over-year, with main price components being 12 million higher zinc LME prices, up 46% year-over-year to 3,337 euros per tonne, 4 million positive higher zinc hedging prices, 2,286 euros per ton in the first quarter of 22 versus 2,201 euros per ton in the first quarter in the previous year. This was partially offset by a negative impact of 4 million driven by the latest higher zinc treatment charges, which were considered at $230 per ton retroactively from the 1st of January of this year versus $159 per ton in the prior year. Overall, the 12 million euros year-over-year impact from the price lever more than offset the approximately 8 million euros year-over-year impact from the higher inflation, mainly energy costs, captured under the cost other lever. Looking at selected operational metrics on the lower part of the page 7. Volume, or electric arc furnace steel dust, throughput increased by 86%, or 156,000 tons year-over-year, to 337,000 tons, including the contribution from the acquired U.S. recycling plant, as well as throughput at our first China plant in Changsha. Overall, plant utilization continued at strong pre-pandemic levels of 88%, of the extended 1,555,000 tons installed annual recycling capacity, which includes approximately 620,000 annual capacity contributed by the acquired U.S. recycling assets, as well as the first 110,000 tons at our first plant at China. Summarizing, A, growth initiatives are delivering, and B, higher prices are more than offsetting inflationary pressures. Steel Dust Recycling Services is delivering record results. Going now to page eight, the results of our Aluminum Salt Flex Recycling Services segment. Aluminum Salt Flex Recycling Services delivered 7.6 million euros EBITDA in first quarter 2022, down 4.7 million or 38.2% year-over-year. The year-over-year EBITDA development was mainly impacted by the current market slash volume, energy, and base metal price volatility. Please remember that our aluminum salt slag recycling operations are 100% European-focused. The volume lever was negative by about 1 million EBITDA effect year-over-year. This was driven by 16% lower salt slag and spandex lining treated, as well as 18% lower production of aluminum alloys, driven by the current lower European aluminum industry environment. Nevertheless, even under the current volatile market environment, we managed to run our plants overall at around 80% utilization. The price level was positive, about 4 million euros, with aluminum alloy pre-metal bulletin market prices showing a 33% year-over-year increase, as well as better aluminum metal margins. Nevertheless, the cost other lever with around 8 million EBITDA effect year-over-year was driven by the higher inflation energy cost trends with particularly high gas prices in Europe. As a result, in this first quarter, the inflation was higher than the chief metal price increase in the aluminum business. Turning to page 9, the cash flow and adept and leverage results. On the EBITDA to total cash flow bridge, starting with 61.1 million adjusted EBITDA on the left and walking to the right. Working capital was up by 23.5 million euros year-over-year, very much driven by the usual first quarter seasonality and timing impact. The fourth quarter last year was front-end loaded with a strong first month, October, and the first quarter this year, more back-end loaded with a strong third month, March, as usual. Interest at 7.3 million as expected with the first of the two biannual terminal B interest payments made in January. Taxes at 4.6 million euros also as expected, resulting in an operating cash flow of 25.7 million in the first quarter of 2022. CapEx-wise, in the first quarter, we spent 9.4 million euros on regular maintenance, productivity, including the U.S., compliance capex in line with our annual guidance of 40 to 45 million. And 16.4 million growth capex, mainly dedicated to our plant at Henan, which is now completed and currently commissioned. Together, total capex of 25.8 million, partially funded through approximately 13 million China local loans for our Henan plant. After funding working capital, interest, taxes, and capex, total cash flow amounted to a positive 13 million in first quarter. Hence, our cash on hand improved to 237 million euros, a new high for Befeza, up from 224 million at year end 21. The cash on hand of 237 million, together with our entirely undrawn 75 million revolving credit line, provides Befeza with a strong liquidity of above 300 million. The 222.6 million last 12 months rolling EBITDA incorporates full 12 months rolling months of the U.S. operations on a performer basis. The 473.5 net debt with the 222.6 last 12 months adjusted EBITDA results in a 2.13 net leverage at Q1 closing improving from 2.16 at year 21.