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.

Turning to page 10 on hedging.

In first quarter 2022, we continued our hedging rigor and extended our zinc hedge book further up to and including January 2025, thus with approximately three years of hedges on the books. The PESA's current hedging volume run rate is to hedge around 38,000 tons of zinc output per quarter or around 152,000 tons per year. Overall, concerning the combined global hedge book, Euro-Korea-U.S. operations, the year 2022 is hedged at around 2,275 euros per ton sold forward prices. the year 2023 at around 2,375 euros per ton, and the year 2024 at around 2,425 euros per ton. Please note that there is approximately 40 million earnings or EBITDA growth already locked in in the Hedge Book. 2021, last year, at approximately 2,150 euros per ton, and 2024, at approximately 2,425 euros per ton is a 275 euros per ton difference. Multiplied with our approximately 150,000 tons hedging run rate is more than 40 million higher price and earnings growth locked in over the next year. The hedging approach remains entirely unchanged. We hedge one to three years out. We target 60 to 75 percent of our Zinc equivalent volume, and the phaser provides no collateral, the risk is entirely transferred to our hedging partners. Referring to our zinc blended prices, the lower left section on page 10. Overall, the zinc blended prices in first quarter 22 averaged 2,533 euros per ton, up 13% for 296 euros per ton year over year. Summarizing the financial section before we turn to the growth and outlook, three points. One, the FISA delivered in the first quarter 22 the highest quarterly earnings in the history of the company at 61 million adjusted EBITDA, up 25% over last year, despite the current volatile market environment. Two, our financial backbone is strong. We extended our hedges out to January 2025. Our capital structure is efficient and long-term. resulting in a stable and strong liquidity. We entered this challenging 2022 environment in the strongest shape we've ever been. Three, this strong backbone serves us really well. A, to fund growth in China and the US, and B, maintain a stable dividend payout at the upper end of the thesis dividend payout ratio to share the success with our shareholders. Now back to Javier.

I would like to finish the call providing some more details and thoughts on the outlook for this year. As I said before, 2022 will be another year of strong growth for Bethesda, driving by a strong volume growth from contribution of the U.S. and China and supported by a favorable metal price environment that will more than offset the high energy prices. From a volume point of view, Despite the instability in the markets, we expect a strong growth on the steel dust volume, driving by a full year of consolidation of our operation in North America, as well as the start of the operation of the two plants in China. In North America, as I explained, the integration of ASR into EFESA is developing well across all fronts. This year, we will benefit from the full year of operations, which will represent a significant EBITDA growth, driving by better prices and the contribution of part of the synergies. This will be partially offset by the slightly lower volume of steel dust compared to the previous year, which we will recover over the next years. In China, at Jiangsu province, we have been operating the plants since the beginning of the year. And despite all the difficulties that the zero-COVID strategy of the Chinese government is implementing, we continue to expect a high plant capacity utilization between 80 to 90% for the full year. However, given the current challenging situation in China, we want to be prudent about the overall outlook for the year in China. Our second plant in Henan is developing as planned. The construction is completed and we have started the commissioning of the plant. We expect to start commercial operations during the summer and run the plant as a good utilization until the end of the year. As explained, the COVID is creating a challenging situation, which is too soon to quantify at the moment, and which may delay the ramp up of the plant. In the traditional business of Befesa, we expect similar dust volume than in the previous year. So, all in all, we expect an unstrung volume growth on steel dust recycling. From the market's point of view, we expect that the volume of our steel dust business will be supported by a strong electric and furnace steel production industry in Europe, USA, and China. We expect the current level of spill protection to be maintained throughout the rest of 2022. In the aluminum solar slag and secondary business, for the full year, we expect similar volume than last year, despite the challenging situation that the auto industry is suffering in Europe. However, if the problems of the semiconductor shortage is not fixed, and supply chains problem with oil components continues, we may continue to see pressure on the volumes for the rest of the year. Moving now to the price environment, as we are seeing the challenging macroeconomic environment and higher energy price are driving up metal prices for steel and aluminum. We believe that as long as energy price will stay high, so will metal price as well. There are two more factors on the price side that affect earnings. One positive, which is hedging, and one negative, which is treatment charge. On hedging, the level of price of the hedge for this year, 2022, is 125 euros higher than last year. On the other hand, the benchmark treatment charge for zinc has been settled at 230 euros per tonne. This increase of 45% is negative for Befesa and will partially offset the better zinc hedging price, as well as higher zinc LMA price during the year. We expect inflation to remain high for the most of the year, especially on energy prices in Europe for natural gas and electricity. This will increase our cost base, especially in our aluminum business, where around 30% of the cost is energy. Additionally, we also expect transportation costs to increase in the year as a consequence of inflation. Based on this, we expect full year 2022 EBITDA to be between 220 and 270 million, which means between 11 to 35% of growth year on year. The wide range of the guidance is driven by the high volatility in the markets, volumes, metal prices, as well as inflation, especially in the energy prices. At the lower part of the guidance, we still expect to achieve at least double-digit growth of 11%. This scenario considers a slowdown in the global economic situation. through 2022 as a consequence of a prolonged, challenging microeconomic environment that would impact the main industries where we operate, creating supply chain disruptions and decreases in production in the steel and automotive industries, combined with high energy prices. On the other hand, at the high end of the guidance, we will deliver a strong growth of around 35% on EBITDA. This scenario considers a strong volume throughout the year, supported by high metal prices in line with the ones we are seeing right now. In this scenario, we expect moderate impact from energy prices and inflation. and strong performance on the underlying industries that impact Bethesda, like steel production and automotive, translated in high capacity utilization of our plants for the year. I would like to remark that if covering conditions are maintained during the year, we will end up in the higher part of the guidance. We expect total capex in the year to be around 55 to 65 million, including regular maintenance and growth. On dividend, we will continue to carefully manage dividend stability. For 2022, we want to propose a dividend distribution of 50 million euros, or 1.25 euro per share, which would basically mean distributing 50% of the net profit of last year. This will result in unexpected leverage between 1.75 and 2 times by the end of the year. Finally, on ESG, in the FESA, we are very proud to have actively contributed to the circular economy for more than three decades by recycling more hazardous residues for our customers year after year. We produce more valuable new materials, and prevent destruction of vision resources as we keep delivering attractive returns for our shareholders. In the next ESG report, which we will publish during the second quarter of this year, we will include a detailed chapter about climate change and how BESESA is committed to it. The FESA clearly avoids CO2 emissions, being an alternative to mining finite resources from the herd. Nevertheless, we are going further by defining a plan to reduce our CO2 emissions by 20% by 2030, with the ambition of achieving net zero by 2050. Thank you.

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

Thank you, everyone. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your phone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach us. Once again, please press star one to ask a question. We have our first question from Mr. Sandeep Piti at Morgan Stanley. Please go ahead, sir. Your line is open.

Thank you, operator, and good morning, gentlemen. I have three questions. I'll take one at a time. Firstly, how much EBITDA was generated from the US and China in Q1? And what is baked in your guidance? And can you clarify if China plant is fully exposed to spot prices? Thank you. That's the first question.

Thank you very much. We are not going to provide BIDDA by regions. You should understand that we manage our business in a global basis, so we move raw material from one region to another, et cetera, et cetera. So we prefer to provide only information at a global basis. Anyway, I can confirm that the generation of BIDDA in the U.S. strong and positive, in line with our or even better with our expectations. In China, the Jiangsu plant started operations in January and December, at the end of December, so it has been the first quarter of operations. I can confirm that we are achieving positive results. But let me highlight that the management of the plan during this first quarter has been extremely difficult because of the COVID restrictions. We are really very happy with our Chinese operations. We are fulfilling our expectation in the construction side, in the relation with our customers, In the support we are getting from the Chinese authorities, frankly speaking, the only problem we are facing is the COVID. And the way that the Chinese authorities are managing the COVID. These are creating big problems in the daily operations. But we hope that that will be only a temporary situation, and later on we will be able to restart normal operations. Your second question, please.

Yes. And just one more question on that, or clarification. And can you clarify if China plant is fully exposed to spot sink prices?

Yes, yes. Our hedging philosophy is to hedge between 65% to 70% of our global production, again. So it's our first year of operations in China. We are learning about the – China is a different market. They don't follow LME prices. They have their own price system in Shanghai, which has a very good correlation with the LME, but it's not a perfect correlation. And at the same time, we are starting to conversation with the local banks to implement our hedging policy. But we are not in a hurry to do that, because at the end, we manage our businesses, as I said before, on a global basis. And what we are doing is to increment the proportion of things that we are hedging in other geographies. So at the end, as Warren explained before, we get near 70% of our total production.

Okay, thank you. The second question, so in the U.S. operations, can you please let us know out of the 20 million targeted synergies in the next two years, how much has been achieved so far?

during Q1? That is a very difficult question. To achieve synergies is an ongoing process, as you can imagine. Most of the process or the seniors are process improvement, so it's a process that we have to start some months ago, and every day we start to see the progress. I think the important point is that I can confirm that we are going to achieve, without any doubt, the 20 million between this year and next year. Likely, the proportion will not be 50-50, because we need time to get all the scenarios, so this year we will achieve between 30 to 40 percent, and then the rest will be achieved in the next year. But to make sure the signal is in the multi-basis is very difficult.

Okay, that's very clear. Thank you. And the last question on secondary aluminum. That operation seems to be the hardest hit from energy cost. So if we assume that spot energy costs remain for the entire year, what sort of profitability are you expecting from the operation? Thank you.

Okay, as you can see in the presentation that we have published, in the steel dust recycling business, we have been able to save 100% and to increase our profitability, but this is not the case in the secondary aluminium business. Let me remark that we are able to do, we have been able to do that basically in the solid select recycling business, but not in the secondary aluminium. So at the end, we have been the first worker below our expectations. And if the energy prices remain at the very, very high level we have today, we will be at the end of the year below our budgeted figures. Which is very important to understand that these business represent only around 20% of our earnings. And all in all, I'm taking into account that in the steel dust recycling business, we will more than offset the energy cost inflation. So the overall view will be positive anyway.

All right. Thank you so much. Thank you.

Thank you, sir. Our next question comes from Jamie Escribano of Bank of Santander. Please go ahead. Your line is open.

Hi. Good morning. So my questions are the following. Regarding steel dust volumes, could you give us more or less or have an idea how has Europe, Turkey... and Korea perform just or to have kind of like for like to understand how the business is performing there. And also I wanted to ask you regarding steel dust also, there is a 31% conversion from steel dust to wax. I would like to understand what is driving this if it's American zinc recycling and China maybe converting at a lower rate than Europe, Turkey, or Korea, or if there is anything else. And regarding aluminum volumes, maybe to understand the decline of around 18%, is it related to the auto industry fundamentally? And then regarding depreciation, which is growing around 81%, to 17 million. I understand this is because of the new acquisitions, but it looks high if you look to the sales contribution, the volumes contribution of the new businesses in China and in the U.S., but just to understand if there is anything else on that. Thank you very much.

Okay, thank you, Jaime. I don't know if we are going to remember all of them, but let's start. The first one is that it still does volumes in our classic markets. The performance has been very positive, basically slightly above the 2021 figures for the first quarter, so strong figures. and with a very high utilization factors in the three geographies, in the three, let's say, classic geographies, Europe, Turkey, and South Korea. Frankly speaking, we are not seeing problems in the supply of steel dust in our classic markets. Perhaps the year started with some doubts about that, but now we can confirm that the production of steel from our customers is being strong and positive. So we have had a very good quarter and we expect to have a very good quarter as well. The second question was related to the proportion in the convection of... Yeah, I can take that one, Jaime.

So I think what you're referring to, Jaime, is if I go to page 7 on the steel dust recycling page, if you look at electric arc furnace throughput, we're up 86%. And if you look at wells oxide, we're up 55%. So it's nothing unusual. We have just built some inventory. This is just to do with a couple of containers that are still in the harbor and haven't fully made the incoterm cutoff, which you have every now and then in the quarters, but nothing special. We continue to be entirely sold out on wells oxide, so it's purely timing. If you want, I can also take the depreciation amortization question. And then hand it back to Javier. On depreciation and amortization, exactly as you described, it's a contribution of the U.S. that is now in our numbers, and also those plans come with some depreciation and amortization.

And the last question, I think, was related to the volume in secondary aluminum. And yes, the reason of the decrease we have had in the first quarter figure has been because the problems in the automotive industry in Europe related first with the microchips shortage. And second, with some other supply problems with other companies of the industry related with the war in Ukraine. And that has been the reason. We have seen, let's say, a weak automotive market in Europe and a weak automotive market in Asia as well.

Okay. And one final question, if I may, regarding CAPEX. You guided maintenance capex of between 40 to 45 million, if I'm not wrong. I just want to understand if this is the maintenance capex that we should model in following years, or is this just for 2022 and then it will go down or up, or just to understand that. Thank you.

Good question, Jaime. I think in this year, 40, 45 million, that is correct. Maintenance, and maintenance, remember, Jaime, in a broader sense, so that includes productivity, compliance, et cetera. So if you want to be conservative, 40 to 45 million is a good estimate. Obviously, what's also included in this year is what Javier mentioned, you know, funding the U.S. synergies. So to be conservative, 40 to 45 million is good.

Yes, I would say to what Wolf has said that once we have, let's say, renewed our plans in U.S. to our standard levels, perhaps we can reduce slightly the figure. But for the project, as Wolf said, for the following years, it's a good figure.

Okay. Thank you very much. Thank you. Thank you, Hans.

Thank you, sir. Our next question comes from Joan Rodriguez of Kepler. Please go ahead, sir. Your line is open.

Hi. Thank you. Good morning. Thank you for taking the questions. I have two on my side, if I may. The first is on the EBITDA to net income bridge. More specifically, can you help us walk through the DNA, the financial cost, and the tax changes So that would be the first one. And the second one is on the guidance bridge. More specifically, you signal that if things remain within the current conditions, you will reach the top of the range. But if we extrapolate Q1 performance, we will reach at the middle. So can you explain the difference here? Thank you very much.

Let me start with the guidance questions. Yes, I have said that if the current condition remains for the full year, we will finish in the very upper part of the guidance. And if you multiply the first quarter by four, we'll be in the middle of the range. The main difference is related with the SIN prices. The SIN prices on average in the first quarter has been at the levels of $3,300. And today we are around 4,000 euros. So this is a strong difference of 700 euros per ton or $700 per ton at the end. It can explain clearly the difference.

Okay? Great.

If you want, let me try, hopefully I answered the right question here. But in the first quarter of 2022, if you start with adjusted EBITDA, we had 61.1 million euros adjusted EBITDA. And the reported EBITDA was 59.9. There was only a minor one million roughly adjustment for still acquisition-related costs. Depreciation and amortization, 17 million. Again, that's up from first quarter last year. First quarter last year was roughly 9.5. This is because now the U.S. plants are part of our operations, so you have the corresponding higher depreciation and amortization, which gets you to an adjusted EBIT of around 44 million, reported EBIT of roughly 43 million. And then you have approximately $6.9 million of financing costs, which, remember, now the gross debt has increased compared to last year by roughly $100 million because part of funding the acquisition in the U.S. was to extend or amend our Term Room B by $100 million. And then also slightly higher China local loans, yeah? And then corporate income tax, nothing special, roughly $7.5 million. And, well, that's part of the regular EBITDA to net income and EBITWASH. Nothing unusual in there, I would say.

Perfect. Quickly.

Thank you. Thank you, Juan.

Thank you, sir. Our next question comes from Anis Gaya of OdoBHF. Please go ahead. Your line is open. Hi, Anis. Please go ahead. We'll take our next question from Mr. Michael Hoffman of Schiphol. Please go ahead.

Hi, good morning, everybody in Germany. Could we talk about the guidance, the low, the mid, and the high, and frame it against how you report your EBITDA by segment? What's the expectation across electric arc furnace dust, low, mid, high, and then the aluminum businesses collectively low, mid, high to get your guidance range?

Thanks, Michael.

Difficult question because it's difficult to fix because there are many variables which are affecting the guideline. On one side, we have first two different business, steel dust and aluminum and solid slag, which at the end of the day with different trends. And then the volumes on the different business can be different. On the second, we have, let's say, inflation cost, which we don't know how we continue, which will be during the rest of the year. Third, we have commodity prices. And then we have, again, And again, we have all the uncertainty which has been created by two more factors, the war in Europe, in the invasion of Ukraine, and the COVID situation in China. So in the very low part of the range, we have forecasted, let me say, very pessimistic scenario where we expect volume decrease, clearly, because the war, because the COVID in China, etc., with high energy prices, and not very pessimistic, optimistic price evolution in the commodity side. On the very high part of the range, we are not forecasting problems in volume, so that means that we would expect high volumes and so high utilization rates in all the regions and high commodity prices in the line with the prices we are having today. And well, in the middle, there is many different possibilities, no? I don't know if I have a question.

Let me tease this out a little bit. So at the high end, you mentioned that if we're at 4,000 euros, That alone would get us to the high end because the zinc business would take us there. And I don't need anything. What I think I'm hearing, I don't need anything to get better in secondary aluminum. Secondary aluminum could stay kind of where it is. Salt flag stays where it is. But the high end would be driven by $4,000. At the middle, I'm assuming it's $3,300. And the same assumptions for the aluminum business is they don't have to get better. The low end... everything goes down. The commodity price comes down and probably aluminum gets worse. Is that the right way to think about it?

Yes, I think so. This is a good way to think about it. In the very high part, okay, you have explained very well.

Okay, that helps a lot. And then could you help us a little bit with the cadence of the business? Historically, There's maintenance done in 2Q and 3Q, and I get a little bit of dip in the activity, assuming prices are stable. Given where the zinc price is, I'm assuming we're on a cadence where 2Q clearly is set up already to be better than 1Q. If everything stays right where it is right now, I'm going to have a better 2Q than I did 1Q.

Well, that will depend. This year perhaps is more difficult than the normal year because we have to consider the volumes. The volumes will be affected by the different shutdowns in the plants. Now, with all the geographies and all the plants we have, all the quarters will be more stable than in the past where the concentration of shutdowns in Europe was higher. In the current situation, we will have more stability. And then this is one item that will affect the stability volumes affected by shutdown, and then by the production levels in the industry, and then prices, as you can imagine. Second quarter would be better than the first quarter because we are enjoying a better price situation and we are having strong volumes. And let's see what's happening in the following quarters.

Okay. And then I appreciate why we wouldn't segment by country. Just so we understand what your expectation for the run rate, given this is the first full year of U.S., Are you still expecting the business to ramp to about 40 million of euros without getting too specific about commodity prices and things like that? That's sort of what you framed it as last year coming into this year. Is that still about the way to think about it is it's about 40 million?

I think it's a good estimation for the full year. In the first quarter, I can confirm that we have been even better than these figures. But let's see what's happening in the full year with the shutdowns, volume, prices, etc. For us, it's difficult to provide this segmentation. I understand you would prefer to get this information, but we run our business on a global basis, and to enter in this segmentation will create a lot of problems for us and will provide a lot of information to our competitors.

Fair enough. Because it's the first full year, it's just trying to understand the scale of the Lyft. versus partially owned in 21, and that helps. Framing it around 40 helps. And then if the Russian-Ukrainian situation doesn't find a resolution, what part of the world do you think makes up the difference for steel production that's being subjected to sanctions and what have you? Where do you think that incremental activity comes from to make up for their 30-some million tons that gets exported?

Well, I don't know that, but you have seen the information we have provided about the production of steel in the first quarter of the year. What we have seen has been a stable market in the U.S., a decrease of around 4% in Europe, Rafael, I don't know if you have the figures of Turkey. I think it has been slightly negative as well. Slightly negative as well. And 10% decrease in China. So at the end, the only market that has been able to maintain their level has been North America. The rest of the world is suffering some decrease in the production of the first quarters. Well, let's see what's happening in the following month because I don't know if this has been only affected by the Ukrainian war or there are other different reasons to justify or to explain this situation. Frankly speaking, what we can say is that Despite the reduction in the different markets, we are not suffering any problems of supply of raw material. We have been able to get all the raw material we need. We don't have to see the split between blast furnace and electrical furnace production, So for me, I wouldn't be surprised if the decrease in the electrical furnace is much lower than in the total steel production.

And then last one for me, the China availability of dust, is that an issue of being able to move it from A to B to get to you, or it's not being produced because of forced shutdowns?

Well, the reason is the COVID restrictions, Michael. Last Friday, in our weekly committee with our Chinese people, the information we got about the way they are managing COVID is amazing. Even in the same province, in the same province, for example in Jiangsu, if you move from a municipality to other municipality, you need to do a quarter time of three days. So at the end of the day, the transportation of goods is impossible. So we have been, last week we shut down our plant because we cannot transport, we cannot get raw material, we cannot sell works. So today, I can say that Shanghai and the province around Shanghai are practically closed, locked down. And that's the reason.

But that, again, Mike, is not a problem of the pizza industry, no?

Yeah, yeah, no, I get that. But the important message is it's not a supply issue. It's you just can't get it moved from A to B because of the restrictions. The dust is there. It's just getting your hands on it. Okay. That's what I just need to understand.

All right. Thank you.

Thank you. Our last question comes from Lester Steuben of Berenberg. Please go ahead. Your line is open.

Hi. Good morning. So just one final question for me. I wanted to follow up just on that China point. I mean, based on sort of your comments, but, you know, you also said in sort of your initial presentation that you still expect, you know, very high levels of utilization in your Jiangsu facility. So I'm just wondering, you know, what gives you that confidence given the difficulties and the logistics you just described? It would be good to just get some additional comfort on that comment earlier. Thank you.

We just started the year. First of all, I would like to highlight that we have secure raw material of of around 100,000 tons of steel dust to feed the Jansu plant. So full capacity. And we started the year at a very high-low factor because the flow of the raw material was going without any problem, etc. We are starting to face the problems basically in March. March has been after the New Year break when we started the problem and that has been the reason to not achieve quite full utilization of the plan because we started at that level and now let's see as I have said before the plan is shut down we expect that that will be only a question of days or maximum weeks but as You can imagine it's something that is totally out of our control. We cannot do anything. And on the other hand, we don't know which will be the decisions of the Chinese authorities. We hope that the situation will not be very long, but frankly speaking, we don't know. It's the only problem. I would like to highlight again that we feel... I would say extremely positive with our Chinese operations. The construction of the plans, even during the difficult period of the COVID, has been very good. We have finished the plan basically on time, with only small deviations on time because of the COVID, but nothing dramatic. We have been able to secure or to sign contracts with the steelmakers in the regions. We are having a strong support from the regulation and from the Chinese authorities that clearly managing in a very serious way the environmental aspect and so that is extremely positive for us because that at the end and a strict application of the environmental regulation is good for the let's say serious players and we are a very serious one so we are the only problem we are facing in China is the COVID and well For us, it has been a surprise the way that the Chinese authorities are managing, especially this second wave of the COVID. But let's see how it's evolved. But all in all, and in summaries, We feel very positive with our Chinese operation and with our Chinese future. The problem is that now we cannot travel, and without the possibility to travel, it's difficult to develop new projects, but we have in our portfolio in China

um several new opportunities in in other areas etc so all you know positive view okay great so i guess it's is it fair to assume that i mean given how regional the lockdowns are at the moment for the time being that it doesn't really impact your mid to longer term ambitions with respect to other plans and other provinces right

At the moment, we feel we still are very positive with our China's operations and with the future in China.

Okay, great. And then one final one. I know this has been asked previously in other calls, but do you have any idea after sort of the first three to four months of the quality of the steel dust in China, or is it still a bit too early to say?

Well, we are learning a lot about it. What we see in China is perhaps more variation between one customer and other. Now we have DAS with more than 30% SYNC content, which is very positive for us, but we find as well dust with less than 15%. We think that with more time, the time will support an improvement in the quality of the dust because the Today, some electric carbonate steel makers are not using 100% scrap, but they will use clearly in the future. So today, the quality is, the average figures we are achieving are okay, but below the European levels. But we feel positive that in the medium term, the quality of the Chinese gas will improve a lot.

Super, very helpful. Thanks very much. Sorry, say again? No, you said thank you. Okay, thank you.

And our final question comes from Anis Gaya of Odo. Please go ahead. Thank you.

Yes, thank you. Sorry, I had a problem with my mic last time. So I have a question about the secondary aluminum business, which I think is the main disappointment of Q1 results. The impact of the cost of energy was much stronger than expected, at least much stronger than I expected in the quarter. I thought that it would be more than compensated by the strong rise in prices, as prices are correlated to energy prices, and it was not the case. Why it was not the case there? And secondly, there's also significant volume impact during the quarter. Just to be sure in your guidance, when you talk about uncertainty linked to volumes, are you pointing specifically to this business? And my second question is on steel dust and as far as steel dust is concerned. When you cover 80% of the planned zinc volumes, I just want to know what could happen if you are not able to meet the volumes you are supposed to deliver because of lower volumes of steel dust. Do you have to pay any compensation to your clients? Just to know. And my third one is in merchant exposure in China. And sorry, I wasn't able to hear the exact number. I think it was 70%. That's all for me.

Thanks, Anis. First, well, the energy cost is very high, especially in Europe. When we talk about energy price inflation, we are talking especially about an European issue. This is not the case in North America or NATO. in south korea or in or in china or they affecting those europeans as um clearly much more smaller than than europe the problem is basically a european progress and what's happening with our secondary aluminium business in comparison for example with our steel that business is first 100 of our operations are in europe and uh and and they they the weight of the energy in the total cost of the aluminum business is higher than the steel business. That's why the impact of the high energy costs in Europe are impacted more in our aluminum division than in the steel division. Regarding the effect in the guidelines, well, in the range, we are We are considering this high energy cost in Europe for our aluminum business, and as we answered in one of the previous questions of one of your colleagues, if the sink prices stay at the level we are having today, we will be able to be in the upper part of the range, even with this high energy impact in the aluminum business. Okay? The second question, I think, is if we have – we could have problems of penalties, et cetera, in our business. Not at all. We are not going to have any problem of productions. The only – The only problem we could have is that if we get less volume of raw material, I mean of steel dust, but that will not be our problem. It will be a problem of the steel makers. So we will be clearly able to treat 100% of the steel dust we get, so we will not face any problems regarding that point. And the third question was on China. Can you repeat the question? I don't remember very well.

It was about the merchant exposure to sports prices in China. I wasn't able to hear the number. Okay.

No, in China we have 100% exposure, but this is, for us, it's not, we don't manage, I have said several times during the presentation that we manage the company on a global basis. And especially, specifically in the hedging area, we hedge, we manage the company thinking in the global company, not thinking region by region. So what we want is to hedge around 70% of the total volume we produce. No matter at the end, we are not, for example, we are not hedging any terms in Turkey because the weakness of the Turkish leader. And this year we are not hedging. in China because it's our first year of operation there. But we are increasing volume in the rest of the geographies to achieve an average of 70%.

Okay. That's clear. Thank you very much. Thank you, Anis.

Thank you, sir. I'd like now to pass the call back to Mr. Rafael. Please go ahead, sir.

Thank you all for your questions. You can also contact the investor relations team of Bethesda 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.bethesda.com. Thank you very much and have a good day.