Befesa S.A.

Good morning and welcome to the first half 2022 results conference call of BFESA. I am Rafael Pérez, Head of Strategy and Investor Relations of BFESA. Today, we have with us Javier Molina, Executive Chair of BFESA, Asier Zarraonandia, recently named CEO of BFESA, and Wolf Lima, CFO of the company. Javier Molina will start with an executive summary of the first six months of the year. After that, Asier will explain the business highlights of the period, covering steel dust and aluminum solid slag recycling. WOLF will then review the financials in total and by business unit, as well as cash flow as an update on our hedging program. Javier will close this presentation providing some thoughts about the outlook for the rest of the year, the new five-year growth plan that we announced a few days ago, as well as energy. Finally, we will open the line 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 to the first half results presentation on our website, www.befesa.com.

Now, let me turn this call over to our chairman. Javier, please. Thanks, Rafael. Good morning to all of you. Before getting started with the results of the second quarter and the first semester, I would like to introduce to all of you Asier Paranandia. recently appointed CEO of Bethesda. Some of you have already met him. Asir has been with Bethesda for the last 20 years. Over this time, he successfully developed and managed the steel dust recycling business, which represents around 80% of Bethesda's area. He has played an instrumental role in the recent development of the business in China and USA. As CEO, he will be responsible for the day-to-day management across all the FESA's business. I'm completely sure that he will develop this new role with the same leadership he has shown today. During the second quarter, we have continued the same growth path that we saw in the first quarter, with 26% EBITDA growth year on year. Overall, despite the challenging macroeconomic environment and the volatility in the commodity price, we have delivered by the contribution of the American plans, as well as high average metal prices, which have been offset by high inflation, especially in energy prices. Compared to the first quarter, the volume has been lower, mainly driven by maintenance shutdowns in our classic markets, and to less extent, to a lower contribution from China. Later, Asiel will review the business performance during the second quarter in more detail. We are living in a very challenging microeconomic environment. On the one hand, the war in Ukraine is creating great instability in the global economy. In Europe, We are suffering an energy crisis in which security of supply of gas and normal energy price are not guaranteed. Furthermore, China is imposing a zero-COVID strategy, which is making very difficult the transportation inside the country, reducing a natural down in the economic activity. This volatility is reflected in the business results on the first half of the year. And we see a lot of uncertainties for the second half of the year. Commodity prices have come down significantly in the last weeks from high levels, breaking the correlation between energy and metal prices that we saw in the first quarter. And concerns about economic restrictions in Europe are rising. I will comment about the outlook for the rest of the year and the new five-year growth plan at the end of the presentation. Now, Axel will explain the business performance in more detail.

Thank you, Javier. I will provide an overview of the performance of the business during the second quarter and the first half of the year. Overall, the second quarter has been another good quarter with a strong performance across the business, continuing the same path that we saw in the quarter one. We have delivered a strong volume performance, and we have benefited from positive price dynamics in the second quarter, which has more than offset the high inflation we have experienced in the period. Starting with the steel dust recycling business, in the Q2, we have achieved 292,000 tons of throughput, up 83% compared to last year. mainly driven by the contribution from the U.S. supported by a strong performance in the rest of the markets. Similarly to previous years, compared to the Q1, the volume is lower due to annual plant maintenance shutdowns as well as lower contribution from China. In Q2, we have sold 110,000 tons of works, more than double compared to last year. Blended SIEM price considering the weighted average of LME and hedging has increased 23 percent in the quarter. Although SIEM price has come down significantly over the last weeks, the second quarter average price has been better than the Q1. These positive effects have been partially offset by higher inflation across the business in Q2, mainly in energy prices and more specifically in coke. totaling a negative impact of around $13 million in the quarter. Total EBITDA in the steel dust business has been $40 million in the Q2, up 23% compared to the previous year. In the U.S., the integration of ASET R into the FESA is developing well across all fronts. The team is working well with the rest of the organization, and we are confident to capture the short-term synergies over this and next year. We have developed a daily action plan in order to capture all the synergies of the operational area, mainly, but also in the general expenses and commercial fields. This year, we will benefit from the full year of operation in the U.S., which will represent a significant EVDA growth. In China, the set of COVID strategy that the Chinese government is implementing to fight against the still-present COVID-19 pandemic is creating a very challenging environment to operate. At Yansu Province, we have been operating the plant since the beginning of the year. The plant is technically operating well, and we have contracted more than 80% of the volume. However, the situation during the Q2 has been quite challenging, which required to stop and restart the plant constantly. Our second plant in the province of Henan is completed, and we are finishing the commissioning of the plant. We expect to start commercial operation in the coming months. We are starting to see some release in the strike measures which make us be more optimistic for the coming months. In the traditional business of the FESA, we are achieving a strong volume supported by a strong ESF steel production from our customers. Moving now to our aluminum salt slag and secondary aluminum business. Our aluminum business has delivered a very strong quarter in a very challenging macroeconomic environment. In the second quarter, we have recycled 85,000 tons of salt slag representing a 6% decrease compared to last year. The production of secondary aluminum alloys has been 42,000 tons, a decrease of 12% over the last year. The aluminum price has increased 28% in the period, and general inflation has represented around 6 million headwinds in the business. As a result, we have achieved 16 million of the BDA in this segment, which represents a 28% growth over last year. All in all, another strong quarter in a challenging environment with a strong volume performance and positive price dynamics that have more than compensated the high inflation. Let me give a final word about China. As I mentioned, the situation in the Q2 has been very challenging and difficult to operate. We are starting to see some relief in the measures, but very slow. Despite the short-term challenge in China, the opportunity to grow remains strong. The environmental authorities are committed to enforcing and fulfilling the environmental regulations, with the steelmakers seeing recycling as a real solution. At the moment, we are working on several new projects to build a new plant that could materialize in the near future as soon as the negotiation with authorities and steelmakers reach to an agreement. Now, Bob will explain the financials in more detail.

Thank you, Vasily. Please turn to page nine, first half 2022 consolidated financial highlights. As mentioned by Javier, BFISA delivered 25% year-over-year EBITDA growth in the first half of 2022 with 118 million adjusted EBITDA, up 23.8 million year-over-year for this first half 2021 at 94.1 million. Overall, our growth initiatives, including US Zinc, are delivering results. And even in the current volatile environment, we are able to offset inflationary pressures, mainly energy, for higher prices, grieving the main drivers of the year-over-year 24 million euros EBITDA improvement in more detail. On volume, overall, approximately 24 million net positive volume year-over-year impact. Positive 25 million euros from the higher steel dust throughput including the positive contribution from the U.S. Inc. operations. A minor negative $1 million impact from lower aluminum volumes, mainly driven by the lower activity of the European automotive and aluminum industries. On price, the overall approximately $36 million positive price year-over-year impact was about $21 million from steel dust business and around $40 million from our aluminum salt slags business. I will explain more in more detail on the following pages. On cost other, the approximately negative $36 million lever reflects the higher inflation, primarily energy costs, which is in balance with the higher metal prices. In summary, adjusted EBITDA is at an all-time high of $118 million with a high 21% adjusted EBITDA margin. Net profit increased by 10% year-over-year. to €50 million in the first half of 2022, equal to €1.25 earnings per share, based on the full new post-US acquisition, €40 million of outstanding shares. The €1.25 earnings per share was slightly lower compared to the €1.32 in the first half of 2021. Once the US synergies are fully realized, earnings per share is expected to improve accordingly. We also improved our cash to a new high level of 239 million euros and reduced our leverage further to 2.09 times, which I explain later, together with net debt and net leverage performance on page 12. 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 10, the steel dust recycling services results. Steel dust recycling services continued to perform strongly and delivered 95 million adjusted EBITDA in the first half of 2022, up 25.8 million euros, or 37.2% year-over-year. Overall, the steel dust growth initiatives, including the U.S. operations, are delivering results and were able to offset inflationary pressures mainly energy, through higher prices. The volume lever was positive by around 25 million EBITDA year-over-year. As explained, this includes the positive contribution from the U.S. operations. The net price level was positive by about 21 million euros year-over-year, with main price components being, one, 26 million higher zinc LME prices, up 49% year-over-year to 3,510 euros, Two, 4 million positive higher zinc hedging prices, 2,328 euros per ton in first half 22 versus 2,200 euros per ton in first half 21. Third, 9 million negative driven by the latest higher zinc treatment charges, which were considered at $230 per ton retroactively from 1st of January 2022 worth $159 per ton in 2021. Overall, the approximately 21 million year-over-year impact from price lever offset the approximately negative 21 million year-over-year impact from higher inflation, mainly energy cost, captured under the cost-other lever. Going now to page 11, the results of our aluminum salt slags recycling services segment. Aluminum salt slag recycling services delivered 23.6 million EBITDA in first half 2022, slightly down by 1.2 million euros or 4.8% year-over-year. The year-over-year EBITDA development was mainly impacted by the lower market activity in the European automotive and aluminum industries. Higher energy prices nevertheless were offset entirely by the achieved higher prices. The volume lever was slightly negative by about one million euro, even though in fact, this was driven by about 12% lower salt slacks than SPL treated, as well as about 15% lower production of aluminum alloys, driven by the current lower European automotive and aluminum industry environment. Nevertheless, even under the current volatile market environment, we managed to run our plants overall at around 80% utilization. The price lever was positive about 14 million euros, with aluminum alloy pre-metal bulletin market prices showing a 30% year-over-year increase, as well as better aluminum metal margins. Nevertheless, the cost other lever with around negative 14 million EBITDA effect year-over-year was driven by the high inflation energy cost trends, with particular high gas prices in Europe, thus this counterbalance the progress in metal prices. Turning to page 12, on the EBITDA to cash flow bridge, starting with 118 million adjusted EBITDA on the left and walking to the right. Working capital was up by about 26 million euros year-over-year. The higher working capital consumption was very much driven by seasonality and timing impact. Example given, increase in the sales and receivables. the majority of which is expected to reduce by the end of this year. Interest at 12 million euros as expected. Interest paid in first half were up 4 million higher year-over-year, mainly as a result of the higher gross debt from the acquisition, and because the Terminal B interest payments are made quarterly in 2022 versus biannually in 2021. Exits at 60 million also as expected. resulting in an operating cash flow of 64 million euros in first half 2022. CapEx-wise, in the first half, we spent 36.8 million regular maintenance CapEx, including IT, operation excellence, synergies funding in the U.S., and the recovery of our Hannover plant, expecting to get this back from insurance. 20.8 million growth CapEx, mainly dedicated to our new plant, Athena. Together, total capex of 57.8 million, partially funded through approximately 8 million China local loans from our Hainan plant. After funding working capital, interest, taxes, and capex, total cash flow amounted to positive 14.6 million in first half. Hence, our cash on hand improved to $239 million, a new high for Befesa, up from $224 million at year end. The cash on hand of $239 million together with our entirely undrawn $75 million revolving credit line provides Befesa with a strong liquidity of about $300 million. The $225 million last 12 months rolling EBITDA incorporates rolling full 12 months of the U.S. operations on a performer basis. The 471 million net debt with 225 million last 12 months adjusted EBITDA results in a 2.09 net leverage at second quarter closing, improving from 2.16 at year end. Recognizing the positive trend, Moody's improved its outlook on Befisa to positive and affirmed the BA2 rating. Summarizing, Befisa is in the strongest financial shape ever with around a record 239 million cash on hand, more than 300 million liquidity, and a leverage decreasing currently at 2.09. Turning to page 13 on hedging. In first half 2022, we continued our hedging rigor and fully extended our zinc hedge book further up to and including January 2025, thus with approximately 2.5 years of hedges on the books. The FETA'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, considering the combined global hedging of Europe, Korea, and U.S. operations, The year 2022 is hedged at around 2,350 euros per ton sold forward prices. The year 2023 at around 2,450 euros per ton. And the year 2024 at around 2,500 euros per ton. Please note that these average hedging prices are based on ethics forward assumptions of 1.07 in 2022 and 2023 and 1.10 in 2021. At the current FX parity, average prices would be at slightly above 2,400 euros per ton in 2022, slightly above 2,500 euros in 2023, and slightly above 2,600 euros per ton in 2024, again, if you were assuming FX parity. Summarizing the financial section before we turn to growth, three points. One, the FISA delivered in the first half of 2022 the highest earnings in the history of the company at €118 million adjusted EBIT, up 25% over last year, despite the current volatile market environment. Secondly, our financial backbone is strong. We fully extended our hedges out to January 2025. Our capital structure is efficient and long-term. Cash on hand and liquidity are strong. We entered this challenging 2022 environment in the strongest shape we've ever been. Three, this financial backbone supports us well. Two, A, fund our growth roadmap, our latest sustainable global growth plan, and B, maintain a stable dividend payout at the upper end of Perfeza's dividend policy to share the success with our shareholders. Just like 50% of net profit or 50 million euros was distributed in July. Now back to Javier on outlook and growth.

Thanks, Wolf. I would like to finish the call providing some more details and thoughts on the outlook for the second part of the year, as well as the new five-year strategic growth plan. Despite all the volatility in the commodity prices and the concerns about the global economy for the second part of the year, we expect 2022 to be another growth year for BFESA. mainly driving by the volume growth contribution of America and a strong etching, which will help us reduce volatility in the metal prices. These two drivers of earnings growth could offset the high general inflation, especially in energy prices. From the volume point of view, although there is a low visibility for the second part of the year, we expect growth on steel-dust volume driving by a full year of consolidation of our operation in the U.S. after the acquisition of American Silk, we're citing. In Europe, there are general concerns about the economic situation during the second part of the year caused by the uncertainty in the energy market and how that could affect the overall industry. Despite that, we are confident to achieve high levels of capacity utilization overall. However, even in a potential economic crisis scenario, we have proven in the past that our business is highly resilient. And even in situations where the steel production has decreased, we have been able to maintain high levels of utilization and defend our margins. The integration of American zinc recycling into the FESA is developing well across all fronts. For the rest of the year, we expect a similar performance in our American operations compared to the first quarter, to the first semester. In China, we are starting to see some release in the COVID lockdown measures, which make us be more optimistic for the remaining month of the year. In the aluminum, solid slag, and secondary aluminum business, which is a purely European business, we also have low visibility for the second part of the year. The automotive industry continues to face a challenging situation in Europe, and supply chain problems are added to the semiconductor shortage. Moving now to the price environment. As we have seen, the challenging macroeconomic environment and the concerns about the global economy are putting pressure on metal prices for zinc and aluminum. At the same time, energy prices are experiencing high volatility reaching very high levels. In this environment, and given the high uncertainty existing, we expect volatility in the prices of commodities to continue for the rest of the year. that Wolf has claimed with around 70% of the volume of seeing hedge at good price will help us navigate this period of high volatility. In summary, although we see high levels of uncertainty which is resulting in high volatility in commodity prices, in Befesa we are facing this challenging environment with optimism. Befesa today is a much more diversified business than one year ago. with a significant part of our earnings coming from markets outside Europe, mainly North America and Asia, and we are confident about the business model of Bethesda. We entered this uncertain period with a very strong financial position, high liquidity, long-term capital structure, and a very strong hedging book. Also, our business model is highly resilient, as we have shown many times in the past, operating in a niche industry with high barriers to enter and the ability to keep high levels of profitability and cash flows. As a result of this, even in a very pessimistic scenario, the impact on Bethesda will be very large. The second topic I would like to explain is the new growth plan that we announced a few days ago. Despite the short-term challenging situation, we are facing the energy transition is a reality, and we are taking action about this matter on two fronts. We are setting our own ESG goals, and we are seeing growth opportunities. As you all know, decarbonization and electric vehicle trends are supporting the production of electric carbonate steel and aluminum markets, which are our core businesses. The global steel industry is undergoing a major transformation to decarbonize its operations and meet carbon reduction targets for 2030 and 2050. Minimal steel production consumes around seven times less CO2 per ton versus primary basic oxygen furnace production, the blast furnace. This is driving large-scale investment in electric air furnace production globally, which will substitute blast furnace production and will expand the customer and volume base of the CESAS environmental services in our main markets like Europe and North America. This will naturally increase our natural market to provide the steel dust recycling services to these new plants. Similarly, the trends in the aluminum industry towards decarbonization and the rapid increase on the production of electric vehicles are fueling inclusive demand for secondary aluminum and solar cellar recycling in Europe, where Befesa plays a leading role. As you know, the FESA has forbidden the manufacturing of combustion engine cars from 2030, and automakers are taking action to adapt its operation to that change. Average aluminum weight in cars is going to move from 7 percent, approximately, today to more than 30 percent in the coming years. That is going to produce more demand of secondary aluminum, as well as recycling services of waste associated with the aluminum industry, like solid slag. These growth opportunities in America and in Europe will be complemented by the already existing growth opportunity in China in our steel dust business, where we already have two plants, and we expect to be grown in new points as well as in existing ones. Despite the short-term challenge in China, the long-term growth opportunities remain The market is already there and growing. The regulation is a reality. We are the first mover, and we are working on several new projects that could materialize in the near future. So putting all these opportunities together, we expect to invest around 500 million euros over the next four years, which will represent the larger expansion program of Befesa after the acquisition in U.S. With this investment, we expect to achieve around double-digit earning growth on average over the next five years, between 2022 and 2027. The investment plan is well globally balanced between our three main regions, China, U.S., and Europe. We also believe that this is a low-risk plan from the security point of view, as we are talking about growing our core businesses in our core markets. We can fund the entire plan with the cash in hand and the cash flow generated over the period, maintaining the leverage ratio below two times. At the moment, we are finalizing the growth plan, and we will present the details of this plan in a capital market base that we will celebrate in November. Finally, on ESG, The secondary materials produced by the FESAS recycling process are a substitute for more carbon-intensive process used to mine and process virgin raw materials. Using a life cycle analysis approach, we evaluate the climate impact of our operation across our value chain. The conclusion of that analysis is that Befesa's operations avoid around 2.4 million tons of CO2 equivalent each year. We are also committing to a 20% CO2 emissions intensity reduction by 2030, supported by a roadmap to achieve the target, especially by green energy sourcing, electricity efficiency, process optimization, and raw material substitution. Also, we are aiming at net-safe emissions by 2050, provided that certain technologies currently under development become technically viable and economically feasible. The Board of the FESA will start to discuss sustainability plans and progress on a regular basis in a new sustainability committee which has been created, comprising directors of the FESA who have strong experience in ESG technology and energy transition. Befesa is clearly benefiting from global trends toward the heat of electric and steel production, waste reduction, and increasing focus on environmental impact, which will provide long-term growth to Befesa in the future years. Thank you very much. Thank you, Javier.

We will now open the line for your questions.

Ladies and gentlemen, if you would like to ask a question, you can do so now by pressing star 1 on your telephones. That's star one if you'd like to ask a question. We will now take a question from Oscar Vell from J.P. Morgan. Please go ahead.

Oscar Vell Yes. Good morning, Javier Wolf and Asya.

I have three questions. The first one is just around looking at the second half and your full year guidance. In H1, you were able to broadly offset higher energy costs with raw material prices. In the second half, do you have a sense of how that will behave currently? Then the second question is around China. Could you help us quantify what levels that China was running at in the model in terms of volume or throughput? And then the third question is, if we think about gas shortages in Europe, potentially this winter, can you remind us where your exposure sits? Our understanding is it's mostly secondary aluminium, but can you explain if you have any contingency plans if anything happens in Europe?

Thank you. Thank you, Oscar.

I will answer the first question regarding guidance. We confirmed the guidance that we provided this year between 220 and 270 million. which means between 11% to 35% of growth year-on-year. This wide range was driven by the high volatility in the markets, metal prices, as well as inflation, especially on the energy prices that we saw at the end of the first quarter and we are seeing today. At the moment, there is a high level of uncertainty across many areas, but we have still five months in front of us to complete the year, so it is very difficult to be more precise about this guidance. Well, anyway, as of today, we are confident to finish the year with the guidance we provide. However, the uncertainty is very high, and we can also see reduction in the spill dust production that could eventually have a negative impact on our volume. But in summary, what we can say as of today is that we complete the guidance that we provided at the end of the first quarter.

Okay. I guess you want to answer this. Sure thing about China. Well, you know, Oscar, that we don't provide normal dust from... how many tons we are doing by regions. In the case of China, the first quarter was well as planned for modeling purposes. The second quarter has been more or less half of that, and we do hope third quarter and fourth quarter probably come back to the normal production line that we have in mind for this year. But again, as Javier is explaining all the time, it depends on how the dynamics in China go. There are start to see that the second half is going to be better in terms of production, steel production and so. If everything happens, we will be back on the normal production that we projected at the beginning of the year. In the case of the gas shortage, well, of course, we can summarize that there is no big direct impact in our business. You have to to think that the gas consumption is coming mainly in the aluminum plants. We have just one plant in Germany, which looks like it will be potentially more affected than the ones in Spain. And well, let's see. But I think it's very, very limited impact because it's just a 10% of our cost in those business. So the rest of the business are not dependent on the gas. So in this case, we don't see a very big direct impact in our cost portfolio. Other thing is the indirect impact that whole this gas shortage can affect to the industry in general, starting for the aluminum one or for the steel making. And that will depend how the demand and how the, again, the dynamics of the economy go during the second part of the year. And in that case, we could be affected by more for the volumes of that.

Great. That was very useful. Thank you very much.

Thank you. We will now take our next question from Sandeep Pithib from Morgan Stanley. Please go ahead.

Hey, good morning. This is Sandeep Pithib from Morgan Stanley. I had three questions and I'll take one at a time. Firstly, on the CAPEX, the company has already spent $57 million during first half of the year versus guidance of $55 to $65 million. So are you expecting minimum spend during second half of the year since you have maintained your guidance? And as part of that question, I noticed that maintenance capex as per slide 33 in 2Q was 27 million or annualizing at greater than 100 million versus 40 to 45 million guidance range. Can you please provide more clarity on the maintenance capex? And I'll take the other two questions after that. Thanks.

Great. Thank you very much, Sandeep. Let me explain the capex spend. So if you look at the balance sheet, capex spend in the first half was 54 million euros, of which, of that 54 million on the balance sheet, roughly 20 million was on growth, which is on China. We don't expect much more spending on capex, on growth capex in China in this year. Then secondly, looking at the maintenance bucket, maintenance, Sandeep, please remember, it's maintenance, IT, operational excellence, including synergies in the US. In that 34 million, I think we have to normalize this approximately 14, 15 million of that is the Hannover plant recovery, which is funded by insurance. So that's coming, so you need to normalize that out. So if you normalize that out, the 34 million maintenance is rather 20 million in the first half. And that's very much in line with our guidance for the year of spending 40 to 45 million in maintenance, IT, operational excellence. So on growth, the majority is spent in the first half. That's around 20 million. On maintenance and CAPEX, you need to normalize the $34 million, take $14 million, $15 million out for the Hannover recovery. So that's back to $20 million, which is very much in line with our guidance. Overall, it's probably fair to say for the year we'll rather be at the upper end of our total guidance. We said $60 million, $65 million overall, and that's fair. We'll probably be at the upper end of that. Hopefully that helps, Sandeep.

Yes, yes, indeed. That was really helpful. So do you recover this amount from the insurance company next year? No, in this year. Okay, that's clear. Moving on maybe to the second question. This is regarding the steel dust operation, which seems to be experiencing significant cost pressures during 2Q. And I thought that the business was mostly exposed to spot prices, i.e., implying that most of your increase in the cost should have been reflected in one queue. Can you please explain different moving parts there? Thank you.

Yes.

Yeah, well, as we said before, we're still that business like any other industrial business subject to the inflation across many areas. It is well diversified from the geographical point of view with about one-third of operation in Europe, U.S., and Asia. And the main energy cost in the business is coke, which price has significantly increased in the Q2, driving by the overall refraction. In the Q1, however, we still have some contracts rolling over from last year, so we did not see the impact of coke price increase so high. However, in Q2, we have suffered this increase of price. This is mainly the the main reason about the higher inflation cost between the clusters.

Okay, thank you. And final question, I appreciate the fact that you would provide more details on the 500 million investment plan as part of the CMD, but I wanted to understand how the company plans to fund the investment and what sort of flexibility you have in a scenario of further slowdown in the economy from here.

Okay, as I said before, we are planning to celebrate an investor day. That will be, by the way, our first investor day since we did our IPO, probably in the first part of November. And then we will provide more details about our five-year growth plan. But regarding the funding, we have a very clear view about it. We will fund this growth plan and really with the cash we have on hand, plus the cash flow that we are going to generate during the period. That is an interesting and important point I would like to highlight. We will start the execution of this long-term plan with a leverage ratio around two times, but when we finish the execution of the plan five years later, our leverage ratio, even in a pessimistic scenario, will be below one time. summarizing, we are planning to fund the growth plan with our cash and cash flow.

Regarding the flexibility, is there any flexibility to have in a scenario where the economy goes in recession?

For sure, we have flexibility. We are a a company with a lot of flexibility and we will adapt the plan to the market situation for tour. There are some parts of the plan probably we will start with the U.S. operations where the impact of the crisis is less important than in other parts of the world, but for tour we will adapt the execution of the plan to the market.

Thank you so much. Thank you.

Thank you. We will now take our next question from Ingo Snatchell from the Paribas Exxon. Please go ahead.

Thanks for taking my questions and congratulations to us here on the new role. I have three questions as well. The first one would be a follow-up on the cost inflation. I think you discussed gas and coke and coal. Can you also remind us on electricity, what your typical contract mix looks like, whether there's a cost increase in contract research to be expected more next year or whether you see cost inflation in that area more imminently and maybe also comment a bit on how you see collection fees evolving in Europe in that regard. Of course, lots of moving parts and higher zinc prices, higher input costs and price increases everywhere. So is it also an area where

you might be able to demand slightly higher collection fees for for next year or or is it not really an option to pass through the high input costs i'm single thank you very much for the congress and for the question well yeah electricity is one of the goals that we have you know that is not once again we are not very very high well we consume a lot energy but but not high consumers and in our main activity. But it's true as well that the energy is under inflection pressure, but well, depending on the geography we talk about. I mean, this is basically Europe where it's sacrificing that, so once again, affecting so partially to us. How we are dealing with this now is simply we are going on a spot basis because the contract that we have in the past, like a typical one-year contract or so, When it has been, you know, over, we are now waiting the evolution of the prices. We are dealing with this both. We don't know the evolution. As Javier has explained, we have to live with this and try to, as you say, we are, yeah, trying to increase the collection fees based on the cost we have. Yes, it's a possibility. The weight of our profit and loss is what it is, but mainly we try to pass the fees cost and those things to the filmmakers But it's true that the pressure on prices is coming in the high price for the metals until up to now. And this is what is really upsetting the high energy costs, including the electricity. What is going to happen in the next months? It's a good question. And if I will have the answer, probably I will not talk in here, right? So we'll see. But we are repeating the idea that even in this challenge period, we can navigate well.

Okay, and then I would also like to ask you about the five-year plan. Of course, we'll get more details in November, but just to understand a bit the potential that you're seeing in Europe specifically. I think there are a few areas which are clear. Salt slag is fairly clear, I guess. Also, the decarbonization, raw material substitution possibility is, I think, also fairly clear. Can you give us a rough indication what you see in steel dust recycling in terms of capacity addition potential in Europe? And if you see potential, whether it's rather expansion of your existing locations or whether you would also consider building a complete new greenfields location close to some of the, let's say, start-up green steel mills and how much visibility you need to really make an investment decision in that scale because I think it's fairly clear where the EF capacity is going to be added in Europe. But of course, you might still need a few years to get a bit more contractual visibility on this actually happening. And I'd also appreciate a quick comment on whether you think those green steel mills, whether you see any differences in terms of the quality of steel dust and also processability for you if you were to consider adding capacity or sourcing more dust from really hydrogen-based TRI sources that you have on the green steel side.

you are killing our investor day you know probably better than us the answer but seriously speaking as I told before we are planning a five year growth plan in a very well balanced way so we are considering investment in our three main markets and we are thinking in let's say balanced investment in the three markets I mean China, North America and in Europe. Why is that? In China, because we have a clear growth opportunity in front of us that you know very well, and in North America and in Europe, and especially in Europe, the answer is basically in your question. There is a clear trend of decarbonization for two reasons. And that will, I will answer that, I will say that the growth will come probably in all our core businesses, in the site of the steel dust recycling business, because as you probably know, all the big European steel makers are doing announcements about shutdowns of blast furnace and replacement by electric air furnace. That means that there will be a clear growth opportunity in Europe in that site. Let's see later, and we are working and thinking of that. It will be in the same locations or in new locations. This is part of the work we are doing right now. And on the other side, the electric vehicles trend, which is another clear trend, will support the growth of the aluminum production in Europe. We have data from different car producers, but the weight of the aluminum in the electric vehicles will grow from less than 10% today to more than 30% in the electric vehicle. So that means a very important growth in the aluminum side that will permit for CUR the possibility to improve our business in the secondary aluminum and the solid-slag recycling. I will ask you to be patient, to wait until the probably second week of November where we will be able to provide some more details about our growth plan.

Okay, great. No, definitely wait and be patient for that one. Looking forward to it. But just quickly on the funding question which was raised earlier, just to clarify when we talk about uncertainties and, of course, macroeconomic volatility that's still out there, can you clarify what maybe on a quarterly basis throughout the execution of the plan would be your maximum that Iberdabic would want to see as your comfort level on a short-term basis throughout the next five years?

Well, as I told before, we are now working on that, but in the first projections we are running, we don't want to grow the leverage ratio we have in front of us. So we are not thinking clearly not in the worst cases to be above 2.5 times leverage ratio. And probably we will be able to be below that figure.

Okay. Thanks very much. Interesting time.

I'm looking forward to the event in November.

We will now take our next question. Ana Saga from OdoBHF. Please go ahead.

Yeah, thank you very much. Good morning, gentlemen, and thank you for taking my questions. I have two remaining questions, and my first one is on capacity utilization in Q2, which was lower than Q2 last year, and I understand it's related to maintenance stops. So could you please give us the impact? What was the impact on EBITDA in Q2? and what should we expect for capacity utilization in Q3. And my second question is regarding energy costs. Many corporates are signing PPAs or normal PPAs, so are you planning to sign PPAs for electricity to reduce energy costs and to further reduce your carbon print. Thank you for taking my question.

Thank you for the question. Well, regarding the capacity, yes, it's normally and traditionally and this year is not an exception. Our maintenance all over the geographies, shutdowns of the plants are coming in the Q2 and as well in the Q3. I mean, it's going to happen as well, that some plants are going to be stopping Q3, so probably the volume is not going to be as high as the Q1 made in the Q3, more similar probably to the Q1-Q2. Back on this, Q4 probably is going to be full quarter with all the plants running at very high capacity, so this is normally the trend over the last year, and this year is not a change made. This more or less is the guidance about the tonnages for Q3 and Q4. With regards to the PPAs, of course, we are studying this and we are analyzing this, but we are waiting for the good moment to sign those things because normally it's not very well done if you sign at the highest prices period when you sign those things. But yes, we are actively searching for that.

Let me add something about that. As we have in our sustainability report, we presented a CO2 reduction plan that considered the use of green energy. So we are, as Asier said, we are thinking and even talking with utilities about that in the geography that is possible, which is basically Europe and U.S., more than in other geographies. And at the same time, and this is another important point, we are analyzing and studying each property from our process that could be an interesting, that can substitute the current energy sources in a very nice percentage. It's only that we will be able to inform to the market in the coming months.

Thank you. Thank you very much. Thank you.

Thank you. We will now take our next question from Michael Hoffman from Estesil. Please go ahead.

Thank you very much for taking the questions this morning. I'd like to focus on guidance and understanding what the flexion is around the model. The original guidance at midpoint 245 EBITDA I had an assumption that there was approximately 40 coming from the U.S., somewhere between six and eight from China. That would leave you sort of about 155 from Europe, and then you had something in the mid-40s from the aluminum side of the business model. How does that look today for the rest of the year? We're still about 40 in the U.S. China's maybe less. Europe's less because of Coke prices and the aluminum still in the low 40s? Is that the way to think about it?

Michael, you have done a very precise guidance. For us, it's extremely difficult to do that right now because it will depend on the energy cost inflation for the whole year and the commodity prices. which today we have a big uncertainty. Your fears are not far from the reality. Probably, as Asier has explained, it's too optimistic in China because the first part we have, let me say, lost the first part of the year in China with all the permanent shutdown, open and closing the plants. So I think it's a likely optimist. And the rest will depend on the evolution of Basically, metal prices, energy prices, and volume. As I said, we confirmed our guidance, but for us, it's difficult to confirm the guidance. Imagine to precise if we are going to be slightly above or below that figure, no?

Fair enough. I'm assuming most of the pressure is coming out of the legacy business because of the energy extraordinary energy inflation that's happening in Europe related to Russia, Ukraine, as opposed to inflation happening, the pace of inflation in the rest of the world. Is that an accurate way to think about it, that I've got to look at the legacy? So the U.S. is actually okay, and this is really about Europe.

Yes, one more time, I think Europe is the most affected, basically, for the gas, for the war, and how this is going to affect, well, we don't know, but we can wait, nothing really good. The inflection, yes, it's affected to the rest of the cost, transport, coke, and other raw material needed. So this is more in a worldwide view, so it's affecting our business in general, for example, the cost and the logistic issue, no? Again, how it's going to be the evolution of those calls during the next year. Each of us, we're here and you guys have your own ideas. And if we invite another five guys, they have another five ideas. Very big uncertainty and for modeling or whatever, well, many cases to do. But it's very difficult for us to give more details because obviously we don't know.

Fair enough. I guess the last piece trying to dig at that, since all of us are asking questions, it only comes down to our ability to model your business. If the current conditions that exist in July persist for the rest of the year, are you below the midpoint of 245?

Again, if the current conditions of today, very high energy prices, lower metal prices, et cetera, probably we will be below the midpoint, as you said. We will be more in the lower part of the range.

Okay. I have to ask about the growth, and I look forward to the November. Just to think about it, Europe's about 50% EAF. It's going to something in the 70s. Is that sort of the plan? The U.S. is in the 70s. How much more does it improve? And then China's got a lot of improvement. Is that, you know, that's the way to think about how to allocate the 500 million is sort of where those percentages move?

Well, as Fabio says, it's going to be well diversified in basically three areas, and that means mainly Europe, one-third or whatever, it's a good reference. But as you say, we will explain more in November.

Okay. And Michael, I think you had mentioned Europe going from 50 to 70 percent electric arc furnace steel production. Currently, Europe is at 40 percent and going to 50 percent, and many, many investments of new ERFs already announced in the market. and yes, we will capture that growth in Europe.

Okay, and then last one. On the cost side of $36 million, the whole company for the first half, $19 million in the second quarter, how much was foreign exchange in those two numbers, given that the euro changed a lot?

Yeah, but that was not a material impact there.

Okay, so it's really just true cost. Okay, that's what I wanted to understand. Thank you very much. Thank you, Michael. Thank you, Michael.

Thank you. We will now take our next question from Lessine Stubbing from Barenburg. Please go ahead.

Hi, good morning. Just two or maybe three follow-ups from me. I just want to touch on the aluminium business briefly. This was much improved versus Q1, but just looking at, you know, prices were down slightly volumes also slightly down so can you maybe just explain some dynamics i guess a lot of it came from from the metal spread but if you could just explain the different dynamics though versus what happened in q1 that would be that would be helpful and then maybe also on the steel side um are you seeing any weakness in in the steel industry currently in europe you know off the back of you know, recessionary fears, higher energy costs, and how that feeds through into your business. And maybe just the final one, are you able to quantify the increase in the Coke price versus Q1? If you have any more color there, that would be helpful. Thank you.

Thank you, Liz.

Well, regarding the aluminum, well, we like to approach the aluminum industry for the whole semester I think is a better reference than the quarter by quarter. The reason behind is that the quarter one was mainly affecting as well for rollover of contracts coming from the previous year which affect to the margins. I mean the typical quantities that at the end of the year could not be provided and then we provide the first part of the year. The dynamics is better to have the view of the first semester with this kind of margins and prices are what are more probably close to the real situation of the business. In terms of the steel weakness and evolutions of the steel production, especially in Europe, as you are asking for, well, it will depend. I mean, the thing that we are discussing for the guidance and for what is going to happen in the second half, yes, they are intensive in energy, especially in electricity, and how this is going to evolve. the evolution of those prices are going to affect them and the demand situation because the rumors or ideas of recession is going to affect for sure them. But it's true as well that the steel prices are, again, offsetting the energy prices for them. It's the same that if the metal prices come up again and offset the cost, well, the demand will see if there's going to be a very good drop or not. All in all, we don't know. I mean, how it's going to be affected, and this is one of the points for the uncertainty, how the steel production is going to come in the second. So, very difficult for us to quantify. And regarding the coal prices, sorry, I forgot this. The capital price for the second quarter with the first quarter, I think that the quarter is in a 15% increase of so quarter over quarter. And again, we'll see what is coming in the next month. On the other hand, if the demand is slowed down, probably the prices should slow down as well. But once again, our estimation, so we don't know what's going to happen.

Okay, understood. Thanks very much.

Thank you. We will now take our next question from Julian Abattu from Pascal Advisor.

Please go ahead. Hello, gentlemen. Thanks for squeezing me on. I have a question. I don't know if I will be able to give you my thoughts. It's about the sequential development in APTA in steel dust. I struggle to understand the outcome since both volume and pricing was better in Q2 compared to Q1 and much better, I mean, plus 7 and plus 10 in price. The additional inflation impact was 13 million euro based on the bridge you give. So I struggle to understand how we ended up at 40 million compared to 55. So is that something I'm missing in terms of impact from an over... or something else. So that would be my first question. And the second question would be about the double digit earnings growth you talk about in the plan. Is that a BTA or is it a net profit? Thanks.

Julian, I apologize, but the line is going in and out. It was really hard to understand your question. Can you please send us the question? I'll try my best to answer it as quick as possible. We only understood something about the second part of the question in terms of double-digit growth of our new five-year plan, but probably even maybe better to send us

Regarding the second part, I didn't understand the first part of the question. The second part, I think you are asking if the double digit is regarding EBITDA or net profit. Today, we are working at EBITDA levels. We will develop further the net income line, but today we are thinking at EBITDA level.

Okay, clear. Thanks. I'll send the question.

Okay, thank you very much.

Thank you. There are no further questions in the queue at this time. I will turn the call back to your host.

Thank you all for your questions. You can also contact the investor relations teams of Befesa 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 on our website, www.befesa.com. Thank you very much and have a good day. Thank you.