Befesa S.A.

Good morning and welcome to the third quarter 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, Acierza Raonandía, CEO of BFESA, and Wolf Lehmann, CFO of the company. Javier will start with an executive summary of the first nine months of the year. After that, Acier will explain the business highlights of the period, covering steel dust, and aluminum solid select recycling. To all, we'll 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 and the five-year growth plan, which we will explain in detail in the upcoming Capital Market Day on the 8th of November. Finally, we will open the lines for the Q&A session. Before getting started, let me remind you that this conference call is being webcasted live. You can find the link to the webcast and the third quarter results presentation on our website, www.defesa.com. Now, let me turn this call over to our chairman. Javier, please.

Thank you, Rafael. Good morning. During the third quarter, we have continued to deliver solid growth for Defesa in a challenging market environment. As anticipated, Q3 has been the weakest quarter in the year, driven by a combination of planned maintenance shutdowns in Europe, lower metal prices compared to the second quarter, and high overall inflation, especially energy prices. In the third quarter, we have achieved 46 million euros of EBITDA, which is 8% higher than last year. As such, in the 91st month of the year, total EBITDA has been 164 million euros, or 20% growth year on year. Overall, despite the challenging macroeconomic environment and the volatility in the commodity prices, we have delivered another good quarter supported by the contribution of the North American plants. In China, we expect to complete the commissioning of the second plant in Henan in the last quarter of this year, and we continue to experience a challenging environment to operate caused by the zero-COVID policy that the Chinese government is imposing. Later, our CEO will review the business performance during this quarter in more detail. Based on the results of the third quarter and our expectation for the last one, we are confirming the guidance that we provide at the beginning of the year towards the lower part of the range of 220 to 270 million euros. We are living in a very challenging macroeconomic environment, which is translated in high levels of volatility and uncertainty over the coming months, with concerns about an economic recession in Europe and globally. In September, we signed the decision of the remaining 93% stake in the US chain refining asset. Prefesa already owns 7% of the assets as part of the acquisition of a fair deal. The current environment dominated by the high inflation and energy prices has provided us with the opportunity to renegotiate favorably the terms and conditions of the agreement, reducing the acquisition price by 65% to $47 million. The zinc refining business provides Bethesda with a strategic vertical integration opportunity in the U.S., addressing the shortage of smelting capacity in the North American market. Furthermore, the refining facility is the only one of its kind in the world producing green zinc for 100% recycled raw materials. Next week, On November 3, we are celebrating our five-year anniversary on the Frankfurt Stock Exchange. In the past five years, we have developed the FESA from a leading European-focused company to a truly global market leader with a diversified and balanced footprint. We are excited about the next growth plan of the FESA for the next five years, in which we plan to invest between 400 to 450 million euros. to target double-digit earnings growth in a globally balanced expansion. Now, as CSR R&D, I will explain the business performance in more detail.

Thank you, Javier. I will provide an overview of the performance of the business during the third quarter and the first nine months of the year. Overall, the third quarter has been a good quarter. As we expected, and some the same than previous years, planet maintenance shutdowns across our plants in Europe during the summer season have impacted volume in the third quarter. Metal prices have been lowered in Q3 compared with Q2, while inflation in general and especially energy prices have remained high. As we already saw in the first half of the year, we keep being able to compensate the higher inflation with higher metal prices. In summary, overall good results in a challenging environment, which position us to achieve the lower part of the guidance. Going into the details and starting with the steel dust recycling business. In the Q3, we have achieved 268,000 tons of throughput, up 20% compared to last year, mainly driven by the contribution from the U.S. plan, supported by a strong performance in the rest of the markets. Similar to previous years, Q3 is affected by plan and maintenance advance in our European plans. In Q3, the contribution from the U.S. operation has been strong, while in China, we continue to be impacted by the set of COVID policy of the Chinese government at the speed of the economy recovery. Total steel dust volume growth in the first nine months has been 60% compared to the previous year. Brand exchange price, considering the weighted average of LME and hedging, has increased 17% in the quarter and 18% in the first nine months of the year. These positive effects have been partially offset by higher inflation across the business in Q3 2020. mainly in energy prices, and more specifically in the coke, representing a negative impact. Total EVDA in the steel dust business has been 36 million in Q3, up 7% compared to the previous year. In the first nine months of the year, total EVDA in the steel dust business has been 131 million, up 28% over last year. In the US, The integration is developing well across all fronts. The team is working well, and we are delivering the volume and the results that we expected. Also, in the U.S., as explained by Javier, we have now full ownership of the zinc refining assets. The refining facility is the only one in the world producing green zinc from 100% recycled raw materials and will be fed with the works that we produce in the U.S. in our recycling facilities. In China, the state of COVID strategy that the Chinese government is implementing to fight against the still-present COVID-19 pandemic has created a very challenging environment to operate as the recovery is going very slow. At Jiangsu 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. The situation during the nine months of the year has been quite challenging. The COVID strategy and the slow recovery speed made the Chinese economy impacted the steel production and our utilization rate. Our second plan in the province of Henan is completed, and we are finishing the commissioning of the plan, which will be completed over the coming weeks. In the traditional business of Prefesa, we are achieving strong volume supported by a strong EAF steel production from our customers. Despite all the news about the steel production declines in Europe, the level of deliveries from our customers continues to be close to normal levels. Moving now to our aluminum salt slag and secondary aluminum business. Our aluminum business has delivered a good quarter in a very challenging microeconomic environment. In the third quarter, we have recycled 67,000 tons of salt slag, representing a 9% decrease compared to last year. The production of secondary aluminum alloy has been 37,000 tons, a decrease of 13% over the last year. These volume decreases are explained by normal plant and maintenance shutdowns over the summer season, both in the solar plant as well as secondary aluminum plants. The aluminum price has increased 16% in the period, which has more than offset the high inflation in the business during the period. In this business, we have been able to pass most of the cost inflation to our customers via increase of price, fee, and merge margins. As a result, we have achieved 11 million of EBITDA in this segment, which represents a 14% growth over last year. So, all in all, another good quarter in a challenging environment. As explained, Q3 has been the weakest quarter driven by maintenance shutdowns driving down volume and high inflection levels. We expect Q4 to be a strong quarter with all our plans operating as normal. A final word about China. As I mentioned, the situation during the last quarters has been very challenging and difficult to operate. So far, we are not starting to see some relief in the measures and economy recovery speed. But despite a certain challenge in China, the opportunity to grow remains strong. The environmental authorities are committed to enforcing and fulfilling the environmental regulations, with the steelmakers saying recycling is a real solution. We are working on several new projects to build a new plan that could materialize in the near future as soon as the negotiation with authorities and steelmakers reach to an agreement. We will explain more about this in the coming Capital Market Day. Now, Wolf will explain the financials in more detail.

Thank you, Hasdi. Please turn to page nine, the nine months 2022 consolidated financial highlights. As mentioned by Javier, the filter continued to deliver solid growth with EBITDA up 20% year-over-year in the first nine months of 2022. 163.9 million adjusted EBITDA, up 27.1 million year-over-year, versus the nine months 2021 at 136.8 million. Overall, our growth initiatives, including US-Link, are delivering results. And even in the current volatile environment, we are able to offset inflationary pressures, mainly energy, through higher pricing. Reviewing the main drivers of the year-over-year 27 million EBITDA improvement in more detail. On volume, overall approximately 26 million net positive volume year-over-year impact. 30 million positive from the higher steel dust throughput, including the positive contribution from the US zinc operations, more than offsetting slightly slower EU due to seasonal plant maintenance overhauls. Negative 4 million, which is a minor 4 million impact from lower aluminum volumes, mainly driven by the lower activity of the European automotive and aluminum industries. On price, the overall approximately 51 million positive price impact about half for 26 million is from steel dust business and the other half around 25 million from our aluminum salt fix business i will explain in more detail on the following pages on cost other the approximately negative 50 million lever reflects mainly the higher inflation primarily energy cost which is in balance with the higher prices achieved in summary adjusted ebitda is at an all-time high of 164 million, with a solid 19% adjusted EBITDA margin even during these high inflationary times, and while the U.S. zinc integration is ongoing. Net profit increased by 26 million, or 42% year-over-year, to 87.2 million in the first nine months of 2022, equal to €2.18 earnings per share, both the net profit and the EPS are positively impacted by the successful acquisition of the U.S. zinc refining business, especially due to the renegotiated lower purchase price. Cash stands at $139 million, and leverage temporarily increased to 2.56 times, which I will explain later together with the net debt and the net leverage performance on page 12. This is after paying out $50 million dividend, as well as funding $47 million for the acquisition. Note, as always, in the appendix of this presentation, you'll find, as usual, various financial operation 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 131 million adjusted EBITDA in nine months 22, up 28.3 million, or 27.5% year-over-year. Overall, the steel dust growth initiatives, including U.S. operations, are delivering results, and we're able to offset most of the inflationary pressures, mainly energy, through higher prices. The volume lever was positive by around 30 million EBITDA year-over-year. As explained, this includes the positive contribution from the US operations, more than offsetting the seasonal higher plant maintenance overalls, especially in Europe this year. The net price lever was positive by about 25 million, with main price components being 36 million positive from higher zinc LME prices, up 42% year-over-year, to 3,422 euros per ton. Two million positives from higher zinc hedging prices. Those were 2,363 euros per ton in nine months 22 versus 2,170 euros per ton in nine months 21. Finally, a negative 12 million driven by the known higher annual zinc treatment charges which were considered at $230 retroactively from 1st of January, versus $159 per ton in 21. Overall, the approximately 25 million year-over-year impact from the price level, mostly of that, the approximate 27 million year-over-year impact from high inflation, mainly energy cost, captured under the cost other level. Going now to page 11, the results of our aluminum salt flex recycling services segment. Aluminum salt flex recycling services delivered 34.2 million EBITDA in nine months 22, stable compared to the 34.1 million in nine months 21. The year-over-year EBITDA development was mainly impacted by the lower market activity in the European automotive and aluminum industries and higher energy prices, which were successfully offset by the achieved higher prices. The volume lever was down by about 4 million effect year-over-year. This was driven by 21% lower salt slags and spent pot lining treated, but normalized for Hannover rather up 9% year-over-year, as well as 14% lower production of aluminum alloys driven by the current lower European automotive and aluminum industry environments. Nevertheless, even under the current volatile market environment, we managed to run our plans overall at around 80% utilization, especially if normalizing for an offer. The price level was positive by about 25 million, with aluminum alloy, free metal bulletin market prices showing a 25% year-over-year or a full 500 euros per ton increase, as well as better aluminum metal margins. The cost other lever, with around negative 21 million EBITDA effect year over year, was driven by the higher inflation, energy cost trends with particularly high gas prices in Europe, thus offset most of the progress in price. Turning to page 12, the cash flow and the depth and leverage results. On the EBITDA to cash flow bridge, starting with 163.9 million adjusted EBITDA on the left and walking to the right. Working capital was up by about $48 million year-over-year. The high working capital consumption was very much driven by the seasonality and timing impact similar to last year. Stem will give an increase in sales and receivables, the majority of which is expected to reduce by the end of this year as usual. In addition, impact from the timing of the ANOVA insurance recovery and impact of the Zinc U.S. refining acquisitions. Similar to last year, we do expect a better working capital performance seasonally in Q4 towards the end. Interest at $70 million as expected. Taxes at about $20 million also as expected, resulting in an operating cash flow of $78.3 million in the first nine months of 2022. CapEx-wise, in the first nine months, we spent $50.9 million regular maintenance capex, as well as capex related to the operational excellence synergies projects in the U.S. and to the recovery of our ANOVA plant, where we partially got already and are getting the money back from the insurance. Also, 69.8 million on growth, including, which is the majority, around 45, 47 million for the acquisition of the U.S. zinc refining operations, as well as our new plant at Henan. Together, total capex of 121 million, partially funded through approximately 7 million China local loan for our Henan plant. Dividends of 50 million, or 1 euro 25 per share, were distributed in July, equal to 50% of net profit of 2021, as promised. Total cash flow amounted to a negative 85 million, and cash on hand stands at 139 million, again, including the around 100 million for dividend and the acquisition of the U.S. zinc refining combined. The cash on hand of 139 million, together with our entirely undrawn 75 million revolving credit line, provides the FISA with a strong liquidity of more than 200 million euros. The $225 million last 12 months rolling EBITDA incorporates full 12 months rolling of the U.S. operations on a performer basis. The $574 million net debt with the $225 million last 12 months adjusted EBITDA results in a 2.56 times net leverage at third quarter closing. Again, we expect a lower leverage at the end of 2022. Now turning to page 13 on hedging. Our zinc hedge book is up to and including January 2025. Thus, approximately two and a half years of hedges on the books, our hedging strategy remains unchanged. Overall, considering the combined global hedge book, Europe, Korea, U.S. operations, the year 2022, this year, is hedged at around 2,375 euros per ton sold forward. at fixed prices. The year 2023 is at around 2,500 euros per ton, and the year 2024 at around 2,600 euros per ton, which provides civilian growth for the next years. Summarizing the financial section before we turn to the growth, three points. One, the fees are delivered in the first nine months. The highest earnings in the history of the company at $164 million adjusted EBITDA, up 20% over last year, despite the current volatile environment. Secondly, our financial backbone is strong. Our hedge book covers up to and including January 25. Our capital structure is efficient and long-term. And even after funding around $100 million for the US Inc. refining acquisition and $50 million dividend combined, liquidity is more than $200 million. And thirdly, This financial backbone supports us very well to fund our growth roadmap, our latest sustainable global growth plan, organically, which we'll talk in more detail about at our Capital Markets Day on the 8th of November. Now, let me turn it back over 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 rest of the year. As I said, despite all the volatility in the commodity prices and the concerns about the global economy that we are living, we expect 2022 to be another growth year for Bethesda, mainly driving by the volume growth contribution of the North American operation, which will be partially offset the high general inflation, especially in energy prices. We are confirming the full year guidance at a lower part of the range. From the volume point of view, we expect growth on the steel dust volume, driving by a full year of consolidation of our operation in the U.S. after the acquisition of American Thin Recycling. The integration into EFESA is developing well across all fronts. For the rest of the year, we expect a good performance in our American operations. In Europe, there are general concerns about the economic situation during the rest of the year caused by the uncertainty in the energy market and how that could affect the overall industry, as well as concerns of demand coming from China. Despite that, we are confident to achieve high levels of capacity utilization overall. In China, as Asir has explained, the lockdown measures are making it very difficult to operate, and we expect almost no contribution from China in 2022. In the aluminum, solid slag, and secondary aluminum business, which is a purely European business, despite the automotive industry continues to face a challenging situation in Europe, and supply chain problems are added to the semiconductor shortage, we expect volume to be maintained until the end of the year. In the aluminum business, we are being able to pass a big part of the cost increase to our customers. We expect volatility in the prices of commodities to continue for the rest of the year, driving by instability at the macro level and uncertainties in the overall economy. Our hedging policy with around 70% of the volume of steam 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 of Europe, mainly North America and Asia. And we are confident about the business model of the FESA. Finally, on future growth, as you know, in two weeks, on the November 8th, we will celebrate our first Capital Market Day, where the focus will be the growth plan for the next five years. Despite the short-term challenging situation we are facing, we have a strong growth plan to invest between 400 to 450 million euros over the next five years to grow earnings at a high rate. This growth plan is based on global megatrends, which are not going to go away. The carbonization and electric vehicles will drive market growth where we operate. We will explain all the details on the 8th of November. Thank you very much. Thank you, Javier. We will now open the line for your questions.

Our first question is coming from Ingo Schacher from BNP Paribas.

Thanks for taking my question. I think the first one would be on your European electric arc furnace dust recycling activities. I'm wondering whether you could give us a bit more specific information around the utilization level in the third quarter. Maybe at least let us know whether the throughput in Europe was still around 100,000 tons or higher than in the US. And then also for the fourth quarter, you seem to be optimistic that after the seasonal electric arc furnace outages in Q3, volumes might be higher in Europe. Of course, from our perspective, it's still difficult to substantiate that when we look at industry data, electric arc furnace production still seems to be down. Is there any evidence that you already have for this Q4 pickup? Did you see good inbound shipments in October, or is it based on the inventory levels you already have of dust? Just curious to understand a bit better what drives your, let's say, relative optimism regarding fourth quarter electric arc furnace dust throughput.

Axel, please.

Thank you, Ingo. As always, long question and interesting question. Well, let me confirm something. Yes, we see the Q4... running a full capacity during the three months in Europe, and we see the same level in U.S. and perhaps better performance in China. And this is what we have confirmed at this stage, because it's end of October, and despite the fact of the expansion or announcement of containment of production, we are delivering well. Yes, playing with the stocks, playing with the growth of the stocks while we are at a stop for maintenance in the Q3. We are growing the stocks and we can navigate without no problems. Anyway, the deliveries we are saying is more or less a normal level in Europe and as expected in US and with a problem in China.

Any specific Q3 number you can give us for European throughput?

No, well, you know, Ingo, you make always that question and we answer the same. We don't make the separation of this because of obvious reasons for the competition. So you have the data, global data in the presentation.

Okay, sure. And then maybe on the zinc refining asset that you acquired in the U.S., I think you've given us, I think with these five times EBITDA purchase price indications of an indication where you see, I think that's midterm EBITDA. I guess, but thinking about the KPIs for next year, what should we already expect in terms of EBIT and cash contribution next year? Is it still going to be negative or do you already expect the asset to contribute next year? And also in terms of cash flow, do you still see, let's say, beyond the 47 million purchase price, a lot of need for networking capital investment, other upgrade investments in the assets to capture opportunities with regards to profitability improvements?

Yeah, well, basically, as we have in the presentation, we are quite more or less at a level of five times the BDA, considering the BDA in the 23. So we are more or less, we expect in the range of $8 to $10 million, which is now euros. for next year. Currently, it's doing in that level or even break even, but the medium term and even for 24, 25, we are not changing our mind as we explained it in the last year when we acquired the whole assets in U.S. We expect something in the middle of 15 to 20 million and bank cash generator. I mean, the capital maintenance we need there is below this level, so we do hope that it's going to contribute with cash in the future.

Okay, very clear. Thank you. Maybe just a quick housekeeping question on the steel dust revenues. I think you had very high revenues almost at the Q2 level, even though zinc prices were a bit lower. Is there anything extraordinary in the revenues? Or I suspect it's, I mean, is it collection fee or logistics costs that have increased because of energy prices or just the normal quarterly volatility of revenues in that segment?

No, Ingo, thank you. No, nothing special. Normal operations, and zinc prices might have been a little bit lower than second quarter, but at the end of the day, zinc prices are still high, and we had good throughput, good sales, so that's the results. Nothing special in there.

Thank you. Okay, thank you.

We will now take the next question from Sandeep Sethi with Morgan Stanley.

Good morning, gentlemen. I have a few questions. I'll take one at the time. Firstly, on the steel dust supply, you have clearly alluded to the fact that 4Q is expected to be at main plate capacity. But if you can give us some guidance or thought process around 2023, what are your expectations for that year? And maybe some indications of what is the inventory level sitting in your meals, especially in Europe? Thank you.

Well, the I think it's a good question, but as I say, Q4 is going to be a normal level throughput quarter, and we are in the middle, not in the middle, but almost in the middle of the quarter, and we see that it's going to be like that. So, out of the Q3, it's going to be in the level of the 1 over 2. This is the normal rate that we have. For 23 globally, well, I think it's a little bit early to say. I mean, why not? We are going to increase the throughput for With regards to 22, because we have China production probably coming back and so on, but there's still a lot of uncertainty there, so it's difficult for us to answer now. For modeling, I would put even higher than the 22.1.

And Sandeep will cover more, give you a little bit more flavor at the Capital Markets Day, but it's a bit too early. Thank you.

okay uh that's that's fine um maybe moving on to the second question so zinc smelters are closing in europe due to elevated energy prices can you give us an update on the situation in context of uh works processing yeah that's that's that's a real thing and i know that is a question that come in over many times and the the the answer to make it easy and quick is

is not affecting us, and this is reality. There are some particular cases where we are allocating the works instead of on the plant to directly the port because the global play is on the smelting site. They are moving their works, but it's on their cost. So we are not being affected by those complements. And that's in the future, but in that case, probably it's because the works is just 5% or 10% of the portfolio of the raw material they are using, and they are more affecting to the concentrates. Whatever is the reason, we are not suffering this at the moment.

We continue to be sold out, Sandeep.

That's very good to know. Maybe one housekeeping note on cash flow. I look at 3Q numbers and I notice that there is other loss of 40 million recorded as part of the operating cash flow. Can you give us some indication what that pertains to?

Are you referring to page 12? cash flow to NetApp Walk, or which page are you referring to?

So I'm referring to the main report, page 11 of 13, where there is other loss of $40.2 billion in 3Q, and it's part of the operating cash flow.

Okay, so for me, a little bit easier, that's why we provide page 12, Sandeep. I think you're looking at the same number. This is the walk from EBITDA to operating cash flow. If you look at that, ultimately you have about $48 million that impacts working capital. About half of that is seasonal working capital, which we're expecting to reverse in the fourth quarter. The other half of that relates to special impact, which is Hannover. and then the impact of the acquisition of the US Sink refining. And then I remember, Sandeep, last call you had asked for collections around the Hannover insurance case, and I can positively confirm that we've already collected 20 million year-to-date, of which 5 million was in the first half, and then 15 million was actually in this quarter, in the third quarter. And there's more to come until the rest of the year. So that impacts, as always, you know, when you have these insurance cases, you go in advance because you pay for the repairs and rebuilding. And then later on, you get the funding from the insurance companies. So that is all in that $48 million that we show here on the working capital. And I think that's also what you're referring to.

And regarding Hannover and Sandip, our expectation is to cover 100% of the rebuilding of the plant and a good portion, or practically total, the loss of profit of the shutdown.

And most importantly, we expect to be back in action in Hannover beginning of next year. Yes. So we're happy with progress there.

Okay, thank you. Just one clarification on the investment program. So are you expecting double-digit growth on an average for next five years, i.e. at least 10% each year for next five years?

I think Sandeep will tell you more about it at the 8th of November at the Capital Market Day. We're excited about it. Please remember, on the 3rd of November is our five-year anniversary in the stock market. And on the 8th of November, that's our first ever capital market day. So leave us a little bit of ammunition to celebrate the capital market day.

Okay. Thank you so much.

Thank you. We will now take the next question from Michael Hall from CIFEL.

Hi. Thank you very much, and good morning. I appreciate not giving by country or by region utilization, but you mentioned You reported in total. So what is your estimate for total utilization in steel dust for 4Q? So we just are in the right neighborhood given we're trying to figure out how China contributes in there if we're adding up all three regions on our own.

Hi, Michael. I think as I said before, I think that you have to consider as a reference the Q1 as an example of the percentage of utilization for the Q4. For the radio, again, I repeat that myself, but don't disclose that.

Right. Okay. So you reported about 88% utilization total companies, so that's the neighborhood we should be in for the fourth quarter. Right. Yep. Okay. All right. Perfect. And then I... Appreciate the approximately 15 to 20 million euro contribution for the new smelter. What do you think four Qs will be given it's just being brought in? Is that sort of take one quarter of that, kind of the midpoint of that, take one quarter of that, or is it a little less? How do I factor that in?

In this case, I would take this like a kind of break-even. It's not going to be contribution from the smelter this quarter. Basically, because it's running at a good rate, but we have to make some adjustments at the end, so the idea is that we start to contribute in 2023.

Okay. Okay. And then, Wolf, what was the contribution from stainless steel and other in the steel business for the quarter?

For the quarter, let me get back to you, Michael. I don't know what I told you I had, but the usual single-digit yield are little. It's not a big business for us.

All right. And then what is your assumption for a blended price in zinc and then the aluminum alloy price for 4Q in order to get to support $56 million? Because basically, it's pretty simple math. We've done 164 to do the low end. You've got to do 56 million. I'm trying to figure out what you think price is.

Michael, at the end, the question of price is something that we always answer the same. If I will know what is going to be the price of the scene during the next three months, probably I'm not going to explain here the results of the first half. We don't know. I mean, we have the hedge part for this quarter in place, and the rest is whatever has in mind what happens. We have the reality of today, Randy, $3,000, and that's it. We'll see what is coming out in the next two months.

But we don't expect big change in the rest of the year.

Probably not.

Probably not.

Okay. And on the aluminum alloy side, what's it running in the fourth quarter to date then?

Yeah, why not? I think in aluminum we are able to pass through the higher inflection course, and we are going to keep like this probably until the last part of the year, yes. And...

Okay, so quarter to date, what are you running as a selling price for aluminum alloy?

Let me just look. We had that, I think, aluminum alloys. Give me one second here. I think I mentioned it.

I think prices, what, we went up.

500 euros per ton and we had I'll send you the final price it was up year over year 500 euros per ton I'll send it to you Michael

And we expect similar prices in the... Same than the thing. No reason to change a lot there.

Got it. That's what I just was trying to zero in on. And then, just to be clear, I'm not trying to take the thunder away from November 8th, but we shouldn't get too far ahead of our skis. You've got to invest this money before it drives growth, so the investments might take a year or 18 months before the first real driver of new growth from that, just because you've got to You've got to go out and build things. So the first year is not being driven by an above-average growth because you're doing this investment. It will drive long-term really strong growth, incrementally maybe another 80, 100 million euros of profitability when it's all done, but it's not going to be 10% in the first year.

Michael, first of all, we have done the fair investment of the plan, which has been the acquisition of the single smelter in the U.S., And then in the rest of the investment, we will adapt the speed of our investment to the market situation. We think that the second investment will be probably in U.S., where we want to refurbish one of our biggest plants. And then in the rest of the areas, we will adapt the speed of our investment to the evolution of the market. Okay.

And then, Michael, just coming back to your pre-medal bulletin prices, Michael, for the last 60 days, we were trading at an average of about 2,350 euros per ton. And this is kind of also what we're expecting for the fourth quarter. Okay, great. 2,360, 2,350 euros per ton F&B.

Got it. All right, great. Thank you. Thank you.

We will now take the next question from Oscar Valmas from JP Morgan.

Yes. Good morning, everyone. I have three questions. I'll take them one by one as well. The first one is really on energy costs. Could you just comment on do they get worse in Q4 from Q3? And then also, what are your thoughts on 2023, specifically on gas? What have you hedged? What percentage is hedged for next year?

Thanks, Oscar. The first thing we need to understand is that we don't have only energy source. As you know, we have coke as the most important energy source in the steel dust business, and then gas and electricity. And the strengths of the different energies are not exactly the same. In terms of gas and electricity, the third quarter has been the peak quarter of the year, and now what we have seen is an important, very important decrease in the prices of gas and energy. We don't know very well what is going to happen next year. What we read every day and the information we get from the specialists, et cetera, is that 2023 couldn't be much higher than 2023-22 average, but we don't have, as you can imagine, we don't have a clear view of that. Let's see what is going to happen. Regarding the coke, which is linked more to the coal than any other energy, now we are probably in the peak moment of the year, and we are starting to see some decrease in the evolution of the prices. So again, regarding 2023, we think that could be slightly higher than 2022. But again, we don't have the crystal ball to predict what is going to happen, no?

Okay. No hedges.

No hedges because in energy, it's quite impossible for us to hedge. We have three sources of energy in seven different countries. So, again, you cannot do a global hedging as we can do in the metal side, no?

Okay. Very clear. The second question is just on the U.S. synergies. How far are we to the $17 million? What's the run rate today of those synergies?

Well, it's a difficult question as well. We are on the way to get more or less the $20 million that always we are talking. The problem there is that sometimes you get the operational profit that are covered by the increase in inflation costs, especially by Coke. So it's difficult to answer that, but what I can tell is that in the operational level, we are on the way to get and capture all the synergies probably in 2023.

Okay. And then the final question is going back on what Ingo asked, just to clarify, do you have an EBIT number for the refining, the zinc refining assets? You talk about five times EV EBITDA, but is there an EBIT multiple for next year we should think about, or an EBIT number?

Oscar, we'll get back to you on that one.

Okay. I'm just trying to see if it's more depreciation or not on the asset.

Thank you. Thank you.

And we will now take the next question from Lasse Stuggen from Barenberg.

Hi, good morning. Just two additional follow-ups for me. I just want to follow up on what's happening in China with the Congress we've had recently, and it seems doesn't seem to be much of a relaxation on you know the syracuse policy so i'm just wondering sort of what sort of visibility you have or if you have any early insights um maybe from your own customers on on what the plan is in china as it sounds like you're a lot more confident on the operational you know operational aspects in q4 so if you can give some insights there please well yes we we are following as well the congress and the situation in china very

high expectations. The reality is that there actually has not many changes on the field. I mean, the poverty for the Chinese economy after the COVID lockdowns in the second quarter has been very slow, and there is not a clear path where it's going to come. On the field as well, with the steel production, it's going in a very irregular way. So they get up and down, and this is affecting to our production. So we see basically that we are going to have in the Q4 the same path for the rest of the year. Some couple of probably the two months, months and a half are running and then stopping waiting for more gas. This is more or less what we have in mind.

Okay. And does this change the pace of investment that you had maybe initially planned in China? Are you now more in a bit of a, I guess, wait and see mode with respect to additional plants or how does that change things?

Not really change it, but I think that we have to monitor the timing for the investment. I mean, and this is something that we are already doing. But as Javier and Wolf say, we will explain more detail on the capital market today. But I think that the growth plan, as I explained before, on the table, the thing is at the speed of this, probably we have to manage. This is the idea.

Yeah, okay. And I guess... Just related to that, I guess the slightly lower Q3 utilization in steel dust, is that also sort of capturing that, you know, I guess the weakness in China? I'm just looking at the, I think the number you gave was about 68% for Q3. So I'm just trying to, I understand there's maintenance shutdowns, but I guess does that also capture that China effect as well?

Yeah, well, but basically because we are running the whole year like this, there is no difference among the quarters. So this is a little bit affecting the whole year.

We have had shutdowns in some big European plants.

Okay, understood. And then finally, just again on energy, as you said, the costs have come down quite rapidly over the past couple of weeks. Is that, I guess, just to clarify, because you don't have any hedges in place at the moment, Are you essentially getting that benefit pretty much instantly, or is there a bit of a delay? Is it possible to understand how that kind of feeds through into your cost base?

Yes. In the case of gas and electricity, as we don't have hedge, we will get the benefit of this price decrease during this quarter. In the case of coke, it's not happening in the same line, okay?

Understood. Okay. No, that's helpful. Okay. Great. Thanks very much. Thank you, Lasse.

We will now take the next question from Anis Izgaev with Odo Beashev.

Good morning. I have one question, one remaining question. Could you please explain more of the 90 million adjustment on QC EBITDA, I mean between the reported and the adjusted EBITDA. And could you please say, could you please, yeah, what would be the adjusted net profit? Thanks.

Good morning, Anis. Yeah, so, correct. You see that the reported EBITDA is higher than the adjusted. Reported EBITDA is 181 million. And the adjusted EBITDA is $164 million. So there's a $17 million difference. And this is purely due to the fact that we were able to purchase the US Inc. refining asset at a very attractive price. And so this is the adjustment that relates to that. And similarly, on net profit, you see that net profit is nicely up year over year. And what I just explained on EBITDA, that falls through obviously to net profit and the majority of the yearly increase is driven by that payroll adjustment for the acquisition of the US Inc. refining asset at an attractive price.

Okay, thank you. So it's just an accounting, you know, it's not a cash. It's just an accounting impact.

We follow the IFRS 3 for accounting for the acquisition.

Thank you.

We will now take the next question from Jamie Escribono with Banco Santander.

Hello, good morning. A few questions for my side. One that has been kind of made, but maybe in a different way, which is the following. Stilda's margin has been around 20% in Q3, very similar to Q2. I assume that the reason why this margin is at 20% is mainly on high inflation, as you pointed out in your presentation. I don't know if there is anything else also affecting this margin. And then the question would be, if you are seeing some improvement in energy prices, where could we see this EVTA margin for the steel-dust division in the following quarters? This would be the first question.

Jaime, thank you for the question. Well, as I told before, we have started to see, as everybody, a decrease, a clear decrease in gas and electricity in this quarter. So that will benefit. But as I have explained, we are in a peak moment in the coal price. So let's see how the coal price evolution. Based on that, we expect perhaps some improvement in the margin, but not very important based on the cold price situation in the short term.

Okay, very good. And regarding the treatment charts, I know it's very early, but I don't know if you can tell us what is the outlook right now. I remember the final negotiations are usually in March next year, but any development or any dynamic that you are seeing going higher or going lower or staying stable for next year?

Oh, the key question or part of one of the two or three key questions on our business, Jaime, you know very well. No, no clue. I mean, the only following up we can see is the sports markets, especially in China, and the others are in the range that we are currently now. So, So if that means that it's going to be a violation for next year or not, I don't know. But nothing very specific or not many changes even with the spot. So it's more difficult to see what is going to happen next year for sure.

Okay. Okay. Thank you. And just a final question. So even if you cannot tell us region by region how the volumes are evolving on a quantitative basis, but maybe on a qualitative basis, could you tell us Europe, Turkey, Korea, and the U.S., how do you see Q4 and Q1 volumes evolving, going up, stable, or decreasing a bit? Just to have a sense on the dynamic situation.

No problem to qualitatively answer this. I mean, as I said before, in Europe, we are going to run 100% of capacity. Well, 100%. I mean, the typical... 90, 90-something percent, but I think we have full capacity for the last part of the year. Less visibility for the first quarter of 2023, but there are no many reasons that we are going to have a big change of that. So we see a stable, more or less. In the U.S., we see that we run more or less stable. I think that there are some announcements or topics temporary for steelmakers, but it's not affecting a lot. So we see a stable the first, the last quarter, and and the first quarter probably is going to be the same as well. Turkey is running quite on the level, stable for the year, despite the fact of the European filmmakers evolution, but we are watching the expected tonnages for the Q4 and for sure for Q1 probably the same. And Korea as well. So we see a stability in the short term. I mean, short term could be for sure the fourth quarter, And the first quarter probably could be in that line, but it's a little bit early to say. But well, more or less, we can see these other things that are going to happen finally. And then the quick question for us, what is going to happen in China? Q4, we see like the rest of the 22 year. And well, we'll see if there is a higher recovery rates for the steel production there, and we can increase the production over the Q1. Okay. Yeah, very clear. Thank you, Chef.

And we will take the last question from Janesh Mehta with Vermeer Accredits.

Hi, guys. Just a quick housekeeping question. On your debt, do you hedge the floating rate? And if so, can you just give us some details of the hedging?

Sure. Thank you very much. Good question. So you know that we have basically only one debt, which is our term loan B, which is all set and long-term until July 2026. That's $626 million gross. Of that, half of that we have swapped from variable to fixed. So the interest rate increases that are being announced in the market really only apply to half of our gross debts, that's only to 313 million euros of debt. So basically, 1% increase in the Euribor triggers basically 3 million increase in interest per year. The other thing to consider is that for some time we didn't get any interest on our cash deposits. Those days are now also over, so remember that also, you know, right now we have 140 million euros cash in the pocket, so obviously we're now getting on the majority of that also some interest. So in my mind, you know, every 1% interest increase, $3 million, but then we also get some deposits, so I'd rather put in deposit interest of, I don't know, $2.5 million or something like that would be the impact.

Yeah, that's really helpful. On the fixed component, just to clarify, where is that hedged at, and is that hedged all the way through to 2026?

Yes, absolutely, for the full maturity. Okay.

Thank you very much. You're welcome.

There are no further questions, so I will hand back to your host to conclude today's conference.

Thank you all for your questions. You can also contact the Investor Relations Team or Befesa for any further clarification. Before concluding, I would like to remind all of you that we will host the first Capital Market Day of Befesa on the 8th of November. It will be a hybrid event combining in-person and virtual attendance. We will start at 10 UK time and finish around 1.30 UK time. You will find the details to access the webcast of the Capital Markets Day on our website, www.defesa.com. Thank you very much to all of you and have a good day.