Befesa S.A.

Good afternoon and welcome to the first quarter 2023 results conference call of BFESA. Good morning to all from the U.S. Thank you for attending this conference call. I am Rafael Pérez, Head of Strategy and Investor Relations of BFESA. Today, we have with us Javier Molina, Executive Chair of BFESA, Acierza Ronandía, CEO of BFESA, and Wolf Lehman, CFO of the company. Today, we're hosting this conference call from the recently-acquired seeing smelter facility in North Carolina, in the US, which is the reason this call is taking place at an unusual time. Javier Molina will start with an executive summary of the first quarter. After that, Asir will explain the business highlights of the period, covering steel dust and aluminum salts like recycling. We'll review the financials in total and by business unit, as well as cash flow, and an update on our hedging program. Javier will close this presentation providing some thoughts about the outlook for 2023 and our growth plan. 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 the first quarter results presentation on our website, www.efesa.com. Now, let me turn this call over to our chairman. Javier, please.

Javier Ramirez- Thank you, Rafael. Good morning. As Rafael has explained, today we are hosting this conference call from our zinc smelting facility in North Carolina in the U.S. Yesterday we held the meeting of our board here, and all the board of directors of Bethesda had the opportunity to visit the smelting facility, which is the only one in the world producing zinc from recycled materials. As we have explained, the plan is still in ramp-up mode, and although during the first quarter the plan has not delivered positive earnings, we are confident that during the year the contribution of the plan will be positive. The first quarter of the year has been a challenging one for BFESA. Although revenue increased by 23% compared to the last year, driving by the integration of the smelter operations in North America, EBITDA was 50 million euros, which is stable compared to the previous quarter. but 18 percent down compared to the previous year. The main drivers for this decrease are higher SIN treatment charge, which has been settled at $274, representing an increase of 19 percent. Lower SIN prices, which are down 13 percent compared to the same period of last year. Lower volume of steel dust, down 19%, driven mainly by the earthquake in Turkey, as well as lower volume in North America, as expected, as well as higher coal prices, which have remained at the same high level than in the last quarter of last year. On the other hand, the aluminum business has performed very positively in the quarter, benefiting from strong margins and a decrease in the energy prices in Europe. As here, we'll explain the performance of the steel and aluminum businesses in more detail later. In this environment, our earnings outlook for the full year 2023 is between 200 to 230 million of EBITDA, representing a less 7% to a plus 7% compared to the previous year. I will provide more details about the outlook for the year at the end of the presentation. From the strategic point of view, during the first quarter we have continued the integration in the U.S. with the thin refining plant that we acquired on September 30, last year, and which is still in ramp-up mode. Our expansion in China continues to progress with the ramping up of the operation of the second Chinese plant in Henan. Plans in Jiangsu and Henan are operating and will contribute to earnings in this year. 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 first quarter of 2023. Overall, the first quarter has been a challenging quarter, as explained by Javier, impacted by a combination of lower metal prices, high energy cost, and lower volume. The strong performance of the aluminum business has partially compensated the weak performance of the steel dust business. Starting with the steel dust recycling, in the first quarter, total steel dust throughput was down by 19%, reaching 274,000 tons, mainly due to Turkey and the US. Compared to the previous quarter, volume of steel dust in the first quarter decreased by 8 percent. In Turkey, where we have a plan in the region, as you all know, two terrible earthquakes took place at the beginning of February. The impact of the earthquake in the region around the plant has been severe, and we are grateful that none of our employees and contractors were injured. The humanitarian situation is dramatic with many people lives lost and many houses ruined. The full recovery of the area will take time, but there are now some industries coming back to work gradually. Among them, some steel makers in the area. Although we have some volume decrease in the first quarter, the plant has been back to operations since March, and we expect the plant to continue operating as normal for the rest of the year. In the U.S., the integration of ACR into BFESA is developing well. As we already anticipated, volume of steel treated in the U.S. has been lower compared to the last year, driven by the loss of one contract, which volume we expect to recover over time. The refining facility, which we acquired last September, is also being integrated in BFESA. The plant is completed, fully commissioning, and it is still in rampant mode. The contribution in the first quarter of the year has been 2 million negatives, mainly due to the high inflation. Nevertheless, we expect a small positive contribution to EBITDA in the full year 2023. Additionally, in the U.S., we are working on the operational efficiency projects that will drive synergies to be captured during the second half of the year. At the same time, we are preparing the Palmerton Plan for the refurbishment to free up capacity and be able to capture future growth in the market. In China, the plant of Yanshu has been operating at a low capacity utilization during the first quarter. Our second plant in the province of Henan is completed and commissioning of the plant is finished. The plant is operating now. Our view is that China is gradually recovering from COVID. and we are optimistic about how the country will develop over the coming months as we see higher levels of deliveries from our customers. In the traditional business of EFESA like Europe, we are achieving good levels of utilization and volume has been very stable in the period. From the prices point of view, LME prices decreased by 13% in the period from 3,330 euros last year to 2,900 this quarter. The increase in the hedging price has not been enough to compensate the decrease in the LMEI prices. Inflation in general went up in the quarter across the steel dust business, in particular coal prices, which increased another 6% compared to the previous quarter, and more than 40% compared to the previous year, producing a negative impact of 5 million in the quarter. Coal price remained very high across all the region, at historical high levels and so far, we have not seen a decrease in the price like we have seen in other energy commodities like electricity or natural gas. Coke today represents more than 50% of the total energy cost in Prefesa. As a result of all the above, total EBITDA in the steel dust business has been 37 million euros in the first quarter of the year, down 32% compared to the previous year and flat if we compare to the previous quarter. Moving now to our aluminum salt slag and secondary aluminum business. Our aluminum business has delivered another very good quarter in a still challenging macroeconomic environment. During the first quarter of the year, we have recycled 82,000 tons of salt slag, representing a decrease of 6% compared to last year, driven by the temporary shutdown of the planning handoffer which was still under repair during the majority of the first quarter. The plan has been fully refurbished, commissioned, and the ramp-up has been completed. The plan is now back to operations. The production on secondary aluminum alloys in the first quarter was 44 million tons, an increase of 3% over the previous year. From the prices point of view, the aluminum price has decreased 12% in the quarter compared to last year, to 2,300 euros per ton. On the other hand, the strong metal margin of aluminum has represented an important increase compared to last year. The high prices of energy that we suffered last year in Europe for electricity and natural gas have reduced significantly during the first quarter of the year, representing a positive impact on the business. As a result, in the aluminum business, we have achieved a total EBITDA of 14 million up 82% compared to last year. So all in all, a very challenging quarter in steel dust impacted by lower metal prices and high coal prices partially upset by a strong performance of the aluminum business. Now, Wolf will explain the financials in more detail.