Befesa S.A.

Good morning and welcome to the preliminary full year 2023 results conference call of Befesa. I am Rafael Perez, CFO of Befesa. Today, we have with us Javier Molina, Executive Chair of Befesa, and Asier Zarranandia, CEO of the company. Javier Molina will start with an executive summary. After that, Asier will explain the business highlights of the period, covering steel dust and aluminum solid-cell aquacycling. I will then review the financials with a focus on prices, cash flow, net debt, and our hedging program. As here, we close this presentation providing an update on the outlook for 2024, as well as our growth plan over the next five years. 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 to the preliminary 2023 results presentation on our website, www.defesa.com. Now, let me turn this call over to our chairman. Javier, please.

Thank you, Rafael. During the fourth quarter of last year, we have continued to operate in a challenging microeconomic environment like we have seen during the rest of the year. Despite these difficult market conditions, the HESA has been able to deliver solid financial results. Total revenues in last year were close to 1.2 billion euros, driven by the integration of the SYNC refining operation in the US, which has compensated the strong decrease in SYNC price. Adjusted EBITDA in the year was 182 million euros, down 15% compared to the previous year. The main driver for this decrease has been higher seed treatment charge, up 19% compared to the previous year, and lower seed prices, which have been down 26% compared to 2022. All these negative effects have been partially offset by higher sink hedging price, a lower operating cost, driving by productivity improvements, a lower natural gas and electricity prices. As here, we explain the performance on the steel and aluminum businesses in more detail later. From the growth point of view, during 2023, our focus has been on the integration of the U.S. operations to capture the operational synergies as well as the sea refining plant in North Carolina, which is improving its performance gradually with higher utilization rates. The focus now is on reducing the cost base, which will drive profitability further. Also in the U.S., we have continued with the refinement works on the plant in Palmerston, Pennsylvania, which will enable us to capture the growth that we are seeing in the U.S. on steel dust recycling over the next two years. In China, 2023 has been characterized by a serious real estate crisis, which has impacted the construction industry in the country. with a negative effect on the level of steel production from our customers, which continues to be weak. This has affected the utilization of our plants in Jiangsu and Henan in 2023. In this environment, we are adapting our approach to the construction of the third plant in the province of Guangdong. The focus right now is on getting the steel-dust supply agreements with the local producers to have certainty of supply before starting the construction of the plant. With regards to the outlook for 2024, overall we expect to return to the growth path as the external pressures that we faced in 2023 revert in 2024. As such, we expect solid earning growth driven by a normalization of some commodity prices as well as operational improvements. We are very optimistic about the mid-term outlook. Our well-defined five-year growth plan is based on strong market fundamentals, like the decarbonization megatrend, which represents a great market opportunity in our steel dust and aluminum recycling businesses. We have a growth plan which is well diversified across regions and markets, which provides us the flexibility to move at different speeds depending on the dynamics that we see in each market. As of today, we see a strong U.S. steel market, which will grow over the next two years. And we are moving fast to capture the growth opportunity by focusing on increasing the capacity of our plant in Pennsylvania. On the other hand, as explained earlier, in China we are monitoring the development of the real estate industry, where we work on securing the steel dust volume in the third plan. As we have explained, we can model the speed of the investment depending on the different dynamics that we see in the different markets. As such, we are adopting the execution of our growth strategy to the current situation in China. Finally, on dividend, we are proposing a dividend payment of 73 cents per share, which represents a 50% payout of the net income of the period, consistent with our dividend policy of distributing between 40% to 50% of the net income. Now, here we'll explain the business performance in more detail.

Thank you, Javier. I will now provide an overview of the performance of the business in 2023. Overall, the year 2023 has been a challenging one, as explained by Javier, impacted by lower SIM prices, higher SIM treatment charges, higher coal prices, and still a weak market environment in China. Turning now to the page seven, the consolidated results of the FESA, the FESA BEFESA's total revenue increases by 43 million euros, or 4% year-on-year, to 1.179 million euros in 2023, mainly driven by the contribution from the US in refining operations. BEFESA delivered and adjusted the BDA of 182 million euros, down 33 million euros, or 15% year-on-year. This decrease was driven mainly by lower metal prices of zinc and aluminum. Let me take you through the main drivers on the year-on-year 33 million euros a billion development in more detail. On volume, overall, approximately 15 million euros positive volume year-on-year, impact mainly driven by solid volume development in Europe, which is the market where we achieved the highest margin, and the contribution for China as well as aluminum salt slag with the Hanover plant back into operations. On price, overall, approximately 69 million euros negative price year-on-year impact, explained by lower zinc and aluminum prices, about 54 million euros from the steel dust business and around 15 million euros from the aluminum salt slag business. I will explain in more detail later. On cost, overall, approximately 10 million euros positive impact, mainly driven by lower operating costs in our steel-dust and aluminum-salt-as-not business. In this case, mainly through lower electricity and natural gas prices. And this is partially offset by higher coal prices. Now coming to the page 8, the results from our steel-dust business. Revenue in the steel-dust business increased by 55 million euros or 8% year-on-year to 786 million euros. mainly attributable to the contribution from the U.S. in refining operations. Still Dust delivered €134 million of adjusted EBITDA in 2023, down €34 million or 20% year-on-year. Overall, the year-on-year €34 million decrease in EBITDA was mainly driven by the 26% decrease in LME market prices. The BDA year-on-year impact from volume was positive by around 9 million euros, as explained mainly due to the solid volumes in Europe as well as some contributions from China. In Turkey, after the earthquake happened in February 2023, our plant in Iskenderun has been operating at normal levels. Total steel dust volumes remained overall stable year-on-year, representing an average utilization of 69%. The lower utilization compared to 2022 is explained by the inclusion of the Henan Plan in the calculation. On price, overall negative EBITDA year-on-year impact of about 54 million euros, with the main price components being 56 million euros negative impact from lower SIN LMA prices, down 26% or around 850 euros per ton year-on-year to around 2,450 euro per ton on average in 2023. The 12 million euros positive impact from higher zinc hedging prices helped us to fully offset the unfavorable increase of zinc disease, which was set at $274 per ton for the year 2023 versus $230 per ton in 2022. On cost order, The pressure from higher coal prices was more than offset by the positive impact through the productivity and synergies. Moving now to page nine with the results of our aluminum salt and slag recycling business. Aluminum salt and slag delivery for a strong year with 48 million euros adjusted the BDA up 4% year on year. The year on year, 2 million euros EVDA improvement was mainly due to the higher volume and lower cost primarily through lower energy prices partially offset by lower aluminum market prices. On volumes, overall positive EVDA year-on-year impact of 4 million euros. Our salt slag recycling volumes increased by 12% year-on-year to 361,000 tons, primarily due to the ramp-up of the Hanover plant which we completed in Q2. Our aluminum alloy production volumes increased by 5% year-on-year to 168,000 tons. With this volume, we operated our programs at solid utilization rate of about 77% in salt sludge and 82% in secondary aluminum on average. With regards to the prices, Overall, negative EVDA year-on-year impact of about 15 million euros, mainly driven by the aluminum alloy F&B market prices, suffered a 10% or around 250 euros per ton decrease in 2023 versus the previous year. This negative price effect was mostly compensated with year-on-year lower operating costs, mainly through the lower gas and electricity prices. Turning to the page 10 on key volume drivers. From the market point of view, although at the global level, steel production in 23 remained overstable compared to the previous year, it had some different results by geographies. In Europe, steel production has decreased 7%, although most of the decrease came from DOF side of the production. EAF production in Europe continues at a solid level, supporting the strong utilization levels in our plants. In the U.S., the steel production in 2023 was similar to the previous year. However, our volume is slightly lower than already expected. In China, although total steel production was approximately stable year-on-year, the production from our EAF steelmakers customers is still weak. given by a low level of construction caused by the real estate crisis in China's suffering. As a consequence, our plant in Jiangsu ran at around 60% utilization and Henan plant at around 30% utilization in 2023. Now, Rafael will cover more details on SIN prices, hedging, and cash flow.

Thank you, Asier. As shown on page 11, the current decrease in SIN prices is one of the largest SIN in the last 15 years. LME prices decreased significantly in 2023, and they are moving slightly above the SIN IT cost curve, which is the marginal cost of the producer. SIN prices have historically rebounded strongly upon touching the SIN IT curve. This time, however, the recovery is not happening as quickly as in the past. Nevertheless, the SIN IT, is a clear flaw of the SIN price. On the other hand, to see an increase in the SIN price, an improvement in the macroeconomic environment should be required. Moving on to page 12, regarding treatment charges for SINC. In 2023, our results were negatively impacted by a very unfavorable combination of high treatment charges, which were settled for 2023 when the SIN price was very high. And on the other hand, by collapsing SIN prices throughout the year. Treatment charges in 2023 were close to all-time high levels. In our view, this should be reversed in 2024. Asier will comment further on this later when he covers the preliminary outlook for 2024. Turning to page 13, on hedging. Befesa's hedging strategy remains unchanged and continues to be a key element of Befesa's business model, providing earnings visibility and predictability. lowering the impact of SIN prices volatility and therefore improving the stability of earnings and cash flow throughout the economic cycle. It is in moments like the one we are suffering right now with falling SIN prices caused by uncertainty and weak global economic outlook when the hedging proves its value. Our SIN hedge book covers 60 to 70% of our SIN exposure up to and including July 2025. Therefore, We have more than 15 months of hedging our books at increasing hedging average prices, around 2,500 euros per ton in 2024, and around 2,650 per ton for the first seven months of 2025. With regards to Befesa's Coke price, as you can see on page 14, after reaching all-time high levels in Q1, Befesa's Coke price started to moderate in Q2. and normalized further in the second half of the year. However, despite this positive trend, the average COG price in 2023 was still around 75% above the level of 2021, and around 5% compared to the previous year. In the first months of 2024, we're starting to see further normalization, especially in Europe, which we expect to continue throughout the rest of 2024, as well as in other geographies. Javier will comment further on our view around cost price for 2024 when he covers the preliminary outlook for the year. Regarding gas and electricity prices, on the contrary, these continue to decrease further in 2023 to the level of 2021 and were respectively about 60% and 25% lower year-on-year. This had a positive impact on our aluminum solar operations. Turning to page 15. cash flow, net debt, and leverage results. On the EBITDA to cash flow bridge, starting with 182 million adjusted EBITDA on the left and working to the right, working capital consumption was up by about 18 million. As in previous years, working capital improved significantly in Q4 compared to the previous quarter. Overall, working capital consumption was very much driven by the increase in revenues and receivables. Interest paid increased by 42% to 30 million euros in 2023. This was explained primarily by two elements. On the one hand, the higher margin applicable to the term loan B, which increased in December 22 by 25 basic points to Euribor plus 2% due to the increase in the leverage ratio. On the other hand, the year-on-year higher Euribor from 0% in 2022 to to 3.9% applicable in 2023. Taxes paid decreased by 23% to $17 million in 2023, driven by a lower profit before taxes compared to the previous year, resulting in an operating cash flow of $117 million in 2023, down 15% compared to the last year, pretty much driven by the lower earnings. The operating cash flow to EBITDA ratio amounts to 65%, in line with the last five years' average ratio. CapEx-wide, in 2023, we have invested $84 million in maintenance CapEx, including expenditure related to the financial recovery of our Hanover plant and related to the operational XLN projects in the U.S. Normalizing for the Hanover recovery CapEx, regular maintenance amounted to 68 million euros. Going forward, regular maintenance capex will be around 40 to 45 million euros. Growth capex amounted to 20 million, including the remaining expenditure for the Henan project and capex related to the refurbishment project at the Palmetto Plan in Pennsylvania. Overall, total capex of 105 million euros in 2023, normalized for about 60 million of Hanover spend, Total capex would amount to around 89 million euros, in line with the 85 to 95 million capex guidance for the full year 2023. Dividends of 50 million euros or 1.25 euros per share were distributed in July, equal to 47% of the net profit of 2022, within our policy of distributing 40 to 50% of the net income of the previous year. After funding working capital, interest, taxes, capex, and dividend, total cash flow amounted to minus 55 million euros in 2023. Cash on hand stands at 107 million, which together with our entirely undrawn 75 million euros revolving credit line provides Befesa with over 150 million euros of liquidity. The 604 million net debt with the 182 million euros adjusted, results in a leverage of 3.32 at the year end. Our capital structure is long-term and efficient with no covenants and no maturities until July 2026. No, but just here on outlook and growth.

Thank you, Rafa. Moving now to outlook on page 17. As Javier explained it, for 2024, we expect solid earnings growth, as many of the pressures we face in 2023 will be reverted in 2024. Firstly, the high treatment charge should decrease significantly in 2024, especially in the current weak-symptomic environment that we have seen in the first two months of the year. For the reference, SPOT-TC is well below $100 per tonne. Its $10 PC variation has an impact of around 2.3 million EBITDA. Secondly, coal prices are decreasing in Europe, and the trend in the U.S. goes in the right direction, which will deliver earnings growth in 2024. As a reference, we are expecting a reduction on overall coal prices of at least 20 to 30 percent for the group. The hedging level is better in 2024, which will deliver around 12 million euros. Number four, in the U.S., we expect to continue capturing the operational synergies in the recycling plants during 2024. And finally, in China, we clearly expect 2024 to be a better year than 2023. Although we do not expect a recovery of the overall Chinese economy, especially in the real estate sector, we expect to increase the capacity utilization of the two plants that we are operating today. In 2023, we achieved around 60% utilization and positive EBITDA in Jiangsu, and in 2024, we expect to achieve around 90% utilization driven by expanding the customer base to other provinces. In Henan, we are targeting around 40% utilization, again driven by expanding our customer base. The main headwind we expect to suffer in 2024 is coming from salaries inflation driven by significant increase in Europe and the U.S. Regarding theme prices, it is always difficult to estimate. We clearly see a solid floor at the current levels of around $2,300. However, in order to see an increase in the price level, we need to see an improvement in the overall macroeconomic situation where China plays a relevant role. Average theme price in 2023 was $2,650. So far, in 2024, the average theme price has been $2,485. The weak theme price is primarily driven by the weak global economy outlook, especially in China. All in all, considering all factors, we expect double-digit growth for 2024. As always, we will provide a specific growth target for 2024 when we report the Q1 figures and treatment chart has been set up. Phase 18, growth. Regarding our mid-term outlook, we remain very optimistic. We have a well-defined five-year plan which is based on strong market fundamentals like the decarbonization megatrend. Decarbonization will drift will drive in electrical and furnace steel production in the key markets where Profesa operates, which will make steel dust production to grow in the coming years. Similarly, the electric vehicle trend will drive the demand for aluminum in Europe and the US in the coming years as the automotive industry looks for lightweight solutions. Our growth plan is well diversified across the regions and markets, which provides as the flexibility to move in different speed depending on the developments that we see in each market. In this current challenging environment, we are cautious about the capital expenditures, and we are adapting the CapEx to the dynamics that we see in the market. We have a well-defined growth plan consisting of nine projects in Europe, China, and the U.S. to capture the growth opportunities that we are seeing in the markets. The first part of the investment plan focuses on the U.S. with the refurbishment of the Palmerton plant, which has already started with the demolition works of one of the two kilns and the signing of the EPC contract. As explained in the past, the refurbishment of the Palmerton plant consists of the upgrade of the two kilns in the plant, one at a time in order to capture the growth that the North American market is going to experience in 2025 and beyond. The first phase of the project will be completed in the second part of 2024, while the second phase will be completed by the first part of 2025. The second focus of the investment plan is China, where we are developing the third plan in the province of Guangdong. With more than 120 million people living in the province, Guangdong is one of the richest in the nation and the largest car manufacturing location in China. The current situation in China characterizes by a weak economic environment and a weaker steel production makes us be very more cautious and adapt to the situation in the country. We are monitoring the evolution of the market and do not expect to invest in the plan in 2023. The focus at the moment is on securing the steel that's volume from our customers before start deploying capital in Guandong. Despite the current challenging market environment, China has all the ingredients for the FESA to run profitable operations. The penetration of the EAF is clearly increasing. They are implementing a strong environmental regulation, and we believe that the first mover advantage is essential. If we step back and look at the higher picture, considering normalized average prices at the time of the IPO back in 2017, Bethesda was a company of around 150 million euros mid-cycle EBDA, present in Europe, Turkey, and Korea. Today, we have a strong presence in the U.S. and China, which are two strong growth markets, and we produce an average EBDA of around 200, 220 million. Our ambition is to grow the company to reach 350 million mid-cycle EBDA in the following five years. Thank you very much.

Thank you, Asir. We will now open the line for the Q&A session.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, then you may press star and two. Participants are requested to use only handsets when asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from the line of Michael Hoffman with Stifel. Please go ahead.

Thank you for taking the question. So I'd like to try and tease out a little more about how to think what double-digit improvement in profit looks like. You shared with us $30 million benefit from hedging. If coke prices and electricity stay where they are, is that another sort of combined between them, 10, 15 million? And then you've got the treatment charge. I'd be curious where you think that's going to land. I get we have to wait until April, May to get clarity on that, but where do you think it lands?

Thank you, Michael. Yes, I can confirm what you are telling. I mean, 30 million for the hedging around that is what we are we can confirm that's for sure uh coke yes range of 10 to 15 means basically the 20 to 30 decrease that we are you know observing in the market even currently well let's see this is more but i think this is more or less done and we see this for the whole of the year and yes you are right the treatment charge is is something which is still pending to be fixed currently those days This weekend, the International Zinc Association meeting has been in Orlando, and normally there probably you can get some guides about what is going to happen. The clearly reduction is there. Level of 200 could be possible, even a little bit better, at least for the rumors, but it is still to be confirmed. If you take this level, you are actually getting $70 million to $80 million Reduction, that means 15 to 20 million euros in our profit and loss. But as you say, we need a little bit more time to confirm that. And normally, for the Q1 presentation, we will have the confirmation. But yes, more or less, you are considering the figures, more or less, that we have in mind.

Okay. So that's, you know, on the low side, you're talking about sort of 50, 60 million dollars or euros. I'll do that forever, of incremental profitability at current metals prices. Is that the right way to think about it directionally?

Yeah, you have to consider as well some inflation, but basically that could reduce that figure, but yes. And the current prices is the key. This is the idea. Yes, inflation could be in the range of 10 to 15 as well, negative headwinds. But, well, more or less doesn't change a lot the picture you are describing.

Right. So that goes from round numbers 180 somewhere into the, you know, call it 230, 225, 230 is a good place to start.

I would like to say that. But, again, we will confirm Q1 with more color. But it will depend on the same prices. Well, I think it remains at 2,300 like today. it's putting more difficulty to this number. But, well, normalizing prices, well, I don't know where we are going to land, but, well, it's a reference. What do you say?

Okay. Fair enough. And then, as you think about the ongoing growth, if China doesn't improve at all, do you, and the real estate market, that they're in a sort of a long-term real estate malaise, is the conversion of the steel production capacity enough to warrant building the third site, or do you really have to have a recovery in the real estate outlook?

Well, let me tell you, yes and no. I mean, we approach China, once again, we consider it as a country, but in reality, there are many countries, as many provinces they have. With the approaching in one dollar, it's not only... for the general situation of the economy in China. It's more for a provincial level where they have a very recent production, steel production for the electrical furnace using a scrap in the area. They are growing this kind of business, and they need the solution for recycling. Yes, in terms of percentage of plant utilization rate for them, it's affected for the real estate, but in this province, It's an economical situation, and the enforcement of the law is better. So insulated, one donut, we think that is a space for a new plant there. And then, yes, generally speaking, more plants in China and in which provinces will depend on the recovery of this crisis. Obviously, it's midterm, and the recovery will come. The question is when, no? So... We don't see in the short term some recovery, but obviously we cannot, the crystal ball to say nothing, we are not an expert, but we are not even considering this. I think that we are focused on the Guangdong itself possibilities as a province, and we think that with some compromise for the steelmakers, we have a rule to build the third plant in China.

Okay, and then the last one for me. You know, auto production does impact your business, both sides, the aluminum and the steel side. You know, EU regulations around electric vehicles don't seem to favor European producers. They're, you know, disadvantaging the European producers. Do you all have an opinion on what you think happens to the European auto production industry?

Well, it's a question for really automotive experts more than us that we are, you know, complimentary and so. But we do think that with the reaction of the European car makers, it's going in the good direction as well. And for the level of the recycling that we are located, it's clearly that there are two trends as well. One is the number, as you say, probably we'll see if it's going to grow. I think it's going to grow in Europe finally. So the numbers is one thing, but the second part as well is the percentage of aluminum in each car, which is growing as well already. So trend is there, and no matter if it is going to be a big reaction in Europe or not, or higher than in China and others, the trend of decarbonization, electrical cars and lighted cars using more aluminum obviously is there. So yes, I think that is supporting our growth idea. and we will see how the reaction of the European can make it through finally.

Okay. Thank you for taking my questions. Thank you, Michael. Thank you, Michael.

The next question comes from the line of Sandy Pitti with Morgan Stanley. Please go ahead.

Hello. Thank you. Thank you for taking my questions today. I have a few questions. I'll take one at a time. So in previous calls, you had mentioned that international competitions is limited in China. How do you see the situation today? And can you comment on what is the local competition like, particularly in China and the province that you operate?

Thank you for the question, Sandy. Well, obviously, from one quarter to the other, the situation is not changing a lot. We don't see competitors in the provinces where we are, but, well, There are players which are not, you know, tier one recyclers, but they are taking some material, especially in Henan. In Yangshuo, we see this less. So international players, they are not. And local players, you know, considered as a recycler following the best available technology that China is implementing as well, neither. So, well, it will come in the future, but we don't see already now.

Thank you. And then I have a question on U.S. business. So what level of utilization and profitability are you expecting from U.S. refining asset in 2024? And how is the restructuring progressing in the business?

Well, basically what we do expect in U.S. refinery is to run the plan effectively. high ratios that we are almost there, and then improve the profitability. And as always we say, depending on the year, same prices, depending on the treatment charges, depending on many things, but at the end we think there's a business that has to run in between $10 to $20 million per year. Probably not this year, but in the future for sure. We are growing the business and we do hope this.

Okay. And finally, one question from my sector. Do you expect China plants to generate 9 to 11 million per plant on today's sink price, especially in Jiangsu, where you are expected to operate at 90% utilization?

Well, on the low level, probably with the current sink prices, yes, but 8 to 9 million euros per year. Everything depends as well on the follow-up to the treatment charges as well. I mean, prices is one level and the second part as well. It's how the percentage of the treatment charges of the country goes. But, yes, I think it's in this level. Low levels of the normal ratio we used to say is confirmed. Perfect. Thank you. Thank you.

The next question comes from the line of Juan Rodriguez with Kepler-Sever. Please go ahead. Excuse me, the next question comes from the line of Jorge Gonzalez with Hawk Off-Center Investment Bank. Please go ahead.

Hello, good morning. Can you hear me? Yes, we can hear you. Thank you. Thank you for taking my questions. Most of my questions have been answered, but maybe on US, I was wondering if you can remind us what is the utilization level that you are seeing in the mid-term? For 24, if I'm not wrong, you are talking about levels of 70%. How do you see this evolving in the following couple of years, taking into account also that you will recover Palmetto and obviously you will need to fill more plants? That would be my first question, please.

Thank you, Jorge. Definitely, yes. We are running at the level of 70%. We are convinced that we are going to have increased 25% on wars. And 25% is going to be the year where some projects from steelmakers are going to be delivered. Well, depending on when they are going to deliver, 25% probably will see something. But for sure, 26% on wars is going to be the new capacity in the market. And we are going to be ready to capture with the replacement as we are discussing with Palmerton. 26 on war, probably the level should be in the rate of like the European plans, in the rate of higher 80%, 90%, depending on the year. But yes, we have to grow to the global capacity at the level of 85 to 90% is the challenge or the thought that we have for 26 on war, mainly.

Okay, so Badminton, you are not expecting... a relevant contribution in 2025?

It depends on the market development. We are going to be ready in 2025 with Palmetto in the first part of the year with the two kilns. So imagine if the new plant of Nucor finally ramp up is going well and in 2025 there is more dust. or the U.S. Steel, or now Nippon Steel is coming finally there. ArcelorMittal in Calavera, Alabama is delivered finally in 2025. Probably we will see some tonnages in 2025. But more than depending on us, depending on the market. We are going to be ready for sure to capture in 2025 as much as they put on the market. But for sure, in 2026, we see that those projects are going to be delivered. So that's why 2025... It's a little transitional year with a new capacity for steel production in the US. This is the idea.

Okay, understood. Thank you. And maybe a second question on Rutherford, on the refining asset. You were talking about even in Q4, if I'm not wrong, and in 24, this is going to be mostly the same, no? So you are You are foreseeing break-even. Yeah. But what is the profitability that you are targeting here in the mid-term compared to the numbers that you provided in the past with the different milestones? What are the margin levels that you think are doable in two or three years' time?

Yeah, okay, got it. What we are contemplating is something in between the $10 to $20 million per year, and it's based on the – or depending on the treatment charges as well, depending on the sink prices and so on. That's why the range is like that. Now we are no far from that, but at the end of the day, we have to consolidate the high utilization rate, and we have to consolidate and reduce finally the cost from the ramp-up mode to the normal operations mode. But at the end of the day, it's affected by the lower seed prices, it's affected by the treatment charges as well, and it's affected by sometimes the premiums. So depending on those variables, we see that 10 to 20 is a good area where we have want to be there. As always, we repeat, it's not a matter of asset with a A very high everyday level is more a security for selling our works in the U.S. So that's why even the 10 to 20 is not something very high in comparison with the sales or the asset. It could be a very comfortable level to allocate all our works production in the U.S. It's how we see the asset.

Okay, okay. I understand. Thank you very much. I go back to the line. Okay.

The next question comes from the line of Juan Rodriguez with Kepler Sovereign. Mr. Rodriguez, your line is now connected.

Hi, can you hear me now? Yes, we can hear you. Excellent, excellent. Good morning, everyone. Two quick questions on my side. The first one is on the cash position. I see that it has substantially contracted to $106 million. I'll be at the end of 2023. Do you expect any reverse of the free cash flow situation for 2024? And what can we expect in terms of capex for the year? And the second is on the BDA bridge that you were signaling. Certainly, there is the treatment charge that remains, but we start to see a range that is going to be substantial correction. So can we say that you're comfortable with 2024 consensus number that probably is around 2027 million, if I'm not mistaken? So you feel comfortable for the time being with this number? Thank you.

Thank you, Juan. I will take the cash flow question. Well, no, we don't expect any specializing in 2024. We will provide, obviously, more color on the full-year guidance when we report Q1 numbers, because typically we do so once the treatment charge has been settled. In terms of capes, I mean, you can always split the capes into sections. Maintenance, regular capes, will be around $40 million to $45 million, okay? Obviously, the maintenance capex in 2023 has some extraordinary items, which were one-off, and we are not going to repeat those in 2024. And then the growth is going to focus primarily on the U.S., on the Palmetto Plan in Pennsylvania. I mean, we will provide more color, but you can pencil in around 100 million euros of total capex, including regular maintenance and growth. And I think we'll explain you there.

Yeah. Thank you, Juan. I think that you guys are trying always to ask for the guidance figure for us now. And, again, it's early to say this because no matter the consensus is 227 or not, could be there or not, depending, once again, on the SIN price, which is, well, we need a little bit more color for the next month. But, moreover, as well as the treatment chart. So... It's a figure, and we will confirm how we see definitely in the Q1. But I don't know if it is going to be far from that or probably not, but we cannot confirm now, Juan.

Okay. At least I tried. Thank you very much. Thank you, Juan.

As a kind reminder, if you wish to register for a question, please press star and one on your telephone. Next question comes from the line of Lasse Steuben with Berenberg. Please go ahead.

Hi, good morning. Just quickly to follow up on the CapEx comment you just made. So that would imply that you're expecting expansion in CapEx of about $50 to $60 million. Would that just be Palmiton, or are you kind of penciling in first CapEx into the ground in Guangdong, or is there anything else that's coming into the growth CapEx for this year?

Well, as I said, we will provide more color on Q1, but basically, maintenance cap is 40-45. Growth cap will be focused on the Palmerton plant, and here we're talking about 40 million euros. Then, Guangdong, as I have explained, depending on the development throughout the year, you can pencil in 5 million, but we don't see a large amount of capex being invested in Guangdong throughout the year, given the current status. of the Chinese economy. And then, finally, you can also pencil in some capex for the aluminum projects in Europe, where we're starting to get the permits, lands, and so on. So putting everything together, I think around 100. We will fine-tune this number, but you can pencil in for a time being around 100 of total capex.

Great. And then one final question just on the U.S. synergies. Can you just give an update? I know you commented that you're still expecting to capture the remaining synergies. Can you just tell us how you've progressed in terms of making the operational changes in the U.S. assets? Thanks.

Yes. The answer is yes. We're still fighting and keeping this in mind, and more than in mind, we are working to capture the last, how to say, depending synergies in U.S. in the range of 10 billion or something like that. And we think that we are very close to capture this in 24.

Okay, thank you. Thank you, Lasse.

The next question is from the line of Christoph Bliford with BNP Paribas. Please go ahead.

Good morning and thank you for taking my question. The first question is from China and here the profitability on your two plants. Could you give us some clarification whether the shipment of steel dust around the country impacts your profitability and related to that, can you confirm or rule out that you have start paying for steel dust in China, please? This is number one.

Yes, basically what we see China this year is probably early to say that it's a recovery, so probably the level of steel production in the provinces where we are, especially coming from Minimis, we are going to see this in the same level than 23. No matter this, we have in place permits for getting some dust for the surrounding provinces, so that's why we see some increase until the 90% utilization rate in Jiangsu, based on the higher number of steel players. Same in Henan, but Henan, as always we are saying, is a couple of steps behind, and we need a little bit more time to consolidate the natural. Regarding the pricing, it depends on the same price containing material. Normally, it's a kind of formula base where you even get money if the same price is lower, or you pay if the same price containing material is very high. So it's not a matter of depending on the same containing material, but basically it's a formula base that is quite similar to other places that we are operating. This is the idea.

Okay. The second question is on U.S. operations. What do you expect in terms of EBITDA per ton for 2024?

You mean globally?

No, for the U.S.? ?

For years, probably, I think it's a little bit higher than the last year's one.

Can you remind us on 2023, please?

We can send to you this. Okay.

And the last question is on gross capex. 2024 is understood. What are your... What is your thinking about 2025? Where do you see areas of growth in 2025 and room to invest most likely?

Well, as we have explained, Christoph, I mean, our growth plan is modular and we have the ability to adapt the growth plan to the opportunities that we see. 2025, probably, if the one-dom project in the third province of China goes ahead, that will require... capex, and the total plant capex is around $45 million, so if finally we make all the negotiations with the steelmakers and we go ahead with the project, we will spend in 2025, and then there will be the final bits and pieces from the Palmerton plant in the U.S., okay? I think when you step back and think about our five-year program, I think with our cash flow generation, you can you can think about total capex per year for around 100 for the coming years, okay? And this is our duty to monitor, you know, leverage, dividend payout, and growth capex. But you can pencil it around 100, yeah.

Okay, thanks a lot. Thank you, Christoph.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Rafael Perez for any closing remarks.

Thank you all for your questions. You can also contact the investor relations teams of EFESA for any further clarification. We will now conclude the conference call and the Q&A session. Let me remind you that you can find the webcast and the dial-in details to access the recording of this conference call on our website, www.efesa.com. Thank you very much to all of you, and have a good day.