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.