Befesa S.A.

Good morning and welcome to the first quarter 2024 results conference call of VEFESA. I am Rafael Pérez, CFO of VEFESA, and today we have with us Javier Molina, Executive Chair of VEFESA, and Asier Zarraonandia, CEO of the company. Javier Molina will start with an executive summary of the first quarter. After that, Asier will explain the business highlights of the period, covering steel dust and aluminum salt slag recycling. I will then review the financials with a focus on prices, cash flow, net-bend, and our heading program. As here, we will 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 the first quarter 2024 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 first quarter of the year, we have continued the quarter-on-quarter improvement that we started in the third quarter of last year. The period has been characterized by solid volumes across all businesses and markets, despite a challenging macroeconomic environment. From the commodity Price point of view, the week average price in the first quarters has been partially compensated with better hedging level combined with a decrease in the thin treatment charge, as we anticipated. Total revenues in the first quarter have been almost 300 million euros and adjusted EBITDA 49 million euros, which represents an increase of 7% compared to previous quarter, showing a positive quarter-on-quarter trend. Comparing with the same quarter of last year, the results have been negatively impacted by the strong decrease in the average sink price in the period of 23%, resulting in a year-on-year decrease of 3%. Asier will explain later in more detail the performance of the steel and aluminum businesses during the first quarter. From the growth point of view, there are three main areas to watch, US, Europe, and China. During this year, our focus will be pretty much on the U.S. on various fronts. On one hand, we are focused on the integration of the U.S. recycling operations to capture the operational synergies, which we expect to consolidate along the year and contribute to increase earnings. Regarding the seam refining plant in North Carolina, we expect this year still to be a ramp-up year and to improve the performance gradually. The focus now is on reducing the cost base. Also in the U.S., we continue the refurbishment works of the plant in Palmerton, 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, the first quarter has continued to suffer weak steel production from our customers. In this environment, regarding the third plant in the province of Guangdong, we continue to focus on getting steel dust supply agreements with local producers to have certainty of supply before starting the construction of the plant. In Europe, we are progressing on getting the permits and the commercial contracts for the expansion of the secondary aluminium plant in Berlin, Germany. With regard to the outlook for the full year 2024, we expect solid growth of EBITDA in the range of 195 million to €235 million, which represents between 7% to 29% year-on-year growth, compared to the 2023 level of €182 million. Asier will provide more details about how we see the guidance range and the different moving parts that drive our view for the year. We continue to be very optimistic about the mid-term outlook of BFESA over the coming years. We have a well-defined growth plan based on strong market fundamentals like the decarbonization megatrend, which represent 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 we explained in the past, we can module 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. Now, Asier will explain the business performance in more detail.

Thank you, Javier.

I will now provide an overview of the performance of the business in Q1 2024. Overall, the results in the first quarter of 2024 show a consistent quarter-on-quarter improvements in Q3 of the previous year. The improved volumes, the favorable decrease in SIN treatment charges, better SIN heads, lower energy prices and synergies were offset by lower SIN LME prices. Turning to the page seven, the consolidated results of EFESA, EFESA delivered an adjusted VDA of 49 million euros in Q1, which represents a 7% quarter-on-quarter improvement compared to Q4 of 2023. However, it's still down 1.5 million euros, or 3% year-on-year. Let me take you through the main drivers of the year-on-year 1.5 million euros VDA development in more detail. On volume, overall, Approximately 5 million euros positive volume year-on-year impact mainly driven by a solid volume developed in Europe, which is the market where we achieve the highest margin, Turkey, and the U.S. Also some contribution from the aluminum salt slag business with the Hanover plant back into operation. On price, overall, approximately 12 million euros negative price year-on-year impact explained by lower LMAE prices and lower aluminum metal margins. About 7 million euros from the steel dust business and around 5 million euros from the alloy salt slab business. I will explain in more detail later. On cost order overall, approximately 5 million euros positive impact mainly driven by lower operating costs in our steel dust and aluminium salt slab business, mainly through lower coke, electricity and natural gas prices. Turning to the page 8. the results from our steel dust business. Steel dust delivered €36 million of adjusted VDA in Q1, which represents a 12% quarter-on-quarter improvement compared to the Q4 of 2023. However, down €1 million, or 3% year-on-year. Overall, the year-on-year €1 million decrease in VDA was mainly driven by the 26% decrease in zinc LME market prices. The VDA year-on-year impact from volume was positive by around 3 million euros, as explained, mainly due to the solid volumes in Europe, Turkey, and the U.S. Total steel dust volumes increased by 6% year-on-year to 303,000 tons in Q1 2024, representing an average utilization of 71%. On price, overall negative EBITDA year-on-year impact of about 7 million euros, with the main price components being 17 million euros negative impact for lower SIN LMA prices, down 23 percent or around 660 euros per ton year-on-year to around 2,256 euros per ton on average in Q1 2024. This negative EBITDA impact from lower zinc LME prices was partially compensated with two positive EBITDA impacts. Firstly, 4 million euros positive impact from higher zinc hedging prices, around 140 euros per ton higher year-on-year on average. Secondly, 6 million euros positive impact from the favorable decrease on zinc TCs, which was set at $165 per ton for the year 2024 versus 274 per ton in 2023. On cost order, Befesa's Coke average price continued further normalization in Q1 of 2024 to levels below the 2022 average price, driving most of the 4 million euros positive EBITDA impact. Moving now to page 9 with the results of our aluminum salt slag recycling business. Aluminium salt slag delivered again a solid quarter with €13 million EBDA in Q1, which represents a 5% quarter-on-quarter improvement compared to Q4 of 2023. However, €1 million or 8% lower year-on-year. The year-on-year €1 million EBDA development was mainly due to the higher volume and lower cost, primarily through the lower energy prices. partially offset by lower aluminum metal margins. On volumes, overall positive EBDI year-on-year impact of 2 million euros. Our recycling volume of salt slag increased by 35% to 111,000 tons in Q1, primarily driven by the resumption of operation of the Hanover Plan in Q2 of 2023. Our secondary aluminum alloys production volumes increased by 2% to 44,000 tons in Q1. With these volumes, we operated our plant at a strong utilization rate of about 95% in salt slags and 87% in secondary aluminum on average. With regards to prices. Overall negative EBITDA year-on-year impact of about 5 million euros, mainly driven by pressured aluminum metal margins versus the previous year. Aluminum F&B prices were 1% down, approximately stable year-on-year at around 2,277 euros per ton on average. The negative price effect was partially compensated with year-on-year lower operating costs mainly through the lower gas and electricity prices. Turning to page 10 on key volume drivers. From the market point of view, although at global level, steel production in Q1 of 2024 stayed flat compared with the same period of the previous year, it has some different resolved by geographies. In Europe, steel production decreased 1%, although most of the decrease came from the BOS side of the production. EAF production in Europe continues at solid levels, supporting the strong utilization levels in our plants. In the US, the steel production in Q1 decreased by 2%, stable year on year. However, our volumes were higher compared to those in Q1 of 2023. In China, Total steel production was 2% down year-on-year. The production from our EAF steelmakers customers is still weak, driven by a low level of construction caused by the weak real estate. China is suffering. As a result, our plant in Jiangsu ran at around 60% utilization and Henan at 30% utilization. Now, Rafael will cover more details on sink prices, hedging, and cash flow.

Thank you, Asier. Thank you, Asier. Moving on to page 11. As mentioned by Javier and Asir, and as we anticipated, treatment charges for zinc were settled earlier this month at $165 per ton for the full year 2024. This is around 40% or $109 per ton lowers compared to the $274 per ton in 2023. And it is positively impacting our earnings in 2024. This reflects the situation in the zinc market where there is a deficit of zinc concentrates driven by the closure of mines of zinc over the last months. Regarding zinc LME prices, after the significant decrease in zinc during the last year of more than 25% on average, in Q1 of 2024, the price environment for zinc continued to be volatile, trading between $2,300 and $2,600 per tonne. with an average of $2,450 per ton. During the past weeks of April, SINH LME prices have rallied and rebounded strongly upon touching the SINITECO score, which is the marginal cost of the producer and represents a clear floor of the SIN price. Turning to page 12 on hedging, the FESAS hedging strategy remains unchanged and continues to be a key element of the FESAS business model, providing earnings visibility and predictability, lowering the impact from SIN price volatility and therefore improving the stability of earnings and cash flow throughout the economic cycle. Our SIN hedge book covers 60 to 70% of our SIN exposure up to and including July 2025. Therefore, we have 14 months of hedges in our books at increasing hedging average prices, around 2,500 euros per tonne in this year, 2024, and around 2,650 euros per ton for the first half of 2025. We are closely monitoring the market in the recent rally to look for opportunities to extend our hedging book over the Q3 of 2025. Turning to page 13 on Befesa's energy prices, the page shows the evolution of the three energy sources that we have in Befesa, coal, natural gas, and electricity. With regard to caulk price, the normalization that started in the second quarter of 2023 has continued further into Q1 of this year, to levels below the 2022 average price, approximately 25% lower compared to the Q1 of last year. This has a positive impact on our steel dust operations. Despite these positive trends, however, the average caulk price in Q1 2024 was still around 45% above the average levels from the years 2019 and 2021. Asir will comment further on our view around coke prices for 2024 when he covers the outlook for the year. Regarding gas and electricity prices, both continue to decrease further in Q1 2024 to average levels of 21. And we were, respectively, about 40% and 30% lower on a year-on-year basis. This has a positive impact on our aluminum solar operations. Turning to page 14, cash flow, net debt, and leverage results. On EBITDA to cash flow bridge, starting with 49 million euros adjusted EBITDA on the left and working to the right, working capital consumption was up to 34 million euros, primarily driven by the usual first quarter seasonality, and timing impact. We expect to recover most of the working capital outflow throughout the year, as we have done in previous years. Taxes paid decreased by 95% to €0.1 million in Q1 2024, driven by the lower profit before taxes compared to the previous year, as well as seasonality in the payment of taxes, resulting in an operating cash flow of €15 million in Q1 2024. down 27 percent compared to last year capex wise in q124 we have invested 16 million years in maintenance capex including expenditures related to the operational excellence and synergies projects in the us and growth capex amounted to 3 million euros related to the refurbishing project of palmerton in pennsylvania overall total capex of 19 million years in q124 Asier will comment further on the CAPEX Guidance for the full year 2024 when he covers the outlook for the year. Interest paid increased by 38% to €9 million in Q1. This was explained primarily by the year-on-year higher irrevocable from 2.3% as an average in Q1 of 2023 to 3.9% applicable in Q1 2024. After funding, working capital, taxes, capex, and interest, total cash flow amounted to minus 16 million euros in Q124. Cash on hand starts at 90 million euros, which together with our entirely undrawn 75 million euros revolving credit line provides Befesa with over 150 million euros of liquidity. The 622 million euros of net debt with the 180 million euros of LTE and adjusted EBITDA results in a 3.45 net leverage at the Q1 closing. Our capital structure is long-term and efficient, with no covenants and no maturities until July 2026. Now, back to Acero, outlook and growth.

Thanks, Rafa. Moving now to guidance for 2024 on page 17. As Javier explained, for 2024, we expect solid earnings growth. driven by a combination of various items. The impact of some of them is certain and well-known, while the impact of other items is not so clear. Let me take you through all of them. Firstly, on treatment charges. As explained before, the lower TCE of 165 for 2024 compared to 274 last year will deliver around 25 million euros of positive incremental EBITDA. Secondly, on hedging, as explained by Rafael, the hedging level for 2024 is higher than last year. This should deliver around 12 million euros of incremental EBITDA compared to last year. Number three, on energy, and in particular, coke prices. As explained earlier, coke price is moving in the right direction and continues to normalize further. We still see different trends across the markets where we operate. In Europe, the reduction of coal price is higher than in the U.S., but overall, we are expecting a reduction on average coal prices of around 20% for the group in the year. This should deliver earnings growth in 2024 of around 10 million. Number four is the U.S., where we have to differentiate the two businesses we operate in the region, the recycling plants and the seam refining plant. As we have explained it, We expect to continue capturing the operational synergies in the recycling plant in 2024, which are being materialized along the year and will deliver positive earning contribution compared to last year. Also in the U.S., the seed refining plant is still in rampant mode and we expect 2024 to be a year of turn around and ramp up. In the past, the focus has been on improving the quality of the final product and increase the utilization rate of the plant. The focus is on cost reduction to improve the profitability. However, the reduction on treatment charges together with the lower premiums in the thin market will partially offset the improvement on the recycling business. Number five is China. In general, we expect 2024 to be a better year than 2023. Although we do not expect a recovery on the overall Chinese economy, especially in the real estate sector, we expect to increase the capacity of utilization step by step of the two plans that we are operating today. We are working on 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 general inflation, and in particular from increased salaries in Europe and the U.S. We expect an overall impact from inflation in the range of 10 to 15 million euros in the full year. And finally, there is the question mark about metal prices for zinc and aluminum. Regarding zinc prices, it is always difficult to estimate, especially in the current environment in which high volatility dominates. As we have explained on many occasions, 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 seam price in full year 2023 was $2,650 per ton. During the Q1 of 2024, the average seam price has been $2,450. This is around $200 per ton lower than the average of last year. The weak sink price is primarily driven by the weak global economy outlook, especially in China. Over the last days, we have seen a rally in the sink price, which has pushed the price to the $2,800 per ton level. The garden aluminum price and aluminum metal margin, we have seen a margin compression in the first quarter, which is something that we expected and which might continue during the rest of the year. Finally, from the volume point of view, we expect overall solid volumes in Europe in steel dust and aluminum salt slag, as well as solid volumes in the U.S. In summary, and considering all factors, we expect solid growth for 2024 in the range of 7% to nearly 30%, which will be translated into a full-year adjusted EBITDA range of 195 to 235 million euros. The midpoint of the guidance range is 215, which represents a 10% immediate increase year-on-year. The lower end of the guidance represents a quite negative scenario in which seam price continued at Q1 average of $2,450 per ton for the rest of the year. Chinese operations remain weak at break-even levels. Coal price recovering happens at a slow pace, and aluminum metal margins continue at the present for the interior year. On the other hand, the upper level of the earnings guidance considers same price increases to the level of 2,600, 2,700 per ton for the rest of the year. China starts to deliver positive contributions as the year progresses and the co-price continues reducing to the levels of Q1 2022. We expect the positive momentum to accelerate as the year moves on and continue the quarter-on-quarter improvement that we have seen since Q3 last year. Moving now to growth on page 18. 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 drive EAF steel production in the key markets where Befesa operates, which will make steel dust production to grow in the coming years. Similarly, the electric vehicle trend will drive the demand of aluminum in Europe and the U.S. in the coming years as the automotive industry looks for lightweight solutions. Our growth plan is well diversified across regions and markets, which provides us the flexibility to move at different speeds depending on the developments that we see in each market. In the current challenging environment, We are cautious about the capital expenditures, and we are adapting the CAPEX to the dynamics that we've seen in the market. We have a well-defined growth plan in Europe, China, and the U.S. to capture the growth opportunities that we are seeing in the market. 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 work of one of the tokens and the signing of the EPC contract. As explained in the past, the refurbishment of the Palmerton plant consists of the grade of the tokens in the plant, one at a time, in order to capture the growth that 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 a third plant in the province of Guangdong. The current situation in China characterized by a weak economic environment and weak steel production makes us more cautious on adapting to the situation of the country. The focus now is on securing the steel dust volume for our customers before start deploying capital in Guangdong. Despite the current challenging market environment, China has all the ingredients for FESA to run profitable operations. The penetration of EAF is clearly increasing. They are implementing a strong environmental regulation, and we believe that the first mover advantage is essential. In Europe, with regards to the expansion of the secondary aluminum production capacity in the 16th plant of Bermuda in Germany, we are moving forward with the permits, authorization, and commercial contracts with customers. This project is in line with the expected growth of the demand for aluminum in Europe that we are seeing driven by the electric car vehicle penetration. Light wave solutions are required to reduce emissions, and as a result, the aluminum content in cars will increase. 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 their touch on telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. Our first question comes from Sandy Petty with Morgan Stanley. Please go ahead.

Thank you, operator. Good morning, all. I have a few questions. I'll take one at a time. Firstly, is it possible to know how much contribution you have baked in for China plants and US energies at the top end of the guidance range?

Thank you, Sandy.

Well, you always try those things, but... We cannot give a real number as basically there are a lot of uncertainties, but basically you have in the model what is the contribution for both sides. So the risk of this is limited to the normal contribution of the China plan and as well the U.S. as well.

I think just to recall what we said in the past, in the upper side of the guidance we're talking about China contribution of between six to seven million, okay, which is basically at around 90% utilization and Henang at around break even. And then operational efficiency and synergies in the U.S., we talk about 9 to 10 million.

Okay. Thank you.

And that is for the entire year, right? That is on annual rendering? Yeah, and that will be on the upper side of the guidance, yeah.

Okay, okay, very clear. And then one question is on growth capex. How much is attributable to the refurbishment at Palmetto? And what sort of capex are you baking in for Guangdong and the European operations in 2024?

Well, regarding the growth capex, as we have included in the presentation for the full year, we have a view of around 120 to 140 as a total capex. Out of that Maintenance is between 35 to 45, okay? And therefore you will have a growth of between 80 to 90, okay? How much is that? That will be depending on the evolution of the year. Obviously for Palmerton, I think we have assigned this year between 30 to 40 million, okay? That will be to complete the plan. And then the remaining will be spread between Wandong and the aluminum project in Europe, in Benburg, okay? Let's see, I mean, one of the things that we have always explained, Sandip, and it's important that you understand is that we can module the growth and the capital deployment depending on the evolution of the year, depending on the dynamics in the market, okay? Managing the growth opportunities capture together with the balance sheet management, especially on leverage, okay?

Okay, that's clear. And then, is there a rationale to approve a Bernberg expansion, which is expected to have lower returns compared to your other growth projects in the pipeline?

No, no. I mean, basically, I think that we are asking for more or less the same return on the projects. So, this is a line that we expect to have from the rest of the projects, Sandeep.

Okay. And finally, if I can, is it possible to provide building blocks for 2Q 2024 EBITDA expectations quarter-on-quarter? Especially, what are your expectations for, again, China plants and U.S. energies and benefits from the lower cook prices?

Well, basically, this is the difficulty now. I think that what clearly we do expect is to increase every quarter-on-quarter. This is what we can expect for all the reasons we have explained it. but it's difficult to quantify today, but depending on this basically in China and US delivery. So what we can say, and in a positive view, I think that we have no doubt that it's going to improve every quarter.

Thank you very much.

Thank you, Sandeep.

Our next question comes to Michael Hoffman. Please go ahead.

Good morning. Thank you very much for taking the questions. Can we talk a little bit about The expectation, you were positive but a little bit vague about the contribution you thought from the U.S. I thought we had $20 million of incremental synergy coming in 2024. Is that still the plan? But now, can I clarify on that?

Yeah. Thank you, Michael. Well, 20 million was the magic amount that we took when we did the acquisition. So part of those has been already taken in the last years. And now I think that could be in the remaining in the area of 10, something around 10 million, as Rafa explained it. Could be more if the things come better, but it's in that range, basically. However, it's true that the fine implants should contribute at least with some positive or at least neutral results. But this year is going to be a little bit difficult because the development of the SIN market in terms of premium for the SIN, you know, special high grades and so on. So in particular in this business, we are going to have some headwinds. That way it's not very easy to us to say what is going to be the U.S. contribution during the year, but it will be in that range. I mean, it's not going to kill us about the 10 million get it or not get it, you know. That could be in the range. We still think that it's going to be a positive contribution talking about synergies and so.

Okay. So that does leave us with, at the midpoint, a positive contribution from the U.S. I thought I misunderstood your comments, that there was no incremental contribution year over year in the U.S.

More or less like that. Yes, this is the case.

Midpoint, about $10 million.

Midpoint, about even less than $10 million.

Okay. All right, that's helpful. And then... If the real estate market just never gets better in China, sadly, can the cross-province selling and movement of electric arc furnace dust get the utilization to your targets? Is there enough volume to move around in the markets that you could get Jung-Soo to 90 and Hunan into the 60s or better?

Yeah, I think as well. I will not say that never is going to recover the real estate business in China. It's a matter of time for sure, and all of us know that it's going to happen. The question is when. And we're in the last results conferences and the meetings that we are having with you that we are repeating this. Now we are not the only one telling that. Some reports from big houses is telling that there is a real crisis here. But coming to your idea, yes, we do still expect that the the new customers coming from other provinces compensate. But at the end, it depends as well on the level of production in all, in the provinces where we are and in the other provinces. Running at 40-50% capacity as they are now, well, at the end it's putting things a little bit more difficult. But as we say in the explanation, we are still positive on China. Well, we are repeating this idea every time, but the recovery will come sooner or later and it's a matter of time. So we are positive in China and we'll see how much of the recovery or how much, in other words, of the increase of steel dust production, steel makers there, they can. Other topic which is on the table is like there is still the BOF to EAF transaction in China. And as well, they are starting to export more steel. So they have some tools as well to increase capacity. So let's see. I think that it's true that we are probably in the lower level of the cycle in the steel production in China. But sooner than later, the recovery will be there. And we gradually will move to these ratios like you said.

Okay. And then am I correct in thinking about At the midpoint, the $215 million, are we approximately 35 to 40 comes from aluminum and then 175 to 180 comes from steel? Is that about the way to think about it for the year?

Around 45 from aluminum, Michael, and the rest from steel, yeah. That is the shallow drive, yeah.

So 45 from aluminum and then the rest would be steel at the midpoint. Okay. Yeah. So 170. Okay. All right. That's very helpful. Thank you, Michael. Last question. Yes, one question. Would you consider using the capital markets to get your leverage down?

It's something that we are not considering at the moment, Michael. Obviously, our leverage is above our target, which is below three times and pointing towards two and a half times. You need to consider that we are going through a heavy investment period and that we also have some commodity headwinds, which are the main drivers for the higher leverage. Let's see how the year evolves. We can manage the capex as we explained before, but our target is clearly three times or below for the year end. But we will not consider raising equity for reducing the leverage. We believe this is just a temporary situation. Okay. Thank you. Thank you, Michael.

Our next question comes from Juan Rodriguez with Kepler Super. Please go ahead.

Thank you, and good morning, everyone. I have two questions, if I may. The first one is on the positive medium-term outlook that you've signaled, but how should we see it? Because given the current market dynamics, this should be more back-end-oriented at the time. And in light with this, how do you see the consensus expectations for 2025 at $259 million, if I'm not mistaken? That would be my first question. Thanks.

Thank you, Juan. Honestly, we are still very focused on the 24 to make it happen, but 25 is a little bit far. Well, the trend continues and everything is going, so 25 should be, well, I would say better, but we don't know yet. It depends on the evolution, especially of the commodity prices, right? So very early to say now about 2025, sorry.

Okay, fair enough. The second is on the decarburization implementation of what you're seeing as steel producers in the EU. Is it still in pace or has it been slowing down in your view?

Well, I think it's in pace and all the announcements are there and we know for being close to the field like Arcelor is announcing and going further in Germany and France and in Spain with the changing Vestalpin is going, Saltinger is going, which is clearly as well if there is some more time that we are expecting three years ago, two years ago when we announced the plan. So with some delays, we see in Europe the megatrend or the trend is going there, no doubt. And yes, perhaps it's one year or two a little bit behind the idea. But we see that you cannot stop this. They are going to happen and it's happening. That's it.

And the last one is on a quick one on the guidance for 24. Why are you expecting production levels for this year?

In terms of production level, probably it's going to be the same level that we are showing in the Q1, in the range of 71% or 70, 70-something, which is good for our current situation in the whole market. It could be a good reference in the steel business. And the same for the aloe and salted slag. We don't see major changes. We saw changes. some changes perhaps due to the maintenance standstill, but at the end of the day, as an average, I think it's a good reference, the level of 70, 72%.

Okay, thank you, quite clear.

Thank you, Juan.

Our next question comes from . Please go ahead.

Hi, good morning. just a question on the 24 guidance just to get some additional color. So the lower end, I guess, is taking your Q1 run rate essentially is what you've done. But if we look at, you know, some of the, the Darbridge components, you know, it gets pretty difficult to get to that lower end without assuming some very bearish assumptions on, on, you know, the base metals prices and what happens in China. So I just wonder, is the bottom end as bearish as it looks on paper and, And maybe you can just give some color on how you see the progression or the improvement in EBITDA through the year and what that implies for sort of where you feel like you sit within the 24 guidance. Thanks.

Thank you, Lassie. I mean, yes, I shared that poor group seems very negative, providing all the boxes that we are explaining are turning to positive. Yes, I think it's negative, but I think that... With the last year's development of the things and with the geopolitical situation everywhere, nobody knows what is going to happen and could happen with the commodities and so on. So that's why we have to cover this part of the range. But I agree with you that the problem is negative and the view, especially now with the same prices at the level that we have currently, depends if it remains or not, but I think that could be really positive. The reading for us is everything that we were telling that's going to be positive is becoming and delivering positive. So we see the trend very, very positive, except for the same prices in the first quarter. So the rest of the things are good. Well, we took two issues about, as we say, U.S. and China, but the contribution of those packages are not so high. So yes, I think that the The view that we have for the 24 is confirming the view that we have a couple of months ago. It is positive. It's going to happen that we are going to show strong volumes, and we see basically, yes, above 10%, above solid two-digit growth, very clear on track.

OK, thanks. And then one question just on China. You said Jiangsu was at about 60% in Q1. That probably makes it quite difficult to get to the 90% you're referring to. Just to be clear, is the 90% meant to be representative for the whole year or is it just towards the end of the year?

We still think that in the case of Yanshu, we are not going to be far from that because in the Q1, because the Chinese New Year season with the stoppage of the production and so will come in. We didn't basically contemplate that it's going to be in the Q1 a little bit lower, but We see that it's gradually increasing and what I can say is we are not going to be very far from the 90%. If we don't get the 90% as expected at the last part of the last year, it could be 70, 80 or something like that. And still we think like that. But of course, it will depend if this land there or not, it's going to have an effect. But we are not negative. I think that it was expected to have a little bit lower Q1. because of that, because the normal season of the holidays in steel production and our brand as well was considering the guidance.

Okay. And then just on Henan, I mean, it looks like it's going to be another tricky year. So I'm just wondering kind of if we're looking over the next two to three years, I mean, when do you, you know, what are you expecting and when do you think you need to see a meaningful improvement in Henan to then, you know, what are the options going forward? I mean, because I guess you don't want to run this plant at 60, 70% utilization for the foreseeable future. So I'm just wondering how you're thinking about, you know, the Henan operations in terms of, you know, could you bring in a local partner as a JV or something like that?

We don't contemplate many changes because we trust and we see very close to the operations that this is possible to grow there. We are getting every time more contacts with the steelmakers for these provinces, for the rest of the provinces or around. So we see that it's a gradual increase. If we get this year 60%, it's like in the case of Jansu. It's gradually, so we have to see that it's going to be better the rest of the year. For the next years, same. It's going to be gradually increasing. You have to remember as well that Jansu took one year to get a 60%, 70% level because you have to change the the normal life of the people there, which they are basically delivering the dust, well, I don't know where, but at the end, little by little, they go to the normal way and we are moving there. We don't see the need to do very drastic decisions there and move forward, well, taking a little bit more time, but as I say, China is very, well, it's a very huge market that we should stay And I'm sure that we are not in China. All of you are going to ask why we are not. So basically, we see that the Chinese real estate market is going to be recovered and even affecting to Henan as well, the level of production and so on. So no drastic measures. It's just, well, getting a little bit more time. But of course, it's not going to affect a lot to our profit and loss account. It's something that we can support. And as we say, we do still think that China is the correct place to be in.

Okay, understood. And then one brief one on the hedge book. You mentioned it already. It looks a bit light versus historical levels. Is this just tactical because of the recent rally or has something changed structurally in the way you're thinking about the hedge book?

No, the hedging policy has not changed. We continue. I mean, this is something that we have been using for the last almost 20 years, and it's very consistent. Obviously, we need to use the increases in the SIM price to extend the hedging book. Over the last weeks, we are having contact with all the hedging providers, and we have locked in some volumes for Korea, but not something meaningful. But the We are getting close. We are getting close today. We are 14 months ahead of us fully covered within our policy, and we will continue to monitor the market. At the moment that there is an opportunity, we will definitely grab it, as we have done in the past, at the right price.

Okay, thank you.

Thank you, Lasse.

Our next question comes from Jaime Scribano with Banco Santander. Please go ahead.

Hi, good morning. So a few questions from my side. Could you elaborate a little bit more on the sinker smelter expectation? You mentioned that if I understood well that the margin that you are doing there is lower. Just to know what could be the contribution. So last year, if I recall well, it was something like minus 7 million. How should we think about the sinker smelter this year? Second question would be on the Salt Slacks, which Q1 came very strong. I don't know if there is a little bit of one of there, but just if you can elaborate on that one as well. And finally, a question on dividends. So with the higher capex and the guidance that you provided, Do you have any idea on how the dividend is going to be? Are you going to cut it a little bit, or how should we think about that as well? Thank you.

Hi, Jaime. Thank you very much for the questions. Well, the first one is a little bit confused to me. I don't think we said that last year was less than seven. What we are telling all the time is that these assets should be in the range of five to 20 million. a video contribution, 20 when this is going well and five when this basically gets the ramp-up period and going like that. Well, it is something that we are always discussing with you. I mean, it's an asset that this contribution in the whole Befesa probably with drivers different is not worth a lot to stop there and to explain the main drivers. But it's true that this year we are still in the low level of this range and could be difficult to get a cruise speed because there are many things affecting to the business, like especially the TCs. That is good for the business in general, but for some works that we are acquiring for third parties is obviously expensive. The premiums for the zinc metal in the U.S. are down. So it's putting the things more difficult to get this level of $5 to $20 million. Where we are going to be will depend. That's why it's something that is open. But for sure, we are in the U.S. very, very happy finally because synergies for the kilns, for the recycling business is going very well finally. And with the other, it's going to be, I'm sure, a positive contribution during the year, right? This is best. The salt slag, well, business is performing very well, very strong. I think that is helping by solid volumes, especially coming from Hanover. No one else. I think that is like... like the trend that was shown in the Q4 and going forward, and I think that it's very solid and probably we expect very stable business in the sold slack. And with the dividends anticipated, Rafa, what we intend and we are contemplating in the guidance and everywhere is to keep the same 40% to 50% dividends payout with our results. This is not change of that, depending on the figure we finally get, but 50% is a good reference for the dividends payment.

Thank you, Sarah.

Our next question comes from Jorge Gonzalez with Hawk of Hauser. Please go ahead.

Hello, good morning. Thank you for taking my questions. I have in fact a couple of questions for my colleague question on the guidance. So the first one will be around the effect, the positive effect of the lower treatment charge. Before the rumors were impressed now that it was going down to 167, 65. If I was not wrong, the consensus was already in 225 EBITDA. So taking into consideration the midpoint of the guidance that you are offering, 215, I was wondering how do you see our estimates, the estimates of the analysts, where do you think we are maybe too optimistic, taking into account current market conditions, if it's just the market price for zinc, or if it is more related to our assumptions regarding the coke price or the margins in aluminum. So where do you see the higher ascendancy to the numbers that maybe make this difference with the consensus at this point? That would be interesting to see your view on this. And then regarding the hedges for the think price, I have noticed that in the first quarter, in my numbers, maybe I'm wrong, the hedge price for think that you have in the first quarter was around 2,600 instead of 2,700. That is the number for the year. So I was wondering if you can confirm if this is correct and you are expecting the hedges to improve the contribution or to add a more positive contribution during the rest of the year? Or how is your view on that, on the contribution of the hedges to the year? Thank you.

Thanks, Jorge. Regarding the first question about the range of the lower or comparing with the consensus and so, Well, I will not say that it's a matter to be too much positive or not. It's depending on how you guys or all of you take all the boxes and all the items affected to our profit and loss account. It's true that the same price is one of the main drivers, and it depends on the average you take. You can move one part or the other. For me, the 227 or 225 video level is in the range that we see there. So it depends how you move the different boxes. You can be there or not. Imagine what price of coal you are considering, what price of rest of energy, inflation, again, let's say. It's true that it is TC now, and that's why we are providing the results. It's now fixed, which is traditionally was one of the main drivers of uncertainty, provided that the same price is always there and we have the heads to compensate, to offset. But now, out of the TCE, there are many other things that we discovered in the last two years because the world developed about the energy prices and so that is affecting as well. So altogether, it's a little bit more difficult to compare what we are telling to what you guys are considering your models. In our view, which is no doubt, is that Q1 is coming very positive, better than even expected out of the same price developer that is not on our hands. And again, we see that very positive development during the rest of the year. Well, out of the things that could be not in our hands, like the same price or other prices of the commodities. But really what we see is that all we can manage on all the things that we said that's positive is there. If that lands in 2025 or 2015 or 2017, it will depend on many things that is becoming in the business. But again, the positive growth is we have no doubt there that we are going to get.

About the hedging, I think Rafa can... Yeah, Jorge, basically we disclosed the hedging on the, I think it's number 12 on the slide deck. For this year, the average price is 2,500 in terms of euros. I don't know whether you have that confusion between euros or dollars. In terms of dollars, it's around 2,750 for the first quarter. The average is slightly below this level. This is the average for the year because the hedging book is composed by many, many small orders. But these are the numbers.

Thank you for that. Yes, I was working on those numbers. So basically the answer is yes, you have better hedges for the rest of the year or slightly better hedges.

Very slightly. The average for the year will be around 2,500 euros per ton, which should deliver around 12 million euros as a contribution in terms of EBITDA for the full year.

Okay, understood. And allow me, please, a last one, a follow-up on the guidance. So in Q4, if I remember well, you mentioned that you were even expecting utilization levels in China to reach something around 70% or 60% to 70%. I was wondering if this is still the case for the guidance at midpoint, or you are a little bit more conservative at the midpoint of the guidance.

Jorge, as I said before with the last question, we see that this was contemplated as a gradual increase, mainly because Q1 is coming with the stoppage for the Chinese New Year, and it was contemplated. So we still see that the trend is going to be growing To which level, we'll see, but I think that we should not be very far from the level that we explained in the Q4. Perhaps if we don't reach 90% in Jiangsu, it could be 80, could be 70. And in Henan, if we don't reach 60%, it could be 50 or could be 40, right? But this is one of the uncertainties to put the range of the delivery of the year. But in any case, it was gradually idea. I mean, it's not like coming, you know, in just one time. So we see that it's little by little improving, but we will see how it's coming, finally.

Thank you very much.

Thank you, Jorge.

Our next question comes from Xavier Anis with Odoo. Please go ahead.

Yeah, hello. Thank you for taking my question. Good morning, all. So I have one question on the guidance and on the low point of the guidance, the 195. This point could be achieved without any improvement in EBITDA for the next quarter, even with the same level as the first quarter. While you say that you are confident on improvement quarter on quarter, why are you so cautious on this level, on the guidance? and on the low point of guidance, especially given the zinc price recent rebound. Thank you.

Thanks, Anis. Yes, well, it looks like we are negative talking about the low part of the range, but I think that is, as we explained before in another question, it is probably negative view if we stayed there. But that means that, yes, it's like a repeated Q1 scenario for three times more in the year. We don't see this, really, but we have to cover the low part of the range, as we say, because you can never know what is going to happen. So in one part, we have to put the low end, and this is a very negative view that everything is repeating. When we say negative, it is positive because we are growing and we are increasing the situation, but that would mean that the SIN price is going to stay as an average for the whole year in 2450, as an example. Nobody of us know what happened, but it doesn't look like it's going to happen like that, especially because, as you say, the theme prices today are higher. So this is like that, means that China, yes, as I say, we expect gradually recover, but that doesn't happen. We expect no contribution for the, you know, all the things that we have done, even the coke is better, but it's not going further that we see. So, well, I would say that it's not... For me, it will be disappointing to be in the low end of the range, but we have to cover that position as well. Otherwise, all the items that we cannot manage could come against us, and with the volatility and with all the problems the world is facing the last year, never say never. But really, we don't see this as a negative part that we are positive with the development, except with the same price, the rest of the things are going in the right direction, so we do expect a very a positive year for 2024, growing from 2023. So we are very optimistic with half of the midpoint of the guidance. That could be a reference always in a guidance. And then hopefully we move towards the higher part. This is the idea. But we are positive with the situation. Again, what we can manage, and basically it is a very positive, you know, development of the things that we were telling you.

Thank you. Thank you very much.

Thank you, Anis.

Our next question comes from Christoph Bliffert with BNP Paribas. Please go ahead.

Good morning, and thank you for taking my question. You are telling us, Jana, that you are pretty positive on the year, but your guidance does not reflect us at all. So let's do the math. Let's take the one... 82 adjusted EVTA as of last year. Let's add 25 million of the treatment charge, which you already have in your book, so this is locked in. You are telling us 12 million of positive hatching, which you also have in your books. And you are telling us for longer your expectation on the Coke price going down. Coke prices are going down, so let's take 10 million. Let's be conservative on your cost inflation and let's take the 15 million. And you are telling us for longer about your synergies coming in. Let's take 10 million. This brings us to 225. Then you are telling us if think prices are on $2,450. Let's assume this gets reality. This is a negative EBITDA impact of some 50 million. This brings me to 210 billion of adjusted EBITDA for this year. The lower end of your balance is 195. So what is the 50 million difference for? Where do you have concerns? What is the problem? Thank you.

Well, basically, what you are considering is the base of $282,000, which is a lot of things inside, right? So the boxes are clear to add and not, but it depends what the co-price finally gets, the $10 million depends on the base that you get. Well, the hedge is there, the TC is there, but, well, the production could be higher or lower. The same price is depending on the average final price and so on. If you do numbers many, many times, you will get – Situation where you're right 295 or yes, that's why we are telling that we see more in the mid level Rather than in the negative point so I agree with you that did you cut the boxes that we are showing is delivering to the range of the midpoint that is what Well, we see but it's a midpoint of the range and we have to cover the the other otherwise we have to we have to explain to the market changing all the times they rank the range and in a commodity business like ours and no matter that we are very well hedged in a big portion, affects. So again, we have to cover the range, but we are not concerned, we are not concerned especially in nothing, and basically what we need to deliver is the boxes that you are putting there, and yes, with the question more about the same price that you take. Don't forget that should be as well the average, to get average of 2,600, 2,700, the next month should be very, very high, about that because they have to cover the 2,450. So it depends on your variables. But yes, all the rounds come to round and basically, yes, the midpoint could be a good reference or a little bit higher, hopefully. This is the case, Christoph.

Then on your hedge exposure for 2024, how many tons of zinc exposure are hedged?

We don't disclose that amount, Christoph, but on average, as we always explain, it's between 60% to 70% of the total volume that we expect for the year. And that also goes into the first half of 2025.

How much of SYNC exposure is set for 2025?

The same, between 60% to 70% until July 2025.

What has driven the increase in the capex for 2024 versus previous communication?

Basically, as we said, there are two items. On maintenance capex, we are clearly reducing the annual expenditure to 35 to 45 levels. And then in terms of growth, what we have provided is an initial guidance and we will manage throughout the year. There are three main items that we are managing at the moment. One is Palmerton, which is a secure investment and we are going to invest yes or yes because we are halfway through. We have the project in Guangdong. That will depend on how we move forward with securing the volumes and the agreements with the customers. ASEAN is traveling to China in the next couple of weeks to have a big meeting with the steel producers there. And then the other one is Europe, in Benburg, which is a low-risk project because the plant is already operating for the last 10 years, delivering high EBITDA and high profitability. We're also having conversations with our customers. That is in the back of the growth of the aluminum demand in Europe driven by EVs. And that is a clear project in a great location in Germany. So when you put all those together, you will achieve the guidance. But I think let's see how we move forward with these three projects. We will provide more communication throughout the year.

Has there been any significant cost overrun in your Palmetto plant?

No. I think we already anticipated some inflation in the cap base, and that was already considered in the numbers that we provided. So no cost overruns on that end.

Is there any delay in the timing? So in previous calls you have said Q3 this year, Q1 2025 as major milestones, is this still valid?

Basically what we are doing there is we are putting two brand new kills in the plan. The first one will be ready by the end of this year, so second half of this year. The second one will be ready first half of next year. So that is on time. We stick to the plan that we mentioned previously.

Okay, thank you.

Thank you, Christoph.

Our next quick question is a follow-up from Jaime Scribano by Santander. Please go ahead.

Hi. Yeah, just a quick one because I think we didn't ask about the sink price, $2,800 per ton big surge in the last couple of weeks. Just to know if you have any insight from the reports you read or any information you have, what is driving this surge? well, this significant increase in the zinc price.

Thank you. Jaime, always you have some questions that are special. Yes, if I would know this, probably I'm not sitting here explaining to you the professor's results, right? That's the first thing. No, honestly and seriously, in my opinion, in our opinion, there is not a lot of rationale about this rally, but that used to happen in these markets. And that's why we don't know what is going to happen the rest of the year. For us, one of the drivers for the same pricing and demand should be normally the Chinese demands because it's half of everything. But if it is going to be sustainable around the whole year or not, hopefully, but I don't know really. I mean, at the same time, you, it's reports that we read and everything, not really fundamental besides, but well... It is what it is, and anyway, I do prefer this level, right? This is something that I have here. I don't know you, Jaime.

Yeah, no, definitely. No, I was asking just to... Yeah, I know the visibility is very tough on sync prices, but definitely, I mean, 2,800 looks a very good level, and I just wanted to understand if you had any insight on whether this is sustainable or...

For me it's true that the level of 2400 in the first queue is quite strange as well because it's close to the C90 car that once again is showing that when you are a lot of time there or one month or two months then suddenly get up because probably mining are suffering there and they are starting to announce stoppage and so what happens in the first queue. So probably I don't know if 2800 is the level but obviously it's a good level for all to operate not the best, because we hope when Chinese demand get up, should be moving up, but we are very small in this business, but I think that the fundamentals are normally laid out. So I think it's a level that could be maintained, I don't know, we'll see, but definitely is better than the first Q, but the whole first Q was an average of 2,450, that for me is lower as well. So we will see, and all of us in the call, all of us at home, you can have your ideas and you modelize whatever you think is going to happen. Okay. Thank you, Asir.

Thank you, Jaime, to you.

Our last question is a follow-up from Sky Anis with Odoo. Please go ahead.

Yes, thank you for taking my follow-up. So I have a quick question on hedging. I'm just wondering if it is possible to hedge the rest of the year And if yes, why don't you do it? And my last question is on the stock price, on the share price. Today it took minus 9%. And how do you see the current share price? And are you considering any share buyback program? Thank you.

Anis, on hedging, basically, we are already hedged. As I explained, we are fully hedged until July 2025 at the volume, which is the average volume that we always hedge between 60% to 70%. So that is in our books. So we are not looking for hedging any more tonnages in this year. The focus at the moment is on hedging second half of 2025, if and when we will get the right price. As I said in my introduction, We are getting very close to there, and as soon as we get there, we will make the extension of the hedges. And then on the share price, well, what can I tell you? It's very frustrating for us, but it is what it is. We are not considering any share buyback. Obviously, we are managing capex, which is what we have to do to deliver the higher value to our shareholders. grabbing the opportunities and delivering the returns, and managing the leverage, okay, which as we explained during the call, we want to be at around three times and below targeting two and a half times, okay? So we are not considering share buybacks at this moment in time.

Okay. Thank you. Thank you.

Ladies and gentlemen, this was our last question.

Thank you all for your questions. You can now contact the Investor Relations Team 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 at our website, www.efesa.com. Thank you very much and have a good day.