Befesa S.A.

Good morning and welcome to the first half 2024 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 Zaronandia, CEO of the company. Javier Molina will start with an executive summary of the first half of the year. After that, Asier will explain the business highlights of the period covering steel dust and aluminum sold as electrocycling. I will then review the financials with a focus on commodity prices, cash flow, net debt, and our hedging program. As here, we'll close the presentation providing an update on the outlook for the rest of 2024, as well as our growth plan. Finally, we will open the line for the Q&A session. Before getting started, let me remind you that this conference call is being webcasted live. You can find the link to the webcast and the first half 2024 results presentation on our website, www.defesa.com. Now, let me turn the call over to our chairman. Javier, please.

Thank you, Rafael. During the second quarter of the year, we have continued the quarter-on-quarter performance improvement that we started in the third quarter of last year, which confirms that we have left the world behind us already. The first half of the year has been characterized by solid volume across all businesses and markets, despite a challenging macroeconomic environment. From the commodity price point of view, we have seen higher average sink price compared to the weak price level that we saw in the first quarter. Total revenues in the first half of the year have reached €621 million, which total adjusted EBITDA, €103 million in the period, which is 9% higher than last year. But most importantly is the positive quarterly trend that has continued in the second quarter of the year, with total adjusted EBITDA at 55 million euros, up 23% year-on-year. Comparing with the first half of the last year, the results have been impacted by lower thin treatment charges, higher thin hedging price, and overall lower operating costs. which has been partially compensated by lower zinc and aluminum price. Asier will explain later in more detail the performance of the steel and aluminum businesses during the first half of the year. From the strategy execution point of view, the second quarter has been very successful across several fronts. We have extended the maturity of our debt for another three years until July, 2029. which removes any refinancing risk that geopolitical instability would generate over the coming years. On growth, we have signed the acquisition of the remaining 50% of Resitec for 40 million, which reinforce our leadership position in Europe. This transaction delivers value to our shareholders from the first moment and also provides a great strategic opportunity to increase capacity right in the middle of the European steel industry. Regarding hedging, we have extended our hedging book until the end of the first quarter of 2026 at record price levels, taking the opportunity of the high sink prices seen in May and June. Rafael will provide more detail about these transactions. With regards to the outlook for the rest of the year, we have narrowed The 2024 guidance to 205 million to 235 million EBITDA. This is based on the strong development we are seeing in the business and expecting that we achieve a stronger second half of the year. On growth, we continue to carefully execute our growth plan. The focus at the moment is on the refurbishment of Palmerton, which goes on track with the first kiln complete during the fourth quarter of this year and the second kiln complete during the third quarter next year. In the expansion of the secondary plant in Beirut, we are moving forward with the required permits as well as the commercial contract with assistance and new customers. Finally, in China, with regards to the third plant in the province of Guangdong, at the moment that investment is on hold until we see a market recovery, and we are able to have the steel dust supply agreements with the steelmakers in place. Beyond these two projects, we continue to be very optimistic about the mid-term outlook of BFESA over the coming years. We have already invested around 20% of the plan in the zinc refining plant in U.S. and in Resitec. We are investing another 20% of the CAPEX in 2024 and 2025 in the refurbishment of Palmerton and the expansion of the Bermuda plant in Germany. Next will be the solar slag plant in Europe and the expansion of Recitex, representing another 30 percent of the plant. And finally, China would represent another 30 percent towards the end of the growth plan. 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. Now, Axel will explain the business performance in more detail.

Thank you, Javier. I will now provide an overview of the performance of the business in the Q2 2024. The strong results in the second quarter of 2024 with an EBITDA increase of 23% year-on-year, saw a continued quarter-on-quarter improvement since Q3 of the last year, confirming the world is behind us. In H1, the results were driven by stable volumes in a challenging environment. Favorable decrease in sink treatment charges, better sink heads, lower energy prices, and synergies were partially offset by lower sink LME prices. Turning to the page seven, They consolidate the results of the FESA. The FESA delivered an adjusted EBITDA of 103 million euros in H1, which represents a 9% year-on-year improvement compared to the H1 of 2023. Let me take you through the main drivers of the year-on-year 8 million euros EBITDA development in more detail. On volume, overall, slightly higher volume across the market with a flat impact on EBITDA year-on-year. On price overall, approximately €4 million positive year-on-year impact explained by lower TCEs and higher hedging offset by lower metal margin on aluminum. About €12 million from the steel dust business and around €8 million from the alu-salt slag business. I will explain in more detail later. On cost order, overall, approximately four million euros positive impact, mainly driven by lower operating costs in our steel dust and aluminum salt slag business, mainly through lower coke, electricity, and US synergies. Turning to the page eight, the results from our steel dust business. Steel dust delivered 81 million euros of adjusted EBITDA in H1, which represents a 21% year-on-year improvement compared to 2023. However, down 1 million euros or 3% year-on-year. The VDI year-on-year impact from volume was flat mainly due to the slightly higher volumes in Europe, Turkey, and the US. Total steel dust volumes increased by 3% year-on-year to 610,000 tons in H1 2024, representing an average utilization of 71% in line with the previous year. overall positive EBITDA year-on-year impact of about 12 million euros with the main price components being 5 million euros negative impact from lower SIN LME prices, down 7%, or around 180 euros per ton year-on-year to around 2,444 euros per ton on average in H1 2024. This negative EBITDA impact from lower SIN LME prices was partially compensated with two positive EBITDA impacts. Firstly, 6 million euros positive impact from higher seam hitching price, around 140 per ton higher year on year on average. Secondly, 11 million euros positive impact from the favorable decrease of seam treatment charges, which was set up $165 per ton from the year 24 versus $274 per ton in 2023. On cost order, Befesa's Coke average price continued for the normalization in H1 of 2024 to levels below the 2022 average price, driving positive EBITDA impact. Operational improvement in the U.S. recycling operation has delivered positive EBITDA contribution as well in H1. All these positive impacts have been partially offset by inflation and other effects. Total impact of costs and others has been 2 million positive in the period. Moving now to page 9 with the results of our aluminum salt slag recycling business. Aluminum salt slag delivered 22 million euros ABDA in H1, which represents a 19% year-on-year decrease compared to the 28 million in 2023. The year-on-year 6 million negative ABDA development was mainly due to the lower aluminum metal margin partially offset by lower energy prices. On volumes, overall flat every year on year impact. Our recycling volumes of salt slag increased by 29% to 221,000 tons in H1, driven by the resumption of operation of the Hanover plant in Q2 of 2023. Our secondary aluminum alloy production volumes increased by 4% to 91,000 tons in H1. With these volumes, we operated our plant at a strong utilization rate of about 94% in salt slag and 89% in secondary aluminum on average. With regard to prices, overall negative EBITDA year-on-year impact of about 8 million euros, mainly driven by pressure aluminum metal margins versus the previous year caused by a weak automotive industry in Europe. Aluminium FMV prices were 4% up, with an average of around 2,327 euros per ton average. The negative price effect was partially compensated with year-on-year lower operating costs, mainly through the lower energy prices. Turning to page 10 of key volume drivers. From the market point of view, although at global level, steel production in H1 of 2024 stayed flat compared to the same period of the previous year, it has shown different results by geographies. In Europe, steel production increased 1%. Electrical furnace production in Europe continues at solid levels, supporting the strong utilization levels in our plants. In the U.S., The steel production in H1 decreased by 2%, while in China, total steel production was 2% down year-on-year. The production from our EAF steel makers in China is still weak, driven by a low level of construction caused by the weak real estate China is suffering. As a result, our plan in Jiangsu ran around 60% utilization and Hena at 30% utilization. Now Rafa will cover more details on prices, hedging, and cash flows.

Thank you, Asier. Moving on to page 11, SIN price and treatment charges. Regarding SIN LME prices, last year we saw a decrease of more than 25% in the SIN price, down to the marginal cost of the producer. After that, in the first quarter, the price has been moving sideways above the SIN ethical score with a weak average of $2,450 per ton. In the second quarter, we have seen a rally in the same price, touching $3,000 per ton at the end of May, and then moving sideways between $2,600 and $2,900 per ton, with an average of $2,830 in the second quarter. The rally was mainly driven by mining capacity being taken off the market due to low average prices. On treatment charges, nothing new. As we already mentioned, treatment charges for the SYN were settled in April at $165 per ton for the full year 2024. This is around 40% or $109 per ton lower compared to the $274 per ton in 2023. And it is positively impacting our earnings in 2024. Turning to page 12 on hedging. we have taken the opportunity of the brief mini rally in the SIN price seen in May and June to extend our hedging book further from the second quarter of 2025 until the end of the first quarter 2026. With this extension, our SIN hedge book covers 65 to 70% of our SIN exposure until March 2026. Therefore, we have more than 20 months of hedges on our books at increasing hedging average prices. around 2,500 euros per tonne in 2024 and around 2,650 euros per tonne in 2025 and the first quarter of 2026. This level of hedging represents an all-time high level of hedging for BFESA and will provide around 25 million euros of incremental EBITDA in 2025, regardless of what happened with SIEM prices. We continue to monitor the market waiting for the next mini rally to extend our hedging book over the second quarter and third quarter of 2026. Once again, we have demonstrated that we can take advantage of seeing price volatility by locking in future earnings and cash flows. Our hedging strategy remains unchanged and continues to be a key element of the Thesa business model, providing earnings visibility and predictability, lowering the impact from seen price volatility. 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 regards to coal price, which today represents around 60% of the total energy bill, the normalization that started in the second quarter of 2023 has continued further into the second quarter of 2024, to levels below the average of 2022, approximately 25% lower compared to the first half of the last year. This had a positive impact on our steel dust operations. Despite this positive trend, however, the average coal price in the first half of 2024 is still around 30% above the average levels from the years 2019 and 2021, pre-crisis. Regarding electricity, which today accounts for around 25% of the total energy expense, Prices continued to decrease further in the second quarter of 2024 to average levels of 2021 and were about 25% lower year-on-year. This has a positive impact in our aluminum solar slag operations. For natural gas, prices were 5% lower year-on-year. Turning to page 14, the cash flow results. On the EBITDA to cash flow bridge, starting with 103 million euros of adjusted EBIT down the left and walking to the right. Working capital consumption was up by around 36 million euros in line with the previous quarter, primarily driven by the usual first quarter seasonality and timing impact and without cash consumption in the second quarter. We expect to recover most of the working capital outflow throughout the year, and especially in the fourth quarter, as we have done in previous years. Taxes received in the first half of 2024 came in at 3 million euros as a result of final tax assessment of previous years, resulting in an operating cash flow of 70 million euros in the first half, up 27% compared to the last year. CapEx-wise, in the first half of the year, we have invested 24 million euros in maintenance CapEx. 15 million euros in growth capex, mainly related to the refurbishing of the Palmerton plant in Pennsylvania, and 40 million euros in the 50% acquisition of Recitec. I would like to highlight that the Recitec acquisition is a great transaction for Befezan and our shareholders, both from the financial point of view, but also from the strategic point of view, as it enables us the development of a brownfield project in an excellent location, requiring only a fraction of the capex needed for a greenfield project. as Hiel will explain in more detail later. The purchase price of Resitec represents 2.5 times through the cycle EBITDA multiple, and more than 40% return on the investment. This acquisition was contemplated in the full-year CAPEX guidance that we provided when we presented Q1 results, and is also part of the strategic growth plan of the FESA. Back to CAPEX, in summary, overall total CAPEX of 79 million euros in the first half of 2024. For the full year, we expect to invest a total capex of around 120 million euros, of which 40 million euros would be maintenance and 80 million euros for growth in Resitec and Palmerton. Interest paid increased by 30% to 70 million euros in the first half of the year. driven by the year-on-year higher year evil from 3.1% in the first half of 2023 to 3.9% applicable in the first half of 2024. After funding working capital, interest, taxes, and capex, total cash flow in the first half of the year amounted to 1 million euros. Cash on hand stood at 108 million euros, which together with the 60 million euros undrawn revolving credit line provides Befesa with €168 million of liquidity. Gross debt at the end of the second quarter increased to €754 million due to the use of €40 million in the revolving credit facility to pay the acquisition of the remaining 50% stake on Resitec. Net debt in the second quarter closing increased by 4% to €646 million. compared to the previous quarter. LTN EBITDA increased by 6% to 190 million euros compared to the previous quarter, resulting in a net leverage of 3.39 at the end of the second quarter, down 2% from the previous quarter, even after paying 40 million for Resitec. Turning to page 15, debt structure and leverage. Last week, we successfully completed the refinancing of the debt of EFESA, consisting of €650 million senior secured term loan B with a three-year extension and with maturity in July 2029, as well as €100 million revolving credit facility due in July 2028. The refinancing extends the maturity of EFESA's capital structure with no effect on our current leverage ratio and the same common and light terms as previous debt. The TLV has a new margin of Euribor plus 275 basis points and includes a margin ratchet, which will allow us to reduce the margin by 50 basis points when leverage ratio gets below 2.5 times. We are very pleased with the successful outcome of this refinancing transaction. The perception and the appetite to participate by both existing and new lenders has been very strong. The new financing, together with our consistent hedging policy and cash flow generation profile, provides the strong financial backbone upon which we base the future growth of EFESA, with a strong focus on capital allocation discipline and leverage management. We clearly have the target to reduce the leverage ratio to around three times by year-end and to keep the leverage around two and a half times in the midterms. To do so, we will focus on growth capex on those projects that will deliver immediate cash flows upon completion, like Resitec. Also, we will keep maintenance capex around the level of 40 million euros over the coming years. Now, back to Asier on outlook and growth.

Thank you, Rafa, again. Moving now to outlook and growth on page 18. Let me start with some comments about the outlook for the second half of the year. As we expected and are seeing already based on the first half results, we expect solid earnings growth for 2024 driven by a combination of various positive factors. We must admit that we were very prudent with the initial EBITDA guidance for 2024 on the lower part of the range, which represent a worst-case scenario. Based on the current estimators, we are narrowing the full year guidance to 205 in the lower end to 235 in the higher end, representing a growth of between 13 percent to 30 percent. Overall volume is strong across markets despite a challenging macroeconomic environment with weak steel production in the markets where we operate. We expect to continue a similar market environment during the second half of the year. In Europe, our main market, we expect to continue operating at more than 90% utilization levels. Treatment charges and same price catching will be stable in the second half of the year, as explained by Rafa. Coke price, as explained earlier, is moving in the right direction and we expect to continue to normalize further. We still see different trends across the markets where we operate, but overall, We are in good track to achieve an average co-prices reduction of around 20 percent in the year. In the U.S., the recycling plants are operating well, and we continue capturing the operational synergies in 2024, which are being materialized along the year and will deliver positive earnings contribution compared to the last year. Also in the U.S., the sin refining plant is gradually improving its operating costs along the year. The plant is still in turnaround and wrap and bottle. Today the focus is on cost reduction to improve the profitability. We are reducing the headcount by more than 10% among many other operation expenses. However, the reduction of treatment charges together with the lower premiums in the zinc market will partially offset the improvement on the recycling business. We expect to achieve break-even by the end of the year. In China, the situation remains challenging. by a weak real estate crisis. In general, we expect the second half of the year to be better than the first half. Although we do not expect a recovery on the overall Chinese economy, especially in the real estate sector, we expect to increase the capacity utilization step by step of the two plants that we are operating today. We are working on expanding the customer base to other provinces. We are targeting around 70% utilization in Jiangsu and 20, 30% in Henan again driven by expanding our customer base. Finally, 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. We see a solid floor in the level around $2,500. In Q2, we have been seeing volatility in price, and we expect this to continue over the second part of the year. Market consensus for the H2 is around $2,700. Average theme price in full year 2023 was $2,650 per ton, which is pretty much in line with the average of H1 at $2,640. Regarding aluminum price and aluminum metal margin, we have seen a margin compression in the first half of the year, which is something that we expected given the high margin we saw last year. We expect this to continue during the rest of the year into the second half. In summary, and considering all factors, we expect a stronger second half of the year and adjusted EBITDA to be between 205 and 235 million euro range. Looking ahead to next year, 2025, we also see earnings growth driven by better hedging level, as explained by Rafa, volume growth, better performance of the steam refining in the U.S., a more favorable energy price environment. Moving now to growth on page 19. Regarding our mid-term outlook, we remain very optimistic. During the second quarter, we have made significant progress in the execution of our growth strategy with the acquisition of the 50% remaining of Resitec, of which today we own and control 100%. This is an excellent transaction in our main market, Europe, which marks an important milestone in the European component of our growth plan. Europe remains our core business, and acquisition of the remaining 50% in Resitec represents the opportunity to strengthen our leadership position in this crucial market, positioning us for further growth. The strategic location of ResiTech will enable us to expand our EAF steel dust recycling services further in the health of an area where EAF steel production will grow over the coming years by constructing a second kiln through a brownfield project in line with our strategic growth plan. 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. However, as Rafael explained it, in this current challenging environment, we are cautious about the capital expenditures and we are adapting the CAPES to the dynamics that we see in the market. Decarbonization will drive EAF steel production in the key markets where Profesa operates, which will make steel production – steel-dust production to grow in the coming years. Similarly, the electric vehicle trend will drive to demand for 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 in different speeds depending on the developments that we see in each market. The first part of the investment plan focuses on the U.S. with the refurbishment of the Palmerton plant which consists of the grade of the two kills 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 Q4 this year, while the second phase will be completed by the Q3 of 2025. With regards to the expansion of the secondary aluminum production capacity in the 16th plan of Bermuda in Germany, we are moving forward with the permits, authorizations, 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 vehicle penetration. Lightweight solutions are required to reduce emission, and as a result, the aluminum content in cars will increase. Finally, in China, the third plant in the province of Guangdong is being on hold for the time being until we see a combination of a recovery of the market and we are able to sign long-term supply agreements with customers. Despite the current challenging market environment, we believe that China has all the ingredients for the FESA to run profitable operations. The penetration of electric car furnace is clearly increasing. They are implementing a strong environmental regulation and we believe that the first mover advantage is essential. In summary, the growth plan is being executed at good speed in US and Europe, while in China we are more cautious and we'll wait to see how the economy recovers. Thank you very much.

Thank you, Asir. We will now open the line for your questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 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, you may press star and 2. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from the line of Christoph Bleffert with BNP Paribas Exchange. Please go ahead.

Good morning, and thank you for taking my questions. I have a couple of questions on your U.S. operations, please. Can you provide an update on the synergy target in the U.S., what has already been realized, and what we can expect for the second half of the year, please?

Thank you, Christoph. We are always talking about the last 10 million synergies to capture in the market that we see that we are going to get during the year. This is more or less the figure we were managing all the time for this year.

Okay. Can you give us a figure for the EVTA contribution of the U.S. operation for the first half, please?

Hi, Christos. Rafa here. As you know very well, we don't provide the EBITDA breakdown by markets. It's something that we have been consistent since the very beginning. But I will reiterate what Alfred is saying. With the synergies that we are getting at the moment and with the existing operations, we are on track with the initial plan when we did the acquisition in July 2021. So in the range of... 45 to 55 by the end of the year should be a good target for the U.S., which is basically the existing operations plus the synergies on top.

Okay. Can you help me understanding the reason for the delayed completion of phase two, please? And related to that, is there any risk of a material cost overrun associated with that?

Well, I don't think it's a big delay. I think it's a matter that during the Q2, Q3 of the 2025 year, we have been with the idea to deliver the first instrument of the second kiln there. So basically it's in that range and the project is moving okay in budget and timing.

Okay. And as a last question, what can we expect in terms of volume growth in the U.S. in 2025?

Well, I think that there are some projects from the steelmakers that are still whole with some delays, not very high, but I think that in the range of 50,000 to 60,000 tons could be something that we have in mind that could be achievable. Excellent. Thanks a lot.

The next question comes from the line of Brian Butler with Stifel. Please go ahead.

Hi, thank you for taking my question. When you think about the midpoint of the guidance being moved up about $5 million as the low end came in, can you maybe give us some color on kind of what's behind that $5 million increase? And then what really can drive the high end of that range getting to 235? What needs to happen to hit that higher target?

Thanks for the question, Brian. Well, I think that the midpoint is a reference. I think that we are going to be there as we expected at the beginning. And the range is coming basically because you know pretty well that the same prices and main matter that we don't know what is going to happen. So you can be depending on the level up and down on the range. But as well, the co-price evolution that we are expecting is going to keep going, but it is something open. And as well, final synergies and everything goes well. So yes, the range we are comfortable and something like midpoint 215 to 220 could be a reference that we started from the, you remember, for the very beginning of the year telling that. So we are comfortable there.

Okay. And then on China, when you talked about the utilization of the two plants, one at 70% and the other at 30%, does that blend to 50%? So China, if you're thinking about it, is now kind of break-even? Or is there still some additional...

We think there is not going to be a high contribution. I think that we can consider a break-even, something like that. We are in the middle of the year, and we see that it's more realistic to think about break-even.

All right, and then maybe one last one. On the CapEx that came down, is that CapEx, that lower CapEx for 2024, is that timing-related, or is that, you know, and ultimately gets made up in 2025, or is that really just kind of come out of this out of this year and just going to remain unspent?

No, basically the review of the CAPEX is coming from the two components. First of all, maintenance CAPEX is around 40 million, and we are pretty convinced that between 40 to 45 million years within that range, we can maintain the existing asset base over the coming years. So over the last couple of years, we have some extraordinary items in there. But when you remove those, 40 to 45 makes sense. And then on growth, the focus is pretty much, as I said, is playing on Palmerton, which is an ongoing project, and on Resitec for this year. So it's 40 million maintenance, 80 million growth. So we think 120, 135 will be the final figure for total capex. Okay. Thank you for taking my questions.

The next question comes from the line of Lasse Stuben with Berenberg. Please go ahead.

Hi, good morning. Just for clarification on the utilization in the US, you stated it's 70% in the presentation. Does that include, you know, the first plant that's being refurbished, i.e., that's not actually recycling at the moment, or how should we understand that 70% figure?

No, thank you, Les, for the question. Yes, to clarify, yes, the idea to do the project is to do one kill after the other. That's why we talk about two phases. So the plant is running with one kill while the other one is under reinforcement. So the total 70% is considered the full capacity in US.

OK, thank you. Then another question just on your salt slag margin was, again, really strong. in the second quarter. So, you know, I'm just wondering, you know, how should we think about that for the rest of the year? Is that kind of 32 to 35% EBITDA margin level, the right number, or are you expecting some degree of normalization here in H2? I think it's a good reference. Okay. Got it. And then the final one, just on your cashflow guidance, just given the numbers, you know, with the slightly lower CapEx and, You had, I think, operating cash flow of 70 million in H1. Given H2 is almost always the stronger period of the year for cash flow, shouldn't that free cash guidance be a bit higher? Or are you just being a bit more prudent at this stage of the year? Thanks.

No, what we have provided is a guidance range. It will depend on when we finally land in terms of EBITDA. Basically, if you go through all the waterfall items from EBITDA to CAPEX working capital, we expect a reverse of working capital in the fourth quarter. So final working capital outlook should be between $10 to $15 million. Let's say taxes around $15 million, interest payment around $40 million. So if you take the middle point of the guidance, that will be operating cash flow of around 150. And then from that, you say, let's say, capex for the full year around 120 and 30 million euros of dividend. You need to consider dividend payment. And you will have a very good measure with that.

Okay, that makes sense. Thanks a lot.

Thank you.

As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question comes from the line of Jorge González Adornil with Hawk Aufhasser Investment Banking. Please go ahead.

Hello. Buenos dias. I have a few questions. The first one related to the difference between the EBITDA and the adjusted EBITDA. It is a slight 2 million euros difference. Can you give us some color on this? And then I am quite interested to understand better the mechanism for the aluminum business. So I understand on one hand that the lower electricity prices are good for the business, but at the same time, there is some kind of pass-through. Can you explain us better how we can how we should think for this business in terms of the margins for the second part of the year with the current dynamics. Thank you very much. Sure, Jorge.

Thank you for the question. Regarding the first one about the adjustment, normally we include there typical one-off situation that every year used to happen and normally we we adjust because they are not related with the business itself, like hyperinflation effect in Turkey, other adjustments about some provisions or things like that that is normally one-off, and we always adjust. Regarding the aluminum dynamics, well, it is a matter basically of the margin. It is basically offer and demand and offer about the aluminum, you know, metal sales, and currently as an example, is under pressure because the production of cars are a little bit slower than it was expected. So normally you fight more on the prices for selling the alloys. And in the case of the purchase of the raw material, it still is very hard. So at the end, the gross margin normally is under pressure. Last year was very good. And one of the reasons for last year was as well because we were able to pass over the increase of the energy prices and then the margins or the prices at the end of the sales react with some speed, sometimes faster than others later. Probably in 2023, and it's a very volatile market, we benefit from those high energy prices that we were passing through and the margins keep there, and the situation of the production was better. That's why the high margin in 2023. So we expected some normalization in 2024 is where we are. And I think it's a good reference to have the current situation now.

Thank you very much for that. One follow-up on China, if I may. You mentioned that the utilization levels were around 60%, if I'm not wrong, for Jiangsu. I understand that this is slightly below last year still. How we should think about the second part of the year for China. I remember that you mentioned that from May you were going to get some new volumes for new clients in neighboring regions in China. This means that they are going to compensate and maybe the final volumes for the year are flat or we can even think on growth year on year for 24 in China.

Well, yes, perhaps it's something like you are telling. I confirm we are now in the level of 60% because the first part of the year in Jansu, we were not able by permits to get dust from surrounding provinces. Now we are starting to have some, and we think that for the whole year in Jansu, we see in the range of 70%, which is more or less what we are expecting. So 60% now, 70%, a little growth, as you say. Well, China is China and everyone is, you know, hoping things to develop in the positive way, but it's still not there. So that's why we are moving in those levels. And in the Henan case, it's a little bit more behind as always. And something in between 20 to 30 will be expected for the whole year. All in all, break-even contribution and not a very key issue. But yes, we are looking forward for the Chinese recovery and increase those Those percentage probably in 25 now and 24 is going to be in those levels.

Okay, thank you very much. I go back to the line.

The next question comes from the line of Jaime Scribano with Banco Santander. Please go ahead.

Good morning. So just one question from my side. So if we look to salted slag and secondary aluminum as a whole, Last year you made around 47, 48 million BDA. How should we think about these two for the year? Because salteflax is growing better, but then secondary aluminum is below. So overall, how should we envision these two? Thank you.

Special thanks to you Jaime. You are on day off and working on Santiago days in Spain. We appreciate that. Concerning the question, I think it's a good reference to multiply by two probably the first half. I think in the range of 42, 44, 45 probably we can expect this year because we are explaining that we hoped that the market is going to be here like we are now. So probably salt slag is going to be strong. And this year, aluminum is going to contribute less as we explained by the margins. But something around 44, it's going to be a good reference.

Thank you.

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 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 on our website at www.befesa.com. Thank you very much to all of you and have a good day.