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.