Befesa S.A.

Good morning, and welcome to the third quarter 2024 results conference call of Befesa. I am Rafael Perez, CFO of Befesa. This morning, I am joined by a group CEO, Asier Zaronandia. Asier will start with an executive summary of the period, and then he will cover the business highlights for the steel dust, as well as aluminum salt slag recycling businesses. I will then review the financials by business. I will cover the evolution of commodity prices, our hedging program, and finally cash flow and net debt. Asir will close this presentation provided an update on the outlook for the rest of 2024, how we see 2025, and an update on our growth plan. 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 third quarter 2024 results presentation on our website, www.defesa.com. Now, let me turn this call over to our CEO. Asir, please.

Thank you, Rafael. Moving to page five of the business highlights. The FESA has delivered a strong third quarter despite the challenging macroeconomic environment, which demonstrates the resiliency of our business model. Total adjusted BDA in the third quarter has been 49 million euros, up 16% compared to the previous year, reflecting a strong year-on-year performance. For the nine-month period, adjusted VDA reached 152 million euros, an increase of 11% compared to last year. Operating cash flows has increased by nearly 40% so far in the year, mainly driven by a strong cash conversion. On the performance in the third quarter, I would like to highlight the solid steel dust volume that we have recycled in our two main markets, Europe and the U.S. despite the challenge that the steel sector is suffering. I would also like to highlight the strong performance of our salt slag recycling business, driven by the Hannover plan back to full operations and a strong volume received from our customers. On the other hand, our secondary aluminum business has been impacted by a challenging automotive industry in Europe, characterized by weak demand and production of cars. I will elaborate later all these aspects. On outlook, we expect full year 2024 adjusted the BDA to be between 210 and 215 million euros within the previous guidance range that we provided in July of 205 to 235 million, which represents a growth of 15% to 18% year-on-year. We also expect leverage to be reduced from the current levels down to around three times by the end of the year. For 2025, although it's still early to provide guidance, we are expecting a strong double-digit VDA growth and leverage to be reduced to around 2.5 by the end of the year. We are adjusting our business plan and capital allocation to focus on reducing the leverage and invest in ongoing approved expansion projects. As such, the expansion plan in China is stopped due to the current market conditions. Our growth capex will focus on the refurbishment of Palmerton and the expansion of Bermuda, both low-risk projects from the execution, technology, and commercial point of view. Moving on to page six. Overall, our steel dust recycling business has delivered strong results in Europe and the U.S., which has been partially upset by the operation in the seam refining plant in the U.S. In Europe, the steel sector is going through a challenging period with the steel production in Europe at the five years low level clearly impacted by the weak demand. Despite this challenging environment, we are getting a strong level of deliveries from our EAF steel customers, and we continue to run our plants at a very high capacity utilization, around 90 percent. Looking ahead for Q4, we have EAF volume, which will secure strong utilization of the plants across most of the markets. In the U.S., we must differentiate between the recycling and the refining businesses. In the steel dust recycling business, we are running the plants at around 70% utilization, similar to previous quarters. The measures that we have been taking and best practices that we have been applying to improve the recycling operation are on track and delivering good results. achieving higher EBITDA per ton. The refining plan is in the final stage of the ramp-up and turnaround process, with a strong focus on cost reduction. This year, the unfavorable combination of low TCs and low premiums for the special high-grade zinc is putting a special pressure on this business production, double-digit negative contribution in the full year 2024. In our ASEAN operation, the steel dust volume was impacted by a strike in our TARQIS plant during the third quarter. The strike is over, and we have secured strong volumes for the Q4. In China, the two plants continue running at similar utilization levels than H1, impacted by a weak economy in general and very low EAF steel production. Moving on to page seven. business highlights for the aluminum salt slag recycling business. In the aluminum business, we have delivered overall strong salt slag recycling performance, which has been partially offset by weak secondary aluminum metal margin. On salt slag, the strong volume has resulted in a very high capacity utilization of the plants of around 90 percent, driven by the Hanover plant in Germany back to operation at full capacity. This strong operating result has been partially offset by lower FBM aluminum price. In our secondary aluminum segment, the main challenge has been the weak European automotive industry, which is affecting the demand for secondary aluminum. This is putting a lot of pressure in the aluminum metal margin, which is suffering compression compared to the levels of last year, causing the weak demand of secondary aluminum coupled with difficult effects to aluminum scrap in the market. This, coupled with the scheduled planned maintenance shutdowns, impacted volumes during the quarter. Now, Rafa will explain the financial in more detail.

Thank you, Asir. Moving on to page nine, financial results of our steel dust segment. Steel dust delivered 122 million euros of adjusted EBITDA in the third month of the year, which represents 9% year-on-year improvement compared to 2023. Subsequently, EBITDA margin has improved from 17% to 20% in the period. The 20 million EBITDA improvement has been driven by the following factors. The year-on-year impact from volume was flat, mainly due to slightly higher volumes in Europe and the U.S., compensated with lower volumes in Asia, as explained by ASEER. Total plant utilization was around 70%, similar to last year. On price, overall positive EBITDA year-on-year impact of about 27 million euros, with the main price components being 3 million euros negative impact from lower SIN LME prices, down 3% in euros. This negative EBITDA impact from lower SIN LME prices was compensated with two positive EBITDA impacts. Firstly, 11 million euros positive impact from higher SIN hedging prices. 97 euros per ton higher year-on-year on average. Secondly, 19 million euros positive EBITDA from the favorable decrease in SIN treatment charges, which was set at $165 per ton in year 2024 versus $274 per ton in 23. On cost orders, Befesa's COG average price continued further normalization in the nine-month period of 2024, to levels below the 2022 average price, driving positive EBITDA impact. Operational improvements in the U.S. recycling operations also have delivered positive EBITDA contribution as well in the period. All these positive impacts have been partially offset by inflation and other effects, mainly attributable to the negative contribution from the same refining operations in the U.S., which is going through a turnaround plan as I see it explained. with a strong focus on cost reduction and a double-digit negative contribution in the full year 2024. Moving on to page 10, financial results of our aluminum segment. Aluminum sold at Slack delivered 31 million euros of EBITDA in the nine-month period, which represents a 14% year-on-year decrease compared to the 36 million euros achieved in 2023. The year-on-year 5 million euro negative EBITDA development was mainly due to the lower aluminum metal margin, partially offset by lower energy prices. On volumes, overall slightly positive EBITDA year-on-year impact. Our recycled aluminum solid slag increased by 23% to 318,000 tons in the period, driven by the resumption of operations in the Hanover plant in the middle of 2023. Our secondary aluminum alloys production volumes increased by 2% to 128,000 tons. With these volumes, we operated our plants at a strong capacity utilization rate of about 90% in solid slag and 84% in secondary aluminum on average. With regard to prices, overall negative EBITDA year-on-year impact of about 9 million euros, mainly driven by the pressure aluminum metal margins versus the previous year. caused by a weak automotive industry in Europe, as explained by ASEER. Aluminum F&B prices were 6% up, with an average of around 2,327 euros per ton on average. The negative price effect was partially compensated with year-on-year lower operating costs, mainly through lower energy prices. Moving on to page 11, SIM prices and treatment charges. Regarding SIM prices LME, During the third quarter, SIN has been trading with some volatility over the marginal cost C90, trading sideways in the range of $2,300 to $3,100 per ton. Average Q3 SIN price LME has been $2,780 per ton. And for the nine-month period, average has been $2,690 per ton, which is slightly below last year's average. On treatment charges, nothing new. As we already mentioned, treatment charges for the zinc were settled in April at $165 per ton for the full year. This is around 40% or $109 per ton lower compared to the $274 in 2023, and it is positively impacting our results. As a reference, spot treatment charges in the market are trading on the negative zone, which very rarely happens. This shows the currently supply-demand dynamics in the ZIN market, characterized by reduced supply on ZIN concentrates, which is making spot treatment charges to be negative. If this dynamic continues, annual treatment charges for next year, 2025, should remain at a low level. Turning to page 12 on hedging, we have taken the opportunity of the volatility in the ZIN price seen over the last months to extend our hedging book further beyond the first half of 2026. The first half of 2026 is fully hedged, and the second half is hedged close to 50% of the volume. With this extension, our seen hedge book covers close to 24 months of hedges in our books at increasing hedging average prices of 2,650 euros per ton in 2025 and 2026. This level of hedging represents an all-time high level of hedging for BFESA and will provide around 20 to 25 million euros of incremental EBITDA in 2025, regardless of what happens with the SIN price. We continue to monitor the market closing volumes for the remaining 2026. Our hedging strategy remains unchanged and continues to be a key element of BFESA's business model, providing earnings visibility and predictability, lowering the impact from SIN price volatility. Turning to page 13 on Bethesda's energy prices. The page shows the evolution of the three energy sources that we have in Bethesda, 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 is continuing throughout 2024 to levels below 2022 average. average caulk price in the nine-month period is 25% lower compared to the same period of last year. This had a positive impact on our steel dust operations, as explained earlier in the bridge. Despite this positive trend, however, the average caulk price so far in 2024 is still around 30% above the average levels from years 19 and 21. Regarding electricity, which today accounts for around 25 percent of the total energy expense, prices increased in Q3 by around 18 percent over the previous quarter, although it remains at low levels since 2019. Gas prices stayed in line with the previous quarter, stable around the average level of 2021. Turning to page 14, the cash flow results. On the EBITDA to total cash flow bridge, starting with 152 million euros of adjusted EBITDA on the left and working to the right. Working capital consumption was up by about 37 million euros, in line with previous quarters, primarily driven by the usual first quarter seasonality and timing impact without cash consumption in the third quarter. We expect to recover most of the working capital outflow in Q4, as we have done in previous years. Taxes received in the nine-month period came in at 4 million euros as a result of our final tax assessment of previous years, resulting in an operating cash flow of 118 million euros, up 39% compared to last year. CapEx-wise, in the first nine months of the year, we have invested 42 million euros in maintenance CapEx, 23 million euros in growth CapEx, mainly related to the refurbishing of the Palmerton plant in Pennsylvania, and 40 million in the 50% stake acquisition in Resitec. In summary, overall total capex have been 105 million euros for the first nine months of the year. For the full year, we expect to invest a total capex of around 120, of which 45 million would be maintenance and 75 for growth, including Resitec. Interest paid increased by 41% to 29 million euros in the nine-month period, mainly driven by the year-on-year higher EU reward, from 2.3 in 2023 to 4% applicable in 2024. Finally, a total dividend of 29 million euros, equivalent to 73 cents per share, was paid to shareholders in the third quarter. After funding working capital, interest, taxes, CAPEX, and acquisition of Recitec and dividends, total cash flow in the first nine months amounted to minus 21 million euros. Cash on hand stood at 86 million euros, which together with the 100 million euros and drawn revolving credit line provides Befesa with 186 million euros of liquidity. Gross debt at the end of the third quarter decreased to 785 748 million euros compared to the end of the second quarter. Net debt at Q3 closing stood at 662 million euros compared to the previous quarter. LTN EBITDA increased to 197 million euros at the end of the third quarter, resulting in a net leverage of 3.36 at the end of the third quarter. Turning to page 15, debt destruction leverage. 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 the FESA, with a strong focus on capital allocation discipline and leverage management. We clearly have the target to reduce the leverage ratio from the current 3.4 to around 2 to 2.5 times. At the end of this year, we expect leverage to be around 3 times. To do so, we will focus the growth capex on these projects that will deliver immediate cash flows upon completion, like Resitec and the approved projects of Palmerton and Benburg. Also, we will keep the maintenance capex around 40 to 45 million euros over the coming years. As a result, total capex going forward will not be higher than 100 million euros per year, until leverage is reduced to our target of two to two and a half times. factors here on outlook and growth.

Moving on to page 17 on outlook. As explained earlier, we expect full year 2024 adjusted the BDA to be between 210 and 215 million euros within the previous guidance range that we provided in July of 205 to 235 million, which represents a growth of 15 percent to 18 percent year-on-year. Overall, we expect Q4 to be the strongest quarter in the year, supported by a strong volume in all the geographies, despite the weak steel sector. In China, we expect to continue at a break-even with no contribution in the year. The positive contribution for the Jiangsu operations being offset by Henan operations. On the things we're finding in the U.S., as explained, the current focus is on cost reduction. Overall, we are aiming at reduction that costs around 20 million per year. We expect to see the results of the cost reduction mostly in the next year. Our secondary aluminum business continues to be impacted by the weak auto industry in Europe. Pressure on all the scrap access and weak end demand. Expecting leverage around 3.0 by 2024 year-end. Looking ahead to 2025, we feel very optimistic and expect strong double-digit EBITDA growth compared to this year. This is fundamentally based on better sink-hatching level, as Rafael explained, higher volume of steel dust recycled in the U.S. recycling plants, lower sink refining costs in the U.S., as well as overall lower average Coke prices. Moving on to page 18 on growth plan. We are adopting our business plan and capital allocation priorities to focus on reducing the financial leverage, as explained by Rafael, and invest only in the ongoing approved CapEx projects, Palmerton and Vermont. The three priorities that will drive our growth on CapEx plans are, firstly, keeping the financial leverage between 2 and 2.5 times over the investment period and the coming years. Secondly, China's expansion plan is stopped due to the current market conditions. This does not mean that we are exiting the country. However, we will not invest in the third plan in China in the coming years. Finally, the growth capex will focus on the two approved projects of Falmerton and Vermont, which are extension of two existing plants in our traditional market. Therefore, they are projects with relatively low risk from the execution market and technology points of view. Moving on to page 19 on Palmerton. The refurbishment of the Palmerton plant in Pennsylvania is moving on well. The project consists of the upgrade of the two kilns in the plan in order to improve the efficiency of the plan and expand the capacity to 220,000 tons of steel dust recycling. This will allow us to capture the growth that the North American market is going to experience in 2025 and beyond. The first phase of the project is completed as we speak with the first kiln going through hot commissioning now. The second kiln will be completed by the second half of the next year. We are finding new contracts with steel makers, customers, and so far we have secured more than 50,000 tons that will gradually come into operations along next year, 2025. Moving on to page 20 on Vermont. With regard to the expansion of the secondary aluminum production capacity in the existing plant of Vermont 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 recycled aluminum in Europe that we are seeing. Lightweight solutions are recurring, and as a result, the aluminum content in cars will increase. In summary, the growth plan is flexible, and we are adjusting and adapting it to the current circumstances, balancing leverage and CAPEX with results in better growth and financial profile over the next years.

Thank you very much. Thank you, Asir. We will now open the lines for your questions.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, 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. And we also have the first question coming from the line of Brian Butler from Stiefel. Please go ahead.

Hey, good morning. Thanks for taking my questions. The first one, let's just talk about the guidance. The midpoint came down about $7.5 million on EBITDA for 24. Can you provide some breakdown color on kind of what's behind that reduction in the midpoints?

Thank you, Brian. Well, first of all, midpoint is always a reference in between the range that we used to do. I know that many of you are taking this as a kind of fixed number, but normally it depends on many things. Well, the final minimum range that we are giving is that, well, this is affecting the last part of the year, some pressing in the aluminum business, especially China not delivering Finally, it's not a big effort, but, well, it is persisting the situation there. So many things that are affecting, and that's why we are delivering this 210 to 250. More than a midpoint, I think that this is, with the time that we have in front of us to finish the year, I think it's more accurate range that we are going to be affecting by all those things.

Okay. And then when you think about... the range kind of narrowing. Has the range on the cash flow changed as well? I mean, it was negative 40 to a positive 20, so a very wide one. Has that narrowed?

I think, Brian, when you look at the total cash flow, we should be thinking in between minus 20 to minus 10, considering that we are going to see a reversal of working capital and there is a limited amount of capex remaining for Q4. So, yes, that will be the new range.

Okay. And then the double-digit growth for 25, I mean, a big chunk of that is your improved hedging. That's probably 10% growth by itself. What are the other pieces that you know of, assuming kind of the macro environment that's in place, that kind of gets you higher? I mean, two and a half times as a leverage point would probably put you – up in the mid-teens, but maybe I'm missing something. I'm just trying to get an idea of 25 expectations.

You're right. This is still early, and the thing we have more secure is the hedging, but there are other points that we have touched during the presentation is around more tonnages and utilization rate in U.S. Despite the challenging period with the thing that the current still production is stable in the U.S., but We are delivering some new contracts with a new project that is going to start to be in place in 2025. This will give up some more, you know, profit in the next year, the U.S. utilization and the U.S. volume. And as well, the plan that we have for the reduction of the cost in the smelter is giving us as well some positive news. You know, early to say, because you know that we hope development of the treatment charges in prices and so. But at least these three points, and perhaps some still talk, and energy prices coming down because the 24 at the end has been a little bit, you know, resilient in the level they are. It's giving us the idea that we are going to have this positive outcome 2025 based on those things. But yes, we will see how the things develop from now and get more accurate range early in the first part of the 2025 year.

Okay, helpful. And then one last one. What do you need to see in China in order to restart those facilities? Do we need multiple years of kind of steel production improvement or maybe some color around what's your hurdle in order to restart that development?

Well, we have to differentiate. I mean, the two plans that we have there are basically, you know, depending on the steel production in the current circumstances where the real estate crisis and everything affecting to the normal industry situation in China. So we are monitoring the market. Of course, we are there. And as soon as we have more dust, we will run the plan at a higher rate. The other thing is the projects of growth in China. Well, we are not exiting from China. I mean, this is the idea that China in a medium term things have not fundamentally changed. More electrical furnishings, environmental pressure. But it's true that under the current circumstances, we are basically putting on hold the project unless we see a clear change in a very short term. We don't hope. I think that it's better to have for the next year on hold the Chinese project. And yes, focus on the two plans which we'll be delivering. We see 25 projects a little bit better than 24, but I think this is something that is uncertain of China is facing the big crisis that they are doing.

Great. Thank you very much for taking my questions.

Thank you. Thank you.

The next question comes from the line of Jam Escribano from Banco Santander. Please go ahead.

Hi. Good morning. So my question is regarding the guidance 2024. We see that there are around 25 million as of nine months that you are losing from the shrinkage and secondary aluminum. I wonder what would have been the guidance, like a performance guidance for 2024 excluding these two negatives? if you can elaborate on that, and maybe if you can dig deeper in order to get a little bit more assurance on how are you going to recover this, so the initiatives that you are doing in the sink and smelter, and what can you do also in secondary aluminum in order to turn around these two negatives? This would be my first question. Thank you.

Buenos dias, Jaime. Thank you very much for the question. Well, it's a good question. What could be if something different comes? It's true that probably we are living there in the normal operation because the refining and because the aluminum, you know, weak margins period in the second part of the year, starting in the summer time. So probably we are talking about And as well, you can include China. That is where we're developing Mars. But 25 to 30 million probably could be the total effort of those things that could be there. On the other hand, well, I think that part of that is, as I say, to be recovered in 2025 with the saving cost of the smelting in the U.S. And it's early to say what is going to happen with the margin in the aluminum. I mean, this is a consequence of the very, you know... specific situation that the car manufacturing industry is facing now, and we don't see that that can keep, you know, during the very long period, so probably there is going to be a recovery of the margins in next year, but again, it's early to say. So, what is on our hand is the reduction cost plan, and we are really focused on that, and once again, probably when we put the range in 2025, when we finally does, we will do I mean, meaning that, well, what happened in the Chinese recovery in steel production, margin recovery in aluminum, so that will be covered with the range that finally we put. But definitely we have to capture part of this effort by reducing the cost in the refinery.

Thank you. And my second question is regarding Palmerton. Given the new capacity, maybe you can give us some guidance on what could be the volumes in the U.S. next year or how much could be the additional EVDA contribution in 2025 of the Palmerton, let's say, first kiln that is in operation?

Sure, Jaime. I anticipate that we have already signed new contracts of around 50,000 tons for new projects that are going to come to operations in 2025. Well, this 50,000 could be, you know, it's a number of theoretical capacity, well, depending on exactly when the plants are coming into operations during the year. But it's expected to the at least third quarter or for sure in the second quarter. So this is coming and is supporting our plan about the new capacity of steel production in US and this is the 25. We see that now more to come in 26, I don't know, in the range of another 100,000 tons could be in 26 and then 27. Again, we will depend on the moment that the new project which are ongoing and obviously they are investing and they are in the final stage will come. But 25, I think a good reference would be 50,000 tons or 40,000 tons, depending on the moment. And the media contribution, probably you have your model lines and you can multiply by the media per dust, per ton of dust that you probably have there. And I don't want to give a number because if I give a number, there are going to be another question about what to see, what price and everything. But I'm sure that you have modelized it and you can you can multiply the $50,000 for that. And that should be the contribution in next year.

Okay. Thank you, José. And a final question, if I may, regarding China, which is what is the current utilization of Jiangsu? And has things improved? Or how do you see following months? And early next year, any color that you can provide would be also very useful. Thank you very much.

Thank you, Jaime. Yes, we have repeated the previous results that the idea in Jansu is 70% for this year. I think it's going to be a little bit lower. That's why the range that is coming a little bit down that the expectation of the midpoint, which is something, as I always say, that is like a reference, which is a little bit artificial. But I think it's in the range of 60%. 65% probably we will finish in Jansu. In the case of Henan, it could be in the range of 20%. How we see 25%, well, we will have the idea to be back on this level of 70%, 80%, because in a bad year like 24% we have done in this level in Jansu, if we get 70% to 80% maximum, and we will see later, as I say, in the range how we manage. In the case of Henan, we don't see more than 30% or something like that for next year later, because the situation there is, I think, is deeper now. deeper in the steelmakers in the Henan area. So, yes, it could be a good reference, 70-80 in Jensu, 30% in Henan for 2025. And for this year, 60-65 in Jensu and 20%-25 in Henan. Thank you, sir. Thank you, Jaime.

The next question comes from the line of Jorge Gonzalez from Hauk Aufhauser Investment Banking. Please go ahead.

Hello, good morning, Asir and Rafa. Thank you for taking my questions. My first one, on the last point you mentioned on Henan, can you repeat the utilization levels you mentioned for next year in Henan? I missed that.

Next year could be in the, well, as we have been saying for the 24, in the range of 30% could be a good reference because we don't see many changes in the current situation so far.

Okay, okay, I understand. So... My first question is regarding the volumes seen in Q3. And sorry, you commented about this because I connected like five minutes late to the call. So the volumes declined around 6%. Obviously, there is always some changes because of when you see the works and all of that. But I am wondering if there is some worsening in the volumes that you expect at least for Q4 and the first part of 26 in Europe. You mentioned in the slide that Europe is at five-year low. So if it's sustainable, this 90% utilization levels, that will be my first question. And in US, and also to follow up on the comments you did answering Jaime, So you are mentioning that you have new contracts for around $40,000 to $50,000 next year. And there, in the past, I think you have also mentioned that you have a target to increase utilization levels in general. So to have a better picture of what you are expecting next year, what is in your budget, should we expect any utilization improvement in general in U.S. next year, or these 70% levels are... still good for our expectations in this year. Thank you.

Thank you for the questions, Jorge. And yes, we have touched a little bit about the tonnages, but in a general way. It's true that there is normally this quarter are coincident with some standstills in the maintenance in Europe and so on, and normally are not the highest, the Q2 or Q3. But it's true that this year has been a little bit less than even past year, and the reason is very clear. We have had a strike for the union's negotiation in Turkey, which was affecting slightly the total volume in the Q3. As I said before, the strike is over. We got an agreement, and then the Q4 in the Turkish operation are going to be very strong because simply we were growing the stock there. What we see in the Q4 is in all geographies, you know, a very high utilization rate as used to be normally, including Europe, despite the fact of the steelmaker situation. What we have done in this year and probably will keep next year is to go to longer distance to countries where there are some historical stocks and doing many actions to keep the plants running at those levels. It's true that can affect. But we don't see a big issue in the next four, five, six months, even the current steelmaker situation, which, by the way, we are observing during the whole year that they are not a very high-level production. Not only now where there is more noise in the market, but the reality is they are high in a level of probably in the 70% range or so. So the European situation, I think that we still have the opportunity The idea not, I mean, it's more than idea to keep this level of 90% during 2025 and, of course, in the fall quarter. In the case of the U.S., yes, this 40%, 50% range is there because the new contracts and the real situation will depend on the risk, the remaining and the current contracts that we are running there in U.S., how we will run. But I think, yes, probably the 70% Under the current circumstances, we'll be going 75%, 80% in 2025. Probably this is the aim. And as I said before, 26% going to 85% or even 90%, depending on the circumstances. But we see what was planned in the U.S. market, perhaps with some delay, but the new projects are coming into operations and delivering more dust to the market, and we are prepared to capture, especially with the Palmer Thomas. So we see like that. I mean, growing next year, to jump into 75, 80, depending when those plants are gonna come into, and then 26, another jump to up to 90%.

Okay, I see. So we can say then that the growth for next year in US is going to be substantial, no? Because if let's say that we end this year at 310, 300,000 tons, And as you have the additional parliament on, let's say 50,000, and then you have around, I don't know, one, two, three points more of utilization. This should drive you more than 20, 30%, no? I mean, this is a correct way of thinking about it. I know that you cannot give us numbers, but you are expecting double digit, strong double digit growth in US volumes. So it's basically, let me do the question another way. It's basically the main driver for volumes this year.

Yes, Jorge, definitely yes. More or less what you are telling is what I'm saying. 40,000 to 50,000 tons is just more than 10%. And yes, the growth in this year is based on this U.S. The other geographies will depend on the steel production, but we don't see a major change in the picture, no matter up and down. So yes, the volumes growth is coming on hand from U.S. operations.

Okay, and very last one, on this 50,000 new contract, this is only with one still maker or there are more? Because I remember that you were giving in previous slides some planning for new plants in North America and there is a number of them, I don't remember, three, four, five in the next one to two years. So I'm wondering if this is only one contract and then there are others to come or how we should think about these new plants coming in in the U.S. market and how that is going to also help you to increase the utilization levels apart from the economic recovery?

Yes, as I say, Jorge, the idea is that there are more than one steelmaker delivering the new plants. Obviously, all the projects which are there are not going to be for us. There are other players in the U.S. But again, as I say, we see this 40,000, 50,000 tons this year, and we see another 100,000 tons probably in 2026 for all those projects. But as I say, they are not one. They are more. But again, if you get all the projects that the U.S. and you navigate and you see how much they are, all of them are not for the FESA, obviously. There is a reorganization of the market that we see like that, 50,000, 20,000, 25,000. And now in 2026, it's early to say, but in the range of 100,000 could be. Okay, thank you very much. I go back to the line. Thanks, Jorge.

The next question comes from the line of Christoph Biefert from BNP Paribas Exchange. Please go ahead.

Good morning, and thank you for taking my questions. The first one is on the U.S. refining business. What could be a good estimate for EBITDA contribution for 2024, please?

A good contribution is in the range between 15 to 20 million lost this year. depending on how the year is going to come.

Okay. And on the cost savings, could you remind us on the cost savings you are currently implementing and whether this will be sufficient in order to reach break-even in 2025, even though the overall picture for things melting is not improving next year?

Definitely, we are more or less targeting in the range of 20 million. So initially, the idea is to get break-even if or depending the TC evolution or depending even the premiums there, but for the part of the cost will be in this range. So yes, I mean, the target there is to control what we can control and later we will see what is the TC evolution, but by the way, could affect negatively to the smelter, but positively to the refining business. So at the end of the day, it is certainly to say what is gonna be the contribution of next year But what is clear is that the target of reduction cost, and we are working on that, is in the range of 20 million for next year.

Okay, and then coming back on the EBITDA contribution, is it a fair assumption that Q1 has been a relatively decent quarter and the big pain started in Q2 and continued in Q3?

I think it's throughout the year. I mean, it's like you can split around the nine months. I mean, that can be, you know, some specific part of the things at the beginning of the year, but it's a normal contribution and the current cost, you know, structure that we have there, and it's starting to change now at the end of the year, but hopefully in the 25 we get the target.

Okay, and the last question is, related to the Bernburg expansion. What is the strategic rationale for allocating more capital to the aluminum business despite sluggish EV business on the automotive side?

Well, basically it's a matter of a contract with one of the main customers. It's a tooling basis one and it's providing more tonnages to solve the slack. So at the end, this cyclicity, well, now it's no good. But when Bermuda plant is going to be finished, I mean, probably the situation will be different. You get the average. It's not a bad situation. And once again, the aim of the secondary aluminum is more to have a very big part of our raw material to feed to the salt and slag business, and this is what it is. But it's based on a commercial very low risk because it's a an increase of a current contract with a very big guy in the aluminum business. So this is the rationale.

Thanks a lot.

Thank you, Christophe. Next question comes from line of Shashi Shekhar from Citi.

Please go ahead. Hi, good morning, everyone. And thank you very much for this opportunity. So I have a couple of questions. My first question is on the capacity utilization at the steel dust business. It was low in the third quarter. So has the utilization levels recovered in the fourth quarter? And my second question is on Chinese operations. How much cash these operations are currently burning? That's it.

Thank you, Shashi. The first one, definitely, as I say, the Q3 normally is coming in the same range of Q2 because the maintenance is stopping this particular situation in these years with Turkey. And this is the reason why it's a little bit lower. But normally, and this year, it's not going to be different. The Q4 is the strongest of the year. And we do hope this. Second question, sorry. What's cash flow or the cash indication about what, sorry?

I'm sorry. I just wanted to understand how much cash Chinese operations are burning currently.

Well, basically, they are not burning because the operating from Jansu are offsetting by the no operation of Henan and we are doing break even in terms of results and cash as well.

Oh yes, it's cash. Thank you very much.

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 reach the investor relations team of EFESA for any part of the clarification. We will now conclude the conference call and the Q&A. Let me remind you that you can find the webcast and the dial-in details to access the recording of this conference on our website, www.befesa.com. Thank you very much.