Investor Presentation • Jun 10, 2019
Investor Presentation
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Befesa Presentation Stifel Cross Sector Insight Conference Boston, 10 - 12 June 2019
This presentation contains forward-looking statements and information relating to Befesa and its affiliates that are based on the beliefs of its management, including assumptions, opinions and views of Befesa and its affiliates as well as information cited from third party sources. Such statements reflect the current views of Befesa and its affiliates or of such third parties with respect to future events and are subject to risks, uncertainties and assumptions.
Many factors could cause the actual results, performance or achievements of Befesa and its affiliates to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others: changes in general economic, political, governmental and business conditions globally and in the countries in which Befesa and its affiliates do business; changes in interest rates; changes in inflation rates; changes in prices; changes to national and international laws and policies that support industrial waste recycling; legal challenges to regulations, subsidies and incentives that support industrial waste recycling; extensive governmental regulation in a number of different jurisdictions, including stringent environmental regulation; management of exposure to credit, interest rate, exchange rate and commodity price risks; acquisitions or investments in joint ventures with third parties; inability to obtain new sites and expand existing ones; failure to maintain safe work environments; effects of catastrophes, natural disasters, adverse weather conditions, unexpected geological or other physical conditions, or criminal or terrorist acts at one or more of our plants; insufficient insurance coverage and increases in insurance cost; loss of senior management and key personnel; unauthorized use of Befesa's intellectual property and claims of infringement by Befesa of others' intellectual property; Befesa's ability to generate cash to service its indebtedness changes in business strategy and various other factors. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or targeted.
Befesa and its affiliates do not assume any guarantee that the assumptions underlying forward-looking statements are free of errors nor do they accept any responsibility for the future accuracy of the opinions expressed herein or the actual occurrence of the forecasted developments. No representation (express or implied) is made as to, and no reliance should be placed on, any information, including projections, estimates, targets and opinions, contained herein, and no liability whatsoever is accepted as to any errors, omissions or misstatements contained herein or otherwise resulting, directly or indirectly, from the use of this document.
This presentation is intended for information only and should not be treated as investment advice. It is not intended as an offer for sale, or as a solicitation of an offer to purchase or subscribe to, any securities in any jurisdiction. Neither this presentation nor anything contained therein shall form the basis of, or be relied upon in connection with, any commitment or contract whatsoever. This presentation may not, at any time, be reproduced, distributed or published (in whole or in part) without prior written consent of Befesa.
First quarter 2019 figures contained in this presentation have not been audited or reviewed by external auditors.
This presentation includes Alternative Performance Measures (APMs), including EBITDA, EBITDA margin, EBIT, EBIT margin, net debt and capital expenditures which are not measures of liquidity or financial performance under International Financial Reporting Standards (IFRS). EBITDA is defined as operating profit for the period (i.e. EBIT) before the impact of amortisation, depreciation, impairment and provisions. EBITDA margin is defined as EBITDA divided by revenue. EBIT is defined as Operating profit for the year. The Company uses EBIT to monitor its financial return after both operating expenses and a charge representing the cost of usage of both its property, plant and equipment and definite-life intangible assets. EBIT margin is defined as EBIT as a percentage of revenue. These non-IFRS measures should not be considered in isolation or as an alternative to results from operating activities, cash flow from operating, investing or financing activities, or other financial measures of Befesa's results of operations or liquidity derived in accordance with IFRS. Befesa believes that the APMs included in this report are useful measures of its performance and liquidity. Other companies, including those in the industry in which Befesa operates, may calculate similarly titled financial measures differently than Befesa does. Because all companies do not calculate these financial measures in the same manner, Befesa's presentation of such financial measures may not be comparable to other similarly titled measures of other companies. These APMs are not audited.
Rafael Pérez
Director of Investor Relations & Strategy
▪ Director of Investor Relations and Strategy of Befesa since 2008
FY 2019 targeting EBITDA growth of +3% to +5% / €182 to €185m; considering reference Treatment Charge (TC) of up to \$245/t & ~\$2,850/t avg. ´19 LME zinc price
Expecting stronger H2´19 vs. H1´19 mainly due to Turkey back in operations with increased capacity Q3 onwards and continued Stainless recovery
Q1 volumes in core segments as expected: Steel Dust throughput at 169kt (-10% YoY) due to downtime to increase Turkey capacity; Salt Slags ~flat (-1% YoY)
Q1 EBITDA at €43m (-3% YoY); As anticipated impacted by
- Lower volume in Turkey & unfavourable reference TC;
+Partially offset by: Better zinc hedges, recovered Stainless operations & upgraded high efficiency furnaces in 2nd Aluminium delivering results
Profitability continues at solid 24% EBITDA margin; Leverage at x2.2
Execution of organic growth projects on track: Turkish plant six-month shutdown to increase capacity started January '19; Korea washing plant progresses as planned
China - Plant #1 (Jiangsu): Broke ground April '19; Ramp-up planned H2'20; Plant #2 (Henan): Signed agreement; Breaking ground Q4'19; Ramp-up H1'21
Free float increased to 100% after Triton placed remaining 19% shares on 06 June '19
| Total Cash Flow | +€4 | €155 cash & x2.2 leverage |
|---|---|---|
| CapEx & other investing activities |
€-13 | Regular annual maintenance spend; Growth focus: Turkey upgrade, Korea washing plant, China expansion |
| Interest & other | €-8 | |
| Taxes | €-5 | Nominal 25% vs. cash tax rate <20% |
| WC change & other |
€-13 | Loading of sales within quarters Q4/Q1 |
| EBITDA | €43 | |
| (€m) |
(1) From 1 January 2019, implemented IFRS 16 amendment affecting accounting for renting and leasing results in €14 million higher debt or ~0.1 higher leverage compared to year-end 2018 (2) Operating cash flow per audited consolidated statement of cash flows; after WC, taxes & interests; pre capex & dividend; Last Twelve Month (LTM) Q1'19 operating cash flow is unaudited (3) Mainly €15m less factoring & confirming YoY; €9 less payables due to hedges moved "in the money"; €6 IPO one time cost
Hedging up to Jul. ´21 improves earnings & cash flows visibility for next 2.5 years
* Assumes reference TC of \$245/t with escalators between \$2,700 to \$3,000/t LME zinc – mid-point \$2,850/t – similar to April price level. \$2,850/t at FX USD/EUR 1.13 equal to €2,522/t.
Targeting EBITDA growth of +3% to +5% / €182 to €185m; Mainly based on:
+ Hedged ~€2,325 vs. €2,051 in ´18; Unhedged at current ~LME €2,522/\$2,850 levels
Expecting continued high utilization levels in both core segments; Steel Dust >90% and Salt Slags >95%. Volume overall stable YoY.
Expecting stronger H2´19 vs. H1´19 mainly due to Turkey back in operations with increased capacity Q3 onwards and continued Stainless recovery
With ~70% of zinc output hedged the earnings variation for the remaining 3 quarters is limited to +/- €3m for each +/- €100/t LME Zinc price variation vs. €2,522 avg. ´19
Total CapEx expected at ~€85m: ~€60m to fund top growth projects – Steel Dust: Turkey, Korea and China & Aluminium Salt Slags: Final furnace upgrade; ~€25m for maintenance / others, similar to 2018
Maintaining dividend policy of distributing 40 to 50% of net profit
Current operating cash flow run rate funds CapEx and dividend; Expecting balanced total cash flow and full year leverage similar to current levels
Accelerating growth through well defined business plan; Hedging in place and executing top 5 growth projects + China
Note: Chart is illustrative and size of respective arrows in the chart is not indicative to the underlying growth potential
2019/20 focus – top 5 projects:
• Steel Dust:
China – Plant #1: Jiangsu – Groundbreaking Ceremony
Broke ground at Changzhou plant on 10 April 2019; Starting construction for ramp-up in H2 2020
Henan is located in central China, with a population of 95 million people and a GDP of \$726 billion. Over the past two decades, Henan has developed rapidly, and is one of the most important producers of EAF steel in China.
Changge Dazhou Industrial Cluster, XuChang City. Potential to also service Hu Bei province (on the southern border of Henan province).
Q1 EBITDA as expected at €43.0m (-3.4% YoY): Impacted by lower volumes in Turkey and unfavourable reference TC; partially offset by improved hedging prices, recovered performance in Stainless and upgraded high efficiency furnaces
EAF dust throughput & capacity utilisation
(thousand tonnes, % of annual installed capacity)
▪ Throughput impacted as expected by downtime in Turkey to expand capacity from 65kt to 110kt since January ´19
| Prices (€ per tonne) |
Q1 2018 |
Q1 2019 |
% Var. |
2018 | LTM % Q1'19 Var. |
|---|---|---|---|---|---|
| Befesa blended (*) average zinc price |
2,299 | 2,373 | +3% | 2,168 | x,xxx +xx% |
| LME average price | 2,776 | 2,380 | -14% | 2,468 | 2,368 -4% |
(*) Blended rate between hedged prices and average spot prices, weighted by the respective hedged and non-hedged volumes, reflecting the effective price to Befesa
Q1 EBITDA grew to €8.9m (+9% YoY) mainly driven by furnace upgrades in ´18 showing results (2nd Aluminium) partially offset by lower aluminium alloy prices
(thousand tonnes, % of annual installed capacity)
| Prices | Q1 | Q1 | % | 2018 |
|---|---|---|---|---|
| (€ per tonne) | 2018 | 2019 | Var. | |
| Aluminium alloy average price (*) |
1,833 | 1,528 | -17% | 1,715 |
(*) Aluminium scrap and foundry ingots aluminium pressure diecasting ingot DIN226/A380 European Metal Bulletin free market duty paid delivered works
Salt Slags subsegment
Secondary Aluminium subsegment
16
Befesa a market leader in Europe & Asia in providing mission critical hazardous waste recycling services to the steel and aluminium industry
+90% EBITDA generated from two core >30% EBITDA margin operations with low capital intensity
Source: Company information, International Consulting Firm based on i.a. World Steel Association's Steel Statistical Yearbooks, WBMS, industry research, expert Interviews.
(1) Excluding internal sales; sales split is calculated on revenues including internal revenues. (2) Including stainless steel.
(3) Including recycling of Spent Pot Linings (SPL) which is a hazardous waste generated in primary aluminium production. (4) Excluding China.
Each Befesa plant usually collects waste from at least 10-15 client
Befesa is the market leader in steel dust and salt slags recycling services with a competitive advantage due to its close proximity to key clients
Steel Dust Recycling Services
Source: Company information. (1) Excluding China.
Befesa offers a crucial service taking care of highly regulated hazardous waste in the value chain of secondary steel and aluminium producers
Befesa was ultimately contracted to treat the waste properly
Befesa collects and recycles hazardous waste from steel producers and aluminium recyclers
5 Highly Resilient Business
(1) Total revenue excludes internal revenues and are comparable figures after amendment IFRS 15 affecting the revenue recognition of non-operating sales in the 2nd Aluminium subsegment; These non-operating sales have limited margin contribution; Reported revenues amounted to €611.7m in fiscal year 2016 and €724.8m in fiscal year 2017
(2) Total EBITDA and EBIT figures of 2016 and 2017 are adjusted for one-off items; Reported EBITDA amounted to €128.8m in 2016 and €153.0m in 2017;
Reported EBIT amounted to €84.3m in 2016 and €122.4m in 2017; EBITDA and EBIT margins as a % of comparable revenue
(3) Operating cash flow per audited consolidated statement of cash flows; after WC, taxes & interest; pre capex & pre dividend
Accelerating growth through well defined business plan; Hedging in place and executing top 5 growth projects + China
Note: Chart is illustrative and size of respective arrows in the chart is not indicative to the underlying growth potential
6
2019/20 focus – top 5 projects:
• Steel Dust:
Senior management team delivering results through long standing industry expertise, entrepreneurial spirit and focus on operational excellence as well as governance and compliance processes
Wolf Lehmann
CFO; including responsibilities for Operational Excellence and IT
CEO since 2000
Has run Befesa for >15 Years Became President of Abengoa's Environmental Services Division in 1994
Asier Zarraonandia Vice President Steel Dust Recycling Services
Javier Molina
CEO
>15 yrs with Befesa >25 yrs with Befesa
Has run the Steel Dust Recycling Services Business for >10 years
CFO since 2014
20+ years in finance and operational leadership roles 50/50 General Electric / Private Equity
Federico Barredo Vice President Aluminium Salt Slags Recycling Services
Has run the Aluminium Salt Slags Recycling Service Business for >15 years
Extensive experience in steel and aluminium recycling business
Strong performance results through focus on operational excellence
Building strong business foundation of ESG, compliance and health & safety processes
Successful international expansion
Track record of successful acquisitions and turnarounds (BUS, Agor, Alcasa, Hankook, Silvermet etc.)
Experience in developing greenfield projects (South Korea, Gravelines, Bernburg)
| Financial Calendar | Meet Befesa … |
|---|---|
| ✓ Wednesday, 8 May 2019: |
✓ 14 May 2019 – Midcap Partners |
| Q1 2019 Statement & Analyst Call | Paris, Annual Small & Midcap Conference |
| 21-23 May 2019 – Berenberg ✓ |
|
| Wednesday, 19 June 2019: Annual General Meeting in Luxembourg |
New York, US Conference 2019 |
| ✓ 28 May 2019 – Mainfirst |
|
| Frankfurt, SMid Cap one-on-one Forum 2019 |
|
| Thursday, 25 July 2019: | |
| H1 2019 Interim Report & Analyst Call | 5-7 June 2019 – Deutsche Bank ✓ |
| Berlin, dbAccess Conference |
|
| Thursday, 31 October 2019: | 11-13 June 2019 – Stifel |
| Q3 2019 Statement & Analyst Call | Boston, 2019 Cross Sector Insight Conference |
| 27-29 August 2019 – Commerzbank |
|
| Frankfurt, Sector Conference 2019 | |
| 10-12 September 2019 – J.P. Morgan |
|
| London, Small & Mid-Caps Conference 2019 | |
| 19-20 September 2019 – Citi London, SMID/Growth Conference 2019 |
|
| 23-25 September 2019 – Goldman Sachs & Berenberg |
|
| Munich, 8th German Corporate Conference |
|
| IR Contact | 13-14 November 2019 – Goldman Sachs |
| Rafael Pérez | London, 8th Global Natural Resources Conference |
| Director of Investor Relations & Strategy | |
| T: +49 (0) 2102 1001 340 | 2-5 December 2019 – Berenberg |
| E: [email protected] | London/Pennyhill Ascot, European Conference 2019 |
Note: Befesa's financial reports and statements are published at 7:30 am CEST
Befesa cannot rule out changes of dates and recommends checking them in the Investor Relations / Financial Calendar section of our website www.befesa.com
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