Investor Presentation • Sep 17, 2020
Investor Presentation
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Befesa Presentation Citi SMID/Growth Conference 2020 17 – 18 September 2020
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; unauthorised 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 materialise, 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.
Second quarter and first half 2020 figures contained in this presentation have not been audited or reviewed by external auditors.
This presentation includes Alternative Performance Measures (APM), 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 APM 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 APM are not audited.
| 2020 Crude Steel Production(1) | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Jan | Feb | Mar | Apr | May | Jun | Jul | Jul YTD | |||||||||
| Mt | yoy | Mt | yoy | Mt | yoy | Mt | yoy | Mt | yoy | Mt | yoy | Mt | yoy | Mt | yoy | |
| EU-28 | 12.9 | (7%) | 13.3 | (1%) | 12.1 (20%) | 9.6 | (31%) | 10.6 (26%) | 10.1 (25%) | 9.8 | (24%) | 78.4 (19%) | ||||
| Turkey | 3.0 | 17% | 2.9 | 8% | 3.1 | 4% | 2.2 | (26%) | 2.3 | (26%) | 2.8 | 4% | 3.1 | 7% | 7.1 | (2%) |
| South Korea | 5.7 | (8%) | 5.4 | 3% | 5.8 | (8%) | 5.1 | (15%) | 5.4 | (14%) | 5.1 | (14%) | 5.5 | (8%) | 15.5 (10%) | |
| (3) Served market |
21.7 | (5%) | 21.6 | 1% | 21.0 (14%) | 16.9 (26%) | 18.2 (23%) | 18.0 (18%) | 18.5 (16%) | 101.0 (15%) | ||||||
| China | 79.9 | 1% | 74.8 | 5% | 79.0 | (2%) | 85.0 | 0% | 92.3 | 4% | 91.6 | 4% | 93.4 | 9% | 269.0 | 3% |
| World | 151.3 (0%) | 144.3 | 3% | 147.6 (6%) | 137.0 (13%) 148.8 (9%) | 148.7 (7%) | 152.7 (3%) | 434.4 (5%) |
▪ Europe: Q1 at -10% yoy; Q2 at -28% yoy; July YTD -19% yoy impacted by COVID-19 For 2020 to be down 30% (08/09 crisis) requires remaining August to December down severely by -47% yoy
(3) "Served market" is a subtotal of EU-28 + Turkey + South Korea as a proxy of the served market.
5 (2) Total EBITDA is the sum of Steel Dust & Aluminium Salt Slags segments proforma (PF) comparable to Befesa structure in ´19/´20; Thus, it excludes divested IES, EPC and Concessions businesses
| Lower-end: €100m EBITDA | Upper-end: €135m EBITDA | |||||
|---|---|---|---|---|---|---|
| EU crude steel market -&- COVID-19 |
▪ After -10% in Q1; Q2 to Q4 each severely down -37% yoy; Annually down ~30% yoy (like 2009 crisis) EU-28 volume No recovery; Prolonged lockdowns ▪ |
▪ Q2 materially down yoy ▪ Lockdown easing by end Q2 and no 2nd ▪ Q3 & Q4 recovering pandemic wave causing further lockdowns in H2 |
||||
| Operational performance |
▪ Overall capacity utilisation at ~80% |
▪ Limited impact on volume Overall capacity utilisation at ~90% ▪ |
||||
| Metal prices | Q2 to Q4 at ~ Q1 low €1,650-€1,700/t ▪ TC at \$300/t ▪ Combined price impact (LME & TC) -39% yoy ▪ |
H2 recovering to €1,750/t to €1,850/t; ▪ TC at \$300/t ▪ Combined price impact (LME & TC) -30% yoy ▪ |
||||
| FY 2020 EBITDA | FY 2020 EBITDA: €100m (-€60m / -38% yoy) ▪ Remaining quarters ~reduced €22m run-rate ▪ Q2+Q3+Q4 at €66m (-44% yoy vs. €117m '19) ▪ |
FY 2020 EBITDA: €135m (-€25m / -16% yoy) ▪ Assuming Q2 lowest quarter in 2020 and ▪ run-rate recovery in H2 ▪ Q2+Q3+Q4 at €101m (-14% yoy) |
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| Capex | ▪ Reducing discretionary cost & non-vital capex ~€20m to protect core growth roadmap; ▪ Total capex of ~€70m: ~€50m growth (China); ~€20m regular maintenance; |
|||||
| Pre-dividend cash flow & cash |
Approx. +/- €5m ▪ ▪ Cash position ~€120m |
Approx. +€25 to €35m ▪ ▪ Cash position ~€150m |
||||
| Dividend | ✓ Ordinary dividend of €15m or €0.44/share ▪ Review an additional dividend in November flow Q3 2020 YTD and the improved visibility about the impact from COVID-19 Conservatively balancing dividend stability and cash flow → |
distributed in July (post Q3 earnings release) depending on earnings & cash |
Even at lower-end €100m EBITDA (prolonged COVID-19 lockdowns), operational continuity assured incl. funding China … Considering an additional dividend in November on top of the €15m (€0.44/per share) ordinary dividend paid in July
… 2019: ✓ Completed Turkey, Korea washing, Alu furnace upgrades; On time & budget → Focus 2020: Building two EAF steel dust recycling plants in China
| Q2 2019 | Q2 2020 | H1 2019 | H1 2020 | |
|---|---|---|---|---|
| Unhedged | 22% or 7kt | ~30% or 9kt | 23% or 14kt | ~35% or 25kt |
| @ €2,308/t LME | @ €1,780/t LME | @ €2,408/t LME | @ €1,855/t LME | |
| Hedged | 78% or 23kt | ~70% or 23kt | 77% or 46kt | ~65% or 46kt |
| @ €2,315/t | @ €2,225/t | @ €2,320/t | @ €2,235/t | |
| hedge price | hedge price | hedge price | hedge price | |
| Blended(1) | €2,277 | €1,991 | €2,326 | €2,064 |
Source: worldsteel; Company data
(1) Assuming 15kg to 20kg EAF dust generated per tonne of EAF crude steel output (2) Europe defined as EU-28 (3) Rest of World incl. Turkey, Korea as well as servicing South East Asia and China
Aerial view of Changzhou construction site, September 2020
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Aerial view of Xuchang construction site, September 2020 Foundation works, September 2020
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The Sustainability Report 2019 was published on 10 June 2020
| Financial calendar | Meet Befesa |
|---|---|
| ✓ Thursday, 30 April 2020: Q1 2020 Statement & Analyst Call |
12 May 2020 – MainFirst ✓ Frankfurt, 3rd MainFirst SMID CAP One-on-One Forum (virtual) |
| 13-14 May 2020 – Commerzbank ✓ New York & Boston, Northern European Conf. 2020 (virtual) |
|
| ✓ Thursday, 18 June 2020: Annual General Meeting |
18 May 2020 – Berenberg ✓ Tarrytown (New York), Berenberg USA Conf. 2020 (virtual) |
| ✓ 08-10 June 2020 – Stifel Boston, 3rd Stifel Cross Sector Insights Conference (virtual) |
|
| ✓ Friday, 31 July 2020: |
✓ 01-03 September 2020 – Commerzbank Frankfurt, Commerzbank Corporate Conference |
| H1 2020 Interim Report & Analyst Call | 15-16 September 2020 – Berenberg Berenberg 'Virtual Circular Economy' |
| 17-18 September 2020 – Citi London, SMID/Growth Conference 2020 |
|
| Thursday, 29 October 2020: Q3 2020 Statement & Analyst Call |
21-23 September 2020 – Goldman Sachs & Berenberg Munich, 9th German Corporate Conference |
| 21-25 September 2020 – Baader Munich, Baader Investment Conference 2020 |
|
| IR contact Rafael Pérez Director of Investor Relations & Strategy |
11-12 November 2020 – Goldman Sachs London, Global Natural Resources Conference 2020 |
| Phone: +49 (0) 2102 1001 340 email: [email protected] |
30 November – 03 December 2020 – Berenberg Pennyhill, London, Berenberg European Conference 2020 |
| 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 Befesa's website www.befesa.com
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| Operational performance driven by resilient plant utilisation around 80% in both core businesses; Managing impact from COVID-19 |
▪ EAF dust throughput 156kt (+5% yoy) driven by Turkey ▪ Salt slags & SPL recycled 106kt (-15% yoy) due to COVID-19 pandemic lowering demand from automotive sector and production rates |
|---|---|
| COVID-19 depressed metal prices main driver of Q2 earnings decrease: - Zinc LME Q2 €1,780; -28% yoy, including TC at \$300/t vs \$245/t '19 combined -37%(1) yoy price impact - Alu Alloy FMB Q2 €1,282; -8% yoy |
EBITDA at €22m (-41% / €-15m yoy) mainly driven by: ▪ (-) Unfavourable metal prices: Zinc LME at €1,780/t (-28% yoy) Zinc TC settled at \$300/t (vs. \$245/t in 2019) Alu alloy FMB at €1,282/t (-8% yoy) (-) Zinc hedges: €2,225/t in Q2'20 (vs. €2,315/t in Q2'19) (-) Aluminium Salt Slags volumes (combined -19% yoy) Partially offset by: (+) EAF dust throughput up +5% yoy (Turkey expansion) |
| Continued strong liquidity of ~€185m; Cash at €107m + €75m RCF |
Continued high ~€185m unused liquidity; Solid cash ▪ at €107m and €75m RCF undrawn; Leverage at x3.1 Operating cash flow at €65m LTM Q2 ▪ |
| China construction on schedule at both sites, Jiangsu & Henan |
Jiangsu: Construction progressing on schedule; ➢ Completion expected begin'21 ➢ Henan: Construction works started mid-May; Completion expected by middle of 2021 |
(1) In 2020, the \$300 TC per tonne of WOX, divided by ~68% zinc content in WOX and divided by 85% zinc payable after 15% free-metal deduction, is equivalent to ~\$519 per tonne of zinc payable; Similarly, in 2019, the \$245 TC per tonne of WOX is equivalent to ~\$424 per tonne of zinc payable.
H1 EBITDA as expected at €55m (-31% yoy) impacted by lower metal prices; Partially offset by higher EAF dust throughput (Turkey expansion)
(+) Higher EAF dust throughput (~€2)
▪ Net income one-time affected by the UK salt slags plant impairment review mostly offset by positive effect from successful debt repricing; Net a minor €-0.7m impact
(+) Higher EAF dust throughput (~€+2)
Throughput up +5% Q2 / +7% H1 yoy (Turkey expansion) Partially accelerated annual shutdowns into H1
| (€ per tonne) | Q2 2019 |
Q2 2020 |
% Var. |
H1 2019 |
H1 2020 |
% Var. |
|---|---|---|---|---|---|---|
| Befesa blended(2) average zinc price |
2,277 | 1,991 | -13% | 2,326 | 2,064 | -11% |
| LME average price | 2,459 | 1,780 | -28% | 2,420 | 1,855 | -23% |
Note: Including the unfavourable TC impact, the combined price effect amounted to -37% in Q2 and -32% in H1
Q2 EBITDA at €4m (€-6m yoy) driven by the lowest aluminium alloy prices in last 10 years and reduced demand due to COVID-19 (automotive sector)
(1) Total revenue is after intersegment eliminations (€6.8m in Q2'20; €8.7m in Q2'19; €15.3m in H1'20; €18.7m in H1'19)
(2) EBITDA margins refer to the Salt Slags subsegment
(3) Aluminium scrap and foundry ingots aluminium pressure diecasting ingot DIN226/A380 European Metal Bulletin free market duty paid delivered works
Continued strong ~€185m liquidity (Cash €107m; €75 RCF undrawn); Long-term capital structure: No maturities to July ´26; 2% interest; No covenant; Managing cash & cost rigorously; Funding China expansion
| Total Cash Flow | €-19 | → €107m cash on hand |
|---|---|---|
| Dividends | - | Note: €15 distributed in July |
| Capex & other investing activities |
€-31 | €11 Maintenance/productivity/compliance €20 Growth: mainly China expansion |
| Interest & other(2) | €-9 | |
| Taxes | €-10 | |
| WC change | €-24 | Mainly AR w/ less fact. & conf.; Lower AP |
| EBITDA | €55 | €-25m / -31% yoy |
(1) Gross debt at Q2'20 includes €13.8m under current financial indebtedness, primarily explained by the accrued bi-annual interests, leasing (under IFRS 16) and others
(2) "Other" includes cash bank inflows/outflows from bank borrowings and other liabilities, as well as the effect of foreign exchange rate changes on cash
(3) Total operating cash flow per audited consolidated statement of cash flows; after WC, taxes & interest; pre capex & dividend; 2020 figures are unaudited
Befesa a market leader in Europe & Asia in providing regulated critical hazardous waste recycling services to the steel and aluminium industries
+90% EBITDA generated from two core segments; ~25-35% EBITDA margin operations with low capital intensity
| Steel Dust Recycling Services(3) | Aluminium Salt Slags Recycling Services | ||||
|---|---|---|---|---|---|
| #1 | Position in Europe (c. 45–50% market share) and Asia(2) |
#1 | Position in Europe in Salt Slags subsegment (c. 45–50% market share) |
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| 31% | EBITDA margin (LTM Q2 2020)(3) | 23% | EBITDA margin in Salt Slags subsegment (LTM Q2 2020) (4) |
||
| Relationships >15yrs |
Relationships >15yrs |
Source: Company information, International Consulting Firm based on World Steel Association's Steel Statistical Yearbooks, WBMS, industry research, expert Interviews.
(1) Excluding internal revenues; sales split is calculated on revenues including internal revenues. (2) Excluding China.
(3) Including stainless steel. (4) Including recycling of SPL (a hazardous waste generated in primary aluminium production).
(2) Free-float at 100% after Triton's exit on 06 June 2019
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
(1) Excluding China.
Befesa is the leading environmental services partner of the 2nd steel & alu industry providing sustainable solutions for highly regulated hazardous waste …
(1) Incl. 22kt of Spent Pot Linings (SPL), a hazardous waste generated in the production process of primary aluminium; (2) Not incl. 2 China plants currently under construction; (3) Total revenue is after intersegment eliminations (€34.4m FY'19)
(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 sub-segment; 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) EBITDA and EBIT margins as a % of comparable revenue; EBITDA and EBIT in fiscal years 2016 and 2017 are adjusted from one-off extraordinary items; Reported EBITDA amounted in €128.8m in fiscal year 2016 and €153.0m in fiscal year 2017; Reported EBIT amounted to €84.3m in fiscal year 2016 and €122.4m in fiscal year 2017
(3) Operating cash flow per audited consolidated statement of cash flows; after WC, taxes & interest; pre capex & pre dividend; LTM 2020 figures are preliminary and unaudited
… 2019: ✓ Completed Turkey, Korea washing, Alu furnace upgrades; On time & budget → Focus 2020: Building two EAF steel dust recycling plants in China
Senior management team delivering results through long standing industry expertise, entrepreneurial spirit and focus on operational excellence as well as governance and compliance processes
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
Wolf Lehmann CFO; including responsibilities for Operational Excellence and IT
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)
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