Investor Presentation • Feb 5, 2020
Investor Presentation
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Befesa Presentation XXVI Santander Iberian Conference Madrid, 5 – 6 February 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; 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.
Third quarter and first nine-month period 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.
| Operational performance as expected, with Turkey back in production in Aug |
Steel Dust throughput 489kt (-9% YoY): Turkey upgrade • Salt Slags ~flat at 366kt in 9M (-3% YoY) • • Core businesses normalised at high >90% utilisation • Aluminium alloys at 133kt in 9M (+5% YoY): Furnace upgrade in 2018 delivering |
|---|---|
| Financial performance impacted by unfavourable metal prices: Treatment charges (TC); LME Zinc -&- Aluminium Alloy FMB |
9M EBITDA at €117.1m (-9% / €-11.8m YoY) • ▼ Steel volume: Turkey upgrade (7 of 9 months down) ▼ Unfavourable market prices: \$245/t TC; €2,310/t avg. LME Zinc; €1,430/t avg. Alu alloy FMB Partially offset by: ▲ Zinc hedges (at ~€2,310/t in 2019) ▲ Stainless operations recovering 9M profitability continues at solid 24% EBITDA margin • Cash at €101m Q3; Operating Cash Flow LTM at €106m; • Leverage at x2.7 |
| Full year 2019 earnings guidance updated to reflect latest metal price environment |
FY'19 expected at around €160m EBITDA(1) -vs • initial guidance of €182-€185m; Variance mainly due to: - ~€14 zinc LME at €2,230-2,260 (2) (vs. initial €2,522/t) - ~€5 alu alloy FMB at ~€1,410/t (vs. initial €1,650/t) |
| Growth projects on track | Turkey capacity upgrade: Completed in August ✓ 2 nd Alu Barcelona furnace upgrade completed in 4Q ✓ ✓ Korea washing plant completed in 4Q ➢ Progressing in China: Jiangsu in construction -&- Henan broke ground mid-Nov |
(1) Assumes Q4'19 similar to Q3'19 prices: LME Zinc at around ~€2,100 to €2,200; Alu Alloy FMB at ~€1,350
(2) 2019 "Oct View" assumes LME Zinc prices at around €2,230/t to €2,260 (9M'19 monthly actuals weighted: ~€2,270/t; 4Q'19 LME similar to Q3'19)
Note: EBITDA sensitivities remain unchanged to the ones provided in Q1 Earnings Release: +/-€4.5m / €2.0m EBITDA per each +/-€100/tonne price in Zinc / Alu Alloy
Q3 EBITDA at €37.0m (€-3.0m / -7.5% YoY): Lower volume due to Turkey upgrade; Unfavourable TC & market prices; Partially offset by higher hedges, recovering Stainless operations and ´18 Aluminium furnace upgrade delivering
EAF dust throughput & capacity utilisation
(thousand tonnes, % of annual installed capacity)
(i) Utilisation rates in 2019 are normalised for the capacity upgrade in Turkey, from 65kt to 110kt (plant was shutdown seven months, from end of January to mid August)
| Prices (€ per tonne) |
Q3 2018 |
Q3 2019 |
% Var. |
9M 2018 |
9M 2019 |
% Var. |
|---|---|---|---|---|---|---|
| Befesa blended (ii) avg. zinc price |
2,006 | 2,203 | +10% | 2,168 | 2,282 | +5% |
| LME average price | 2,182 | 2,112 | -3% | 2,523 | 2,313 | -8% |
(ii) Blended rate between hedged prices and average spot prices, weighted by the respective hedged and non-hedged volumes, reflecting the effective price to Befesa. Note: LME 9M volume weighted 2019 ~€2,270/t; lower vs. €2,313 simple calendar avg.
Q3 EBITDA at €6.1m (€-1.9m YoY) mainly driven by lower aluminium alloy prices; Plant utilisation >90% normalised for furnace upgrades
alloy market prices (€1,356/t vs. €1,689/t)
(1) Total revenue after intersegment eliminations (2) EBITDA margins refer to the Salt Slags subsegment Salt Slags subsegment Secondary Aluminium subsegment
(i) Utilisation rates in 2019 are normalised for the furnace upgrade in Barcelona (plant was shutdown three months, from 2nd week of Aug to 2nd week of Nov)
(ii) In 2018, they are normalised for the furnace upgrade in Bilbao (plant was shutdown three months, from 2nd week of Jun to 3rd week of Sep)
| Prices | Q3 | Q3 | % | 9M | 9M | % |
|---|---|---|---|---|---|---|
| (€ per tonne) | 2018 | 2019 | Var. | 2018 | 2019 | Var. |
| Aluminium alloy average price (iii) |
1,689 | 1,356 | -20% | 1,783 | 1,426 | -20% |
(iii) Aluminium scrap and foundry ingots aluminium pressure diecasting ingot DIN226/A380 European Metal Bulletin free market duty paid delivered works
| (€m) | ||
|---|---|---|
| EBITDA | €117 | |
| WC change & other |
€-34 | Temporary receivables/payables impact from seasonality & plant upgrades; Expecting better Q4 like in 2018 |
| Taxes | €-17 | |
| Interest & other(2) | €-19 | Incl. Interest for full year (Jan & July) |
| CapEx & other investing activities |
€-51 | Funding Turkey, China, Korea washing plant, Tilting furnaces growth |
| Dividend | €-45 | Paid on 3 July; Equals to 1.32 per share |
| Total Cash Flow | €-50 | €101m cash & x2.7 leverage → |
(1) From 1 January 2019, implemented IFRS 16 amendment affecting accounting for renting and leasing results in €15.3 million higher debt or ~0.1 higher leverage compared to year-end 2018 (2) "Other" includes Cash bank inflows/outflows from bank borrowings and other liabilities, and Effect of foreign exchange rate changes on cash
(3) Operating cash flow per audited consolidated statement of cash flows; after WC, taxes & interests; pre capex & dividend; Last Twelve Month (LTM) Q3 2019 operating cash flow is unaudited
Hedging up to Oct ´21 improves earnings & cash flows visibility for next ~2 yrs
| 2018 | 2019 | 2019 | |
|---|---|---|---|
| Actuals | "Apr View" | "Oct View" | |
| Unhedged | 32% or 44kt @ | ~32% or ~44kt @ | ~32% or ~44kt @ |
| €2,468 / \$2,925 LME | ~€2,522*/\$2,850 LME | ~€2,230-2260** LME | |
| Hedged | 68% or 92kt | ~68% or~92kt | ~68% or~92kt |
| @ €2,051 | @ ~€2,310 | @ ~€2,310 | |
| hedge price | hedge price | hedge price | |
| Blended | €2,168 | ~€2,378 | ~€2,285 to €2,300 |
* 2019 "Apr View" assumed 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 \$/€ 1.13 equals to ~€2,522/t
** 2019 "Oct View" assumes LME Zinc prices at ~€2,230 to €2260/t (9M'19 monthly actuals weighted: ~€2,270/t; 4Q'19 LME similar to Q3'19 at ~€2,100 to €2200/t).
| Expecting higher volumes in Q4 in both core businesses with utilisation rates at >90% on average, in line with guidance assumptions |
• Steel dust higher throughput mainly due to Turkey back online • Aluminium Salt Slags higher volumes mainly driven by upgraded higher efficiency furnace in Barcelona ramping up mid-November |
|---|---|
| Market price environment continues at lower levels; Unfavorable vs. initial full year 2019 guidance |
LME zinc average prices expected at ~€2,230-2,260/t(1) • for full year (up to ~€300/t below initial ~€2,522) alloy FMB average prices expected at ~€1,410/t(1) Alu • for full year (~€240/t below initial ~€1,650) |
| Earnings sensitivities to metal price variances remain unchanged |
• Steel Dust Services: - Remaining EBITDA price exposure after hedges is ~€-4.5m FY for each €-100/t LME zinc price variance - On Treatment Charge (TC), every +/-€10/t TC varies ~+/-€2.5m EBITDA for the year • Aluminium Salt Slags Services: - EBITDA price exposure is ~€-2m full year for every €-100/t FMB variance |
| Full year 2019 earnings guidance updated to reflect latest metal price environment |
• FY 2019 expected at around €160m EBITDA vs. initial guidance: €182-€185m; Variance mainly due to: ~ €14m Zinc LME ~ €5m Alu alloy FMB |
| Growth projects on track | ✓ Turkey completed: On budget and time nd ✓ 2 Alu Barcelona completed in Nov Korea washing plant completed in Dec ✓ Building first two plants in China ➢ |
(1) Assumes Q4'19 similar to Q3'19 prices: LME Zinc average prices at ~€2,100 to €2,200/t; Alu Alloy FMB average prices at around ~€1,350/t
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
Iskenderun, Turkey – Steel dust recycling annual capacity expanded from 65kt to 110kt
View of the plant View of the plant and the Waelz kiln
Pohang, South Korea – Status of construction of WOX Washing plant
Thickener tank Outside plant view
2
Barcelona, Spain – Refurbished 2nd Aluminium plant with high efficiency furnaces
Tilting furnace – Pouring Ingots Salt slags handling Cooling Equipment
Piling works – Plant buildings
Foundation works 15
Ground breaking ceremony, 13 Nov 2019
CEO Javier Molina – at opening ceremony
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.
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 offers a crucial service taking care of highly regulated hazardous waste in the value chain of secondary steel and aluminium producers
Befesa therefore offers a critical element of its clients value chain
Major European steel producer struggles with large plant (producing 8% of European steel) due to breaching environmental regulations (contamination of environment)
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
6
Note: Chart is illustrative and size of respective arrows in the chart is not indicative to the underlying growth potential
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)
Befesa agrees with all 17 United Nations Sustainable Development Goals and supports all of them. Based on Befesa's business model it focuses to the contribution and impact on the following five goals:
In progress:
Thursday, 30 April 2020: Q1 2020 Statement & Analyst Call
Thursday, 18 June 2020: Annual General Meeting in Luxembourg
Wednesday, 29 July 2020: H1 2020 Interim Report & Analyst Call
Thursday, 29 October 2020: Q3 2020 Statement & Analyst Call
IR Contact Rafael Pérez Director of Investor Relations & Strategy Phone: +49 (0) 2102 1001 340 email: [email protected]
| ✓ 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 |
| ✓ 08 Oct – 2019 BBVA Leveraged Finance Day (London) ✓ 13-14 November 2019 – Goldman Sachs London, 8th Global Natural Resources Conference |
| 02-05 December 2019 – Berenberg ✓ London/Pennyhill Ascot, Berenberg European Conf. 2019 |
| 09-10 January 2020 – Oddo BHF ✓ Lyon, 23rd Oddo BHF Forum |
| 20-22 January 2020 – UniCredit / Kepler Cheuvreux Frankfurt, 19. German Corporate Conference (GCC) 2020 |
| 04-05 February 2020 – HSBC Frankfurt, 15th ESG Conference 'Responsible Growth – Investments for the Future' |
| 05-06 February 2020 – Santander Madrid, XXVI Santander Iberian Conference |
| 10-12 March 2020 – Berenberg London, Berenberg European Opportunities Conference |
| 18 March 2020 – Berenberg London, Berenberg Circular Economy Conference |
| 13-14 May 2020 – Commerzbank New York & Boston, Northern European Conference 2020 |
| 18-20 May 2020 – Berenberg Tarrytown (New York), Berenberg US Conference 2020 |
| 08-10 June 2020 – Stifel Boston, 3rd Stifel Cross Sector Insights Conference |
Note: Befesa's financial reports and statements are published at 7:30 am CET
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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