Good day, and welcome to Befesa's 2022 results conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Rafael Pérez. Please go ahead, sir.
Good morning, and welcome to the first quarter 2022 results conference call of Befesa. I am Rafael Pérez, Head of Strategy and Investor Relations of Befesa. Today, as usual, we have with us Javier Molina, CEO of Befesa, and Wolf Lehmann, CFO of Befesa. Javier Molina will start with an executive summary of the first quarter, covering the main highlights of the periods. Then Wolf will review the first quarter financials in total and by business unit, as well as cash flow. Javier will close this presentation providing an update on our growth plans, as well as the details of the guidance for 2022. 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 first quarter results presentation on our website, www.befesa.com.
Now let me turn this call over to our CEO. Javier, please.
Thank you, Rafael. Good morning, everybody. The first quarter of 2022 has been another good quarter for Befesa. Despite the challenging macroeconomic environment and the volatility in the commodity price, we have delivered another record quarter supported by strong volumes and high metal prices, which have more than offset the high inflation, especially in energy prices in Europe. We are living in a very challenging macroeconomic environment. The war in Ukraine is creating great instability in the global economy. In Befesa, we don't have any direct operations, nor customers in Ukraine, nor Russia. However, we are very concerned about the development of the situation there and the long-term consequences unforeseen today. International ban on the import of Russian commodities like coal, steel, oil, and gas is also putting pressure on European commodities and alternative sources of supply are being used.
As a consequence of this, we are seeing great instability in the energy market in Europe, with prices of the electricity and natural gas achieving all-time high levels. This is also impacting the metal prices, which are reaching as well all-time high levels. Additionally, the global pandemic caused by the COVID-19, which started more than two years ago, has not completely finished, and is creating disruptions in the global supply chains across multiple industries. In China, the government is following a zero-COVID strategy, which is creating very challenging situation in the business, as shutdowns are happening frequently. This is making very difficult to develop commercial activities with new customers, as traveling around the country is heavily restricted. Also, we are starting to see some temporary decrease in the deliveries of steel dust from our customers.
We are monitoring the situation to see how it evolves over the coming weeks. These two factors, the war in Ukraine and the COVID situation in Asia, are causing great uncertainty in the global economy, and concerns about a potential slowdown of the economy are starting to appear, which could eventually affect also the industries in the value chain of Befesa, and ultimately our volume in an economic crisis scenario. In Befesa, we are facing this challenging environment positively, and overall, we are managing well all these difficulties across our businesses. Befesa today is a much more diversified business than one year ago, with a significant part of our earnings coming from market outside of Europe, mainly North America and Asia. Nevertheless, these challenges are making the management of the day-to-day business especially difficult.
In this environment, during the first quarter of 2022, we have achieved a total EBITDA of EUR 61 million, which represent an increase of 25% over the same period of last year. The main driver for this earnings growth has been a combination of a strong increase in volume combined with positive metal price development through the quarter. Volume of steel dust recycled increased by 86%, driven by the contribution of the U.S. operation and the start of the first plant in China, as well as a strong utilization in the rest of the markets where we operate, reaching nearly 90% of load factor. In the case of aluminum salt slag, the volume has decreased 16%, driven by pressure on the automotive industry in Europe.
Average zinc price in the first quarter of this year was about EUR 3,300 per ton, which represent an increase of more than 40%-45% compared to the previous year. Similarly, average aluminum price in the first quarter was about EUR 2,600 per ton, which is more than 30%. Regarding treatment charge for zinc, the benchmark has been settled at $230 per ton with a reference price of $3,800 and escalators, which represent an increase of 45% year-on-year. The market environment in the main industries where we operate have also seen a high level of volatility in the activity during the first quarter, driven by the challenging macroeconomic environment.
As such, the production of steel in Europe in the first quarter has decreased 4% compared to the first quarter of the previous year, while in North America it has remained almost flat, and in China has decreased 10% in the period. The automotive industry in Europe continue to experience many challenges caused by the semiconductor situation as well as the war in Ukraine, which is creating disruptions in the production of many auto components. Car registrations in Europe were down by 12% during the first quarter, with a sharp decrease of 20% in March compared to the previous year. The generation of cash in our company during the first quarter has been very strong, and this has enabled us to finish the quarter with a leverage of 2.1x .
In China, the plant in Jiangsu has been working at a good capacity utilization during the first quarter. The plant is operating well, and we have signed a contract with the steelmakers to secure the volume of raw material for this year. However, the zero-COVID strategy of the government is creating a challenging situation, and there is uncertainty about the development over the coming weeks and months, and we are starting to see a decrease in the deliveries of steel dust from customers as the transportation and logistics in the country are heavily impacted. We are monitoring the situation closely and see the solution. In Henan, we have started the commissioning and ramp up of the plant, and we expect to run commercial operations during the second half of the year.
Although we are working on contracting, or constructing the steel dust volume, again, the COVID situation is making this very challenging and may put some delay in the ramp up of the plant. On the positive side, the environmental authorities are committed to enforcing and fulfilling the environmental regulations with the steelmakers seeing recycling as a real solution. In North America, the integration into Befesa is developing well across all fronts. The team is working well with the rest of the organization, and we can confirm that we will capture the synergies that we announced of $20 million over this and next year. We have developed a detailed action plan in order to capture all the synergies on the operational area mainly, but also in the general expenses and commercial fields.
Regarding the outlook of this year, 2022, despite the uncertainty in the global economy, we expect a strong growth driven by the volume contribution from the US and China operations, supported by favorable metal price environment that will more than offset the high energy prices. Based on this, we expect full year 2022 EBITDA to be between EUR 220 million and EUR 270 million, which means between 11%-35% growth year-on-year. At the lower part of the guidance, we still expect to achieve at least double-digit growth, while the high end of the guidance will deliver a strong growth of 35%. I will provide more details on the full year guidance later in the presentation. Now, Wolf Lehmann will explain the financials in more detail.
Thank you, Javier. Please turn to page six, our first quarter 2022 consolidated financial highlights. As explained by Javier, Befesa delivered record earnings in first quarter 2022 with EUR 61.1 million EBITDA, up 25.1% or EUR 12.2 million year-over-year, versus first quarter last year at EUR 48.8 million. Overall, our growth initiatives are delivering results, and even in this volatile environment, we're able to offset inflationary pressures, mainly energy, through higher prices. Reviewing the main drivers of the year-over-year EUR 12 million EBITDA improvement in more detail. On volume, overall, approximately EUR 13 million net positive volume impact. EUR 14 million positive from the highest steel dust recycling throughput, including the positive contribution from the acquired US Zinc operations, as well as our China operations.
A EUR 1 million negative impact from lower secondary aluminum alloys, salt slag and SPL volumes, mainly driven by the current market volatility impacting the European aluminum industry. On price. The overall EUR 16 million positive year-over-year impact with about EUR 12 million from steel dust and around EUR 4 million from our aluminum salt slag. I will explain in more detail on the following pages. On cost other. About EUR 16 million negative. In the cost other lever reflects the higher inflation, primarily energy costs, resulting from the current energy price volatility, which is in balance with higher prices. In summary, adjusted EBITDA is at our all-time high of EUR 61 million at a strong 23% adjusted EBITDA margin.
Net profit increased by about 9% year-over-year to EUR 27 million in first quarter 2022, equal to 0.67 EUR earnings per share based on the full new post-US acquisition, 14 million shares outstanding. We also improved our cash to a new high level of EUR 237 million and reduced our leverage further to 2.13x leverage. I'll explain more on page 9. Note in the appendix, as always of this presentation, you will find various financial and operational data tables with quarterly, annual, and multi-year views for your reference. Turning to page seven, the steel dust recycling services results.
Steel dust recycling services continued to perform strongly and delivered EUR 54.8 million adjusted EBITDA in the first quarter 2022, up EUR 18.3 million or 50.1% year-over-year, representing the highest quarterly EBITDA on record. The corresponding adjusted EBITDA margin amounted to a strong 35%. Overall, the steel dust growth initiatives are delivering results, and even in this volatile environment, we're able to more than offset inflationary pressures, mainly energy through higher prices. The volume lever was positive by around EUR 14 million year-over-year impact. As explained, this includes the positive contribution from U.S. operations, the acquired AZR business and China. The net price lever was positive by around EUR 12 million year-over-year, with main price components being EUR 12 million higher zinc LME prices, up 46% year-over-year to EUR 3,337 per ton.
EUR 4 million positive higher zinc hedging prices, EUR 2,286 per ton in the first quarter 2022 versus EUR 2,201 per ton in the first quarter in the previous year. This was partially offset by a negative impact of EUR 4 million, driven by the latest higher zinc treatment charges, which were considered at $230 per ton, retroactively from the first of January of this year versus $159 per ton in the prior year. Overall, the EUR 12 million year-over-year impact from the price lever more than offset the approximately EUR 8 million year-over-year impact from the higher inflation, mainly energy costs captured under the cost other lever. Looking at selected operational metrics on the lower part of the page seven.
Volume of electric arc furnace steel dust throughput increased by 86% or 156,000 tons year-over-year to 337,000 tons, including the contribution from the acquired U.S. recycling plant, as well as throughput at our first China plant in Changzhou. Overall, plant utilization continued at strong pre-pandemic levels of 88% of the extended 1,555,000 tons installed annual recycling capacity, which includes approximately 620,000 annual capacity contributed by the acquired U.S. recycling assets, as well as the first 110,000 tons in our first plant in China. Summarizing, A, growth initiatives are delivering, and B, higher prices are more than offsetting inflationary pressures. Steel dust recycling services is delivering record results. Going now to page eight, the results of our aluminum salt slag recycling services segment.
Aluminum salt slag recycling services delivered EUR 7.6 million EBITDA in Q1 2022, down EUR 4.7 million or 38.2% year-over-year. The year-over-year EBITDA development was mainly impacted by the current market volume, energy, and base metal price volatility. Please remember that our aluminum salt slag recycling operations are 100% European geo-focused. The volume lever was negative by about EUR 1 million EBITDA effect year-over-year. This was driven by 16% lower salt slag and spent pot lining treated, as well as 18% lower production of aluminum alloys, driven by the current lower European aluminum industry environment. Nevertheless, even under the current volatile market environment, we managed to run our plants overall at around 80% utilization.
The price level was positive, about EUR 4 million, with aluminum alloy pre-Metal Bulletin market prices showing a 33% year-over-year increase, as well as better aluminum metal margins. Nevertheless, the cost of labor with around EUR 8 million EBITDA effect year-over-year was driven by the higher inflationary energy cost trends with particularly high gas prices in Europe. As a result, in this first quarter, the inflation was higher than the achieved metal price increase in the aluminum business. Turning to page nine, the cash flow, net debt, and leverage results. On the EBITDA to total cash flow bridge, starting with EUR 61.1 million adjusted EBITDA on the left and walking to the right. Working capital was up by EUR 23.5 million year-over-year, very much driven by the usual first quarter seasonality and timing impact.
The fourth quarter last year was front-end loaded with a strong first month, October, and the first quarter this year, more back-end loaded with a strong third month, March as usual. Interest at EUR 7.3 million as expected, with the first of the two biannual Term Loan B interest payments made in January. Taxes at EUR 4.6 million, also as expected, resulting in an operating cash flow of EUR 25.7 million in the first quarter 2022. CapEx-wise, in the first quarter, we spent EUR 9.4 million on regular maintenance productivity, including the U.S. compliance CapEx, in line with our annual guidance of EUR 40-45 million. EUR 16.4 million growth CapEx, mainly dedicated to our plant at Henan, which is now completed and currently commissioned.
Together, total CapEx of EUR 25.8 million, partially funded through approximately EUR 13 million China local loans for our Henan plant. After funding working capital interests, taxes, and CapEx, total cash flow amounted to positive EUR 13 million in first quarter. Hence, our cash on hand improved to EUR 237 million, a new high for Befesa, up from EUR 224 million at year-end 2021. The cash on hand of EUR 237 million, together with our entirely undrawn EUR 75 million revolving credit line, provides Befesa with a strong liquidity of above EUR 300 million. The EUR 222.6 million last twelve months rolling EBITDA incorporates full twelve months rolling months of the US operations on a pro forma basis.
The EUR 473.5 net debt with the EUR 222.6 last twelve months adjusted EBITDA results in a 2.13 net leverage at Q1 closing, improving from 2.16 at year-end 2021. Turning to page 10 on hedging. In first quarter 2022, we continued our hedging rigor and extended our zinc hedge book further up to and including January 2025, thus with approximately three years of hedges on the books. Befesa's current hedging volume run rate is to hedge around 38,000 tons of zinc output per quarter or around 152,000 tons per year. Overall, considering the combined global hedge book, Europe, Korea, U.S. operations, the year 2022 is hedged at around EUR 2,275 per ton sold forward prices.
The year 2023 at around EUR 2,375 per ton. The year 2024 at around EUR 2,425 per ton. Please note that there is approximately EUR 40 million earnings or EBITDA growth already locked in in the hedge book. 2021 last year at approximately EUR 2,150 per ton, and 2024 at approximately EUR 2,425 per ton is a EUR 275 per ton difference. Multiply with our approximately 150,000 tons hedging run rate is more than EUR 40 million higher price and earnings growth locked in over the next year. The hedging approach remains entirely unchanged. We hedge one to three years out.
We target 60%-75% of our zinc equivalent volume, and Befesa provides no collateral. The risk is entirely transferred to our hedging partners. Referring to our zinc blended prices, the lower left section on page 10. Overall, the zinc blended prices in first quarter 2022 averaged EUR 2,533 per ton, up 13% or EUR 296 per ton year-over-year. Summarizing the financial section before we turn to the growth and outlook, three points. One, Befesa delivered in the first quarter 2022 the highest quarterly earnings in the history of the company at EUR 61 million adjusted EBITDA, up 25% over last year, despite the current volatile market environment. Two, our financial backbone is strong. We extended our hedges out to January 2025. Our capital structure is efficient and long-term, resulting in a stable and strong liquidity.
We entered this challenging 2022 environment in the strongest shape we've ever been. Three, this strong backbone serves us really well. A, to fund growth in China and the U.S., and B, maintain a stable dividend payout at the upper end of Befesa's dividend payout ratio to share the success with our shareholders. Now back to Javier.
Thanks, Wolf. I would like to finish the call providing some more details and thoughts on the outlook for this year. As I said before, 2022 will be another year of a strong growth for Befesa, driven by a strong volume growth from contribution of the U.S. and China, and supported by a favorable metal price environment that will more than offset the high energy prices. From a volume point of view, despite the instability in the markets, we expect a strong growth on the steel dust volume, driven by a full year of consolidation of our operation in North America, as well as the start of the operation of the two plants in China. In North America, as I explained, the integration of AZR into Befesa is developing well across all fronts.
This year, we will benefit from the full year of operations, which will represent a significant EBITDA growth, driven by better prices and the contribution of part of the synergies. This will be partially offset by the slightly lower volume of steel dust compared to the previous year, which we will recover over the next years. In China, at Jiangsu province, we have been operating the plants since the beginning of the year. Despite all the difficulties that the zero-COVID strategy of the Chinese government is implementing, we continue to expect a high plant capacity utilization between 80%-90% for the full year. However, given the current challenging situation in China, we want to be prudent about the overall outlook for the year in China. Our second plant in Henan is developing as planned.
The construction is complete, and we have started the commissioning of the plant. We expect to start commercial operations during the summer, and run the plant at a good utilization until the end of the year. As explained, the COVID is creating a challenging situation, which is too soon to quantify at the moment, and which may delay the ramp-up of the plant. In the traditional business of Befesa, we expect similar dust volume than in the previous year. All in all, we expect an strong volume growth on the steel dust recycling. From the market point of view, we expect that the volume on our steel dust business will be supported by a strong electric arc furnace steel production industry in Europe, USA and China. We expect the current level of steel production to be maintained throughout the rest of 2022.
In the aluminum salt slag and secondary business, for the full year, we expect similar volume than last year, despite the challenging situation that the auto industry is suffering in Europe. However, if the problems of the semiconductor shortage is not fixed and supply chains problem with other components continues, we may continue to see pressure on the volumes for the rest of the year. Moving now to the price environment, as we are seeing the challenging macroeconomic environment and higher energy prices are driving up metal prices for steel and aluminum. We believe that as long as energy price will stay high, so will metal price as well. There are two more factors on the price side that affect earnings. One positive, which is hedging, and one negative, which is treatment charge.
On hedging, the level of price of the hedge for this year, 2022, is EUR 125 higher than last year. On the other hand, the benchmark treatment charge for zinc has been settled at EUR 230 per ton. This increase of 45% is negative for Befesa and will partially offset the better zinc hedging price, as well as higher zinc LME price during the year. We expect inflation to remain high for most of the year, especially on energy prices in Europe, for natural gas and electricity. This will increase our cost base, especially in our aluminum business, where around 30% of the cost is energy. Additionally, we also expect transportation costs to increase in the year as a consequence of inflation.
Based on this, we expect full year 2022 EBITDA to be between EUR 220 million and EUR 270 million, which means 11%-35% growth year-on-year. The wide range of the guidance is driven by the high volatility in the markets, volumes, metal prices, as well as inflation, especially in the energy prices. At the lower part of the guidance, we still expect to achieve at least double-digit growth of 11%. This scenario considers a slowdown in the global economy through 2022 as a consequence of a prolonged challenging macroeconomic environment that would impact on the main industries where we operate, creating supply chain disruptions and decreases in production in the steel and automotive industry, combined with high energy prices.
On the other hand, at the high end of the guidance, we will deliver a strong growth of around 35% on EBITDA. This scenario consider a strong volume throughout the year, supported by high metal prices in line with the ones we are seeing right now. In this scenario, we expect moderate impact from energy prices and inflation and a strong performance on the underlying industries that impact Befesa, like steel production and automotive, translated in high capacity utilization of our plants for the year. I would like to remark that if current conditions are maintained during the year, we will end up in the higher part of the guidance. We expect total CapEx in the year to be around EUR 55-EUR 65 million, including regular maintenance and growth. On dividend, we will continue to carefully manage dividend stability.
For 2022, we want to propose a dividend distribution of EUR 50 million or 1.25 EUR per share, which would basically mean distributing 50% of the net profit of last year. This will result in expected leverage between 1.75x and 2x by the end of the year. Finally, on ESG, in Befesa we are very proud to have actively contribute to the circular economy for more than three decades by recycling more hazardous residues for our customers year after year. We produce more valuable new materials and prevent the extractions of billions of resources as we keep delivering attractive returns for our shareholders. In the next ESG report, which we will publish during the second quarter of this year, we will include a detailed chapter about climate change and how Befesa is committed to it.
Befesa clearly avoids CO2 emissions being an alternative to mining finite resources from the earth. Nevertheless, we are going further by defining a plan to reduce our CO2 emissions by 20% by 2030, with the ambition of achieving net zero by 2050. Thank you.
Thank you, Javier. We will now open the line for your questions.
Thank you, everyone. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your phone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach us. Once again, please press star one to ask a question. We have our first question from Mr. Sandeep Pitti at Morgan Stanley. Please go ahead, sir. Your line is open.
Thank you, operator, and good morning, gentlemen. I have three questions. I'll take one at a time. Firstly, how much EBITDA was generated from the U.S. and China in Q1? And what is baked in your guidance? And can you clarify if China plant is fully exposed to spot prices? Thank you. That's the first question.
Thank you very much. Well, we are not going to provide EBITDA by regions. You need to understand that we manage our business on a global basis, so we move raw material from one region to another, et cetera, et cetera. We prefer to provide only information on a global basis. Anyway, I can confirm that the generation of EBITDA in U.S. has been strong and positive, in line with our or even better with our expectations. In China, the Jiangsu plant started operations at the end of December. That has been the first quarter of operation.
I can confirm that we are achieving positive results. Let me highlight that the management of the plant during this first quarter has been extremely difficult because the COVID restrictions. We are really very happy with our Chinese operations. We are fulfilling all our expectations in the construction side, in the relationship with our customers and in the support we are getting from the Chinese authorities. Frankly speaking, the only problem we are facing is the COVID and the way that the Chinese authorities are managing the COVID. These are creating big problems in the daily operations.
Well, we hope that will be only a temporary situation, and later on, we will be able to restart our normal operations. Your second question, please.
Yes. Just one more question on that, or clarification. Can you clarify if China plant is fully exposed to spot zinc prices?
Yes. Our hedging philosophy is to hedge between 65%-70% of our global production again. It's our first year of operations in China. We are learning about China. It is a different market. They don't follow LME prices. They have their own price system in Shanghai, which has a very good correlation with the LME, but it's not a perfect correlation. At the same time, we are starting a conversation with the local banks to implement our hedging policy. We are not in a hurry to do that because at the end, we manage our businesses, as I said before, on a global basis.
What we are doing is to increment the proportion of things that we are hedging in other geographies. At the end, as Juan explained before, we get around or near 70% of our total production.
Okay. Thank you. The second question. In the U.S. operations, can you please let us know out of that EUR 20 million targeted synergies in the next two years, how much has been achieved so far during Q1?
That is a very difficult question. To achieve synergies is an ongoing process, as you can imagine. Most of the process are the synergies are process improvement. It's process that we have to start some months ago, and every day we start to see the progress. I think the important point is that I can confirm that we are going to achieve, without any doubt, the EUR 20 million between this year and next year. Likely, the proportion will not be 50/50 because we need the time to get all the synergies. This year we will achieve between 30%-40%, and then the rest will be achieved in the next year.
To make sure the synergies in a monthly basis is really difficult.
Okay. That's very clear. Thank you. The last question on secondary aluminum. That operation seems to be the hardest hit from energy costs. If we assume that spot energy costs remain for the entire year, what sort of profitability are you expecting from the operation? Thank you.
Okay. As you can see in the presentation that we have published, in the steel dust recycling business, we have been able to offset 100% and to increase our profitability. This is not the case in the secondary aluminum business. Let me remark that we have been able to do that basically in the steel dust recycling business, but not in the secondary aluminum. At the end, we have been in the first quarter below our expectations. If the energy prices remains at the very high level we have today, we will be at the end of the year below our budgeted figures.
Which is very important to understand that these businesses represent only around 20% of our earnings. All in all, taking into account that in the steel dust recycling business, we will more than offset the energy cost inflation. The overall view will be positive anyway.
All right. Thank you so much.
Thank you.
Thank you, sir. Our next question comes from Jaime Escribano of Banco Santander. Please go ahead. Your line is open.
Hi. Good morning. My questions are the following. Regarding steel dust volumes, could you give us more or less or have an idea how has Europe, Turkey, and Korea performed? Just to have kind of like for like to understand how the business is performing there. I wanted to ask you regarding steel dust also. There is 31% conversion from steel dust to WOX. I would like to understand what is driving this, if it's American steel recycling and China maybe converting at a lower rate than Europe, Turkey, or Korea, or if there is anything else. Regarding aluminum volumes, maybe to understand the decline of around 18%, is it related to the auto industry fundamentally?
Regarding depreciation, which is growing around 81% to EUR 17 million, I understand this is because of the new acquisitions. It looks high if you look to the sales contribution, the volumes contribution of the new businesses in China and in the U.S. Just to understand if there is anything else on that. Thank you very much.
Okay. Thank you, Jaime. Lots of questions. Listen, I don't know if we are going to remember all of them, but let's start.
Okay.
The first one has been the steel dust volumes in our classic markets. Well, the performance has been very, very positive. Basically, slightly above the 2021 figures for the first quarter, so strong figures. With a very high utilization factors in the three geographies. In the three, let's say, classic geographies, Europe, Turkey and South Korea. Frankly speaking, we are not seeing problems in the supply of steel dust in our classic markets. And the
Perhaps the year, it started with some doubts about that, but now we can confirm that the production of steel from our customer is being strong and positive. We have had a very good quarter, and we expect to have a very good quarter as well. The second question was related to the proportion in the conversion of...
I can take that one, Jaime. I think what you're referring to, Jaime, is if I go to page seven on the steel dust recycling page, if you look at electric arc furnace throughput, we're up 86%, and if you look at Waelz oxide, we're up 55%. It's nothing unusual. We have just built some inventory. This is just to do with a couple of containers that are still in the harbor and haven't fully made the Incoterms cutoff, which you have every now and then in the quarters. Nothing special, we continue to be entirely sold out on Waelz oxide, so it's purely timing. Yeah.
Yes.
If you want, I can also immediately take the depreciation and amortization question.
Okay.
Hand it back to Javier. On depreciation and amortization, exactly as you described, it's the contribution of the U.S. that is now in our numbers and also those plants come with some depreciation and amortization.
The last question, I think, was related with the volume in secondary aluminum. Yes, the reason of the decrease we have had in the first quarter figure has been because the problems in the automotive industry in Europe related, first with the microchip shortage, and second with some other supply problems with other companies of the industry are related with the war in Ukraine. That has been the reason. We have seen a, let's say, weak automotive market in Europe and a weak automotive market in Asia as well.
Okay. One final question, if I may, regarding CapEx. You guided a maintenance CapEx of between EUR 40 million-EUR 45 million, if I'm not wrong. I just want to understand if this is the maintenance CapEx that we should model in following years, or is this just for 2022 and then it will go down or up? Or just to understand that. Thank you.
Good question, Jaime. I think in this year, EUR 40 million-EUR 45 million, that is correct. Maintenance, remember, Jaime, in the broader sense, so that includes productivity, compliance, et cetera. If you wanna be conservative, EUR 40 million-EUR 45 million is a good estimate. Obviously, what's also included in this year is what Javier mentioned, you know, funding the U.S. synergies. But to be conservative, EUR 40 million-EUR 45 million is a good estimate.
Yes. I would say to add what Wolf has said that once we have, let's say, renew our plans in U.S. to our standard levels, perhaps we can reduce slightly the figure. For the price, as Wolf said, for the following years, it's a good figure.
Okay. Thank you very much.
Thank you.
Thank you, Jaime.
Thank you, sir. Our next question comes from Juan Rodriguez of Kepler. Please go ahead, sir. Your line is open.
Hi. Thank you and good morning, and thank you for taking the questions. I have two on my side, if I may. The first is on the EBITDA to net income bridge. More specifically, can you help us walk through the D&A, the financial cost and the tax changes? That would be the first one. The second one is on the guidance bridge. More specifically, you signaled that if things remain within the current conditions, you will reach the top of the range. If we extrapolate Q1 performance, we will reach at the middle. Can you please explain the difference here? Thank you very much.
Let me start with the guidance question. Yes, I have said that if the current condition remains for the full year, we will finish in the very upper part of the guidance. If you multiply the first quarter by four, we will be in the middle of the range. The main difference is related with the zinc prices. The zinc prices on average in the first quarter have been at the levels of EUR 3,300. Today we are around EUR 4,000. This, a strong difference of EUR 700 per ton or $700 per ton at the end, can explain clearly the difference. Okay. Great.
In the first quarter 2022, if you start with adjusted EBITDA, we had EUR 61.1 million adjusted EBITDA. The reported EBITDA was EUR 59.9 million. There was only a minor roughly EUR 1 million adjustment for still acquisition related costs. Depreciation and amortization, EUR 17 million. Again, that's up from first quarter last year. First quarter last year was roughly EUR 9.5 million. This is because now the U.S. plants are part of our operations, so you have the corresponding higher depreciation and amortization, which gets you to an adjusted EBIT of around EUR 44 million. Reported EBIT of roughly EUR 43 million.
You have approximately EUR 6.9 million of financing costs, which remember now the gross debt has increased compared to last year by roughly EUR 100 million because part of funding the acquisition in the U.S. was to extend or amend our Term Loan B by EUR 100 million. Slightly higher China local loans. Corporate income tax, nothing special, roughly EUR 7.5 million. That's part of the regular EBITDA to net income and EBIT wash. Nothing unusual in there, I would say.
Perfect. Quite clear. Thank you.
Thank you, Juan.
Thank you, sir. Our next question comes from Anis Zgaya of ODDO BHF. Please go ahead. Your line is open. Hi, Anis. Please go ahead. We'll take the next question from Mr. Michael Hoffman of Stifel. Please go ahead.
Hi. Good morning, everybody in Germany. Could we talk about the guidance, the low, the mid, and the high, and frame it against how you report your EBITDA by segment? What's the expectation across electric arc furnace dust, low, mid, high, and then the aluminum businesses, collectively low, mid, high to get your guidance range?
Oof. Thanks, Michael. It's a difficult question because it's difficult to fix because there are many variables which are affecting the guidance. It's not easy. On one side, we have two different businesses, steel dust and aluminum salt slag, which at the end of the day have different trends. Then the volumes on the different businesses can be different. On the second, we have, let's say, inflation cost which we don't know how it will continue during the rest of the year. Third, we have commodity prices. Then we have again zinc and aluminum prices.
Again, we have all the uncertainty which has been created by two more factors, the war in Europe, the invasion of Ukraine and the COVID situation in China. In the very low part of the range, we have forecast a very pessimistic scenario where we expect volume decrease clearly because the war, because the COVID in China et cetera, with high energy prices and not very optimistic price evolution in the commodity side. On the very high part of the range, we are not forecasting problems in volume, that means that we would expect high volumes in.
High utilization rates in all the regions, and high commodity prices in line with the prices we are having today. In the middle, there is many different possibilities. No? I don't know if you I have an-
Let-
Answer your question.
Let me tease this out a little bit. At the high end, you mentioned that if we're at EUR 4,000, that alone would get us to the high end because the zinc business would take us there. What I think I'm hearing, I don't need anything to get better in secondary aluminum. Secondary aluminum could stay kind of where it is. Salt slag stays where it is.
Yes.
The high end would be.
Yes.
-driven by $4,000. At the middle, I'm assuming-
Yes.
It's EUR 3,300. The same assumptions for the aluminum business is they don't have to get better. The low end, everything goes down. Commodity price comes down and probably aluminum gets worse. Is that the right way to think about it?
Yes, I think so. It's a good way to think about it.
Okay.
In the very high part. Okay. You have explained very well.
Okay. That helps a lot. Then could you help us a little bit with the cadence of the business? Historically, there's maintenance done in two and three Q, and I get a little bit of dip in the activity, you know, assuming prices are stable. Given where the zinc price is, I'm assuming we're on a cadence where two Q clearly is set up already to be better than one Q. If everything stays right where it is right now, I'm gonna have a better two Q than I did one Q.
Well, that will depend on the. This year, perhaps, is more difficult than the normal year because we have to consider the volumes. The volumes will be affected by the different shutdowns in the plants. Now, with all the year, with having all the plants we have, all the quarters will be more stable than in the past, where the concentration of shutdowns in Europe was higher. Now, in the current situation, we will have more stability. This is one item that will affect the stability, volumes affected by a shutdown, and then by the production levels in the industry, and then prices, as you can imagine.
I hope that second quarter would be better than the first quarter because we are enjoying a better price situation, and we are having strong volumes. Let's see what's happening in the following quarters.
Okay. I appreciate why we wouldn't segment by country. Just so we understand what your expectation for the run rate, given this is the first full year of U.S., are you still expecting the business to ramp to about EUR 40 million or without getting too specific about commodity prices and things like that? That's what you framed it as last year coming into this year. Is that still the way to think about it, is it EUR 40 million?
I think it's a good estimation for the full year. In the first quarter, I can confirm that we have been even better than these figures because. Well, let's see what's happening in the full year with the shutdowns, volumes, prices, et cetera. For us, it's difficult to provide this segmentation. I understand you would prefer to have this information, but we run our business on a global basis. Entering this segmentation will create a lot of problems for us, and will provide a lot of information to our competitors.
Yeah. Fair enough. Because it's the first full year, I was just trying to understand the scale of the lift versus partially owned in 2021, and that's, if that helps. Framing it around 40 helps.
Okay. Okay.
If the Russian-Ukrainian situation doesn't find a resolution, what part of the world do you think makes up the difference for like steel production that's being subjected to sanctions and what have you? Where do you think that incremental activity comes from to make up for their 30-some million tons that gets exported?
Well, I don't know that, but you have seen the information we have provided about the production of steel in the first quarter of the year. What we have seen has been a stable market in the U.S. and a decrease of around 4% in Europe. I don't know if you have the figures for Turkey. I think it has been slightly negative as well.
Slightly negative, yes.
Slightly negative as well. 10% decrease in China. At the end, the only market that has been able to maintain their levels has been North America. The rest of the world is suffering some decrease in the production of the first quarter. Well, let's see what's happening in the following months because I don't know if that has been only affected by the Ukrainian war or there are other different reasons to justify or to explain this situation. Frankly speaking, what we can say is that, despite the reduction in the different markets, we are not suffering any problems of supply of raw material.
We have been able to get all the raw material we need. We don't have still the split between blast furnaces and electrical furnaces production. For me, I wouldn't be surprised if the decrease in the electrical furnaces must lower than in the total steel production.
Last one for me. The China availability of dust, is that an issue of being able to move it from A to B to get to you, or it's not being produced because of forced shutdowns?
Well, the reason is the COVID restrictions, Michael. Last Friday, in our weekly committee with our Chinese people, the information we got about the COVID, the way they are managing COVID is amazing. Even in the same province, for example, in Jiangsu, if you move from a municipality to another municipality, you need to do a quarantine of three days. So at the end of the day, the transportation of goods is impossible. Last week, we shut down our plant because we cannot transport, we cannot get raw material, we cannot sell works. So today I can say that Shanghai and the province around Shanghai are practically closed lockdown.
Yes.
That's it. That is the reason.
Mike, it's not a problem of-
Sorry, Wolf. Sorry.
The industry, no?
Yeah. Yeah. No, I get that. The important message is it's not a supply issue, it's you just can't get it moved from A to B because of the restrictions.
No.
The dust is there, it's just getting it, get your hands on it. Okay. That's what I just need to understand. All right. Thank you.
Okay. Thank you.
Thank you. Our last question comes from Lasse Stüben of Berenberg. Please go ahead. Your line is open.
Hi. Good morning. Just one final question from me. I wanted to follow up just on that China point. I mean, based on sort of your comments that, you know, you also said in sort of your initial presentation that you still expect, you know, very high levels of utilization in your Jiangsu facility. I'm just wondering, you know, what gives you that confidence given the difficulties in the logistics you just described? It would be good to just get some additional comfort on that comment earlier. Thank you.
Hey, Lasse. Thank you for the question. We started the year. Well, first of all, I would like to highlight that we have secured raw material of around 100,000 tons of steel dust to feed the Jiangsu plant, so full capacity. We started the year at a very high load factor because the flow of the raw material was going without any problem, etc. We started facing the problems basically in March. March has been after the New Year break when we started the problem. That has been the reason not to achieve quite full utilization of the plant because we started at that level.
Now let's see. As I have said before, the plant is shut down. We expect that will be only a question of days or maximum weeks. But as you can imagine, it's something that is totally out of our control. We cannot do anything. On the other hand, we don't know which will be the decisions of the Chinese authorities. We hope that the situation will not be very long. But frankly speaking, we don't know. It's the only problem. I would like to highlight again that we feel, I would say extremely positive with our Chinese operations. The construction of the plant, even during the difficult period of the COVID has been very good.
We have finished the plant basically on time, with only small deviations on time because the COVID, but nothing dramatic. We have been able to secure or to sign contract with the steel makers in the regions. We are having a strong support from the regulation and from the Chinese authorities that clearly are managing in a very serious way the environmental aspect. That is extremely positive for us because that being a strict application of the environmental regulation is good for the, let's say, serious players. We are a very serious one. The only problem we are facing in China is the COVID.
Well, it's been a surprise the way that the Chinese authorities are managing, especially this second wave of the COVID. Let's see how it evolves. All in all, and in summary, we think that we feel very positive with China, our Chinese operation and with our Chinese future. The problem is that now we cannot travel, and without the possibility to travel, it's difficult to develop new projects. We have in our portfolio in China several new opportunities in other areas, et cetera. All in all, positive view.
Okay, great. I guess, is it fair to assume that, I mean, given how regional the lockdowns are at the moment for the time being, that it doesn't really impact your mid to longer term ambitions with respect to other plants in other provinces, right?
Not at all. At the moment, we feel we still are very positive with our China's operations and with the future in China.
Okay, great. One final one. I mean, do you, I know this has been asked previously in other calls, but do you have any idea after sort of the first three to four months of the quality of the steel dust in China, or is it still a bit too early to say?
Well, we are learning a lot about it. What we see in China is perhaps more variation between one customer and other. Now, we have dust with more than 30%, 30% zinc content, which is very positive for us. But we find as well dust with less than 15%. We think that with more time, the time will support an improvement in the quality of the dust because today some electric arc furnace steel makers are not using 100% scrap, but they will use clearly in the future.
Today, the quality is the average figures we are achieving are okay, but below the European levels. We feel positive that in the medium term, the quality of the Chinese dust will improve a lot.
Super. Very helpful. Thanks very much.
Sorry, say again.
He said thank you.
Okay. It's okay. Thank you. Thank you.
Our final question comes from Anis Zgaya of ODDO BHF. Please go ahead. Thank you.
Yes. Thank you. Sorry I had a problem with my mic last time. I have a question about the secondary aluminum business, which I think is the main disappointment of Q1 results. The impact of the cost of energy was much stronger than expected, at least much stronger than I expected in the quarter. I thought that it would be more than compensated by the strong rise in prices as prices are correlated to energy prices, and it was not the case. For why it was not the case there. Secondly, there's also significant volume impact during the quarter. Just to be sure in your guidance, when you talk about uncertainty linked to volumes, are you pointing specifically to this business? My second question is on steel dust.
As far as steel dust is concerned, when you cover 80% of the planned zinc volumes, I just want to know what could happen if you are not able to meet the volumes you are supposed to deliver because of lower volumes of steel dust. Do you have to pay any compensation to your clients? Just to know. My third one is merchant exposure in China. Sorry, I wasn't able to hear the exact number. I think it was 70%. That's all for me. Thank you.
Okay, thanks, Anis. First, well, the energy cost is very high in, especially in Europe. When we talk about energy price inflation, we are talking especially about a European issue, and this is not the case in North America, or neither in South Korea or in China, or the effect in those geographies is as clearly much more smaller than Europe. The problem is basically an European problem. Then what happened with our secondary aluminum business. In comparison, for example, with our steel dust business. It's first, 100% of our operations are in Europe.
Mm-hmm.
The weight of the energy in the total cost of the aluminum business is higher than the steel dust business. That's why the impact of the high energy costs in Europe are impacted more in our Alu division than in the steel division. Regarding the effect in the guidelines, well, in the range we are providing, we are considering this high energy cost in Europe for our aluminum business. As we answered in one of the previous question of one of your colleagues. If the zinc prices stay at the level we are having today, we will be able to be in the upper part of the range, even with this high energy impact in the aluminum business. Okay?
Mm-hmm.
The second question I think is if we could have problems of penalties, et cetera, in our steel dust business. Not at all. We are not going to have any problem of productions. The only problem we could have is that if we get less volume of raw material, I mean, of steel dust. But that will not be our problem. It will be a problem of the steel makers. We will be clearly able to treat 100% of the steel dust we get, so we will not face any problems regarding that at that point. The third question was on China. Can you repeat the question? I don't remember very well.
It was about the merchant exposure to spot prices in China. I wasn't able to hear the number.
No, in China, we have 100% exposure.
Yeah.
For us, it's not. We don't manage. I have said several times during presentation that we manage the company in a global basis, and especially, specifically in the hedging area, we hedge. We manage the company thinking in the global company, not thinking region by region.
Mm-hmm.
What we want is to hedge around 70% of the total volume we produce.
Mm-hmm.
No matter at the end. For example, we are not hedging any tons in Turkey because the weakness of the Turkish lira.
Mm-hmm.
This year we are not hedging in China because it's our first year of operation there.
Yeah.
We are increasing volume in the rest of the geographies to achieve an average of 70%.
Okay.
Okay.
That's clear. Thank you very much.
Thank you, Anis.
Thank you, sir. I'd like now to pass the call back to Mr. Rafael. Please go ahead, sir.
Thank you all for your questions. You can also contact the investor relations team of Befesa for any further clarification. We will now conclude the conference call and the Q&A session. Let me remind you that you can find the webcast and the dial-in details to access the recording of this conference call on our website, www.befesa.com. Thank you very much, and have a good day.
Thank you, everyone. This concludes today's conference. You may now disconnect.