Good day, and welcome to the Befesa S.A. Preliminary Full Year 2021 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Rafael Pérez. Please go ahead.
Good morning, and welcome to the Preliminary Full Year 2021 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 will start with an executive summary of the full year, covering the main highlights of the period. Then Wolf will review the full year financials in total and by business unit, as well as cash flow. Javier will close the presentation, providing an update on our growth plans, as well as a preliminary view on the outlook 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 preliminary full year results presentation on our website, www.befesa.com.
Now, let me turn this call over to our CEO. Javier, please.
Good morning. 2021 has been certainly a very good year for Befesa in many aspects. We have delivered the strongest result in the history of Befesa and made great developments in the execution of our growth strategy that will enable us to grow a double digit in the coming years. The fourth quarter of 2021 has been the strongest quarter in the year, with a total EBITDA of more than EUR 60 million. In the full year, we have achieved a total EBITDA of EUR 198 million, above the last guidance we provided of around EUR 195 million. This represents an increase of 56% compared to last year. More importantly, 24% more than 2019, which was the last year before the COVID pandemic started.
The main drivers for this growth have been a combination of a strong increase in volume, combined with positive metal price development through the year. Volume of steel dust recycled increased by nearly 30%, especially in the U.S., driven by the acquisition of American Zinc Recycling in August, as well as a recovery in the plant utilization in the rest of the business, reaching nearly 85% in the case of steel dust. In the aluminum salt slag business, plant utilization was around 90%. Average zinc price in 2021 was EUR 2,544 per ton, which represent an increase of 29% compared to the previous year. Similarly, average aluminum price in 2021 was EUR 2,112 per ton, which is 48% higher than last year.
Also, the lower treatment charge for zinc in the year contributed positively to earnings growth last year. The main industries and markets where we operate have seen during 2021 a gradual recovery in their level of activity. As such, the production of steel in Europe in the last year increased by 15% compared to 2020, with unrestricted production level from electric arc furnace steel makers. Steel production in U.S. increased by 18%, while it decreased by 3% in China last year. On the other hand, the automotive industry in Europe suffered a weak last quarter, ending the year with a small decrease of 2% on car sales compared to last year. This compares with China, where car sales increased by 7%, or the U.S. with 3% increase.
During 2021, we have taken advantage of the strong zinc price to extend our hedging book until October 2024 at increased prices. Today, we enjoy around years of hedging going forward, which provide high visibility and predictability. In the second part of last year, energy prices in Europe increased significantly, which had a negative impact, especially in our aluminum business, which use natural gas and electricity as main energy sources. This impact in 2021 was limited and was offset with higher metal prices. From the strategy execution point of view, last year has been an extraordinary year. We have entered in one of the most important market of steel dust recycling in the world, like the North American market, of which we now have around 50% of the market.
Also, we have been able to complete and start operation in our first plant in China in the province of Jiangsu, as well as made great progress in our second plant in the province of Henan. These two developments in the U.S. and China will set the foundation for double-digit growth for the coming years. From the capital markets point of view, 2021 has also been a very positive year. We successfully carry out a sizable capital increase to fund the acquisition of American Zinc Recycling, which was greatly welcomed by our investors. The market cap increase enabled Befesa to enter MDAX last September. The generation of cash during the year has been very strong, and this has enabled us to finish the year with more than EUR 220 million of cash on hand and leverage ratio below 2.2 x.
Finally, on ESG, 2021 has been a year where we have made significant progress. It is very clear that society and investors push more and more for sustainable solutions, which is very much aligned with Befesa. What we do is a vital part of the circular economy. We recycle 2.2 million tons of hazardous residues for our customers in the steel and aluminum industries to extract valuable like zinc, aluminum, and salt. We are very proud of the progress we are making on ESG, which is a recognition from the market of the contribution Befesa makes to a more sustainable world. Now, Wolf will explain the financials in more detail.
Thank you, Javier. Please turn to page six, the 2021 consolidated financial highlights. As explained by Javier, Befesa delivered record earnings in 2021 with EUR 197.6 million adjusted EBITDA, up 56% or EUR 71 million year-over-year, with 2020 at EUR 127 million. Also, well above the pre-pandemic levels, up 24% or EUR 38 million versus 2019, which was EUR 160 million of EBITDA. The main drivers of the year-over-year EUR 71 million EBITDA improvement are price and volume, including the acquisition in the U.S. On price, the overall EUR 64 million positive price year-over-year impact has the following components. EUR 24 million from the reference zinc treatment charges settled favorably at $159 per ton versus $300 per ton in 2020.
EUR 25 million from higher zinc prices at EUR 2,544 per ton, up 29% year-over-year. - EUR 8 million from lower zinc hedging prices. Those were at EUR 2,151 per ton in 2021 versus EUR 2,239 per ton in 2020, which partially offset the zinc LME price increase. Also, EUR 25 million increase from higher aluminum alloy pre-Metal Bulletin prices, which averaged EUR 2,112 per ton, up 48% year-over-year, as well as better aluminum metal margins. On volume, the volume lever was also positive by EUR 14.5 million year-over-year.
EUR 14 million from electric arc furnace dust throughput, higher year-over-year by 29% or 199,000 tons, including the positive contribution from the acquired U.S. operations, delivering as expected from mid-August onwards. EUR 500,000 + from higher secondary alloys, partially offset by lower salt slag and spent pot lining volume due to the U.K. plant closure at year-end 2020. Overall, good volume performance with overall solid plant utilizations at pre-pandemic levels. Steel dust at around 83%, aluminum salt slag and spent pot lining at around 90%. On cost and other. The EUR 8 million - impact from cost other reflects the higher inflation energy cost trends, as well as China expansion costs, which are now partially offset by operational excellence. Adjusted, a quick comment on adjusted versus reported EBITDA.
The reported EBITDA amounted to EUR 189.6 million, up EUR 66 million or 54% compared to the EUR 123.5 million reported EBITDA in 2020. After normalizing for two items, EUR 14 million for add back for the one-time American Zinc Recycling acquisition cost, and then EUR 6 million negative deduction from the one-time cost recovery, referring to the Hannover plant as a result of the fire occurred in November 2021. Net-net, an EUR 8 million add back for ultimately the AZR one-time acquisition cost. As a result, the adjusted EBITDA in 2021 amounted to EUR 197.6 million, as represented on the page, and which very well represents the run rate of Befesa in 2021.
On a fourth quarter standalone view, we continue to deliver strong earnings growth with Q4 adjusted, as mentioned by Javier, at EUR 60.8 million, which is the highest quarter on record, up 43% or EUR 80 million year-over-year, also growing 43% compared to the fourth quarter 2019 pre-pandemic. In summary, Befesa delivered solid pre-pandemic plant utilization levels, successfully accomplished the acquisition of AZR, and benefited from a strong and favorable market price environment in 2021, which enabled us to deliver our all-time high EBITDA of EUR 198 million at a strong 24% EBITDA margin.
Referring to the lower half of page six, net profit more than doubled year-over-year from EUR 47.6 million to EUR 99.7 million in 2021, equal to EUR 2.68 earnings per share based on weighted average number of shares of 37.3 million in 2021. We also improved our strong cash to a new high level of EUR 224 million, which I'll explain later together with the net debt and leverage performance on page nine. We're proposing a dividend distribution of EUR 50 million or EUR 1.25 per share, which is EUR 3 million above the EUR 47 million distributed last year, and representing 50% of our 2021 roughly EUR 100 million net profit. We are very pleased with our 2021 results, the successful acquisition of AZR.
As such, we feel comfortable suggesting the EUR 50 million dividend distribution and sharing the success with our shareholders. On a three-year basis, we have distributed EUR 117 million total dividend, which over the three-year total net profit of EUR 221 million, represents 53% dividend distribution. Thus, approximately at the upper end of the 40%-50% of our dividend guidance normalized for one-time effects, certainly within the range. We are very pleased to propose to continue to distribute also this year's dividend at the upper end of the 40%-50% range. Please note in the appendix of this presentation, you will find various financial and operational data tables with quarterly, annual, and multi-year views for your reference. Turning now to page seven, the steel dust recycling services results.
Steel dust recycling services continued to perform at strong earnings levels and achieved EUR 148.3 million adjusted EBITDA in 2021, up EUR 51 million or 52% year-over-year, as well as 18% or EUR 23 million up versus 2019, clearly demonstrating the recovery to above pre-pandemic levels. The corresponding adjusted EBITDA margin amounts to 33%. The net price lever was positive by EUR 39 million year-over-year. The volume lever was positive by 14 million EBITDA year-over-year impact. As explained, driven by the higher electric arc furnace dust throughput year-over-year and the positive contribution from the U.S. operations, the acquired ex-AZR business. The cost other lever had a minor EUR 2.5 million year-over-year negative impact, which is the higher inflation, including energy and China expansion costs were partially offset by operational excellence and other.
Looking at selected operational metrics on the lower part of the page. Volume of electric arc furnace steel dust throughput increased 29% year-over-year to 886,000 tons, mainly driven by the contribution from the acquired US recycling plants, but also by the better performance of existing operations year-over-year. Overall, plant utilization continued at solid pre-pandemic levels of around 83% of the extended circa 1,555 kt installed annual recycling capacity, which includes about 620,000 tons annual capacity contributed by the acquired US recycling assets. Taking a more detailed look at the price side, the zinc LME market price continued at high levels, an average EUR 2,544 per ton in 2021, up 29% year-over-year.
Our zinc hedging price in 2021 were EUR 2,051 per ton, lower year-over-year versus the EUR 2,239 per ton in 2020. Also lower compared to the strong LME spot price in 2021. Combined, the resulting zinc blended price came in at EUR 2,275 per ton, up EUR 139 per ton or 6.5% year-over-year. Correspondingly, the positive EBITDA effect from the higher zinc LME market prices of gross + EUR 25 million was partially offset by - EUR 8 million due to the lower hedge prices. In addition, the zinc reference treatment charge favorably impacted our full EBITDA by EUR 24 million year-over-year.
As you know, treatment charge was settled at $159 per ton for 2021, being valid first of January. Overall, steel dust recycling services delivered a record EUR 148 million adjusted EBITDA in 2021, with a strong 33% adjusted EBITDA margin and solid plant utilizations at around 83%. Going now to page eight, the results of our aluminum salt slag recycling services segment. Aluminum salt slag recycling services delivered EUR 48.8 million adjusted EBITDA in 2021. Also a new record high level, up EUR 20 million or 69% year-over-year. Compared to 2019 up EUR 16 million or 48%. Clearly demonstrating the recovery well above pre-pandemic levels.
On price, the aluminum alloy pre-Metal Bulletin market prices showing a 48% year-over-year increase. Well as better aluminum metal margins, which combined drove a positive net EUR 25 million EBITDA effect year-over-year. On volume, the volume level was slightly positive by about EUR 500,000 EBITDA effect year-over-year. Overall, higher secondary aluminum alloys were partially offset by lower salt slag volume due to the UK plant closure at year-end 2020. On cost other, the cost was negative by about EUR 5.5 million EBITDA effect year-over-year, which was driven by the higher inflation and energy cost trends. Overall, aluminum salt slag recycling services delivered the highest EBITDA on record at EUR 49 million, benefiting from the strong base metal price environment, which more than offset the higher inflation energy cost trends. Plant utilization continue at solid pre-pandemic levels at around 90%.
Turning to page nine, the cash flow net debt and leverage results. On the EBITDA total cash flow bridge, starting with EUR 197.6 million adjusted EBITDA on the left and walking to the right. Working capital was up by EUR 48 million, which was very much driven by the one-time impact of our AZR acquisition in the U.S. About EUR 14 million of the mentioned one-time AZR acquisition cost, and about EUR 34 million working capital for the acquired AZR operations. Interest and taxes with EUR 17 million and EUR 15 million respectively, both as expected, resulting in an operating cash flow of EUR 117.9 million in 2021, also the highest on record, up EUR 25 million or 27% year-over-year, versus EUR 92.5 million last year.
In 2021, we spent EUR 32 million maintenance CapEx plus EUR 46 million growth CapEx, equaling a total of EUR 78 million total CapEx, partially funded through approximately EUR 27 million China local loans for our two plants at Jiangsu and Henan. As you know, on 17th August, Befesa successfully completed the acquisition of 100% of American Zinc Recycling at a purchase price of $450 million and a minority stake in its zinc refining business for $10 million with an option to acquire the remaining business once certain operational financial performance milestones are fulfilled. The AZR acquisition was financed through a capital increase of new ordinary shares from the existing authorized capital, authorized equity offering and a Term Loan B add on of $100 million.
Also, a EUR 46.8 million dividend was distributed in July after funding working capital, interest, tax, CapEx, the AZR acquisition, and also the EUR 47 million dividend. Total cash flow amounted to a positive EUR 69.5 million in 2021. Hence, our cash on hand improved to EUR 224.1 million at year-end 2021, a new high and record for Befesa, up from the EUR 154.6 million at year-end 2020. The cash on hand of EUR 224 million, together with our entirely undrawn EUR 75 million revolving credit line, provides Befesa with a strong liquidity of around EUR 300 million.
Net debt increased to EUR 471 million at year-end 2021 versus EUR 394 million at year-end 2020, mainly due to the EUR 100 million Term Loan B add-on to partly fund the AZR acquisition as well as China local loans. The EUR 218 million last 12 months rolling EBITDA incorporates full 12 months rolling months of the U.S. operations. The EUR 471 million net debt with the EUR 218 million last 12 months adjusted EBITDA results in a 2.16 net leverage at year-end 2021, improving from 3.1 at year-end 2020. Normalizing and including synergies, leverage is even lower for debt covenant reporting. We continue to be compliant with all debt covenants and have no applicable recourse.
The capital structure remains unchanged and long-term all set to July 2026, and we cannot be charged more than 2% interest rate. Turning to page 10 on hedging. In 2021, we continued our hedging rigor and extended our zinc hedge book further up to and including October 2024 for the classic or non-U.S. operations, and up to and including July 2024 for the U.S. operations. Thus with approximately 2.5-3 years of hedges on the books. The acquired Zinc U.S. operations came with a hedge book in place up to and including first quarter of 2023 at hedging price of around $2,500 for the remaining of 2021 and around $2,750 for the full year 2022 and first quarter 2023.
Following the closing of the acquisition and under Befesa's more competitive hedging program, we extended the hedges for the U.S. operations up to and including July 2024. Locking in 15,000 tons of zinc equivalent output per quarter at approximately EUR 2,050- EUR 2,075 per ton. We continue to work on extending the hedge book for the U.S. operations by one more quarter to be fully synchronized with the hedging of Befesa's European and Asian operations. Overall, considering the combined global hedge book, Europe plus Korea plus U.S. operation, the year 2021 was hedged at around EUR 2,151 per ton, sold forward prices. The year 2022 at around EUR 2,250 per ton.
The year 2023 at around EUR 2,350, and the first three quarters of 2024 at around EUR 2,400 per ton. The hedging provides Befesa with improved pricing, earnings, and cash flow visibility to allow us to fund our growth initiatives organically. Our hedging strategy remains unchanged. We hedge 1-3 years out. We target 60%-75% of our global zinc equivalent volumes, and Befesa provides no collateral. The risk is transferred entirely to our hedging partner. Referring to our zinc blended prices, look at the lower left section on page 10. In 2021, our zinc hedges were locked in at approximately EUR 2,151 per ton on average, underwater compared to the strong zinc LME spot prices, which averaged approximately EUR 2,554 per ton.
Overall, the zinc blended price in 2021 averaged EUR 2,275 per ton, up 7% or EUR 139 per ton. Summarizing the financial section before we turn to the growth and outlook, three points. Befesa delivered in 2021 the highest earnings in the history of the company at EUR 190 million, EUR 198 million adjusted EBITDA, up 56% over last year, which translated into very strong developments in terms of operating cash flow, cash, and leverage. Secondly, our financial backbone is strong. We extended our hedges out to October 2024. Our capital structure is efficient and long-term, resulting in a stable and strong liquidity. Three, based on this strong backbone, we funded our global expansion in China, even during this challenging pandemic.
We go full speed and are progressing on target. In addition, we entered the U.S. market through the acquisition of AZR. Now back to Javier, who will provide you the latest on our China expansion, our zinc U.S. operations, and an initial outlook for the year 2022.
Thanks, Wolf. As you know, we will provide full year guidance when we report our first quarter figures in April, once the treatment charge on zinc are settled. Nevertheless, I will take you through the main drivers of earnings for 2022 and provide some comments about them. Last year, we set the foundation for future growth in the years to come, and 2022 will be clearly a year of strong growth for Befesa, driven mainly by a strong volume growth in our steel dust recycling business, supported by strong metal prices. We expect double-digit growth in our EBITDA. Although, to be more precise, we need to wait more to see the evolution of certain elements that drive our earnings, like treatment charge, metal prices, and energy costs. Even in the current situation, I feel very positive.
From the volume point of view, we will deliver a strong growth in our steel dust recycling business, driven by the contribution of the two plants in China, as well as the full year of operation in the U.S. In China, 2022 marks the first year of commercial operations of Befesa in this market, which is the biggest market in the world. In Jiangsu, after the successful commissioning and ramp-up of the plant, we expect 12 months of full production with an average capacity utilization of around. I can confirm that we have been operating as normal for the first two months of the year, and we have secured around 100,000 tons of steel dust. In January, we treat 8,600 tons, which is almost full capacity utilization.
In Henan, we expect to complete the commissioning and the ramp-up of the plant during the first half of the year and run commercial operations during the second half. In this plant, we are working on securing the volume and expect to run the plant at a high capacity utilization. All in all, we expect a positive EBITDA contribution for our zinc China this year. Moving now to America. As explained at the beginning of the call, things in the U.S. are going well, and I'm very happy with the integration of American Zinc Recycling into Befesa. Since November last year, we are regularly traveling to the U.S. and working across all the different aspects of the business, from the operational side to the commercial side.
The team is working very well with the rest of the organization, and we can confirm that we will capture the synergies that we announced of $20 million approximately over this and next year. In 2021, we consolidate around four months of operations from the U.S., which delivered around EUR 10 million of EBITDA. In 2022, we are going to benefit from the full year of operations in North America, which will represent a significant EBITDA growth, driven by better hedging prices and the contribution of part of the synergies. This will be partially offset by slightly lower volume of steel dust compared to the previous year, which we will recover over the next years.
Beyond China and U.S., in the rest of the traditional business of Befesa, we expect a strong volume in steel dust, secondary aluminum and salt slag, supported by a strong performance on the underlying industries, mainly steel production. From the metal prices point of view, we also expect a positive contribution this year. The hedge price for 2022 is around EUR 2,050 per ton, which is EUR 100 higher than last year. Additionally, we are enjoying zinc prices higher than in 2021, and it seems that it will stay high for the rest of the year, driven by strong demand and constrained supply. If this is the case, this will drive earnings up significantly. On the other hand, it seems that treatment charge will increase this year, driven by lower demand from smelters.
In 2021, the treatment charge was EUR 159 per ton, and any increase of $10 will have an impact of around $2.5 million in our EBITDA. We are living times of volatility and very high energy prices in Europe, which has an impact on our European operations, and especially on our aluminum business. Our steel dust business is very well diversified from the geographic point of view, and the main energy cost is mainly coke, with most of the contracts having limited impact. However, our aluminum business is impacted by the high energy prices, especially gas prices, which represent around two-thirds of the total energy cost in that business. This is partially compensated by the slightly higher aluminum price than last year.
Again, summarizing all these aspects, we see clearly a strong double-digit growth in EBITDA for this year. Regarding the announcement of further plans in China, I would like to say that we are very confident and positive about how things are developing in the country. Environmental authorities are committed to fulfill the environmental regulation. The steel makers are seeing recycling as a real solution, and we are starting to see real possibilities for new plants in China. We will announce our growth plan in China during this year. Finally, on ESG, we are proud to actively contribute to the circular economy by recycling more hazardous waste for our customers year on year, producing more valuable new materials and preventing the extraction of virgin resources, as we keep delivering attractive returns for our shareholders.
In our next ESG report, we will include a detailed chapter about climate change and how Befesa is committed to the protection. Although Befesa avoids CO2 emissions versus the alternatives, we are going beyond by defining a plan to reduce our own CO2 emissions by 20% in 2030, with the ambition to achieve net zero emissions by 2050. Thank you very much.
Thank you, Javier. We will now open the line for your questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. Our first question today comes from Michael Hoffman of Stifel. Please go ahead.
Hi. Good morning, and thank you very much for the questions. If we could start with geopolitical for a minute, can you frame how you think about what's happening on your eastern border, what the implications are to the business?
Well, thanks, Michael, and thanks for the question. Frankly speaking, we don't expect or we are not going to have any direct implications regarding what is happening in the eastern part of Europe. We don't have any interest in the area, any interest in Ukraine, neither in Russia. Well, we can have, let's say, indirect effects, for example, in the energy side or the inflation cost, but or in the macroeconomic side, but not any direct effect.
I would like to say that in any way, regarding energy and in our main business, which is steel dust, the energy cost inflation will have limited effect in our P&L because our main energy source is coke, and, well, there is not a direct correlation between coke prices and gas prices. So, summarizing, we don't expect any direct effect. We have all the indirect effects regarding the macroeconomic evolution of the situation.
Okay. I appreciate not giving full guidance, but can we frame things like what should we expect as tonnage in, say, electric arc furnace if we broke it down into the three components of legacy Befesa, U.S. and then China?
Okay. Well, in Europe, we expect solid good volume, very good volumes. What we are seeing in the production of the steelmakers in Europe is a very solid and good situation. Exactly the same is happening in U.S. I think we could say the same regarding our Asian operations. All in all, we expected a good volume, good volumes for the full year, and this is what we are seeing in the first two years of this-
Months.
Two months, sorry. In the first two months of the year. On the other hand, the orders we have from our customers are very solid. We feel very positive regarding volumes in the steel side.
Can you frame that in numbers in the U.S.? What would you expect as tonnage in the U.S. so we at least get sort of that annualized number right?
Well, I don't have this figure in mind right now. For sure will be treatment volume above 450,000 tons during the year.
Okay.
In Europe, we will have similar figures than we have shown in 2021. Regarding China, Turkey, and South Korea, more or less the same, slightly better, let me say. Regarding China, thinking in the first, in the Jiangsu plant, as I said during the presentation, we have secured around 100,000 tons, which mean near full capacity for the plant during the year. Regarding Henan, well, we will start operating commercial operations mid-year, and we are now in conversation with the steel makers, and we expect a good volume for the year. Again, all in all, we are—we feel very, even in the current situation, we feel very positive with our volume for this year.
Okay. Thank you very much. I appreciate it.
Thank you, Michael.
Oh, our next question today comes from Jacob Rein of Goldman Sachs. Please go ahead.
Good morning, gentlemen, and congratulations on the strong year. Two questions, if I may. The first, on China. It sounds from your commentary that the demand is coming through strongly for these two plants, which is great to see. Can you just give us a sense on how you're seeing the economics, you know, two months, how are things like recoveries coming through? What's the situation with collection fees? Is the margin on this business similar to Europe? I think previously you'd mentioned that maybe each plant could contribute around EUR 10 million-EUR 15 million of EBITDA on an annual basis, and I appreciate this is the first year.
I would be fascinated to hear any insights of actually the economics of the business so far and your learnings to date.
Okay. Thanks, Jacob. Well, we are still on February. We have closed only the first main month of operations. As I said in the presentation, the volume has been very good. The final figure we have achieved has been more or less our budgeted figures. You said we were talking about EUR 10 million-EUR 15 million. If I remember properly, we were talking about from EUR 8 million-EUR 14 million, which is similar. We will for sure be in that range. To be more precise, it will depend especially on the quality of the steel dust.
I mean, on the amount of zinc and of the zinc content in the steel dust, which is yet the variable that we don't know very well. Regarding collection fee, well, we are using formulas which mean that and depending on the zinc price and zinc content. At the current levels of zinc price, steel dust, we are paying for the steel dust with a high zinc content, and we are getting. We get money from the steel dust with low zinc content.
To summarize, the first month has been a good month, and with costs in the right side, volumes in the right side, zinc content is still slightly low, but we think it's normal that we are starting with operation with our customer. We expect to improve the quality of the thing during the coming months. We feel very positive about the volume of the Chinese plants.
Thanks very much. Perhaps just one follow-up on China. There's nothing you've seen from a market perspective that should concern at all? It sounds like you're very confident. Obviously, utilization sounds like it will be very strong through 2022. You know, as I understand it, Befesa has a first-mover advantage in the country. It sounds like things are going well from that front.
Yes. Really, as you said, we are the first mover. Frankly speaking, we are not seeing any foreign competition in China today. We are seeing some local competition, but not a real competition, at least from an environmental point of view. The prospects are really very positive. That's why I said during the presentation that we feel very confident about the future of our operations in China, not only thinking in the first two plants, but we are now, once we have more time to think in the to grow the market, that we are starting to see real possibilities in other areas or province with new and existing customers. I think that during the year, we should be able to announce new projects in this area.
That's great to hear. One more if I may, just on the U.S. and obviously a transformational year for Befesa in 2021. Now that you've owned AZR six months, have you been able to look underneath the bonnet, has your perspective on that business changed at all in terms of, you know, if we think about the synergy potential, for example, or the quality of the business? What have you learned since owning the business? Do you still remain fully confident on ramping the capacity utilization?
Yes. Well, what we are seeing in U.S. after, as you said, six months of operation is basically what we discovered during the due diligence that we did. We had the opportunity to run a very deep due diligence. We are not seeing any negative surprise after six months. We are really happy with the situation of the plant. We have four good plants in terms of steel dust treatment. We have an excellent local team which runs the business very well. We have a very strong position in the market.
It's true that during the last year of operation of HFR, they lost some quantities, but we are on the way to recover during this and the following year. All in all, we feel really very positive. Regarding the synergies, as I said during the presentation, we feel that the first step of our synergies, what we were talking about, $20 million, we will capture, we will get during the first two years as expected. All in all, really very positive.
We are now in a process to analyze deeply the market, to analyze deeply the plan, the CapEx, to be able to improve the profitability of the American operations, to be able to achieve the levels of profitability that we have in Europe. That will need more time.
Great. Thank you very much.
Okay, Jacob. Thank you.
Cheers.
We will now take a question from Oscar Val of JP Morgan. Please go ahead.
Yes. Good morning, Wolf and Javier. I have two questions. I'll take them one by one. The first one on secondary aluminum and energy costs. In secondary aluminum, you did EUR 10 million of EBITDA in Q4, which is higher than what you've ever done, which seems like you're managing to offset higher energy costs with a higher aluminum price. How should we think about that next year? Are there any hedges that roll off in natural gas? That's really the first question, the phasing of secondary aluminum next year if energy prices remain high.
Well, in we don't have hedge in our secondary aluminum business. We are living with spot prices. Even in that situation, as you said, we achieved record results in the last quarter of the year. It's true that the first month of the year has been a difficult month because we have had very high energy costs. Well, anyway, we have been able to achieve positive and good results. We expect, let's see what's happening with the energy costs regarding all this Ukraine crisis, et cetera.
At the same time, we are seeing that, for example, today, the aluminum prices are going up 5%. What we have learned in the past is that there is a perfect correlation between energy costs and aluminum costs. I don't know if we will be able to achieve the same excellent results we achieved last year. That, frankly speaking, was a record year in our aluminum business with EUR 49 million. We feel comfortable that we will be able to achieve very acceptable results. On the other hand, in the-
Okay, thank you.
Okay. Okay.
Go ahead. I don't know if you were finishing.
No. Well, I want to tell you that at the same time, in our steel dust recycling business, even in the current situation with higher energy costs, but in that case with less effect in Befesa because our main energy resource is coke, and there is not a direct correlation between coke and energy. But with the current decline in prices and our excellent hedging prices, we feel really very comfortable. All in all, even in this very difficult situation, especially today, I would like to say that I feel really very comfortable thinking in the P&L that we have in front of us for this year.
Okay. That is useful. My second question is on AZR's zinc refining assets. I don't know if you can comment, but are they achieving the milestones? How should we think about Befesa potentially buying that business? Do you have any sense of if the business is recovering and improving?
Yes. We now, as you know, we own 7% of the stake of the company.
Yeah.
We have a director in the board of AZR, American Zinc-
Refining Products.
Products. American Zinc Products is the name of the company. I can say that the volume in the production is being really very positive. They are achieving the load factor, and now they are fighting to get the level of cost which is needed to trigger the milestone. Yes, I think they will be able to achieve the both load factor and cost that will trigger the following milestones.
Can I just check when will those milestones be?
Well, that will be more difficult because they need to achieve in our contract the volume levels during six months without a stop, et cetera. It's something that will happen, in my opinion, during 2023, probably. Likely.
Great. Thank you very much, Javier.
Thank you, Oscar.
Ladies and gentlemen, as a reminder, to ask a question, please press star one on your telephone keypad. Our next question today comes from Jaime Escribano of Banco Santander. Please go ahead.
Hello, good morning. A couple of questions from my side. The first one is if you could tell us what is the EBITDA contribution from American Zinc Recycling in Q4, and what could we expect more or less, or give us a range in terms of EBITDA for 2022? I'm asking this in order to understand what has been the EBITDA like for like, excluding the acquisition? Related with the acquisition, how are you doing with the hedging? Because I remember one relevant catalyst for American Zinc Recycling was to change the hedges to hedges more in line with Befesa. Have you implemented this? Thank you.
Okay. I will answer the first question and Wolf will explain the hedging situation in American Zinc in the U.S., no? Regarding the first question, the EBITDA contribution of U.S. operation was around EUR 10 million for the fourth quarter. This, our expectation for 2022, remember when we did the presentation of the deal, we were talking about the full year contribution for the first year of operation of around $40 million-$45 million, more or less. This is what we have in front of us, and we feel positive that we will be able to achieve or even improve slightly this figure.
Okay.
Okay.
Great. On hedging time, yes, absolutely. We now apply the Befesa rigor on hedging. Timing, when we acquired the company, hedges were on the books roughly until the first quarter of 2023.
As I mentioned earlier, now we're hedged for US operations up to and including July 2024. The classic Befesa hedge book is up to and including October 2024. US operations were already extended to July 2024. There's only three months pending to fully synchronize the hedge books. In terms of pricing of hedges, yes, what we have now on the books, the hedges that we added are more competitive. When we acquired the company, you know, hedges were on the books for 2021, last year, for roughly $2,500. For 2022 and the first quarter 2023, roughly $2,750 per ton. The last hedges and the extension that we've done are more than $2,900.
The last hedges were at $2,950, $2,975. All of that contributes, as I mentioned on the page on hedging, that really we now see for the next years clearly the hedge book contributing to earnings, yeah. If you look at this year, last year was EUR 2,150 per ton. This year, EUR 2,250 per ton on average for the total business. Doesn't sound like much. It's EUR 100 per ton more, but you need to multiply, Jaime, with roughly 150,000 tons hedged. That's EUR 15 million incremental EBITDA.
Only for this year.
Coming only for this year. Next year will be EUR 2,350, will be another EUR 15 million, et cetera. Overall, we're continuing the hedging rigor, and it provides stability in earnings.
Okay. Thank you very much. Just a couple of more questions, if I may. The first one is more related to guidance. I laugh because maybe, Javier, you won't be able to tell us, but let me ask you in a different way. You have done in Q4 2021 a run rate EBITDA of around EUR 60 million, more or less. If you multiply by four, just very easy number, we get 240, and you have the upside from Chinese volumes coming and all the upside that Wolf just mentioned about, for example, the hedging and synergies and so on. This 240, would you think of it as like a starting point doing this run rate?
Well, I would say, be patient, Jaime, we will provide the guidance as promised in April. Okay, your calculations are well made, but you have to take others in consideration some ideas. We didn't have any maintenance shut down in the Q4, which has a very positive impact. Yes, we will have positive taking account that, and on top of that, we will have positive impact like China and the hedging. We will have some negative impact as could be energy costs in the aluminum side or the increase in the treatment charge that we expect for the year. I would like to summarize telling we feel very positive. We will have clearly a strong double-digit growth in front of us.
Permit us to wait until April to be more precise about the guidance of the year.
Okay, thank you very much. Final question from my side.
Thank you, Jaime.
In terms of Chinese expansion plans, I know you cannot anticipate anything, but if you were to expand capacity in China, when do you think you would be in a position to announce it? Is it something we can hear about in Q2, more closer to July, mid-year, or second half? What are the main variables that could trigger an announcement of expansion? What is what you are waiting or what is what you are doing right now in thinking about expanding capacity? Thank you.
Well, we until now, we have been, let me say, taking consideration two ideas. First is that we have a limited human resources team there, and that had been basically focused in the constructions and feeding of the first two plants. Jiangsu is basically done. Now we are finishing the construction of Henan, and we are totally concentrated in feeding the raw material for the plant. On the other hand, we have had, as you know, in China, the COVID restrictions are much higher than probably the rest of the world. To try to travel to visit areas has been really very difficult. Now we are starting to do all these kind of things.
We feel positive because we see opportunities in different areas, et cetera. Now we are starting to work seriously in those opportunities. When are we going to announce? We will announce something to the market when we have something real on our hands. We don't want to announce ideas. We will announce real projects. When that will happen? I'm thinking more in the second part of the year than the first part of the year, frankly speaking. Let's see the evolution of things during the year, no?
Okay, very good. Thank you, Javier.
Thank you, Jaime.
Our next question today comes from Juan Rodríguez of Kepler. Please go ahead.
Hi. Thank you. Good morning, and thank you for your questions. Apologies on my side if some of these have been already asked, as I've been having problem connections here and my call continues dropping. I have two on my sides. One is on the energy side, and the second one on volumes. On the first one, how are margins holding up on your aluminum business? In other words, are you seeing that metal price increases are fully capturing your higher energy cost? And in that sense, more clarity as well on the energy cost side, how are you design your contracts with gas suppliers? You only buy on the spot, or do you have some kind of yearly review tariff with gas suppliers?
This is on the energy side. The second one is on volumes. If the macroeconomic condition deteriorates further, as we see the news flows today, what is your confidence that the volumes treated would hold? In other words, do you have some contractual protections in that sense? Any sensitivity could be useful as well. Thank you.
Okay. Well, you have made two difficult questions, frankly speaking. Regarding the first one.
That's the point.
Regarding the first one, we don't have today hedge or long-term contract in energy in the aluminum business. We are using the spot prices. January has been a difficult month. February has been better than January, and March will be better than February. In January, we have been below the previous year figures in terms of margin. Anyway, we are having positive margins. To define more precisely the margin is really difficult because there are two variables that we don't know which will be the correlation between them, energy prices and metal prices.
You can think is that energy represents around 20-something, slightly more than 20% of our cost, and the sale of metals represent more than 50% of our income. The effect of this metal prices is higher than the effect of the energy cost. We don't need the perfect correlation to offset totally. Let's see how the situation evolves. Well, I feel positive at that moment. Then regarding your second question. Phew. I don't know. You guys are the specialist. We only know about our small business, and for us it's really difficult to forecast what is going to happen with the current geopolitical situation.
What I can say is that what we have seen in the first month of the year has been a very positive evolution of the industry, especially in the steel side. We are enjoying very good volumes, and we don't forecast in the short term any different situation. If something change dramatically because of the geopolitical situation, let's see. If that's happening, well, the contract protection, I think we have something, but I'm not sure that in this exceptional situation that protection could be used.
Okay, quite clear. Thank you. Just as a follow-up on the energy side. You said that you don't have any long-term contracts on energy prices, but you buy.
Not today. Not today in the aluminum business.
Okay. You buy everything on the spot, or you have some yearly kind of contracts, that-
It's not totally a spot. We have a stable relationship with the electric companies with different bases, but not with today, not with the long-term contracts.
Okay. We can say that the movements on energy prices have a couple of months lag between them.
Could be.
The gas. Okay. Excellent. Thank you.
Yep. Yes. Okay.
As there are no further questions at this point of time, I would like to turn the call back to Rafael Pérez for any additional or concluding remarks.
Thank you all for your questions. You can also contact the investor relations teams 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 in our website, www.befesa.com. Thank you very much to everyone.
This concludes today's call. Thank you for your participation. You may now disconnect.