Good morning. My name is Lydia and I will be your conference operator today. At this time, I would like to welcome everyone to the FAFSA First Quarter twenty twenty one Results Presentation. After the speakers' presentation, there will be a question and answer session. I would now like to turn the call over to Rafael Perez, Director of Investor Relations and Strategy.
Please sir, go ahead.
Good morning and welcome to the first quarter twenty twenty one results conference call of BFesa. I am Rafael Perre, Head of Strategy and Investor Relations of BFesa. And today as usual, we have with us Javier Molina, CEO of BFesa and Wolff Leman, CFO of VFesa. Javier Molina will start with an executive summary of the first quarter covering the main highlights of the period. Then Wolf will review the full year financials in total and by business units as well as the cash flow.
Javier will close this presentation providing an update on our growth projects as well as an outlook on 2021. Finally, we will open the line for the Q and 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 as well as the first quarter twenty twenty one results presentation on our website, www.defesa.com. Now let me turn this call over to our CEO.
Javier, please.
Thanks, Rafael. Good morning and thank you for attending this conference call. The 2021 has been the best quarter in the history of PREFESSOR. We have achieved nearly €49,000,000 of EBITDA, which is an increase of 46% compared to last year, but also 15% better than the previous quarter. This shows that the recovery that we have started to see already in the third quarter last year is fully confirmed and we are back to pre COVID levels.
As such, we expect 2021 to be a year of strong earnings growth as I will explain in more detail later in the presentation. The main driver for this increase has been a favorable market price environment in the first quarter with a recovery in the price of zinc and aluminum as well as favorable zinc treatment charge for 2021. In the first quarter, LME zinc price has been €2,279 up 18% compared to last year.
In the
case of aluminum alloys, the average price during the quarter has been $19.82 euros up 38% compared to the same period of last year. Regarding treatment charge for zinc, the benchmark treatment charge has been settled at $159 with no escalators compared to $300 in 2020. This difference of $140 per ton is very positive for BCESA and will definitely contribute positively to the earning growth we will achieve in 2021. All these favorable price earnings have resulted in a combined price effect of 41% compared to last year. During the first quarter, we have also taken the opportunity of favorable price to extend our hedging book further up to January 2024 at attractive price.
And today, we enjoy nearly three years of hedging going forward, which provides high visibility and predictability. Wolfgang will provide more details later in the presentation. Plant utilization has been strong during the quarter, pre COVID levels of ninety percent in the case of steel dust, ninety four percent in the case of solid slag and 100% for secondary aluminum. The market environment in the main industries where we operate has seen a positive level of activity during this quarter continuing the recovery territory already experienced in the 2020. As such, the production of steel in Europe in the first quarter of this year has increased 3% compared to 2020.
The automotive industry in Europe has shown signals of recovery in the first quarter as well. Card registrations increased in this quarter 3% compared to last year, with an increase in March of 87%. The generation of cash during the quarter has been very strong and this has enabled us to finish the first quarter with $104,000,000 of cash on hand and leverage ratio of 2.8 times. Our growth plans in China continue as planned on schedule and on budget. The construction of the plant in Jiangsu is now completed and the commissioning of the plant is currently underway.
We expect to start processing steel dust in the coming weeks and start with commercial operations in the second half of the year. We also continue the construction work of our second plant in Henan, which we expect to be finished after the summer of this year. Regarding the outlook for this year, we expect strong growth supported by continued favorable price environment as well as a recovery on the underlying industries where we operate like the speed production and high quality. Based on this, we expect full year 2021 EBITDA to be between €165,000,000 and €190,000,000 which means between 30% to 50% growth year on year. I will provide more details on the full year guidance later in the presentation.
Finally, on ESG, following the publication of our 2020 Annual Report in March, today we have published our 2020 ESG progress update, which provides an insight into the developments achieved in ESG during the year and an update on the main ESG performance indicators. As a result part of the circular economy, we are very committed to making a strong contribution towards creating a more sustainable growth. Our business strategy is fully aligned with our ESG strategy and is rooted in an increased contribution to the secular economy as we deploy our business model in new markets and geographies. Now Walt Riemann will explain the financials in more detail. Walt, please.
Good morning. Please turn to Page six, the first quarter twenty twenty one consolidated financial highlights. As explained by Javier, Befesa delivered a new record quarterly EBITDA of €48,800,000 in Q1 twenty twenty one, up 46% from first quarter twenty twenty. The highest so far was fourth quarter twenty eighteen with 47.1%. The main drivers of the year over year €15,300,000 EBITDA improvement are as follows: a positive €16,600,000 price effect where we benefited from a favorable market price environment with the following components: 5,000,000 from higher zinc LME prices at €2,279 per tonne, up 18% year over year.
Secondly, 8,000,000 due to the reference zinc treatment charges settled favorably at $159 per tonne versus $300 in 2020. Slide €1,000,000 negative from lower zinc hedging prices partially offset the zinc LME market price increase. A positive €4,500,000 from higher aluminum alloy F and B prices, which averaged EUR1982 per tonne, up 38% year over year. Secondly, a minor EUR1.3 million volume impact negative, mainly due to the lower volumes treated in Salt Flax and Svenport Lining as a result of The UK plant closure last year. Other than this, volumes were at pre COVID-nineteen levels with strong plant utilization levels at or above 90%.
Finally, on cost and other, no net impact year over year. We are executing and tracking our operational excellence projects project by project and month by month, and those efficiencies are like in previous years supporting to offset any inflationary or other pressures. In summary, net net, the fiscal delivered high pre COVID-nineteen plant utilization levels at or above 90% overall and benefited from a favorable market price environment in Q1 twenty twenty one, which enabled us to deliver our best quarter ever at €48,800,000 EBITDA and 25% EBITDA margin. Aligned with EBITDA, net profit was up 69% or up €10,000,000 year over year to achieve €24,800,000 in Q1, equal to €0.73 earnings per share. We achieved strong cash, net debt and leverage results, which I will explain later on Page nine.
Turning to Page seven, the Stihl Dust Recycling Services results. Stihl Dust Recycling Services achieved €36,500,000 EBITDA in Q1, up €10,600,000 or 41% year over year. The achieved EBITA margin is 36%. The price level was positive by €11,000,000 year over year, being the main driver behind the positive EBITA development, slightly offset by a minor negative 0.5% volume impact including the stainless operations. Looking at selected operational metrics on the lower part of the page.
Volume or electric arc furnace steel duct throughput remained approximately stable at 181,000 tonnes, only slightly below Q1 last year. Overall plant utilization levels are back at pre COVID levels of around 90%. The average zinc LME market prices stood at €2,279 per tonne in Q1, up 18% year over year. Our zinc hedging prices in Q1 were slightly lower year over year as well as compared to the spot average prices in Q1 twenty eighteen. Combined, the resulting zinc blended price came in at €2,237 per tonne, up €123 per tonne or six percent year over year.
Correspondingly, the positive EBITDA effect from the higher zinc LME market prices of gross €5,000,000 up was slightly offset by a negative €1,000,000 due to the slightly lower hedges, resulting net in a positive €4,000,000 effect. In addition, the zinc treatment charge reference was settled at €159 per tonne for 2021. TCs are valid from January 1 and favorably impacted our first quarter EBITDA by €8,000,000 Combined, the net price effect in Q1 twenty twenty one was approximately 41 year over year. Overall, Stelas recycling services delivered €36,500,000 EBITDA in Q1 with a strong 36% EBITDA margin and around 90% plant utilization, clearly back at pre COVID levels. Going now to Page eight, the results of our Aluminum Recycling Services segment.
Aluminum Solflex Recycling Services achieved €12,300,000 EBITDA in Q1, up €3,700,000 or 43% year over year. The EBITDA increase was primarily driven by the price lever with aluminum alloy free metal bullet market prices showing a 38% year over year increase, which drove a positive €4,500,000 EBITDA effect year over year. This was slightly offset by a minor 0.8% negative year over year impact in volume. Salt flex and spent for lining volume treated amounted to 104,000 tonnes in Q1, down 16% year over year. This development was primarily due to the plant in The UK, which contributed during 2020 and was permanently shut down since year end 2020.
Excluding or adjusting for The UK, overall plant utilization rate remained resilient at 94 of the latest installed annual recycling capacity of 550,000 tonnes and at pre COVID levels. Secondary aluminum volume produced was 51,000 tonnes in Q1, up 7% year over year with plants running at full capacity. Overall, aluminum salt flex recycling services delivered a strong EUR 12,000,000 EBITDA in Q1 with EBITDA margin for the salt flex and sand port lining hazardous waste recycling core segment back at 30%. And overall plant utilization recovered to pre COVID-nineteen levels at above 90%. Turning to Page nine, the cash flow, net debt and leverage results.
On the EBITDA to total cash flow bridge, starting with €48,800,000 EBITDA on the left hand and walking to the right. Working capital was slightly up by CHF 13,000,000 year over year, mainly seasonally driven by higher quarter over quarter sales and increased receivables, including adjusting for the favorable and lower reference zinc treatment charges. Interest as expected of negative CHF 6,000,000, with the first of the two biannual term loan B interest payments made in January. Taxes CHF 3,000,000, also as expected, resulting in a strong operating cash flow of €26,500,000 up €18,100,000 year over year, more than 3x higher versus the €8,400,000 at Q1 last year. Note that on a twelve month LTM basis, the operating cash flow amounts to €111,000,000 well above the pre COVID levels.
We spent maintenance CapEx of approximately €4,500,000 plus gross CapEx of approximately €23,500,000 totaling €28,000,000 CapEx, of which 12,000,000 was funded through the China local loans for our two plants at Changzhou and Hainan, resulting in a total cash flow of a positive €9,400,000 in the 2021. The €9,400,000 total cash flow improved cash on hand from €154,600,000 at year end 2020 to €164,000,000 at Q1 closing. Cash on hand of €164,000,000 together with our entirely undrawn €75,000,000 revolving credit line provides PEPEZZA with a strong liquidity of €240,000,000 Net debt stood approximately stable at €395,000,000 and with the last twelve months rolling €142,000,000 EBITDA results in a 2.8 net leverage, reduced from 3.1 at year end 2020. Please note on the last six months view, net leverage stands lower and is at 2.2x leverage, similar to the moderate leverage levels back in 2018. We continue to be compliant with all debt covenants and have no applicable covenants.
The capital structure remains unchanged and long term, all set to July 2026, and we cannot be charged more than 2% interest rate. Summarizing, the backbone of the Pfeza is strong, and we continue to manage conservatively. The three main levers of this backbone are: number one, the capital structure, long term all set up to mid-twenty twenty six and at efficient rates as we cannot be charged more than 2% interest secondly, cash. We manage cash and liquidity conservatively. Even at the peak of COVID-nineteen, we held more than CHF100 million cash and now more than CHF160 million cash on hand at first quarter closing.
Number three, hedging. Our strong and long term hedge book reaching out to January 2024 starts for the next three years, and I will explain on the next page in more detail. Those three levers form the strong backbone of Pfeifsat's financial and capital structure and serve us very well in crisis situations like the COVID-nineteen pandemic. This allowed and allows us to continue to go full speed ahead on our growth expansion in China and stay on budget and time. Turning to Page 10 on hedging.
In first quarter twenty twenty one, we continued our hedging rigor and extended our zinc hedge book further up to and including January 2024. For this year 2021, next year 2022 and for 2023, the 2023, we are fully hedged at the targeted 23,100 tonnes per quarter or 92,400 tonnes annually. The fourth quarter twenty twenty three, November, December and January 2024, we have a first tranche of 4,500 tonnes on the books already and are working the remaining tonnage. So it's overall more than 2.5 hedges on the books. 2021 is hedged at around €2,150 per tonne sold forward prices.
2022 at around €2,200 per tonne and 2023 at €2,300 per tonne. The hedging provides VFSA with improved pricing, earnings and cash flow visibility to allow to fund our growth initiatives organically. Our hedging strategy remains unchanged. We hedge one to three years out. We target 60% to 75% of our zinc equivalent volume.
The majority, about 80% is in euro, the rest in Korean won. No collateral. The risk is transferred entirely to our hedging partners. Referring to Q1, the lower left section on Page 10. In first quarter twenty twenty one, the average zinc LME market price was €2,279 per tonne.
Our hedges were locked in at €2,201 per tonne on average, slightly below the strong spot prices in first quarter. Overall, the blended zinc price in first quarter averaged at €2,237 per tonne, up six percent or €123 per tonne year over year. Summarizing the financial section before we turn to growth and the outlook, three points. Number one, Bepiso delivered in first quarter, the highest quarter in the history of the company at €48,800,000 EBITDA, up 46% over last year and had a great start to the year in terms of operating cash flow, cash and leverage. Secondly, our financial backbone is strong.
We extended our hedges out to January 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 expansion in China even during this challenging pandemic full speed. In China, we are on schedule and budget. Back to Javier.
He will provide you the latest on our China expansion and our full year guidance.
Thanks, Wolf. I would like to finish the call providing some more details and thoughts on the outlook for this year. 2021 is an exciting year for Befesa and truly an important milestone in the development of the company as we are completing the construction and start operations of our first two steel gas recycling plants at the Jiangsu and Henan Province in China. At Jiangsu Province, we have completed the constructions as you can see from the pictures on the presentation. We are right in the middle of the commissioning of the plant and we expect to start the ramp up in June.
We have been investing around €42,000,000 in each of the two plants and we have closed the long term local financing of 50%. Regarding the ramp up for Jiangsu, as you know, we reserved the entire first half of this year for commissioning, pilot batch and commercial contract negotiation. We plan for commercial output and a positive earnings contribution in the second part of the year. We have already secured the steel dust volume from customers to do the trials, which will start over the coming weeks. Our second plant in the province of Henan is developing as planned on budget and on time and with a schedule around six months after the Jiangsu plant.
We expect to complete the construction by the end of the summer. Moving now to the market environment, we have seen over the first quarter a recovery of the steel production industry in Europe and we expect the current level of steel production to be maintained throughout this 2021, which will represent a higher production over last year. The automotive industry in Europe is also showing some signs of recovery and we will see how this develops over the rest of the year. As you know, a positive development in the automotive industry will support our secondary aluminum as well as our solid slag volumes. Let me now explain some details on the outlook for this year.
As explained at the beginning of the call, for the full year 2021, we expect a total EBITDA between €165,000,000 and €190,000,000 At the lower end of the guidance range, we expect to achieve around €165,000,000 of EBITDA, which is higher than the €150,000,000 we achieved in 2019 before COVID started. This is based on a moderate recovery from COVID-nineteen with an overall capacity utilization around 85% and China ramping up and delivering commercial output in the second half of the year on schedule. From the price environment point of view, this lower part of the guidance considers that zinc and aluminum market price will be slowing down in the second part of the year compared to the strong levels achieved in the 2021. The high end of the guidance at €190,000,000 would represent a new historical record for our company. This scenario is based on a continuation of the strong recovery from COVID-nineteen seen already in the first quarter, representing an overall capacity utilization around 90% to 95%.
And similarly, ramping up and delivering commercial output in the second half of the year on schedule. From the metal price environment, this scenario considers that the currency levels achieved during the first quarter are maintained for the rest of the year, which seen LME around $2,750 per ton and aluminum alloy around €2,000 per ton. Let me say that today the sea price is €100 above this figure. In both low and higher scenarios, the treatment chart reference that has been considered is the same at $159 per ton. Cash flow generation is expected to be strong in 2021 and we expect to end the year with leverage ratio between 2.1 times and 2.5 times.
We expect total CapEx around 75,000,000 to €90,000,000 of which around 50,000,000 to 60 will be dedicated to growth in China and the remaining EUR 25,000,000 to 30,000,000 will go to regular maintenance. On dividend, we will continue to carefully manage dividend stability and dividend yield, cash flow, leverage and the funding of the organic growth. For this year, we want to propose a dividend distribution of €40,000,000 which means €1.17 per share, which would basically mean distributing 50% of the net profit on a two year view. Finally, on ESG, I would like to stress once again that we are doing a lot of efforts to make sure that the market understands how EFSA is part of the circular economy and contributes with its business to environmental protection by recycling more than 1,500,000 tonnes of hazardous residues annually and producing more than 1,300,000 tonnes of new material reducing the consumption of natural resources. This has been the backbone of the business if the company started more than three decades ago.
Thank you very much.
Thank you, Farias. We will now open the line for your questions.
The first question comes
Good morning. Just a few from me, please. Firstly, maybe on the throughput levels in Q1. Could you give us an update on the development by end market for the steel dust business and also the target utilization then for each end market for the full year just to get a picture of the development?
Thanks, Benjamin. Regarding the fees production in the first quarter, figures we have today is that Europe has grown 3.1% compared to the previous year China 15.6% South Korea 3.8% and Turkey 9.5%, while The U. S. Declined 6.3%. Well, the second part of your question is our forecast for the full year, Benjamin?
Ben?
Yes. Yes. Sorry. Yes, exactly. So more so for the throughput in each of your end markets, so how that developed in Q1 and your expectation then for each end market for throughput for the full year?
Well, we don't have a forecast for the full year. We expect that the market will do better than in the previous year. I think we will achieve pre COVID levels, so we will be more in the range than the figures we saw in 2019. I don't know if this answered your question, Benjamin.
Yes, sure. Thanks. And then looking at China, could you give us some detail on what you're factoring into guidance for China output or earnings contribution? And is that the same in both the lower end and the upper end guidance scenarios?
Okay. Well, we are basically, we are doing the considering the same volume in China, both in the low and in the highest scenarios of our guidance because we consider that taking account our situation today, have a very good visibility about what is going to happen in China, at least in terms of volume. In terms of volume, what we are considering in China is that we will start operations in Jiangsu in the second part of the year. So that means commercial production, let's say, around July. And based on that, we expect to achieve a volume of between 60% to 70% of the capacity of the plant in the second part of the year.
Considering that the plant has a capacity of between 100,110 tons, so divide it by two and multiply by 60% or 70%. And considering in Enhan, the commercial production will be very small as we are going to start the ramp up in after the summer. So the second part of the year will be for commissioning, trials, etcetera. And then the big question regarding China is it hasn't we have four or three open question as of today, which is collection fee, transfer cost, thing containing the dash. So it's not very easy to to to forecast, which will be the earnings contribution for China in this year.
But any case, no matter how strong is the contribution of China in 2021, is not going to affect dramatically the profit of the company during 2021.
Okay. That's clear. Thanks. And last one just on China again. Do you expect with the contract negotiations,
do you
expect to secure those before you start the commercial production in the second half of the year?
Well, we don't have any doubt that we will get the volumes that we need to hit the plan in during the year. We are today in the middle of the negotiation with, let me say, of all our future customers. This negotiation is an individual negotiation, and it depends of the distance from our plan. It depends of the quality of the data. It depends of different factors and we are now in the negotiation.
So we know we see the volume in front of us in the area. I think for us, the important point is not to get contract signed before to start operations. The important is to get the volume to start operations. And that this is what we are working on really.
Okay. Thank you.
Thank you, Benjamin.
Thank you. The next question comes from Ingo Sechel from Commerzbank. Please go ahead.
Yes. Thanks for taking my question. And the first one would be on China too. Now that you've completed the commissioning, I was just wondering whether you can tell us whether you experienced any, let's say, technical challenges in the commissioning phase, anything which was, let's say, different in terms of a technical ramp up from what you've seen in Turkey, for example, or whether the commissioning was very smooth from a ramp up perspective? And the second on China would be just regarding quality of steel dust.
I guess you have already seen a few samples and and received a bit of information from your Chinese dust suppliers. Is there anything that surprised you with regards to quality of the dust so far, both in terms of zinc content as as as well as with regards to, for example, country specific impurities?
Fine, Tingle. Two two two very good questions. From the technical point of view, the the commission is going very well. In a commissioning, you never know what is gonna happen until the commission is totally finished. But so far, we are not seeing any relevant issue in front of us.
So it seems that we will have smooth commissioning, let's say. In case we need to finish until the last data, as I said before. But we don't expect any major problems. In the quality of the steel dust, well, is a big point for us. We have explained several times that we have done samples.
But one thing is to get the sample from the steel gas of a steelmaker and a very different thing is to freeze 1,000 tons every month from the same customer, which is our main our first expectation is that the quality of the DAS, so the zinc contained in the DAS at least in the first year of operation will be slightly below the zinc content we are achieving in Europe and even in Turkey. But we expect that in in the next future, in the in the next years, we will see an improving clearly, improvement in the quality of the DAC base. Because today, there are some Chinese steelmakers that are using or in other words, that are not using 100% of scrap in their electrical furnace because the availability of scrap is growing every day. So we expect to start with lower zinc content than in our basically our European plant. But in the next years, we expect to grow the or to improve the quality of the glass.
Okay. That's a good point with regards to scrap availability. And just one more on the secondary aluminum segment, if I may. I think the performance has been very impressive, and you've probably also been surprised by the strong rebound of profitability there and also the strong rebound of utilization. So I was just wondering, for example, Bannberg, I guess, it's already running at high utilization.
The trend towards more aluminum and passenger vehicle is probably accelerating, and then you even have a few greenfields automotive plants in proximity to your Bamberg plant. Do you see any scope to debottleneck the plant to increase output? Or should we rather assume that the capacity is fixed? And then if demand improves, you would rather focus on improving margins further in the secondary aluminum segment rather than try to increase volumes?
Okay. As you said, the has been an excellent quarter for our secondary business and Tura has been our record year in the history. And it has been based in the fantastic performance of the automotive industry in Europe in the first quarter. Well, we are not totally convinced that the rest of the year will be at the same high level that we have seen in the first part of the year. I'm sure many of you are more expert than us in the automotive industry.
So I would like to be prudent talking about that. But well, there are some signs that a slight let me say decrease in the production of cars in Europe in the second quarter compared to the first quarter. And regarding Bergvum, well, Belgium is perfectly well located. It's in the middle of the most relevant area of Europe in terms of automotive production. So in that sense, it's a great location.
And today, we are running at full capacity. Well, it's in the possibility to increase the capacity of the plant is something that we have with our mind. But on the other hand, we need to we should be prudent. We would like to be more confident in the evolution of the automotive industry in Europe in the next years.
Okay, Veritya. Thank you.
Thank you. Thank you, Ingo.
Thank you. The next question comes from Olivier Carbet from Kepler Cheuvreux. Please go ahead.
Yes, hi. Good morning. I would have a few questions. I'll take them one by one, few remaining. I was just wondering on the in China and the zinc content in the dust that you are seeing.
Can you give us a time line of the first few batches that you will see from steelmakers in the country? Because now I understand you mostly saw samples, but what about the first, let's say, few tons of dust?
Okay. Well, which is the program we have in front of us. Now we are doing the commissioning. You know that the first part of the commissioning is called coal commissioning and then later you have the hot commissioning. The hot commissioning should be done with raw materials or with that.
But in that in the focus in that part in the commissioning is not in the quality of the DAS we are treating the focus in the commissioning is in the performance of the different equipment of the plan to achieve and to get the levels of productivity, efficiency, etcetera, etcetera. So when we will see really the quality of the data? When we start commercial operations, that will be the real moment. Once you start to get 1,000 tons from the different customers. That will be it's something that happens in Europe.
We have customers in Europe with more than 30% of things in the data and we have customers in Europe with 10%. So at the end, it's an average. Then the reason to why it's difficult to forecast the average thing contained in the right is because each customer will have a different thing contained. Then we need to see which are the customers we are closing contracts with and which is the thing contained in this DAC and then we will get an average at the end of the year. We need probably at the end of this year, Oliver, we will be in a position to say, hey, the thing contained in the dust in China will be in this range at the rest of the next year.
Okay?
Yes. Okay. That makes a lot of sense. Okay. And I'm just wondering if you can give us a sort of indication in terms of the assumption you are making on EBITDA for and EBITDA contribution for China over the full year.
Well, I think that is I was I answered this question to Benjamin at the beginning. But basically, we are considering a very stable situation in China, which is that in the Jiangsu plant, we will achieve total load factor in the second part of in the second six months of the year between 60% to 70%. And practically a very marginal contribution from Hena, you can say near zero. So the total contribution of China this year is not going to be more than 30,000, 40,000 tons. And considering question mark we have around quality of seeing collection fee, etcetera.
The EBITDA of this year is not going to change dramatically because if the Chinese contribution is slightly higher or lower. That will happen really next year, where we will have two plants running at full capacity or near full capacity.
Okay. Okay. That makes sense. And then I'm just wondering if you are seeing any competition start in on the ground, I mean, beyond the the players you you you've heard before?
But we we we don't have any real competition in front of us. When I say real competition, I'm referring to to companies with the quality, let me say, from environmental point of view of the CESA. We don't know any projects of any new recycling plant based available technology and doing a complete recycling process. But in practice, we have competition. And the competition what we have is local competition.
And it's something that we have seen in the past in Europe many years ago or in Turkey, South Korea some years ago at the beginning until the market is, let me say, order or or organized, there are you will see local people doing some kind of recycling operations that and people who who are really needed because somebody need to treat the the the steel dusting a a better or or in the in the best possible way until you have a good number of projects that could do a proper recycling.
Yep. Okay.
But so far, we didn't see any, let's say, foreign company or extra local group starting the construction of a recycling plant.
Okay. Okay. Thanks. And then a couple left. One is what is the average zinc and aluminum prices that you are assuming for the full year in the lower end of your guidance?
In the lower end of the guidance, we are considering I don't want to make a mistake, but I see in the lower part, we are considering price of seeing around $2,500 per ton and aluminum price of €1,600 per ton. I think these are the considerations. And in the higher part, we are considering zinc price of around $2,750 per ton. Today, well, I didn't see it this morning, but yesterday the zinc price finished the day more than $100 above that figure. So that would be a buffer for BERFAESSA, no?
Yes. Okay. Yes. Sure. And then the last question I have, just a technical one.
Can you come back on the TC receivables? And how long it typically takes for the smelters to compensate you once the benchmark TCs are defined?
Well, we now we are closing the contract with our customers. And what we basically or every year we get is that we follow totally the benchmark, in that case, the $159 per ton. And normally, we are able to get something better. It's a small amount of $23 $4 no more than that. And right now, we are closing this contract that will take effect from the beginning of this year.
So you can consider that this treatment chart will be our treatment chart for the full year.
No, sure. I just I was talking about the in terms of this is Slide nine, you are talking about the on your cash flow, the effect of TCs in terms of the working capital change and other. Was just wondering was
wondering Wolfgang, don't you mind to answer this question?
No, absolutely. Correct, Olivier. So what you saw is that working capital went up. This is seasonal. The sales went in the fourth quarter were EUR 158,000,000, and in the first quarter EUR 193,000,000.
So you had quarter over quarter €35,000,000 more sales. The treatment charges are backdated to January 1, right? And they are now affected or already reflected in the sales accrual. As such, the working capital, a good chunk of that is really receivables because if you look at receivables, the balance is up €24,000,000 quarter over quarter or from year end to first quarter end. Inventory basically was flat.
And half of the residuals impact was offset through higher payables, obviously, from our growth projects. And so you have net net about 12,000,000, 13,000,000 working capital impact and the back charging of treatment charges part of that. Does that explain the question, Olivier?
Yes, yes. No, I was just trying to get at how much it is and how fast smelters typically pay these back.
Well, let's extend that quite frankly, Olivier, as every year, the the sales accruals are then adjusted and as part of the regular receivables billing. So there's no no issue around that.
Okay. All right. Thanks.
Thank you.
Thanks, Oliver.
Thank you. The next question comes from Oscar Baumas from JPMorgan. Please go ahead.
Good morning. I had two questions. The first one was on The U. K. Plant closure.
Can you remind us what happens to the volume that you were treating there and why you can't treat that in your existing plants in Germany? And then are there any one off closing costs? Or will you sell that U. K. Site?
That's the first question. And then the second question is on treatment charges. There's a big improvement this year. Can you remind us internally when you run your forecast what is your long term treatment charge level that we should be thinking about in the long term? Thank you.
Okay. Thank you, Oscar. Regarding the first question, The U. K. Plan, well, the plan is totally shut down and all the cost has been accounted in the twenty twenty year.
So we don't expect any additional cost to be account this year. And regarding the volumes, well, the one of the reasons to shut down the plant is that we lost a big contract with a traditional customer in UK. So and then what we are trying to do is to be able to create the remaining tons in our German plants. That means that we are we have been suffering some problems, some of them linked with Brexit, etcetera, because to get the different permits, etcetera, has been really very painful during the first part of the year. But I can say that as of today, we are starting to freeze the remaining volume in our German plants.
So we expect to at the end of this year to freeze 20,000 to 30,000 tons of Solislac that we were treating in U. K. In our German plants. Well, regarding treatment chart, this is really to this year a very, very difficult question. Traditionally, the treatment chart, if you analyze the average treatment charge during the last, I would say fifteen years has been in a range between 9% to 11% compared to the C price, LMSC price in the each year.
That range changed in 2018 when the treatment charge went down to levels of 6% something like that and changed in a different in a totally different direction in 2020 where the treatment charge went to levels of 40%, 50% of the SIM price. This year, we are again in low levels around, let's say, we would be today around 6% or something like that. So it's really difficult to forecast a long term treatment charge. What we do internally is we do we use the average treatment percentage of the shipment charge during the last ten to fifteen years. So we will be more in levels of 9% to 10%.
But let's see what's happening.
Okay, great. Now I understand it's very difficult. It's just useful to understand how you think about that long term. Thank you very much.
Thank you, Oscar.
Thank you. The next question comes from Michael Hoffman from Stifel. Please go ahead.
Good morning. Thanks for taking the questions. Javier, could you share a little bit of your what your assumptions are for the macro environment? What would we need to see in the economy that would push your guidance to the low end versus what would we need to see in the economy to see it pushed to the high end?
Oh, you made a very good question, Michael. Okay. Well, let me difference steel and and aluminum. In in steel, I think we have a more stable situation in front of us. At least we have a very clear view for the first six months of the year, where we have we see a very a stable market, high level of productions, recovery levels, etcetera.
We have we see more uncertainty in the aluminum business, but basing the uncertainty that we see in the automotive industry. First quarter of automotive industry has been very strong, I think worldwide, at least in the market we know better, which are Europe and Asia. But we are not totally sure that the second quarter will be in the same level and let's see what's happening in the second part of the year. So based on that, what we are forecasting is that in the lower part of the range, it will be more in low factors around 85% or slightly above 85%. And in the high part of the range, it will be more in levels of near 95%.
To define more how we see the macro will be difficult. Any case, we are not forecasting in our guidance a dramatic change in the current situation. We think that during this year, as I said before, we will be in low factors or in sequential levels between 85% to 94%.
And is some of your concern on auto less about demand than it is the disruptions related to the chips and the supplies and plants having to take downtime because they can't get the chips? Or is it a demand concern?
Well, this is one of the concerns. Have for example, in this second quarter, we are suffering some change in the orders we get from the automotive industry in Europe based on shutdowns because the chips situation, well, everything at the end of the day will affect the market. But taking in account, as you know very well, Michael, still does represent near 80% of our P and L. Well, I don't see that any change in the automotive industry showing the our aluminum business will affect dramatically our P and L. I think that we can today, I would say that we could be taking into account the situation we have in front of us.
I feel that we will be more in the high part of the range than in the lower part of the range.
Okay. Fair enough. And then Javier, I always have to ask this. So as you start starting up China, when do we start layering in hedges for China?
Well, to start with the hedging in China, we need to be totally convinced about the levels of production that we are going to get. And on the other hand, we are learning that hedging in China will not be totally similar to the situation we have in the rest of the world. The first based on the first part of the answer, next year we could start to hedge in China. Probably the levels of hedging that we are going to do in the first year are not going to be 70%. We can start with lower levels just to be sure.
And on the other hand, we need to definitely learn about the hedging market in China. We need to find counterparties in China. And probably, we will need to hedge in the Shanghai Metal Exchange, stick to doing the London Metal Exchange. But we are now in the middle of this process.
Okay. And then, Wolfe, what is your assumption for the full year for your and your cash flow for working capital? Is it a source of use? Or is it neutral?
Thank you, Michael. As usual, Michael, you can pencil in the buffer on working capital, something like €10,000,000 usage as we 10,000,000 to €15,000,000 as we grow. And then as you know, we had years where we didn't really didn't need that buffer, but I would put in 10,000,000 to €15,000,000 just to be conservative.
Okay. Terrific. Thank you very much. Nice start to the year.
Thank you, Mitch. Thank you. Thank you.
Thank you. The next question comes from Jaime Scribano from Banco Santander. Please go ahead.
Hello, good morning. So I had a question regarding margins. So the margin has been around 25%. Out of that, it still does around 3630% in Salted Lax and around close to 8% in secondary aluminum. My question would be how should we think about these margins per division and going forward in Q2, Q3, Q4?
And particularly to understand the Salted slacks. So this 30%, I guess, is due to the shutdown of UK and probably high aluminum prices and also in secondary aluminum. But I just want to know if there is any seasonality where margins came better than expected like in secondary aluminum? Or is this something that we should expect in following quarters? Thank you.
Thank you, Jaime. Well, I for us, it's extremely difficult to precise the margin quarter by quarter. But considering the full year, I think that 25% of average margin for the full year for us is an excellent margin. I think the better margin we have achieved in the past has been forty twenty four on average 24 something. So to get 25 on average will be great.
And regarding the different business, 36% in steel gas is something that we have seen in the past and 30% in the SOLESALAK as well. 8% in secondary aluminum is a very good margin. So summarizing, for us to achieve in the full year a full margin of 20% or 25% or pretty close 25% would be an excellent
year. Okay.
Very good. Thank you.
Thank you, Jaime. Thank you.
Thank you. Ladies and gentlemen, there are no further questions. I will now give back the floor to our speakers. Thank you.
Thank you all for your questions. You can also contact the Investor Relations team of FESSA for any further clarification. We will now conclude the conference call and the Q and A session. Let me remind you that you can find the webcast and the dial details to access the recording of this conference call on our website, www.defesa.com. Thank you very
much to all.