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Good day, and welcome to Befesa Third Quarter Results 2022. [Operator Instructions] I will now hand the call over to Rafael Perez. Please go ahead.
Good morning, and welcome to the third quarter 2022 results conference call of Befesa. I am Rafael Perez, with Strategy and Investor Relations of Befesa. Today, we have with us Javier Molina, Executive Chair of Befesa; Asier Zarraonandia, CEO of Befesa; and Wolf Lehmann, CFO of the company. Javier will start with an executive summary of the first 9 months of the year. After that, Asier will explain the business highlights of the period, covering steel dust and Aluminium Salt Slags Recycling. Wolf will review the financials in total and by business unit as well as cash flow as an update on our hedging program. Javier will close this presentation providing some thoughts about the outlook for the rest of the year and the 5-year growth plan, which we will explain in detail in the upcoming Capital Market Day on the 8th of November. Finally, we will open the lines for a Q&A session. Before getting it started, let me remind you that this conference call is being webcast live. You can find the link to the webcast and the third quarter results presentation on our website, www.befesa.com. Now let me turn this call over to our Chairman. Javier, please?
Thank you, Rafael. Good morning. During the third quarter, we have continued to deliver solid growth for Befesa in each challenging market environment. As anticipated, Q3 has been the weakest quarter in the year, driven by a combination of plant maintenance shutdowns in Europe, lower metal prices compared to the second quarter and high overall inflation, especially energy prices. In the third quarter, we have achieved EUR 46 million of EBITDA, which is 8% higher than last year. As such, in the 9 first months of the year, total EBITDA has been EUR 164 million or 20% growth year-on-year. Overall, despite the challenging macroeconomic environment and the volatility in the commodity prices, we have delivered another good quarter supported by contribution of the North American plants. In China, we expect to complete the commissioning of the second plant in Henan in the last quarter of this year, and we continue to experience a challenging environment to operate costs by the Zero COVID policy that the Chinese government is imposing. Later, our CEO will review the business performance during this quarter in more detail. Based on the results of the third quarter and our expectation for the last one, we are confirming the guidance that we provide at the beginning of the year towards the lower part of the range of EUR 220 million to EUR 270 million. We are living in a very challenging macroeconomic environment, which translate in high levels of volatility and uncertainty over the coming months, which confirms about an economic recession in Europe and globally. In September, we signed that we secure of the remaining 93% stake in the U.S. zinc refining asset. Befesa already owned 7% of the assets as part of the acquisition of AZR deal. The current environment dominated by the high inflation and energy prices has provided us with the opportunity to renegotiate favorably the terms and conditions of the agreement, reducing the acquisition price by 65% to EUR 47 million. The zinc refining business provides Befesa with a strategic vertical integration opportunity in the U.S., addressing the shortage of a smelting capacity in the North American market. Furthermore, the refining facility is the only one of its kind in the world producing green zinc for 100% recycled raw materials. Next week, on November 3, we are celebrating our 5-year anniversary on the Frankfurt Stock Exchange. In the past 5 years, we have developed Befesa, a leading European focused company to a truly global market leader with a diversified and balanced footprint. We are excited about the next growth plan of Befesa for the next 5 years, in which we plan to invest between EUR 400 million to EUR 450 million to target double-digit earnings growth in a globally balanced expansion. Now Asier Zarraonandia will explain the business performance in more detail.
Thank you, Javier. I will provide an overview of the performance of the business during the third quarter and the first 9 months of the year. Overall, the third quarter has been a good quarter. As we expected and some -- the same than previous years, plan and maintenance shutdowns across our plants in Europe during the summer season have impacted volume in the third quarter. Metal prices has been lower in Q3 compared with Q2, while inflation is headed out and especially energy prices have remained high. As we already saw in the first half of the year, we keep being able to compensate the higher inflation with higher metal prices. In summary, overall good results in a challenging environment, which position us to achieve the lower part of the guidance. Going into the details and starting with the Steel Dust Recycling business. In the Q3, we have achieved 268,000 tons of throughput, up 20% compared to last year, mainly driven by the contribution from the U.S. plan, supported by a strong performance in the rest of the markets. Similarly to previous years, Q3 is affected by planning maintenance of balancing our European plants. In Q3, the contribution from the U.S. operation has been a strong, while in China, we continue to be impacted by the Zero COVID policy of the Chinese government at the speed of the economy recovery. Total steel dust volume growth in the first 9 months has been 60% compared to the previous year. Blended zinc price considered the weighted average of LME and hedging has increased 17% in the quarter and 18% in the first 9 months of the year. These positive effects have been partially offset by higher inflection across the business in Q3, mainly in energy prices and more specifically in the coke, representing a negative impact. Total EBITDA in the steel dust business has been EUR 36 million in Q3, up 7% compared to the previous year. In the first 9 months of the year, total EBITDA in the steel dust business has been EUR 131 million, up 28% over last year. In the U.S., the integration is developing well across all fronts. The team is working well, and we are delivering the volume and the results that we expected. Also in the U.S., as explained by Javier, we have now full on the strip off the zinc refining assets. The refining facility is the only one in the world producing green zinc from 100% recycled raw materials and will be set with the works that we produce in the U.S. in our recycling facilities. In China, the Zero COVID strategy that the Chinese government is implementing to fight against the still present COVID-19 pandemic, has created a very challenging environment to operate as the recovery is going very slow. At Jiangsu province, we have been operating the plant since the beginning of the year. Plant is technically operating well, and we have contracted more than 80% of the volume. However, the situation during the 9 months of the year has been quite challenging. The COVID strategy and the slow recovery speed, made the Chinese economic guys impact -- Chinese economies impacting the steel production in our utilization rate. Our second plan in the progress of Henan is completed. And we are finishing the commissioning of the plant, which will be completed over the coming weeks. In the traditional business of Befesa, we are achieving strong volume supporters by a strong EAF steel production from our customers. Despite all the news about the steel production declines in Europe, the deliver of deliveries from our customers continues to be close to normal levels. Moving now to our Aluminium Salt Slags and Secondary Aluminium business. Our Aluminium business has delivered a good quarter in a very challenging macroeconomic environment. During the third quarter, we have recycled 67,000 tons of salt slags, representing a 9% decrease compared to last year. The production of secondary aluminum allowing has been 37,000 tons, a decrease of 13% over the last year. These volume decreases are explained by normal planned maintenance shutdowns over the summer season, both in the salt slags, as well as secondary aluminum plants. The aluminum price has increased 16% in the period, which has more than offset the high inflation in the business during the period. In this business, we have been able to pass most of the cost inflation to our customers via increase of price, fee and margin. As a result, we have achieved EUR 11 million of EBITDA in this segment, which represents a 14% growth over last year. So all in all, another good quarter in a challenging environment. As explained, Q3 has been the weakest quarter driven by maintenance shutdowns driving down volume and high inflation levels. We expect Q4 to be a strong quarter with all our plants operating as normal. A final word about China. As I mentioned, the situation during the last quarters has been very challenging and difficult to operate. So far, we have not started to see some relief in the measures and economy recovery speed. But despite the short-term challenge in China, the opportunity to grow remains strong. The management authorities are committed to enforcing and fulfilling the environmental regulations with the steelmakers saying recycling as a real solution. We are working on several new projects to build a new plant that could materialize in the near future as soon as the negotiation with authorities and the steelmakers reached to an agreement. We will explain more about this in the upcoming Capital Market Day. Now, Wolf will explain the financials in more detail.
Thank you, Asier. Please turn to Page 9, the 9 months 2022 consolidated financial highlights. As mentioned by Javier, Befesa continued to deliver solid growth, with EBITDA up 20% year-over-year in the first 9 months of 2022. EUR 163.9 million adjusted EBITDA, up EUR 27.1 million year-over-year versus the 9 months 2021 at EUR 136.8 million. Overall, our growth initiatives, including U.S. zinc are delivering results and even in the current volatile environment, we are able to offset inflationary pressures, mainly energy through higher pricing. Reviewing the main drivers of the year-over-year EUR 27 million EBITDA improvement in more detail. On volume. Overall, approximately EUR 26 million net positive volume year-over-year impact, EUR 30 million positive from the higher steel dust throughput, including the positive contribution from the U.S. zinc operations more than offsetting slightly slower EU due to seasonal plant maintenance overhauls. Negative EUR 4 million, which is a minor EUR 4 million impact from lower aluminum volumes, mainly driven by the lower activity of the European automotive and aluminum industries. On price. The overall approximately EUR 51 million positive price impact, about half or EUR 26 million is from steel dust business and the other half around EUR 25 million from our aluminum salt slags business. I will explain in more detail on the following pages. On cost other, the approximately negative EUR 50 million, lever reflects mainly the higher inflation, primary energy cost, which is in balance with the higher prices achieved. In summary, adjusted EBITDA is at an all-time high of EUR 164 million, which is a solid 19% adjusted EBITDA margin even during these high inflationary times and while the U.S. zinc integration is ongoing. Net profit increased by EUR 26 million, or 42% year-over-year to EUR 87.2 million in the first 9 months of 2022, equal to EUR 2.18 earnings per share. Both the net profit and the EPS are positively impacted by the successful acquisition of the U.S. zinc refining business, especially due to the renegotiated lower purchase price. Cash stands at EUR 139 million and leverage temporarily increased to 2.56x, which I will explain later together with the net debt and the net leverage performance on Page 12. This is after paying out EUR 50 million dividend as well as funding $47 million for the acquisition. Note, as always, in the appendix of this presentation, you'll find, as usual, various financial and operation data tables with quarterly, annual and multiyear views for your reference. Turning to Page 10, the Steel Dust Recycling Services results. Steel Dust Recycling Services continued to perform strongly and delivered EUR 131 million adjusted EBITDA in 9 months '22, up EUR 28.3 million or 27.5% year-over-year. Overall, the steel dust growth initiatives, including U.S. operations are delivering results, and we are able to offset most of the inflationary pressures, mainly energy through higher price The volume level was positive by around EUR 30 million EBITDA year-over-year. As explained, this includes the positive contribution from the U.S. operations more than offsetting the seasonal higher plant maintenance overall, especially in Europe this year. The net price level was positive by about EUR 25 million, with main price components being EUR 36 million positive from higher zinc LME prices, up 42% year-over-year to EUR 3,422 per ton. EUR 2 million positive from higher zinc hedging prices. Those were EUR 2,363 per ton in 9 months '22 versus EUR 2,170 per ton in 9 months '21. Finally, a negative EUR 12 million, driven by the known higher annual zinc treatment charges, which were considered at $230 retroactively from 1st of January versus $159 per ton in '21. Overall, the approximately EUR 25 million impact from the price level, mostly offset the approximate EUR 27 million year-over-year impact from higher inflation, mainly energy costs captured under the cost other level. Going now to Page 11. The results of our Aluminium Salt Slags Recycling Services segment. Aluminium Salt Slags Recycling Services delivered EUR 34.2 million EBITDA in 9 months '22 stable compared to the EUR 34.1 million in 9 months '21. The year-over-year EBITDA development was mainly impacted by the lower market activity in the European automotive and aluminum industries and higher energy prices, which were successfully offset by the achieved higher prices. The volume level was down by about EUR 4 million effect year-over-year. This was driven by 21% lower salt slags and spent for lining treated, but normalized for Hanover rather up 9% year-over-year as well as 14% lower production of aluminum alloys, driven by the current lower European automotive and aluminum industry environment. Nevertheless, even under the current volatile market environment, we managed to run our plants overall at around 80% utilization, especially if normalizing for Hanover. The price level was positive by about EUR 25 million. With aluminum alloy free metal board market prices showing a 25% year-over-year or post EUR 500 per ton increase as well as better aluminum metal margins. The cost other lever with around negative EUR 21 million EBITDA effect year-over-year was driven by the higher inflation, energy cost trends with particularly high gas prices in Europe, thus offset most of the progress in price. Turning to Page 12, the cash flow, net debt and leverage results. On the EBITDA, the cash flow bridge, starting with EUR 163.9 million adjusted EBITDA on the left and walking to the right. Working capital was up by about EUR 48 million year-over-year. The higher working capital consumption was very much driven by the seasonality and timing impact similar to last year. Some will give an increase in sales and receivables, the majority of which is expected to reduce by the end of this year as usual. An additional impact from the timing of the Hanover insurance recovery and impact of the zinc U.S. refining acquisition. Similar to last year, we do expect a better working capital performance seasonally in Q4 towards year-end. Interest at EUR 17 million, as expected, taxes at about EUR 20 million also as expected, resulting in an operating cash flow of EUR 78.3 million in the first 9 months '22. CapEx-wise, in the first 9 months, we spent EUR 50.9 million regular maintenance CapEx as well as CapEx related to the operational excellent synergy projects in the U.S. and to the recovery of our Hanover plant, where we partially got already and are getting the money back from the insurance. Also, EUR 69.8 million on growth, including which is the majority, around EUR 45 million, EUR 47 million for the acquisition of the U.S. zinc refining operations as well as our new plant in China. Together, total CapEx of EUR 121 million, partially funded through approximately EUR 7 million China local loan for our Henan plant. Dividends of EUR 50 million, or EUR 1.25 per share were distributed in July equal to 50% of net profit of 2021, as promised. Total cash flow amounted to a negative EUR 85 million, and cash on hand stands at EUR 139 million, again, including the around EUR 100 million for dividend and the acquisition of the U.S. zinc refining combined. The cash on hand of EUR 139 million, together with our entirely undrawn EUR 75 million revolving credit line provides Befesa with a strong liquidity of more than EUR 200 million. The EUR 225 million last 12 months rolling EBITDA incorporates full 12 months rolling of the U.S. operations on a pro forma basis. The EUR 574 million net debt with the EUR 225 million last 12 months adjusted EBITDA result in a 2.56x net leverage at third quarter closing. Again, we expect a lower leverage at year-end 2022. Now turning to Page 13 on hedging. Our zinc hedge book is up to and including January 2025. Thus, approximately 2.5 years of hedges on the books, our hedging strategy remains unchanged. Overall, considering the combined global hedge book, Europe, Korea, U.S. operations, the year 2022, this year is hedged at around EUR 2,375 per ton sold forward at fixed prices. The year 2023 is at around EUR 2,500 per ton and the year 2024 at around EUR 2,600 per ton, which provides civilian growth for the next years. Summarizing the financial section before we turn to the growth 3 points. One, Befesa delivered in the first 9 months, the highest earnings in the history of the company at EUR 164 million adjusted EBITDA, up 20% over last year despite the current volatile environment. Secondly, our financial backbone is strong. Our hedge book covers up to and including January 25. Our capital structure is efficient and long term and even after funding around EUR 100 million for the U.S. zinc refining acquisition and EUR 50 million dividend combined, liquidity is more than EUR 200 million. And third, this financial backbone supports us very well to fund our growth road map, our latest sustainable global growth plan organically, which we'll talk in more detail about at our Capital Markets Day on the 8th of November. Now let me turn it back over to Javier on outlook and growth.
Thanks, Wolf. I would like to finish the call providing some more details and thoughts on the outlook for the rest of the year. As I said, despite all the volatility in the commodity prices and the concerns about the global economy that we are leaving, we expect 2022 to be another growth year for Befesa, mainly driven by the volume growth contribution of the North American operation, which will be partially offset the high general inflation, especially in general -- in energy prices. We are confirming the full year guidance at a lower part of the range. From the volume point of view, we expect growth on steel dust volume, driven by a full year of consolidation of our operation in the U.S. after the acquisition of American Zinc Recycling. The integration into Befesa is developing well across all fronts. For the rest of the year, we expect a good performance in our American operations. In Europe, there are general concerns about the economic situation during the rest of the year, caused by the uncertainty in the energy market and how that could affect the overall industry as well as compares our demand coming from China. Despite that, we are confident to achieve high levels of capacity utilization overall. In China, as Asier has explained, the lockdown measures are making it very difficult to operate, and we expect almost no contribution from China in 2022. In Aluminium Salt Slags and Secondary Aluminium business, which is a fully European business, despite the automotive industry continues to face a challenging situation in Europe and supply chain problems added to the semiconductor shortage, we expect volume to be maintained until the end of the year. In the Aluminium business, we are being able to pass a big part of the cost increase to our customers. We expect volatility in the prices of commodity to continue for the rest of the year, driving by instability at the macro level and uncertainties in the overall economy. Our hedging policy with around 70% of the volume of zinc hedge at good price will have helped us navigate this period of high volatility. In summary, although we see high levels of uncertainty, which is resulting in high volatility in commodity prices. In Befesa, we are facing this challenging environment with optimism. Befesa today is a much more diversified business than 1 year ago with a significant part of our earnings coming from markets outside of Europe, mainly North America and Asia. And we are confident about the business model of Befesa. Finally, on future growth. As you know, in 2 weeks on the November 8, we will celebrate our first Capital Market Day, where the focus will be the growth plan for the next 5 years. Despite the short-term challenging situation we are facing, we have a strong growth plan to invest between EUR 400 million to EUR 450 million over the next 5 years to grow earnings at the high rate. This growth plan is based on global megatrends, which are not going to go away, the carbonization and electric vehicle will drive market growth where we operate. We will explain all the details on the 8th of November. Thank you very much.
Thank you, Javier. We will open the line for your questions.
[Operator Instructions] Our first question is coming from Ingo Schachel from BNP Paribas.
And the first one would be on your European electric arc furnace dust recycling activities. Wondering whether you could give us a bit more specific information around the utilization level in the third quarter, maybe at least let us know whether the throughput in Europe was still around 100,000 tons or higher than in the U.S.? And then also for the fourth quarter, you seem to be optimistic that after the seasonal electric arc furnace outages in Q3, volumes might be higher in Europe. Of course, from our perspective, it's still difficult to substantiate that. When you look at industry data, electric arc furnace production still seems to be down. Is there any evidence that you already have for this Q4 pickup? Did you see good inbound shipments in October? Or is it based on the inventory levels you already have of stuff. Just curious to understand a bit better what drives your, let's say, relative optimism regarding your fourth quarter electric arc furnace dust throughput?
As always, nice question, an interesting question. Well, let me confess something. Yes, we see the Q4 running at full capacity during the 3 months in Europe, and we see the same level in U.S. and perhaps better performance in China. And this is what we have confirmed at this stage because if you are in on October, and we have -- despite the part of the standstill announcement of curtailment of production, we are delivering well. Yes, playing with -- stocks playing with the growth of the stores while we are stopped for maintenance in the Q3, we are growing the stores, and we can navigate without no progress. Anyway, the deliveries we are seeing is more or less a normal level in Europe and as expected in U.S. and with the problem in China.
Any specific Q3 number you can give us for European throughput?
No. Well, Ingo, you always ask that question, we answered the same. We own the major separation of this because obviously reasons for the competition. So you have the data, global data in the presentation.
Okay. And then maybe on the zinc refining asset that you acquired in U.S., I think you've given us, I think, with the 5x EBITDA purchase price indications -- of an indication where you see, I think that's midterm EBITDA, I guess, but thinking about the KPIs for next year. What should we already expect in terms of EBIT and cash contribution next year? Is it still going to be negative? Or do you already expect the asset to contribute next year? And also in terms of cash flow, do you still see, let's say, beyond the EUR 47 million purchase price, a lot of need for net working capital investment, other upgrade investments in the assets to capture opportunities with regards to profitability improvement.
Yes. Well, basically, as we have in the presentation, we are acquired more or less at the level of 5x EBITDA, considering the EBITDA in the '23. So we deliver more or less we expect in the range of $8 million to $10 million, which is now euros next year, currently is doing in that level or even breakeven. But the medium term and even for '24, '25, we are not changing our mind as we explained it in the last year when we acquired the whole assets in U.S. We expect something in the middle of EUR 15 million to EUR 20 million and being cash generator. I mean the CapEx maintenance we need there is below this level. So we do hope that it's going to contribute with cash in the future.
Okay. Very clear. Maybe just a quick housekeeping question on the steel dust revenues. I think you had very high revenues almost at the Q2 level, even though zinc prices were a bit lower? Is there anything extraordinary in the revenues? Or I suspect it's -- I mean, collection fee or logistics costs that have increased because of energy prices or just the normal quarterly volatility of revenues in that segment?
No, nothing special, normal operations. And I think prices might have been a little bit lower than second quarter, but at the end of the day, zinc prices are still high. And we had good throughput, good sales. So that drives the results, nothing special in there.
We will now take the next question from Sandeep Peety with Morgan Stanley.
I have a few questions. I'll take one at the time. Firstly, on the steel dust supply, you have clearly alluded to the fact that 4Q is expected to get nameplate capacity. But if you can give us some guidance or thought process around 2023, what are your expectations for that year? And maybe some indications of what is the inventory level sitting in your mills, especially in Europe?
Well, I think it's a good question. But as I said, Q4 is going to be a normal level throughput quarter, and we are in the middle -- not in the middle, but almost in the middle of the quarter, and we see that it's going to be like that. So out of the Q3, it's going to be in the level of 1 or 2. This is the normal rate that we have. For '23 globally, well, I think it's a little bit early to say. I mean why not we are going to increase the throughput for -- with regards to '22 because we have China production probably coming back and so on, but this is still a lot of uncertainties there, so difficult to us to answer now. But for modeling, I will put even higher than the '22 one. And Sandeep, we'll cover more -- we'll give you a little bit more flavor at the Capital Markets Day, but it's a bit too early.
Okay. That's fine. Maybe moving on to the second question. So zinc smelters are closing in Europe due to elevated energy prices. Can you give us an update on the situation in context of wax processing?
Yes, that's a real thing, and I know that is a question that come in over many times. And the answer to make it easy and quick is not affecting us, and this is reality. There are some particular cases where we are allocating the work instead of the plant to direct the port because the global players on the smelting side is -- they are moving their work, that is on their cost. So we are not being affecting, but those payments unless in the future. But in that case, probably it's because the work is just 5% or 10% of the portfolio, the raw material they are using, and they are more affecting to the concentrate. Whatever is the reason, we are not suffering this at the moment.
We'll continue to be slowed out, Sandeep.
That's very good to know. Maybe one housekeeping note on cash flow, I look at 3Q numbers, and I noticed that there is other loss of EUR 40 million recorded as part of the operating cash flow. Can you give us some indication what that pertains to?
Are you referring to Page 12, cash flow, the net debt walk or which page are you referring to?
So I'm referring to the main report, Page 11 of 13, where there is other loss of EUR 40.2 billion in 3Q and it's part of the operating cash flow.
Okay. So for me, a little bit easier. That's why we provide Page 12, Sandeep, I think you're looking at the same number. This is the walk from EBITDA to operating cash flow. If you look at that, ultimately, you have about EUR 48 million that is related -- that impacts working capital. About half of that is seasonal working capital, which we're expecting to reverse in the fourth quarter. The other half of that relates to special impact, which is Hanover and then the impact of the acquisition of the U.S. zinc refining. And then I remember, Sandeep, last call, you had asked for collections around the Hanover insurance case, and I can positively confirm that we've already collected EUR 20 million year-to-date, of which EUR 5 million was in the first half and then $15 million was actually in this quarter, in the third quarter. And there's more to come for until the rest of the year. So that impacts -- as always, when you have these insurance cases, you go in advance because you pay for the repairs and rebuilding. And then later on, you get the funding from the insurance company. So that is all in that EUR 48 million that we show here on the working capital. And I think that's also what you're referring to.
And regarding Hanover, Sandeep, our expectation is to cover 100% of the rebuilding of the plant and a good portion or practically total the profit -- loss of profit of the shutdown.
Yes. And most importantly, we expect to be back in action in Hanover beginning of next year.
Yes.
So we're happy with the progress there.
Okay. Just one clarification on the investment program, so are you expecting double-digit growth on an average for the next 5 years, i.e., at least 10% each year for next 5 years?
I think, Sandeep, we'll tell you more about it at 8th of November at the Capital Markets Day. We're excited about it. Please remember, on the 3rd of November, it's our 5-year anniversary in the stock market. And on the 8th of November, we host our first ever Capital Markets Day. So leave us a little bit ammunition to celebrate the Capital Markets Day.
We will now take the next question from Michael Hoffman from Stifel.
I appreciate not giving by country or by region utilization, but you reported in total. So what is your estimate for total utilization in steel dust for 4Q? So we just are in the right neighborhood, given we're trying to figure out how China contributes in there if for adding up all 3 regions on our own.
Michael, I think, as I said before, I think that you have to consider as I referenced, the Q1, as an example, of the percentage of utilization for the Q4. But again, I repeat myself, but better don't disclose that.
Right. Okay. So you reported about 88% utilization total companies. So that's the neighborhood we should be in for the fourth quarter?
Right, yes.
Okay. All right. Perfect. And then I appreciate the approximately EUR 15 million to EUR 20 million contribution for the new smelter. What do you think 4Q's will be given it's just being brought in? Is that sort of take 1 quarter of that kind of the midpoint of that, take 1 quarter of that? Or is it a little less? How do I factor that?
In this case, I will take this like a kind of breakeven. It's not going to be a contribution from the smelter this quarter, basically because there is running a good rate, but we have to make some adjustments at the end of the ideas that will start to contribute during the 2023.
Okay. And then what was the contribution from stainless steel and other in the steel business for the quarter?
For the quarter, let me get back to you, Michael, I don't know what the total we had. But the usual single-digit EBITDA a little, it's not a big business for us.
All right. And then what is your assumption for a blended price in zinc and then the aluminum alloy price for 4Q in order to get to support EUR 56 million because basically, it's pretty simple math, it's EUR 164 million to do the low end, you got to do EUR 56 million. I'm trying to figure out what you think price is?
Michael, at the end, the question of prices is something that we always answer the same. If I will know what is going to be the price of the steel during the next 3 months, probably I'm not going to explain here the results of Befesa. We don't know. I mean we have the hedge part for this quarter in place, and the rest is whatever has in mind what happens. We have the reality of today rounding $3,000, and it is. We'll see what is coming on in the next 2 months.
But we don't expect big change in the rest of the year.
Probably not.
Probably not.
Okay. And on the aluminum alloy side, what's it running in the fourth quarter to date then?
Yes, I know. In aluminum, we are able to pass through the higher inflation cost, and we are going to keep like this probably until the last part of the year, yes.
And -- okay. So the quarter-to-date, what are you running as a selling price for aluminum alloy?
Just look, we had, I think, aluminum alloys, give me one second here. I think I mentioned a bit. I think prices, what we went up EUR 500 per ton, and we had -- I'll send you the final price. It was up year-over-year of EUR 500 per ton. I'll send it to you, Michael. And we expect similar prices in the second half. No reason to change a lot there.
Got it. That's what I just was trying to zero in. And then just to be clear, I'm not in trying to take the thunder away from November 8, but we shouldn't get too far ahead of our skis. You've got to invest this money before it drives growth. So the investments might take a year or 18 months before the first real driver of new growth from that just because you got to go out and build things. So it's the first year is not being driven by an above average growth because you're doing this investment. It will drive long-term really strong growth, incrementally, maybe another EUR 80 million to EUR 100 million of profitability when it's all done, but it's not going to be 10% in the first year.
Michael, the first point, we have done the fare investment of the plant, which has been the acquisition of the zinc smelter in U.S. And then in the rest of the investment, we will adapt the speed of our investment to the market situation. We think that we will -- the second investment will be probably in U.S., where we want to refurbish one of our biggest plants. And then in the rest of the areas, we will allot the -- the peak of our investment to the evolution of the market.
And then -- sorry, coming back to your free metal burden prices, Michael, so the last 60 days, we were trading at an average of about EUR 2,300 per ton. And this is kind of also what we're expecting for the fourth quarter. EUR 2,360, EUR 2,350 per ton SMB.
We will now take the next question from Oscar Val Mas from JPMorgan.
I have 3 questions. I'll take them one by one as well. The first one is really on energy costs. Could you just comment on do they get worse in Q4 from Q3? And then also, what are your thoughts on 2023, specifically on gas? What have you hedged? What percentage is hedged for next year?
Thanks, Oscar. The first thing we need to understand is that we don't have any only energy source. As you know, we have coke most important energy source in the steel gas business and then gas and electricity. So -- and the trends of the different energies are not exactly the same. In terms of gas and electricity, the third quarter has been the peak quarter of the year. And now what we have seen is an important -- very important decrease in the prices of gas and energy. We don't know very well what is going to happen next year. What we read every day and the information we get from specialists, et cetera, is that 2023 couldn't be much higher than 2022 average, but we don't have -- as you can imagine, we don't have a clear view of that. Let's see what is going to happen. Regarding the coke, which is linked more to the coal than any other energy, now we are probably in the peak moment of the year, and we are starting to see some decrease in the evolution of the prices. So again, regarding 2023, we think that could be slightly higher than '22. But again, we don't have the crystal ball to predict what is going to happen.
Okay. No hedges.
No hedge because in energy, it's greatly impossible for us to hedge. We have 3 sources of energy in 7 different countries. So again, you cannot do a global hedging as we can do in the metal side.
Okay, very clear. The second question is just on the U.S. synergies. How far are we going to the EUR 17 million? What's the run rate today of those synergies?
Well, it's a difficult question as well. We are on the way to get more or less the EUR 20 million that always we are talking. The problem there is that sometimes when you get the operational profit that are covered by the increase in inflation cost, especially by coke. So it's difficult to answer that. But what I can tell is that in the operational level, we are on the way to get and capture all the synergies probably during 2023.
Okay. And then the final question is going back on what Ingo asked. Just to clarify, do you have an EBIT number for the refining, of the zinc refining assets? You talk about 5x EBITDA, but is there an EBIT multiple for next year we should think about or an EBIT number?
Oscar, we'll get back to you on that one.
Okay. Just trying to see is more depreciation on the asset.
And we will now take the next question from Lasse Stueben from Berenberg.
Just 2 additional follow-ups for me. I just want to follow up on what's happening in China with the Congress we've had recently, and it seems there doesn't seem too much of a relaxation on the Zero COVID policy. So I'm just wondering sort of what sort of visibility you have or if you have any early insights maybe from your own customers on what the plan is in China? So it sounds like you're a lot more confident on the operational aspects in Q4. So if you could give us some insights there, please.
Well, yes, we were following as well the Congress and the situation in China, very high expectations. The reality is that actually has not many changes on the field. I mean, recovery for the Chinese economy after the COVID lockdowns in the second quarter is being very slow and there is not a clear part where it's going to come. On the field as well with the steel production is going in the very regular way. So they get up and down, and this is affecting to our production. So we see basically that we are going to have in the Q4, the same impact on the rest of the year, some a couple of -- probably the 2 months of running and then stopping and waiting for more back, which is more or less what we have in mind.
Okay. And does this change like the pace of investment that you had maybe initially planned in China? Are you now more in a bit of a, I guess, wait-and-see mode with respect to additional plants or how does that change things?
Not really change it, but I think that we have to monitor the timing for the investment. I mean -- and this is something that we are already doing. But as Javier and Wolf say, we will explain more detail on the Capital Markets Day. But I think that the growth plan, as I explained before, on the table of the thing is that the speed of this probably we have to manage. This is the idea.
Yes. Okay. And I guess just related to that, I guess, the slightly lower Q3 utilization in steel, is that also sort of capturing that, I guess, the weakness in China? I'm just looking at the -- I think the number you gave was about 68% for Q3. So I'm just trying to -- I understand there's maintenance shutdowns, but I guess does that also capture that China effect as well?
Yes. Well, -- but basically, because we are running the whole year like this, there is no difference among the quarters. So this is a little bit affecting the whole year. We have had shutdowns in some European -- big European plants.
Okay. Understood. And then finally, just again on energy. As you said, the costs have come down quite rapidly over the past couple of weeks. Is that -- I guess, just to clarify, because you don't have any hedges in place at the moment, are you essentially getting that benefit pretty much instantly? Or is there a bit of a delay? Is it possible to understand how that kind of feeds through into your cost base?
Yes. In the case of gas and electricity, as we don't have hedge, we will get the benefit of this price decrease during this quarter. In the case of coke, it's not happening in the same line, okay.
We will now take the next question from Anis Zgaya with ODDO BHF.
Yes. So I have one question, one remaining question. So could you please explain more the EUR 90 million adjustment on Q3 EBITDA, I mean, between the reported and the adjusted EBITDA? And could you please say, could you please -- yes, what would be the adjusted net profit?
Anis, yes. So correct. You see that the reported EBITDA is higher than the adjusted. Reported EBITDA is EUR 181 million, and the adjusted EBITDA is EUR 164 million. So there's a EUR 17 million difference. And that is purely due to the fact that we were able to purchase the U.S. zinc refining asset at a very attractive price. And so this is the adjustment that relates to that. And similarly, on net profit, you see that net profit is nicely up year-over-year. And what I just explained on EBITDA that falls through, obviously, to net profit and the majority of the year-over-year increase is driven by that favorable adjustment for the acquisition of the U.S. zinc refining asset at an attractive price.
Okay. So it's just an accounting -- it's not a cash impact. It's not -- it's just an accounting impact.
Yes. We follow the IFRS 3 for accounting for the acquisition, yes.
We will now take the next question from Jaime Escribano with Banco Santander.
So a few questions from my side. One that has been kind of made, but maybe in a different way, which is the following. Steel dust margin has been around 20% in Q3, very similar to Q2. I assume that the reason why this margin is at 20% is mainly on high inflation, as you pointed out in your presentation. I don't know if there is anything else also affecting this margin. And then the question would be, if you are seeing some improvement in energy prices, where could we see this EBITDA margin for the steel dust division in the following quarters? This would be the first question.
Jaime, thank you for the question. Well, as I told before, we have started to see a very positive -- a clear decrease in gas and electricity in this quarter. So that will benefit. But as I have explained, we are in a peak moment in the coal price. So let's see how the coal price evolution. And based on that, we expect perhaps some improvement in the margin, but not very important based on the coal price situation in the short term.
Okay. Very good. And regarding the treatment charts, I know it's very early, but I don't know if you can tell us what is the outlook right now? I remember the final negotiations are usually in March next year. But any development or any dynamic that you are seeing going higher or going lower or staying stable for next year?
The key question of at one of the 2 or 3 key questions on our business, you know very well. No, no clue. I mean the only following up, we can see the spot market, especially in China and the others are in the range that we are currently now. So that means that it's going to be stabilization for next year or not, I don't know. But nothing very specific or not many changes even with the spot. So it's more difficult to see what is going to happen next year, for sure.
Okay. And just a final question. So even if you cannot tell us region by region, how the volumes are evolving on a quantitative basis, but maybe on a qualitative basis, could you tell us Europe, Turkey, Korea and the U.S., how do you see Q4 and Q1 volumes evolving, going up, stable or decreasing a bit, just to have a sense of that region?
No problem to qualitatively answer this. I mean, as I said before, in Europe, we are going to run 100% of capacity, well, 100%. I mean the typical 90%, 90-something-percent, but I think we have full capacity for the last part of the year. Less visibility for the first quarter of 2023, but there are no many reasons that we are going to have a big change of that. So we see a stable more or less. In the U.S., we see that we run more or less stable. I think that there are some announcement or stop it temporary for steelmakers, but it's not affecting a lot. So we see a stable the first -- the last quarter and the first quarter probably is going to be the same as well. Turkey is running quite on the level stable for the year despite the fact of the European steelmakers to grow evolution, but we are watching the expected tonnages for the Q4 and for sure for Q1, probably the same. And Korea as well, so we see a stability in the short term. I mean short term could be for sure, the fourth quarter and the first quarter probably could be in that line, but it's a little bit early to say. But well, more or less, we can see these other things that is going to happen finally. And then the quick question on the key question for us is what is going to happen in China. Q4, we see like the rest of the 22 years. And well, we'll see if there is a higher recovery rates for the steel production there, we can increase the production over the Q1.
And we will take the last question from Jainesh Mehta with Permira Credit.
Just a quick housekeeping question. On your debt, do you hedge the floating rate? And if so, can you just give us some details of the hedging?
Sure. Thank you very much for your question. So you know that we have basically only one debt, which is our Term Loan B, which is offset and long term until July 2026. That's EUR 626 million gross. Of that, half of that, we have swapped from variable to fixed, yes. So the interest rate increases that are being announced in the market really only apply to half of our gross debt, that's only to EUR 313 million of debt. So basically, 1% increase in the Euribor triggers basically EUR 3 million increase in interest per year. The other thing to consider is that for some time, we didn't get any interest on our cash deposits. Those days are now also over. So remember that also, right now, we have EUR 140 million cash in deposit. So obviously, we're now getting on the majority of that, also some interest. So in my mind, every 1% interest increase EUR 3 million, but then we also get some deposits so I'd rather put in deposit interest, I don't know, EUR 2 million, EUR 2.5 million or EUR 2.5 million or something like that would be the impact.
Yes, that's really helpful. On the fixed component, just to clarify, where is that hedged at? And is that hedged all the way through to 2026?
Yes, absolutely, for the full maturity.
There are no further questions, so I will hand back to your host to conclude today's conference.
Thank you all for your questions. You can also contact the Investor Relations team or Rafael Perez for any further clarification. Before concluding, I would like to remind to all of you that we will host the first Capital Market Day of Befesa on 8th of November. It will be a hybrid event combining in person and virtual attendance. We will start at 10:00 U.K. time and finish around 1:30 U.K. time. You will find the detailed structure of the webcast of the Capital Markets Day on our website, www.befesa.com. Thank you very much to all of you, and have a good day.
Thank you for joining today's call. You may now disconnect.