Operator: Ladies and gentlemen, welcome to the Befesa Q3 2026 Results Conference Call. I am Valentina, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Rafael Pérez, CFO. Please go ahead.
Rafael Pérez: Good morning, and welcome to the Q3 2026 Results Conference Call of Befesa. I am Rafael Pérez, CFO of Befesa, and this morning I am joined by our Group CEO, Asier Zarraonandia. Asier will start addressing the Critical Minerals grant in the US related to the Inflation Reduction Act Section 45X, followed by an executive summary of the period. After that, he will cover the business highlights of the Steel Dust, as well as Aluminium Salt Slags, and recycling business. I will then review the nine months financials by business, and will cover the evolution of commodity prices, our hedging program, and finally, cash flow, net debt, leverage, and capital allocation. Asier will close this presentation providing an update on the outlook for the rest of 2026 and an update of our growth plans. Finally, we will open the lines for the Q&A session.
Rafael Pérez: Before getting started, let me remind you that this conference call is being webcast live. You can find the link to the webcast on our website. Now, let me turn the call over to our CEO. Asier, please.
Asier Zarraonandia: Thank you, Rafa. Good morning to all. Moving to page 5 of the US Critical Minerals grant. Let me briefly walk you through the details of our IRA Section 45X filing and the expected financial implications. After a detailed and rigorous assessment, we have concluded that our US zinc business is eligible for an Advanced Manufacturing Production Credit according to the Section 45X under the Inflation Reduction Act. Based on that, we have filed our claim to the Internal Revenue Service of the United States for the 2025 year. The credit is worth 10% of the operating cost of producing our special high-grade zinc at our zinc refining plant in Mooresboro, which has a purity of more than 99.9%. The grant does not require any further capital investment to be eligible going forward.
Asier Zarraonandia: The benefit will be recognized as a lower operating cost according to the IFRS, as well as our corporate auditors, therefore increasing our operating income and making it an EBITDA contributor. As a result of the grant, we expect a positive impact on our adjusted EBITDA of $25 to $30 million per year for the period of the program, which runs for 9 years, stepping down from 2031 to 2033. Approximately EUR 26 million will be already recorded in the Q4 2026 adjusted EBITDA. We expect the first cash in the H1 2027. Overall, the program strengthens both our earning profile and our cash generation in the US business. Furthermore, it confirms the right strategic decision to expand our business into the US market. Moving on to slide 6, business highlights. Starting with the outlook.
Asier Zarraonandia: We have specified our guidance for the fiscal year 2026 to arrange for adjusted EBITDA between EUR 260 and EUR 270 million. We lifted the lower end of our guided range by EUR 10 million, as we expect a stronger contribution in the Q4. This is the operational part of our guidance as it was defined at the beginning of the year. On top of that, we now expect an additional contribution of approximately EUR 26 million of adjusted EBITDA from our filing related to the Inflation Reduction Act, Section 45X. Including this financial impact of the 45X, our new guidance for adjustment EBITDA is EUR 286 to EUR 296 million. Let me now continue with our operation business performance. Befesa continued delivering solid EBITDA growth in the Q3 and in the first 9 months of the year.
Asier Zarraonandia: Total adjusted EBITDA in the first 9 months was EUR 192 million, up by 10% compared to the same period last year. Adjusted EBITDA margin of the group was 22% in the Q3 2026, compared to 21% in Q3 2025. The deleveraging trend continued with financial leverage reduced to 2.16 in September 2026, compared to 2.6 in September 2025. The increase in net income and EPS of 12% year on year reflects our improved profitability. In the Steel Dust business, 9-month EBITDA was slightly up, driven mainly by higher zinc spot prices. To summarize, despite mixed business environments in both business, maintenance related and some difficulty in the markets in the Steel Dust on one side, and better metal margins in aluminum on the other side, EBITDA increased significantly year over year.
Asier Zarraonandia: Moving on to page 7, with the business highlights for the Steel Dust business, where the expected recovery in end markets in Europe and Asia was slower than anticipated. In Europe, the combination of a weaker construction activity with a continuous softness in the automotive sector, as well as higher electricity prices, were a drag for the steel production. Despite this challenging environment, our operations continued to perform strongly, with a load factor increasing to 90%, up by 2% this point year over year. In the US, volume growth is much stronger than in all the other regions. Steel production increased year over year and was supported by demand driven by investment in data centers, energy infrastructure, and industrial projects. While maintenance shutdowns temporarily affected plant performance in the Q3, utilization improved meaningfully versus last year, and our new electric arc furnace supply contracts are ramping up as expected.
Asier Zarraonandia: In Asia, market condition remains challenging. Volumes were lower year over year, particularly in Turkey and Korea, while China continued to operate at low utilization levels and around breakeven profitability. Looking ahead, we remain cautious only for the near-term outlook as industry sentiment seems to improve. Steel demands for infrastructure, defense, and energy-related projects appears to be a solid contributor for 2027 steel demand. Moving on to page 8, business highlights for the aluminum salt slag recycling and secondary aluminum recycling business. In secondary aluminum, the key message is that the recovery in metal margins in H2 2026 is materializing, and we anticipate early stage Salt Slags recycling volumes remain stable year over year. Looking at Q4, we expect stable volumes overall. In secondary aluminum, metal margins improved significantly year over year from the low levels seen in Q3 2025.
Asier Zarraonandia: The general business environment remains, however, challenging to the tight aluminum scrap feedstock availability in Europe. Now, I will hand over to Rafael, who will explain the financial in more detail.
Rafael Pérez: Thank you, Asier. Moving on to page 10, the financial results for the Steel Dust segment. Adjusted EBITDA increased in the first 9 months by 2% year over year, or EUR 4 million, to EUR 158 million, while the margin improving to 27% from 26%. While dust volumes declined by 3%, the according effect on EBITDA was -EUR 4 million. The decline is explained by the development in Q3, as explained by Asier, driven by a combination of maintenance activities and challenging market conditions. Last year, Q3 volume was extraordinarily high. The price-related contribution was strongly positive, with EUR 22 million. While hedging and the impact from treatment charges was, in combination, just slightly negative, the entire price-related increase was related to our unhedged zinc exposure. Of course, became more of a headwind in Q3, resulting in a combined negative effect of -EUR 14 million in the first 9 months.
Rafael Pérez: FX was particularly a headwind at the beginning of the year. In contrast, the effect from energy prices and inflation became no more pronounced as we anticipated earlier this year. One word of energy prices. We indeed see now a headwind year on year, but as can clearly see in this chart, the effect from higher energy prices is more than offset by higher metal prices. On general inflation, this is mostly driven by ongoing high fuel costs, for example, diesel. Given the currently tight supply situation for diesel fuel, we anticipate that the fuel will remain a driver for general inflation, at least in the short term. Moving on to page 11, financial results of our aluminum segment. Adjusted EBITDA increased by 52% year on year to EUR 34 million, driven by the early expected improving pricing and margin environment.
Rafael Pérez: In Salt Slags, revenue increased by 10% year over year to EUR 93 million, despite volumes being down slightly, reflecting the tight feedstock availability in aluminum recycling. The effect from lower volumes was more than offset by better prices, and EBITDA increased by 25% year over year to EUR 29 million, with according margin expanding by 370 basis points to 31%. In secondary aluminum, revenue increased by 3% year over year to EUR 268 million. Production volumes declined by 6% year over year, reflecting the feedstock availability, as well as maintenance-related stoppages during the period. A significant expansion of the metal margin compensated for the lower volumes. Secondary aluminum delivered a strong improvement, moving from a negative EBITDA of EUR 0.6 million in the prior year to a positive EBITDA of EUR 5.4 million this year. Moving on to page 12, zinc price and treatment charges.
Rafael Pérez: The average LME zinc price was, during the first 9 months, $3,512 per ton, representing an increase of 27% year on year. The zinc price development gained momentum during the year. In the Q3, year over year increase was even stronger. The average zinc LME price was $3,830 per ton, up 36% year on year. The trading range in the quarter was between $3,474 and $4,186 per ton, reaching a peak in late September before correcting towards the quarter end. The underlying market fundamentals remain supportive. Zinc concentrate supply continues to be tight and inventory levels remain exceptionally low, reflecting ongoing supply constraints. This development is also reflected in the current level of spot treatment charges, which is currently at historical low level of around -$150 per ton.
Rafael Pérez: Of course, the spot treatment charge must be taken with some caution, and although it's not an indication of where the annual benchmark will be for 2027, it's clearly showing a downward trend. Turning to page 13, hedging. We have continued to take opportunities in the US market to extend our zinc hedging book until the end of the Q3 of 2029. Our hedging book covers 3 years of hedges and the entire fiscal year 2027, 2028, and 3 quarters of 2029. We have done this at record high levels of $3,000 for the next year, $3,100 for 2028, and $3,200 for the first 9 months of 2029. Turning to page 14, Befesa energy prices. Starting with coal, which remains our largest single energy cost component. Prices increased modestly during the Q3 of 2026.
Rafael Pérez: The average coal price was EUR 156 per ton, slightly upward trending most recently. We are currently seeing a rational price development for coal. Electricity prices, however, increased more visibly recently and follow the price development of natural gas. Average electricity costs reached EUR 130 per megawatt hour in the Q3 of the year, reporting a stronger increase than what we have monitored at Cove. The rise was driven by tight power markets and high energy price volatility. Finally, natural gas experienced a stronger year-over-year increase. Average natural gas prices reached EUR 79 per megawatt hour in the Q3. Prices have increased into autumn as the northern hemisphere is entering the heating season, and low levels of European gas storage facilities are meeting limited supply resulting from the war damages of natural gas infrastructure in the Middle East. Turning to page 15, cash flow results.
Rafael Pérez: Operating cash flow in the first 9 months reached EUR 128 million, which represents an increase of 11% compared to the previous year. On the EBITDA to cash flow bridge, starting with EUR 192 million of adjusted EBITDA, and to the left, working capital related cash amounted to EUR 54 million, about EUR 16 million higher than the same period of last year. The increase in working capital was predominantly due to aluminum business with Bernburg starting operations recently. We expect working capital to normalize in Q4, following a similar trend to previous years. Taxes paid was EUR 9 million compared to EUR 70 million last year, which is purely related to timing of tax payments. As a result, operating cash flow was EUR 128 million higher than last year's figure of EUR 115 million. CapEx was EUR 60 million, slightly higher than last year's figures of EUR 53 million.
Rafael Pérez: The growth CapEx is related to the expansion of our secondary aluminum business in Bernburg. For the full year, we continue to expect total CapEx to be around EUR 70 million. Considering a normalization of working capital, lower CapEx, and the expected strong operating Q4, we expect a strong free cash flow generation in the last quarter of the year. For 2025, the annual general meeting approved in June 2026 to pay a dividend of EUR 1 per share, equivalent to 50% of the 2025 net income, which was paid in Q3. In summary, total cash flow amounted to -EUR 70 million in the first 9 months after paying the dividend. Cash on hand stood at EUR 126 million, which together with our EUR 100 million fully undrawn revolving credit line, provides Befesa with almost EUR 230 million of liquidity.
Rafael Pérez: Gross debt at the end of 26 September stood at EUR 690 million, and net debt stood at EUR 564 million, compared to EUR 610 million in the same quarter of last year. This results in a net leverage of 2.16x at the closing of the quarter, a strong improvement compared to 2.6x in September of last year. Turning to page 16, debt structure and leverage. The deleveraging trend that we started 2 and a half years ago has continued for the tenth consecutive quarter, marking a remarkable achievement and demonstrating capital allocation discipline and a clear commitment to strengthen our balance sheet. With a leverage now of 2.16x and being already in the last quarter of the year, which will be the stronger quarter of the year regarding earnings and cash flow generation, we are well on track to reach our target leverage of between 1.5x and 2x.
Rafael Pérez: Please follow me to page 17. Let me turn to capital allocation. The slide illustrates our capital allocation policy, where cash is deployed in a very clear order of priority in 5 steps. First and foremost, maintenance CapEx. We keep our assets safe, reliable, and compliant at about EUR 45 million to EUR 50 million per year. Second, dividend. We pay out 40% to 50% of the net income, a commitment we have kept since the IPO. We paid EUR 1 per share last year, up from EUR 0.64 in 2024, and next year it will also increase significantly. Third is about the balance sheet strength. We are fully committed to keep our net leverage between 1.5x and 2x through the economic cycle. We are going to achieve this target already in this Q4 of the year. Four is growth.
Rafael Pérez: We only fund projects that will deliver high returns with an IRR above 20%. The only growth project in the pipeline at the moment is the expansion of our steel dust recycling plant of Recytech in France, which will be executed once we have visibility of volume growth in Europe. Fifth, and finally, excess cash. Once we are within our leverage target range, all the excess cash will go back to the shareholders by increasing shareholder remuneration. We can do that through buybacks or special dividends, depending on the company valuation. Next year, 2027, will be the first year where we will deploy excess cash to shareholders. Even more now that we will have the additional cash coming from the critical minerals grants in the US. However, details of the deployment are still under internal review. In short, we invest first in safe operations.
Rafael Pérez: We pay a consistent increase in dividend. We protect the balance sheet. We grow only at high returns, and we return the surplus cash to our shareholders. With that, I will hand over to Asier.
Asier Zarraonandia: Thank you, Rafa. Moving on to page 19, 2026 guidance. The financial year 2026 was so far in line with our expectation. We expect 2026 to be another year of strong earnings growth. On EBITDA level, we specified our guidance for adjusted EBITDA to EUR 260 million and EUR 270 million, excluding any contribution from IRA 45X. Including the potential contribution from this IRA 45X related to fiscal year 2026 of approximately EUR 26 million, the current guidance range would be EUR 286 million to EUR 296 million. The IRA Section 45X contribution will not have any impact on this year operating cash flows, as we do not expect payment within the Q4. Our assumption for CapEx is also unchanged at around EUR 70 million. We expect to improve our leverage toward a level of around 1.8 times by the year-end, including the contribution of the 45X. Our EPS guidance is also positively impacted.
Asier Zarraonandia: Including the contribution for 45X, EPS will be above EUR 2.9. Moving on to page 20, with the main elements for our outlook for fiscal year 2026. We expect the steel dust volumes in Europe to remain at solid levels, and the US to grow, driven by new contracts with the steel producers. In the rest of the world, steel dust volumes are expected to be below last year's level. Overall, we expect similar or a slightly higher total volume of steel dust than last year, but with a different mix. Salt slags is expected to maintain broadly stable volumes compared with the second part of 2025, enjoying some tailwinds from higher collection fees. The metal margin for secondary aluminum is expected to continue improving in the last quarter of the year.
Asier Zarraonandia: For our energy cost in Q4, we expect a slightly higher coke price and higher electricity and natural gas prices. General inflation is expected to continue to be a headwind due to ongoing high energy and fuel prices. These impacts mainly transport, maintenance, auxiliary materials, and personal costs across all regions, creating a negative pressure point in the cost structure. As explained by Rafa, due to the ongoing tightness in the zinc concentrate market, the benchmark treatment charge set at 85 in 2026, was slightly up compared to last year eighties. Hedging activity for zinc remains stable, with the average 2026 hedge price set at approximately $2,990 per metric ton, consistent with 2025 levels, suggesting a neutral hedging contribution. Total CapEx for the year will be around EUR 70 million, with around EUR 45 million for regular maintenance and the remaining for growth in expansion of Bernburg.
Asier Zarraonandia: We are continuing following our disciplined capital allocation strategy and ongoing focus on free cash flow generation. Finally, on slide 21, let me provide a final update of our growth project in Bernburg. We are currently ramping production after the new line has hot commissioned at the end of September. The growth project is now complete, and we expect an increasing contribution after we have completed the ramping phase this quarter. In summary, we expect a strong Q4 underpinned by a strong volume and incremental cash flows. Additionally, the Critical Minerals Grant in the US for the next 9 years will improve even further of cash flow profile, providing greater flexibility in our capital allocation priorities with a clear focus on additional shareholder remuneration via additional dividends and share buybacks. With that, I hand over back to Rafa.
Rafael Pérez: Thank you, Asier. Now we will open the line for your questions.
Operator: We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only hands up while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from Lasse Stüben from Berenberg. Please go ahead.
Lasse Stüben: Hi. Good morning. The first question would be around Steel Dust Recycling volumes in Q3. I know you mentioned you had lower volume in the US for maintenance and also Turkey. Could you touch on that effect in Turkey a little bit more and also the potential magnitude just to understand what happened in Q3? I understand Q3 last year was super strong in the US, but just to get an understanding of that would be good. The second question is on energy cost. That was quite a big negative swing in Q3. I think in Steel Dust Recycling, it was about EUR 12 million. I am just thinking how you think about this going forward?
Lasse Stüben: It obviously works when zinc is trading very well, but is there anything else that you are thinking of doing to try and manage that as we go into winter, as you say, with low storage and the heating period coming up? The final question is, can you elaborate what the driver is of the improvement in the metals margin in the secondary aluminum business? That would be useful. Thank you.
Asier Zarraonandia: Thank you, Lasse. Well, interesting questions. The volumes, it is true that Q3 has been a little bit softer than probably we hope, but I think that is a comparison with last year. If you recall the quarters of production over the quarters of 2025, Q3 was very high, unusually high, because they standstill on what we do. Now, comparison is pulling a little bit more difficult. What we hope is Q4, more strong than Q3. At the end of the day, the total volume for the year is not going to be a big increase over the last year, but I think that still we will end above Q4. The problem is the maintenance stoppages and in the case of the question about Turkey or whatever it is.
Asier Zarraonandia: When you stop the plants, and in those cases when you are running plants in 70% or even those levels, you have to adequate the running of the kiln with the deliveries as well. Sometimes you grow inventories, and then you put. The different moments you do those standstill, affects the corporations. In Turkey, well, the problem, it is basically the steel production is not very high. We are anticipating more, they are suffering more imports from China and from this area, and the production is lower. Well, it is not a drama for us because we are having a slope, but as I say, it is more a matter of timing rather than a big reduction or dropping in the dust production.
Asier Zarraonandia: With regards to the energy cost, yes, it is true that the last part of the year, it was anticipated that no one can doubt that the energy costs are affecting everything and the electricity bill and the gas bill. Well, which are not very important for us. The most important is the coke, right? But it is affecting the rest of the things like transporting fuels, diesels and everything, the costs are higher. As well, the coke is under pressure, but we do not expect to be a pressure like in 2022. I mean, it is probably Q4 is going to be in the same line because we have some contracts closed over the year, but we think that there are going to be some inflation pressure on the coke in the next quarters. We do not see a rally.
Asier Zarraonandia: I do not see that there is going to be a big increase in the short term. But yes, the next quarter of 2026 and the first quarter of 2027 are going to be under pressure for the coke, and we will see how the things evolve, the evolution of the rest of the years. So once again, it is coming to the, how to say, normal evolution of the coke, sometimes up and down, but we are not talking about three times cost or three times prices like we are talking in 2022, 2023. Or at least it is what we can say today. In the case of the aluminum margins, I think we explained it a little bit in anticipation, but I think that the aluminum manufacturing or the cars manufacturing, aluminum production is not recovery still. I think they are under pressure, the situation of the car manufacturers in Europe.
Asier Zarraonandia: But the question here is more solving by the side of the offer, where some players are stopping operations. I mean, secondary aluminum producers. This is foreseen, or this is coming back to the possibility to do or to work with better margins in the alu because the side of the offer. The demand side is not still recovered. We will see what is coming on in the future in 2027 onwards, because probably it is a medium-term, everything has to be normalized. But the reality is that the margins are coming better for the side of the offer of the secondary aluminum.
Lasse Stüben: Thank you.
Operator: The next question comes from Adahna Ekoku from Morgan Stanley. Please go ahead.
Adahna Ekoku: Good morning. Thank you for taking my questions. I have two. First on the US, are you still expecting the 60 to 70 Kt uplift for this year? Just given you just mentioned that group volumes will now only be slightly higher year-over-year. Do we still have that same US uplift? Then on the uplift into 2027, how much of your expected improvement is already secured through contracted volumes versus being dependent on new contracts or higher production from your existing customers? Then just second on your medium term adjusted EBITDA ambition of around EUR 300 million, how should we think about that now that we have the Section 45X adding EUR 25 to 30 million? Can we simply add it on top, or has anything else in the underlying bridge changed? Thank you.
Asier Zarraonandia: Thank you, Adahna. Yes. Well, very well-focused question on US. Yes, we do hope that the US is going to be as scheduled in the 60,000 to 70,000 tons up from last year. Production in US is coming, I would say, stronger in our proper customers and the contract we already signed last year are affected. It is true that some deliveries from Canada, they are having some troubles because the tariffs issue, whatever. But in general, I think that we can talk about this level. For 2027, we do hope that it is an increase in around 50,000 tons as well. Because again, new contracts and probably potentially for that, but it is a transitional year because the new projects that we hope coming into place in US are coming more for 2028. You probably have listened about some steel production or steel capacity increase in those years coming in 2027.
Asier Zarraonandia: So, on a continuous basis for 2026, 60,000, 70 max, then 50 and perhaps another 60, 70 in 2028 to be confirmed. Right? Basically, yes, we are okay with the US and probably the mixes that are coming lower, at least the 9 months in the other geographies, especially in Asia. With regards to the medium term, well, basically, there are nothing changing in our strategy on ideas of the operation. Now we have to up EUR 30 million for the next 6 plus 3 years. So if we were talking about the EUR 300 million in 2 years, in 3 years, or well, it is depending on as well when we finally increase capacity in France. Simple is nothing, but at the end, we should add EUR 30 million for the Inflation Reduction Act. This is basically the fact. So it is EUR 30 million extra EBITDA and cash.
Asier Zarraonandia: This is something that is reinforcing our US operation for sure.
Adahna Ekoku: Thank you. That is very helpful. Just confirming there, the Recytech project, the expansion is included in that EUR 300 million?
Asier Zarraonandia: Yeah. I think it was the tool, how we get the EUR 300 million, and then depending on all the variables that are affecting, perhaps we could get before or later, but at the end of the day, the EUR 25 million, something like that the Recytech project is going to contribute was making to come to the idea of the EUR 300 million, normalize it in a year, and now it is EUR 330 million, of course.
Adahna Ekoku: That is very clear. Thank you very much.
Operator: The next question comes from Juan Rodríguez from Kepler. Please go ahead.
Juan Rodríguez: Hello. Thank you. Good morning. Thank you for holding or taking our questions. I have two on my side, if I may. The first one is on the margin improvement that we have seen of the Salt Slags activity. Can you give us more detail on what happened here and what is expected going forward in terms of the performance and margin of this activity? The second is on the US grant cash coming in. You signaled that the one for 2025 is expected on H1 2027. What will be expected for 2026? This will be end 2027 or will be 2028? Because you are already signaling that, okay, if leverage might reach 1.8, but this is going to be in a reported number, not in a cash number.
Juan Rodríguez: If you get to the 1.5 to 2.0, and given that there is no additional organic CapEx in the coming years, we could expect buybacks and special dividends by 2027, 2028, depending on the cash when it is coming in. Thanks.
Asier Zarraonandia: Gracias, Juan. Thank you. I take the first part. I am leaving Rafa for more the financial and cash flow implication. For the Salt Slag, what is coming is basically two things. Some better alu prices because Salt Slag business, you know that we have the income coming with the fee that we collect for the secondary aluminum producers. With the metal sales that we do for the metal that we recover in the process, and then the others, the salt and the byproducts that we sell. Those kind of incomes are affecting to our incomes. We made a good job increasing the fees at the end of the last year because the higher cost, and we transfer some of the cost to the secondary aluminum.
Asier Zarraonandia: But it is true as well that the aluminum rally prices that happened, especially Q2 and Q3, is making the sales of the alu more profitable. Yes, there is something counterintuitive with the alu prices, but it is not the important part of the income. More for that is coming from the fees, which are strong, and we were waiting for this increase during 2026. Again, the US grant and so on, Rafa, please.
Rafael Pérez: Yes. Basically, the first cash coming from the 45X grant is expected in H1 of next year, 2027, and then every year thereafter, according to the program, which as we have explained, is for 9 years. Regarding the remuneration of shareholders via dividend and share buybacks, I think we have tried to explain that in detail on paper on page 17 of the slide. We have outlined very clear capital allocation priorities, and the next step is reaching the target leverage, as you said, which is below 2 times. We are going to achieve that already in this quarter, Q4 2026. Then the next point will be to evaluate and to decide what to do with the extra cash, which will be to remunerate the shareholders via dividend or share buybacks, depending on the valuation of the company.
Rafael Pérez: Clearly, we see the first additional remuneration for shareholders happening next year, 2027, okay? More details to come. We still have to finalize the budget for the year. But clearly, 2027 will be the first year shareholders will be remunerated additionally.
Juan Rodríguez: Thank you. Quite useful. Just as a follow-up, if I may. What is the expected CapEx for the French asset expansion?
Asier Zarraonandia: Yeah.
Juan Rodríguez: In terms of-
Asier Zarraonandia: Yeah, EUR 60 to 70 million, something like that, in two years. We expect in two years, which is the normal timing for a buildup plan like this. We hope EUR 60 to 70 million among two years, so EUR 30 to 35 million per year, or perhaps one year a little bit more. Well, the reference is that. In two years, EUR 60 to 70 million.
Juan Rodríguez: Perfect. Quite useful. Thank you.
Asier Zarraonandia: Thank you, Juan.
Operator: The next question comes from Fabian Piasta from Jefferies. Please go ahead.
Fabian Piasta: Hey, good morning, gentlemen. I got only two questions left. One, could you maybe shed some light on the EBITDA contribution from the smelter business in the US as to 9 months, so whether this has turned profitable, and how much we can expect for that in 2027. The second one is related to the recent dynamic in the zinc price market. We have seen it basically declining from the peaks end of September, and now a sharp spike back up again. Maybe you can give some color around what you see in the market. Thank you.
Asier Zarraonandia: Fabian, you know that well. Thank you for the question, obviously. In the case of the EBITDA, the most broad, I think that, we have explained it, that it is better to approach the business in US as a whole, because sometimes depending on the transfer pricing with the TCs of the works coming from the furnaces to the refineries, at the end of the day, it is not something that could have some importance. The case is that whatever you consider in US, and you know by that, we have to include EUR 30 million more. This is basically the effects of the EBITDA contribution in US because it is the grant affectation. The question of the zinc price is something, we are basically following and living in this world, but we are not having big, how to say, big players in that world.
Asier Zarraonandia: What can read is that there was a peaking, as you said, 2 months ago, basically, or 1 month ago even, and October started to decline. Now, yes, those days are picking up again. We will see up to now. Well, basically the fundamentals are there. I mean, the minimum inventories, some pressure because the mining are not coming, probably the mining are affecting for the higher cost because it is affecting to the operation as well. China situation is not very buoyant in the production. So all in all, is making the pressure on zinc prices are needed to overcome with all the higher costs they have. I do not see really a so clear picture to have in maximums for the history, the 4,000. But it is true that is there and sometimes, well, we have to adapt.
Asier Zarraonandia: My summary is that this is time for seeing high zinc prices because of the economic situation, but where to put this high price is difficult for me to say if I see this roughly $3,900 or $3,800 are going to be for a while. It is difficult for me to see like that. It is clearly time for the zinc price up because cost in mining, cost in refineries are very high now.
Fabian Piasta: Okay. Thank you. That is very useful. Maybe one last follow-up, and then I am going back into the queue. You are talking about an EBITDA run rate in the Bernburg expansion, 6 to 7 million with the ramp basically completing or ongoing in Q4. When do you think you are going to achieve the run rate? H1 2027, and full contribution sort of
Asier Zarraonandia: Yeah
Fabian Piasta: the H2? Is that the right way to think about it?
Asier Zarraonandia: Yeah, Fabian, good question. I mean, yes, we do not think that Q4 is going to go hopefully, but at the end of the day, the plant is ramping up. Probably we are not able to capture all the potential there. For 2027, we are, after the ramping up in Q4, for sure it is going to start the contribution, and will be in that range. Up and down, depending, a little bit up and down, depending on the availability of scrap, of product at the end of the day, because I would say the secondary aluminum is not volume, but I think that is in that range of EUR 6 million is a good reference for 2027.
Fabian Piasta: Thank you very much.
Asier Zarraonandia: Fabian.
Operator: As a reminder, if you wish to register for a question, please press star and 1 on your telephone. The next question comes from Olivier Calvet from UBS. Please go ahead.
Olivier Calvet: Yes. Hi, good morning. Thanks for taking my questions. I have just a couple left. Firstly on volumes, could you come back on your expectation for volumes for this year? You said solid or stable Europe, the US could be up 60% to 70%, rest of world down. What is the magnitude of the cut you would expect in Turkey for the full year to offset some of the growth we are seeing in other geographies? Secondly, just on energy, obviously we have moved from sort of 144 to 156 for coke, electricity, to EUR 130 per megawatt hour, gas as well increasing quite a bit. If those levels in Q3 persisted through 2027, what would be the annualized EBITDA headwind versus your current cost base? Then thirdly on the TC, I mean, you have discussed it. Essentially, last year at this time of the year, you gave a range.
Olivier Calvet: I was just curious if your comment is essentially currently, you expect it down year-over-year, but no specific range being discussed at the moment, that you would like to point to. That would be my three questions. Thanks.
Asier Zarraonandia: Thank you, Olivier. Talking about volumes, again, we see that at the beginning of the year, probably we were telling that we see the increase on volumes basically and decrease in US. As I said before in a question from Ana, we are talking about 60,000 tons additional in US. The reality is coming through, we are basically the same level of 25, although I think that probably for Q4, we are going to be in levels slightly higher than the 2025. In any case, it is clear that we are going to maintain the volumes, and the reason for the dropping is that, well, basically Asia is not getting the same level of last year. Nothing remarkable in terms of Turkey, Korea, and it's a splitting, and China even.
Asier Zarraonandia: It's a splitting an amount of 50,000 tons or something like that less on the two and three and some European minor quantity. So nothing dramatically. In Turkey, it's just perhaps something about 10,000 or maximum. The point is that it's a stable volume instead of having a very, very slight increase. So at the end, we did not expect a higher volumes increase in total. But now we are, well, 50,000 tons of a total of 1,350,000. I think it's not something dramatically. It's like it is. Well, energy and the idea, Rafael can have some color of that. But I do not know what is going to happen, but for sure the short term is going to be affected. Rafa?
Rafael Pérez: Yeah, I think that we need to separate, Olivier, as we have always explained. Electricity and natural gas impact more our aluminum business and our ability to pass through metal margins and prices is higher. So I will separate that from coke. Coke, as you know very well, we need to absorb. It is true that the trend the third quarter, and we see that trend continuing or staying high in the fourth quarter and the beginning of next year. Let's see how it evolves. Just to give you a reference, the average coke price in 2025 was 160. Okay? Now we are seeing 186 in the third quarter. We see that increasing, not dramatically, but it's clearly that there's an inflation point in the cost price reduction, which has been happening already since 2022. As Asier said, let's wait and see.
Rafael Pérez: But in any case, we do not expect a very significant impact. Obviously, it's going to be a headwind, part of the inflation, but we probably can anticipate in the mid-single digit impact.
Asier Zarraonandia: The last question, you were talking, touching the matter of the treatment charge. How is that or how is expected? Well, obviously, once again, it is a little bit early to see, but it is true as well that the last week or a couple of weeks has been the London Metal Exchange week for all the metals and zinc, and there is starting to be all the things are moving on. What we can anticipate, it looks like it is not going to be on favor of the refineries. It is still on the side of the miners. What that means is difficult to know. The spot prices are very low, negative side, and well, this is marking a trend. It is early to say, but, well, it does not look like it is going to be a big change for our treatment charge.
Asier Zarraonandia: If they are coming, it looks like it is on the correct side. We will see. It is a little bit early, Olivier, to have a clear idea for 2027.
Olivier Calvet: Okay, thanks. Can I just follow up on the volume side, maybe for Q4? If I hear you correctly, Asier, basically what you are saying is you will be perhaps slightly higher than Q4 last year, which was around a group level 320,000 tons. That is sort of the minimum that you see for Q4?
Asier Zarraonandia: Yes.
Olivier Calvet: Just curious. Yeah.
Asier Zarraonandia: Yes, definitely. I think that a little bit higher than the Q4 of last year. This is the idea that we have now, and with October running and the deliveries in front of us, I think that it is a tight moment for many steelmakers, especially in Europe, because the electricity prices and they are running differently the kilns. All in all, in Europe, we have enough, and yes, I think that is the reference. It is a good reference, for Q4 of 2025, a little bit higher.
Olivier Calvet: Yeah. Thanks.
Rafael Pérez: Thank you, Olivier.
Operator: The next question comes from Skya Anis from Oddo BHF. Please go ahead.
Anis Zgaya: Yes, good morning, gentlemen. Thank you for taking my question. I have only two questions. First one is on the Section 45X. I have just a question on your confidence or how confident are you on that EUR 25 million to EUR 30 million annual contribution will be recurring, and what are the main remaining risks regarding IRS approval, eligible production costs or future maybe regulatory changes? Second one is on the FX. Given the recent strengthening of the US dollar, should we expect the negative FX impact seen in 9 months sustained in going forward? Thank you.
Asier Zarraonandia: Thank you for the question on 45X. Well, I have to say that there is a very high or full confidence it is happening. Obviously, the assessment is being done with tax advisors, and we know that we are eligible. We have to cover ourselves because, at the end of the day, it is something that we are putting for the first time to the authorities, but basically it is done. No other remaining things are coming. It is the same that when you do an income tax, you are subject to the review and the final approval for the authority, in this case, tax authority of the federal government there. We do not hope it is going to be big changes, in any case, on some remarks and numbers or whatever. We are putting this because it is basically done.
Asier Zarraonandia: Unless in the future or something change in the legislation that you can never know, what we are informing now is what it is for the next 9 years. FX, Rafa, or FX, Skya Anis, basically, yes, it is true that recently we have seen the devaluation of the dollar. I think the average so far in the year is still well above the average of last year. We are talking about an average this year of 116 versus last year average of 112 in the first 9 months of the year. That is making a negative impact of around EUR 6 million to EUR 7 million in the year so far, and let us see how the evolution is. As you know, we are seeing great deal of volatility in the FX now, so we have to wait and see the impact.
Asier Zarraonandia: But obviously, as we have explained many times, we are better off with the stronger dollars.
Operator: The last question for today comes from Jaime Escribano from Banco Santander. Please go ahead.
Jaime Escribano: Hi, good morning. A last question from my side. Guidance 2029 of EUR 300 million, with this tax credits announcement, how should we think about these targets? Should we anticipate to 2028, or how should we think about this guidance? Thank you.
Asier Zarraonandia: Well, Jaime, guidance for 2029, if I do not remember, we have put on the table never. We have put some ideas, right? Now, it is true that always we have said that probably around 2029 or 2030 with the Recytech contribution, the Recytech increased capacity, we will be for sure in the range of EUR 300 million. It is true. Now, where we are anticipating this is basically with this year, the guidance we are putting is EUR 296 million in the high part. We will see we are there, but we are going to be obviously close to the EUR 300 million already this year. As I said before, what I think that we have to consider is whatever you are considering for the years is to put EUR 30 million more. This is basically EUR 30 million or EUR 25 million, depending the conservative you can be or we could be.
Asier Zarraonandia: It is true that it is an extra contribution. The remaining and operations of the challenge and whatever we have in front of us and the business model, I do not know. We have seen price you are using for getting this in 2029 with the treatment charge will be, quantities, whatever. At the end, operationally, I think that we are driving our navigation well in this challenging period because it is true that it is not perfect in all the geographies. They are still making car manufacturing, all the things that we have discussed. But we are doing and performing really well, helped by the zinc price, but on the other hand, offsetting by the energy and other inflation costs. But we will see. I think we will see 2027, 2028. For sure, adding Recytech is clear that will be there.
Asier Zarraonandia: What we can for sure anticipate, and I think that probably something that we have to put more color is, ahead of us, we have a 5 years, 5 to 6 period, with this effect of the grant even higher, but the cash generation is going to be very strong over this period because the growth CapEx has been done. Out of this $60, $70 million of Recytech, the rest is going to be the maintenance CapEx, so the cash generation should be, whatever the years you take in, very strong. This is basically the period that we are entering in. Once we get the leverage below 2, I think that the idea is to generate a lot of cash and to put the value to the shareholders.
Jaime Escribano: Thank you. One follow-up, Asier, if I may. Just building on what you just said. On top of Recytech, anything extra projects or interesting projects that you are scoping that we should know about?
Asier Zarraonandia: No, Jaime. I think that we have always in the pipeline some ideas, but they are not still mature to put in those 5 years. If something will change, we will see, but basically not. The idea is the only project we are contemplating in the next 2, 3 years, and again, depending on the steel projects, that's what we see now, perhaps 2028, 2029, the construction, but could be even postponed one year more because we are now expecting the dust volumes growth, and then we will do the project. Again, the 5 years period I see here just generating cash without not other projects. We will see during those 5 years what is the strategic plan or whatever in the future. But now, no.
Jaime Escribano: Thank you.
Rafael Pérez: Thank you, Jaime.
Operator: Ladies and gentlemen, that was the last question for today. I would now like to turn the conference back over to Rafael Pérez for any closing remarks.
Rafael Pérez: Thank you all for your questions. You can also contact the investor relations team at Befesa for any further clarification. We will now conclude the conference call and the Q&A session. Let me remind you that you can find the webcast and the dial-in details to access the recording of this conference call on our website. Thank you to all of you, and have a good day.
Operator: Ladies and gentlemen, the conference is now over.
