Befesa SA Signals Confident Growth in Earnings Call

Befesa SA ((DE:BFSA)) has held its Q4 earnings call. Read on for the main highlights of the call.

Befesa SA’s latest earnings call struck an upbeat tone, as management highlighted double‑digit EBITDA growth, wider margins and record cash generation despite lingering headwinds in aluminium and China. Solid deleveraging, disciplined capital spending and long‑dated zinc hedges underpinned a confident message that the group is structurally stronger and well positioned for further growth.

Robust Profitability and Margin Expansion

Befesa reported adjusted EBITDA of €243 million for 2025, up 14% year on year, with the group EBITDA margin climbing to 21% from 17% in 2024. Management credited operational efficiency and tight cost control for the improvement, signaling that profitability gains are not purely cyclical but supported by structural measures.

Steel Dust Segment Drives Earnings Upside

The steel dust business was the star performer, delivering EBITDA of €212 million in 2025, a 25% increase and lifting the segment margin to 27% from 21%. Better zinc hedge prices, sharply lower zinc treatment charges and cost savings at the U.S. zinc smelter combined to make steel dust the main profit engine.

Record Operating Cash Flow and Strong Liquidity

Operating cash flow reached a record €212 million, up 10% from the prior year, as working capital consumption was kept to just €10 million. After all uses, cash flow stood at €40 million and Befesa closed the year with €143 million of cash plus an undrawn €100 million revolving facility, giving liquidity in excess of €240 million.

Deleveraging Strengthens the Balance Sheet

Net debt fell 11% to €552 million, bringing net leverage down to 2.27x from 2.9x a year earlier and moving closer to the company’s medium‑term target. Management is aiming for around 2.0x by the end of 2026, which would give additional flexibility for growth and shareholder returns.

Hedging Provides Multi‑Year Zinc Price Visibility

Befesa has extended its hedge book through the first half of 2028, with hedge levels up to $3,100 per tonne and 2027 largely hedged at $3,000 per tonne. Average hedge prices of $2,923 in 2025 and about $2,990 already locked in for 2026 give investors unusually strong visibility and protection against zinc price swings.

Strategic Projects: Palmerton Completed, Bernburg Underway

The company completed the Palmerton expansion in the U.S., commissioning a second kiln in July 2025 and positioning its American steel dust assets to capture expected growth in electric arc furnace steelmaking. In Europe, permits for the Bernburg expansion are in place and construction started in August 2025, with a 12‑month build and six‑month ramp‑up timeline on track.

Capital Discipline and Rising Shareholder Payouts

Total capital expenditure in 2025 came in at €76 million, below the initial €80–90 million guidance, underscoring a disciplined approach to spending. Maintenance CapEx is guided at roughly €45–50 million annually and the board plans to increase the 2026 dividend to €40 million, up 37%, while maintaining a 40–50% payout range.

Aluminium Businesses Facing Margin Pressure

The aluminium salt slag segment saw EBITDA drop to €32 million from €43 million, a 27% decline, as metal margins compressed and energy and operating costs rose. Secondary aluminium operations also suffered from tight margins and low production levels tied to the weak automotive market, making aluminium a clear drag on group performance.

China Operations Running at Low Utilization

Befesa’s Chinese plants operated well below capacity and only around breakeven, with one site running at 10–20% and another at 50–60% for stretches of the year. Management stressed that China is not cash negative but acknowledged that the timing of any meaningful recovery in utilization and earnings remains uncertain.

Energy and Inflation Continue to Bite

Inflation and higher energy‑related operating costs weighed on 2025 results and are expected to persist into 2026, particularly in Europe. The company anticipates rising natural gas and electricity prices will add cost pressure, even as some inputs such as coke show signs of normalization.

Historically Low Treatment Charges Pose Market Risk

Benchmark zinc treatment charges fell to $80 per tonne in 2025, a 15‑year low compared with $165 in 2024, which significantly boosted Befesa’s earnings. However, management pointed out that such low levels reflect tight concentrate markets and potential volatility, with a rebound to roughly $100–130 expected in 2026.

U.S. Smelter Still Dependent on Volume Ramp‑Up

The U.S. zinc refinery is now close to breakeven following cost‑cutting initiatives, marking a clear operational improvement from prior years. Future profitability, though, hinges on ramping volumes and securing new contracts, so incremental throughput will be crucial for turning this asset into a meaningful profit contributor.

Segment Divergence and Macro Uncertainty

The earnings mix highlighted a clear divergence, with steel dust generating strong growth while aluminium businesses lagged, reflecting differing industry cycles. Management also flagged broader macro and sector uncertainties, including weak automotive demand, maintenance seasonality and minor foreign‑exchange headwinds that trimmed the euro zinc price.

Outlook and Guidance Point to Continued Growth

For 2026, Befesa expects another year of earnings growth, solid cash generation and further deleveraging towards roughly 2.0x net leverage, supported by zinc hedges around $2,990 per tonne and rising treatment charges. CapEx is set to remain below €70 million with Bernburg as the main growth project, while U.S. steel dust volumes are targeted to increase and a higher dividend is planned.

Befesa’s call painted a picture of a company leaning on its core steel dust franchise and strong financial discipline to overcome pockets of weakness in aluminium and China. With record cash flow, shrinking leverage and major projects advancing on schedule, investors heard a message of controlled risk and measured growth, albeit with ongoing exposure to energy prices and industrial demand cycles.