Befesa Enters a Cash Generation Cycle as Zinc Hedges Lock in Record Prices
Strong H1 2026 results, deleveraging, and a shift to low-CapEx growth mark a new chapter.
BFSA.DE · Earnings Call · 2026-07-29
Befesa reported a strong first half of 2026, with adjusted EBITDA rising 11% to EUR 124 million, driven by higher zinc prices and solid volume growth, particularly in the U.S. The company reaffirmed its full-year guidance of EUR 250-270 million and now expects to land at the upper end of that range. “Total adjusted EBITDA in this half has been EUR 124 million, up 11% compared to the same period last year” — Asier Zarraonandia, Group CEO · 2026-07-29 More importantly, management signaled a strategic inflection. After years of heavy investment to expand globally—including the Palmerton modernization and the Bernburg expansion—the company is now pivoting to a period of structurally lower CapEx and rising free cash flow. CFO Rafael Pérez was explicit in his prepared remarks:
After three years of negative total cash flow, 2025 last year marked an inflection point. We anticipate our total cash flow to follow a positive trajectory...
The deleveraging trend is unmistakable. Net leverage improved from 2.7x to 2.18x year-on-year, and the company targets below 2x by the end of 2026. This is being achieved through a combination of strong operational cash flow, disciplined capital allocation, and a cap on total CapEx at around EUR 80 million per year. The only major growth project on the horizon is the Recytech brownfield expansion in France, which will be modest relative to past outlays. Management has been consistent on this priority, as they stated back in February: “We want to deliver a combination of keeping the leverage below 2x.” — Rafael Perez, CFO · 2026-02-26
Steel Dust: A Structural Tailwind
The steel dust business continues to be the principal earnings driver. The company is seeing load factor improvements across geographies, particularly in the U.S., where new contracts are ramping up. Asier commented: “The U.S. market is coming from the new contract as expected.” — Asier Zarraonandia, Group CEO · 2026-07-29 The U.S. is expected to see steel dust volumes grow significantly as new electric arc furnace capacity comes online. By 2028, the company aims to push steel dust utilization from below 70% last year to around 90%. In Europe, the EAF transition is also accelerating, with 13 new projects announced through 2030, adding 22 million tons of capacity. This creates a structural demand backdrop that supports both volume growth and pricing. The hedging program adds another layer of visibility. The company has extended its zinc hedges through January 2029, covering nearly 30 months of production at record prices. Rafael noted: “we have taken the opportunity to hedge and to cover the second half of 2028... this is made at EUR 3,100 per ton, which is a record high for the company.” — Rafael Pérez, CFO · 2026-07-29 This effectively locks in a significant portion of the earnings stream from steel dust at historically high zinc prices, making the forward earnings profile more predictable.
Secondary Aluminum: The Remaining Drag
The secondary aluminum business remains the weakest link, with volumes under pressure due to high scrap leakage and weak automotive demand. However, there are signs of stabilization. Metal margins have improved sequentially, and management expects a stronger second half, partly due to contractual lags that should work in their favor. The company's long-term outlook for secondary aluminum demand remains positive, especially as environmental regulations push for more recycled content. The new contracts in steel dust and elevated zinc prices are the primary drivers of the upward bias to guidance. Meanwhile, the company is managing costs carefully, though it faces ongoing general inflation and higher energy prices, partly driven by geopolitical tensions.
Cash Generation and Shareholder Returns
Operating cash flow in H1 reached EUR 71 million, up 10% year-on-year. The increase in working capital was largely a timing effect related to inventory, which is expected to reverse in H2. The company paid a dividend of EUR 40 million in July, and remains committed to its policy of paying out 40-50% of net income. With CapEx now limited, the free cash flow will increasingly be available for debt reduction and potential returns to shareholders. As they highlighted in October: “I mean we have in pipeline for the U.S. more tonnages than this year, definitely.” — Asier Zarraonandia Ayo, Group Chief Executive Officer (CEO) · 2025-10-30 That pipeline is now materializing, and the cash flow inflection is the key story.
Befesa is clearly entering a new phase. The combination of volume growth, record zinc hedges, and a disciplined capital allocation framework makes the deleveraging story more credible and the earnings outlook more durable.