Earnings Transcript for ERMAY - Q2 Fiscal Year 2020

Christel Bories: [Interpreted] Good morning, everyone, and welcome and thank you for being here, if you have been able to make it to attend in person, given the current circumstances. I think all the economic operators are telling you the same that –that is we have one of the severest crises for a long time, maybe from second world – from World War II. It has affected our markets more or less strongly. Despite the significant progress over H1, it has had a tremendous impact on our earnings. If you combine the drop in metal prices, the loss in volumes in aerospace, you can see that on H1 alone, the total impact of the crisis is somewhere around EUR350 million on EBITDA, which is true –considerable indeed for ERAMET. If you look at prices first, manganese ore prices have picked up somewhat over Q2, but it is overall down 22% compared to H1 last year. Average price of ferronickel has actually gone down 10% despite the fact that the LME has, give or take, maintained its position because there is a discount because of a drop in demand. So a significant drop, 10%, as I said, discounted price compared to LME. And as concerns manganese alloys, the price drop was anywhere between 3% and 8% and more specifically, the refined alloys of which we have a large market share. We have also been, particularly been impacted at Aubert & Duval by the aerospace crisis. This is a sharp, far-reaching crisis. We experienced order cancellations to the tune of some 30% in aerospace, a drop in sales. And the overall impact on Aubert & Duval's EBITDA is 50 million over H1, which is a tremendous number indeed. And Aubert & Duval has lost more than EUR150 million in free cash flow over H1 and that has been – had a tremendous impact, a considerable impact on cash flow across the group, too. The steel market was also depressed in Europe and the US and those are our markets indeed for the manganese alloys. You know that our, plants are in those geographies. So we've had to adjust our production in our plants over Q1 and Q2, and that has had an overall 25 million impact on our businesses, so all in all, more than 350 million in impact for ERAMET as a whole which is titanic. Now we have also been impacted by the health measures that have had to be rolled out. We weren't able to operate quite as we would have wanted to. Despite this, our mining operations have shown exceptional resilience and are still experiencing growth. We've seen exceptional performance in manganese. Our manganese mine in Gabon has produced more than 30% extra compared to H1 '19. This shows how successful our organic growth plan for the mine is. We're up 42% on transported volumes, and that clearly shows the operational progress achieved on the railway line, which was our stranglehold – our bottleneck, sorry, considerably. In New Caledonia, despite the difficulties on the East Coast, we were able to produce 12% more than last year. And we have been able to boost our exports, and you know that this is part of our plan, of the SLN plan. Exports have more than doubled compared to last year. Senegal, GCO measures were taken which, in fact, locked down the entire staff on the camp on the mine, if you will, and the mine was therefore in full operation with good high productivities. You know that the productivity level – production level, sorry, were at record highs. And last year, we have maintained this production level despite the drop in content – the lower grade in deposit and thanks to high productivity. In Weda Bay, we were able to start production on the four production lines. They've already produced more than 1.6 million tons of nickel and since – 1.6 million tons of ore produced since October. And we therefore were not only online with the plan, but in fact, ahead of plan. All in all, mining and metals have increased and improved their position, intrinsic improvement to the tune of 120 million with productivity increase or production increases, and this was a tremendous effort made and this fits in with our organic growth strategy for these businesses. Now obviously, combine that, that good operational performance with the very negative impact of the outside external factors I described earlier, and that leads to a significant drop. EBITDA is around 120 million compare that to 307 million, H1 2019. The crisis was such that we've had to review the valuation of some of our assets and adjust that in our books. The overall impairment is EUR284 million, 200 million of which are directly related to Aubert & Duval only, then add the mothballing of the lithium project which cost 142 million and other depreciations and impairments earned, you come to a significantly negative net income at minus 623 million, which has an impact on our equity. Free cash flow is at minus 210 million. Our net debt is above 1.5 billion. Given the significant impact on equity, our gearing has been impacted by the increase of debt. Before impairment, it reaches 113%. And it's even higher if you take into account the impact on equity. We secured a covenant holiday from our banks, and Thomas will come back to that, covenant holiday for end of June and end of December. Now before I give the floor to Thomas, can I maybe look at the way we manage the pandemic? Thanks to the tremendous work of our teams. I think we can say that we managed the pandemic well. We protected our staff, their families and of the local communities around. As you know, I'm sure quite how significant and important this is for our remote mining facilities. And this is also true across the group and across our businesses. We deployed human and financial resources, significant ones to do so, in line in fact, with our corporate citizenship and solidarity and contributive corporate policy. You see here, for instance, a picture of the Transgabonese, which brought supplies to the people living in communities bordering this railway line crossing the country. And this is just one illustration of what we've done for local communities in the pandemic. Now over and beyond our fight against the pandemic, you know that our main concern is the safety of our staff and contractors. We have gone and secured further improvements. Our safety rate is up 20% on last year, 50% up on over two years. We are still working on the issue. And more specifically, we are working on reducing serious accidents and we had indeed one fatal accident of a subcontractor early this year. And we are still focusing on this and trying to achieve full safety of all the staff working on our sites. Now if you will allow me, I will now give the floor to our CFO, Thomas Devedjian, who will tell you more about our financials. And I'll come back and speak about operations.

Thomas Devedjian: [Interpreted] Thank you, Christel, and good morning, everyone. As you can see on this presentation of the group's EBITDA, the earnings enjoyed a strong contribution from manganese and mineral sands despite the significant drop in prices to the tune of 20% on manganese ore and also a drop to – a lesser drop of the manganese alloys. We have increased our volumes for manganese alloys. And because we are highly – have highly profitable mine, we are still profitable at EUR234 million. It's less than previously because of the drop in prices, but it is, as I said, partly offset by the increase in volumes. On mineral sands, we have, in fact, more or less managed to stabilize the numbers there, despite the additional costs related to the pandemic. However, in nickel, performance is well below what it was last year. It is deteriorating. At SLN, we were impacted by a drop in ferronickel because of the discounts that Christel mentioned. We also had issue with supplying our plant because the East Coast mines had a lesser performance than expected. And the grade was insufficient, and the chemistry wasn't exactly – chemical makeup wasn't exactly what we expected. So SLN had EBITDA down EUR50 million roughly. In Sandouville, the plant was – the operations were stopped in H1 because of the whole situation. And our most profitable products, the nickel salts, in fact, experienced a significant drop in the market, which had an impact here. The High Performance Alloys division has been severely impacted by the aerospace market crisis some programs down 40 or so percent for instance, so a significant drop in sales and therefore an impact on EBITDA at Aubert & Duval. And ERASTEEL has been significantly impacted by the automobile business slowing down significantly. And that means that the whole division is down EUR66 million. So our EBITDA has gone down from EUR307 million to EUR120 million for H1. Despite a good internal performance on mines, severely affected by the drop in ore prices and the aerospace crisis, we therefore have an EBITDA down, a net income group share very negative at minus 63, as Christel said, because of the significant impairments we had to book. We conducted impairment tests given the exceptional set of circumstances, and that has led to a significant drop in equity, slightly below 1 billion, whereas net debt is somewhere around 1.5 billion. So our gearing before impairment, including IFRS 16 debt is therefore a ratio of 113%. Our banks have granted a covenant holiday for the June 30 and December 31, 2020, which means that we do not have to compute the covenant and are therefore now fully compliant with all our banking related obligations. If you look at now depreciation over the half year, you see 459 million in impairments. This is mainly due to Aubert & Duval because of the very downward looking outlook for aerospace. We therefore booked an impairment for EUR197 million for Aubert & Duval. We also impaired Sandouville and ERASTEEL given the current economic environment. And as we had said, we decided to mothball lithium project, which means that we had to impair all the assets related to the project and also to provision corresponding costs, so somewhere around EUR140 million. And that really goes a long way to explaining the downward impact on net income group share. Here, our parity exchange rate is at $1.13 and takes into account also our expected production levels. You see our sensitivity to manganese prices has, in fact, increased. $1 per dmtu has a EUR175 million impact in terms of EBITDA. And you can see that this is the greatest exposure of the group. Nickel prices represent 100 million in EBITDA of a variation of $1 per pound. And for the exchange rate at $0.10 in variation in the euro-dollar exchange rate, is worth 140 million EBITDA. Our EBITDA has benefited from the good results, internal performance of mining and metals and 127 million in intrinsic operating performance, as you can see. This does not offset the very brutal external factors. First of all, the COVID crisis affecting the aerospace crisis, you can see here that that's worth some EUR50 million in EBITDA. And also, the EU steel market, that has been significantly impacted, and that also has a significant impact on our manganese alloy plants, both as concerns prices and volumes, so EUR25 million here – there, and other additional costs related to the crisis for EUR10 million. But the main factor is the drop in manganese price, and that's a full issue – a full impact of EUR236 million, as I said, related to the drop in manganese prices. And so in this context, we embarked on a plan to reduce our investments and control costs. So between the first half of last year and first half of this year, we reduced our current CapEx by 15%. We're just under EUR100 million. That's already quite large because we were already very strict in terms of CapEx. The safety environment CapEx and productivity CapEx are the ones where we've maintained a priority. Then we've taken the lithium project and mothballed it. We had to honor some of our commitments, but that project is now mothballed. Therefore, the $68 million – the $58 million investment should not be replicated in the second half. Then we have some high growth CapEx focused on manganese ore. You see the strong increase in volumes in manganese ore and the immediate impact on the EBITDA. To fuel that growth, you need to put them into CapEx. So it's really the minimum requirement, but the payback is quick, 25 million to increase volumes, but also the CapEx to renovate the railway line, which is what we used to ship the manganese to the tune of EUR14 million. So we have quite a different situation in terms of working capital requirement. We've really done a lot to reduce inventories to manage receivables and payables in the mining and metals division. So we've been able to reduce to 15 days of sales the working capital requirement in that division, that is a reduction of 11% in the simplified WCR. As for the HPA division, there, the WCR has increased by 10%. That's the result of the crisis in the aeronautics sector and also because clients now don't come in to retrieve the parts they've ordered from us as quickly as that. So here, we have WCR that represents about 100 days of sale. Nevertheless, overall, we have a reduction in WCR, but this also leads to a reduction to four days of sales in terms of WCR. If we look at free cash flow across the group, we can see where the underperformance is coming from. The mining and metals division has traditionally generated cash flow, first of all, the manganese BU, EUR120 million, then mineral sands generating about EUR50 million in free cash flow. And that largely covers the losses of the nickel business unit, SLN and Sandouville. And so with the net free cash flow generated by the mining and metals division, we're able to fund the cost of lithium. Once again, these are one-off costs. We want to finish mothballing the project. There are still some little things that need to be tied up, but those costs are completely offset and aside from that, we're in positive territory. On the other hand, the High Performance Alloys division is showing very poor performance indeed. ERASTEEL's underperformance is very small compared to Aubert & Duval, minus EUR10 million. Despite the drop in the automotive sector, a lot of great work was done in improving working capital requirements at ERASTEEL, but at Aubert & Duval, the cash flows are in completely negative territory at minus EUR156 million because of the aeronautics issues. So overall, the group is posting a negative free cash flow of EUR210 million, which is very bad. Of course, the net debt has gone up correspondingly. It exceeds 1.5 billion for the fiscal year. I'm not going to detail the impacts across the two digit and 142 operational cash flow for mining and metals and minus 134 million for High Performance Alloys. So the one offsets the other, add to that the cost of lithium. There's also been a slight increase in funding costs. We have drawn down all of our lines of credit, but we're also placing our money at market rates, which are close to zero, so that means that our financial burden is all the higher. In this net debt trend, what is not included is the earnings from the divestment of TTI. Now the sale was signed during this half year, and we're waiting for the close of the operation over the second half. We think it's going to take place during that time. We are still waiting on a number of pending authorizations that need to be given for the sale to go completely through, $250 million that is how much the operation should bring in. The cash position is very positive, EUR1.9 billion cash, available cash on our books. We have, owing to the pandemic, drawn down all lines, so of the FCF which is just under $1 billion, drew down our term loan signed at the end of last year for EUR350 million and also the EIB loan, which is designed to support R&D expenditure, modernization and digital transformation, for an amount of EUR120 million, but also getting the covenant holiday from our lenders. As for debt maturity, we have no major debt maturity term coming within the next three years. Our debt net stands at about 3.5 billion, 80% of it is at a fixed rate. There are really two issues we need to be aware of. As soon as the TTI transaction closes, we will have to repay the bond, so should that take place before the end of the year the TiZir bond maturity would be anticipated. There's also the ERAMET bond, which has a maturity in 2020, end of the year. We paid back most of it last year via a bond that we released last November. So Christel back to you.

Christel Bories: [Interpreted] Thank you very much, Thomas. A few words now about our operational performance, after which, I will give you a few details on the necessary acceleration of our transformation plan in this very complex setting. First, let's look at results for the mining and metals division. I'll start with manganese. The crisis is hitting most of the world's markets. Steel is part of the market, of course. Carbon steel production has been going down by 6% – went down by 6% over the first half. That's a historic drop, and this really reflects two different situations. First of all, a significant decline in Europe and the US, 16% to 17% and in fact, much higher over the second half compared to the first half. The drop really affected Europe over the second quarter – correction, quarter. China had gone down over the – had first trended down, now trending upward and ending more or less stable. But that means that production has gone down. And carbon steel accounts for about 80% of manganese production. So that affects our activity. Ore production has gone down, and particularly in South African mines. Owing to COVID-19, mines there had to close down for a number of weeks that also affected ore shipping. This brought prices up a little over Q2. And overall, manganese production stabilized over the first half, but went down from one semester to the other by over 9%. So when you look at this temporary drop in South African production, you see that this led to an increase in prices over Q2. The dark blue curve shows manganese ore prices, and in orange, you have the prices of manganese alloys. Some manganese ore suffered a sharp drop at the very end of last year, beginning of this year and went back up over Q2, before dropping again presently. Overall, the price stands at about $5 per dmtu, that's manganese ore, that's just a little less 22 – actually, minus 22% against the same time last year. You see how sensitive we are to manganese prices. That is having a high impact given the volumes we produce. Now price of manganese alloys, they dropped from one quarter to the next by 8%. That's true for most of the alloys that we sell. And unfortunately, as I was saying, since mines reopened in South Africa, well, inventories are going back up, driving prices down. And in July, that price stands at about $4 per dmtu. Now despite difficulties related to COVID-19, our mine in Gabon posted excellent performance over H1. Production is up 31% in volume. Shipping transport was really boosted. Our transport capacity was boosted. We were able to transport all of those additional volumes and more than that. So transported volumes were up 42%, which put us in a position to increase external sales, and they were driven up by 50%. That growth, given the mines good position, that growth is highly virtuous. This is a cycle that we really kick started a couple of years ago. You'll see that in the bottom graph, we stood at just 4 million tons in 2017 that increased to 4.3 million tons in 2018, jumping up to 4.8 million tons in 2019. And we expect to exceed 5.5 million tons this year, so we are reviewing – revising our production target upwards. In Q1, we were already posting a 5.7 million tons level on a yearly basis, so 5.5 is absolutely achievable. And this is generating a lot of value. Manganese also requires very little CapEx and generates a lot of cash. So just as an indication, over the past 18 months since beginning of 2019 through to mid-2020, the growth in manganese ore volumes in Gabon generated 120 million, additional million, in free cash flow for the group, net of taxes. So you see that this kind of growth generates a lot of value, and that's something that we will be fighting to preserve over the next few years. And the objective – the goal is to reach a production of 7 million tons in the Gabon mine. In manganese alloy production, we are focusing on the European and US markets. And they suffered a lot, with a drop in demand by 16%, 17%. And we were able to limit the impact on our sales. Volumes sold only suffered a drop of 6%, thanks to an aggressive policy geared to gaining new market shares outside Europe. We were able to gain new market shares in the Middle East, in Asia. Of course, we are ensuring that these are profitable market shares. Also, we had to limit production over Q2 in order to limit inventories and the impact on cash. So our manganese alloy production overall is down 9% against last year. Looking at nickel, stainless steel is the main market for nickel, and it was hit very hard, harder than carbon steel because, in contrast with steel, China is the main producer and main market. China also had to bring down production sharply. So never has a drop been so violent on this kind of market. World nickel production is down 12%. That includes China, with a drop of 6%, which is a huge impact. And the impact of the market, excluding steel, is also very sharply down. And so overall, primary nickel demand was down 13%, and this affected prices significantly. And in contrast with manganese production, primary nickel continued to increase slightly, up 2% from half-to-half. And this was mostly due to the start-up of production lines, pig iron and nickel alloy production lines in Indonesia, so plus 60%. And that makes Indonesia the highest consumer of NPI in the world. So we have production that is stable, but demand is down. So there's a surplus of nickel on the market, estimated at over 100,000 tons and oversupply of 100,000 tons or more in H1. And prices – inventories, rather, LME and ship inventories were up. They now stand at about nine weeks of consumption. In this context, LME prices stay surprisingly stable with variations, as you can see, but when you compare that to the first half of last year, well, things are more or less in line, $5.65 per pound. But ferronickel prices have gone down. This actually reflects a discount. The buyers wanted to get a discount on LME prices, discounts of about 10%. So NPI and ferronickel were sold at significant discounts affecting our sales prices, of course. So as you can see, this is a difficult market and as Thomas said, in this context, the SLN is not doing well, making its rescue plan all the more relevant. But it is very, very difficult to get it back afloat, as we have shown we have been successful in significantly increasing exports. They doubled over the period. We have boosted productivity, but there's still recurring societal disruptions on the East Coast of the island, creating extra difficulties for the mines in that area. And they are the ones that supply the feedstock for Doniambo and our ferronickel plant. Therefore, they are getting their supply from other areas, other sources, but the chemical properties are not well suited to the plant. The production levels are, therefore, still historically low with only slightly above production levels for H1 last year, which was already historically low. You know also that in our rescue package, we had an energy aspect with our energy supplier or power supplier, we only managed to secure a third of the reduction we wanted, and that has led to that we have had to apply for additional export licenses from the Caledonian authorities. They are currently being processed. We asked for an additional two million tons because we felt that exporting more from our mines is the best way to go about it because the nickel ore price is staying what it is because of the Indonesian ban, there's a short fall in nickel supply on the market. So the more we can export, the better the SLN will fare. So when you look at all this, you can see it in the cash cost. Our cash cost is improving half year on half year. It was at 5.65 on H1 this year compared to 6.05 last year. You see here the first green bars, which are the gains related to export volumes and productivity and also those related to import. When ferronickel goes down, it's also true for the cost of fuel and coke. But in red, you have the middle, the impact on volumes caused by the societal upheaval on the East Coast. So despite this drop of the cash cost, which is still improving, and this illustrates also the level at June, month end June, which has been very good. The cash cost in June was somewhere around 5.40, and we hope that we can preserve this. But given the current prices and the discounts on ferronickel, this will not be enough. So against this backdrop, SLN lost 68 million in cash flow over H1. We have 74 million undrawn out of the SLN loan granted by ERAMET and the French government for SLN in 2016. ERAMET had loaned 320 million that haven't completely been drawn. What I'm saying is that over the last few months, SLN hasn't been burning quite as much cash as at the beginning of the year, but 74 million is not really that much if the LME prices go on going down. So we must absolutely have a successful plan at SLN, a rescue plan that is. ERAMET has, as I've already said, made a tremendous effort last year, we only hold 54% – 56% of the equity, the Caledonian provinces have the other 34%. And so you can't just rely on ERAMET. We consider that it is for all of the stakeholders, the Caledonian stakeholders and other shareholders to support this subsidiary. We are supporting it by implementing as we can and using all possible resources to implement the rescue plan. Moving on to mineral sands, the situation is also difficult on the market for zircon supplying the ceramics market. The price has gone down 15% for H1. There again, the market is experiencing excess supply given the crisis as concerns titanium slag. Despite the crisis, a number of adjustments have occurred because, for instance, large producers in South Africa were also impacted by stoppage in South Africa. That means that the prices sort of resisted over H1. So actually, up 7% compared to last year. We don't expect that to last into H2 for the price of titanium slag. Well, with South Africa coming back online, we do have oversupply, and we expect to have oversupply over the whole of 2020 and to have an impact on price. On operations, as we've said, the operations have been good despite the difficult environment in Senegal in GCO. We have, in fact, managed to go on increasing our productivity over H1. The productivity levels, as you can see, are much higher now than they were when we took this over. It means that we have very high production levels, and we've been able to sustain production despite the fact that the deposit is seeing a drop in the grade. It's only normal. I mean, it's always very high-grade when you start and then declines somewhat. But the production levels are still very high. Sales are up 13%. Inventories are properly managed indeed. We're talking here about GCO. In Norway, we've also managed to sustain production levels more or less in line with what it was last year. And sales volumes are up 3%, so a good, even very good operational performance on mineral sands. And now High Performance Alloys, this is a very different kettle of fish indeed compared to mines and metals. In mines and metals, we experienced resilience growth, indeed in the mines despite the very difficult environment, so strong intrinsic progress, 120 million EBITDA up on intrinsic operations. Well, it's very different in High Performance Alloys, quite simply because aerospace is the business that was most severely impacted by the COVID crisis. Deliveries are down 50% according to the global aerospace markets, which again, has been very significantly affected. Production levels are brought down and we've had announcements of productions down 30% to 40% over the next few years. And we expect to recover the levels or go back to 2019 levels, not before 2025. So this will be lasting and aerospace actually accounts for 70% of A&D sales. So you can well imagine that in this context, a new valuation has already been weakened by its quality issues for 2019 and was significantly impacted. Sales have dropped to historic lows. You'll remember that H1 last year had been significantly impacted by noncompliance and corresponding remedies, we're down 13% on that very low level. Production has been completely disrupted by order cancellations, reorganization of the supply chain priorities and also by the introduction of health verticals, which has disrupted the activity. Cost adjustments in that kind of business where you have large overheads and long lead times isn't, therefore, very swift. The lead time for very highly sophisticated ore alloys, for instance, means that you source them some nine to 12 months before delivery. So in fact, when – even though there might be cancellations of deliveries, we've actually already sourced the metals. We're, therefore, left with inventory on our hands that we have to go through. And that explains why inventory has increased and free cash flow because of all this has been very severely impacted and down 156 million. Of course, there are very sort of strong measures that have been taken. We've completely stopped upstream supply. We've had large numbers of temporary workers. We reduced them 50% at month-end in June, and we were almost not going to have any at the end of the summer. We used furlough programs so that led to 10% – 20% drop in the wage bill somewhere around EUR9 million. We tried to push our deliveries to our customers even when they were trying to cancel the order. So that has led to some interesting conversations. But we can expect to have a decreased level of sales over the whole year compared to last year, which already wasn't terribly good, we can expect to see a 20% drop in sales volumes. This will mean that we will have to adjust headcount. We can't just rely on furloughing and temporary workers to adjust this. We have, in fact, overstaffing, which we will address in the most constructive and responsible discussions with staff representatives, and we'll do this in the next few weeks. ERASTEEL now, there, too, the crisis has impacted us. We're talking here about the automotive market. Crisis, sales are down 34% and have reached historic lows. This has had a significant impact on EBITDA down to minus 15 million. There were very swift management action, and that was a little easier because of shorter lead times than at Aubert & Duval. We started looking for markets outside of Europe, where, indeed, in Europe, the markets were most severely impacted. We looked at cost, looked at inventory levels. And this has sort of kept in check, the impact on free cash flow. It is admittedly still negative at minus 9 million, but teams have worked hard and reduced working capital requirements down 29 days. And that is a tremendous tribute to what was done to reduce the impact on cash flow, so much for operations. Can I maybe now move on to strategic transformation briefly? This was launched slightly over two years ago. Given this major crisis of – which we still ignore the scope and length it will prevail. We have had to review our strategy to speed it up on Pillar one. You'll remember, this is the pillar that aims at fixing or repositioning our least performing assets. It is very obvious that we cannot go on bearing the losses incurred by these assets that were fragile or being or have been in recovery and who have been severely weakened by the crisis. We are, therefore, reviewing all the options, including divestment, specifically for Aubert & Duval, but we are looking at any options we may have for other assets under pillar one. The idea here is to make sure that we do not incur recurring losses from these assets for much longer, for too long a period. As Thomas mentioned, we are still pursuing our organic growth value creating business under pillar two. We saw that even with little CapEx, manganese ore had experienced value creating growth, which had, in part at least, enabled us to offset the losses in other businesses. And that's true in manganese. It's also true of Weda Bay Nickel which is ramping up and should generate cash at the end of this year or by the beginning of next year and also mineral sands where the performance is still good. You will remember that in May, we announced the sale of the TTI plant. We are going through the regulatory motions. And we hope to reap the benefits of the sale in H2. The third pillar is a significant one in the long run in so far as it helps diversify the group and have business on long-term growth in energy transition projects. We have admittedly suspended or mothballed these projects for the moment. But as I said, we've mothballed the lithium project. We also are working on nickel and cobalt salts and Li-ion, lithium-ion batteries. We're working, but working with partners or getting government grants or European grants for research projects, so that we can take this forward without spending cash, which of course, is important in the current circumstances for us. As you know, we constantly strive to set an example, a CSR example, for the group, and the market recognizes this. After Vigeo and Ecovadis, ISS ESG have awarded a prime award to us, and that puts us in the first docile of the Mining and Metals groups. This is already a significant step in the right direction, which will set us as an example, as a reference in this business in terms of CSR. And this really is something that feeds into the right to operate in the longer run, where we have business, so much for what I wanted to tell you about operations and the speeding up of our strategic road map. This acceleration is vital in the current crisis. The environment is and remains highly volatile and very uncertain and as you all know, across the board, that is the case. Now in order to protect the group and enable it to bounce back when the environment – the economic environment picks up, we are still focusing on cash preservation, on preserving options for organic growth with high-yield short payback. And we are, as I said, reviewing all the options on our assets, including a potential divestment of Aubert & Duval. In this uncertain context, we still suspend the guidance for 2020 even though we have, as you all have seen, reviewed our goals and targets, and you've told – you've been told that about mineral or manganese or nickel exports. There you have it. Thank you very much. Thomas and I are at your disposal for any questions.

A - Unidentified Company Representative: [Interpreted] So we will first take questions from the room. We have many participants that are following us on the webcast and there is a way to ask questions via the webcast. And [indiscernible] will be the moderator for those questions coming via webcast. First question's from the room. Please make yourself visible because up on stage, we have light shining in our eyes. We don't necessarily see you.

Alain William: [Interpreted] Alain William, ODDO BHF, three questions, please. Firstly, could you say a little more about SLN situation and the chances, you may be getting cash, then the reduction in price of electricity practice by Enercal and then the right to export or the authorization to export more nickel. Can you give us an idea of a time line for those three things to happen? I have other questions for later.

Christel Bories: [Interpreted] So concerning Societe Le Nickel, the STCPI, still has a bit of cash and assets. It owns 40 – correction, it owns 4% of ERAMET, quite liquid. And it may prefer to shift those 4% into SLN. It can also raise funds and get income from elsewhere. So I don't know if it has the resources, but what I know is that we don't have the resources to continue keeping the SLN afloat. So I think that everyone has to assume their responsibilities. We own 56% of ERAMET's capital, and we can't be the only stakeholders keeping it afloat. So it's really up to them to decide how they're going to contribute and who they are going to go for help to concerning Enercal and its pricing policy for our power. Now there are really two issues we have with Enercal. We are still asking to get a share of electricity. You know that we have a power plant, our own power plant that covers about 80% of our needs so it's an SLN-owned power plant. The 20 remaining percent comes from a dam and the grid and that electricity is extremely costly. We're paying a lot of money for the power that's coming from that dam. And so we are in talks with them today. And it's not just us, it's the cost of electricity across New Caledonia. Then the other topic is the new power plant to replace the old one, which is also looking very expensive. Enercal apparently has received the new tenders, July 15 for the new plant. There's been a lot of delays. We aren't in full control of the issue, but there is progression being made towards cheaper power for our ferronickel plant. Then as for the two million tons, I can't really give you a precise time line. The local government has to vote on that. It was -- the vote was on the agenda a couple of times, but then it was delayed. The New Caledonian political context is quite complicated. A referendum is to take place on October 4. And these are highly charged issues. And therefore, they don't move along very quickly, but we did obtain all authorizations, then positive legal opinion. It's all legal and in conformance with the mining code, but there only remains the political decision to give us the go ahead for the two million tons. I don't know when that's going to happen.

Alain William: [Interpreted] Another part of my question, did you get any expressions of interest for the purchase of Aubert & Duval? I can imagine that not all buyers are qualified. It's quite a strategic asset so what is the state of the thinking on Aubert & Duval?

Christel Bories: [Interpreted] Well, I can't really say more at this stage. You'll easily understand why. Aubert & Duval is a good quality asset. The company has skills. It has significant market shares. It's a strategic supplier for a number of players in the aeronautic sector. Aubert & Duval is mired in structural problems. It has issues with its production process, with its management and it was left disorganized after having weathered two crisis one on top of the other. So the asset today, as you've seen, is a loss maker, but it does hold some potential midterm. So it may be of interest to a number of companies, but I can't say more on that today.

Alain William: [Interpreted] Thank you very much. Last question, it's a financial one. You are enjoying a tax holiday through to the end of the year. And if things don't drastically improve, what's going to happen on December 31. Furthermore, can you give us an idea of your CapEx and whether you are expecting a drop in working capital requirements by the end of the year?

Thomas Devedjian: [Interpreted] So it's not a tax holiday. It's a covenant holiday. We're still paying taxes. Although we're losing money at group level, we still pay taxes in those geographies where we make money. I'd love to have a tax holiday. The covenant holiday would apply to the due date of 30 June and 31 December. As for 31 December, I do not think that there's going to a problem. As you've seen, we have taken vigorous action to improve the situation. Our balance sheet should come out healthier. We have abundant liquidity. And we think that there's a good dialogue that's ongoing with our partners in the banking sector. Our shareholders are responsible. And so I do think that the rest of the discussion will go smoothly. As for the CapEx, well, we have brought those under control even more reducing them just to the bare minimum. We are focusing our efforts on CapEx that will bring in a quick payback. Otherwise, they are being deferred. There's big issues come along, so we want to put money in there to ramp up production. So that's where we want to re-channel our CapEx. We're going to continue that discussion over the second half.

Christel Bories: [Interpreted] Concerning working capital required, there's a huge effort made in the mines and metals division. That really needs to be applauded. We need to keep that momentum, but huge approvals have already been logged in for the second half. The big stakes are in the High Performance Alloy division, and I think that's really where we'll be making a lot of effort. You know that the inventories are all in Aubert & Duval. ERASTEEL has managed to reduce its inventories. So the Aubert & Duval inventories have gone through the roof, mostly owing to canceled orders, and the starting inventory level was already high even before those cancellations. So that's a topic we need to address. That's what we're doing, and we're involving our clients.

Unidentified Company Representative: [Interpreted] Any more questions in the room? A problem with the microphone.

Nicolas Montel: [Interpreted] Nicolas Montel, Portzamparc. A few questions, first of all, manganese prices, we're looking at about $4. How does South African production look? Is it back on track? Are all operators producing with prices at that level, some of them may have to stop production owing to their costs. And the production of alloys in Gabon, how long is that going to last, are things going to be good for the foreseeable future? Then can you say a bit more about your problems with local communities in New Caledonia? What is the real issue there, societal issue? And then the future of Sandouville, can you say a bit more about that BU? And do you have numbers to give us in terms of cost crunching at Aubert & Duval?

Christel Bories: [Interpreted] So Kleber Silva, who heads up the Mines and Metal Division, can say more about South Africa and the cash cost of operators there. It is true that $4 is kind of a cutoff point. So clearly have to come back on stage and into the light, to provide the answer.

Kleber Silva: [Interpreted] Yes. Good morning, everyone. Concerning costs, in South Africa and elsewhere, you may remember that when prices went below $4 last year down to $3.5, a number of operations in Africa stopped mining. That's really the cutoff point – that's really when operators that have high cash costs need to stop working.

Christel Bories: [Interpreted] And can you talk about production in Gabon. And actually, what is the question about? Is it silicon manganese? And is it – or is it also about manganese metal?

Kleber Silva: [Interpreted] So silicon manganese, we have not stopped production. What we did stop was the metal part. Silicon manganese is remaining in production. But we have adjusted output as we have elsewhere, given market conditions, but there's still markets there. So what we did stop production of because it's not competitive is the metal manganese part.

Christel Bories: [Interpreted] And we are reviewing our options for the future. But for the moment, there's no decision to restart that line.

Kleber Silva: [Interpreted] And concerning societal, social unrest in New Caledonia, we had problems during the first quarter, but things are improving. That's why you saw that better price in June when mines start to produce again on the East Coast, when we can export from the West Coast, thanks to our model. As Christel presented, our model becomes relevant, and it shows that it can create value, so all our mines are up and running today.

Christel Bories: [Interpreted] So a lot of work in terms of CSR, working with stakeholders, but we're moving in the right direction and all of our mines are operational today in New Caledonia, but yes, the situation is fragile on the East Coast. It's not just us. You're looking at communities that sometimes are in conflict with each other. Sometimes we are caught in the crossfire. And it's not against us. But sometimes the easiest way to make your voice heard and get noticed is to stop operations. So these are complicated context. Things go up and down. And so what we are working on now is ensuring we can actually supply our plants from the West Coast, so being able to work without the East Coast. Although the quality of the ore there is better but we can't be dependent on a trickle of supply that can be shut off at any moment. So we're also working with better collaboration with communities on the East Coast. So we're doing a twofold thing, developing our capacities production percentage on the West Coast and being able to go without supply coming from the East Coast, if things get worse in the future. Now Sandouville, Sandouville, we're at a bit of a crossroads there. Sandouville was not – did not do bad over the past 12 months. But there was a squeeze effect in nickel. We bought nickel, nickel matte at quite a high price last year, which we then sold at a much lower price this year. So there was somewhat of a squeeze effect. Now, Sandouville is not meant to produce nickel metal, but nickel salts, but it mostly produced metals this year. The nickel salts for electronics in Japan and chemical markets like cobalt salt, completely – came to a complete stand still over the first half. Those were our value-added markets. So there was – there's a crisis with the ore, but there was also the fact that we produced things that are not high in value-added metal instead of salt. So a double squeeze at the beginning of the year. But once again, we can't satisfy ourselves with keeping an entity that is cash negative. So that's why we're at something of a crossroads. We hope that over the second half, we'll be able to see some salt markets reopen. The plant is not doing too badly now, we want to at least hit breakeven. Otherwise, we will also have to review options for that plant as well. Then cost reduction at Aubert & Duval, cost control. We don't have a precise target to share with you, but minus 20% on sales is what we're doing. There's a slowdown in production rates of about 30% of aeronautics. So that is about 70% of what Aubert & Duval does. So we're looking at a slowdown of about minus 20%. So we're going to have to adjust to those levels, which are probably going to be sustained over the past two – over the next two or three years. So we can't solve this with simple short-term measures. The government has introduced kind of long-term furlough measures, that's going to be one way of dealing with things, but there are other ways as well. But the big priority on the long-term is to reduce inventory. That's a big short-term correction. So that's a big priority for Aubert & Duval in the months to come, reducing inventories.

Unidentified Company Representative: [Interpreted] I'll ask the questions from the webcast, first of all, Christian Georges, Societe Generale. Coming back to New Caledonia, Vale is withdrawing from New Caledonia, would you consider selling your 56% stake in SLN?

Christel Bories: [Interpreted] Vale is – and that is the answer – is trying to sell Vale New Caledonia and has been trying for the last 18 months and not exactly easy. Then Vale owns 90% or is it now 95% of Vale New Caledonia, so they are a very large shareholder. The other shareholder is mainly the Southern Province. We only hold 56% of SLN. The minority shareholder with a blocking minority are the Caledonian Provinces. All of them including Northern Province that is sort of independent minded. So it's not as easy to sell as Vale to put it that way.

Unidentified Company Representative: [Interpreted] On Sandouville, can you tell us what the sales are for H1 2020?

Thomas Devedjian: [Interpreted] Sales for H1 2020 is EUR46 million. It was 48 million last year, so very similar, mainly due to the mix.

Christel Bories: [Interpreted] As I was saying, it's the cost that has had an impact. There was the matter of timing that really had an impact there.

Unidentified Company Representative: [Interpreted] Jon Maretz, Tetrion [ph] Capital. Can you confirm that the proceeds of TTI sale will go to repay the TiZir bond?

Thomas Devedjian: [Interpreted] I'm not sure you can say it quite like that, but we do have an obligation as soon as we've sold TTI, we have to offer an early refund. That's what the document says. And so we'll go with that.

Unidentified Company Representative: [Interpreted] Romy Kruger, Swiss Life. As concerns the WCR on A&D, is there impairment there?

Thomas Devedjian: [Interpreted] No.

Unidentified Company Representative: [Interpreted] You said you were trying to make a significant effort to bring it back to normal levels. How long do you think it will take to recover a sort of normal working capital requirement level at Aubert & Duval?

Thomas Devedjian: [Interpreted] Well, excellent question. Thank you for asking. That's exactly what the point is at Aubert & Duval. You first of all, have to agree at what the normal level is, it's probably before the quality – what it was before the quality crisis. Even before the quality crisis, it was probably higher than it was in the rest of the industry. So in theory, at least, there should be scope for further progress, what with the quality issue, then the COVID crisis and over inventory as compared to the rest of the industry, means that it's probably not just a few months, but probably a couple of years, but we have some wiggle room.

Unidentified Company Representative: [Interpreted] Christian Mike, Histon Blake [ph]. On nickel, we have EBITDA down even though sales are up and cash costs is down, can you re-explain why that is the case?

Thomas Devedjian: [Interpreted] The cash cost for SLN, in accordance with provisions in ore industries' practice is to deduct as byproduct credit the sales of nickel. And as you saw, they were very high in H1, more than 1 million tons. So we report the market prices some $70 a ton, so some $70 million. Then in cash cost, you deduct this by-product credit. And you may, therefore, have a sort of a misleading impression when you have the EBITDA bridge, but remember also, you have Sandouvillian nickel EBITDA and that would explain the situation.

Christel Bories: [Interpreted] Right, well, I believe we've covered all the questions. Many thanks, once again, to each and every one of you for attending and for your attention. Thank you and enjoy the rest of the day.