Eramet: Operational breakthroughs, in an unfavourable price environment in first-half 2019

PRESS RELEASE

Eramet: Operational breakthroughs, in an unfavourable price environment in first-half 2019

• Sales stable at €1,809m, in an unfavourable price environment and factoring in continued delivery delays in the High Performance Alloys division
   
• New production records for H1 in manganese ore and alloys, nickel ore, mineral sands concentrates and titanium slag
   
• EBITDA down at €307m in H1, adversely impacted by an unfavourable price effect of €144m in the Mining and Metals division
   
• Positive earnings before tax of €90m, negative net income – Group share at €37m, mainly due to tax expenses in Gabon and Norway
   
• Internal validation of highly value accretive projects in manganese and lithium. Final investment decisions end of 2019 at the earliest, subject to financing and satisfactorily regulatory frame
   
• An operational progress plan that is starting to show success and should deliver results in H2 2019:
  • 2019 production targets confirmed: 4.5 Mt in manganese ore, 1.5 Mt in nickel ore exports; 720 kt in mineral sand concentrates
  • SLN rescue plan: implementation of two of the three levers since mid-May, leading the way to the cash-cost reduction target of USD -1.30/lb in 2021, provided the plan is rolled out without disruptions
  • Progress continues at Sandouville: break-even in EBITDA target to be achieved after Q4 maintenance shutdown
• Factoring in expected operational gains over the year, and with the assumption of market conditions of June 2019¹, more unfavourable than at the beginning of the year, forecast EBITDA for H2 should be significantly above that of H1, nonetheless leading to full year EBITDA below those of 2018.

Christel Bories, Eramet Chairman and CEO:

" In a difficult context marked by a price decrease of our metals, disruptions in New Caledonia and by Aubert & Duval quality process review, Eramet is actively pursuing the roll-out of its strategic roadmap. Several key milestones were achieved in H1: decisive breakthroughs in the SLN rescue plan for SLN, significant progress at Sandouville, new production records, and team reorganisation. The actions initiated should show results in H2.

Our strategic developments will contribute significantly to the momentum to reposition the Group: nickel production in Weda Bay, Indonesia, should start in H2 2020, ahead of schedule, and our highly value accretive projects to expand manganese production in Gabon and develop lithium in Argentina have taken a key step forward with their internal validation and active search for financing".

Eramet Board of Directors met on 24 July 2019, under the chairmanship of Christel Bories, and examined the accounts for H1 2019.

• Safety

At end-June 2019, the accident frequency rate (TF2²) was 6.5, down 22% from 2018. The Group is accelerating the roll-out of its priority safety action plan, with a particular focus on risk prevention as well as on reducing the accidents’ severity.

• Key figures for Eramet group

¹ Data rounded up to the nearest million. H1 2019 figures after initial application of IFRS 16 on 1^st January, 2019, except for net debt and gearing. The comparative table is presented in appendix 5.
² Until 2018, data adjusted from Group reporting in which joint ventures are accounted for using proportionate consolidation. A reconciliation with the published sales is presented in appendix 1.
³ Data rounded up to higher or lower %.
⁴ Net debt-to-equity ratio.
⁵ Total shareholders' equity, net debt, provisions for site rehabilitation, restructuring and other social risks, less financial fixed assets, excluding Weda Bay Nickel capital employed. At 30 June, ROCE is calculated on a 12-month rolling basis.

N.B.: all the commented changes in H1 2019 are calculated with respect to H1 2018, unless otherwise specified.

In H1 2019, the Group's sales remained stable at €1 809 m. At constant ^3,[4] scope and exchange rates⁴, sales declined by 8%, mainly owing to the decline in manganese ore spot prices and nickel prices, in addition to delays in deliveries at Aubert & Duval, due to bringing quality processes into conformity.

The Group's current operating income ended at €169m. It was adversely impacted by an unfavourable price environment (nickel and manganese) that weighed on the performance of the Mining and Metals division up to €144m, by the impact of the strikes at SLN as well as the losses incurred by the High Performance Alloys division by bringing the quality management system into conformity.

Income before tax amounted to €90m and net income - Group share reported a loss of -€37m, impacted by a €101m tax charge, stable on last year.

Free cash flow ended at -€165m. Factoring in the sharp increase in inventories of finished products and work in progress at Comilog and Aubert & Duval, the change in working capital requirements weighed on cash generation, amplified by the seasonality for H1.

CAPEX-related disbursements, focused on modernising industrial tools and the preparation of strategic projects, amounted to €157m.

Finally, dividends paid to Eramet shareholders and Comilog minority shareholders in respect of the 2018 financial year amounted to €18m and €22m respectively.

Net debt stood at €930m, excluding the IFRS 16 impact. Eramet has applied IFRS 16 since 1^st January 2019 with a simplified retrospective application. The accounting changes related to the adoption of IFRS 16 are recognised as an adjustment to reserves in the opening balance sheet at 1^st January 2019, without restatement for comparable periods. As of H1 2019, the results are presented in accordance with IFRS 16, with the main impact at 30 June 2019 being an increase in net debt of €92m, with no cash impact, resulting in a total net debt of €1,022m. The impact on COI is not significant.

At 30 June 2019, the Group's liquidity remained high at €2.2bn.