AFTER SEVERAL YEARS OF SEVERE CRISIS IN METALS, HOW DID THE MARKET BEHAVE IN 2016?
Patrick Buffet ______ 2016 was a year of great contrasts for the prices of our metals.
It started in line with 2015, with prices at 15-year lows. This unprecedented sector crisis hit every player on the market heavily. In the second half of 2016, manganese ore prices gradually rose, buoyed by the upturn in major construction projects in China. For the year as a whole, LME nickel prices averaged 19% lower than in 2015, while manganese ore prices went from USD3.11/dmtu in 2015 to USD4.30/dmtu in 2016. As for the Alloys division, its activity continued to be supported by the aviation sector, where demand for high value-added parts for aircraft structure and engines remains high. For the entire Group, the price effect remained significantly unfavourable in our 2016 results compared with 2015.
IN THIS CONTEXT, HOW DID ERAMET PERFORM?
P. B. ______ Our results recovered firmly with a sharp rise in EBITDA in 2016, at €375M compared with €92M in 2015. Current operating income for the year totals €84M, compared with – €207M in 2015. It’s worth pointing out that current operating income for the 2nd half totalled €175M and free cash flow was €226M, enabling us to reduce net debt substantially, by €327M in the 2nd half. As of year-end 2016, net debt was lower than at the end of 2015 and our net debt/EBITDA ratio improved significantly, from 9.5 at the end of 2015 to 2.2 at the end of 2016. ERAMET’s balance sheet structure also improved, thanks in particular to the success of our undated bond convertible into new shares and/or cash, which increased the Group’s equity by €100M. We also extended the maturity of its revolving credit facility by two years in early 2017. Finally, we completed most of our asset disposals programme in 2016, with a favourable impact of €142M on the Group’s net debt. At year-end 2016, the ERAMET group’s financial liquidity remained high at €1.7 billion.
HOW DO YOU EXPLAIN THIS RECOVERY?
P. B. ______ This performance is largely due to the success of the very ambitious, Group wide cost reduction and productivity improvement plan. I should emphasise that the various performance plans we have implemented confirm the high quality of ERAMET’s industrial results:
- SLN’s performance plan has already enabled us to cut our cash cost by 16% over 2016, to USD5.06/lb, in line with the target of USD4.5/lb on an annual basis as of the end of 2017. Beyond 2017, the goal is to reduce SLN’s cash cost further over 2018 2020. Furthermore, the new electric plant should make a substantial contribution to the reduction of cash cost from its startup, planned for 2021.
- The improvement in performance of our Moanda manganese mine and the modernisation plan for Setrag in Gabon should enable us to confirm our annual production and transport capacity of 4 million tons. ERAMET aims to continue reducing cash cost, both in mining and for manganese alloys, particularly for refined alloys, an upscale product in which the Group is the world leader.
- In the mineral sand sector, the achievement of an industrial production level for ilmenite and zirconium, and the successful switch of titanium slag production process from chloride to sulphate-based, led to positive EBITDA for TiZir, despite prices that remain low in mineral sands and an incident on the furnace in Norway, which quickly resumed production.
- Finally, ERAMET Alloys continues to roll out its performance plans. Aubert & Duval is bolstering its leadership in special alloy-making with the setup of a European supply chain for aviation-grade titanium, including recycling. Powder metallurgy, particularly for 3D printing and for aviation, will also contribute to this sector.
WHAT’S THE OUTLOOK TODAY?
P. B. ______ 2017 will be a crucial year in many respects. By stepping up the cost reduction and productivity improvement plans rolled out across the Group, we can raise the target from €360M to €400M recurrent savings on ERAMET’s current operating income as of year-end 2017 on an annual basis.
I’ll also mention:
- The start of production at EcoTitanium, which will complete our aviation-grade titanium channel, the industrial startup of Erasteel’s battery and catalyst recycling activity, the adaptation of Sandouville’s production process to a new matte, and the start of Setrag’s modernisation programme.
- A new stage in our Lithium project, and the implementation of the frame agreement for the beneficiation of our nickel deposit in Weda Bay, Indonesia, with the Chinese steelmaking group Tsingshan.
The great uncertainties over the years ahead mean we have to keep up our discipline and vigilance in continuously improving our performance .
A NEW CHAPTER IS BEGINNING FOR THE GROUP’S GOVERNANCE. WHAT MESSAGE DO YOU HAVE?
P. B. ______ The great uncertainties over the years ahead, particularly in terms of Chinese economic trends, mean we have to keep up our discipline and vigilance in continuously improving our performance. This is the essential condition for ERAMET to keep getting stronger in response to more and more aggressive competition, in a fast-changing international environment. ERAMET’s recovery in 2016 was only possible because all our teams, who I personally want to thank, rose to the challenge. This mobilisation fully justifies my confidence in our future successes, under the new management, following the General Meeting of May 23rd, 2017, of Mrs. Christel Bories, to whom I wish every success in the exciting mission of overseeing ERAMET’s destiny.