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Edited Transcript of ERA.PA earnings conference call or presentation 24-Feb-17 9:00am GMT

Thomson Reuters StreetEvents

Full Year 2016 Eramet SA Earnings Presentation

Paris Feb 25, 2017 (Thomson StreetEvents) -- Edited Transcript of Eramet SA earnings conference call or presentation Friday, February 24, 2017 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Patrick Buffet

Eramet Group - Chairman and CEO

* Thomas Devedjian

Eramet Group - CFO

* Philippe Vecten

Eramet Group - CEO, Nickel and Manganese

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Conference Call Participants

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* Sylvain Brunet

Exane BNP Paribas - Analyst

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Presentation

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Patrick Buffet, Eramet Group - Chairman and CEO [1]

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First of all, ladies and gentlemen, thank you very much for coming. This is a new room for us, if you are accustomed to our event, this is a new one for us too. I am delighted to welcome you here for the presentation of Eramet Group's results for 2016.

I am joined by someone whom you know very well now, Thomas Devedjian, Chief Financial Officer of the Eramet Group. He and I will be happy to field any questions you'll have. But before the Q&A session I will be of course focusing on a second piece of news that came out yesterday and that we disclosed publicly yesterday, it's a major change in our Group's governance.

Starting now and transitionally and then once and for all when the AGM takes place, that will be on May 23, we'll come back to that point later, a very important part of our discussion today. One item on our agenda that we'll talk to you about after -- we'll talk about that after we have talked about our Group's situation and its results. After that we will have a Q&A session as it's customary.

As already referred to several times, the end of 2015 and the first half of 2016 were marked by a significantly deepening crisis in the metal markets, due mainly to the harsh slowdown in Chinese economic growth starting in the summer of 2015. Nickel and manganese prices began to improve in the second half of 2016 and manganese ore prices staged a strong rally at the end of the year 2016.

In contrast, nickel prices as we can see on the screen here continue even today to remain low with uncertainty prevailing in conjunction with the situation in Indonesia and in the Philippines and of course I'll come back to that later.

But let's immediately analyze the financial results for the 2016 financial year presented by Thomas. You have the floor, Thomas.

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Thomas Devedjian, Eramet Group - CFO [2]

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Thank you Patrick, so the key figures of the year, Group sales fell 4% affected both by the slight price drop but also a slight volume drop alloys. EBITDA made strong gains, increased fourfold between 2015 and 2016 at EUR375 million as against EUR92 million last year, that's a significant increase.

Similarly, current operating income up EUR300 million, negative last year minus EUR207 million, that came out at EUR84 million with a very positive second half in contrast with the first half that was far more challenging. In fact, this improvement isn't essentially due to prices that were unfavorable over the year but a number of efforts that we've undertaken.

Net income Group share before depreciation was minus EUR43 million as against minus EUR166 million last year. We booked a number of asset impairments again this year, EUR104 million in asset impairments Group share to be consistent with net income Group share.

We've not recognized the deferred tax assets of SLN and so that represents an impact of EUR32 million, Group share. So we have net income Group share that's negative at minus EUR179 million for those reasons. Major asset impairment for our mines in Senegal [Grande Cote] that we depreciated for EUR40 million this year, so net income minus EUR714 million in 2015 to minus EUR179 million in 2016.

Lastly, net debt that's been reduced by some EUR40 million. We were at EUR878 million net debt at the end of last year and we ended the year with EUR836 million in debt. That's thanks to the efforts undertaken, the asset disposal, more about that in a moment, and also the support of our shareholders with the bond issue in September.

Current operating income is split between the three divisions differently. You see, first of all, a very fine increase even if the results -- satisfactory, minus EUR261 million to minus EUR119 million, so a reduction of the current operating loss, that's very significant.

Now, this took place in spite of a price drop over the year because the price of nickel was on average in 2015 of $5.4 a pound and in 2016 $4.4 a pound, so that's a drop of $1 on average. But we were more than offset by our productivity efficiencies, the cash cost that is the production cost to the pound, but EBITDA went from $6 to $5.1 which was quite a significant effort for the alloys division. Stability of current operating income, Patrick will return to the detailed performance of that division.

For manganese, a significant improvement of EUR58 million to EUR219 million, we had alloy prices that were less favorable. Manganese alloy prices less favorable but we had an ore price, a manganese ore price that improved, especially in the second half of the year with prices that exceeded $2 per dmtu. On average, we were $2.5 dmtu in 2015 on the price of manganese ore and in 2016 we reached $3.9, we benefited from a favorable price effect there.

Moving to change in current operating income, an improvement of some EUR300 million, the price effect is negative and in fact it's split as follows. The price effect in nickel is negative to the tune of minus EUR95 million, we didn't benefit from an overall price improvement in the year.

But for manganese we have a favorable effect of plus EUR27 million split across alloys, minus EUR98 million for manganese alloys and the ore price of plus -- manganese or plus EUR125 million and then ERASTEEL EUR7 million. So as you can see it's not the prices that account for the improvement in our current operating income. On the contrary, they were unfavorable. It's all our initiatives in place, so valuation of the nickel stocks, we reversed provisions at the end of the year because on our inventory at the base of the year, the end of 2016, it was better than at the end of 2015, so that benefited us.

Favorable currency effect and there we're [regioning] with a hedge rate, our euro/dollar hedges were be average rate for the year and so versus 2015 that's more favorable.

Cost of factors benefited us, price of oil was down in 2016 versus 2015, we're consuming a lot of fuel at SLN. We also paid our freight, it came in cheaper to transport the manganese ore, in particular, and we also paid our coke cheaper. So that's the cost of factors.

On productivity efficiencies, the three divisions all put in significant productivity efficiencies. The bulk of the effort, as I said, was put in by the nickel division that achieved over half of these productivity efficiencies over the year, which allows us to say today, that the target of EUR360 million of savings over four years that we'd scheduled to deliver at the end of 2017, has been brought forward given our performance over the current year. We've increased that to EUR400 million, those productivity efficiencies.

And then you have a number of ramp up and restructuring activities that had a positive effect. We've discontinued a number of activities that have negative current operating income and that we no longer need. Guiline in China was stopped. Our Gulf for catalyzer recycling is under Chapter 11 and we're putting an end to that activity by disposing of it. We continued the TiZir that posted an improvement.

Depreciation and amortization given the decrease of our investments over the years were depreciating less and so that has a favorable impact on current operating income.

Financial position -- there again, a number of initiatives. We drew our revolving credit facility at the start of the year as a measure of prudence and to preserve the sound liquidity and the -- because of the difficulties at the start of the year and that necessarily increased our liquidity to EUR981 million more as we've reduced our net debt over the year.

Well, liquidity increased between the end of 2015 and 2016 as a result of that. The syndicated facility that was expiring in January 2018 we renegotiated with our banks whom I like to thank and who support a two-year extension of this credit facility -- for a large part was extended through July 2020.

Furthermore, we implemented an asset disposal program, so that yielded an additional EUR142 million and the main disposal was that of ERACHEM for EUR124 million. As I said, we've strengthened our equity with an ODIRNAN issue, has a favorable impact on our equity for EUR100 million, also on our net debt because it's reduced by as much.

Net debt change, we indicated with an intermediate phase, which is the phase at June 30, between the end of December 2015 and end of June 2016, we experienced a sharp deterioration in our net debt of the order of EUR300 million deterioration. This is due to several factors, of course, particularly low prices. We reached the low point for nickel and manganese prices during the first half. A negative cash flow from operations, negative of minus EUR39 million, our WCR also deteriorated over the half. CapEx was pretty much what they were to do.

The Mitsubishi put was exercised in the Weda Bay Project. We've initiated talks with Tsingshan that are currently bearing fruit, they're favorable to this project. So all these measures led us to establish a net debt of EUR1.163 billion at the end of June.

Second half initiatives set in hand began to be fruitful and we also benefited from price increases, notably manganese ore and the margin became positive once again, EUR186 million. We considered our investments, our investments this year about EUR220 million. We indicated that we expected to achieve EUR250 million. We maintained our investments but we also shifted certain investments that we'll make in 2017, a consequence of which it's really a lag effect. Furthermore, you have the asset disposals impact, EUR142 million, the ODIRNAN issue, so we're at EUR836 million net debt at the end of the year.

Debt maturity schedule has changed versus June 30 owing to the renegotiation of our syndicated loan. So you can see that 2018 has fewer maturities, the EUR115 million in why the balance of the syndicated facility that wasn't extended and there was a maturity in 2017 that has been postponed to 2019, [EUR35 million], the bulk of the facility. RCF is repayable in January 2020 for EUR781 million. Patrick back to you.

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Patrick Buffet, Eramet Group - Chairman and CEO [3]

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Thank you, Thomas. As you've just seen there is a robust recovery in our financial statements in the second half compared to last year and we can say that the second half saw quite a spectacular turnaround. The year had got off to a bad start due to record low prices, the lowest we'd seen in 15 years, both for nickel and manganese.

So we managed to turn things around by reaching our performance targets. We'll come back to these, and we improved operations and met targets there as well. Also manganese prices toward the end of the year ticked back up.

I recall the following, for some years now the Group's strategy has been adjusted to extremely deep crisis that mining and metallurgy operators have had to contend with including Eramet. Our aim was to take any and all measures to return to sufficient positive free cash flow. To that end, and we've done this for years now, we've carefully focused our efforts on core businesses, focusing all of our efforts on improvements and restructuring required in those key activities. That's also why we contained industrial investments mainly to security investments and maintenance investments. We put on hold other major projects. Our asset disposal program also contributed to achieving this target.

Secondly, it was essential to become more competitive because all of us, including our competitors, are having to deal with the same context and they are also making major efforts to shore things around cut costs. So therefore, it was essential for us to enhance our competitiveness to strengthen our competitive positions inter alia by continuing and stepping up the cost-cutting programs and the performance improvements programs, productivity enhancement, starting at a baseline which was the 2014-2017 program for performance improvement.

We then added a specific action plan to that, the SLN, the Societe Le Nickel in Caledonia that deal with reaching a reduction of 25% in production costs, compared to the 2015 average which was $6 a pound, going to $4.5 a pound by the end of 2017, an annual pace starting in 2016.

Let's look at a more detailed analysis of the way all these various plans have helped turned things around for us. First of all, industrial investments, fairly self-explanatory here, where under strict cash management, as Thomas has said, our target for 2016 was to limit industrial investments to an overall amount of less than EUR250 million for the entire Group.

We reached EUR217 million, so less than that for the Group, as Thomas said. We might reach a little over EUR250 million next year in industrial investments offsetting that but we will not go beyond EUR280 million. This target was more than met, the EUR250 million, we're down almost 20% in industrial investment compared to 2015.

If you look at 2012, you can see we have cut industrial investments by two-thirds, fairly straightforward, EUR641 million to EUR267 million, that's basically a third of investments in 2012. So as you can see, ongoing efforts are being made.

This has been the case since were realized the financial crisis was going to turn into an industrial crisis, and an industrial crisis would have a knock on effect not just in the developed countries but also in emerging countries. As you can see, all of our branches made major efforts to contain investments with in no way comprising the future though. This reduction was made possible thanks to the end of a strategic investment period, which was 2011, just before the crisis. We were well advised at that time to make strategic investments.

I'd mention just three of them, there were others as well. TiZir in Senegal, the Moanda Metallurgic complex in Gabon, and UKAD in aerospace titanium sector. That was the appropriate sequencing, it was the way to do things. So those investments carried out before the crisis are now coming up with the goods and if things do recover we should then start really reaping the benefits of those investments.

Now we'll turn to performance of our cost reduction and productivity improvement actions. These measures were stepped up considerably in 2016 with the engagement of all Group teams. As a result, we are in a position to give a new and very positive outlook. The initial target cumulative impact of these plans in the period from 2014-2017 was initially an annual impact on current operation income of EUR360 million, as Thomas said.

This is an impact on current operating income for the Group compared to the current operating income in 2013. That's the benchmark, 2013 is the baseline, the benchmark. EUR360 million in savings which the EUR360 million means an overall reduction of 13% in Group's total cost compared with 2013. So minus 13% compared to 2013.

Now, as the crisis in metals market deepened at the start of 2016 we really reached a trough, a very low point at the end of 2015, beginning of 2016. We then intensified efforts and not only introduced new specific plans in COMILOG but also Eramet Norway, ERASTEEL, as well as TiZir, and we amplified existing measures taken elsewhere.

The recurring gains we reached a higher amount this season than we expected. So we decided to bring our target for end of 2017 from EUR360 million to EUR400 million, so an additional EUR400 million in recurring gains. We certainly don't want to lose things in following years, these recurring gains, the annual impact on current operating income, henceforth end of 2016, EUR306 million compared to 2013 again.

You can see here the EUR306 million including the EUR40 in improvement, EUR40 million better than expected. So to repeat what Thomas was saying, this is a very important point, our target henceforth is EUR400 million instead of EUR360 recurring gains, EUR400 million as of end of 2017.

In 2016, we did the bulk of our disposals program, selling ERACHEM, the manganese ore and then our plant in the United States which -- Somivab. We've got -- disposal underway of Eramet Nickel subsidiary Eurotungstene specializing in production of metal powders and granules.

The disposal of Umicore announced in December should be completed in the first half of 2017 receiving the final regulatory approvals. These disposals in 2016 had an impact on net debt of EUR142 million and we are awaiting the last administrative approvals. The disposal of Umicore was announced in December and should be completed the first half of 2017 after receiving regulatory approval, but I won't allude to the specifics here but we're very confident indeed regarding that disposal. Not in the financials yet.

Asset disposals in 2016 had an impact on net debt of EUR142 million and have contributed to refocus of the Group on its core businesses which again was the reason for our strategy. Now we lost ERACHEM you might say the tonnes there for ERACHEM, were they lost, no, we maintained a manganese ore contract, 200,000 tonnes.

Don't try to see a direct link between the EUR142 million which is the impact of the divestments on cash with the overall amount of divestments because some of these were divested along with cash on hand and that's why there's a difference in the two figures. Increase in these actions and increase in manganese prices at the end of the year meant substantially positive cash flow at the end of the year EUR126 million.

We keep a very careful eye on this and we're continuing to contain -- cut costs and enhance productivity and continue to see substantial improvement as you saw in 2016 when it comes to generating cash. Here on this page, we can see the minus EUR327 million compared to the previous year midway through, it's quite spectacular.

Now to the key points, Eramet Nickel, the main highlights for Group divisions in 2016, we'll also look at the progress of our measures. To start with, Eramet Nickel, let me remind you that the leading world producer of ferronickel, a high nickel content alloy and one of the world leading nickel salt producers.

Before talking about SLN and the basics of fundamentals in nickel, let's move onto a special point and talk to you about the Weda Bay project and changes here. Weda Bay project, we have an MOU, we signed a memorandum of understanding on the Weda Bay project, green-lighted by the Board of Directors of Eramet yesterday with Tsingshan, number one in stainless steel.

Now Weda Bay deposit is one of the biggest nickel deposits, untapped worldwide, over 900 million tonnes contained there, supposed and measured. So due to the special significance of this I think we need to give you some points regarding this framework agreement or memorandum of understanding which will lead to a final agreement sometime during the year, over the next few months.

Mitsubishi Corporation used to be our partner in this project. Mitsubishi Corporation exercised their put option on Eramet to sell the stake it held with along with PAMCO, another Japanese company, in the holding that controls 90% of the Indonesian PT Weda Bay Nickel Company.

So after the operation and thanks to the intrinsic quality of this deposit, we signed a memorandum of understanding with the number one global producer of stainless steel, Tsingshan, to set up the terms and conditions for a global partnership to best value this mining asset. No doubt about it, we couldn't do this big major project all alone. No one goes it alone worldwide in this area.

The rich saprolites make it possible to produce this type of pure metallurgy and we discovered this after the fact, it's excellent news. We did further polling and came up with many, many good surprises by doing the geological exploration of this deposit which turned out to be far better than we originally realized, so a remarkable deposit.

The Chinese corporation realized that full well. So the idea was to make the best of this. We no longer want to provide a lot of cash, put a lot of cash into this operation. The corporation wants a factory, a plant, but they don't have the deposit, they would need an extra deposit and they've got cash on hand.

As corporate social responsibility, we're right in sync, Martin Cezard, Katrine and others have gone there and in terms of health and safety and CSR we looked and made sure this is all in compliance with our standards. The Board of Directors also looked into this themselves yesterday in no uncertain terms. Therefore, the partnership will consist of using a pure metallurgical process which we fully understand and they do too so we will know exactly how to use this process.

In Indonesia, using the Weda Bay ore to produce a nickel ferroalloy, annual output will be approximately 30,000 tonnes of nickel content, that will be the start-up. Tsingshan becomes part of the Weda Bay holding. We're providing our deposits and not paying, they're providing cash and make the plant. This is all very much complementary, a very good fit, and the controlling holding we'll have to make some changes you can well imagine.

Some dilution for us, 43% of the shares would be held by Eramet and the Tsingshan Group will hold 57%, 43/57 holding in Singapore Indonesian company. PT Weda Bay Nickel will still hold to the tune of 10% held by our Indonesian partner PT ANTAM. So the 10% held by Indonesia, at the bottom here, the 90% remaining are shared between the two of us, 43%, 57%, in the controlling holding.

The Board of Directors of Eramet met yesterday and approved the terms of this memorandum of understanding signed between Eramet and Tsingshan so we can -- to use our best value of this deposit. I can tell you the Chinese of course studied this very carefully and they will help us produce the best value from this deposit.

This will be a real plus. This has never been a negative and we're very pleased to have found such a great deposit. Unfortunately, in the past we didn't have the wherewithal to spend the billions of euros, it's not up to us to do so either, no metallurgy group worldwide would do such a major project, several billion involved.

Therefore, it is wonderful to have achieved this partnership, especially since the Chinese are especially efficient, they're renowned for this and often they achieve cost levels that are lower than European cost levels and in no way impinging on quality. This partnership means the Weda Bay project can benefit from the combined expertise and skills of Tsingshan and Eramet.

Eramet has conducted a number of exploration operations given its considerable geological knowledge about the concession. Tsingshan has successfully developed nickel production plants in Indonesia as well. Some are at the start-up stage and others are already up and running. We visited these.

The partnership will be founded on the expertise developed by us, PT Weda Bay Nickel, especially with respect to the environment and social responsibility, the project -- it's a highly decentralized country and we've got the go ahead from the Indonesian authorities and local population.

The Indonesian authorities according to initial contacts feel that this Weda Bay project and our alliance with Tsingshan is correct, they're in agreement with China, they view this favorably, that's the initial contacts that we've had with the Indonesian authorities.

If you want further information, any questions about Tsingshan, what they've done and what they're involved in, we'll certainly be happy to answer those questions in the Q&A.

Let's return to the fundamentals of nickel, Caledonia, SLN, the production of stainless steel is the main market for nickel and accounts for two-thirds of its use. The stainless steel market that was between 6% to 9% for the year until 2014, until it slumped abruptly in 2015, down 0.4% in 2015 over 2014. But after a recovery in the first half of 2016, growth strongly rebounded in the second half of 2016, fueled mainly by strong demand in China. Growth was 14% the second half of 2016, compared with the same period in 2015. You can see it's very significant. Stainless steel production growth was 9% in 2016 versus 2015 over the year, 9% production for 56% in China.

So I'm going to surprise you, sometimes the best economists can get things wrong because the forecast of all the analysts early 2016 on stainless steel was 1% growth. We delivered 9%. When it's that direction I'm happy with things.

Next, nickel prices, a good pick-up in growth as we saw, stainless steel leading for the first time, given nickel needs for stainless steel since 2013. In 2016, surplus nickel demand versus supply whereas nickel stocks peaked at over 500,000 tonnes at the end of Q1 2016. It stands today at approximately 470,000 tonnes, which is far too much, with the stocks that producers, distributors, accounts for over six months of consumption. It's an excessive inventory level, so we rebalanced supply and demand.

There was a positive imbalance of 160,000 tonnes on the year but when you compare that with inventories that are six months of consumption you can say that we'll have to resolve inventories before nickel prices rise significantly. This explains why LME nickel prices remained low in 2016 at $4.35 on average as compared to $5.37, 2015.

A number of announcements because of course things move fast on the nickel front. It's going to have an impact going forward. Several announcements contributed to volatility in nickel prices since H2 2016.

New nickel production capacity came on stream in Indonesia, essentially Chinese, following significant investment these past few years by several NPI producers following the introduction of the Indonesian ban in 2014, you'll recall, prohibiting exports of locally unprocessed ore.

Secondly, Philippines carried out in the second half 2016 an environmental audit of mines. Mr. Duterte really doesn't do things by half, nor the environment minister. They decided to suspend operations at some 20 mining sites. Of course, that creates an uproar, we don't know how it's all going to end. But it would appear that these decrees are being confirmed represents a significant proportion of the country's annual output. Some say half but it's a very significant portion. These measures require very close monitoring in the coming months because the situation can change fast and it's the number one ore exporter in the world -- from the Philippines.

Lastly, rumors about that can be positive for nickel prices, what could be negative however is persistent rumors about a partial selective easing of the Indonesian ban proved true since January 2017 allows some operators to resume exports to China, in particular in a strict system. Some people say this is about 150,000 tonnes of nickel that are affected on both sides. That might balance out, we just don't know. I'm just referring here to rumors of course, unconfirmed, that haven't been endorsed by the Company, to give you a ball park we're talking significant tonnage numbers.

We don't know at the end of the day the decisions that will be taken by these two countries Indonesia and Philippines. These signals make it impossible to see how nickel prices will trend even if a sharp increase, I mean it seems to be excluded given inventory levels.

Eramet nickel production is up compared with 2015, 55,227 tonnes 2016, not much to say about that.

In low nickel price conditions, it was vital to set in place an urgent plan to reduce SLN's cash costs in New Caledonia. Remember the first half 2016 SLN was losing almost EUR20 million per month in cash, that was considerable. We therefore put in place a very ambitious plan to reduce SLN's cash cost, added to what I mentioned earlier, the goals have been to reduce by 25% the cash cost at the end of 2017 compared to the average, to go from $6 to $4.5 on an annual basis at the economic condition at the end of 2016.

We're on the right trend because the cash cost stands are $5.6 a pound, down 16% versus the 15% average. We delivered 16% of the 25% expected in 2017, so we're on track with the target, early 2017. We were below $5 a pound, the cash cost is at $4.9. In fact the cash cost at $4.5 and we need to be clear on an annual basis is only a milestone SLN, I mean we repeated that to them yesterday. It's only a stage -- a step on the way, we've asked SLN to look at conditions for meeting a new target for significantly reducing its cash cost by the end of 2020, excluding the impact of the expected major, major contribution from the new power plant set to come on stream in 2021.

The new cash cost objectives for SLN by 2020, we have an idea but we won't tell you today because we need deeper studies to be able to deliver those to you as commitments. So these new cash cost targets at the end of 2020 before the plant comes on stream that should give an additional plus will be announced in July 2017.

To be among the first to take the right initiatives that will put us at the low point, on the safe side for the coming cycles, and to set our prescribed dangerous situation for this [dear] SLN at the origin of the Group, this Caledonian land that is so important to us is for all a sacred duty because the fate of Caledonia, Eramet, and SLN are closely linked.

The plan that I launched in order to achieve $4.5 per pound cash cost at the end of 2017 concerns the plant, the mine. For the mines, two initiatives, optimizing ore grade, align all measures, more efficient management, the five centers, export low grade ores which cannot be valorized in New Caledonia with a content lower than 1.8%. We lastly have the green light from the Caledonian Government.

Turning now to our plant in Doniambo, where major measures have been introduced, specialization of SLN into ferronickel leading to the closure in August 2016 of the best melting shop, we're going to save it a lot of money there, optimization of energy efficiency and maintenance to valorize SLN's slag as an alternative to aggregates in civil works.

Those are basically the major initiatives and of reorg support functions, notably purchasing. Vigorously continuing in this plan is crucial to ensure that SLN returns to a competitive positon. All SLN teams are fully committed to implementing the plan swiftly. I'd like to take this opportunity to congratulate them, they've managed to save EUR83 million in cash at the end of 2016 over the last year.

To roll out this plan and continue operations SLN benefited from financial support of Eramet, between EUR325 million. Why EUR325 million? Well, that's our share of 56% of the capital, neither more nor less. The French government's support, EUR200million, both in the form of loans at market conditions.

The government loan was made possible thanks to the sale to the state of an SLN share to [Nouchin] in the capital of SLN because the STPI didn't want to sell a share to the French state in order to allow the French state to get its loan to transit via STPI. So that's a particularly political connotation that escaped no one's attention in New Caledonia and no comment on my side as you know.

Doniambo is currently supplied with electrical power by an old fuel powered plant which will be replaced in the coming year to reduce energy costs for our plant. First solutions selected during H2 2016 is a new plant on the island powered by natural gas, LNG and this will be operated by the newly created Caledonia Energy Agency, a public structure which will be the project owner, and the bulk of the investment will be guaranteed by the state according to the terms voted by the French Parliament in December 2016, capped at EUR320 million.

In accordance with European rules, this project should not impact Eramet's or SLN's -- the Prime Minister said this when I went to New Caledonia with him, he confirmed, Manuel Valls, Prime Minister at the time, stated that the new power plant should not impact Eramet or SLN's balance sheet.

Turning now to our Sandouville refinery in the main line next to Le Havre. because of the specialization of SLN on ferronickel, it brings us in a lot of money, several million euros. Because of this uncoupling, goes via the stopping of the Bessemer furnaces, New Caledonia. Our Sandouville refinery will be supplied as of June 2017, with nickel matte produced by Boliden with whom Eramet signed a long-term agreement. The adaptations required to process this new matte are currently underway. The agreement reached should supply Sandouville with external matte as of the second half of June 2017. That would be a very good operation for our nickel plant and this is appreciated.

The closure of Bessemer undercut with Sandouville poses no problem with Caledonia. On the contrary. Specialization on ferronickel suits them down to the ground.

In conclusion, these are the key figures for Eramet Nickel in 2016. Sales are down as we saw, impacted by low nickel prices as we've seen. EBITDA and current operating income improved year-on-year despite nickel prices well below prove that our cost reduction productivity plans are bearing fruit. These measures will not only be continued but also intensify just a notch. EBITDA, SLN, H2 2016 back in the black plus EUR8 million. It must continue and grow.

Eramet Alloys, let's turn now to Eramet Alloys, the world's number two producer of high-powered, closed-die forged parts and world leader in gas atomized power metallurgy. Sales came in at EUR949 million, down 4% on 2015. The aerospace sector continues to enjoy steady growth and is the leading contributor to the division sales at more than 60%. Fortunately, aerospace is doing well also. Sales are down. Current operating income of Eramet Alloys will remain similar this year as last year.

Aubert & Duval's current operating income at EUR42 million we did between Erasteel, but current operating income of Aubert and Duval is a higher level at EUR48 million, down EUR2 million from 2015.

Productivity and operating performance including customer service and industrial reconfiguration are firmly anchored in the team's working methods and are set to contribute to further improvement in Aubert & Duval's results.

I'm fully confident under the wise leadership of Denis here present. Conversely, Erasteel's current operating income came in at a loss minus EUR21 million in the year. We were at minus EUR23 million in 2015. Clearly, these results are far from satisfactory. That's why I've asked Eramet Alloys management to launch in Erasteel speedily and they've been doing this for some time, the far-reaching performance program to reduce costs and improve productivity. Turn around Erasteel to return to breakeven.

The current situation of course is unsustainable. Erasteel has to achieve an EBITDA breakeven for 2017 and Erasteel as a whole.

New progress in restructuring the first European titanium subsidiary. Eramet Alloys did fine things for aerospace-grade titanium. Next, Russia and America, we didn't have the European value chain. That's pretty much done now. Eramet Alloys continues to structure its activities in aerospace-grade titanium and launched MKAD, the partnership between Aubert & Duval and Mecachrome in October 2016 supplying Titanium machine parts, MKAD complete alloys aerospace-grade titanium supply chain from scratch.

It started with UKAD JV between Aubert & Duval and UKTMP Kazakh supplying titanium in goods production. That's continuing to grow and the JVs specializes in aerospace grade titanium forging. EcoTitanium that produces an aerospace grade titanium in Europe using recycled materials started its plasma furnace in February 2017. EcoTitanium is a subsidiary of UKAD, 43.5% stake alongside the French environment agency and Credit Agricole. We know the importance of composite titanium alloys next to aluminum in the future of aerospace industry.

Perhaps just to focus on the start of the recycling activity of Erasteel, we discussed it last year. Erasteel now operates a facility to recycle spent catalysts and batteries. An industrial restructuring plan is in progress for this activity to optimize reprocessing methods for these products. The plant in Palais-sur-Vienne, Haute-Vienne has been finally closed and all the plant and equipment needed for catalyst recycling has been moved to the Commentry facility with a significant contribution to results this year.

Commentry will reprocess catalysts and batteries. This arm of Erasteel's business targets a new commercial segment to produce molybdenum and nickel for stainless steels, manganese for carbon steels, cobalt for high speed steel, zinc oxides for zinc metallurgy. Expected EBITDA for the EUR5 million for this new activities.

I won't comment on the key figures for Eramet Alloys.

Let's move to Eramet Manganese which is the world's number two producer of high high-grade manganese, or world number two producer of manganese alloys and the world's leading producer of refined manganese alloys in particular for the automotive industry where we are world leaders. So, we have a fine global leadership positions. The fundamental driver, this time it's the global production of carbon steel, which is the main market for manganese. Manganese cannot be replaced.

Carbon steel edged up in the year by approximately 0.8% from 2015 levels helped by loosening of credit in China, which in turn led to a resumption of major construction programs. We have to wait to see what the party congress in June will lead for Chinese policy. There's a question mark to be followed closely there, and of course there was the lowering of steel stocks of producers. China alone accounted for 50% -- 50% of world carbon steel production in 2016.

You see that Eramet in many respects depends on the Chinese economy because I've been discussing this since the start.

As a result, 44% manganese ore CIF China prices fluctuates sharply in 2016. This is the official index. So, strong fluctuation in 2016 of CIF China prices. As Thomas said in the first half, it stood at $1.83 per dmtu. That was a record low for about 15 years now. That was February 2016.

At these price levels, all manganese ore producers were operating at a loss. Many producers cut output therefore or even suspended operations as we did I'd also add for -- we have one of the most competitive mines worldwide and unless we did suspend operations for one month in Q1 2016. At the end of summer 2016 recovering carbon steel markets in China and tightening of production, I've just mentioned manganese ore producers, quickly led to a recovery in manganese ore prices in the second half as you can see on the screen here.

All in all, 2016 prices averaged $4.30 dmtu. That means kilos of manganese per tonne of steel, $4.30. Those are the prices on average in 2016 as opposed to $3.11 dmtu in 2015.

Beginning of 2017, we're seeing an erosion of ore prices selling at that high level in the summer of 2016 after full production of all the players coming back online in the Chinese New Year earlier than usual. We take account of all this and see how things will pan out, stabilize, but we did resume sales at significantly higher prices than was the case in the first half.

Nevertheless -- and plus, we can also -- manganese ore grade thanks to (inaudible) and his team's excellent work grade defining value of use of the various manganese ores for the quality of manganese ore in Moanda, this grade is particularly appreciated in the market which consolidates our leadership position and helps us in our appropriate pricing policy.

We have to always remember though that we're seeing changes of EUR95 million in the group's EBITDA when ore prices vary by $1 per dmtu. When nickel price varies by $1 per pound, it's EUR110 million impact on EBIT. So you can see to what degree we depend on outside factors i.e. nickel and manganese prices.

What about manganese alloy prices of course that are impacted by ore prices? From their low point earlier in the year, manganese alloy prices grew very strongly. Since mid-2016, manganese alloy prices have almost doubled from their level at the start of the year and that's an excellent piece of news, and I believe that that will have a favorable impact on the first half of 2017.

In Gabon, the adjustment to output in the first half of 2016 had to be adjusted so we just had 3.4 million tonnes transported in 2016. Eramet manganese ore production rose to a record of 3.9 million tonnes transported in 2015. Satisfactory is that production rate ended the year 2016 corresponds to this level of activity. So, 3.4 million tonnes and in December we demonstrated we could reach 3.9 million tonnes. Target is 4 million.

The first half of 2016 saw the completion of financing agreements to renovate the Transgabonais railway managed by SETRAG, a subsidiary controlled by COMILOG. Over time, this will increase the railway's transport capacity as well as improve track reliability. Project is an eight-year project valued at EUR360 million, EUR93 million of which will be financed by the Gabonese government, the balance provided by SETRAG. SETRAG receives international financing that Thomas negotiated beautifully with the SFI, the World Bank and the AFD, French Development Agency.

So, receiving international financing we're not going it alone here. These various agencies are providing this. It's very important to have control of SETRAG and the Transgabonais because this secures our outlet for manganese ore to the Owendo port. So, this is very important, no doubt about it. SETRAG reform designed to reestablish its abilities, the railway. I won't dwell on the past.

Now let's talk about our diversification, Senegal, Norway -- in Senegal and in Norway. Titanium dioxide and zircon, this is a joint venture. TiZir. TiZir integrated player for titanium dioxide and zircon, 50-50 joint venture with Minerals Deposit Limited, MDL, posted a positive EBITDA in 2016 despite low price levels for mineral sands and a major incident, a fire in the furnace in Norway. TiZir's EBITDA EUR16 million in 2016 demonstrating the resilience of this asset. Production of heavy mineral concentrates in Senegal came out at 614 million tonnes (sic - see slide 39 "614,000 tonnes") in 2016, a year marked by record production of 194 million tonnes (sic - see slide 39 "194,000 tonnes") in Q4. So, very good news here.

At the Norwegian TiZir plant following a fire in the furnace on August 15, 2016, a furnace fire which really worried us a great deal. After that, an agreement was reached with the insurance company for a very good settlement -- a usual settlement, $35 million insurance settlement.

The refractory relining was completed successfully at the end of 2016 and the facility came back on stream I'm pleased to tell you on January 7, 2017. The first titanium slag was tapped on January 21. Very good news for TiZir.

Now, if you read the newspapers, EBITDA at TiZir $24 million instead of what we announced to you. There's a difference of $6 million when you convert into euros. It's because they book insurance compensation differently. That's the only reason for that $6 million difference. I know you'll do the comparisons. If you look at what MDL discloses, we are reporting all these figures are 100%.

Now, what about TiZir's market? Low prices at the start of 2016 caused supply to contract across the titanium dioxide value chain, with the resulting rebalancing of the titanium dioxide pigment market. This is for paint, rebalancing here. Finished product prices recovered strongly in 2016 but did not rise back yet for the time being to 2013 levels.

Now, further up the value chain, the outlook -- talking about outlook, outlook for TiZir's products. We remove the ilmenite and titanium dioxide slag for chloride processers. But aside from that outlook considerably improved for products by TiZir. Nevertheless, prices for these commodities are stable for the time being because excess capacity persists.

Regarding zircon, after a decrease in prices in the first half of 2016, prices remained stable up until the end of 2016. Some producers announced a slight increase in prices at the end of the year demonstrating market stabilization. Nevertheless, I'd say all in all, people are expecting increase in prices for these products some time midway through 2017.

Key figures for Eramet manganese in conclusion, COI and EBITDA up in spite of record low prices in the first half. Decision to stop mining which had a real impact. One month downtime does have an impact. Everybody else did this though as well. They suspended operations briefly because of price levels. Everybody was making losses, so it was necessary to suspend.

These good results are thanks to competitiveness of our operations and also amplification of our cost-cutting plans and improvement in productivity at SETRAG, Eramet Norway and TiZir and COMILOG. All the branch managers could discuss these in detail. If you have any questions, you can talk to them later.

Now, I'd like to talk to you about very important commitments of ours to sustainable development. I'll be focusing my points. For many years now, Eramet has had a very strict and stringent policy in terms of corporate social responsibility and sustainable development. If that weren't the case, the executive committee would certainly criticize us and we couldn't accept (inaudible) criticizing us so we certainly obey what they tell us. She's entirely right in what she tells us, I might add.

In 2016 amongst the various actions I've mentioned boosting our environment, health and safety audit procedures with a mapping and risk monitoring per site 64:16. I'd also mention stricter controls of industrial risks, particularly in relation with our insurance providers and notably as regards crisis management. We know that the world is ever more dangerous, geopolitically speaking. I don't know if you've realized. I think you have. A very demanding certification program, I'm delighted -- well, I'm satisfied to see and announce that SLN became the first mining and metallurgy company in New Caledonia to obtain ISO 14001 certification in 2016. Isn't that great?

Equally, COMILOG also successfully renewed its IO 14001 certification in 2016. Our objective is to obtain ISO 50001 certification for our sites, that certification when it comes to energy control and energy saving and energy cutting. Jean Didier Dujardin, under his auspices, he's done a great deal for the last year on this, and we're boosting our compliance program, Group ethical compliance program with a new ethics charter adopted in 2015.

Thanks to lots of trainings for each employee, we have our ethics officer now, and each employee has to be a shaker and mover, part of the driving force here in terms of ethical compliance. Now, climate change, we're including carbon footprint in measuring and ascertaining any of our new asset investments.

So let's move on to conclusions of this presentation, before then fielding questions on Group governance. Eramet Group results staged a strong recovery in 2016, as you saw sharp improvement in EBITDA to EUR375 million, current operating income positive at EUR84 million, free cash flow positive, EUR226 million, end of 2016.

This performance is mainly due to continued success, a very ambitious plan, since prices were really good in 2016 as we saw, if we compare things to the previous year, and we can say performance to a large degree is very much thanks to the success of the very ambitious cost-cutting plan and improved productivity plan throughout the Group and completion of most of our asset disposals program.

The balance sheet structure at Eramet is strengthened as well, thanks to the successful issue of ODIRNAN in September of 2016 and the two-year maturity extension of a revolving credit facility. This proves the confidence bankers have in us. Otherwise, extending our revolving credit EUR920 million some -- EUR980 million, we worked on this over the Christmas holidays, did we not, right up until New Years. And this just goes to show the trust the banking community has in our Group and our future, and we're very pleased to be able to say that.

The Group's net debt fell by almost 30% relative to end of June 2016, and lower than it was at the end of 2015, a very important point. A big improvement in our net debt to EBITDA ratio, which stood at [20] in June, approximately --[26], even. It's scary I don't dare say the figure, 26 in June, was 9.5 at the end of 2015 -- now currently, at the end of 2016, standing at 2.2, which is one of the best ratios in the entire industry. Figures are self-explanatory, and we can be extremely pleased to see them.

When we met with the bankers, we told them this is how it would work out, and I'm pleased to say yes, this is confirmed. It confirms what we said to them back then, and it was a question of our credibility. We'd especially emphasize that the various performance plans enacted confirm the quality of Eramet's industrial abilities.

At SLN, the performance plan has already delivered savings of 16% in cash costs, lowering it to $5.06 per pound, in line with our target of $4.50 end of 2017, new cost-reduction plan, 2017-2020 at SLN. The power plant is set to further systematically reduce cash costs on the order of 35% to 40% reduction in cash costs, above and beyond the ones we've alluded to, cutting cash costs at SLN, as expected, after 2020.

We're not setting up a new power plant to do things at the same prices as today. We want this to be a minus 35% to 40% in cash costs, and Eramet's Board of Directors discussed this and told the New Caledonians of this. They're in charge of the power plant, and it was stated in no uncertain terms, we're expecting 35% to 40% drop in energy costs overall.

We know there's also hydro energy we buy from the Yate Dam. All in all, we want to make sure that we're in line with our competitors' energy costs, a drop between 35% and 40% of electricity costs at SLN, pays to the Caledonian Energy Agency once the power plant comes onstream.

Improved efficiency at our Moanda manganese mine and a modernization plan for SETRAG in Gabon should confirm our production and transport capacity of 4 million tonnes per annum, rightfully -- 4 million tonnes per annum, that is indeed the target, annual target. Eramet aims to continue reducing its cash cost in both mining and manganese alloys.

At COMILOG, there could be cost reductions, and also the processing plants for alloys, especially for refined alloys, the high-end product for which the Group is global leader. To repeat, turning to mineral sands, production of ilmenite and zircon was ramped up to industrial scale, and production of titanium dioxide slag was successfully switched, and no mean feat, from sulfate to chloride process. The switch was important.

And this means TiZir posted positive EBITDA, despite persistent low prices and the incident affecting the furnace in Norway. Production was rapidly restored. That was very well managed from a technical point of view, and also there was a communication. I'd congratulate the Norwegian teams on their achievement.

Eramet Alloys pursued the rollout of its performance improvement plans. Aubert & Duval reaffirmed its leadership in manufacturing special alloys, the creation of a European supply chain for aerospace-grade titanium, including recycling and including -- its recycling, which was started in 2017 and also powder metallurgy specifically for additive manufacturing, aerospace sector and 3D printing.

2017 will be a very important year on several fronts, especially our 2014-2017 performance plan will be complete. We've got a target of EUR400 million for the end of 2017. Also, production of EcoTitanium will start. I alluded to it. This is an area of recycling of titanium for aeronautics, aerospace. This is one of the missing links in the chain which will no longer [live] to be missing.

We're starting up recycling of batteries and catalysts at Erasteel, thanks to which I hope we'll really boost Erasteel, very much in need. Erasteel was a real concern previously, I can say, EUR20 million in annual losses. You can't leave it at that.

And we're adapting Sandouville plant process. It will be reconfigured for the new nickel matte. This will be a great deal with Boliden. I think all in all, this will be a great thing. It will be a win-win situation, and SETRAG modernization program will be rolled out. That'll be a great thing, and waiting for it with bated breath on both sides.

Stepping up our efforts in the lithium project, didn't mention this much, but we have a beautiful lithium project in Argentina with a 550-square-kilometer concession, right, approximately? Process being finalized right now. These are investments on the order of EUR300 million per annum, CapEx around EUR300 million if we were to go it alone, but it's a partnership here. It will be less than that. Therefore, we'll see when we'd need to bring in a partner or not in the project.

But first, we have to perfect the process, and we're still lacking just a few points in terms of fine-tuning the process, and we should be able to do that sometime in the year. But lithium is very much the future. Think of hybrid vehicles and various uses of lithium batteries.

Lastly on that point, let me just say that as I see it, no doubt about it, if we do manage to complete, and this has gotten off to a great start, all the various agreements and the great contacts with the Tsingshan, with the Weda Bay and the partnership will be successful there, which it certainly should be, then I can say very much no doubt about it, we're in a situation where things are a done deal. We've really managed to come out of this shining, this great project.

Now, major uncertainties will be seen next year in terms of geopolitics. I'm thinking specifically the Chinese economy and also the possible shift over in terms of economic policy midway through the year. You know what's going to be happening midway through the year in China. We have to hope that they won't give up the infrastructure program and so forth. We're so dependent on that.

So this will require a policy of unflagging rigor and vigilance, continuously improving our performance, consolidate our position in the face of ever-more-aggressive competition, rapidly evolving in the international environment. Everybody's duking it out, as are we. This competition is important for us to not get behind.

So competition is ever more unbridled, international competition. Things are changing constantly. Recovery of Eramet in 2016, only possible with the commitment of all the men and women in the Group, and I very much personally want to congratulate them one and all. It was an exceptional year, to my mind, and I can say that their engagement fully justifies my confidence in our successes in the future.

I'd continue talking about governance before then moving on to questions and answers. As regards developments announced last year regarding Eramet's Group governance, I'd like to supply you with the following information.

Over the past few years, Eramet, as you know, because for years we've been interacting, has had to face the global crisis of minerals and metals, totally unprecedented. We had the lowest manganese, ore, and nickel prices and had to face considerable dangers with a cliff effect after the financial crisis, spreading to the industrial crisis in 2008.

We were very close to absolutely major problems of survival for SLN last year. Early this year, we were able to resolve all that, but this crisis severely affected the sector. We had to take quite exceptional measures, and it's against that backdrop that I decided -- we discussed this at length, implementing this ambitious cost-cutting program, productivity, efficiency for the Group as a whole -- asset disposals, CapEx reduction, suspension of major projects.

So the goal was to promote cash generation. Priority was cash. For several years, you've been hearing me say this mantra, cash is king, priority to cash. Economic, financial results during the quarter 2016 that we'd just set out reflect the success of these plans and the recovery of Eramet Group in 2016 that will of course have to be strengthened over the long term.

Before beginning a new development phase characterized by cycle duration -- mining cycles are long, very often last 10 years, CapEx have a very long payback period and we're clearly entering a new phase, I believe, that I hope of exit from the crisis, and we'll have to take growth initiatives for the Group that have been set aside during the years when it was all about survival with the necessary cash, and everything was necessary in what we put in place to present what we presented to you today with Thomas. Thomas, who played a key role at my side in this process, the financial process.

And of course, during these -- such a time -- has a significant impact. Well, after all that, we must now enter a new development phase, marked by these long cycles, long-term investments, and in this context, Eramet shareholders, the two leading Eramet shareholders, as was stated in the press release that came out last night, are keen to accelerate the Group's growth, wanted to open a managerial transition phase. As you know that I've been heading up the Group for over 10 years. Now, for 10 years you've seen me, happily or unhappily. Take your pick. At least I'm here, been around.

I will of course continue as CEO until the AGM at May 23. Yesterday's Board meeting on Thursday, February 23, 2017, appointed upon my proposal that stemming from the Appointments Committee, Madame Christel Bories, who is here present, if she would kindly stand up so that you can all see her, in order to recognize Madame Christel Bories, who has a brilliant track record, an outstanding professional record, all the requisite qualities in order to be an excellent Chief Executive of Eramet, was appointed as COO for Group for a transition, at my side for a transition period.

She'll be proposed to replace me as CEO following the AGM. On May 23, I'll chair the AGM, and then I'll leave my duties and Madame Christel Bories will assume my full duties in the same guise as Chairman and CEO of Eramet Group at that point in time. Madame Christel Bories, as part of this new government phase, will be tasked with continuing the efforts underway in order to consolidate over time the recovery process. I'm happy to be able to leave on good numbers. It would have been very unfortunate to say the same thing without being able to present the very good figures I've been able to present to you with Thomas.

But much remains to be done. First of all, the universe is uncertain. In a Group such as ours, we have to adapt every step of the way to geopolitical changes that can sometimes be abrupt. We're also interacting with governments who have their legitimate requirements, and we have to factor those in, and tirelessly having one aim, the aim of the Eramet employees and their shareholders and the Company itself, of course. And Madame Christel Bories has all the necessary quality to discharge this job in an optimal fashion.

She will secure the growth of Eramet over the coming years, and on behalf of the ExCom, very closely [near], I've been fortunate over these past 10 years to have excellent colleagues and a very fine team, people extremely devoted to Eramet, with profound admiration for the company and deploying tireless efforts. My very deep thanks to them. It's over 10 years, especially the last three years that were particularly difficult. My thanks to them.

When I say three, in fact, it's slightly more than three years, and so my profound thanks to them. Madame Bories will be supported by people of excellent caliber. They're all leadings specialists, each in their field, people who have a passion for the Company.

Christel, I'd like to wish you, because we've known one another for some considerable time -- I wish you the very best in your new assignment, and we're ready with Thomas to answer all your questions, unless Christel wishes to add a word today, to say a bit more about yourself. But Christel's CV, resume, is to be found -- is available in many good publication, Who's Who, etc. But she's available to one and all to introduce herself, if you so wish. My very best wishes. Good luck. I'm sure you'll be very successful and that you will be a remarkable CEO for Eramet Group that's such a fine company in every respect. With Thomas, we'll try and answer your questions.

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Questions and Answers

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Sylvain Brunet, Exane BNP Paribas - Analyst [1]

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Hello. I'm from Exane BNP. I have a few questions, one by one. It might perhaps be easier that way. The first question, on the efficiencies, that was a pleasant surprise, EUR100 million efficiencies that you expect for 2017. Could you give us some color on contribution, volume and by division? Let's start with that.

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Unidentified Company Representative [2]

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You mentioned -- Sylvain, you're talking EUR360 million that become EUR400 million. Okay, so we have this precise split.

Okay, let's proceed by order. 2016, actual, we achieved EUR129 million, 2014, EUR102 million, 2015, EUR76 million, 2016, EUR109 million. The actual for 2016, EUR78 million for nickel division. I can give you the whole. EUR51 million for nickel 2014, 2015, EUR13 million, 2016, EUR78 million. Manganese, 2014, EUR13 million, 2015, EUR41 million, actual 2016, EUR27 million. Alloys, 2014, EUR35 million, 2015, EUR21 million, 2016, EUR20 million. Holding company, 2014 EUR3 million, 2015, EUR1 million, 2016, EUR4 million.

That's a total of 2014, EUR102 million, 2015, EUR76, 2016, EUR129, which leads us in total, 2014, 2016 for nickel, EUR142 million, manganese, EUR81 million, alloys, EUR75 million, holding, EUR8 million, and in total, EUR306 million -- EUR306 million for a target of EUR360 million. And so since we delivered EUR129 million, we're ahead by EUR40 million at the end of 2016.

Well, we've decided to try and keep that EUR40 million lead for the end of 2017 that would give us the split at the hundreds. I would -- what's key is to achieve EUR400 million. I can't guarantee division by division, but our idea we could do EUR29 million better on nickel, EUR41 million better on manganese, EUR26 million better on the alloys and EUR4 million on the holding company, which gives us the EUR100 million.

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Sylvain Brunet, Exane BNP Paribas - Analyst [3]

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Thanks. Staying with nickel, there again there's a very positive recovery free cash flow expected in H2. Where are we at in terms of cash losses that you mentioned? They're down to how much if we say early this year or current prices, if you like?

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Unidentified Company Representative [4]

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So at the balanced prices and free cash flow, we need an LME in 2016 at $5.70. We should have had an LME at $5.70. We have a cash loss of EUR20 million, give or take, EUR20 million per month. We're down to $6.70 at the end of the year, monthly cash looks, that is.

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Sylvain Brunet, Exane BNP Paribas - Analyst [5]

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And so your forecast in 2017? What's your expectation for 2017?

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Unidentified Company Representative [6]

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Well, it's going to depend on the LME at current prices.

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Sylvain Brunet, Exane BNP Paribas - Analyst [7]

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If we reason current prices?

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Unidentified Company Representative [8]

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Well, if we're at $4.50 end of the 2017, today, we're at $5.06 at the end of 2016, $5.06. Need to add $0.80 basically to fixed costs. So we're $5.86, $5.90, so an LME -- the LME is nudging $5, just below. It was down to $4.83 yesterday, so we're still losing about EUR100 million EBIT if we remain at current prices and current cash. That's about the ballpark. Yes.

With a smidgen more CapEx in 2016 at SLN, we have to maintain Plant B, and that adds -- these are CapEx that were planned, that have been in the plan from the outset. That's going to add EUR25 million this year, give or take. That's spread over two years, and then there's also replacement of the gantries and the unloading facility, requiring more CapEx. It's going to up the SLN CapEx, but the cash costs are down.

$4, $5 is just a milestone, a step on the way. We have to go much lower.

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Sylvain Brunet, Exane BNP Paribas - Analyst [9]

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Okay, so if we move to manganese, I'd be keen to have your take on what's happening in terms of response of supply. The price responded after the production outages in 2016. What are you seeing in the markets? What happened in South Africa, and your take on current inventory levels in the chain?

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Patrick Buffet, Eramet Group - Chairman and CEO [10]

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Mr. Philippe Vecten, who's been promoted head of the two mining branches, before he's only in charge of manganese, now he's in charge, running nickel, so he's broad enough to cover both, will give you an answer. I'm going to get him to step up to the plate.

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Philippe Vecten, Eramet Group - CEO, Nickel and Manganese [11]

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So, on manganese, well, the sharp price hike in the second half 2016 obviously relaunched production. The Bottle Creek Mine in Australia has resumed operations. It was out for several months. Exports, very significant. China, and inventories in Chinese ports exceed 3 million tonnes. Latest sales were at prices below $5 dmtu. There you have it.

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Patrick Buffet, Eramet Group - Chairman and CEO [12]

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Thanks, Philippe.

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Unidentified Audience Member [13]

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Yes, just a question in [ending]. What would be the best piece of advice to your successor for managing the Group, if I may? And what surprised you most during the 10 years, apart from cycles that were particularly abrupt in managing the Group?

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Patrick Buffet, Eramet Group - Chairman and CEO [14]

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Well, not much really surprised me, because it so happened that I started my professional career on the other side of the fence, as it were, at the Industry Ministry, and that was the first bankruptcy of SLN that was held at the time by [Elf Group], and we had to save the SLN operation from the first full-blown crisis of nickel, and I saw under the wise management of [Eva Bongorza], indeed, it was possible to turn SLN around by being careful about investments, efficiencies, etc., and SLN began to become a flourishing company and began to make a lot of money.

So I've seen the worst and the best. And so when I arrived in 2007 -- let me reassure you, no conflict of interest, because I was 25 when I saw it the first time and 54 when I came back as management, and it wasn't on the same side of the fence, with Jean-Pierre Rodier at the time at energy and raw materials, on the side of the state. We saw the scale of possible changes in the Company in its results.

So I said to myself when I arrived that we must ensure that the low points of the cycles are weathered without jeopardizing Eramet's survival. What struck me was really how dominant in the results the manganese division is. It's clear that the manganese division, our leadership, the quality of the Moanda mines, the very low cash cost, the competitive edge that we have in terms of the quality of our deposit, the extensive reserves that we have in Gabon, etc., possibilities of extensions such that Eramet has an incredible asset with its manganese activity.

This obviously over the past three years has allowed the Group to stay afloat. Make no bones about it. So obviously we need to preserve with Gabon what we have today. That is to say the best possible relations, business relations. We're not talking politics. We don't do politics in our Group. Business, that's to say, and to work with people who would be people on the COMILOG board of excellent caliber.

I see the people sent by the Gabonese government, one from JPMorgan London, the other a PhD in the US. We have people of excellent caliber, extremely competent, and as a project for Gabon, the industrial development of Gabon, Africa is our natural development territory. We're in Senegal with TiZir now as an aside.

But for me, Africa, with its 2.5 billion inhabitants going forward, when China only has 1 billion in 2020 and 2030. We have Central Asia for our niche metals. For our niche metals are the major areas that will rise. It's Africa. I include South Africa and Central Asia. We have to have good relations with those countries and to return to your country -- the strong point of our African positions gives underlying solidity to the Group that is absolutely considerable.

And if we can diversify smartly to new metals that don't require billions of CapEx but hundreds of millions of investments by remaining more cautious -- well, when I arrived, I inherited the Weda Bay and the Maboumine projects. With Maboumine, we're looking for partners with the government, and Maboumine cost us EUR6 million last year. We can't go it alone. We can't develop it alone, and we made the Gabonese government understand it had to find somebody to develop at our side, but we're prepared to bring all the work that we've done.

But at the scale of the Group -- you need to realize that we're a specialty group, a niche group, specialties and metallurgy, and we can do some very fine deals. [Imarese] in their field, not trying to make investments of billions of euros that really BHP, Rio Tinto Groups, 10 times bigger than we are, so we must make investments that measure more in hundreds of millions, dozens of millions of euros, that are adapted, suited or at least do it with partners, with negotiated off-takes.

But as a rule, if we want to be majority shareholder, we have to have smaller-scale investments that are well adapted, good [toxins] that are adopted to our areas of activities that are excellent future, because alloys, metals, are the thing of the future, with needs for steel that will grow. With steel and aerospace, we have downstream outlooks that will continue to grow, but we must bring more R&D, innovation, value added, and we've never sacrificed R&D over the years of crisis.

We have proprietary R&D. Unlike many groups far bigger than we are, who've outsourced their R&D, we have a high-quality teams. We still attract the best talents, youngsters who begin their career as scientists before assuming operational responsibility. The fact that we've retained this expertise, this knowhow, the knowledge management and transfer of knowledge generation to generation, [Philippe Normand] is very attached to that and is very much involved in addition to his strategy and financial communications activities, that's very important, so that going forward we can have a tech lead.

We can legitimately believe that in terms of hydro metallurgy, we're at the cutting edge of the world. It's not the right time to make investments in hydro and metallurgy, but we can take part in terms of hydro and metallurgy, contribute, take part in projects. And in lithium, developing an original process that we found in Argentina, the deposit, that's obviously high-quality work that I hope we'll be able to complete, and if we get there, we can have the lithium with an investment of $300 million, $400 million for the future within our scale when we have a balance sheet that's back to normal, that we really can a very profitable investment for the Group.

So really, focus on profitability rather than revenue, favor the bottom line. That's my -- size is not my think. What counts is profitability. I don't know what Christel will decide. She'll have her own ideas, and so I don't want to speak for her. I'll tell you what I think and I'll repeat this at the AGM if I'm asked about this.

Profitability before size, growth in itself isn't a target, unprofitable growth is to be proscribed. We've seen so many companies go under because they had too much appetite. Let's do what we can with the best specialists, mining specialists. We were fortunate in having both a team of metallurgists -- not always trained at the same school, except for that that we set up in Gabon. [Third] mining and metallurgical school of high quality with the Gabon government that will serve to run the mine complex at the same time by helping in mining operations.

There's synergy there, which is a feature of our Group as well, a very beneficial one. Yes.

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Unidentified Audience Member [15]

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Thank you for your last presentation. I'm from an investment fund, and I have a question that's fairly similar to the previous one. I'd like to ask a follow-up question. Give us more specifics pertaining to the future. I think you're still extremely cautious in talking about outlook in your presentation.

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Unidentified Company Representative [16]

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Yes.

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Unidentified Audience Member [17]

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Would you say the crisis is over with? You talk about governance change. Well, maybe the governance change is to be a continued phase, expansion? But I think you're extremely cautious when you talk about the future. You seem reserved? Could you build on that further?

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Patrick Buffet, Eramet Group - Chairman and CEO [18]

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We can say that today's world, if I were in charge of any other industrial group, I'd say exactly the same thing. It's not something I'm saying about Eramet specifically. So let me say that today's world is one whose rules are changing substantially.

Protectionism, on the rise. For the first time, global trade is growing more slowly than GDP. That will have an impact on major corporations. We're located in 20 countries worldwide. So we have to keep a careful eye on everything. I believe when you've got the best cash cost and you're the most competitive among your peers and competitors, then you've got a firm foundation, so you can at any rate survive, even during the trough of a cycle.

Things are very cyclical after all, and you have to be able when you're at the low part of the cycle -- you've got to be able. You know what Jacques Chirac used to say, he used to talk about upturns and downturns, and you've got to be able to turn things up during the downturn. Anyway, that's the idea, so during a low part of a cycle, you've got to be able to hold up, to resist. You've got to be able to not jeopardize the Group at a time when prices have fallen through the floor.

That means you've got to be the most competitive, have the best possible cash cost and keep the Group constantly under stress in this respect. You've got to be constantly improving, not just one shot, doing one program, doing it beautifully and then just letting things get off track and let costs get off track. No. You've got to avoid that and make sure people are constantly keeping their eye on that ball. Always people realizing that it's important to have ongoing improvement. It has to be a natural reflex of theirs.

The good thing about the crisis for the Group I think has been that, has been this reflex people have developed thanks to branch managers and so forth, thanks to top managers of the Group and people in operations and functions. Everybody's gotten down to this when they've gotten involved. We know it's an absolute imperative. We've got to be constantly ensuring that we do not let costs get off track.

Our benchmark always has to be the best. We've got to strive for the best, all the while ensuring security, strict maintenance, safety. And we know that we're talking about IRR. When IRR is under one year, we do make the investment. We do make an investment on acquisition, so we would not in any way jeopardize people's health and safety. We'd not in any way sacrifice maintenance, nor would we give up on possibilities, if you can get internal rate of return under one year. I just mentioned that one.

But investments you have to make, which just make sense, that you have to move on, yes we will do that. Also in the past, I'd say that we got used to things. Things when we're generous, people thought of -- believed in super cycles. When I came along initially, economists said we've got 15 more years of growth in China, don't worry about anything. You've got 450 million Chinese living in cities, and they'll be going to the coast. There are going to be huge building programs in China. You can imagine the requirements for steel in China, manganese. There'll be huge requirements, nickel also.

So invest. Go and invest, they were saying. Back at that time, a lot of competing companies did make major investments, huge ones. They regretted those. One of them bought a mine in South Africa. They tried to sell it off to us afterwards, and then another one did this and that. So basically, what we do, we kept our cash. We did one deal, [Infos], paid half in cash and half in securities, in shares, at a time they were worth EUR450 a share. In retrospect, we should have paid it fully in cash -- in shares, sorry. That would have been a good idea, but it wasn't feasible. That's unfortunate.

At any rate, that was the only deal we did at that time, because once we did Infos] we had the Norwegian plant. After the Norwegian one, high-purity casting and titanium oxide, we had to find upstream supply. Upstream supply, we did a 50-50 from scratch with a small Australian team, highly skilled in this in Senegal. We linked this, did TiZir and established a new diversification at very low cost. That's basically it.

We didn't move into any major acquisition. So many bankers got in touch with me, proposing businesses to me that had plummeted after the financial crisis. They told me, supported by economists, renowned economists, they were on the TV all the time, they said the financial crisis would never lead to an industrial crisis.

They said maybe it would affect a couple of countries, just maybe the US and maybe developed countries, but it would never impact emerging countries. Then they said, well, it is impacting everybody after all, and it turned into a global crisis. Well, fortunately, we didn't make any acquisition, no major acquisition, and we kept our cash on hand during the whole period.

We did a couple of strategic investments in alloys, in France, which were necessary investments we talked about earlier, just before the crisis spread to the industrial world. Fortunately, we made those investments at that time. The alloys branch reaped the benefits of that and will continue so doing in the future, but that's basically it.

Aside from that, we tightened things up, we kept our cash, didn't use it for external growth. We made investments internally and we divided by two-thirds our overall Group investments. My view is -- well, in the past in an agrifood business I had to do this, 25% headcount reduction. I sold about half the group. It was the only way to save them, the [Sanders] Group, it was called, the only way to save them during a time of crisis. This was way back when. That's what had to be done in those times.

But now, move onto the new cycle. I think the Group's recovered to a large degree. We have to consolidate and build on that recovery, of course, underpin it. It has to be sustainable, long lasting. Lord knows Christel turned around and consolidated companies during her career, so she will certainly know how to continue doing this in a very talented way. In addition to that, you've got to think of growth and development. If things start looking better in the outside world, because you can't just tighten things up all the time, but I'm very, very pleased to be showing you our debt ratio of 2.2. That's basically what it boils down to.

Any further questions? We can field them if you'd like. No? Are there none? Well, I'm feeling a little bit of emotion to say I won't be here for any further presentations. I'll miss you. Thank you very much for coming.

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Editor [19]

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Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.