ERAMET S.A. (ERA) Earnings Call Transcript & Summary

So hello all, and thank you for joining us in such a short notice. This is [indiscernible]. Happy to introduce also Christel Bories, our Chair and CEO; and Simon Henochsberg, our CFO. I hand over, Christel and Simon, to you.

Hello, everyone, and thank you for being here. We should have a presentation that will be on the screen. So I'm just waiting for this to be displayed. And you will receive a communiqué, I'm sorry for that, because we were -- I mean, we had some delay linked to the approval of the different quotes in our communiqué. And you will see there are several. So maybe I will introduce anyway and think that Eramet is taking a decisive step today to consolidate its future. Our Board of Directors this morning has confirmed the launch before the end of this year of the EUR 500 million capital increase that we announced in February. As you know, this transaction is essential to strengthen the group equity and secure its financial position and continue to implement our strategy. It will be based on a strategic investment by the French state consistent with their objective to secure critical minerals supply chain for France and Europe. This announcement is coming with an agreement with our 2 reference shareholders, APE, the French state shareholding agency, and Sorame-CEIR, representing the Duval family. We have reached an agreement on their participation. This announcement marks a key milestone for Eramet. It will enable us to complete before year-end the part of our 3-pillar funding plan, which is the capital increase. It's -- as you know, this financing plan had 3 pillars. The first one is a performance improvement plan, and we are progressing well on it. The second one is the monetization of assets. And here also, we have productive discussions on some of our assets. And the key element of the announcement today is this equity strengthening through this capital increase that will be supported by this strategic investment of the French state. And that Simon will explain just after me. Over the past few months, several investors have expressed an interest in participating in this transaction. We have reviewed with the Board of Directors the various proposal received. And unanimously, the Board approved the one that we are presenting today. And this arrangement is expected to be formalized in the coming days. So this solution address the group immediate financing needs while preserving Eramet's ability to enter into additional partnership in the future. And so following its investment, the French state with APE will become Eramet's largest shareholder. And Sorame-CEIR, the Duval family, will become our second largest shareholder, and they would enter into a new shareholder agreement. So I will now hand over to Simon, who will take you through the main terms of the transaction.

Thank you, Christel. Good evening to everyone. I will quickly comment what is the structure of the transaction, and then I will come back rapidly on the calendar. Regarding the structure of the transaction, we will first have the rights issue and the state, the APE, the French state, will participate in 2 ways. First of all, they will subscribe pro rata of their share, which is 27.1%, and they will buy all or part of the rights of the family. This transaction will be done at the theoretical value with a discount of 5%. And the amount of rights that will be bought by the state depends on market conditions at the moment when we launch this rights issue. But the idea is that the state would purchase the maximum amount, preferably all, of the rights of the family and would then exercise those rights and subscribe for the full share of the family. So if you add their share plus the share of the family, the French state will be effectively subscribing for close to 2/3 of the rights issue. But since the state cannot own more than 49% of effective voting rights, they may not be able to buy the full amount of shares from the family. This is why there is a second -- there could be a second leg to this transaction. If the French state cannot buy all the rights, then there would be a second step where all the rights that were not bought by the French state, then the Duval family would exercise those and subscribe to the rights issue. And as a second step, there would be a put call option between the family and the French state, allowing the French state to buy those shares as if they had bought all the rights from the family with the limit of the French state remaining below 50% of the share capital. The transaction price for the second leg of the transaction is calculated in a way to make it equivalent to a direct purchase of the full amount of rights by the French state. So this is the technicalities. This second step means that the French state would need some regulatory approvals to be able to increase voting rights. And this is why the second step would not happen right away if it's needed, and it would happen a bit later once those regulatory approvals have been obtained. Once all of this is done, the family Sorame-CEIR will convert their shares into bearer shares, and they undertake not to hold more than 30% of the voting rights. There will be a new shareholder agreement between the 2 shareholders. And Eramet as part of this transaction has also undertook not to -- we will only resume dividend payments once the leverage ratio is below 1. Regarding the timing of the transaction, as you know, we had announced the transaction early since it was announced since February. We had a vote in AGM to allow for this transaction to allow the Board to take a decision on this transaction in May. Since then, we have been in preparation. And today, we announced this decision to retain the offer from the French state. The next step for us would be to file with the AMF, which is the French market authority to obtain a waiver as the French state will exceed the 30% threshold. And then we will look to execute this transaction after our Q3 results and before year-end. This is the description on the overall structure and the calendar. And I leave you, Christel, if you want to say a few words.

I think I will keep the time for the question. We -- it's a very good news for the company as we will be able to deliver on this critical step of our financing plan. Also, it shows that Eramet is of strategic importance to France and Europe in securing access to critical metals. And this transaction will help the company to strengthen its balance sheet and continue implementing the other pillars of its funding plan under the best possible condition and return to growth over the medium term. So good news, a good step in our way to recover and improve the group and restore the group financial position. So we will now be happy to take your questions. Operator, I hand over to you.

[Operator Instructions] The first question comes from Jason Fairclough of Bank of America.

Look, a couple of, I hope, really simple questions. I just wanted to understand, is the French state effectively acting as an underwriter on the entire EUR 500 million? Is that the way we should think about this?

Yes...

Not exactly. What the French state is doing is that they are subscribing for their share and the family's share, which means that the full -- the subscription of the concert of the French state and the family is indeed done by the French state, which means that...

64%, Simon?

Yes, exactly. It's 64% of the capital increase plus the fact that they buy back the rights of the family in order to do that.

And so we will access the market on the same share of what the free float is today.

Okay. And just so that I'm clear then, so effectively, the French state is backstopping 64%. So if I take the rest, is anybody underwriting that? Or is that just on a best efforts basis?

Well, so technically, the French state is not backstopping as the usual backstop, which is more of a guarantee. They're actually doing the investment for their share and the family's share. So they are doing the actual subscription, not only the backstop. And for the remaining share, we will look to have an underwriting from the bank syndicate, which we don't anticipate any difficulties considering that with the family and state share already subscribed, the amount to be subscribed from the market remains limited, and we have confidence that the bank syndicate can underwrite that portion.

So they will buy proactively the rights of the Duval family. So those rights will not be on the market. So it's not really a backstop. There is an agreement to buy the rights of the Duval family and exercise this right to participate to the capital increase instead of the Duval family.

Okay. Is there any chance that the French state gets involved in any of the other PSRs or it's just the Duval PSRs and then the rest will be taken care of by the underwriters?

The rest will be taken care of by the underwriters. The French state, I think, will already have quite enough PSRs at that point. And as I mentioned, they need to make sure that they don't cross -- they do not have more than 49% of voting rights after that transaction, after that the capital -- the rights issue. So they are in the spirit of buying the maximum from the Duval family and probably all of it, again, depending on the actual terms of the transaction. They will not be looking to buy more on the market. And they are not -- the spirit of the agreement is not for -- the French state is not looking to have the maximum equity in Eramet. The French state is looking first to make sure that we can execute rapidly and in a fully derisked way this capital increase. This is the first reason. And the second reason is it's a strategic investment in a strategic company, but they don't need to increase their stake more than what we have announced for this to be a strategic investment.

And they have committed not to cross the 50% of Eramet shareholding. So they don't want to become the majority shareholder of Eramet.

Okay. Look, one last one, if I could. And again, I think I know the answer, but I just want to make sure. So the PSRs, the preferential subscription rights will be distributed to all shareholders pro rata. So to the extent that someone is a shareholder in Eramet today, they get pro rata access to these PSRs. Is that correct?

That's correct.

Right. So it's a full, it's full preemption. It's full standard preemption. There's no fundings here.

We may have new investors buying the rights from the investors willing to sell those rights. So we do expect as in any rights issue to have new investors that come in Eramet at that time. But indeed, that would be on the free float share because the part of the state and the Duvals will already be taken care of.

Okay. And then lastly, just to confirm the timing. So after Q3 results before the end of the calendar year?

Yes.

Exactly. Yes.

The next question is from Maxime Kogge of ODDO.

So I have the first question is why are you ruling out that the French government exceeds the 49% threshold? Is it because if it exceeds the threshold, you will then have to launch takeover on the whole capital? And is that a scenario that is totally ruled out at this stage?