Ferroglobe PLC (GSM) 2022 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Ferroglobe's Second Quarter 2022 Earnings Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the call over to Gaurav Mehta, Ferroglobe's President of North America and Executive Vice President of Corporate Strategy, Technology and Investor Relations. You may begin.

Good morning, everyone, and thank you for joining Ferroglobe's Second Quarter 2022 Conference Call. Joining me today are Marco Levi, our Chief Executive Officer; Beatriz García-Cos, our Chief Financial Officer; and Benoist Ollivier, our Chief Technology and Innovation Officer.

Before we get started with some prepared remarks, I am going to read a brief statement. Please turn to Slide 2 at this time. Statements made by management during this conference call that are forward-looking are based on current expectations. Risk factors that could cause actual results to differ materially from those forward-looking statements can be found in Ferroglobe's most recent SEC filings and the exhibits to those filings, which are available on our web page, www.ferroglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA, adjusted gross debt, net debt, and adjusted diluted earnings per share, which are non-IFRS measures. Reconciliation of these non-IFRS measures may be found in our most recent SEC filings. At this time, I would like to turn the call over to our CEO, Marco Levi. Slide 4, please.

Good morning or good afternoon, everyone. Today, I am really thrilled to present our second quarter results, which set a new company record in terms of our quarterly revenues, adjusted EBITDA, margins, profitability, and net debt level.

In fact, the second quarter marks the sixth consecutive quarter dating back Q4 2020, where we have consistently improved our performance in areas such as sales and adjusted EBITDA. Please keep in mind that adjusted EBITDA was negative in 2019 when this management team took over. I am extremely proud that we have been able to deliver adjusted EBITDA improvement in 9 out of the last 10 quarters. Despite challenges posed by COVID, the energy crisis and most recently, the Russian-Ukraine conflict.

The stellar quarterly results are a reflection of the strong performance across our portfolio of products, coupled with the ongoing focus on cost reduction, improved operational flexibility and quicker response to capitalize on market opportunities. We have been pretty clear on our priorities, and I am pleased that we are delivering on all fronts. In fact, we are excited to be over-delivering in some areas. For example, we continue to uncover new pockets of value. During our Investor Day a few weeks back, we announced our revised target of $225 million of run rate EBITDA benefit from the various transformation areas. Specific to the second quarter, our revenues increased 18% to $841 million, and we achieved adjusted EBITDA of $303 million, an increase of 26% over the prior quarter.

Our adjusted EBITDA margin further improved by 234 basis points to 36%. And our earnings per share on a fully diluted basis was positive $0.98, a 23% increase over $0.80 per diluted share we delivered last quarter. Moreover, we continue to improve our cash generation. As a result, our net debt at June 30 was $194 million, the lowest in the company history. With the acceleration in cash generation, we repurchased some of our senior notes during the quarter and subsequently closed on the redemption of our 9% super senior notes in July.

Overall, our business continues to perform well across the portfolio. We are vigilant that the macro environment continues to remain uncertain with high inflation and the continued energy crisis posing inherent headwinds. We expect to generate solid cash flows into the second half of the year despite this lingering headwinds. Before we move on, I want to highlight the positive development relating to our energy costs specifically in France. While we have fixed energy prices in France this year, in May, we received notification from our energy provider that the French government decided to increase the relative portion of RM, which lowers our realized cost of energy. Hence, we received a net benefit of approximately $31 million this quarter.

Approximately $20 million of this impact was realized in our P&L this quarter, with the remaining amount being capitalized as inventory, which will be realized later in the year. To be clear, this is not a one-off benefit. We anticipate a comparable adjustment to our energy cost in France for the second half of the year as well. Additionally, our fixed price contract in France provided some insulation from the current droughts and potentially other factors. In event, there is a shortage of power, we also benefit from our unique ability to quickly modulate production and redirect power back to the grid at an attractive rate, albeit reducing output.

Moving to Slide 5, please, let us talk about silicon. Our silicon metal business had another strong quarter on the back of solid supply-demand fundamentals. The index pricing in the U.S. Europe dropped during the quarter as baked by different levels. The U.S. index held rather flat through May before seeing a decline in June. Nonetheless, the U.S. ended Q2, we pricing above $8,700 per ton and has had flat things. In Europe, the index actually increased until early June, reaching EUR 4,800 per ton before ending the quarter at just over EUR 4,000 per ton.

Overall, we remain encouraged with the pricing environment and need to put these pricing levels into perspective relative to historical levels. After eating unprecedented levels at the end of 2021, the pace of decline this year has been much lower than what was initially expected by CRU, which is positive for our results. Furthermore, given our exposure to index-based pricing, we are getting the benefit of higher realized prices. In other words, the higher pricing average in Q2 will positively impact us during the third quarter.

Our shipments increased to approximately 63,000 tons during the quarter. This was in part attributable to strong demand as well as the restart of the second furnace at the Thermal facility during the quarter. In terms of end market demand, the chemical side continues to be the strongest across our core geographies. The aluminum sector continues to face headwinds from higher energy prices in Europe as well as continued supply chain disruption adversely impacting auto demand.

Initially, we were hopeful for some recovery on the automotive side during the back half of the year. Given the continued uncertainty around the energy and the current macro picture rebuilt with higher interest rates, we are not factoring in any further recovery in the auto end market for this year. I will come back to some interesting developments on the photovoltaic later in today's presentation. Overall, we saw a significant improvement in the contribution from silicon metal. Silicon metal revenues increased 13.7%, with adjusted EBITDA increased by 15.5%. Margins for this part of the business improved further, reaching 49.2% in Q2.

On the cost side, we benefited from the decrease in energy cost in France as detailed on the slide. While our average realized cost of energy in Spain improved quarter-over-quarter, the volatility continues. Just last week, the energy prices were back above $300 per megawatt hour. We are seeing companies along the entire value chain approach the back half of the year with more caution. While there are pockets of demand correction, we are seeing the supply-demand tension holding supporting favorable pricing levels. Once again, most of our sales for this part of the business are invest based and will benefit from the strong Q2 price in middle.

Slide 6, please. Let us talk about silicon-based alloys. The silicon based alloys product category was the stronger performer during the quarter. Our sales grew 11.5%, while adjusted EBITDA for this product category grew 23.9% during the quarter, resulting in adjusted EBITDA margins of 41.1%. Sales volumes were flat quarter-over-quarter, but we did realize an 11.3% pricing improvement, which was primarily the result of the Russia-Ukraine conflict. Demand for our silicon beta alloys was strong across the U.S., Europe and South Africa during the quarter. In fact, we could have probably sold higher volumes, but with Spain operating at minimal load, our total shipments were flat quarter-over-quarter.

Looking into the back half of the year, we think our customers will be purchasing with greater caution and steel capacity, particularly in Europe, is being curtailed. Overall, we will continue to drive our strategy to orient this portfolio of products to our higher-margin specialty products and towards higher priced foundry products.

Moving to Slide 7, please. Let's talk about manganese alloys now. This part of our portfolio has been impacted by the conflict as Ukraine is a major supplier of manganese alloys into Europe. As we enter the second quarter, we quickly picked up on the uncertainty that was present given the conflict, and we quickly ramped up production to capitalize on the situation. During the quarter, we had a 29% increase in shipments to approximately 97,000 tons. Likewise, we continue to get some pricing appreciation with the average realized price increasing 3.2% during Q2.

Overall, our sales increased 33%, while adjusted EBITDA grew 61.4% to $32.9 million. Margin expanded by 300 basis points to 17.1%. Looking ahead, we expect volumes to revert back towards recent historical levels. Many feel customers certainly boys cautioned during the recent quarterly calls. This sentiment coupled with continued higher energy prices and other input costs puts us in a more prudent state. Hence, we will manage the asset portfolio responsibly. Overall, a strong performance by all 3 product categories there.

Now I would like to turn the call to Gaurav Mehta due to connectivity issues with my CFO, Beatriz Cos.

Thank you, Marco, and good morning and good afternoon...

I think... I can talk. Can you hear me?

Yes, please go ahead, Beatriz.

Thank you very much. I sort out the connection. And good morning or good afternoon all. Please turn to the income statement on Slide 9. During the quarter, our top lines grew by 80% to a record $841 million, driven by strong revenue across all our product categories. Silicon metal and manganese-based alloys experienced volume growth over the first quarter, while a stronger pricing in silicon-based and manganese-based alloys contribute to higher revenues. Cost management has been a priority. And during the quarter, we continued to drive cost improvement despite high inflationary pressures and higher energy cost in Spain. As a result, our cost of sales improved to 44% from 48% in Q1.

Operationally, the plants ran well during the quarter with minimal disruptions. Keep in mind that we are constantly reprioritizing our CapEx spend this year. And so far, this appears to be working quite well. After reporting record adjusted EBITDA margin of 33.7% in Q1, our Q2 adjusted EBITDA margin improved further to 36.1%, up 234 basis points over the prior record quarter. Our diluted earnings per share increased to 0.98 in Q2, up 23% over the $0.80 reported in Q1.

Next slide, please. Our adjusted EBITDA increased by $62 million during the quarter to $303 million. The largest driver of this was the growth in volumes, contributing approximately to $50 million and to a lesser extent, the improvement in pricing in some product areas, which contributed $13.4 million. On the cost side, we faced inflationary pressures across a number of key inputs, such as electrodes, paste and coal. That said, we were able to offset more of these increases with a positive energy adjustments in France, which led back approximately $20 million in Q2.

As mentioned earlier, we will continue to benefit from this contract through the second half of 2022. During Q2, the overall impact of energy prices in Spain was positive, $5.7 million quarter-over-quarter basis as our average realized cost of energy in Spain improved by approximately 15%. We continue to face a lot of volatility in energy prices in Spain into the current quarter.

Slide 11, please. Our soft performance in Q2 drove a significant increase in our cash balance to $307 million, up $131 million from the prior quarter, with improvement in our cash balance; our net debt was $194 million at quarter-end, which implies a net leverage ratio of 0.16. Our gross debt balance was $500 million at quarter end, which remains relatively high compared to our $200 million target. Significant deleveraging of gross debt remains a top priority for us. The value of our assets totaled $1.9 million, out of which the book value of equity was $637 million. We have set a target for working capital as a percentage of sales at 21%. During the second quarter, we were slightly below this level at 20.4%.

Slide 12, please. We ended Q2 with an all-time high cash balance at $307 million. It will layer in our new undrawn ABL; the liquidity was over $400 million at quarter end. Our net debt was also at the lowest point in company history at $194 million. The gross debt amount $500 million reflects the $90 million of open market repurchase of our 9.375 senior notes during the quarter, but does not reflect the successful redemption of the $60 million of 9% super senior notes, which occur only in July.

Next slide, please. During Q2, we generated record operating cash flow of $165 million, a significant bump from $66 million in Q1. It is also the third consecutive quarter of positive operating cash flow. Our strong operating cash flow was driven by robust earnings, partially offset with cash consumption for working capital of $91 million, which is meaningfully lower than the $168 million cash consumption for working capital in Q1.

During the quarter, the actual cash impact of our CapEx spend was $13.7 million, up from $9.1 million in Q1. The actual CapEx spend for the first half totaled approximately $31 million with a cash impact being $23 million. We are maintaining our CapEx target for the year at $75 million. Please keep in mind that the timing of the actual cash flow impact of the CapEx spends may defer from the balance sheet impact. In the second quarter, our net cash flow was $136 million and free cash flow totaled $151 million. Going forward, we are focused on keeping our working capital around the 21% of sales level.

Slide 14, please. In addition to the record financial results, we successfully executed a number of initiatives aimed at strengthening our balance sheet. For some time, we discussed having backed an asset-based revolver, which was part of our capital structure prior to the 2021 refinancing. On June 30, we announced a new $100 million facility, which bolsters our liquidity by leveraging our account receivables and inventory in North America. New facility was undrawn at closing and burs an attractive rate base of suffer plus a spread of 150, 175 basis points. In addition to deleverage of debt, we also seek to lower our cost of capital, and this is an initial step. In terms of deleveraging, we repurchased approximately $90 million of face value of the 9.375 senior notes in the open market during the month of June at an average price of $1.01.

And subsequent to quarter end, we successfully redeemed the entire $60 million of our 9% super senior notes in July, further supporting our priorities in terms of gross debt reduction. As we generate strong cash flows and lower our quantum of debt and cost of capital, the credit profile of our company is improving. In fact, Moody's credit agency upgraded the corporate family rating to B3 in June and upgraded the 9.375 senior notes due in 2025 to B3 in August. This is a testament to the work we are doing and the execution of our plan. Overall, the momentum continues to build. We are proud of our achievements and feel the company is in a great position to thrive.

At this time, I will turn the call back over to Marco for a few updates on a few worthy corporate matters.

Thank you, Beatriz. Now turning to Slide 16, please. As you have just heard, there is a lot to be excited about us. You see the trajectory of our financial performance. Beyond the quarter results, we have also made some tremendous advancements in other areas, some of which I would like to highlight.

During our recent Investor Day, we stressed the significance of our transformation plan in terms of the value creation, but also with regards to the capabilities we are developing. As we have now passed the 18-month mark in the execution phase of this plan, we are advancing at a faster pace than anticipated. But more importantly, we are identifying new pockets of value throughout the organization. As a result, we revised our run rate target to $225 million, up from the initial target of $180 million by 2024. We have also discussed our inaugural ES&G report on recent calls. And I am proud to announce that report has been published last month. If you have not already seen it, please visit our corporate website and look under sustainability for the full report.

Ferroglobe is 100% committed to ES&G, and this is an important milestone in the journey for our company. I would like to thank our organization for their dedication in this critical area and continued hard work as we transition from the planning to execution phase to reach our targets. On the product innovation side, we are moving forward each day, recognizing the criticality of silicon metal for energy transition. We recently announced the milestone of industrial production of up to 99.995% purity silicon at our plant in Monzón. The nominal capacity is 1,500 tons per year. This is based on a proprietary technology, which is very cost effective and environmentally friendly as it does not use any chemical stream that has a very high processing yield.

We also commissioned and started up the first micrometric milling facility in our Ferroglobe innovation center in Spain in Sabón. Here, the nominal capacity is 300 tons per year, and we designed it to offer maximum flexibility while ensuring high purity levels in order to tailor solutions for our customers. These volumes are not big, but keeping in mind that the economics on these volumes are much higher. More importantly, the momentum is building with more customers expressing interest, so we will continue to increase volumes steadily. Our goal is to continue to grow our capacity in agreement with our customers in all high-end markets.

Furthermore, on the energy transition story, we are seeing that the energy crisis has a new focus on the photovoltaic industry, and we think these trends presented tremendous opportunity for Ferroglobe. Given the growing interest by government to explore an end-to-end local solar value chain, we signed an MOU with a long-standing customer, REC silicon. Through the MOU, we are committing our U.S. asset base to produce high-purity cynical metals as aimed at jointly establishing a low-carbon traceable U.S.-based solar supply chain. Now we recognize that there are many factors at play here, especially as it relates to new government policies. But the fact that these types of topics are on top of government agendas is very promising for the future demand of our core products. Once again, a tremendous amount of things going on that causes us to get excited about the future. ISA from the beginning that this was going to be slow and steady journey focused on transformation, value recovery, and value creation.

Today, record earnings should be viewed as firm validation in our team and our plan. Our outperformance is not only due to market conditions, but the actions that we have been driving for nearly 2 years now. There is a lot more work to be done, and we remain committed to reaching our goals while navigating a period of uncertainty as macro picture evolves. At this time, I will ask the operator to please open the line for questions.

(Operator Instructions) And your first question today comes from Martin Englert from Seaport Research Partners.

Can you provide any update regarding power contracts in Spain and then for France as well into next year? And will France continue to benefit from the government program in 2023 as it is in second half.

Okay. Let me start from France and then our new CEO, Benjamin Crespy, probably can elaborate a little bit more. As you know, Martin, we have a contract in France on energy that runs through 2022. In this contract, there are 2 components. One is fixed and the other one is a variable market component, right? And what happened is that at the end of May 2022, the French government decided to increase the fixed part called RM from 100 to 120 terawatts for 2022 in order to reduce the exposure to the spot market for residential and high energy-intensive industry. And as a result, we have received EUR 29.5 million benefits in France, like I mentioned in my report. Post 2022, we have entered in a new 2 years contract with the local supplier based on the same 2 components. This contract will allow us to leverage our flexibility, minimize our exposure to spot market and give them visibility on the evolving energy cost. I have to underline that today, the relative weighting for 2025 between fixed and variable has not been finalized yet. Benjamin, anything else you want to add on that?

I think you covered it pretty well, Marco.

Okay. Martin, are you satisfied about France?

Yes. So it sounds like there is going to be a renewed contract in place post 2022. No visibility if the government is going to extend or how those relative weightings between fixed and variable will shape up just yet. Is that correct?

Correct.

Got it. And how are things progressing in Spain?

Yes. In Spain is a little bit more complicated. Not that France is easy, but well, in Spain, first of all, I mentioned that we had a lower cost of energy in the second quarter. This is why we run our assets in Spain at a decent rate in the second quarter. Actually, we had a cost of $209 per megawatt hour versus $252 in the first quarter. What happened in the second quarter is also the Spanish government took some measures to cap the gas price between 40 and 50 level. But these measures have not been effective, meaning that they have slightly reduced our cost of energy, but the cost of energy yesterday was above EUR 300 per megawatt in Spain, and this tells me the measures that have been taken have not been effective. We are still working hard on having PPAs in basis of January to 2023. We have term sheets on the table which are under negotiation, but we have not finalized any negotiation yet for PPA pain.

Okay. Thank you for all the detail on that. And maybe taking a step back off and looking across the cost per ton on the segments here, just what are the expectations for sequential changes to the degree that you have visibility in 3Q versus 2Q?

Yes. You are right to the degree of visibility. I would say alloys will stay flat quarter-over-quarter, both manganese and silicon-based alloys overall, while silicon will have a cost increase between 3% and 5%.

Thank you for the detail there. Given the spot prices have been declining somewhat across the metals basket, there are some partial delays given the lighting contracts, but any updated to us on the ASPs across the businesses Q-on-Q here into 3Q.

Yes, of course. It is true that the pricing overall is coming down across the portfolio. But I have to say that it is going down at a much lower pace than what we expected, I would say, all across our portfolio. Also because we were coming from a (inaudible) price levels at the end of 2021. Being specific by product, if you look at Silica metal, the market today is very liquid, especially in North America, but the index is holding in U.S. While in Europe, the prices have started eroding, but then I would say they have sort of stabilized. And in China, which is always a reference, yesterday, we got the news that prices were going substantially up due to some lack of capacity in some of the Chinese regions. So I will say volatility is the rule of the game, but we are still counting on silicon prices which are profitable.

Switching to ferrosilicon or Citycon alloys, during the quarter, prices increased mainly due to the impact of Russia-Ukraine conflict, I must say that we did not see too much of an effect in U.S. We expected some lack of shortage of ferrosilicon in U.S. from Russia that has not occurred in Q2. Price overall in Europe is under pressure, mainly due to increased Chinese exports. Due to the slowdown in China, we have seen all across the portfolio, an increase of exported Chinese products.

Considering manganese alloys, there have been 2 key factors on pricing. One, of course, the war, we have reduced exports outside of Ukraine. But then the market has become very attractive during the quarter for the Indian producers, who have penetrated the European market at a level that has never been seen before with a substantial negative impact on pricing. At the same time, the cost is going down because manganese ore is significantly going down.

Okay. So some modest headwinds, I think that were not wholly unexpected, given how high some of the prices were, but still a substantial book of the business that was based on 2Q lagging index spot prices that will kind of carry over into the 3Q order.

Yes, I forgot to underline this, but this is well known that we have this index prices. So whatever you see for Q2 gets applied in Q3.

Okay. That's very helpful. Maybe one last one, if I could. On working capital, which have been managed well within the targets, but looking at 3Q and just more broadly over the back half of the year, do you anticipate a release. What could you say about potential magnitude of capital release there?

Yes. We expect to release working capital in Q3, which is going to be a key contributor to our estimated positive cash flow in Q3.

Okay. Congratulations on navigating the environment, the good results and the progress de-risking the balance sheet.

Thank you, Martin.

We will now go to our next question and your next question comes from the line of Brian DiRubbio from Baird.

2 questions for you. First, Beatriz, on the goal of reducing debt to $200 million gross, obviously, the second lien notes are callable today but at a high price. So my question is what is your sense of timing on achieving that goal?

Yes. Aside this quarter, we have been starting working to (inaudible). So we did a couple of things. First, we reduced the repurchase on the operating $90 million of the senior notes and on the other side, as a subsequent event, we repurchased or redeem the full super senior, right? So you have not been seeing the impact in Q2, but you will see the impact in Q3. It is true that there is a journey to get there from the $500 million to $200 million. And what we plan to do is to do 2 things in one side; we are going to be continuously watching what we can do in terms of repurchase senior notes, the 9.375 in one side. We are allowed to do that. And on the other side, you saw that our credit rating has been upgraded lately in June and then in August for our senior notes. So we are exploring opportunities, what is the best moment for us to tap into the debt market. So it all depends on what would be the debt market opportunities, but it is a very, very important target for us in reduction of the gross debt.

Understood. That is helpful. And then I do not think you have ever disclosed this, but given some of the concerns just regarding European manufacturing costs, and I understand you are getting some relief on the energy side. But can you either qualitatively or quantitatively split or provide a split between the profitability from North America versus Europe?

Yes, you want to take that Marco.

Well, we do not look at the business in this way, and we do not report data split by geography.

(Operator Instructions) And your next question comes from the line of Thomas Murphy, Odeon Capital Group.

My question was asked by Brian and was answered. So it was around the timing of getting to that $200 million gross debt number. So as I say, that has been answered. Great quarter.

We will now take our next question, and the question comes from (inaudible).

I am new to your company, but I have listened to your investor presentation. The reserve life, you had exponential growth for the use of silicon. And I think that was reflected in the United States and Spain. But how long of a reserve like do you have? Are you going to need to acquire additional reserves in the future?

This is an excellent question. You referred to ports reserves. We have very good reserves in Spain. We have very healthy reserves in South Africa. We are looking for new reserves in North America.

Are there assets for sale? Or is this something that you would do like a Greenfield site?

We are exploring both options.

Okay. You mentioned in your Investor Day and I think the previous call about South Africa and about possibly bringing that online, but that you wanted long-term contracts or commitments. I do not think you said anything about it today. What is the status of that today?

Well, I will keep the surprise for the next quarter. Now the figuration is the following. The project is proceeding like we have to start up the plant. At this stage, we keep our commitment to go to the Board at the end of September with our recommendation to restart the plant in terms of timing and the amount of furnaces that we are going to restart.

Okay. NOL, your net loss carry forward to something in your slides that you were limited, how much, is the NOL in Europe? Or is it in the United States or both? And how much of an NOL do you have to use going forward for load in cash?

Yes. I pass this question to Beatriz.

Yes. Thank you, Marco. Now it is true that we have a good stock of NOLs. The main ones are in France and in Spain. And we have an eligible amount to be used in the U.S. in this answer your question. Of course, there are certain limitations on the application of the NOLs in terms of timing and quantum, but we feel confident that we can use most of them.

And you would use those is that something that you project might be used over the next 5 years or 10 years.

Over the next 2 years.

Over the next 2 years, you would exhaust all the NOL.

Right. And the bulk would be in 2022.

Okay. For your debt reduction, is it prohibitive for you to call these in? I guess or what is the trigger for the Board calling in the 9.3/8 versus open, you cannot do open market purchases because the markets rallied in the bonds.

It is very difficult to hear you, but I will try to answer. So we have 2 tranches of bonds the super senior that we just recently repurchased. And the reason why we did that is because we have the option to buy it at par before October 2022. The 9.375 that is the other tranche of bonds, it goes with a call buy option, but we have the possibility to do open repurchase in the open market to a certain limit of the total quantum of debt. And this is what we have been doing, and we will continue to do and to what depending, of course, on the cash level and on the pricing, if this answers your question.

Yes. The legislation that President Biden is going to sign, I think, today and there is parts in there I think when you mentioned your transaction in solar. Could you describe how that may benefit you? Or does this benefit your end user and that to stimulate demand for more silicon in the United States.

Sorry, your question was around the new legislation that we certainly feel that it would be helpful. And I think just to echo some of what Marco was alluding here towards the end of the presentation, there is number of different initiatives, I think, I guess, at various stages. And I think a lot of it does center around the mega trends that we have been highlighting around energy transition, which is obviously solar, a lot of the work that may help ultimately with EV mobility and then flows back into the work we do in batteries. So in general, I think a lot of this legislation is promising for our customer base and end markets.

We will take one more participant, please.

We will now take our final question and your final question comes from the line of Michael Lamb from (inaudible) Capital Management.

Yes. There is a company that I have been following very recently called Enovix, which is developing very high percentage silicon content anodes for lithium-ion batteries. The company shares a tremendous amount of excitement because we launched initial commercial products, mostly on smart watches. Is that a customer of yourself in terms of really your technology SME products. And the second question is, I do not know if anybody else besides your company, given that you are the largest by far with China, there is actually developing these type of technology SME. So it is a 2-part question. And are they customer B, who else is doing what you are trying to do on the technology side?

Benoist, this is your territory, you want to take.

So yes, we know Enovix. And Enovix is using a secondary channel, but using cryptographically orientated silicon. So they are using mono-crystals of solar-grade silicon. So we are not supplying them. Still we are in contact with them. This being said, the emergence of Finovyx is just reflective of the increased importance of silicon into the analytic world of lithium-ion batteries and we see an interesting trends in demands and for silicon in the battery. So we are pretty confident that silicon will play a very potential as an analytic material in the battery world.

To answer your second question, there are a lot of companies actually trying to put silicon units either as a blend in the anode or even working on silicon-rich anodes where I could give a long list of names. We are supplying some of them, and we are creating with others. But clearly, the usage of silicon in the anodes either a silicon (inaudible) or silicon channel is booming and is due to.

Then the second question would be, is there any other silicon metal materials companies like yourselves that are supplying this type of silicon? How is your competition in this kind of high technology area of silicon metal?

There are rather a limited number of companies able to deliver high purity macaronic silicon like we are doing that. So what we see in this limited number will also be restricted by the trend we see in the market of onshore the escaping supply in the big markets outside China, which are the U.S. and euro. So our geographical footprint, it is clearly a massive advantage but low-carbon footprint is also a massive advantage.

I will now hand the call back to Marco for final comments.

Thank you, Sharon. This concludes our second quarter earnings call. Once again, we are excited about the record quarterly results we have reported today. We have a company that is in its best condition since its formation, and we have exciting prospects for the future. Our goal is to continue to build on this success. We remain focused on growing our profitability and generating cash towards meet our goals. Thanks again for your participation and support.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.