Ferroglobe PLC
Q3 2018 Earnings Call Transcript

Published: 27 Nov 2018

[Operator:]

Good day ladies and gentlemen and welcome to the Ferroglobe third quarter conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If anyone should require operator assistance, please press star then zero on your touchtone telephone. I would now like to turn the conference over to Phillip Murnane, Ferroglobe’s CFO. You may begin.

[Phillip Murnane:]

Good morning and thank you for joining the Ferroglobe third quarter 2018 conference call. I’m going to read a brief statement and then hand the call over to Pedro Larrea, Ferroglobe’s Chief Executive Officer. 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 these forward-looking statements can be found in Ferroglobe’s most recent SEC filings and the exhibits to those filings, which are available on our webpage, www.ferroglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA, and adjusted diluted earnings per share, which are non-IFRS measures. Reconciliations of these non-IFRS measures to IFRS measures may be found in our most recent SEC filings. On the call today, we will review the Q3 results across our core products followed by some consolidated financial highlights. Lastly, we will provide an update on the company’s operating environment and the near term outlook. At this time, I will turn the call over to Pedro Larrea, Ferroglobe’s Chief Executive Officer.

[Pedro Larrea:]

Thank you, Phil, and good morning everyone. If we turn to Slide 4 please, the third quarter results were disappointing as the business was challenged with the confluence of softer prices and lighter volumes. There are specific drivers impacting each of these variables and we will cover them on today’s call as we review each of our product categories. Some of the factors are ones we have touched on previously which have carried over into the back of the year, while others are newer developments impacting our results in this quarter. Volumes across our product portfolio were down quarter over quarter. In addition to some seasonal impacts there were one-off factors contributing to this result. Despite the drop in volumes in the third quarter, I would highlight that volumes overall have increased by 17% during the first nine months of 2018 compared to the same period last year. The most significant driver of the Q3 results was reduced pricing, specifically average sales price for silicon metal declined 4.9% versus Q2 2018 which average sales price for silicon-based alloys and manganese-based alloys fell by 5.6% and 7.1% respectively. To provide some context, I would highlight that prices are up over 13% on average in the first nine months of 2018 compared to the same period in 2017. The net impact of weaker volumes and pricing during the quarter yields a 9.6% decline in our top line revenue. Reported and adjusted EBITDA in the quarter was $45 million with adjusted EBITDA down 48% from $86.3 million during the prior quarter. The decline in revenues led to EBITDA margin compression in the third quarter to 8.5%, a decline of 625 basis points from the prior quarter. Ferroglobe posted a quarterly net loss of $1.2 million and an adjusted net profit of approximately $0.1 million in Q3, compared to $25.7 million in the previous quarter. Given these trends, we are active in making changes to our commercial, operational and financial strategies, which we will touch upon during this presentation. Next slide, please. Year to date, Ferroglobe generated $220.9 million of adjusted EBITDA, reflecting a 69% increase over the same period last year. The adjusted EBITDA generated in the first nine months of 2018 amounts to 120% of the company’s total adjusted EBITDA in 2017. While the year-over-year trend is certainly positive, the quarterly results were clearly impacted by pricing and the continued lag in the recovery of the manganese alloys business. Next slide, please. Sales for the quarter were $527 million, a 9.6% decline in Q3 relative to the prior quarter. Revenues across our three primary product categories were down quarter on quarter due to lower volumes and average sales prices. When compared to Q3 of the prior year, however, we have significantly increased volumes across all products and we have significantly improved our average realized selling prices across both silicon metal and silicon-based alloys. I will go into more detail into specific drivers behind our various product categories later in the presentation. Next slide, please. Adjusted EBITDA declined $41.3 million over the previous quarter. Volume declines across the portfolio negatively impacted this quarter’s adjusted EBITDA by $1.6 million. The biggest contributor to the decrease in quarter over quarter adjusted EBITDA was the decline in average selling prices, which were lower across all products. In the aggregate, the realized selling price evolution across all products resulted in a negative adjusted EBITDA impact of $28.5 million during the quarter. Costs and foreign exchange movements, which have been a major contributor to adjusted EBITDA variances in prior quarters, actually had a much lower impact this quarter. It is to be noted that the cost increase of $2.1 million compared to previous quarter was impacted by $5.8 million of inventory write-down in manganese alloys, so net of this impact cost levels are actually starting to marginally improve. Some commercial changes around the transfer pricing for our coal contributed to a negative $7 million evolution in EBITDA from the mining division, and finally our energy business was down $3.3 million in the quarter. As we highlighted in prior quarters, the first half of 2018 was exceptional for this business and we did not expect this trend to continue. We are now back in line with historical levels. Next slide. On the next few slides, we will discuss pricing and volume trends, earnings contributions, and market observations for each of our key products. Turning first to silicon metal on Slide 8, in line with pricing declines in the U.S. and European indices, Ferroglobe realized average selling price for silicon metal declined by almost 5% to $2,636 per metric ton as compared to $2,773 per metric ton in the second quarter. Prices across North America, Europe and China have for the first time returned to levels in line with 2017, which are also in line with historical averages. The net impact of silicon production at high rates, the impact of customers stocking up in anticipation of the trade case, and availability of aluminum scrap are weighing on the pricing environment in North America. In Europe, the decline in index pricing is largely attributable to seasonally lower activity coupled with the impact of trade flow movements, mainly from Brazil and China into Europe. The bar chart on the top right of Slide 8 shows a decline in volumes over the prior quarter. Volumes during the quarter were negatively impacted by a seasonal slowdown in July and August, trade flow movements, customary inventory builds, and some unexpected customer outages during the quarter, mainly the United States. Additionally, silicon unit sales in the U.S. were impacted by the availability of aluminum scrap, which is now burdened by a 25% tariff on imports from the U.S. into China. The cost increases we have been facing in silicon metal production have started to stabilize and [indiscernible] performance as well as active portfolio management are contributing to a better cost structure. Next slide, please. Turning to silicon-based alloys, overall EBITDA contribution from this product category declined primarily as a result of lower pricing. During the quarter, the average selling price decreased by 5.6% to $1,802 per metric ton, down from $1,908 in the second quarter. There has been some pricing pressure in Europe, although from record levels, as a result of increased imports from Malaysia. At the same time, pricing in the U.S. has remained firm on the back of solid demand from the steel sector. Sales volume was steady at 75,964 metric tons in Q3 with ferrosilicon continuing to deliver stable demand. Globally, the steel market has been strong despite trade actions. In particular, Ferroglobe is in a prime position to continue to serve two protected markets

[Phillip Murnane:]

Thank you, Pedro. Focusing on Slide 16, please, as you’ve already heard, sales volumes are down to approximately 256,000 tons in the quarter and revenues are approximately $527 million. The quarter saw revenues impacted by weaker prices across all our major products and smaller volume declines. Adjusted EBITDA of $45 million is therefore well down from prior quarter with an 8.5% EBITDA margin. Although results are down from prior quarter, as Pedro highlighted, year-to-date revenues, profits, EBITDA and margins are still well above the same period in 2017. Moving to Slide 17, overall working capital increased to $443 million. This quarterly increase is primarily driven by an unexpected build in finished inventory. The growth in working capital in both the quarter and in the first nine months has had a corresponding impact on net debt and free cash flow. During the quarter two results, we announced that we had implemented various initiatives to return this working capital during the second half. With the unexpected working capital build during the third quarter, achievement of all of these initiatives has become challenging, which I will discuss in more detail later in the presentation. Although net debt has increased in the period, our balance sheet metrics remain strong. We will continue to focus on deleveraging, and although challenged by the net debt build in the quarter, are committed to the targets we announced in Q1. Next slide, please. The working capital increase in the third quarter includes a $31 million increase in working capital at the existing assets and a further $5 million increase in the recently acquired manganese plants, bringing total working capital to $443 million. The working capital build in the existing plants has been driven primarily by finished inventory builds across the majority of our plants and particularly silicon metal and manganese alloys finished inventories, as Pedro highlighted. We experienced some seasonal slowdown in July and August which is typical, given the summer holidays, but the turnaround in sales in September did not materialize as we expected and we experienced the impact of oversupply in the market as producers continued to run operations at high utilization rates. This combined with the impact of the availability of aluminum scrap on silicon unit sales in the U.S. drove the finished inventory increases. As previously highlighted in manganese alloys, although orders were strong during the quarter, we were faced with some logistical challenges along the supply chain which contributed to the inventory build. Working capital at the recently acquired manganese plants increased to $95 million in the quarter, reflecting the increase in manganese alloys finished inventory. Next slide, please. The working capital build across the plants, which totaled $36 million in the quarter, continued the previous quarters’ trends of working capital increases. This drove an increase in our overall gross and net debt levels of $12 million and $36 million respectively in the quarter, ending the quarter at net debt of $511 million. Next slide, please. Looking in more detail at our cash generation, profit for the nine month period was $99 million. Our profit adjusted for non-cash items was approximately $224 million. This cash was then invested in operating assets $188 million, with significant working capital investment in the nine months including, as I said, the working capital build in the recently acquired manganese plants and the finished inventory build, interest payments of $39 million, income tax payments of $29 million, and payments due to property, plant and equipment of $78 million. This resulted in a negative free cash flow for the first nine months of $111 million. Highlighting a few lines, the working capital increase in the period, as I said, includes those recently acquired plants at $95 million and the build in the existing assets of $68 million. These are not normal working capital builds and would not be expected to recur in 2019. Regarding interest paid of $39 million, refinancing the company’s 9.375% 2022 senior notes was explored during the quarter and will be reconsidered when the market conditions improve and as we deliver on our deleveraging. Finally in respect to the payments due to property, plant and equipment, normalized recurrent capital expenditures should in a full year be similar to the nine month spend in 2018. Given the outflows required during H1 2018, we announced various cash generating initiatives at the Q2 results call. I would like to give a status update on those various actions. The first action was the planned increase in the A/R securitization program targeting additional liquidity of $35 million. It has been completed and $20 million of that liquidity has been drawn with no further plans to draw additional liquidity. The second action was to reduce manganese ore inventory levels by $20 million. We achieved significant tonnage reductions by November and we are on track to complete this action by the end of Q4. The third action was to increase the rotation of finished product inventories in key products and adapt production capacity to commercial commitments, which we had targeted to deliver $20 million. Although significant volumes are expected to be shipped during November and December, given the unexpected inventory build during the quarter, this action is now delayed. Finally the fourth action was to complete non-core asset divestitures during the remainder of the year of about $20 million. This is on track with final negotiations underway. Given our reported Q3 results, including the working capital build, our free cash flow targets for the second half of 2018 have become a stretch goal. Next slide, please. We continue to be committed to a conservative capital structure and will focus on deleveraging the company’s balance sheet. Given our focus on cash generation, I would like to highlight a few updates relating to the solar project. Design changes have been approved to increase capacity of the solar project which have a budget impact of €8 million, increasing the budget to €58.5 million; but given the focus on cash generation, we have decided to adapt the pace of construction and the expected ramp-up, which will reduce cash outflows by €20 million across 2018 and 2019--€12 million. Finally, in light of the financial performance in Q3 2018, the near term market outlook, and the company’s continued focus on cash generation and deleveraging its balance sheet, no interim dividend is being declared or is payable in respect of Q3 2018. Now I would like to hand back to Pedro.

[Pedro Larrea:]

Thank you, Phil. Next slide, please. Thus far in 2018, we have witnessed an interesting evolution in our business and the global markets for our products. There were several prominent factors impacting our results, both positively and negatively, which we will need to monitor in the coming quarters. On the positive side, we have seen increasing volumes across our end markets

[Operator:]

[Operator instructions] Our first question comes from Ian Zaffino of Oppenheimer. Your line is now open.

[Ian Zaffino:]

Hi, great. Thank you very much. A couple questions here. Maybe you can give us an idea of when you think you might hit free cash flow positive. Also, the $250 million of total liquidity you mentioned, what EBITDA is that based on? Is there any type of covenant issues or anything related to that? Then also, if we do go into a protracted downturn here, how do you think about your maturities, even though they’re not until 2022? The manganese business hasn’t been doing well, so I’m wondering if maybe that could be a source of liquidity for you guys, or how you think about that, and then I have a follow-up. Thanks.

[Pedro Larrea:]

Thank you, Ian. Your second question, I’ll hand over to Phil. In terms of free cash flow positive, Q4 will be free cash flow positive - we are pretty certain about that. It’s just that we have said that the overall targets we had established for second half of the year are now considered a stretch goal. In terms of our $250 million liquidity and possible covenants in them, Phil?

[Phillip Murnane:]

In terms of liquidity, clearly as we move forward--I mean, Pedro has talked about a lot of uncertainty in terms of the results, but we certainly see that we’ll continue to be committed to delivering on those actions we announced in Q2. Liquidity will improve today and will continue to improve by that as we deliver on those cash generating initiatives. Looking forward to the 2022 bonds, there’s no major covenant restrictions in terms of the impact that lower EBITDA would have on the bond. The restrictions and the covenant are really around additional indebtedness or additional restrictions rather than a limitation upon us or increased covenants as leverage would rise. Certainly as we look forward and when I think about refinancing, the focus is clearly going to be the cash generating initiatives that we announced in Q2 and continuing to focus on cash as we roll forward. As such, our first priority is going to be continuing to deleverage the balance sheet [indiscernible] irrespective of how the market turns.

[Pedro Larrea:]

On your third question, it is clear that we have now a stable, solid balance sheet structure and that gives us, I would say, the confidence to do what is necessary to turn the business around. We certainly do trust that our manganese alloys business will turn around and will contribute positively to our financials.

[Ian Zaffino:]

Okay, so Phillip, just to be clear, that 250 is free and clear irregardless of movements in EBITDA?

[Phillip Murnane:]

As I said, yes. It’s a limitation on additional indebtedness or other payments. It’s not going to be that there would be an event of default if leverage rose.

[Ian Zaffino:]

Okay, I’m just looking at your EBITDA declining meaningfully, and as you look back 12 months, you have a very strong quarter kind of rolling off and then as we progress throughout the next 12 months, that EBITDA base on a trailing 12-month basis would be less, so I just want to make sure that I’m understanding that properly.

[Phillip Murnane:]

You are. There will be no impact there. We have a strong liquidity position, and as I said, I would expect that liquidity position to strengthen as we deliver on the cash generating initiatives.

[Ian Zaffino:]

Okay, then can you now touch upon what the price talk now is? I mean, I think we’ve been hearing 105, 110 on the silicon metal side. Is that what you’re seeing? I know you had referenced some people willing to sell at a loss. Is that the kind of prices that you’re talking about when you’re saying people are agreeing to these types of numbers and they’re going to be producing at a loss, or maybe any type of color there? Thanks.

[Pedro Larrea:]

Yes, and again let’s remind the composition of our business. You are asking specifically about silicon metal, which today represents 35 to 40% of our total business, and within silicon metals, North America is around a third of our business, so let’s say 13% of our total revenues is silicon metal North America. Silicon metal in North America, we are certainly not selling at those kinds of levels today, not even close, and we are remaining very disciplined in not getting there. We have certainly not been requested to supply at those kind of price levels at all, so that is what we are seeing right now. It is true that total--and now I’m talking both Europe and North America, our order book today for silicon metal is around 45% of what would be our expected sales for 2019, which is slightly below where it generally is at this time of the year. But again in terms of prices, we are not seeing prices that are significantly below where the indexes are today.

[Ian Zaffino:]

Okay, so basically I could then take just this past quarter, or I guess your guidance of the fourth quarter, and annualize that, and that’s sort of a run rate you would be at in ’19, given where current price talk is. Is that the right way to think about it?

[Pedro Larrea:]

I would say that would be a [indiscernible] right way of thinking for the beginning of 2019. We continue to believe that medium term as we see it today, and of course with a number of uncertainties around that factor, but medium term the supply-demand dynamics in silicon metal, still talking about just silicon metal, remain positive, so going forward I wouldn’t be surprised that there could be some price recovery in the medium term.

[Ian Zaffino:]

Okay, thank you very much. I’ll get back in queue.

[Pedro Larrea:]

Thank you, Ian.

[Operator:]

Thank you. Our next question comes from Martin Englert of Jefferies. Your line is now open.

[Martin Englert:]

Hi, good morning. While some of the costs seemed to have improved sequentially across the different product lines, their prices are deteriorating faster than that, so which of these do you believe are structural versus transitory and would you expect to roll off? You called out it might some of the power costs in Spain. Maybe if you could just go down a list of some of your major costs and what you expect to be rolling off maybe in the near to medium term here, and what you can do to better contain costs and lower costs on a go-forward basis.

[Pedro Larrea:]

In terms of cost, the main items that have been affecting our costs year-over-year, we have talked extensively about electrodes. Our view is that electrode costs into 2019 will remain stable, maybe even with a slight increase, and that is more due to the time lag, so market prices in electrode are suddenly going down but given our existing orders and our existing stock, the impact on our costs is more or less stable into 2019. Coal, international coal prices are clearly going down, so that today we see as a positive going into 2019. All that refers to energy-related costs worldwide - oil, gas, coal, etc. are going down, so that should have a positive impact on our power prices in Spain, for instance. The same applies to other factors like met coke, which has had a very significant cost impact on our manganese alloys. As we sit today, I would say that the trend looks positive, but again with all the uncertainties that are inherent to these kinds of markets.

[Martin Englert:]

Okay. Are you able to--you gave some cost numbers as far as your year-to-date headwinds for some of these different categories. Can you just remind us what those were again, breaking down your coal and your electricity, met coke, electrodes?

[Pedro Larrea:]

Yes, in Slide 14 of the presentation, we’re saying that the total cost deterioration year-on-year is $133 million. Power in Spain in almost $24 million, electrode is almost $21 million, met coke is almost $17 million, coal is $9 million, so all those factors are in total around $70 million. I would say again that electrodes could remain at levels that are similar with the others. Today, we are seeing signs of costs going down, so those are--those should be positives going forward.

[Martin Englert:]

Okay. On the idle capacity here, when exactly was this silicon metal capacity curtailed there, and do you believe that the capacity curtailments are aggressive enough given the quarterly results today?

[Pedro Larrea:]

The curtailment is taking place as we speak sequentially, depending on various operational restrictions such as existing raw materials that we want to consume, or labor regulations. They are happening sequentially. We believe that the kind of capacity we will be running in 2019 is one we need for the sales we are expecting, given what we see in terms of demand, and the only thing we are doing is ensuring that that production is run in the most efficient way, assigning production to the least cost--to the lowest cost production units, and that is what we’re doing. Yes, we think the curtailments are enough with our expectations of demand as we stand today. Of course, we always say we are ready to do more if needed, but we don’t see that need as of today.

[Martin Englert:]

Okay, one last question, if I could. Was there some recent news, maybe today or overnight, on refinancing for the parent company, Grupo Villar Mir?

[Pedro Larrea:]

I have seen that there is an announcement out there. I don’t know more details than what the announcement is saying, so I don’t have further information.

[Martin Englert:]

Okay, thanks for the time.

[Pedro Larrea:]

Thank you.

[Operator:]

Thank you. Our next question comes from Vincent Anderson of Stifel. Your line is now open.

[Vincent Anderson:]

Thank you. When you look at the potential to switch silicon metal to ferroalloys and the margins holding up pretty well there, is there any discussion internally about maybe running that business more to maximize cash flow in the near term, rather than hitting a return requirement, particularly just given that you have this curtailed capacity sitting on hand?

[Pedro Larrea:]

We are certainly looking into Q4. We are certainly very focused on generating cash flow, and when we have higher than required inventories, the cost of producing those inventories is already incurred, so we are looking at following demand in the different product categories. We are seeing strong demand for manganese alloys, and we think that when you look at Q3 plus Q4, you will see that volumes are at expected levels and the issue of course right now is margins, but we will certainly be looking at generating cash through depleting inventory levels. On the silicon alloys in general, it’s not only ferrosilicon but also the other silicon alloys, particularly foundry products. We are running at full capacity and we are selling what we produce, so in that regard both in terms of cash flow generation and in terms of financial results, we think we’re doing what we need to do. On silicon metal, as I just explained, we are adapting our production capacity of course to where we see our demand and our sales.

[Vincent Anderson:]

Great, thanks. I know you can’t comment on Grupo Villar Mir’s refinancing, but it is public knowledge that their balance sheet is certainly in better shape. Given where shares of GSM are trading now - I mean, pennies on the replacement value of your assets, what is the motivation for Grupo Villar Mir keeping Ferroglobe a public company right now?

[Pedro Larrea:]

That is something I cannot answer. We are a public company, we’re a traded company. That is what we are today, and of course we are devoted to all our investors as a company.

[Vincent Anderson:]

All right, fair enough. Just turning back to manganese alloys briefly, I’m just trying to work out the math on the changes in the total capacity. You’re running at somewhere just south of 400,000 tons per year. The slide deck shows 552,000 tons of capacity. I know that number changes depending on the product mix, but is that really an optimized utilization rate for those assets if we’re going to stay at around 400,000 tons on 550 of capacity, or are you basically just anticipating enough of a recovery in margin that you don’t want to curtail too aggressively at this point?

[Pedro Larrea:]

A couple of answers to that one is that as of today, what we’re looking is at curtailing capacity only in Q4, and we will see how things develop into Q1 and farther. There are some signs of a recovery in margins there, and as I was saying in terms of demand and volumes, we see strength, so that’s the first. The second is a technicality that I have explained sometimes, which is that the nominal capacity, so if we look at total nominal capacity of 664,000 in Slide 28, there is an actual real capacity which is significantly lower than that due to price--power price arrangements mainly in Spain, so we have always said that our natural maximum production capacity is somewhere between 500,000 and 550,000 tons in total. That is the maximum even with no curtailments, and again because of technicalities in terms of how our power contracts are arranged in Spain.

[Vincent Anderson:]

Okay, very helpful, thank you. I’ll give somebody else a turn.

[Pedro Larrea:]

Thank you, Vincent.

[Operator:]

Thank you. Our next question comes from Sarkis Sherbetchyan of B. Riley FBR. Your line is now open.

[Sarkis Sherbetchyan:]

Yes, thank you. Looking at the EBITDA reconciliation table, it seems like the bulk of the deterioration was from the manganese alloys business. It sounded like from your comments, you expect that business to eventually normalize. Can you just give us the puts and takes on what normalization means relative to the ore capacity that’s going to come online and what you expect prices should be doing in light of your actions to cut manganese production?

[Pedro Larrea:]

Well, the actions to cut manganese production of course is more for us to adapt to actual sales and to deplete inventory levels, so I cannot comment on that from any other point of view. But I mentioned during the presentation that this is a business that--and you can look at the numbers that we are disclosing, this is a business that should be running at around $600 million revenue per year, and this is a business that over the 25 years we have been in it has been getting margins that are similar to other products. One could say a normal EBITDA margin in this business is around 15%, and just being cautious we say between 10 to 15%, so the maths are relatively simple in terms of what is a normalized level of EBITDA from this product, which is again between $60 million and $90 million, is something that should be normal. Apart from the spreads and the manganese ore prices, what has been hitting significantly this business during 2018 is both met coke and power prices that we have also--power prices in Spain that we have also mentioned and disclosed in that same page, so all of those are factors that need to return to normal levels.

[Sarkis Sherbetchyan:]

Understood. With respect to the silicon metal production curtailment, if we look at the first nine months of the year, maybe there is some aberration on the EBITDA level generated, but given where you expect to take capacity for silicon metal specifically, what would you maybe call the new EBITDA generation of that business with that production cut?

[Pedro Larrea:]

We don’t give specific guidance of course in terms of what is EBITDA level. If you look at Q3 silicon metal business margin, the EBITDA margin is around 15% almost. That is something again that is not exceptional in this business. Now in terms of the curtailments we have announced, will that have a very significant impact on our sales volumes? I don’t think it will. If we think about depleting stocks and our flexibility to ramp up production if we need, we could be selling as much volume as we are selling in 2018 if the demand is there. I would say we are just taking a cautious stance and making sure that we are not over-producing in 2019, but the flexibility is there to produce farther if needed.

[Sarkis Sherbetchyan:]

Got it. Bringing everything home with regards to the curtailment and the fact that you guys have built up quite a bit of working capital, you did talk about the cash flow levers that you’d like to pull. How much cash can you harvest from working capital, say over the next year?

[Pedro Larrea:]

I think most--and I’ll turn to Phil, most of the working capital we hope to harvest, as you say, in Q4 and then beginning of 2019, but it maybe just converge to normalize levels. Phil, additional color on that?

[Phillip Murnane:]

I would say if you look at the level of capital that was built above what we would expect in the recently acquired manganese plants, at the moment that sits $35 million above normalized levels. We’ve built $68 million in finished inventory in the remaining plants, so there’s $100 million there that is above where we would expect, and as you turn up or turn down different plants, clearly there’s a level of inventory that sits in each facility, so if you chose to turn down a plant, then clearly some of that working capital associated with that plant would also come back. There are significant levers there for us to pull in terms of rationalizing.

[Sarkis Sherbetchyan:]

All right, thank you. That’s all for me.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude our question and answer session. I would now like to turn the call back over to Pedro Larrea for any closing remarks.

[Pedro Larrea:]

Thank you. This concludes our Q3 earnings call. Thanks again for your participation. We look forward to hearing from you on the next call and on meetings we may be having with many of you. Have a great day.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect.