AMG Advanced Metallurgical Group N.V.

Good day, and welcome to AMG's Quarter 2 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Fisher. Please go ahead, ma'am.

Welcome to AMG's Second Quarter 2020 Earnings Call. Joining me on this call are Dr. Heinz Schimmelbusch, the Chairman of the Management Board and Chief Executive Officer Mr. Jackson Dunkel, the Chief Financial Officer, and Mr. Eric Jackson, the Chief Operating Officer. AMG's second quarter 2020 earnings press release issued today is on AMG's website. Today's call will begin with a review of the second quarter 2020 business highlights by Dr. Schimelbush. Mr. Dunkel will comment on AMG's financial results, and Mr. Jackson will discuss operations. At the completion of Mr. Jackson's remarks, Dr. Schimelbush will comment on strategy and outlook. We will then open the call to take your questions. Before I pass the call to Dr. Schimmelbusch, I would like to comment on forward-looking statements. This conference call could contain forward-looking statements about AMG Advanced Metallurgical Group. Forward-looking statements are not historical facts but may include statements concerning AMG's plans, expectations, future revenues or performance, financing needs, plans and intentions relating to acquisitions, AMG's competitive strengths and weaknesses, reserves, financial position, and future operations and development, AMG's business strategy, and the trends AMG anticipates in the industries and the political and legal environment in which it operates, and other similar or different information that is not historical information. When used in this conference call, the words expect, believe, anticipate, plan, may, will, should, and similar expressions and the negatives thereof are intended to identify forward-looking statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that any predictions, forecasts, or similar projections contained by such forward-looking statements will not be achieved. These forward-looking statements speak only at the date of this conference call. AMG expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in AMG's expectations with regard thereto or any changes in events, conditions, or circumstances on which any forward-looking statement is based. I will now pass the floor to Dr. Shumelbush, AMG's Chairman of the Management Board and Chief Executive Officer.

Thank you, Michelle. Out of our 3,124 total AMG employees at 33 sites in 15 countries, AMG has four confirmed coronavirus active cases globally. Our corporate health safety environment center is all over this on a daily basis. That department reports to me. I get a report every morning and we react accordingly. We take this extremely seriously, as you might expect. In these unprecedented times, our priority is to preserve a strong liquidity position. Our liquidity position is 390 million and is higher than last quarter. Operating cash flow is strong and substantially surpasses operating cash flow in the second quarter 2019. We are embarking on comprehensive programs to reduce operating costs, SG&A, working capital, and freezing all non-essential capital expenditures. The current global pandemic significantly impacted our financial results with dramatic lower volumes, especially in our aerospace sector, compounding the historical low prices AMG is experiencing across our critical materials portfolio. Despite the unpredictable challenges faced in the second quarter of 2020, AMG's business units were all able to contribute positive EBITDA. This exceptional performance across the company was only possible because of AMG's position as the low-cost provider in this target market. AMG's ability to generate positive results during cyclical downturns was the driver of our strong operating cash flow for the quarter. We continue to progress our key strategic projects. The construction of the new Vanadium recycling facility in Sainsville, Ohio, is proceeding on schedule. The project will essentially double our recycling capacity for refinery residues and is funded by our tax-exempt bond that generated $325 million of proceeds for the financing of this project issued last year. Through Shell AMG Recycling BD, we pursue recycling project outside North America, offering to produce vanadium and other metals from refinery waste, such as spent catalysts and gasification residues, by the way of a superior recycling technology. This is an exercise in circular economy. Shell Catalysts and Technologies provides fresh catalysts, and Shell AMG takes back spent catalysts. For a refinery, this is a financially and environmentally attractive proposition, especially vis-a-vis landfilling. Furthermore, this circular solution reduces CO2 emissions in comparison to primary mining. Petrochemical refining is growing strongly in the Mideast and China as they upgrade and build new refineries. increasing the demand for fresh catalysts. These developments are partly a result of the IMO 2020 legislation. The Ohio recycling facilities are producing ferrovenadium. We are now also preparing to expand our other vanadium recycling route operating in Germany, namely gasification residues into vanadium oxide. High-purity vanadium in form of electrolytes is the essential part of the vanadium flow battery used for stationary electricity storage. The demand for stationary electricity storage is a function of the growth in renewable energy production given the intermittent nature of solar and wind. That brings me to the other major growth project in the AMG, lithium hydroxide. That also is an electricity storage activity related primarily to electrification of cars and transport. The engineering for the first battery-grade lithium hydroxide refinery with a capacity of 20,000 tons per year is nearing completion with a final investment decision planned in due course. I would now like to pass the floor to Jackson Dunkel, AMG's Chief Financial Officer. Jackson.

Thank you, Heinz. I will be referring to the second quarter 2020 investor presentation posted earlier today on our website. Starting on page three with an overview of the financial highlights of the quarter, AMG's financial performance in the second quarter was lower versus the prior year. Revenue for the quarter decreased by 32% to $208 million, driven by pandemic-related impacts across AMG's entire portfolio. EBITDA decreased by 67% to $7.8 million in Q2 2020, which is primarily due to temporary pandemic-related interruptions to our business during the quarter. Our estimated COVID-19 negative EBITDA impact is approximately $18 million for the second quarter. This impact has been estimated based on a bottom-up analysis of our business units and a detailed comparison to the company's financial plan prior to the pandemic. The majority of the coronavirus effect was caused by temporary sales volume disruptions as our customers temporarily shuttered plants or postponed orders. With regard to profitability, it's also important to note that in a period of declining prices, our EBITDA is impacted by having to sell higher priced raw materials at lower prices. As you can see in the appendix on page 10, Q2 prices were lower than Q1 in seven out of our 10 materials. And while we try to minimize the profitability effect by minimizing inventory, it is impossible to completely eliminate. As such, our run rate profitability is higher than the Q2 reported figures, and we've included this effect in our calculation of the Q2 COVID-19 effect of $18 million. Net loss attributable to shareholders for Q2 $12.5 million compared to a $31 million loss in the prior year. $31 million loss in the prior year primarily relates to a non-cash inventory cost adjustment in our Venetian business. Now, I'll turn to a review of our two segments. Let's start with AMG Critic Materials, which is shown on page four of our presentation. On the top left, you can see that Q2 revenues decreased by 36% to $127 million versus prior year. This decline was driven by lower average prices across all seven of the business units, as well as lower volumes in our aluminum and superalloys units. These price and volume decreases were partially offset by higher sales volumes of ferrovanadium and lithium concentrate. Critical Materials Q2 gross profit, excluding exceptional items, decreased by 46% versus the prior year to $12.2 million. The decrease was driven by lower volumes and prices across the division and was offset by stronger profitability than our Brazilian operations. Critical Materials Q2 SC&A expenses were $14.4 million, 20% lower than Q2 2019, primarily due to lower personnel costs lower professional fees, and cost reduction efforts across the business. EBITDA for the critical materials segment was $5.5 million, representing an EBITDA margin of 4%. Moving on to AMG Technologies on page five of the presentation, and starting on the top left of the page, you can see that revenues decreased this quarter. This is mainly due to lower prices and volumes driven by slowdowns in both the aerospace and automotive sectors as a result of the pandemic. In addition, AMG Engineering was impacted by coronavirus travel interruptions, which impacted project installations and final billing. Consequently, Q2 gross profit excluding exceptional items decreased by 53% to $11 million. Q2 SG&A expenses decreased to $12.8 million, which is 19% lower than the same period in 2019 due to lower personnel costs, lower professional fees, and ongoing cost reduction efforts across the business. AMG Technologies' second quarter EBITDA decreased by 81 percent to $2.2 million due to lower profitability related to the challenging economic environment, as outlined earlier. The company signed $32 million in new orders during the second quarter of 2020, representing a .6 times book-to-bill ratio. This lower book-to-bill ratio was the result of decreased activity in the aerospace market which was partially offset by strong orders of heat treatment and remelting furnaces. Turning now to page six of the presentation, on the top left you can see that AMG's second quarter 2020 S&A expenses were $27.2 million compared to $33.8 million in the second quarter of 2019. This 20% decrease is primarily due to continued cost reduction efforts across the business. AMG's second quarter 2020 net finance costs decreased to $6.3 million from $6.8 million in the second quarter of 2019. Additionally, AMG capitalized $3.7 million of borrowing costs in the second quarter of 2020, driven by interest associated with the company's tax-exempt municipal bond supporting AMG's and EDM's expansion in Ohio. AMG recorded an income tax benefit of $0.4 million in Q2 2020, compared to a benefit of $13.5 million in Q2 2019. This increase is mainly due to higher pre-tax income versus the prior year's second quarter. However, the company continues to recognize a net tax benefit due to local operating losses. Movements in the Brazilian Real also impacted the also impacted the tax rate due to the change in the net deferred tax assets. The devaluation of the Rial during the second quarter of 2020 resulted in increased tax expense of 3.3 million versus Q2 2019. In cash terms, AMG received tax refunds of $2.4 million in Q2 2020 compared to making tax payments of 6.3 million in Q2 2019. The current quarter benefited from tax refunds from 2019, as well as the extensive relief due to international COVID-19 tax measures, which enabled AMG to delay most of its tax payments during the quarter. Turning to page 7 of the presentation, you can see on the top left that cash flow from operating activities was $20.3 million in Q2 2020, compared to cash used in operating activities of $11 million in Q2 last year. This increase was mainly due to lower working capital driven by AMG's current focus on operational efficiency and cash preservation. AMG's annualized return on capital employed was 2.9% for the second quarter of 2020. AMG finished the second quarter with $209.3 million of net debt. The increase versus year-end levels was mainly due to the significant investment in growth initiatives during the quarter, especially the vanadium expansion. AMG's balance sheet is sound, and the company enjoys significant liquidity. As of June 30, 2020, AMG had $220 million of unrestricted cash and total liquidity of $390 million. That concludes my remarks. I'd now like to pass the floor to Eric Jackson, AMG's Chief Operating Officer.

Thank you, Jackson. In addition to safety, our operating priorities are to maximize cash flow, reduce operating and administrative costs, and improve efficiencies. Our business operations have been proactive and coped extremely well with the medical challenges of the coronavirus. However, the pandemic has resulted in a significant reduction in demand and subsequently lower prices for most of our products. The impact on AMG, especially as it relates to volume, is most pronounced in our aerospace-related businesses, where volumes have been reduced and a small number of engineering orders have been pushed out. We have undertaken detailed capacity utilization reviews in all of our businesses. The result is most significant in our aerospace-related business units, AMG titanium alloys and coatings, AMG superalloys, and AMG engineering. where we are reducing full-time employee equivalent positions by approximately 30% of the total workforce through layoffs and furloughs. This is an ongoing exercise, and we will respond to market conditions. We were able to offset the lack of demand in a number of critical materials businesses with our long-term offtake agreements, and have continued to operate at or near full capacity in most of these businesses. This is particularly significant in AMG vanadium, where we are operating at full capacity and delivering to our long-term customers, even as U.S. steel production and capacity utilization rates are at or near historic lows. It's relevant to note that there is a significant divergence of vanadium prices globally, based to some degree on the difference in steel production levels between China where steel production continues to grow quarter over quarter, and the rest of the world, where steel production has fallen dramatically due to the coronavirus. This has resulted in prices outside of China being as much as 40% below those in China. We believe that this is an unsustainable divergence and will be corrected even over the medium term. Our financial results are, however, significantly reduced in all businesses due to falling prices and the fact that our production facilities are, by nature, long inventories. We will continue to focus on safety and operating cash flow with the full intention of coming out of this business downturn exceptionally well prepared to capitalize on our strong market positions when the markets stabilize. I'd now like to pass the floor to Dr. Schimmelbusch, AMG's Chief Executive Officer.

Thank you, Eric. AMG's first and most important priority is to ensure the health and safety of our employees. We have been confronting this crisis in a decentralized way, given the diversity of circumstances and regulatory regimes. Health Safety Environmental Group is providing a framework advising on-site health and safety managers and running a daily reporting system. AMG's second priority is the financial health of the company and we are acutely focused on preserving our strong liquidity position which has further improved since Q1. We aim to to continue this performance. AMG's third priority is driving long-term value creation through our transformational strategic projects in vanadium recycling and in our lithium downstream expansion, as referred to earlier. As communicated previously, due to the ongoing uncertainty with regards to the COVID-19 pandemic. EBTA in 2020 is unlikely to reach the level of 2019. Operator, we would now like to open the line for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. When it is your turn to ask a question, you will hear an audible prompt letting you know that your line is open and live. Please be sure to state your name before posing your question. Again, please press star 1 to ask a question. We will pause momentarily to allow everyone an opportunity to signal for questions. And we will take our first question. This will come from Hank Zierman.

Hi, good day to everyone. I have a couple of questions. Firstly, too, on restructuring. So could you indicate what the one-off costs related to the restructuring are? And could you give a split up between the two divisions on that 15 million? And then my third question would be, what is the size of the delay in tax payments, the deferral, driven by the various governmental measures? And are those schemes still ongoing? So should we expect more deferrals in the upcoming quarters?

Thanks, Hank. Let me start with the last question. We would expect to pay $10 to $11 million in taxes for the remainder of the year, which represents the payment of those deferred taxes. In terms of restructuring, you can see in our EBITDA buildup for this quarter that we had $370,000 of restructuring expense. represents the fact that most of what we did this quarter did not result in restructuring expense. We would expect that number to increase over the next two quarters. And then finally, the split on is roughly five for technologies and 11 for critical materials.

Okay, that's clear. And the tax, so the deferred tax schemes, they are still ongoing, I assume?

Yeah, it's government by government. So each government is looking at it differently in France versus the UK versus Germany, all of which where we're active. And so some are considering extending, some are not considering extending. The number I gave you assumes that no extensions are given.

Okay, that's clear. Then on CAPEX, the CAPEX cash out of the first two quarters is now quite a lot below your previous guidance of 200 million. Should we expect a catch-up in the second half, given that you also mentioned that your two main projects are still ongoing, but at the same time, you're trying to save as much CAPEX as possible in the remaining businesses? And then my last question would be on the engineering backlog or order book. In the previous call, we discussed what it means when an order comes in and that there is a contract between the two parties and that there were no discussions of deferring or delaying any of those orders because the order book was quite strong at the time. Have you seen any delays and or cancellations in Q2 or should we expect any cancellations?

Yes. So on CapEx, I would split it between our Cambridge 2 project where we would expect to spend something around $100 million for the remainder of the year versus the other businesses where we'd expect to spend about 30. So to answer your question, we would expect an acceleration of spending on Cambridge 2. In terms of the engineering, Backlog, I would like to correct you. It's not just a contract. A contract, a prepayment, and an export license, without all three, it doesn't go into the backlog. And we have had delays, but no cancellations in our project.

Okay, that's good. Thanks.

And we will take our next question. This will come from Martin Dindriver. Please go ahead, sir.

Yes, good afternoon, everybody. I would like to start off with the development through the quarter as plans reopen and clients reactivate plans and businesses. Can you run us through what you saw in terms of demand and volumes in May, June, and into July? and that's more critical material. And you've also mentioned that, obviously, travel restrictions has impacted the installation of furnaces. How has that developed in the latter part of the quarter and also going into July? That would be my first question.

We have not seen any material development in order intake in critical materials During the second quarter, we are increasing our heat treatment activities materially now. But other than that, I think that... And your second question was? Travel restrictions.

If you are able to install furnaces again, because travel restrictions obviously limited you installing furnaces and thereby invoicing the last part, which is a different part. So I was wondering if that is restarting now or has restarted already.

It is about to restart. There have been several refinements of travel restrictions between countries and regions, and it's about to restart.

Okay, and then one follow-up on Henk's questions with regards to the restructuring program. Are there any savings that we should take into account already in the second half of this year? Should all of that benefit solely come into 2021?

No, you should definitely think about it as rolling quarter by quarter. It's just that obviously with regard to some of the hiring opportunities excuse me, some of the layoffs, those may drift into, I would argue it's a four-quarter forward look, but some of them may drift into the third and fourth quarter of next year, but very small amounts.

Okay. And then you mentioned that the majority of the charges that are related to this restructuring will fall in the next two quarters, but can you give us a bit of a sense of the size of those restructuring charges and if they're all...

I really, I think the problem is that it requires a name, a person, a salary, a benefit, a contract, and we just haven't calculated those yet. So we don't really have a good estimate. We are going to also be looking at further headcount reductions as we go through this in the third and fourth quarter.

And that is, as you will appreciate, a complicated process. which is counterproductive to make announcements about the details of that process.

No, I understand that. Okay, I'll move on. You mentioned that you've had some support from furlough scheme and courtside support. Can you quantify how much that has been in the second quarter? And do you expect that to continue in the third and fourth quarter?

So the quantification I believe we gave in the press release, which is 500 people in the second quarter, were on furloughed slash court surveys. And we do have the option to continue that, but we need to balance the continuation with the order flow.

A certain significant portion of that is not prolonged because the plants have been upgrading their capacity utilizations.

And is there any way that you can help us in terms of the size of the support in numbers? Is it low single digit, mid single digit, high single digit that you received in terms of millions of dollars in support? Is there something you can add there?

That is difficult to calculate and might be misleading.

Okay. And then we discussed this in the analyst call of the first quarter as well, when we talked about the lithium hydroxide conversion plant. At that point in time, one of the questions was, well, how are your discussions with clients on prepayments and your discussions with governments on subsidies? Can you provide us an update on where you stand in those discussions today?

We have a very clear picture on how to finance that refinery, which includes government assistance. And that will be activated, that financial architecture will be activated when we do the final investment decision, which is planned for later this year.

but nothing more concrete than that, I guess.

The only concrete is that our basic economic data as regard to capex, sopex, are positive, but most important as regard to the assumptions which we did between the spread between technical grade and battery grade hydroxides. That is a positive development. It's affirmative to our assumptions.

Okay. Those were my questions. Thank you very much.

If you find that your question has been answered, you may remove yourself from the questioning queue by pressing star 2. We will take our next question. This will come from James Hayter.

Hi guys, thanks for taking my call. The last 18 months has been a tough period to be an AMG shareholder. Clearly there's been a lot of reasons for the drop in the share price, many of which I accept have been out of your control. One area within your control that in my view has been consistently poor has been your engagement with the investor community. A small example of this I would say is your decision once again to host a conference call at 7pm at night. While the stock remains undercover by analysts and unknown or misunderstood by many institutional investors that I speak to, the market multiple rating will continue to be well below many of your peers. My question, therefore, is what plans do you have to engage more positively with investors over the coming year? And can you at least start by hosting your conference call at a time when more analysts and institutional investors will be prepared to listen? Thank you.

Well, we have over 40 people listening right now, which is, I think, double what has been in the last quarter, or more than double. But that's just a remark. We have been in a very good development prior to COVID happening. We had a value creation exercise in the making by separating AMG Technologies as a distinct and very prominent supplier into the most stable part of the aerospace market, namely into the engine market. It was a clear strategy. It was confirmed by all potential underwriters. It was leading to the and an IPO. And it was painful to put this off the agenda by force majeure. And if the pandemic and the consequence for aerospace markets is not a force majeure definition, I'm out of ideas how to better define a force majeure. The other two, both aspects, we had always said that we have two outside aerospace, both related to energy raw materials, electricity storage materials, namely vanadium and lithium, are exactly as predicted planned They are affirmative. They are happening. Especially positive in our value creation exercise is our cooperation with Shell. A few weeks after the signature under the joint venture with Shell Catalyst and Technologies, still subject to regulatory approvals, A few weeks after that signature, we signed our major first transaction with Swagia, the Saudi Arabian government investment agency, about the recycling concept in the kingdom of Saudi Arabia. That has advanced in the meantime and is being amended many ways. We are negotiating in other areas. In the Middle East, we are in preliminary engineering projects, and so we believe that our leadership in recycling machinery waste, not only spent catalysts, but also specification ash, will take a significant step forward. Of course, those projects take time, but we are internally surprised how energetic this development is happening. Why is it happening in that way? For two reasons. One reason is that very large refinery renewable projects are happening against the trend, against the normal trend, stationary or whatever trend in the oil industry. Many oil producers are fundamentally reorganizing and revamping and building new state-of-the-art refineries, refineries that The investment going into that is in the tens of millions, billions of dollars across the Middle East and also in Asia and China. And that creates a challenge for the fresh catalyst producers to increase capacity and increase volumes, which is happening. And that, of course, given the present more stringent corporate governance systems in place, leads to recycling opportunities for spent catalysts and for residues such as gasification ash. That's one reason. The refinery renewable process to make them consistent with state-of-the-art refinery environmental standards. The other one is the demand side. The demand side in the traditional products, namely in feral vanadium, is fairly stationary, but has a very positive element as regard to the legislation in China, which is now step-by-step introduced or implemented in a more stringent way, the regulations as it got to the amount of vanadium to be inserted into the rebar steel industry. However, the real cause driver here is expected to be in high-purity vanadium oxide, as several countries are aware of the deficit in stationary electricity storage. Just to name one example, one of the projects which are next to us, so to speak, in Saudi Arabia is the big building of a vanadium redox battery factory, which is a big witness to what I just said about the demand in that. That demand is significant and it will be also happening in other countries as it becomes clear that most countries have a distinct deficit in stationary electricity storage vis-a-vis the existing renewable energy percentage and much more as we got to the climate targets. So it happens to be that we are providing a green recycling solution, a circular economy solution to this additional renewable energy driven demand for electricity storage. So that is a very interesting space to be and we are the leaders in this and we will defend our leadership position and the framework for that is the Thank you.

If I can just make a comment as an investor, I have no problem with how you're running your operations, and I have no problem with the strategic vision, as you've just outlined very eloquently there. I'm a firm believer in what you guys are doing, and I'm happy to be patient as a shareholder. Where my frustrations lie is that as a public company, I think you have a duty to go and tell that story in an easier way for the market to understand and i do believe that there is plenty there are plenty of opportunities for you to for you to tell this story and it's a good one it's a good story to tell and there are a multitude of opportunities where i believe the company could get out there and start telling your story in a clear simple way like you've just done to a wider investor base and that would help um the share price no end and that's just an opinion from a former shareholder who believes in what you guys are doing, but is frustrated by the messaging around the company for some time. So I wish you all the best. I'll keep following what you guys are doing, but I just wanted to make that comment. So thank you very much for your time.

And by the way, you might be surprised, but I agree with you. And we have been debating how to more powerful, focused messaging and how to simplify and make our main areas of activity more understandable.

Well, we have plenty of ideas and we're happy to help.

There is a major initiative in this regard underway. I'm pleased to hear it. Don't say that lightly. and you will later this year, there's a lot of activities ongoing here. In the context of these major developments, we need to do that, and we have a very specific simplification plan in the making. It's good for you to hear that today, The supervisor report has been agreeable in principle, of course. Otherwise, we would have to announce details. In principle, waived through these ideas. And I think the target is later this year. My chief financial officer waved to me that I shouldn't say more.

Well, I look forward to the initiatives and, yeah, more engagement. And I wish you all the best. Thank you. Thank you.

And we will take our next question. This will come from . Hi, this is .

Hi, this is here. Thank you for taking my question. Two questions. One, I just wanted to understand from a bridge perspective, the 18 million of, I guess, call it lost opportunity, or is it something that gets caught up in the second half? If you can sort of help us bridge that COVID impact in terms of how we should be thinking about it. And if there's any sort of framework you can provide in terms of what you're seeing in July demand, that'll help us understand sort of how we should be thinking about the revenue trajectory going into the second half. That's one question. And then I had a related question on the CapEx side, just if you could break down what's been spent to date on the, I guess the Cambridge two facilities. So we have an idea and should we expect all of that to be funded out of the cash at the municipal or restricted cash level? Thank you.

So the 18 million, as we discussed in our opening comments, is comprised of volume, mainly volume cancellations or postponements. And the distinction between the two would give rise to your question, right, which would tell you how much of it is going to roll into the second half. But it's very difficult for us to say. I can say that A lot of the AMG Technologies performance was driven by the travel restrictions on ALD, and those we anticipate getting better. So you should see improvement there, and you won't see the same kind of effect in the second half that you saw in the second quarter. In terms of demand, in June, we don't have July yet, but in June, we did see a pickup in certain of our areas, graphite, antimony, aluminum. But it's far too early to pound the table on that and say that that represents a future trend. But, you know, we did see a little bit of pickup. And then finally, on Cambridge II, we spent 35 so far this year. We expect it is on time and on budget. We have we have finalized $166 million of the total roughly $300 million spent and committed to contracts with regard to that. And we would expect the entire amount to be funded by the municipal bond.

Okay, that's helpful. And I know it's going to be hard for you to frame, maybe if I can just follow up with regard to the question on the or sort of a clarification on the orders. I mean, 2Q orders were, I guess, below, you know, historical levels. How should I be thinking about that? I mean, are those sort of orders that would have rolled into 2Q? And so are you going to have to work more off sort of a, you know, real-time backlog development? Is that sort of the right way to think about it?

So we do have a very strong backlog process. So 217, we regard that as a very, very high number, historically speaking. And if you look at the order intake, mind you, this was pandemic related, but if you look at the volatility of our quarterly order intake, you'll see that, I think it was four quarters ago, we had a $30 million quarter as well. And that's really driven by timing. Again, we don't allow ourselves to record it into backlog until we have all three preconditions met. And sometimes the export license comes on July 1st instead of June 30th, and it just pushes the order into the next quarter. So there is quite a bit of volatility quarter on quarter. It's not a great metric for us, other than we would note there was obviously a slowdown due to the pandemic in orders. So hopefully that answers your question.

Yes, thank you very much.

And we will take our next question. Caller, please state your name before posing your question.

Hey, this is Vikas Chiluka from Elmwood Asset Management. How are you doing? Doing well, thank you. Yes. So I had two or three questions. So the first one is, as you sort of see demand decline in the technology segment due to what's going on in the aerospace sector. Can you help us understand how the business should respond? Just give us a sense of what is fixed versus variable cost in that business. How should we think about decremental margin?

That is an ongoing analysis and we don't comment.

Okay. Could you comment on the ability of that business to sort of get back to what it used to generate a year or two ago? Do you think that there is still that long-term potential in that business, or has that been... I mean, how should we think of more sustained earnings power of that business? Is that impaired due to the aerospace cycle being impaired?

We are, of course... in contact with the market in form of executives in the customer sphere and also in competitive circumstances. We know what Airbus is planning to do. We know what Boeing is alternatively planning to do. We have very close contact to our customers in the engine area from GE, Martin Whitney, and the others. We are collecting, everybody's of course very cautious, we are collecting data points from all of these information sources. These data points are meant to lead to a reduction of the fog and increase of the visibility into the exact question you asked. So that's an extremely important exercise, because that is the input into decision-making on short-term, on long-term, on restructuring, on all these activities. It emerges that we have a very clear feeling when certain things will restart. We know the build rates, for example, of Airbus. We know the build rates in other areas, such as in the coping activities, of course, because we are directly related to that. All these data points lead to conclusions about when the ramp-up will occur and how long it will take. what is the end level, or the interim end level, which will then be able to be compared to the outgoing level, more or less full capacity prior to COVID-19. That is, of course, and your question reflects that, the center of analytical work which is underway. It is clear that there are big crossroads when you think about the situation in Boeing, and those crossroads are coming closer, and we need to then readjust our plans. Self-explicatory, it is a very challenging situation. industry to be in. It is as challenging as it was positive prior to COVID-14. I remember times when everybody was congratulating us to have such a prominent position in the aerospace industry. And of course, now we are criticized that we have that position, but things change when first for sure events of that magnitude happen. We also diversify, of course, our offerings in engineering. We have an extremely high-end electricity engineering skill set, and we will react not only in restructuring, but also in diversification and very definitive steps in that are already underway.

Okay, that's fair. Thank you. And the last question I have is for the two big projects, actually the one big project that you're undertaking and also the lithium hydroxide facility, can you give me a sense of what incremental EBITDA that will add to your business and when do you expect that to begin? Just for modeling purposes, help me understand that.

We have a very clear association between different vanadium prices and different run rates of EVTA. We also have contacts which govern, which are the most important ingredient into that calculation, but it would be also for competitive circumstances long to comment on EBTA levels. The EBTA levels which are characterizing the base case or the or the number of base cases leading to the investment decision are, from a financial point of view, satisfactory. You know the number of capex. You know the number of capex. Now you can ask yourself what is satisfactory. right right so so you know that it's so is that like a 10 return well we wouldn't do things with a 10 return that you let's issue it of that okay okay no uh thank you yeah after all not in the cement business Okay, I think we share.

Yep. Operator?

Yes, we have one more question in queue. Caller, please state your name before posing your question.

Good evening. I have a couple of follow-ups, if I may. The first one is on vanadium. Eric mentioned the 40% differential between the Chinese and the U.S. price. Which level of confidence do you have for stating that this situation will revert and relating to that? If prices would sustain at these levels, would that be a reason to sort of renegotiate the long-term agreement you have with the supplier of the spent catalyst? That is my first question.

We have no relationship between the differential between the Chinese and the outside Chinese. The medium markets and the negotiations with our suppliers. So that is not, we don't, there is no connection. When you have the, when you analyze the differential which rightly you pointed out, it has been widening lately. It always has been there. but it has been driving innovation. And it is very naturally the consequence that the Chinese steel industry is growing again. And therefore, there is a lot of when you combine that with the legislation. Other than that, we believe that the Venetian market is waiting for a correction. The utilization in the steel industry is corrected, and as other things happen, so the U.S. capacity utilization is trending up. The price level is very cumbersome for the normal primary producers. So we believe that correction is in the making.

Okay, that's helpful. Second question is on lithium Brazil. Can you assume that you are back at full capacity following the disruption in the first quarter? And has there been an alteration to the agreement with the Chinese converter? And is that still the party that you are selling to?

We can confirm we have full capacity in lithium, and we have a more diversified situation in China as regards to selling.

Excuse me, sorry, didn't catch that last sentence.

We have diversified our market in China.

Okay, okay. Are you still selling on a long-term price arrangement or are you now selling at spot?

With no comment.

Okay. Then the third question is on the guidance. I understand you don't want to commit to a guidance for the full year, but the outlook is, yeah, quite fade. Six months in the year, something between 30 million and 120 million, I assume. So can you provide some visibility how you see the earnings develop into the third quarter? Should we see as a second quarter as the trough, as the bottom, or do you expect this challenging situation to endure into the third quarter? some color there maybe would be helpful.

I was just thinking about saying something about the second quota as the bottom when you said it.

So I can take that note? You see this T2 as the bottom?

Yeah, I would have said it. I would have said it, but you sort of

Okay, final question is, there seems to be sort of an increasing dissatisfaction or frustration among investors with regards to the complexity maybe of the AMG model. Do you still support this portfolio model?

I have two questions earlier during this call.

I have said that we are working on a significant specification of our structure, which will be, I think, very much welcome by the investors. But I don't want to do this in piecemeal. This will be in talking to many investors, but mostly in talking to ourselves, that it is now that we have found a way to simplify our business, make it more understandable.

Will this be an exercise in financial reporting or really in corporate structure? What, what? Will this be an exercise?

Financial reporting or corporate structure? Both.

Okay, that's helpful. Thank you. These are my questions.

Okay, operator, do you have any more questions?

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.

Thank you. Thank you.