(GSM)
Q2 2020 Earnings-Transcript
Beatriz Garcia-Cos - Chief Financial Officer
Marco Levi - Chief Executive Officer
Nick Jarmoszuk - Stifel - Analyst
Brett Levy - - Analyst
Operator
Good morning ladies and gentlemen and welcome to Ferroglobe's second quarter 2020 earnings 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. As a reminder, this conference call may be recorded.
I would now like to turn the call over to Beatriz Garcia-Cos, Ferroglobe's Chief Financial Officer. You may begin.
Beatriz Garcia-Cos - Chief Financial Officer
Good morning everyone and thank for joining Ferroglobe's second quarter 2020 conference call. Joining me today are Marco Levi, our Chief Executive Officer; Gaurav Mehta, EVP Strategy and Investor Relations; and Jorge Lavin, Group Controller.
Before we get started with some prepared remarks, I'm going to read a brief statement. Please turn to Slide 1 at this time.
The 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 exhibits to those filings, which are available on our website, www.ferroglobe.com. In addition, this discussion includes reference to EBITDA, adjusted EBITDA, gross debt, net debt, and adjusted diluted earnings per share, which are non-IFRS measures. Reconciliations of these non-IFRS measures may be found in our most recent SEC filings.
Next slide, please.
During today's call, we will first review the highlights for Q2 as well as our business and operations environment. I then will provide some additional details on our financial performance and key drivers behind our results. Finally, we will provide an update on the strategic plan.
I would now like to turn the call over to Marco Levi, our Chief Executive Officer. Next slide, please.
Marco Levi - Chief Executive Officer
Thank you Beatriz. Good morning, afternoon, evening to everyone.
Before we get into some specifics for the quarter, I want to acknowledge the continued hard work and dedication of our employees around the world. The threat of COVID-19 continues to impact each of our employees and we are taking every measure possible to ensure a safe work environment. We are fortunate that our employees have not had any serious illnesses to date and that the 14 individuals who had contracted the virus have fully recovered. Furthermore, we can confidently and proudly claim that none of these cases were contracted in the workplace. We thank our workforce globally for their resilience and commitment, and they have come together during these trying times to drive the company forward.
Our ability to successfully navigate COVID-19 has been in large part due to the efforts and execution of our crisis management team. We assembled this team in the early days of the pandemic. It serves as an effective forum for various functional areas such as commercial and procurement to voice concerns on a real time basis. This facilitates communication and helps us find quick solutions as issues arise.
Overall, Ferroglobe is making progress on various operational, financial and strategic initiatives, acting with determination and urgency to deliver safe and healthy operations, improve stability, and we anticipate a return to profitability.
The strong recovery in the second quarter's financial results is a testament to our success in implementing recent initiatives. By diligently executing on the items within our control, we have adapted to a fluid environment and continue to make progress operationally and financially.
During the second quarter, we have realized higher average prices across all the product categories. We have expanded margins, returning the company to a positive quarterly EBITDA, improved working capital, and increased the cash balance. The current environment has forced us to scrutinize each part of the business, rationalize costs, and improve the efficiency of our operations. These efforts will be ongoing as we continue to adapt the business to respond to lingering uncertainties associated with the pandemic across our value chain.
Along these lines, I am pleased to announce that the formal evaluation of our business has now been concluded and we have commenced execution of management's new strategic plan that will span three years. As previously noted, we analyze all parts of the business, ranging from our commercial strategy to a dissection of day-to-day management of the business in order to identify shortcomings and pinpoint areas where we can make changes to enhance the company's competitiveness and drive value creation. I will be discussing key takeaways from this exercise later in the presentation.
At this time, I'll review our business and current operating environment. Moving ahead to Slide 5, please.
Second quarter sales were $250 million, down 20% from the prior year quarter. This decline was primarily attributable to lower volumes which declined 24.1%, partially offset by average selling prices which were up 7%. During the quarter, we experienced a slowdown in demand across all product categories as our customers reacted to the global pandemic. The net loss for the second quarter was $14 million compared to a net loss of $49.1 million in the prior year quarter. The decline in the second quarter's net loss was driven by continued cost cutting through operational changes offsetting the decline in sales and driving margin improvement.
Lastly, our adjusted EBITDA was positive $22.4 million in the second quarter which compares to negative $17.6 million in the prior year quarter. Once again, this improvement was driven by lower input costs, positive results from our key technical metric initiatives, and other cost cutting initiatives implemented at the plant and corporate office.
Overall, Q2 was marred by continued volume declines offset by a slight recovery in pricing and success in the company's cost cutting efforts. As a result, we saw improvement in our bottom line results despite significantly lower sales.
Further, we continued to deliver on improving our working capital position. We ended second quarter with working capital of $321 million, down from $348 million at the end of the first quarter. During the quarter, gross debt increased by $9 million to $451 million. Given an improvement in our cash balance during the quarter, the net debt balance improved by $1 million for a balance of $298 million as of June 30.
In Q2, we increased our cash balance, ending the quarter with $153 million of total cash, up from $144 million in the prior year quarter. This includes our cash and cash equivalents, restricted cash, and consolidation of the accounts receivable securitization program.
Next slide, please.
On the next three slides, we will discuss pricing and volume trends, earnings contributions and market observations from each of our key products. Turning first to silicon metal on Slide 6, Ferroglobe's realized average selling price for silicon metal was $2,215 per metric ton, up 0.1% from $2,211 in the prior year quarter. The index pricing in the U.S. was flat while the European index decreased 2.7% during the second quarter. The overall pricing environment was essentially flat as the slowdown in activity was met with curtailments throughout the industry. Additionally, the buying pattern of our customers has changed with small quantities and infrequent orders distorting the index.
The volume trend chart on the top of Slide 6 shows a decline in silicon metal shipments of 10.2% over the previous quarter. We saw similar patterns of activity across our key end markets for silicon. Aluminum-related demand continued to be weak in both the U.S. and Europe, largely tied to a slowdown in the automobile industry. This has been partially offset by strength in chemical sales throughout the middle of the quarter. Demand for silicon for the portable type market continues to suffer.
Silicon metal EBITDA improved from $3.5 million in Q1 to positive $11.9 million in Q2, driven primarily by cost improvements partially offset by the impact of lower volumes. The biggest contributor to our improved silicon metal performance was $8.9 million improvement in costs attributable to production costs in Europe where we have shifted production to the most competitive assets. On the raw material side, coal and electrode costs as well as consumption efficiencies contributed to the cost benefits during the quarter.
Based on the current buying behavior of our customers, we anticipate that end market weakness is likely to continue. We have seen early signs of recovery from the North American auto industry in July with demand near pre-COVID levels. In Europe however, the auto business remains sluggish. For the chemical side of the business, we enter the back half of the year a bit more cautious. The tone of some major customers suggests a greater focus on managing inventory levels of silicon stock.
Overall, it is difficult to gauge whether the activity level for silicon demand is attributable to changes in real demand for our customers' products or if it is more inventory management of silicon stock by our customers. While we are in regular dialogue with our customers, there are mixed signals given the lack of visibility for all participants along the value chain.
Finally with regards to the ongoing trade case in the U.S., we recently announced a positive development. The International Trade Commission has found that U.S. silicon metal producers have been injured by imports from Bosnia, Iceland, Malaysia and Kazakhstan. We applaud the ITC's work to date and are confident that the process will unfold favorably over the coming months. I look forward to keeping you informed as we meet new milestones in the case.
Next slide, please.
Turning to silicon based alloys on Slide 7, during the quarter the average selling price increased by 4.3% to $1,537 per ton, up from $1,474 per metric ton in the prior year quarter. In Q1, we continued to make operational changes to ensure our production costs would be more competitive. In Q2, we further optimized our performance in a weak environment by selectively pursuing business that was more profitable and minimizing the risk of inventory build. The increase in our realized pricing during the quarter for our silicon-based alloys business is primarily attributable to our commercial strategy.
Ferroglobe's average realized price for silicon-based alloys also benefited from our higher margin specialty ferroalloys products which accounted for approximately 55% of the shipments during the second quarter. Silicon-based alloy volumes declined 35.2% in Q2 to approximately 40,000 tons, a significant decline in demand relative to recent quarters. The second quarter decline is attributable to weaker steel and foundry demand in both the U.S. and Europe. The steel sector has continued to run at low utilization rates following significant curtailments at the beginning of the year. The foundry business is being impacted by the same dynamics I described earlier relating to the auto industries in both the U.S. and Europe.
EBITDA from our silicon-based alloy segment improved from $2.3 million in Q1 to $7.9 million in Q2, driven by better pricing and cost improvements. Cost improvements contributed $4.4 million, which was a result of lower energy costs in Europe and the U.S. and the further shifting of production to the most competitive plants. We also benefited from lower raw material costs driven by re-melting ferrosilicon finds and using them in our foundry operations. We realized a $2.9 million improvement from pricing which is attributable to product mix and our ability to be more selective in the commercial business.
Volume had a negative impact of $1.7 million. To date in Q3, both the European and the U.S. index pricing are stable. This is attributable to the production caps in ferrosilicon across the industry which have helped maintain some market balance.
Next slide, please.
Turning now to manganese-based alloys, during the second quarter average selling price increased by approximately 11.8% to $1,088 per metric ton, up from $973 million per metric ton in the first quarter. Volumes declined 25% in the second quarter by approximately 55,000 tons due to continued slowdown across the steel sector. Despite this drop in demand, manganese-based alloy EBITDA increased to positive $7 million in Q2 compared with negative $2.5 million the prior year quarter. Improved pricing due to product mix and lower cost of manganese ore provided a benefit partially offset by slightly higher costs. A decline in manganese ore prices provided a $3 million benefit to EBITDA.
On the cost side, we were negatively impacted by $900,000 as lower volume had some impact on feed cost absorption. Index pricing for manganese-based alloys remains rather flat into Q3 while manganese ore price index has come down steadily since June.
At this time, I turn the call over to Beatriz, who will review the financial highlights.
Beatriz Garcia-Cos - Chief Financial Officer
Thank you Marco. Beginning with Slide 10, sales of $250 million during Q2 were 20% lower than the $311 million of sales in the prior quarter. This decrease in sales was driven by a 24% decline in sales volumes partially offset by a 7% increase in the average selling prices. The decline in volumes was felt across all three product categories.
During the quarter, our cost of sales declined by 37%, resulting in a gross margin excluding D&A of 39%. This was an improvement of 17% over the prior quarter where our comparable gross margin was 22%. The cost of sales improvement in Q2 was primarily attributable to lower energy costs, particularly in Europe, as well as lower cost of manganese ore.
Other operating expenses decreased by $3.6 million to $35.9 million in Q2, a decline of 9%. The decline in other operating expenses was a result of lower commercial expenses due to slower volume activity.
The Q2 operating loss before adjustments was $5.5 million, an improvement of $42.8 million in the prior quarter driven by lower cost of sales, staff costs, and other operating expenses as well as higher other operating income.
Adjusted EBITDA was positive $22.4 million, an improvement from negative $17.6 million in Q2. Adjusted EBITDA margin improved by 14.6% to 9% in Q2.
Slide 11, please.
The sequential improvement in adjusted EBITDA quarter-over-quarter is attributable to a few key factors. Cost improvements contributed $16.3 million. Marco covered the key drivers of the cost improvement during his review of the three product categories. Atypical activity contributed another $10 million to the quarterly EBITDA. In Q1, we incurred several expenses related to the capacity reductions across the platform. This quarter does not have the same drag and so $3.3 million is attributable to productivity tied to operational adjustments. Another $3.3 million has to do with the accounting treatment of [Indecipherable] costs capitalized across our inventories. Finally, the remaining $3.3 million is the result of a sale of CO2 emission rights.
During the quarter, we also benefit from a net savings of $4.5 million related to the head office costs. This is mainly attributable to a reversal of a 2019 bonus accrual of around $3.5 million and the positive impact of [Indecipherable].
Next slide, please.
Turning now to Slide 12, I will review our balance sheet in greater detail where we make improvements to our available cash and working capital. With the challenging market environment, these improvements are critical for our business.
Cash and restricted cash improved to $153.2 million at the end of Q2, up from $144.5 million in prior quarter. Gross debt increased by approximately $8 million in Q2 to $451 million, while net debt was approximately flat relative to the prior quarter, ending at $298 million as of June 30. This increase in gross debt reflects an $11 million accrual for the semi-annual coupon relating to the senior notes. Total assets were approximately $1.48 billion, down slightly from $1.53 billion in the prior quarter. Ferroglobe's working capital continued to improve by $26 million in the second quarter.
Before we move on, one additional point regarding the cash balance. As we reported in the press release, the company sold CO2 emissions rights subsequent to quarter end in July and August. This resulted in cash receipts of approximately $33 million. Given the looming uncertainties in our business, we felt it was prudent to further shore up cash and view the monetization of these CO2 emissions rights as an attractive solution, particularly as the financing process continues. The company is closely monitoring its demand levels to determine appropriate production levels and gauge the quantum of CO2 emissions rights that will need to be reacquired in the later part of 2020 and/or in 2021.
Next slide, please.
We continue to generate positive operating cash flow in Q2 driven by positive EBITDA generation and improvements in working capital of $20 million. Cash flow from operating activities in Q2 was $38 million versus cash flow of $90 million in the first quarter. Cash flow from investing activities was negative $5 million. Payments for maintenance capex remain flat at the level of $5 million. Lastly, cash flow from financing activities was negative $24.5 million for the quarter. This is primarily due to the impact of bank borrowing repayments of $20.7 million. In aggregate, we had free cash flow of $33 million during Q2.
Next slide, please.
Now turning to Slide 14, Q3 was the third consecutive quarter that we improved our working capital with a reduction of $26.2 million. This reduction is driven by a $45 million reduction in account receivables partially offset by $18.1 million increase in inventory and a $1 million increase in accounts payable.
Turning to the chart on the right, our cash balance at the end of Q2 was $153 million compared to $144 million in the prior quarter. The Q2 balance includes unrestricted cash of $86 million and non-current restricted cash and cash equivalents of $28.3 million. Cash and cash equivalents includes the cash balance of the accounts receivable securitization program of $38.9 million.
Next slide, please.
During the quarter, our gross debt increased by $9 million to $451 million, while our net debt declined $1 million to $298 million. The increase in our gross debt is primarily attributable to an accrual in our bond coupon. For a full summary of our gross debt as of June 30, please refer to Slide 24 in the appendix.
Next slide, please.
On the financing side, there are a few highlights to share. We have been exploring options to tap into COVID related financing plans sponsored by local governments in the countries where we operate. Recently we closed a EUR4.3 million funding sponsored by the French government. This is a cash loan with potential repayment within five years of maturity, and from a cost perspective it's very attractive, bearing annual interest of 0.5%. At this time, we continue to evaluate similar programs in Spain.
In regards to our existing accounts receivable securitization program, we are in advanced discussions to refinance our existing facility and aim to close this in Q3. The new program we are pursuing will be more cost effective than our existing program and is expected to release cash currently in the SPD. I will be sharing more details on the new facility once we close.
Finally in regards to a new capital raise, I'm pleased to announce that we have made significant progress over the past quarter and are finalizing the due diligence estate with several potential lenders. We are now negotiating term shifts with the intent of closing and funding a new term facility in October.
With that, I turn it back to Marco who will provide an update on our strategic plan.
Marco Levi - Chief Executive Officer
Thank you Beatriz. Now turning to Slide 18, please.
Finally, I want to provide an update on our strategic plan. As a reminder, in our prior call we highlighted that we were working alongside a premier consulting company to conduct a deep review of our business with the objective of identifying process improvements and operational changes that will drive efficiency and enhance the economics of the business on both the revenue and cost sides. We approached this project with a clear goal: to identify the value creation levers that are going to accelerate the company's return to profitability and create a Ferroglobe which becomes the global reference for silicon metal and the ferroalloys we produce.
As we look back at recent trends and market activity, it is clear that the competitive environment today is different than just a few years ago. We have seen new market entrants, a change in trade flows, and have experienced shockwaves like the one we are currently facing with the pandemic. This has enforced the need to transform Ferroglobe to ensure that the business is flexible operationally and resilient to market changes in order to drive profitability through the cycle.
The new strategic plan has a series of specific initiatives identified for the next three years. As we successfully execute on this plan, we aim to meet the following targets. On the top line, we think that revenue can be increased by $175 million. This increase is not dependent on a recovery in volume and pricing. I will explain a bit more shortly.
We set targets to improve EBITDA by an incremental $150 million and we will continue improving our working capital, which will contribute $70 million to cash. How are we going to do this? When we initiated this project, we took an unbiased approach to reviewing our products, markets and customers to determine the attractiveness and future profitability of each area and to assess Ferroglobe's ability to compete effectively through the cycle. In terms of markets, we remain committed to servicing our global client base and leveraging Ferroglobe's strong market penetration in North America and Europe to ensure scale.
With regard to products, our review has confirmed the attractiveness of all three of our key product categories. We will continue to be an active player in all the products we currently produce. That said, we will be focusing more in expanding our position to develop customized solutions to meet our customers' future needs. Through the years, our company has demonstrated strong R&D capabilities and we have to get back to driving innovation and focusing on specialty products which connect us with our customers. In turn, this will help ensure that we realize pricing that appropriately reflects our product quality, reliability and commitment.
Lastly regarding customers, our strategy sets out to deepen our strategic relationships with our traditional client base where there is clear and mutual benefit in collaboration. On the other side of the spectrum, we will seek to increase our presence with niche value accounts. Finally, with a focus on platform optimization, our objective is to avoid over producing and minimizing the risk of unprofitable sales. By being more cost competitive and nimble on the operations side, we can be more selective and focus on transactions that generate an attractive return.
Now I will go into how we will achieve these targets. Next slide, please.
At this time, I would like to provide some specific insights into the seven value drivers and how they will drive the transformation and help achieve the financial targets we have set. The commercial level is organized around two major blocks: analyzing client profitability and optimizing commercial opportunities. To give you a sense, our focus will be on portfolio and account management, ensuring we have the proper customer relationship management tools and clearly defined objectives for each client. Frontline management will require us to redesign our commercial coverage and operating model in line with the product and customer priorities I previously described.
On the pricing side, we will increase communication and transparency between our commercial and production teams to ensure we are making healthy margins on each sale and walking away from tenders that don't meet that requirement. We also have to revisit how we price product. As we have learned from recent experience, being tied to an index might not be the right format for all transactions. We will be working closely with our customers to ensure a mutually beneficial model that appropriately compensates us for the quality and reliability we deliver.
Moving to the cost side, footprint optimization is one of our key value drivers. While one of Ferroglobe's core advantages is a large and diverse production platform, at times it has restricted our ability to make quick changes particularly during periods of volatility. Going forward, our goal is to ensure that the operating platform is truly modular so shifts in production based on need and relative cost can be implemented swiftly.
At the moment, the specific actions which are being contemplated do not necessarily translate into full plant shutdowns. The goal was to identify how we can maintain our capacity footprint by optimizing production to the most competitive plants and furnaces. For example, this may mean that we end up shutting down one or more furnaces in plants which have several furnaces. By focusing on the most efficient and productive assets and right-sizing the facility cost structure accordingly, we effectively create smaller but more profitable plants while maintaining the optionality to scale by cap once market conditions improve.
The next value creation driver is continuous plant efficiency improvement. Over the past two years, we have been discussing key technical metrics which consist of specific initiatives which enhance process, minimize waste, and improve overall efficiency to drive down cost. We have already realized significant benefits from this program by sharing best practices and benchmarking key metrics between plants. Over the past few months, the team has completed their review and have introduced a series of new initiatives identified across all three product categories which will drive further savings without any incremental cost.
The next lever is SG&A and override cost reduction. While we have made some progress in both of these areas, we feel there is much cost that can be permanently taken out at the plants as well as the corporate level. By implementing better tracking of costs and increasing accountability, we not only get the benefit of cost reductions but mitigate the risk of cost creep over time.
Another value creation lever is centralized procurement. We are shaping the organization so that the purchasing of many consumables is purchased centrally. This will allow us to better track our needs, enhance our ability to [Indecipherable] purchases and buy in bulk, resulting in better terms with our suppliers. Furthermore, by having a set provider who can learn and compare what the plants have historically done, we can make better decisions on what works best and how to standardize certain key purchases throughout the organization.
Lastly, the improvement on working capital. While we have demonstrated steady improvement in working capital, there is still room for further efficiency. This lever goes hand in hand with several of the other value creation levers. For example, as part of footprint optimization we are trying to create a platform which quickly reacts to market changes and avoids inventory build. Similarly as part of the commercial strategy, we will be scrutinizing payment terms and other provisions which enhances our cash conversion. These are good examples of how various functional teams will be working together to drive change and extract value going forward.
With the legwork done to identify key value levers and specific initiatives, it is time to execute. Successful execution of such a strategic plan is dependent on everyone within the organization. We need to break away from old habits and change the culture that requires proper oversight and management. As such, senior management has been redesigning part of the organization to ensure that we have the proper people and tools in place to reach our targets.
We have commenced execution of the new strategic plan. While some of the actions are already in motion, it will take some time to implement all of them and realize their full benefits. It has taken the better part of this year to get to this point. I assumed the CEO role recognizing the potential of this company, but I also realized a lot needed to be changed. I am proud of the teams' work so far, but even more excited that we are going to begin the execution of what we believe will make Ferroglobe a global leader across all its products.
As I noted, we anticipate that over the next three years, the strategic plan will provide an incremental $150 million of EBITDA contribution. We expect our commercial strategy initiatives to contribute approximately $45 million of this target while various cost drivers would contribute to the remaining $105 million. Furthermore, the working capital reduction effort will contribute an incremental $70 million of cash. To be clear, we consider this projected EBITDA announcement to be above any baseline recovery in the prices or volumes. Put another way, even if the market demand remains the same as it is today, we expect the initiative to deliver an incremental $150 million of our EBITDA.
At this time, we will now like to open the time for questions. Operator, please go ahead.
Operator
[Operator instructions]
Our first question comes from the line of Nick Jarmoszuk with Stifel. Your line is open, please go ahead.
Nick Jarmoszuk - Stifel - Analyst
Hi, good morning. Thank you for the update on the strategic plan.
A couple questions on Slide 18 and 19. First one is with the footprint and product optimization, is there any capex that's needed to upgrade assets, and are there any environmental reclamation liabilities that are triggered from this plan as well?
Marco Levi - Chief Executive Officer
Well, regarding capex, there will be expenses related to some labor cost but no major capital investment. We have not factored any potential remediation costs in any of these activities, excluding one case that I prefer not to mention at this stage.
Nick Jarmoszuk - Stifel - Analyst
Okay. So over the next three-year period, how can we think about what maintenance capex levels will be?
Marco Levi - Chief Executive Officer
Yes, we already answered this question in the past. We expect to increase our capital spending from the current rate to a rate of $70 million, $75 million per year.
Nick Jarmoszuk - Stifel - Analyst
Okay, and then in terms of thinking about the working capital improvement of $70 million, you're also going to have the top line improvement which is going to require investment, so is that $70 million improvement a cash benefit that is reflective of the strategy versus how much working capital would have been required for the growth in revenue? Does that question make sense?
Marco Levi - Chief Executive Officer
It makes sense. Beatriz can clearly reply to you.
Beatriz Garcia-Cos - Chief Financial Officer
Yes, so as part of the strategy exercise, we plan to reduce the working capital as a percentage of our sales, so it means that effectively this $70 million that you mentioned will come through a cash release along our strategy exercise. This will be a mix of–a combination of efforts between inventories mainly, obviously, but as well an improvement in our account receivables and our accounts payable, so it will be a combination of the three items within the working capital.
Nick Jarmoszuk - Stifel - Analyst
But as the top line grows, there will be a net working capital investment nonetheless, correct?
Beatriz Garcia-Cos - Chief Financial Officer
Exactly, but as a percentage of sales, this will be reduced, yes.
Nick Jarmoszuk - Stifel - Analyst
Okay. Then earlier in the presentation on Slide 8–I'm sorry, Slide 7, how should we think about the price sensitivity in the silicon alloys to what's happening in the spot market?
Marco Levi - Chief Executive Officer
I missed the last part of the question.
Nick Jarmoszuk - Stifel - Analyst
I'm asking what's the pricing sensitivity to the spot market.
Marco Levi - Chief Executive Officer
To the spot market? Well, in our case we have part of our business under contracts and part of the business is spot. What we have noticed in the last quarter is an increased amount of transactions based on lower volumes, so a much more erratic order path that has of course impacted the average price of these alloys.
Nick Jarmoszuk - Stifel - Analyst
So of the book, how much is contracted versus spot?
Marco Levi - Chief Executive Officer
We do not report this number.
Nick Jarmoszuk - Stifel - Analyst
Okay, all right. Last question regarding some of the capital market activities, what amount of cash can we think about being released with the new A/R program?
Beatriz Garcia-Cos - Chief Financial Officer
We'll not be releasing this information, but obviously we'll do that in due course as soon as we close the transaction.
Nick Jarmoszuk - Stifel - Analyst
Okay, that's all I had. Thank you for the time.
Operator
Thank you. Our next question comes from the line of Brett Levy with [Indecipherable]. Your line is open, please go ahead.
Brett Levy - - Analyst
Hey guys, good quarter. When you say $150 million, I want to know from what quarter is–you know, if it was the first quarter, which was negative 5 annualized, that would get you to a lower number. If you took $22 million annualized, now you're at $88 million and you add 150 to that and it's really quite spectacular, so I just want to know 150 from what quarter.
Marco Levi - Chief Executive Officer
Well, 150 is the cushion on a yearly basis, so we plan to add a cushion of $150 million of EBITDA on a yearly basis and then we're going to have ups and downs, like typical of a cyclical business, but what we want to prevent is the situation where we end up delivering negative EBITDA, so we want to establish a cushion of 150 on a yearly basis.
Brett Levy - - Analyst
Okay, so again, there's got to be an EBITDA overall target, so again I just–you know, first quarter was negative and second quarter was quite positive. I guess the question would be are you targeting to have total EBITDA of more than $150 million?
Marco Levi - Chief Executive Officer
Absolutely, absolutely. If you look at the cycle of our EBITDA, we have been delivering between minus 37 to plus 230, what I can recall in terms of numbers, and to these numbers you have to add the 150.
Brett Levy - - Analyst
Okay, I see, so it would be kind of an average of those or something?
Marco Levi - Chief Executive Officer
Yes.
Brett Levy - - Analyst
All right. Then it's one of those things, when you hold your conference calls through the quarter, I know you're facing headwinds in manganese, but for some of your other metrics as you're progressing with your strategic plan, are you still tracking positively?
Marco Levi - Chief Executive Officer
Well, we do not comment on the current quarter. All we can see is a sort of stabilization of the manganese ore price in the recent weeks. This is what everybody can track.
Brett Levy - - Analyst
What I'm asking you really is, are you making good progress on your working capital and cost cutting efforts in the third quarter as well?
Marco Levi - Chief Executive Officer
Well, we have started the implementation of the execution plan as we speak, and like I said, my time horizon to achieve what I consider ambitious but achievable targets, it will take three years.
Brett Levy - - Analyst
All right. Then the last one, I know you're negotiating a new bank agreement and you'll talk about it when you get it, but–and I think you're seeking a lot of flexibility and better terms, but your bonds are trading at a steep, steep discount. Would one of the terms that you seek to negotiate would be the ability to buy back bonds at a discount?
Beatriz Garcia-Cos - Chief Financial Officer
What we are aiming on the discussions with regards to the bonds is to gain–is to extend the maturity, as we discussed on previous calls. We are looking to all the options, but we are prioritizing maturity, the extension of the maturity. q
Brett Levy - - Analyst
And are there negotiations ongoing with bond holders?
Beatriz Garcia-Cos - Chief Financial Officer
I cannot disclose anything at this point.
Brett Levy - - Analyst
I got you, all right. Yes, I was going to say, you've got quite a maturity wall coming up, kind of by the end of your implementation of the plan. If you could extend maturities, that would be very positive. That's it for me. Thank you guys.
Marco Levi - Chief Executive Officer
Thank you.
Beatriz Garcia-Cos - Chief Financial Officer
Thank you.
Operator
Thank you. I'm showing no further questions. I would like to turn the conference back over to Marco Levi for any further remarks.
Marco Levi - Chief Executive Officer
That concludes our second quarter 2020 earnings call. As I mentioned at the beginning of the call, this quarter's performance is certainly trending in the right direction; however, we have much more work to do, especially with regards to execution of our new strategic plan. I am confident that the actions we are currently undertaking along with the new initiatives which are being developed as part of our strategic plan will help us get there and ensure a stronger, more competitive Ferroglobe.
Thanks again for your participation. We look forward to hearing from you on the next call. Have a great day.
Operator