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spk01: Good morning, everyone, and thank you for joining Federal Globes' first quarter 2021 earnings conference call. Joining me today are Marco Levy, our Chief Executive Officer, Benoit Olivier, Federal Globes' Chief Operating Officer and Deputy Chief Executive Officer, and Gurav Mehta, our Transformation Director and EVP of Strategy and Investor Relations, and Jorge Laben, Group Controller. Before we get started with some prepared remarks, I'm going to read a brief statement. Please turn to slide two at this time. Statements made by management during this conference call that are forward-looking are based on current expectations. Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Federal Globe's most recent SEC filings and exhibits to those filings, which are available on our webpage, www.federalglobe.com. In addition, this discussion includes reference to EBITDA, adjusted EBITDA, gross debt, net debt, and adjusted diluted earnings per share, which are known IFRS measures. Reconciliation of these known 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 the first quarter, as well as our business and operating environment. Then I will provide some additional details on our financial performance and key drivers behind our results. And finally, we will provide an update on the execution of our strategic plan. At this time, I would now like to turn the call over to Marco Levy, our Chief Executive Officer. Next slide, please.
spk03: Marco Levy Thank you, Beatriz, and welcome to our first quarter 2021 earnings call. It is a pleasure to present Ferroglobe's strong first quarter results, particularly following the challenging year we faced in 2020. Despite the lingering threat of COVID, we are witnessing economic activity recovering at a tremendous pace globally, and we are certainly capturing the benefit of stronger demand across all our end markets. In part, we feel the overall pace of recovery has caught the industry by surprise and the tone of many of our customers going into the new year was still one of caution and uncertainty. However, as we turn the corner and enter 2021, we have seen an acceleration in activity and firm signs of demand strength that is expected to continue at least through 2021. third quarter of this year. We are finally at an inflection point, which is underpinned by our solid supply-demand fundamentals across all products in our portfolio. While we are excited about the positive shift in the market backdrop, we are actually thrilled with the progress we have made at Ferroglobe on multiple fronts during the first quarter. The ongoing efforts to transform this business operationally and strengthen the business financially positions us well to compete and capitalize on this market opportunity. We have been selectively restarting some previously idle capacity in line with our long-term plan, all while driving down costs by focusing on operational improvements. Additionally, we made significant advancements in our comprehensive financing during Q1 and now have the consent of an overwhelming majority of our existing note holders to pursue an exchange offer to refinance and extend the notes. This is a highly favorable outcome for the company given the shorter timeline to closing and lower professional fees to execute. And last week, we announced the successful signing of the note purchase agreement relating to $40 million of the $60 million in new secure notes issuance. The $40 million is now in the process of being settled. Regarding the strategic plan, I'm happy to report that with the first quarter of the execution of phase behind us, We are maintaining a strong pace in implementing the plan and remain on track to hit our targets for the year. The current market conditions set the stage for an exciting 2021. It is important to highlight the Federal Globe strategy is not simply counting on a cyclical recovery. The resilience and discipline that helped us successfully navigate turbulent times now needs to be repurposed toward bolstering the competitiveness of our company with an eye towards value recovery for our stakeholders. Part of the strategy to distinguish ourselves is focused on innovation that supports our global customer base in the development of solutions driving sustainable products. To support this goal, we have refocused our research and development efforts toward the development of cost-effective and versatile range of advanced silicon products that can serve a highly attractive substitute for anode active materials in lithium ion batteries. We have developed the technical expertise for nano and micro silicon well-suited for this trend, and have been supplying several leading companies, research institutions, and academic centers. Given that the overall feedback from end users has been positive, we have decided to dedicate a pilot line at our Sabon facility in Spain to increase our efforts on this exciting opportunity. Overall, we have a good balance and momentum in the business. This remains a pivotal year for Ferroglobe, and our first quarter results highlight that we have started off on the right foot. Moving ahead to slide six, please. First quarter sales were $361 million, up 13% from the previous quarter, predominantly driven by higher average realized selling prices. The pickup in overall demand that I was commenting on previously hasn't fully come through in Q1 financials. but will certainly contribute going forward. During the quarter, our total volumes across all products were up 2.4%. In part, the minimal increase is attributable to the work down of our inventory levels throughout 2020, coupled with the increase in demand for certain products in Q4 2020. The net impact of this was starting the year with relatively low inventory levels. The net loss for the first quarter was 68.5 millions compared to a net loss of 139.8 millions in the previous quarter, which includes some impairment charges. We had strong recovery in our adjusted EBITDA. During Q1, Our adjusted EBITDA was $22.1 million, which is an improvement of 302% from the previous quarter. Our operating cash flow increased from $3.5 million in Q4 to $18.3 million in Q1. Despite some significant one-time cash payments, particularly relating to the repayment of debt, we generated positive free cash flow. Overall Q1 was marked by top-line growth, coupled with the cost improvement from actions taken throughout 2020, driving margin improvement. Overall, the increase in production also provided better fixed cost assertion across our operating footprint. To date, we have experienced some increase in input and logistical costs, but have been successful in mitigating the impact through continuous cost-cutting and improved production efficiency. Despite increase in our top line, our working capital improved by $5.9 million quarter-over-quarter, primarily driven by reduction of inventories, and the efforts supported here as part of the strategic plan. The gross debt decreased by $36.5 million during the quarter. We ended the quarter with gross debt of $419 million and net debt of $334 million. The repayment of the previous asset-based loan and other transaction-related costs offset the cash generated from operations during the quarter. Hence, we saw a decline of $48 million in total cash, ending the quarter with $84 million, which includes six millions of restricted cash. As business continues to improve and additionally parts of the financing close, we naturally expect to see a gradual improvement in our cash position. Next slide, please. Turning first to silicon metal on slide seven. Ferroglobes realized their selling price for silicon metal was $2,285 per ton in quarter one, relatively flat from $2,260 per ton per year quarter. The index prices in the U.S. gradually increased by approximately 21% during the quarter, while the European index increased by 22% during the same period. Keep in mind that that approximately 60% of our first quarter business was contracted at fixed prices in late 2020, when the market outlook was bleak and the pricing environment was much lower. Furthermore, the index-based contracts had a lag, so the increase in prices will only be realized in Q2 and beyond. And finally, We had a larger than usual portion of our silicon volume in Q1 allocated to our joint venture partner to settle the offtake balances from 2020. All these factors contributed to the flat price in quarter over quarter, but this will improve in Q2. The volume trends chart on the top right of slide 7 shows a 13% increase in silicon metal shipments over the previous quarter to 61,275 tons. EBITDA from our silicon business improved considerably from $1.9 million in Q4 to $14.8 million in Q1. Volumes, pricing, and costs all contributed to the improvement during the quarter. On the cost side, we had a net benefit of $9.7 million for the quarter. Specifically, $4.2 million is tied to one-off expenses incurred in Q4, which are not repeated this quarter. In Q1, we had the benefit of $2.4 million from improved contractual energy terms. This benefit will continue for a few quarters. We had a $3 million net impact from improved fixed cost absorption, coupled with a positive impact from our various key technical measure initiatives. Overall, the supply-demand picture for silicon metal is the best we have seen in years. In the past, we discussed how inventory levels throughout the value chain have diminished, especially during the pandemic lockdown. Restocking of this value chain was the initial catalyst driving demand recovery. However, today the high level of consumption for final products tied to aluminum and chemical sector is driving demand for our products. On the chemical side of the business, the increased need for medical-related products, investment in infrastructure and construction, and increasing daily consumables provide a strong foundation for an industry poised for continuous growth globally. On the aluminum side, the pickup in activity is largely driven by the recovery in auto demand, both in North America and in Europe, as well as the growing shift towards sustainability as aluminum becomes the material of choice, given its lightweight and recyclability. Sales into the photovoltaic market which was predominantly North America for us, has not recovered as many of our customers have not restarted previously idle capacity. In addition to strong demand, bottlenecks in raw material sourcing and logistics have created additional barriers limiting supply and further supporting the higher price environment. Given this backdrop, we feel The stage is set for strong demand and pricing for a large part of 2021. To take advantage of this market, we decided to restart a furnace at Sabon in first quarter 2021 and one furnace at Montrachet in second quarter 2021. Combined, this adds 23,000 tons of silicon capacity on an annual basis. A combination of our index-based contracts and free negotiated volumes, particularly with the new capacity, provide an attractive opportunity to capitalize on this trend. Next slide, please. Turning to silicon-based alloys on slide eight, during the quarter, The average selling price increased by 8.9% to $1,665 per metric ton, up from $1,528 per metric ton in the fourth quarter. During the quarter, we realized a 7.4% increase in sales volumes. Sales volumes of silicon beta-alloys were approximately 62,000 metric tons in Q1, about 4,000 tons higher than the previous quarters. Our silicon-based alloys are going into the steel market, which has had a remarkable start to the year. This end market was hit hard in 2020 due to COVID, with a significant portion of the capacity idle during the period of lockdown. Throughout 2020, we saw inventories of fair alloys also declining steadily as our customers diligently managed their working capitals. Our quarterly improvement is primarily attributable to sales of ferro-silicon, which has gained benefit from the restart of stiff capacity, especially blast furnaces in Europe. Furthermore, our foundry sales also improved on the back of gradual recovery across the global automotive and market. From our perspective, What began as a recovery to pre-COVID levels is now shaping up to be a scenario where we can have a longer period of demand strength. In addition to the pent-up demand, we are now monitoring the initial impact from deployment of funds from government stimulus schemes and infrastructure spending plans. On the back of this market strength, we have decided to restart the furnace at our Emash Leni facility in South Africa, which is dedicated to ferro-silicon and foundry. This furnace was restarted in early March and has annual capacity of 19,000 tons. EBITDA for our silicon-based alloys business was positively impacted by prices and volumes, partially offset by area costs. Nearly half of the cost impact is attributable to the funder's side of the portfolio, where the product mix and slightly over-fixed cost absorption in Europe resulted in higher costs. Additionally, the restart of our furnace in South Africa resulted in higher labor and related restart costs by approximately $1 million. And finally, the accounting treatment of CO2 rights in Spain resulted in lower costs in Q4, having a negative impact in terms of the quarter-over-quarter comparison. Next slide, please. Turning now to manganese-based alloys. During the quarter, the average selling price increased by 13.9% to $1,174 per metric ton. Shipments during the first quarter were down 7.6%, a decrease of approximately 6,000 tons over the previous quarter. With the strong demand for manganese alloys at year-end, our inventory levels were relatively low coming into first quarter. Unfortunately, this limited our ability to fully capitalize on the market demand during the quarter. Additionally, we had some downtime at the facility in Spain, which also adversely impacted our productions. EBITDA contribution from this business was positive $10 million in Q1 versus negative $0.1 million in the fourth quarter and is predominantly attributable to pricing. On the cost side, the average cost of manganese ore was flat quarter over quarter. With the strong momentum in steel demand coupled with our expectation of manganese ore cost remaining at attractive areas Due to new capacity coming online, we are anticipating spread level to be supported for this business throughout the quarter three of this year. In light of the demand outlook, we are in the process of temporarily restarting our second furnace at Moirana facility in Norway, adding 56,000 tons of capacity on an annual basis. I would now like to turn the call over to Beatriz to review the financial results in more detail.
spk01: Thank you, Marco. Beginning with slide 11, I will touch on a few specific line items on our income statement. Sales of $361 million during Q1 were 30% higher than the $321 million of sales in the prior quarter. This increase in sales was driven by a 12% increase in average realized prices, which more than offsets the 2% decrease in shipments across our portfolio. During the quarter, our cost of sales decreased by 8%, resulting in the doubling of our gross profit from 15% in Q4 to 31% in Q1. This is due to our continued cost-efficiency efforts as well as the avoidance of some one-off costs, which adversely impacted the prior quarter. The decrease in other operating income by approximately $6.2 million is due to the accounting treatment relating to the CO2 emissions rise. Although production is marginally higher quarter over quarter, we have not recognized any income in Europe during the quarter, given that the 2021 allowance in Europe has not been granted yet. Operating expenses, totaling $36.8 million, was higher than the previous quarterly, mainly because of the one-off impact in the United States during Q4. Reported EBITDA of negative $18.9 million in Q1. When accounting for the one-time costs relating to the implementation of the strategic plan, the adjusted EBITDA was positive $22.1 million. Next slide, please. Quarter over quarter, we did have a 302% increase in our adjusted EBITDA from $5.7 million in Q4 to $22.1 million in Q1. The improvement in our average realized selling price had the single largest impact, contributing $22.5 million. Continued Efficiency Program, or KTM, delivered the first results reducing our variable costs, contributing $1 million. Additionally, the pickup in production across the platform drove fixed cost absorption, which is a factor having an adverse impact in Q4. The increase in head office expenses is attributable to a third-party consultant spend, which decrease in Q1 as a result of some audit work and incremental legal expenses tied to specific transactions. During the quarter, we had an adverse impact stemming from the fair market adjustment related to our repurchase of CO2 rights, given an increase in the cost for these rights. Slide 13, please. Turning now to slide 13, I will review our balance sheet in greater detail. Let me start by elaborating on the cash and restricted cash figure. As part of our refinancing process, we repaid not only the ABL in the United States, but we also paid back letters of credit and other obligations with a specific lender as part of this transaction. The aggregated cash impact of this transaction was approximately $45 million. Hence, we had cash consumption during the quarter, despite the uptick in operating cash flow. Of the $84 million of cash on hand at quarter end, only $6 million is now restricted. This compared to the $28.8 million of cash, which was previously restricted under the prior ABL. The repayment of the ABL and cash consumed impact our gross and net debt. Overall, our net leverage position improved during the quarter and is currently 3.79 times. Total assets were approximately $1.3 billion, at the end of Q1, a slight decrease of $48 million over the prior balance at the end due to the net loss during the quarter. Next slide, please. In aggregate, we turn to free cash flow of positive $9.1 million during Q1. The cash flow from operating activities during the quarter was $18.3 million. Reported EBITDA was negative $18.9 million. Cash flow from investing activities was negative $9.1 million, attributable to approximately $2 million of capital expenditure, $7 million for the repurchase of CO2 rights. And lastly, cash flow from financing activities was negative $56.2 million for the quarter. In addition to the cash required to repay the ABL, and ancillary obligations, we made our semiannual bond coupon payment. Next slide, please. Now turning to slide 15, we reduced working capital by $5 million during the first quarter, despite the increase in sales. When looking at the working capital evolution, please keep in mind that the target which we have set for the year of $49 million is defined, measured as an average on rolling 12-month basis to account for cyclicality. In other words, we are targeting our average 2021 working capital to be $49 million lower than our baseline average for 2020. Slide 16, please. During the quarter, both our gross debt decreased by $37 million to $419 million, while debt increased by $10 million to $334 million. In the process of repaying the prior asset-based loan in the United States, we had to settle a few other obligations with the lender, including letter of credit, as well as retiring a credit card program. These lead to the cash decline during the quarter. Next slide, please. As you will know from our announcement made on March 28th, the company entered into a lock-up agreement with members of an ad hoc group of existing node holders, representing in aggregate approximately 60% of the 2022 senior nodes and TIROS capital in relation to a capital raise and extension of maturity of the senior nodes. Since our last update to investors, there has been material progress on the transactions. In particular, over 96% of our node holders have now shown their support for the proposal by acceding to the lock-up agreement, and as a consequence, we have elected to implement the transaction by way of an exchange offer instead of an English law or scheme of arrangement. This is expected to enable the transaction to be completed more quickly than would otherwise be the case and at a lower cost. The preparation of the long-form documents and satisfaction of the milestones under the lock-up agreement is proceeding in all material respects as expected. In particular, the group has entered into a note purchase agreement with members of the ad hoc group relating to the issuance of an initial $40 million of the aggregate $60 million new senior secure note. The conditions precedence to the no purchase agreement have been satisfied and the initial 40 million is in the process of being settled. We are still considering the appropriate form for the equity raise. You may recall that at the time of the March 28th announcement, we were considering conducting the new equity raise in the form of a preemptive rights issues share offering available to all shareholders. We are still vetting the option and seek to finalize a structure soon. We are optimistic that the remainder of the transaction will complete within the timeline provided for in the lock-up agreement and prior to the long-stop date of September 28, 2021. I look forward to reporting back to you as we hit additional milestones. At this time, I would like to turn the call back over to Marco, who will provide an update on the strategic plan.
spk03: Thank you, Beatrice. Now turning to slide 19. At this time, I would like to take a few minutes to provide an update on our strategic plan. Given that we are now running full speed ahead on the execution of initiatives across all value creation areas, we intend to provide a quarterly update on our progress from both a quantitative and a qualitative basis, hitting on some key highlights. To start, let me reiterate our targets for the year. We are expecting to realize 55 millions of incremental EBITDA benefit in 2021, as well as 49 millions of working capital improvement, which Beatriz highlighted. On the EBITDA side, we captured 4.75 millions of benefit through specific initiatives tied to turnaround plan which accounts for 9% of our annual target. It is worth noting that the $475 million is the actual impact which flows into our P&L. Also, please keep in mind that the savings are not expected to be captured in a linear fashion, as several larger initiatives are waited toward the back half of the year. With the way these initiatives are collectively progressing, we remain confident in delivering our target. With regards to footprint optimization, we formally engaged with the European Work Council on March 29 to commence the restructuring in Spain and France. In Spain, the negotiation period officially started on April 8. On May 13, 2021, the consultation period ended without an agreement between the parties and Ferro Atlantica del Cinca, which communicate its decision regarding the collective dismissal to the legal representation of the worker and the labor authority. So, Ferro Atlantica del Cinca will communicate its decision. In France, the project implies a consultation period of four months. The procedure started officially on April 13th And federal globe management is working since then to encourage social dialogue and transparency. Another area that we had significant progress is our continuous plan efficiency. While this work stream builds on our previous KTM program, we are revamping our processes for implementation. and are investing in training our workforce on how to execute these types of projects most effectively. The expertise provided by the consulting firm we are leveraging has also added tremendous value in improving our benchmarking and measurement capabilities, as we are clearly starting to see a cultural shift and excitement brewing around this program. Federalized procurement. was a big undertaking because we had to reorganize the department in terms of personnel and train people to function under a new organization. I commend the team's effort on quickly establishing this platform. In first quarter, we launched several RFPs and started to see the benefit of operating in this manner. As the organization gets used to working under the new formation, we see the opportunity to broaden the scope of this work stream to capture savings. On commercial excellence, there are 12 distinct subcategories we are progressing on. During the quarter, there has been a tremendous effort on reviewing and reallocating resources to better serve our customers. Through the development of improved account planning and customer coverage, we seek to develop a partnership with our key customers while enhancing and optimizing the overall order book. Over time, our goal is to focus on various other products, and having a strong partnership with our customers is critical to achieve this. And lastly, on working capital improvement, most of the efforts today have been centered on inventory management. We are creating targets based on KPIs in an effort to improve the overall efficiency throughout the cycle. Over time, we will move to other areas such as account payable and account receivable, but the initial way of working down both raw material and finished good inventory based on newly identified targets is proving to be a significant improvement. Based on the way the target is measured, we have seen significant improvement in Q1. That said, the rolling average is intended to account for seasonality, so the trend line may fluctuate from quarter to quarter. Overall, we remain confident in delivering on the working capital target as well. Beyond the numbers, we are focused on fundamentally changing the DNA of this company in terms of unifying the global workforce by creating a culture centered on excellence and training our workforce at all levels to operate in a different manner. This journey is just starting, but we are thrilled with the overall level of engagement and results so far. I certainly look forward to keeping our stakeholders updated on this journey over the coming quarters. At this time, I will ask the operator to please open the line for questions.
spk02: Thank you. To ask a question, you will need to press star, then one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Thank you. Our first question comes from the line of Brian DeRubio with Bayard. Your line is now open. And pardon me, Brian, your line is now open. As a reminder, to ask a question, you would need to press star, then one in your telephone. Thank you. I would now turn the call back over to Marco.
spk03: Thank you.
spk02: We love you for closing remarks.
spk03: Thank you. That concludes our first quarter earnings call. As I mentioned at the beginning of the call, the starts are aligned in terms of all parts of the company showing strong prospects for the year. Now it is up to us to execute on all fronts. The existing order book, the addition of new capacity, and the ongoing improvements in how we operate the company will all support our ability to capitalize on this opportunity. The progress on the financing side is also critical to our success. Now that we have mitigated some risks, the path forward provides us comfort that we can continue to execute on our plan. Things are shaping up nicely, and we look forward to keep you updated on our progress. Thank you again for your participation. Have a great day.
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