Ferroglobe PLC

Good morning, ladies and gentlemen, and welcome to Ferroglobe's third quarter 2021 earnings call. At this time, all participants are in listen-only mode. Later, we'll conduct a question-and-answer session. Please register by pressing star 1 on your telephone. 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.

Good morning, everyone, and thank you for joining Federal Globe's Third Quarter 2021 Earnings Calls. Joining me today are Marco Levy, our Chief Executive Officer, Benoit Olivier, Federal Globe Chief Operating Officer and Deputy Chief Executive Officer, Guraz Mehta, our Transformation Director and EVP of Strategy and Investor Relations, and Jorge Labin, Group Controller. Before we get started, we saw prepared remarks I'm going to read a brief statement. Please now turn to slide two. Statements made by management during this conference call that are forward-looking are based on current expectations. Risk factors that could cause after-results to differ materially from these forward-looking statements can be found in FederalGlobe's recent SEC filings and the 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, debt debt, and adjusted diluted earnings per share, which are non-IFRS measures. Reconciliation of these non-IFRS measures may be found in our most recent SEC filings. Next slide, please. During today's call, we will first review the highlights for the third 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 Levi, our Chief Executive Officer. Next slide, please.

Thank you, Beatriz, and welcome to our third quarter 2021 earnings call. I hope that my voice supports me during this call. Otherwise, I will end over part of my presentation to Mr. Mehta. This is certainly a unique time for our company and for the broader industry. The sharp and unexpected recovery in demand across our end markets, which started in the fourth quarter of 2020, continued throughout this year. In fact, Global demand is our base supply, driving the index to unprecedented level in products such as silicon metal and reach multi-year high levels across our alloys. For example, the latest index pricing for European silicon metal has been at all time high at 8,100 euros per ton last week, up from around 1,700 euros per ton just one year ago, an increase of 375% approximately. I am pleased to report that we are seeing fundamentals remain extremely favorable for a sustained pricing environment throughout 2022. On the demand side, our customers across the chemical, aluminum, and steel sectors are signaling healthy demand into next year. On the supply side, we expect the tightness, particularly in silicon metal, to continue. The trend of lower net exports out of China continues to benefit Western producers. As a result, we announced the restart of our Selma, Alabama facility in the United States, which is strategically located to benefit from the growth in the region. Current market dynamics set the stage for significant improvement in our earnings at the beginning of 2022. However, our Q3 performance remained constrained due to the composition of our order book, which is heavily weighted towards fixed price contracts. Nonetheless, the limited price increase realized across the portfolio compared to the movement in the index was enough to offset drastically higher energy in Spain, higher input costs, operational and supply chain disruptions. We're also pushing ahead vigorously on the strategic turnaround plan, which is helping to offset some of the inflationary pressures and also helping to create the foundation for a stronger fairer globe. Overall, we are not surprised by the factors impacting our costs. The energy situation in Spain was an issue last quarter and will continue to have an impact through the year end. What surprises us is the pace and the level at which the market price for energy in Spain has shot up. To provide some perspective, the market pool price in Spain averaged 45 euros per megawatt hour in Q1, 72 euros in Q2, 118 euros in Q3. Once again, these are the average quarterly prices. I do not fully highlight the peak inter-quarter pricing, which was 189 euros in Q3. We are currently pushing several alternatives to mitigate this problem. We are reviewing term sheets for PPAs with strategic and financial counterparties, covering a portion of our 2022 energy needs in Spain. We're also working on solutions with our customers to pass through this cost in the wake of this unprecedented situation. As we rebound, from the depths of where this company has recently been, we are engaging in strengthening our relationship with customers. As cash generation accelerates, we are focused on reinvesting in our asset base to ensure efficiency and competitiveness. Additionally, we need to recognize the efforts of our workforce through a challenging period. The changes we are driving throughout the company are an important part of the new fair block. My first objective continues to be the strengthening of the company, and I think we are making progress. At this stage, it is critical that we fully capitalize on the near-term opportunities, and we must not compromise on the execution of our turnaround plan in order to ensure cost competitiveness in a sustained manner. I can confirm that at this stage we are recovering market share from key customers, and we are focused on our ability to convert these opportunities into faster cash generation, higher margins, and we're attractive trying to negotiate longer-term contracts. I will touch a bit more about how the current negotiation season is shaking up, but let's first review the third quarter results. Moving ahead to slide six, please. Our first quarter results were impacted by several factors, some of which were one-off, limiting our ability to benefit from the strong market conditions this quarter. The index prices continued to increase across the product portfolio during Q3 on the yields of strong demand. On the production side, we faced some outages and logistical issues constraining shipments. Total sales increased 3% over the previous quarter, to $429 million. On the cost side, energy had the single largest impact, costing us an increment of $19 million during the quarter, with other inputs such as coal and coke facing inflationary pressures. Furthermore, we faced some one-off issues at few facilities, which constrained our production. Operational challenges coupled with some inbound supply chain and outbound logistical bottlenecks adversely impacted costs during the quarter. Our adjusted EBITDA increased 10% over the prior quarter to $37.6 million. For the quarter, we had a net loss of $97.6 million, primarily due to a non-recurring accounting impact. This accounting charge relates to the refinancing costs specific to the senior notes, resulting in a financial expense of $90.8 million. This charge relates to the accounting of the aggregate fees, expenses, and equity, which were issued as part of the overall costs. Beatrice will elaborate a little bit more on that. During the quarter, we consumed some cash, ending the quarter with a cash balance of $95 million. Operating cash flow, in particular, was negative by $35 million as a result of an investment in working capital to support our strong near-term demand. As we think about Q4, we expect the revenues to increase, driven by the recovery in volumes and continued improvement in selling prices. And while some cost pressures will continue, the top-line growth is expected to outweigh these costs, resulting in continued recovery of our EBITDA and margin expansions. The acceleration of cash generation originally expected for 2021 will be limited due to increasing costs. As we get the benefit of the new prices at the beginning of January, we expect operating cash generation to improve. With regard to 2022, the order book is shaping up favorably. Today, we have approximately 35% of our overall sales contracted. We are currently negotiating a number of other sizable contracts which we anticipate to close shortly. With these contracts, approximately 70% of our order book will be booked. In 2021, we had a higher weighting towards fixed prices, which constrained our upside. In 2022, we will have more market exposure due to a higher weighting towards index-based contracts. Additionally, we are building more protections to our contracts in this cycle. Next slide, please. Turning first to silicon metal on slide 7. On the volume side, we had 8% increase in silicon metal shipments to approximately 61,700 metric tons, somewhat back to the levels realized in Q1. Earlier this year, we announced plans to restart the furnace at the Sabon facility in Spain and another furnace at our Moinche facility in France, as the demand picture strengthened. With the restart of these two furnaces, our production volumes in Q2 increased relatively to Q1. During Q3, we decided to idle the same furnace as Sabon due to the sharp rise in energy prices. This resulted in lower total silicon production during the quarter. Outside of Spain, we had a planned maintenance outage at our alloy West Virginia facility, which further limited our production. maintenance work has since been completed and this facility is fully operational as a result of these developments we expect volume in silicon metal to increase in q4 as well as a continuous step up in prices we have recently signed a very attractive contract supporting the decision to once again restart the furnace at sabon on the pricing side Our average realized pricing increased to $2,467 per metric ton in Q3, up 5% from the previous quarter. During the quarter, approximately two-thirds of silicon metal sales, excluding the joint venture volumes, were contracted. Of this contracted portion, 90% were under fixed price contracts. Hence, our average realized prices do not reflect the same pace of momentum reflected in the indexes. The index prices in the United States and Europe on the top left-hand of the slide show a parabolic movement in prices toward quarter, and that has continued in the fourth quarter. The current spot prices are over $9,500 per ton in the US and 8,100 euros per ton in Europe. EBITDA from our silicon business declined from 13.7 millions in Q2 to 11.4 millions in Q3. On the cost side, we encountered a few challenges which contributed to a negative impact of 8.3 millions. The most significant driver was higher energy costs in Spain, which adversely impacted Q3 by four millions. Beyond energy, there have been some cost inflation and sourcing challenges in other raw materials, such as coal, forcing us to seek for alternatives. In the absence of the optimal raw material mix, we have seen a negative impact on our overall operational efficiencies driving an increase in production costs. Regarding the Selma facility restart, our current plan is for one furnace to be restarted by year end and the second furnace to restart in late Q1 2022. End market demand remains strong. Currently, we are in negotiation season for 2022 contracts. In silicon metal, we are close to having approximately 80% of our volumes contracted. Of the contracted volumes, approximately 30% is at fixed price. Next slide, please. Turning to silicon-based alloys on slide eight. During the quarter, our average selling price increased by 9% to approximately 1,900 $90 per metric ton up from $1,830 per metric ton in the second quarter. Our silicon-based volumes were down 14% to just under 55,900 tons. The approximately 9,000 tons decrease across the silicon-based portfolio is primarily attributable to ferro-silicon and foundry to a lesser extent. We missed approximately 5,000 tons due to operational and logistical issues. In South Africa, there were shipments delays that were a result of congestion at the port of Durban in South Africa, and also delays in logistical challenges in procuring large container vessels. At our Bridgeport, Alabama facility, we had a planned downtime for maintenance, plus some unexpected operational issues, which kept the plant down for several extra days. Similarly, at our A. Marcellini facility in South Africa, another planned maintenance outage took longer than expected. In addition to the operational disturbances, we had approximately 2,000 tons that customers asked to delay into the fourth quarter as a result of some seasonal slowdown during the summer period. EBITDA for our silicon-based alloys business was positively impacted by prices, but offset by volumes and higher costs. resulting in adjusted EBITDA of $8.4 million in Q3, down from $11.4 million in Q2. In terms of the $10.5 million cost impact, approximately $6 million is attributable to higher energy costs in Spain. Cost inflation in coal and charcoal resulted in $1 million on buyer costs and also impacted furnace performance, which had another $1 billion impact. And lastly, with the operation of disruptions at Bridgeport and Amish Laney, we had a lower fixed cost absorption impacting the results by $2.5 million. Looking ahead to Q4, we feel this part of our portfolio is poised for a strong recovery relative to Q3. First, there are volumes which customers push from Q3 to Q4, as well as the incremental volume contribution from the furnaces which had operational issues. On the pricing side, keep in mind that ferro-silicon generally has either a one or three month pricing day. The ferro-silicon index in the US and Europe are up 40% and 35% respectively since the end of Q3. Overall, still demand remains robust and we are just getting back to pre-COVID levels. Keep in mind that the way steel producers manage their order books is very fluid. So while there might be some slowdown from time to time, the fundamentals have not changed. In fact, many of our larger customers have been looking at multi-year deals in light of the current environment. With regards to calcium silicon, the trade case in Europe was favorably concluded in early October. There are now anti-dumping duties against Chinese producers up to 50.6%. At the moment, these trade protections are in place until April 2022. With regard to ferrosilicon, taking into account the sizable context which we anticipate to close soon, 55% of our expected production for 2022 will be contracted. Of this portion, about 20% of our contracted volume is fixed pricing. Next slide. Overall manganese basal alloys was the strongest part of our portfolio in the third quarter. Despite a strong increase in EBITDA this quarter, this segment was impacted by the same seasonal slowdown in steel demand, as well as containment in Spain due to energy costs. Volumes increased 12% to approximately 76,500 tons. We had the incremental production from the furnace restart at Moirana in Norway. In an effort to optimize our energy costs, we shifted some of our contracted tons from Spain to Norway during this quarter. Additionally, we were able to capitalize on few opportunities as competitors faced operational and logistical challenges on their end, mainly in Southeast Asia. During the quarter, the average selling price increased by 11%, to approximately $1,575 per metric tons on abandoned bases. EBITDA from this business was up over 40%, contributing $22.5 million in Q3 versus $15.7 million in the second quarter, increasing pricing more than offset the cost pressure from energy and higher ore costs. We realized further improvements to our spread, which is the delta between the alloy and the ore price. We expect this trend to continue into the fourth quarter as the index for silico and ferromanganese have increased. The end market demand for manganese alloys remains solid, particularly on the construction and machinery end market. Given the near-term demand outlook for Q4, we decided to replenish and bid some inventories in manganese alloys during Q3. For the manganese business, we are targeting to have approximately 60% of our volumes contracted as we finalize the current round of negotiation for 2022. Today, the majority of the contracted volume is index-based pricing. I would now like to turn the call over to Beatrice to review the financial results in more details. Beatrice?