Ferroglobe PLC

Good morning ladies and gentlemen and welcome to the Ferragloves first quarter 2022 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 is being recorded. I would now like to turn the call over to Gaurav Mehta, Ferragloves Transformation Director and Executive Vice President of Corporate Strategy, Technology and Investor Relations. You may begin.

Good morning, everyone, and thank you for joining Fairglobe's first quarter 2022 conference call. Joining me today are Marco Levy, our chief executive officer, Beatriz Garcia-Cost, our chief financial officer, and Benoit Olivier, our chief operating officer and deputy CEO. 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 Fairglobe's most recent SEC filings and the exhibits to those filings, which are available on our webpage, www.fairglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA, adjusted 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. At this time, I would now like to turn the call over to Marco Levy, our CEO.

Thank you, Gaurav. Good morning or good afternoon, everyone. I am really excited to present our results, which set a new record in terms of our quarterly revenues, adjusted EBITDA, margins, net profit, and earnings per share. since the formation of Ferroglobe. Our organization has worked very hard over the past few years, and reporting these stellar results is the validation of the earnings potential of this business, and we look forward to building on this positive trajectory. The improvements in our go-to-market strategy, our quick reaction time to market changes, the focus on continuous improvements, among many other things, all contributed to these results and the new Ferroglobe we are creating. The operating environment around us continues to evolve. Whether it is changes in our customer needs and preferences coming out of the pandemic, or our need to quickly find new suppliers in the wake of the terrible Russia-Ukraine war, we are going through a very unique period. Ironically enough, it is in the midst of these drastic changes and uncertainties that Ferroglobe is capitalizing on the full potential of its unique global asset footprint more so than ever before. Our ability to service global customers locally has proven to be a great competitive advantage. particularly as customers put a premium on security of supply and seek shorter supply chain. This will only become more valuable over the coming years as suppliers and customers rethink strategies with their own ESG targets in mind. In the face of an energy crisis, particularly in Europe, we have been able to leverage our operational flexibility. scaling back production in Spain, and servicing customers from facilities in Norway and France. Our diverse geographic footprint sets us apart from our competitors and is proving to be extremely valuable as we look at what's happening around us from an economic, environmental, and geopolitical standpoint. One key element of our value creation plan has been footprint optimizations. The decision to right-size the footprint and subsequently remaining disciplined in not restarting capacity too quickly has also been a key contributor to this turnaround. That said, we do see some positive signs to consider additional capacity restarts and are assessing this now in the area of silicon metal. There are also positive developments regarding differential structuring which I'll come back to momentarily. In addition to our operating assets, we are benefiting immensely from our vertical integration into critical raw material. This has provided us security of supply in areas like electrodes and has helped us mitigate inflationary pressures in other areas such as coal and quartz. During the first quarter, Our revenues increased 26% to $750 million, and we achieved adjusted EBITDA of $241 million, an increase of 182% over the previous quarter. Our adjusted EBITDA margin more than doubled to 34% in Q1, and our earnings per share on a fully diluted basis was positive 80 cents, a significant increase over 27 cents per diluted share we delivered last quarter. Overall, our business continues to perform well across the entire product portfolio, and we expect this momentum to continue. Moving ahead to slide five, please. Our silicon metal business had a drastic change this quarter, as the materially lower fixed-price contracts expired at the end of 2021. Hence, we realized a 108% increase in the average selling price in our shipments, excluding the joint ventures. The index in the US was virtually flat in Q1 as a result of the pre-buying at year-end. Hence, there hasn't been a lot of liquidity in new sales. In Europe, The index pricing did come down right at the beginning of the year, following an extremely robust Q4. Since mid-Q1, we have seen some recovery in the index into Q2. Keep in mind that the majority of our contracts this year are index-based and get reset quarterly, based on an average price of the per-year quarter index. Hence, a rather flat Q1 at these attractive pricing levels is actually positive for us in Q2. While our shipments during the quarter dropped, I want to be very clear that this is not the result of demand destruction in any of our end markets. The drop in volumes is actually attributable to the collective results of us starting the year with very low stocks after a strong Q4, Our decision to curtail production in Spain given the energy pricing, a transportation strike in Spain this March, which has been leading to some spillover of volumes into Q2, and the delay, the restart of the first furnace at Selma. We continue to see steady demand on the chemical side, with many global customers considering plans for capacity additions. At the moment, The energy intensive aluminum sector is feeling the direct impact of higher energy prices, particularly in Europe. As a result, there have been some temporary containments. And photovoltaic is increasingly getting more focused these days. Many of our customers are thinking about their strategy, but we have not seen a big pickup in this year just yet. Overall, We saw a significant improvement in the contribution from silicon metal with quarterly adjusted EBITDA, increasing to $150.4 million. There will be always some month-to-month fluctuations driven by trade flows and demand side issues, but the fundamentals remain solid. Looking ahead, we see the supply-demand tension holding, supporting favorable pricing levels. In light of the situation, we have commenced our assessment around the restart of our 55,000-ton silicon facility in Polokwane, South Africa. A formal decision around the potential restart is targeted for September. Another exciting development is with our silicon matter powders project for batteries and other advanced applications. Given the positive responses from customers who have been testing our IPOAT silicon powders over the past year, we are scaling up production to meet growing demand for our products. We will be providing more details around this development shortly. As our customers' needs continue to evolve, we feel this product and the proprietary innovation behind it will be an important part of the Ferroglobe story in the future. Slide six, please. The silicon-based alloys product category also contributed handsomely during the quarter. We've adjusted EBITDA increasing by 53% to $77.4 million. This light drop in sales volumes was in Europe and is linked to lower production in Spain due to the energy-related containment. a production issue in South Africa, which has since been addressed, and logistical issues in South Africa, limiting our ability to procure containers and move foundry products. We expect to recover some of this volume slippage over the coming quarters. More meaningful is the gap left by the conflict between Russia and Ukraine, given Russia's reliance on the export market. we see upward volume potential in the near term as a result of this. While pricing increased in late February, there is an effect, so we will see the full pricing benefit in Q2. It is true that global steel demand was down in Q1. However, the current situation in the CIS region, coupled with other logistical issues elsewhere, is supporting a market tightness for ferro-silicon that builds on the strong momentum we saw at year end in this product. We expect this part of the business to contribute more in the near term as a result of these factors. At the moment, the price appreciation is more than offsetting any cost pressure driving margin expansion. Moving to slide seven, please. Turning now to manganese-based alloys, this part of our portfolio is also impacted by the war. Since the beginning of the war, the prices of our manganese alloys have increased. Similar to ferro-silicon, the price lag in our contracts means we will realize this benefit in Q2. In terms of volumes, our 75,000 tons of shipments was in line with our expectations given the situation in Spain. As a reminder, 97,000 tons shipped the previous quarter was the result of some inventory build and catch-up volumes at year end. On the cost side, we have seen a direct impact of inflationary pressures on manganese ore, coke, and other reductants. Given the evolving situation in Russia and Ukraine, we see some near-term opportunities in this part of our portfolio. Next slide, please. As we look at the year end, there are a few key areas of focus. 2022 will be the second year of the execution phase of our value creation plan. Building on last year's success, we have identified a new pipeline of initiatives which are expected to deliver an additional $65 million of in-year EBITDA. This cost savings target is spread across footprint optimization, centralized procurement, continuous plan improvements, and the benefit stemming from commercial excellence. On the point around footprint optimization, we recently announced an agreement with the French Works Council on March 30 relating to the process which started one year ago. The scope of the project was amended back in November to reflect the continuation of operations at the Lake Laveau facility. Collectively, this agreement results in 195 potential job terminations and 35 employee transfers to other facilities. The project received validation from the French Labor Administration on May 4. I want to thank all the various government agencies for their deep involvement and productive discussions over the past year in arriving at this structure. We are well ahead of schedule in delivering the $180 million of EBITDA uplift from cost cutting and commercial excellence, which was initially targeted by the end of 2024. This year, we will also focus on looking beyond the financial target. Overall, there is tremendous opportunity for improvement by focusing on the core or bolstering our capabilities and ensuring we have the right support system in place to drive change. In order to create an edge and minimize value leakage, we have plans across our functions aimed at driving higher productivity, enhancing our operational efficiency, improving our customer experience, and driving sustainable results. where we have been spending a lot of time around is ESG strategy. At the moment, we're still towards the beginning of this journey, but I am proud to announce that FerroGlobe will be publishing its first ESG report during the first half of 2022. Needless to say, ESG is a critical pillar for all our stakeholders, and we are invested in ensuring that this becomes a part of our company's culture. In due course, we will be releasing details around the key areas of focus and the targets we are setting. Overall, I hope this call leaves you as excited as we are about where we are going. Since I joined in January 2020, we have been driving change throughout the organization, which has supported our financial trajectory. That said, we continuously broaden the scope of our plan and execute on our new initiatives to unlock additional value. I would now like to turn the call over to Beatriz Garcia-Cos, our Chief Financial Officer, to review the financial results in more detail. Beatriz.