Ferroglobe PLC

Good morning, ladies and gentlemen, and welcome to Farrow Globe's second 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, Farrow Globe's President of North America and Executive Vice President of Corporate Strategies, Technology, and Investor Relations. You may begin.

Good morning, everyone, and thank you for joining Fairglobe's second 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 Technology and Innovation Officer. 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 those 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. Reconciliation of these non-IFRS measures may be found in our most recent SEC filings. At this time, I would like to turn the call over to our CEO, Marco Levy. Slide four, please.

Good morning or good afternoon, everyone. Today, I'm really thrilled to present our second quarter results, which set a new company record in terms of our quarterly revenues, adjusted EBITDA, margins, profitability, and net debt level. In fact, the second quarter marks the sixth consecutive quarter dating back Q4 2020, where we have consistently improved our performance in areas such as sales and adjusted EBITDA. Please keep in mind that adjusted EBITDA was negative in 2019 when this management team took over. I am extremely proud that we have been able to deliver adjusted EBITDA improvement in nine out of the last 10 quarters, despite challenges posed by COVID, the energy crisis, and most recently the Russian-Ukraine conflict. These stellar quarterly results are a reflection of the strong performance across our portfolio of products, coupled with the ongoing focus on cost reduction, improved operational flexibility, and quicker response to capitalize on market opportunities. We have been pretty clear on our priorities, and I am pleased that we are delivering on all fronts. In fact, we are excited to be over-delivering in some areas. For example, we continue to uncover new pockets of value. During our investor day a few weeks back, we announced our revised target of $225 million of run rate EBITDA benefit from the various transformation areas. Specific to the second quarter, our revenues increased 18% to $841 million, and we achieved adjusted EBITDA of $303 million, an increase of 26% over the previous quarter. Our adjusted EBITDA margin further improved by 234 basis points to a 36%. And our earnings per share on a fully diluted basis was positive 98 cents, a 23% increase over 80 cents per diluted share we delivered last quarter. Moreover, we continued to improve our cash generation. As a result, our net debt at June 30 was 194 million, the lowest in the company history. With the acceleration in cash generation, we repurchased some of our senior nodes during the quarter and subsequently closed on the redemption of our 9% super senior nodes in July. Overall, our business continues to perform well across the portfolio. We are vigilant that the macro environment continues to remain uncertain with high inflation and the continued energy crisis posing inherent headwinds. We expect to generate solid cash flows into the second half of the year, despite this lingering headwinds. Before we move on, I want to highlight the positive development relating to our energy costs, specifically in France. While we have fixed energy prices in France this year, in May we received notification from our energy provider that the French government decided to increase the relative portion of RN, which lowers our realized cost of energy. Hence, we received a net benefit of approximately $31 million this quarter. Approximately 20 millions of this impact was realized in our P&L this quarter, with the remaining amount being capitalized as inventory, which will be realized later in the year. To be clear, this is not a one-off benefit. We anticipate a comparable adjustment to our energy cost in France for the second half of the year as well. Additionally, our fixed price contract in France provides some insulation from the current droughts and potentially other factors. In the event there is a shortage of power, We also benefit from our unique ability to quickly modulate production and redirect power back to the grid at an attractive rate, albeit reducing output. Moving to slide five, please. Let's talk about silicon. Our silicon metal business had another strong quarter on the back of solid supply demand fundamentals. The index pricing in the U.S. Europe dropped during the quarter, albeit by different levels. The U.S. index held rather flat through May before seeing a decline in June. Nonetheless, the U.S. ended Q2 with pricing above $8,700 per ton and has held flat since. In Europe, the index actually increased until early June, reaching 4,800 euros per ton before ending the quarter just over 4,000 euros per ton. Overall, we remain encouraged with the pricing environment and need to put these pricing levels into perspective relative to historical levels. After hitting unprecedented levels at the end of 2021, the pace of decline this year has been much slower than what was initially expected by CRU, which is positive for our results. Furthermore, given our exposure to index-based pricing, we are getting the benefit of higher realized prices. In other words, the higher pricing average in Q2 will positively impact us during the third quarter. Our shipments increased to approximately 63,000 tons during the quarter, This was in part attributable to strong demand, as well as the restart of the second furnace at the Selma facility during the quarter. In terms of end market demand, the chemical side continues to be the strongest across our core geographies. The aluminum sector continues to face headwinds from higher energy prices in Europe, as well as continued supply chain disruption, adversely impacting auto demand. Initially, we were hopeful for some recovery on the automotive side during the back half of the year. Given the continued uncertainty around the energy and the current macro picture riddled with higher interest rates, we are not factoring in any further recovery in the auto end market for this year. I will come back to some interesting developments on the photovoltaic later in today's presentation. we saw a significant improvement in the contribution from silicon metal. Silicon metal revenues increased 13.7%. We've adjusted EBITDA increase by 15.5%. Margins for this part of the business improved further, reaching 49.2% in Q2. On the cost side, we benefited from the decrease in energy costs in France as detailed on the slide. While our average realized cost of energy in Spain improve over quarter, the volatility continues. Just last week, the energy price were back above $300 per megawatt hour. We are seeing companies along the entire value chain approach the backup of the year with more caution. While there are pockets of demand correction, We are seeing the supply-demand tension holding, supporting favorable pricing levels. Once again, most of our sales for this part of the business are index-based and will benefit from the strong Q2 pricing level. Slide six, please. Let's talk about silicon-based alloys. The silicon-based alloys product category was the stronger performer during the quarter. Our sales grew 11.5%, while adjusted EBITDA for this product category grew 23.9% during the quarter, resulting in adjusted EBITDA margins of 41.1%. Sales volumes were flat quarter over quarter, but we did realize an 11.3% pricing improvement, which was primarily the result of the Russia-Ukraine conflict. Demand for our silicon-based alloys was strong across the U.S., Europe, and South Africa during the quarter. In fact, we could have probably sold higher volumes, but with Spain operating at minimal load, our total shipments were flat quarter over quarter. Looking into the back half of the year, we think our customers will be purchasing with greater caution as steel capacity, particularly in Europe, is being curtailed. Overall, we will continue to drive our strategy to orient this portfolio of products to our higher margin specialty products and toward higher priced foundry products. Moving to slide seven, please. Let's talk about manganese alloys now. This part of our portfolio has been impacted by the conflict as Ukraine is a major supplier of manganese alloys into Europe. As we entered the second quarter, we quickly picked up on the uncertainty that was present given the conflict, and we quickly ramped up production to capitalize on the situation. During the quarter, we had a 29% increase in shipments to approximately 97,000 tons. Likewise, we continued to get some pricing appreciation with the average realized price increasing 3.2% during Q2. Overall, our sales increased 33% while adjusted EBITDA grew 61.4% to $32.9 million. Margin expanded by 300 basis points to 17.1%. Looking ahead, we expect volumes to revert back towards recent historical levels. Many still customers certainly voiced caution during the recent quarterly calls. This sentiment, coupled with continued higher energy prices and other input costs, puts us in a more prudent state, and we will manage the asset portfolio responsibly. Overall, a strong performance by all three product categories. Now, I would like to turn the call to GravMeta due to connectivity issues with my CFO, Beatriz Costa.