Ferroglobe PLC

Good morning, ladies and gentlemen, and welcome to Fairglobe's fourth quarter and full year 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 may be recorded. I would now like to turn the call over to Anis Barodawalla, Fairglobe's Vice President of Investor Relations and Corporate Strategy. You may begin.

Thank you. Good morning, everyone, and thank you for joining Ferroglobe's fourth quarter and full year 2022 conference call. Joining me today are Marco Levy, our Chief Executive Officer, and Vitrice Garcia-Cos, our Chief Financial 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. 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 the exhibits to those filings, which are available on our webpage, In addition, these discussions include references to EBITDA, adjusted EBITDA, adjusted gross debt, net debt, and adjusted diluted earnings per share, among other non-IFRS measures. Reconciliation of 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 Levi, our Chief Executive Officer. Next slide, please.

Thank you, Anish, and good morning and good afternoon to everyone. Before turning to our 2022 results, I would like to recognize our people. It is through their hard work and commitment that we were able to achieve the best performance in our 100-year history. Despite the global volatility and its impact on many industries, we have been resilient and continue to deliver strong results. This is a testament to the strength of our business model. It is also a clear indication of the confidence that our customers have in our ability to navigate through these challenging times. Through a combination of favorable prices, operational agility, commercial excellence, and cost discipline, Ferroglobe generated strong results in 2022 with revenue, EBITDA, and free cash flow all setting record highs for the company. Our business fundamentals are solid, and the value creation plan that was initiated a couple of years ago has made the company stronger and more competitive. The market opportunity for us is driven by the growing trend towards on-shoring and the transition to greener energy sources. As the leading producer of silicon metal, we are well positioned to capitalize on high demand and markets such as solar and batteries. The onshoring movement, driven by initiatives like the Inflation Reduction Act in the US and similar initiatives in Europe, are having a significant impact on the criticality of silicon metal in the solar value chain. This solidifies our position in the market. This is a clear indicator of the growing demand for renewable energy and the increased focus on local sourcing and production. It presents a unique opportunity for companies like ours, who are well-positioned to take advantage of these trends and deliver strong results. We are committed to driving a competitive advantage in the solar industry through our state-of-the-art silicon metal technology. Our focus on efficient furnace design, maximizing energy efficiency, and providing access to advanced technologies not only improves our operations, but also reduces project risk for our customers. In addition to solar, we also see substantial growth opportunities in the coming years, driven primarily from batteries used in electric vehicles. In the battery market, silicon metal provides significant advantages over graphite, the current standard used in the battery anodes, including a dramatic increase in battery capacity and a reduction in charging time. As this technology improves, the industry is expected to see rapid adoption, driving strong growth in silicon metal for the foreseeable future. Over the past two years, We have focused on improving our business efficiency through cost reductions and increased capital efficiency, positioning us well for future growth. The value creation plan that we launched in 2020 has had a transformational effect on our company, not just in terms of how we operate, but also in our ability to generate strong EBITDA. As of December 31st, 2022, The value creation plan has generated approximately $150 million in cost savings and then additionally $40 million in commercial excellence on a run rate basis. By the end of 2023, we expect to reach our increased target of $225 million. By continually improving our balance sheet and optimizing our capital structure, We are ensuring that we have the resources and the flexibility we need to capitalize on opportunities and navigate any challenges that may arise. We are progressing with our commitment to release working capital. We released $55 million in the fourth quarter, and we anticipate additional working capital release over the next two quarters. This early is combined with EBITDA generation should lead us to become net cash positive during 2023. While there is some uncertainty in the short term, our long-term story is robust. We are confident in our ability to navigate these challenges and remain focused on delivering strong results for our investors. In the first quarter, demand for our products decreased due to closures in the European steel and aluminum sectors as a result of higher energy prices, which caused our customers to lower their inventory levels. We are seeing early signs of improvement, particularly in the automotive and construction sectors, and we expect inventory levels to normalize in the near future, driving demand for our products. I would like to take a moment to highlight the exceptional work of our management team in successfully optimizing our energy costs. Through proactive communication with governments, regulators, energy providers, and customers, we have been able to take advantage of opportunities in France to generate the revenues through a compensation agreement with an energy provider in Q4. We have secured an extremely favorable energy contract providing low-cost energy for our assets in France for the coming years. We have a management team that is not only focused on delivering strong results, but also on finding innovative ways to improve our operations and remain ahead of the curve. Next slide, please. Let's focus on silicon metal. Revenue was $184 million in Q4, down from $264 million in Q3, a decline of 30%. Adjusted EBITDA for this segment declined from $113 million in Q3 to $89 million in Q4, down 21%. We have successfully achieved strong margins of over 30%. despite declining prices and production, a notable improvement compared to historical levels. This demonstrates our ability to control costs and respond to market demand while preserving margins. Our silicon metal business was down due to a challenging market environment impacting both price and volume. Volume declined 22% sequentially in Q4 to approximately 39,500 metric tons. Our average realized price for silicon metal sales decreased 11% compared to the previous quarter, resulting in a negative impact on EBITDA of $16 million. Costs improved by $23 million relative to the previous quarter, primarily due to the energy compensation agreement in France and CO2 compensation. However, this was partially offset by the increase in energy costs and raw materials. During the fourth quarter, various aluminum manufacturers in Europe shut down due to high energy prices, resulting in decreased demand for silicon metal. However, we're seeing some encouraging signs of demand for aluminum from the automotive sector. Concerns around the economic outlook in Q4 led to low demand for customers in the chemical sector. We expect this weakness to persist until late Q1 or early Q2. However, we anticipate a rebound for silicon metal due to increased demand for silicones in electronics, medical, cosmetics, and consumer goods. Slide six, please. Moving to silicon-based alloys, revenue was $127 million in Q4, down 29% over the previous quarter. Adjusted EBITDA for Q4 was $37 million, down 38% from the third quarter. Sales volumes declined 19% over the prior quarter, negatively impacting EBITDA by $9 million, while average realized pricing was down 13% over the same period, negatively impacting EBITDA by $22 million. Cost was fair, favorable relative to the previous quarter, mainly due to energy compensation in France of $8 million and CO2 compensation of $2 million, which was partially offset by higher coal price in Europe, which amounted to $2 million. The demand for our silicon-based alloys has decreased due to ongoing weakness in the markets, particularly steel used in construction. The rise in energy prices in Europe has resulted in continued shutdowns of capacity among steel producers. Europe has a significant change in the supply of ferro-silicon due to Slovakia being down and Russia being out of the market. We see a lot of material coming from Kazakhstan and China negatively impacting the price of non-specialty grade. Our strategy to focus on higher margin specialty and foundry products has enabled us to improve margins compared to commodity-grade silicon alloys. Moving to slide seven, let's move to manganese alloys. Manganese-based alloys revenue was $91 million in Q4, down 7% over the previous quarter. Adjusted EBITDA for Q4 was $20 million, up 34% from the third quarter. Adjusted EBITDA and margins showed improvement in the fourth quarter, indicating positive momentum after adjusting from earn-out provisions. Sales volumes were up slightly over the previous quarter, having a negligible impact on adjusted EBITDA, while average realized pricing was down 7% over the same period, which negatively impacted EBITDA by $11 million. The cost impact was positively influenced by the energy compensation agreement in France, which amounted to $11 million, and the CO2 compensation of $2 million. The demand outlook remains cautious as a result of weakness in steel. The ongoing conflict between Russia and Ukraine had placed upward pressure on energy costs and caused partial disruption to 1.1 million tons of Ukrainian source materials But the market has since made up for these losses, leading to a decrease in prices. The current spread between alloy and ore is around $700 per metric tons, above the historical average of $550 per metric ton. The Gabon landslide has led to a rise in manganese ore prices, which potentially could cause alloy prices to increase. Now I would like to turn the call over to Beatriz Garcia-Cos, our chief financial officer, to review the financial results in more detail.