Ferroglobe PLC

Thanks, Sandra. Good morning, everyone, and thank you for joining Ferroglobe's third quarter 2023 conference call. Joining me today are Marco Levy, our chief executive officer, and Beatriz Garcia-Cost, our chief financial officer. Before we get started with some prepared remarks, I'm going to read a brief statement. Please turn to slide number 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 website at ferroglobe.com. In addition, this discussion includes 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 like to turn the call over to Marco Levy, our Chief Executive Officer. Next slide, please.

Thank you, Alex, and good morning, good day, and good evening to everyone. Thanks for joining us on the call today. We appreciate your interest in Ferroglobe. Since I joined Ferroglobe almost four years ago, we have focused on revamping the business and operations by optimizing the cost structure, improving the balance sheet, and positioning the company for growth. During this time, we increased adjusted EBITDA from $33 million in 2020 to $860 million in 2022. And we are on track to meet our 2023 guidance of $270 to $300 million in a period of extremely weak demand, declining market pricing for five quarters in a row, coupled with unprecedented macro uncertainty. we reduced our gross debt from $473 million at the end of 2015 to a return level of $237 million, significantly strengthening our balance sheet and approaching the target that we indicated more than a year ago. The dramatic improvement in performance has been the result of our cost-cutting efforts and various initiatives focused on improving efficiencies and driving sales productivity, such as focusing on higher-margin specialty products, which has ultimately made us more competitive in the marketplace. Although we continue emphasizing continuous improvement and further cost reductions, the initial optimization phase of our plan is essentially complete, and our leverage objective has been reached. We are now focused on positioning the company to lead the silicon metal industry in addressing the solar and the electrical battery market, which we believe represents an enormous opportunity for Fair Work. Recent legislation in the US and Europe has provided incentives to increase on shoring, which will further benefit Ferroglobe with its strong presence in these regions and worldwide production capabilities. At the same time, we are looking to maximize the value of our manganese and silicon-based alloy businesses. On primary requirements to produce advanced silicon metal, that is needed for these growth and market applications is access to high-quality quartz. To ensure access to reliable supply, we recently completed the acquisition of a high-quality quartz mine located in South Carolina. This quartz supply will support our silicon metal production plants in the U.S. as we position the company to benefit from the circular growth in solar and EV batteries. The South Carolina mine has annual production capacity of roughly 300,000 tons with an expected reserve life of at least 10 years. Our current quartz mine in Alabama has annual capacity of about 200,000 with approximately three years of mine life remaining. We expect to be in production at the new mine in the second half of 2024. Not only will this increase our self-reliance on quartz for our current needs, but also for the coming years, I see because metal demand in U.S. is expected to grow significantly. In fact, We believe that North America will have a structural shortage of silicon metal in the next two to three years. Our total investment is expected to be around $15 million, including $11 million for the property, plus an additional $4 million for infrastructure, mainly rail access, a processing facility, and a loadout. We anticipate the cost structure to be favorable, approximately 10-15% lower than the current cost in our Alabama mine, and its proximity to our operations secures the long-term competitiveness of our U.S. footprint. One of Fairglobe's key differentiators is our backward integration, where we have access to critical materials needed for the production of our products. In addition to the quartz mine just purchased in South Carolina, we also have other mines supporting our production facilities around the world, ensuring that we have access to high-quality quartz. In Europe, we have the Cerabal Quartz Mine in Spain, which supplies primarily to Spain and France. We have rise to operate this mine until 2038. And in South Africa, we have several quartz mines supplying our operations there. Overall, our mine supply over 70% of our internal needs, a key competitive advantage in managing our costs and assuring reliable availability of this gear material. Having a stable supply of high-quality quartz is essential in addressing the solar and EV battery market. which we expect to be a significant long-term opportunity for the company. In batteries, high purity silicon provides significant advantages over graphite in battery anodes, such as increasing battery capacity and reducing charging time. As the percentage of silicon content in the next generation batteries continues to increase, we expect to see a dramatic increase in demand for high-quality silicon metal. In line with our focus on solar and EV batteries, we continue to actively develop partnerships and alliances to position us to maximize our participation in these growth opportunities. These prospective partnerships are aligned with our strategic vision and seek to enhance our capabilities within our core areas of expertise. Our focus with these partnerships is to further enhance our position in developing our purity silicone metal that is used in advanced solar and battery markets, including vertical integration, further advancing the technologies or using different approaches in our production process that improve our decarbonization initiatives. Our objective in securing these partnerships is to enhance our market leadership in the value-added silicon metal sector. One recent development worth paying attention to relates to China, the largest graphite exporter which recently announced that it's curbing exports of certain graphite materials used in batteries, putting upward pressure on graphite anode prices. We believe this restrictive action by China will accelerate the shift towards increased use of silicon in anodes, especially in light of its superior performance. In solar, We are positioning Ferroglobe to be the leading provider of silicon used in solar panels. Giving worldwide effort to transition to green energy, we expect significant demand in solar for years to come. Our opportunity in solar is amplified by increasing on showing trends in North America and Europe to expand local supply of these critical materials. Recent legislation including the Inflation Reduction Act, the CHIPS Act, and the European Grain Initiatives, will drive significant demand in this market. Ferroglobe's market leadership and worldwide distribution push us to benefit from these trends. In our ongoing efforts to access a stable supply of power in Spain, we signed an additional PPA that locks in an increased portion of energy for the coming years. This agreement has a term of three and a half years and became effective on November 1st. This PPA, combined with two we signed last quarter, are expected to allow us to produce higher volumes in Spain to serve our customers during the winter months when our facilities in France are idle. Our facilities in North America continue to benefit from favorable U.S. policies. In September, a bipartisan bill was introduced in the U.S. Senate to enact a 35% tariff on imports of Russian and Belarusian oil. We believe this is a very positive trend for the American industry and employees, showing the U.S. commitment to increase reliance on friendly supply chain participants. While we are excited about the long-term outlook, the near-term visibility remains open. Prices for our products continue to be weak, and demand remains subdued. Recently, there has been commentary from various market participants, cheating weakness in the solar energy and market. Higher interest rates have negatively impacted demand for electric vehicles, and recent commentary from auto manufacturers indicate a very competitive market with increased pricing pressure. While there is currently weakness in this market, we are focused on the significant long-term opportunity. The EV market, battery market, sorry, is expected to be driven more by the increasing content of silicon in the anode. and less by short-term supply-demanding balances. The solar opportunity is expected to be driven by increased government incentives and the focus on onshoring the supply of silicon metal, a critical material for solar cell production. Our integrated asset footprint, combined with favorable long-term market trends and supporting U.S. and European legislative actions, paints a bright future for Fresno's future in the coming years. I am very pleased with our operations of how our operation has been performing in the first quarter. We are executing at a high level in nearly all our locations, as evidenced by the fact that our plant's efficiency is at the highest level in 30 years. The efficiency of our furnaces is very strong, and we are navigating with the energy landscape exceptionally well in all regions, with the exception of Spain, as we modulate production based on advantageous energy prices. This was made possible by the efficient management of our capital expenditures over the past couple of years. After an extensive evaluation, we made a decision to implement the capital allocation policy and plan to announce details of our capital return in the first quarter of 2024. At the same time, we are reiterating our 2023 guidance of $270 to $300 million. We are not immune to the current soft market conditions and anticipate the fourth quarter adjusted EBITDA to come in below the third quarter results. Next slide, please. Silicon metal revenue was $199 million in Q3, up from $195 million in Q2, an increase of 2% adjusted EBITDA for this segment remaining strong, down only 2% from the prior quarter. Volumes increased 13% over the previous quarter to approximately 57,000 tons, driven by strong shipments in North America. Our average realized price of silicon metal sales decreased by 10% compared to the previous quarter, driven by lower index pricing in the US and Europe. This price decline negatively impacted adjusted EBITDA by $19 million. We continue to benefit from our energy agreement in France and in direct CO2, which together contributed roughly half of the cost benefits, with lower material costs being the next largest contributing factor, primarily coal. As for silicon metal outlook, the market continues to show muted demand and the lack of liquidity due to macroeconomic uncertainty. affecting both the chemical and the aluminum sector. While we are positive about long-term opportunities for silicon metal, we expect demand to remain weak in the near term, particularly in Western markets. This weakness is partially offset by our expansion into new markets, such as Asia, where we have started actively participating in their solar value chain. Next slide, please. Silicone-based alloys revenue was $115 million in Q3, down from $133 million, a decrease of 14%, primarily driven by weaker prices. Adjusted EBITDA for Q3 was $25 million, down 20% from the prior quarter. Sales volumes. declined by 6% to 46,000 tons, and average realized pricing was down 8% over the same period, negatively impacting EBITDA by $10 million. Relative to the previous quarter, silicon alloys benefited from lower material costs, which was the largest contributor to cost improvements. The silicon alloy segment was adversely affected by the weak steel sector in U.S. and Europe, partially upset by the strong special difference of silicon sales into the electrical steel market. In addition, our sales into diverse segments such as foundries have been more resilient. Next slide, please. Turning now to manganese-based alloys. Manganese base and lowest revenue was $59 million in Q3, down 25% over the prior quarter. Adjusted EBITDA for Q3 was $11 million, up from $1 million in the prior quarter. Sales volumes were down 10% over the prior quarter, negatively impacting adjusted EBITDA by $43 million. while average realized pricing was down 16% at the same period, which negatively impacted EBITDA by $11 million. This was offset by higher energy and CO2 compensation in France and lower Langanese oil prices. The yen market, primarily steel, remained under pressure with a lack of visibility in 2024. Within the construction segment, we expect incremental improvement in the first half of next year as a result of a seasonal uptick in demand. Now, I would like to turn the call over to Beatriz Garcia-Cost, our CFO, to review the financial results in more detail. Beatriz.

Thank you, Marco. Please turn to slide nine for a review of the income statement. Sales in the third quarter declined approximately 9% from $456 million the prior quarter to $470 million. The decline in Q3 was primarily due to weak pricing and lower volumes in our silicon alloy and manganese alloy segments. at higher volumes in silicon metal. Silicon metal volumes was up 13% over the prior quarter. The increase in volumes in Q3 was primarily due to stronger shipments in North America, while declines in silicon alloys and manganese alloys were a result of weak end markets, particularly steel. Average realized prices lowered across all product categories. as a result of continued price decline in index prices. The material and energy consumption cost improved during the third quarter to $196 million, down from $229 million in the prior quarter, or 47% of sales versus 50% prospective. This improvement was driven primarily by our energy agreement in France. The energy agreement provides a benefit of approximately $56 million in the third quarter. We expect an additional benefit in the fourth quarter. In addition, raw materials, primarily coal, benefit from lower prices in the third quarter. Staff costs in the third quarter increase to $84 million. up from $75 million in the second quarter. Operating profit in the third quarter was $75 million versus $63 million in the second quarter. Operating margins were 18% in Q3, up from 14% in the prior quarter. Net finance expenses in the third quarter were $9 million, up from $1 million in the prior quarter. The increase over the prior quarter was a result of the cold premium related to the $150 million partial reduction of senior notes and the accounting impact. In addition, in the second quarter, we had a long time to work of accrued interest of one of our government loans. We expect net financial expenses to decrease going forward, consistent with the significant reduction of our gross debt. Next slide, please. Our adjusted every year in the third quarter was $104 million versus $106 million in the second quarter. Adjusted every year margins increased to 25% in the third quarter, up from 23% in the second quarter. Volumes provide a benefit of $8 million, primarily driven by higher volumes in silicon metal, which increased 13% over the prior quarter, partially offset by volume declines in zinc alloys and manganese alloys, which declined by 6% and 10%, respectively. Prices in the third quarter were weak across the board, with the overall average realized price declining 11%. Weakened markets with pricing pressures across our three segments result in a negative impact of $37 million on our assets every year. Cost has a positive impact on adjusted EBITDA in the third quarter versus the second quarter, primarily driven by our energy agreement in France as well as lower raw material costs, primarily coal. Next slide, please. We end the third quarter with a cash balance of $166 million, down from $363 million in the second quarter. This decline reflects the redemption of the $150 million of the 9.375 senior secured notes during the third quarter. This redemption will save the company approximately $14 million in annual interest costs. As a result of the reduction, total adjusted gross debt declined to $237 million, down from $400 million in the second quarter. This is a record low for Federal Globe. Debt debt increased to $71 million, up from $37 million, primarily to increase working capital. Next slide, please. During the third quarter, cash used by operations was $9 million versus $24 million of cash generated in Q2. The primary factors impacting our cash flow include a $51 million impact from working capital and non-cash items of $44 million. These non-cash items, more energy benefits, are expected to boost our cash position in the first quarter of 2024. CAPEX in the third quarter was $19 million versus $23 million in the prior quarter. Lastly, cash flow from financing activities in the third quarter was negative $171 million versus positive $19 million in the second quarter. The negative cash flow from financing activity was the result of the bond redemption and associated premium call. Next slide, please. At this time, I will turn the call back over to Marco.