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spk02: Good morning, everyone, and thank you for joining, excuse me, Faragolp's second quarter 2024 conference call. Joining me today are Marco Levy, our chief executive officer, and Beatriz Garcia-Coss, 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 exhibit to those filings, which are available on our webpage 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. Reconciliations of non-IFRS measures may be found in our most recent SEC filings. Before I turn the call over to Marco Levy, our Chief Executive Officer, I want to announce that we'll be participating in Seaport Research Partners' annual Summer Investor Conference on August 20th and 21st. We hope to see you there. Marco?
spk03: 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. Before I begin with our quarterly earnings update, I want to inform you with deep regret that Juan Miguel Villamil, founder and former chairman of FerroAtlantica, our legacy company, passed away last month. I would like to express our deepest condolences to his family. In Q2, we continued to execute well, driving strong financial performance with increased volumes, revenues, and adjusted EBITDA. As we discussed in our first quarter call, In May of this year, the U.S. International Trade Commission recognized that imports of ferro-silicon from Russia, Kazakhstan, Malaysia, and Brazil, which represented approximately 70% of all imports in 2023, are injuring our U.S. operations. The substantial government subsidies received in these countries and the low selling prices of these imports have adversely impacted the US ferro-silicon market, hurting local producers and their ability to compete. The ITC's final decision will be made in October. On June 24th, the US Department of Commerce announced preliminary anti-dumping and countervailing duties of 283% and 748% respectively on all Russian imports of ferro-silicon. As a result, all importers of Russian ferro-silicon are required to post cash deposits or bonds to cover these duties. Russia represents approximately 35% of all ferro-silicon imports into the US This is a significant victory for our industry, allowing us to compete on a level playing field. The investigations of the remaining three countries, Kazakhstan, Malaysia, and Brazil, are still underway. The International Trade Commission will announce preliminary determinations for countervailing duties expected in August and anti-dumping duties in October. We believe these decisions will have a positive impact on our business in 2025 as inventory in the channel is depleted. As you recall, during the first quarter, we signed an MOU with Corsair to further develop batteries for EVs using silicon-rich channels. We are very excited about this relationship as it enables us to take part in the evolution of EV batteries. In testing, Corshell has achieved a high cycle lifetime using an 80% ferroglobe silicon content anode in a Corshell battery. This improvement in battery performance is an important milestone. The benefit to consumers is that the silicon rechanneled significantly reduces the cost of batteries, speeds up the charging time to just 10 minutes, and increases the range up to 40%. The next step is to produce a commercial-sized battery that OEMs can begin testing. Corshell has closed its financial round targeting the development of a pilot plant that will produce larger 60 ampere cells for the OEM testings. This project is on track with commissioning scheduled to begin in Q4 of this year and testing at OEMs expected in early 2025. We'll keep you informed as we continue to achieve new milestones. In addition to developing silicon ray channels with Kerr shell, We are working approximately with 70 ED battery companies who also develop other silicon-based technologies, such as silicon carbon composites and silicon monoxide anodes for batteries. These technologies, while less efficient than silicon-based batteries, are either in use or expected to enter the market in 2025. White prices in general have been strong during the first half of the year. They have been varied. They're even more by supply constraints than a fundamental improvement in demand. Strong index prices in the second quarter should drive solid results in Q3. However, we are still cautious about the fourth quarter, given the uncertainty in the market. especially as it relates to the aluminum, foundry, and steel sectors. We continue to announce our capital return policy. In addition to paying a quarterly dividend of 1.3 cents per share, our Share by Debt program was approved in June. We are narrowing the adjusted EBITDA guidance range from $130 to $170 million to $150 to $170 million. The strong second quarter combined with higher index prices should positively impact the third quarter, which gives us more confidence for the second half of the year. However, given the weak demand, we are still cautious about the fourth quarter. And combined with the idling of French operations, we anticipate having the lowest adjusted EBITDA of the year in the fourth quarter. Next slide, please. Our second quarter performance was strong with total sales increasing by 15% from the prior quarter to $451 million, and adjusted EBITDA reaching $58 million, up from $26 million driven by strong pricing and sales volumes. Operating cash flow and free cash flow were $2 million and negative $20 million, respectively, due to inventory build as we started France and made the calculated decision to purchase incremental tons of manganese ore in anticipation of price increases. Beatriz will discuss this in more detail as she reviews the financial results. Next slide, please. Difficult metal revenue in the second quarter was $204 million, up 22% from the previous quarter. This increase was a result of higher prices and higher volumes. Average realized prices increased 2.8% while shipments increased 18.2% to almost 63,000 tons. driven primarily by strong sales to the chemical sector in Europe. The volume shift in the second quarter was the highest level in the past two years. Index prices in Europe, which were down slightly in the second quarter, were negatively impacted by lower-priced Chinese export and weakened the market, particularly the aluminum sector, which was affected by high energy prices in Europe. Prices in North America were strong in the second quarter as they benefited from supply constraints such as the Baltimore Bridge accident. In addition, high tariffs make Chinese silicon metal imports a known factor in the US market. Silicon metal adjusted EBITDA was $35 million. an increase of 115% over the previous quarter, driven by strong volumes, higher prices, and lower costs. Given weak demand in end markets and easing supply constraints, we expect the index prices to soften into the third and fourth quarters. With a typical three-month lag in pricing, we expect the third quarter results to be relatively stable, but weaker in the fourth quarter. In addition, we expect France to be idle toward the end of the year, which will also impact fourth quarter results. Next slide, please. Typical base alloys. Revenue in the second quarter was $105 million, down 6% from the period quarter. This revenue decline was a result of low achievement which were down 8% from the previous quarter, partially offset by a 2.4% increase in prices. Index prices in North America were up versus the first quarter, while Europe was relatively flat during the second quarter. Adjusted EBITDA was $10 million in the second quarter, down 29% from the first quarter. This decrease was the result of a higher cost due to the idling of French operation in the first quarter and lower absorption cost in the U.S. Weak shipments were primarily driven by a 19% decline in North America, which has negatively impacted by high inventories due to Russia selling subsidized low-price daisy production in the U.S. Excessive Russian shipments have led to a high level of inventory in the channel, which we expect will be depleted over the next couple of quarters. This will negatively impact demand until inventory levels normalize. However, as a result of the tariffs recently imposed on US imports of FASI, we anticipate increasing demand beginning in the first quarter of 2025 as imports from the affected countries will be diminished. This is expected to give Ferroglobe an opportunity to expand its market share in the region. Given the current economic uncertainty, we expect the European and U.S. field demand to remain soft for the second half of the year. To the next slide, please. Turning now to manganese-based alloys. Manganese basal alloy revenue in the second quarter was $98 million, up 48% from the prior quarter. This revenue increase was a result of higher shipments of 80 to 1,000 tons, up 31% from the prior quarter, and higher realized altitudes, which increased 30%. We capitalized on South 32 high-grade manganese ore mine shutdown, which was damaged by cyclone Megan in late March by building higher inventory levels of manganese ore before the resulting shortage drove market prices higher. This enabled us to ship the highest volume of manganese alloys in the past eight quarters. Manganese alloy index price increased during the second quarter, driven by a shortage of high-grade manganese ore caused by this shutdown. Adjusted EBITDA was $14 million, up from $6 million in the first quarter. This represents an increase of over 150%. Price, and to a lesser extent, volume, dropped increases in EBITDA, partially offset by higher costs. European end markets continue to be weak, and we expect our volume to normalize in the second half. It is important to note that nearly all our end markets for manganese alloys is in Europe. Now I would like to turn the call over to Beatriz Garcia-Cost, our Chief Financial Officer, to review the financial results in more detail.
spk01: Beatriz. Thank you, Marco. Please turn to slide 10 for a review of the income statement. Sales increased 50% in the second quarter to $451 million, up from $392 million in the prior quarter. During the second quarter, we saw increased volumes in silicon metal and manganese alloys, and higher selling prices across all three segments. Raw material and energy consumption for production remained broadly flat and decreased as a percentage of sales from 66% to 59% in the second quarter, primarily due to effective cost management and higher fixed cost absorption as a result of increased volumes. Other operating expenses for the quarter increased by 64% to $86 million, partially driven by a $19 million increase due to the fair value adjustment of the free carbon credit. This is fully offset by an increase in other income. Staff costs decreased by $3 million in the second quarter to $67 million due to the profit-sharing arrangement in Europe during the first quarter. Adjusted EBITDA in the second quarter more than doubled to $58 million, so $26 million in the prior quarter. During the quarter, we earned approximately $8 million from our 2024 French energy agreement in line with the first quarter. As a reminder, cash from these benefits is expected in early 2025. Debt financial expenses for the quarter declined 31% to $5 million due to the full redemption of the senior secured notes in February. Going forward, we expect interest expenses to normalize below this level. Next slide, please. Our adjusted EBITDA margin increased from 7% in the first quarter to 13% in the second quarter, primarily due to increased pricing and volumes, which impact EBITDA by $80 million and $11 million, respectively, relative to the first quarter. were driven by the market-to-market earn-out provision in the manganese business, partially offset by higher fixed-cost absorption in France and Spain. Overall, average selling prices increased by 2.5%, positively impacting adjustment every year by $80 million, $10 million of which was from manganese-based alloys. Total volume increased by 50% with an $11 million positive impact on adjusted EBITDA compared to the prior quarter. Thanks to increased silicon metal sales to the chemical sector in Europe. Head office and non-core business contribute approximately $5 million to increased EBITDA driven by lower G&A costs. Slide 12, please. In the second quarter, we consumed free cash flow of $30 million, primarily due to the need to build up inventories from the end of Q1, during which the French plants were idle and higher manganese prices following South's 32-mile shutdown. Working capital was a use of $30 million driven by a $37 million inventory built as we restart operations in France. In addition, After the South 32 mine disruption, we purchased an incremental inventory of manganese oil. This inventory increase was partially offset by a crisis global reduction of $6 million and an increase of $70 million in daily goods. CapEx outflows in the first quarter were $22 million versus $80 million in the prior quarter. In addition, we paid taxes totaling $9 million related to 2023, and estimated tax payments for 2024. Last quarter, we continued our quarterly dividend in the amount of 1.3 cents per share, which was paid on June 27th, and we will be paying our third quarter dividend of 1.3 cents per share on September 27th. In an effort to continue enhancing our capital allocation policy, we have finalized the share buyback program, which was approved at the June AGM. We have authorization to repurchase up to 37.8 million shares over a five-year period through both discretionary and non-discretionary purchases. Next slide, please. We end the second quarter with a cash balance of $144 million. down from $160 million in the first quarter. This reduction in cash is driven by the inventory build-up, as I have just discussed. We continue to run the business on a net cash positive basis for the second quarter in a row. Our growth rate flew in flat at $81 million. We remain committed to maintain a conservative balance sheet. However, we continuously explore opportunities to prudently add additional liquidity to enhance our financial flexibility. At this time, I will turn the call back over to Marco. Next slide, please.
spk03: Thank you, Beatriz. Moving to the key takeaways on slide 15. We had a strong second quarter, growing sales by 15% versus the first quarter, and adjusted EBITDA growing 124%. We've adjusted EBITDA margin expanding by 600 basis points Given this strong performance, we're increasing our adjusted EBITDA guidance range to $150 to $170 million. We were successful in our efforts to level the playing field in the US ferro-silicon market, resulting in trade action against predatory Russian imports. we have a significant opportunity to increase our market share starting in early 2025. We continue to make significant progress with our core-sharer relationship, achieving excellent results in testing, validating their technology, and the use of silicon-rich materials in EV batteries. As mentioned before, We have enhanced our capital return program by having the share and purchase program approved by the June AGM. Operator, we are ready for questions. Thank you.
spk00: Thank you, Sal. As a reminder to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Thank you. We are now going to proceed with our first question. The questions come from the land of Lucas Pipes from B. Riley Securities. Please ask your question.
spk05: Thank you very much, Operator. Good morning, good afternoon, everyone. Good to see the solid results and the bump in guidance. Marco, you mentioned in your prepared remarks the outlook for the second half of this year, and you called out Q4 as the weakest period. And if I heard you right, you cited pricing as one of the drivers for that. And I wondered if you could maybe elaborate on that, given how index pricing has moved over the last nine months. 10 months or so, I would have thought we would have passed the valley, so to speak, in pricing, but would appreciate your thoughts on that and how lags, mix, et cetera, might impact pricing. Thank you very much.
spk03: Thank you. Well, we have a good visibility on third quarter, of course, as A large bunch of our business is content related with index pricing. This is why we have a good reading of the Q3 and we expect to at least confirm their love of Q2 and Q3. impacted by what we see in the market. Demand is weak in most of the segments. Steel, including India, steel production in the world is down versus estimate when it's not in negative territories. in certain geographies, like U.S., for example. Aluminum is pretty stable in U.S., but weak, extremely weak in Europe. Chemicals are rather stable. Solar has a significant low down in Asia, mainly driven by the dramatic drop of policy income price, but also by the new investigation of U.S. authorities, which are definitely slowing down the export of solar supply chain elements to U.S. So having this This picture, we have already seen indexes weakening during the third quarter. And as a consequence, we are extremely cautious on our outlook on quarter four. So weaker volume, weaker pricing in Q4.
spk05: That is helpful. Thank you, Marco. And you cited the excellent results in the core shell investment and technology. Could you elaborate on those results? What exactly was so positive? Was this a surprise either in terms of the results or the timing? Would appreciate your thoughts on that. Thank you so much.
spk03: Well, I would be even more positive when our batteries will start getting tested by the OEMs. But in the meantime, samples we contain 80% of our silicon metal have achieved almost 1,000 cycles of charging and discharging with a retention of 80%. of their properties. These are, in our case, unprecedented results that are justifying the move of Corshels toward producing pilot quantities of batteries, these 60 ampere batteries that will be tested by the OEMs. Of course, we need more and more testing. We need the real testing by the OEMs. But it looks like we are close to solve the old problem of being able to address the swelling of silicon metal in the battery.
spk05: That is really good to hear, Marco. I really appreciate those comments. Really quickly, maybe for Beatrice as well, you stockpile for manganese ore on the back of the supply disruption. When would you expect your stockpiles there to normalize? And as it relates to kind of cash flow and working capital release, Any comments as it relates to taking advantage of that buyback authorization? Thank you both.
spk01: Thank you, Lucas. As I was mentioning in the course, we have been taking advantage in Q2. We have been seeing already the impact of lower manganese oil prices, higher prices in Q2. As you said, we bought some, we purchased manganese oil in Q2 And we expect to see the release of this. And of course, we expect prices to hold in Q3 and therefore going to be a positive impact in working capital in Q3, but could be offset maybe with all the business. Where we expect a release of working capital overall could be more in Q4, Lucas.
spk05: Any thoughts on the buyback authorizations?
spk01: Well, maybe what we said on the call. First, the AGM approved the Share My Back program at the end of June. So we didn't have a lot of time to react on that, right? Because the closing period came just after. And I think what is more relevant for us is when you hear Marco talking about the outlook on the second part of the year and the market conditions. We want to take a conservative approach and preserve our cash and our liquidity. So for the time being, we want to be prudent in the use of our cash and liquidity.
spk05: I appreciate that. Thank you so much for all of your comments and continued best of luck. Keep up the good work. Thank you.
spk00: Thank you. As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, it's star 1 and 1 on your telephone and wait for your name to be announced. Thank you. We are now going to proceed with our next question. The questions come from the line of Martin England from Seaport Research Partners. Please ask your question.
spk04: Well, good afternoon, everyone. So going back on silicon metal and price weakness, how much of the 4Q price weakness is associated with the weaker Asia market and maybe more favorably priced product being exported there from South Africa, so more of a negative mix shift implicating prices at the segment level.
spk03: Let me talk about facts. Like in most of the businesses, China has built over capacity. and with the current crisis that they are going through, they are exporting everything that they can. We see that in silico metal imports from China into Europe in the second quarter, which have significantly increased, prices are extremely low, and these have an impact on the overall index. It is true that due to the quality that they export, they tend to supply mainly metallurgical silicon for aluminum, but they are definitely, you know, moving their product outside of China And we have seen the same, something that we need to test with imports in U.S. from Angola, where Chinese have relocated apparently some of their old furnaces, and silicon metal is exported out of Angola to U.S. The other part of your question is, is around solar demand. Our sales of silicon metal to Asia for solar have been rather stable in second quarter. We foresee a slowdown in the second half of the year, which is related to this US investigation that basically blocks the export of solar supply chain elements to the US. So even the major players are concerned about being forced to pay duties in case they continue to do business. Honestly, we believe that this situation is not sustainable for the US. And I can add other comments, but at the moment, the offtake of silicon metal in Asia for solar has gone down.
spk04: Thank you for all the detail there. That's helpful. I wanted to circle back on the ferro-silicon trade case, and it seems like there was maybe some pre-buying ahead of that and elevated channel inventories. So you're expecting muted or depressed volumes in U.S. ferro-silicon throughout the balance of the year, but then you expect an uptick into 2025. Is that correct? Yeah.
spk03: Well, I think I also made this comment in the previous quarter. Massive quantities of ferro-silicon have been delivered to U.S. in the last few months from Russia. And we estimate an amount of 120,000 tons of ferro-silicon. That corresponds to one year supply of Russian ferro-silicon to the US. On top of it, we have seen, like everywhere else, massive increases of export outside of additional capacity of ferro-silicon out of Kazakhstan. And to combine this situation in U.S., we have seen increased export out of Brazil, some minor suppliers of Brazil of ferro-silicon, plus Malaysia. So the situation combined with the we estimate the estimated drop of production of steel in U.S. about 3.3% below last year, year to date, has stressed the environment. So pricing has gone up based on the announcement of the authorities, but we don't see too much liquidity yet. I can share with you a general comment that We perceive the need of securing supply of ferro-silicon next year in the American market because we are getting contacted by several steel manufacturers who want to secure volumes for next year.
spk04: Are you aware of any alternative key sources that if these countries are blocked out of the U.S. market due to the trade case that consumers in the U.S. may source from alternatively to kind of fill the holes or are they going to be largely fully reliant on U.S. production?
spk03: No, no, no. First of all, there is quite significant free capacity now in the US. We are two local players and we have capacity. Of course, we can support demand also outside of our most competitive assets in US and South Africa if needed. For sure, then you have some of the Brazilians who can supply more and some of the Asians who can supply more. So I don't think the U.S. is going to suffer lack of ferro-silicon. Remember also that our plant in Selma is down as we speak. and we could be able to sell that to ferro-silicon production in a quarter.
spk04: Okay. Appreciate all the detail, and congratulations on the results.
spk03: Thank you. Thank you, Martin.
spk00: Thank you. We have no further questions at this time. I want to hand back to Marco Levy for closing remarks.
spk03: Thank you, and thank you again for your participation. We look forward to hearing from you on the next call in November. Have a great day.
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