Ferroglobe PLC

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?

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.

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.