Ferroglobe PLC

Good morning, ladies and gentlemen, and welcome to the FeroGlobes fourth quarter of full year 2024 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 Alex Rotonen, FeroGlobes Vice President of Investor Relations. You may begin.

Thanks, Sonja. Good morning, everyone, and thank you for joining FeroGlobes fourth quarter and full year 2024 conference call. Joining me today are Marco Levy, our Chief Executive Officer and Beatriz Garcia-Cas, our Chief Financial Officer. Before we get started with our 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 FeroGlobes most recent SEC filings and the exhibits to those filings, which are available on our webpage at feroglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA, adjusted gross debt, adjusted net debt, and adjusted diluted earnings per share, among other non-IFRS measures. Reconciliations of these non-IFRS measures may be found in our most recent SEC filings. Before I turn the call over to Marco Levy, our CEO, I want to announce that we'll be participating in the BMO Global Market Metals, Mining, and Critical Minerals Conference in Florida on February 24th and 25th. We hope to see you there. Marco?

Thank you, Alex. Thanks for joining us on the call today. We appreciate your interesting Feroglobe. Before I provide a recap of our 2024 accomplishments, I want to thank all Feroglobe employees for a successful year. We posted a revenue of $1.6 billion and adjusted EBITDA of $154 million and free cash flow of $164 million. We used our strong cash flow generation to repay the remaining senior secured notes. Eliminating these notes saves us $32 million in annual interest. And in the first quarter of 2024, we became net cash positive for the first time in Feroglobe's history and maintained our strong balance sheet throughout the year. The strong balance sheet enables us to initiate a capital return program consisting of quarterly dividends and share by banks. We paid our initial dividend in the first quarter of 2024 and are increasing it by approximately 8% in the first quarter of 2025. In addition, we began our share repurchase program in the third quarter, which we will continue to execute selectively in 2025. We also intend to continue in complementing our discretionary repurchases with a 10B51 plan. While our share buybacks have been modest, we intend to get more aggressive as we gain visibility and see improvement in our end markets. Maintaining a strong balance sheet to ensure that we have the ability to navigate any downturn is our top priority. One of the most important developments taking place is changing global trade, including potential anti-dumping and countervailing duties, tariffs, and safeguards. This creates uncertainty until they become better defined. It is clear that governments are taking these measures seriously, and this heightened focus is likely to make tariffs and safeguards more prevalent going forward. Some actions have already taken place and some are under consideration. These are the major challenges for the domestic producers as the trade flows are altered across the globe. As the largest Western producer with significant local operations, which are back integrated in North America and Europe, we have historically been significantly impacted by an uneven playing field. Equally importantly, we serve customers who buy mostly local. With recent announcement in North America and Europe, within the European community, we are optimistic that these actions will positively impact our markets in the coming quarters, providing a tailwind for our business and driving future growth. While the trade uncertainty is difficult to handicap, we believe these trade measures are imperative and will transform our industry for the better. In the U.S., the international trade commission determined that Russia, Malaysia, Kazakhstan, and Brazil unfairly price ferro-silicon adversely impacting local producers. As a result, combined anti-dumping and countervailing duties of more than 1000% were placed on Russia. Final anti-dumping and countervailing duties against Malaysia, Kazakhstan, and Brazil will be announced by the Department of Commerce on March 21st. Combined, these four countries in 2023 imported approximately 140,000 tons of ferro-silicon into the U.S., accounting for approximately 65% of the market share. Overall, these measures are expected to benefit us significantly going forward. The European market has also been damaged by low-priced imports, particularly from Eastern countries. In December 2024, the European Commission initiated a safeguard investigation into silicon metal, silicon-based alloys, and manganese alloy imports. While the potential magnitude of these measures is yet to be determined, we expect the provisional decision in Q2 with the final determination anticipated in Q4. To put things into perspective, EU's total consumption of silicon metal, silicon alloys, and manganese alloys declined approximately 12% or 300,000 tons between 2019 and 2024. Combined with an estimated 7% point increase in the market share of imports from Eastern countries, this has had a material impact on European markets, which has reflected in pricing. Total imports have increased by 70,000 tons since 2019, accounting for 40% market share. As the largest domestic European producer, these measures, if enacted, are expected to positively impact the quality of the business and provide FerroGlobal with a great opportunity to increase our market share. Moving to current market conditions. It has been a challenging environment in Europe and North America in the recent months. While we expect market conditions to persist to the first half of 2025, we are beginning to see signs of market bottom as indexes have stabilized and prices for phasor ferro-silicon in Europe and manganese alloys are trending higher. One key factor contributing to our more optimistic outlook is the consistent growth of European steel production over the past several months. The World Steel Association Forex has continued growth of .5% in 2025, with North American steel production expected to grow at the rate of .6% in 2025. In addition, the use of steel safeguard measure of 2019 is currently under review and the aluminum industry has requested a safeguard investigation into imports. A positive decision would encourage more steel and aluminum production in the future. Another encouraging sign is the improved manufacturing PMIs. In January, global PMIs posted its highest level in seven months, with the U.S. increasing to 51.2, representing solid growth, boosted by a 34-month high in the expected production outlook. In addition, the U.S. is expecting a higher level of production in the coming months. Next, I will discuss the outlook for 2025. On our last call, I mentioned sales and operation plannings, or simply SNOP, as another tool to drive incremental improvement across all facets of ferro-glow. We are in the early innings of this implementation, but I have already seen benefits with reduced working capital in the fourth quarter. Once implemented across all our businesses, we expect to see material operation efficiency with improved cash flow, lower working capital and cost benefits. For a brief update on Core Shell, we continue to see promising text results from this partnership, and as a result, we recently increased our investment. We look forward to continued collaboration as we drive innovation with this exciting technology. We are bullish about Silicon Metal's role as a disruptive breakthrough in EV batteries, and as a leader in Silicon Metal, we are well positioned to capitalize on industry shift from graphite to silicon-rich anodes in EV batteries. This will significantly enhance the performance of EVs, including lower cost, longer ranges, and shorter charging times. Next, I will provide a brief update on 2025 guidance. We are initiating adjusted EBITDA The wider range of guidance is a result of uncertainty related to market conditions, timing of trade cases, potential tariffs, and geopolitical issues. Beatrice will walk you through on our main assumptions related to guidance. Next slide, please. Our fourth quarter revenue declined compared to the third quarter due to lower volumes across all three segments. Adjusted EBITDA was $10 million, down from $60 million, impacted by lower prices, higher costs, and softer volumes. Operating cash flow improved by $21 million, reaching $32 million in the fourth quarter. Free cash flow increased to $14 million, an improvement of $24 million over the previous quarter. Next slide, please. Let's talk about Silicon Metal. Silicon Metal revenue declined 17% in Q4 to $161 million, down from $194 million in the third quarter. Adjusted EBITDA declined to $17 million in the fourth quarter due to higher costs, lower prices, and reduced volumes. Realized prices declined 5% over the previous quarter. During the fourth quarter, index prices decreased approximately 16% in the US, while the European index was unchanged. Overall, volumes were down 12% with all regions reporting lower shipments. European and US shipments declined 13% and 3% respectively. The outlook for Silicon Metal continues to be soft. The aluminum sector in Europe and US is expected to remain flat in the short term. AI level of imports is impacting the North American and European regions. In addition, uncertainties related to potential US tariffs have resulted in some of our solar customers postponing purchasing decisions. Despite these short-term issues, we anticipate that the Silicon market will improve once the stocking cycle is completed, which we expect to take a few months. As a result, we are optimistic that demand will pick up in the second half of 2025. Our Silicon based alloys segment adjusted EBITDA improved slightly to $3 million in Q4, primarily driven by cost improvement. Average realized prices declined by 3% over the third quarter. Volumes were pressured by low demand and aggressively priced imports, especially in Europe, where shipments declined by 25% in the fourth quarter. The European phase standard index was down 7%, while the US index was down 6%. Looking ahead, we are encouraged by the recent 5% increase in European index price since the end of 2024. Combined with the various trade measures and forecasted growth in steel production, we expect demand and prices to improve in both Europe and US as the year progresses. Turning now to manganese alloys. Next slide, please. Revenue declined 13% to $78 million in Q4, driven by a 17% decrease in prices, partially offset by a 5% increase in shipments. Adjusted EBITDA decreased $9 million, primarily driven by tighter spreads and the impact of working through higher cost manganese ore inventory. The recent tightening of manganese ore supply is boosting prices, which have risen four months high. We are optimistic about the manganese segment outlook for 2025, supported by improvements in pricing and higher spreads. The recent uptick in demand is encouraging, and we expect the demand to continue in the coming quarters. I would now like to turn the call over to Beatriz Garcia-Cost, our CFO, to review the financial results and guidance in more detail. Beatriz?

Thank you, Marco. Please turn to slide 10 for a review of the income statement. The demand decreased 18% sequentially in the fourth quarter to $368 million, driven by a 13% decrease in volumes for both silicon metal and silicon alloys, and lower prices in all segments, ranging from 4% for silicon alloys to 17% for manganese alloys. Manganese alloys volumes grew 5% quarter over quarter. For the full year, sales were slashed versus 2023, with growth in the manganese alloy segment, offsetting declines in further silicon sales. Silicon metal sales were up slightly for the full year. In the fourth quarter, raw material and energy consumption for production increased to 69% of sales, which increased 58% in the prior quarter, primarily driven by lower production, higher energy costs, and increased manganese oil prices. For the full year, raw material and energy increased 9% to 62% of sales due to lower prices and higher energy cost difference. Adjusted EBITDA in the fourth quarter was $10 million, down from $60 million in the prior quarter. The full year, 2024, adjusted EBITDA was $154 million compared to $315 million in 2023, attributable mainly to higher energy costs in France and lower realized prices. Next slide, please. Approximately 60% of the EBITDA decline is attributable to lower pricing, with realized prices down by 5%, 3%, and 17% in silicon metal, silicon base alloys, and manganese alloys respectively. Lower index prices in the third quarter adversely impact the fourth quarter sales prices due to a two to three month lag between indexes and realized prices. Cost increases primarily due to higher energy costs, ironing in France, and elevated manganese oil costs, reduced our EBITDA by approximately $11 million. Lower volumes impacted our adjusted EBITDA by $3 million, mainly due to soft demand across silicon metal and silicon base alloys, which experienced volume declines of 12% and 13% respectively. This was partially offset by a 5% increase in volumes in the manganese alloy segment. Head office and non-core business reduced 4% adjusted EBITDA by $6 million. Slide 12, please. Adjusted EBITDA for the full year was $154 million versus $315 million in 2023, and EBITDA margin was 9% down from 19% in 2023. While the stronger volumes contributed $29 million to adjusted EBITDA, average selling prices had the biggest impact on our 2024 adjusted EBITDA, reducing it by approximately $128 million. Higher cost impacted EBITDA for the year by $83 million, mostly related to higher energy expenses in Europe. Head office and non-core business contributed to 2024 adjusted EBITDA driven by lower head office related costs and improved mining operations. Next slide, please. During the fourth quarter, we recognized a $61 million non-cash impairment and goodwill write-off related to our operations. Our operating cash flow was $32 million, benefiting from a $23 million release of working capital. Our decision to idle our French operations earlier combined with effective energy management resulted in an energy rebate of $21 million in the fourth quarter. The remaining $34 million was collected in January 2025. CapEx in the fourth quarter was $18 million down from $21 million in the third quarter. For the full year, we generated $243 million of operating cash flow and spent $79 million in CapEx, resulting in $164 million of free cash flow. We used $150 million of this cash flow to redeem the remaining senior secure notes. We paid $2.4 million or $0.1 per share dividend on December 27th, and we are declaring the first quarter 2025 dividend of $0.1 per share representing an 8% increase. The dividend will be paid on February 26th for shareholders on record on February 20th. Next slide, please. We ended the fourth quarter with a cash balance of $133 million, up from $121 million at the end of the third quarter. Our positive net cash position improved to $39 million, sorry, up from $32 million in the prior quarter, while our adjusted gross debt increased slightly ending the quarter at $94 million as of December 31st. Before I turn the call over to Marco, I want to provide some more insights related to our 2025 outlook. We are targeting a working capital improvement of $50 million in 2025 as we continue the implementation of the SNOP process. We expect our 2025 capex to be in the range of -$65 million and cash tax rate to be around 24%. Our standing Spanish loan or CEPI loan with a principal balance of $36 million is due in 2025. The first principal payment of $90 million is due in March, with remaining $17 million due in June. As Marco mentioned earlier, we anticipate our 2025 adjusted EBITDA to range between -$170 million. For the first quarter, we expect our adjusted EBITDA to be negative due to the impact of low prices, weak demand, and filing operations in France. This is consistent with our budget. Our 2025 outlook reflects a partial benefit from trade measures and unexpected improvement in market conditions during the second half of the year. Next slide, please. At this time, I will turn the call back to Marco.

Thank you, Beatriz. Moving to the key takeaways on slide 16, Ferro Globet has successful 2024. Despite unfavorable market conditions, we posted solid adjusted EBITDA, which strengthened our balance sheet significantly, initiated quarterly dividends and a -by-back program while focusing on innovation in advanced silicon metal as critical material for the energy transition. As evidence of the changing global trade environment, the U.S. Trade Commission and European Commission initiated broad trade measures to level the playing field against predatory trade practices. We expect to capitalize from these measures in the second half of this year. There are early signs that the demand environment might be bottoming. Manganese and Fizzi price in Europe have ticked up in recent weeks. We foresee broader improvement in the second half of 2025. Ferro Globet has positioned the company for long-term success by making strides in developing advanced uses for silicon, including a partnership with Core Shell and implementing S&OP tools to increase efficiency and lower working capital. Operator, we are ready for questions.

Thank you. To ask a question during the session, you will need to press star 1-1 on your telephone keypad. You will then hear an automated message advising your hand is raised. Please raise your name to be announced. To withdraw your question, please press star 1-1 again. We will now move on to questions from Nick Giles from B. Riley Securities. Please go ahead. Thank you

very much, Operator. Good morning or good afternoon, everyone. I wanted to start with your annual guidance. This is a wider range, so I was hoping you could give us a sense for what's baked into the lower end versus the higher end, specifically as it relates to pricing and volume. And then how much of the high end could be determined by implications of trade measures versus improved demand? Thanks very much. Yeah. Thank you, Nick.

Let me start answering this question. By coincidence, we gave the same guidance of last year, but the point is that we are facing an even more volatile environment, not only in terms of demand, but in terms of uncertainty on the trade measures that are going to be set by the authorities, both in the US and in Europe. So let's say that first quarter, like Beatrice mentioned, is going to be particularly tough because we start from very low prices, extremely low volumes, and the usual opportunity issue of having our French plans down in the first quarter, right? And then as of the second quarter, we see the environment improvement with some decisions that should be taken in the US and the third quarter, I think both geographic areas are going to be impacted by these decisions. So if you look at the low side of the guidance, it's a sort of conservative forecast based on today's situation. The higher end is based on, like we say, on a partial success of the government to impose duties. And we have estimated prices and volumes that drive toward the range that we have mentioned, 100, 170 million.

Thank you very much, Marco. That's helpful. Maybe just to follow up on that, would there be any sort of sensitivity that you may be able to provide in terms of volumes or pricing and maybe anchoring near the midpoint?

Yeah. Hi, Nick. This is Beatrice speaking. Maybe I'm going to be sharing a data point that I think you have already, but let me go through. So for every 1% of variance in pricing, more or less this hits positively our ABDR by $14 million. This is the number that you have to keep in your mind, if this makes sense.

Got it. No, that's very helpful, Beatrice. I really appreciate that. Maybe my next question, Marco, I was wondering if you could speak to some of the key growth markets in Silicon Metal in the context of your desire for further expansion. Solar markets do appear somewhat softer, so curious if this changes your appetite for expansion or potential timing and alongside this if you'd have any updates as it relates to the brownfield expansion. Okay.

So just to try to stay focused, we firmly believe in silicon penetrating much more substantially the battery business and there are existing technologies, but also new technologies under development that move the graphite replacement from a 5% to even 100% graphite replacement to the anode. And we are working with several companies. Of course, we have announced our cooperation with Core Shell, but we work with a number of players, particularly in the US, and I think that the level of progress is amazing. The issue is that it takes time before a new technology is adopted in batteries. So we firmly believe in that and we're totally committed to that. When you talk about the solar business, well, the current business, existing business is mainly impacted by the structural overcapacity of polysilicon in China and for our business is impacted by the current investigation on the imports on solar cells and modules in the US that is expected to be concluded sometime in April this year based on what we know. And this should reopen our sales opportunity in Asia. But talking in bigger terms, clearly the overcapacity of polysilicon has caused a crash of the price of polysilicon, I think mostly below cost for most of the players. And this has been slowing down some of the polysilicon projects, new polysilicon projects outside of China. So there is a time factor. I think that at least Europe is still quite interested in setting a solar supply chain, the same for other countries in the Middle East. In the US, for sure there is going to be more protection on sales and modules. So we expect the overall demand of silicon metal to benefit out of these trends. Talking about the US expansion, we are working on the submission for the papers for the permit. And so it's a question of a few months. And then we expect to get the permit in a timeframe of one year and a half since we started the process. And then it will take about a couple of years to build the new plant in the US. But the project is going on as aggressively as we can.

And we're I really appreciate all the color there. One more if I could. It's good to see some initial share repurchases. Obviously you're waiting for more certainty in the market, but how should we think about magnitude of potential buybacks if markets were to turn? Is there a minimum cash balance in mind that would imply potential cash that could be set aside for capital returns? I know Beatriz you mentioned a working capital release of $50 million if I heard you correctly.

Thank you for the question Nick. This is Beatriz speaking. So just to recap, we bought in 2024 almost 600,000 shares. And up to now we have been continuing on Q1 to buy some shares. I think we plan to continue the opportunistic approach to the share buyback. And as we have been commenting on the previous quarter, Nick says we don't plan to take additional depth to support the share buyback program. And on the other side you know more or less what our liquidity needs for the company. So we will always go through an opportunistic approach to the share buyback. So hopefully this year as we release working capital, etc. as you said, we can do a little bit more.

Beatriz, I really appreciate that. To you and the team continue best of luck. Keep up the good work. Thank you.

Thank you so much. Thank you. We will now go to our next question. Please stand by. And the next question comes from Martin Englert from Seaport Research Partners. Please go ahead. Your line is now open.

Hello. Good day everyone. Just circling back to the annual guidance, if spot prices for silicon and alloys remain unchanged from current levels, do you still achieve the $100 million in the guidance range?

We do expect that because it is also a question Martin of mix, right? The first quarter is particularly impacted not only by demand and low pricing but also by the fact that all our French plants are down. And the other factor is that we expect to recover some business in the second half of the year which is not there today which is our business in Asia. So it's a question of mix. But anyway, even keeping the current conditions, we expect to achieve at least the bottom of the range that I have mentioned.

And I would add that the volume is also a factor.

What is factored in as far as volumes or a range for the full year with the $100 million to $170 million across your business units?

Well, we are talking about volumes pretty much aligned to 2024.

Can you walk me through the contribution of the quarterly French energy credit for 2024 just going through one through 4Q? I believe you said earlier it was $21 million for 4Q and what's targeted for 2025.

Hi, Martin. This is Beatrice speaking. So as you know, we have from 2023 to 2024, the compensation has been a little bit lower. So total for the year is $60 million or $61 million. In the Q4, the P&L impact is $24 million, right? And from a cash perspective, we got already in 2024, $32 million out of the $60 million and the rest in January 2025.

And what are you factoring into the guidance for the credit for 2025?

Well, this year is going to be lower than in 2024. I think the good news here is that we are negotiating already the contract for 2020 starting 1st of January, 2026 and we expect to get a very good contract.

All right. Thank you very much. Good luck.

Thank

you,

Martin. Thank you. We will now go to our next question. Please stand by. And the next question comes from Kyle Mowry from Grizzly Rocks Capital. Please go ahead. Your line is now open.

Good day. Thank you for taking my question. So if the European quota system is finalized as proposed, your European production volume should increase. The question is, as the utilization level increases, how would this impact cost per ton of your European production?

You mean you ask for price per ton impact?

Is this your question? The question is production cost per ton in Europe. Okay. Well, the...

Let me say that we don't know the exact number of production costs which measures the EU is going to adopt and if they get approved by the 27 countries, right? So we are in the process. We are still answering a lot of questions that come from suppliers, countries, states that have seen the document. We are in this process of making sure that the EU is going to adopt this phase. So I cannot anticipate what the EU is going to propose. But they mentioned safeguards in their announcement on December 19th. And safeguards usually mean quotas for countries and specific producers in countries back to a certain year. And as a consequence, part of the demand is going to be freed up for the European suppliers. I remind you that it is... The EU has already decided that for critical and strategic materials like the ones that we have in our portfolio, they want to have a back integration of 40%. And today, the market share of the EU producers is far below this level. It is 14, 15%. Probably worse in first quarter. So there is going to be a big impact on volume and capacity utilization now, factoring at this stage how fast this demand is going to come to us is very difficult. And also because in the meantime, it is not clear if there are going to be some retroactive measures imposed to the different importers outside of the EU. I'm sorry for not being precise. But you have to assume that our capacity utilization in the second half of the year in Europe will go up. And we'll go up favoring much more demand. And we'll have a much better cost absorption at all our plants.

Yep. That makes sense. Thank you for the response. In terms of the United States with the ferro-silicon rulings, have you started to see the reduced imports flowing through now? And then how should we think about this cadence of pricing through 2025?

Yeah. Well, first of all, if you look at the import statistics of 2024, there is the expected dramatic reduction of imports from Russia. On the other side, there was a lot of inventory in the US of Russian material based on our knowledge and understanding, which has impacted the overall pricing of FASI and the reduction of FASI price. Decisions on Kazakhstan, Malaysia, and Brazil are pending. They are with the Marshall Department and their expected, like I say, on March 21st this year. And when you put the imports of these three countries together in 2023, they equalized to one third of the market. So there is uncertainty on these volumes. What is clear looking at the statistics is that in the last, since September, the volumes of Kazakhstan, in particular, and Malaysia as well, have gone down almost to zero. So this is why we think that if you combine that with the weak steel production in the last months of the year in the US, we think that inventories are getting depleted pretty quickly. So we should see an impact on ferocity compound demand. Our demand performance is very high in ferrocity compound in the US. Talking about ferroglobe is going up. We have found two new contacts with customers who were not used to buy ferrocity compound from us. So this is another good sign.

That's good to hear. Last question for me, just since it came up on the potential new United States facility, what sort of rate of return would you want to see to go forward with that investment? Is it a per ton type of an approach on pricing? I know you had talked about longer term volume contracts. But what sort of returns should shareholders expect should you choose to go forward with that investment? Yeah,

we would expect a much higher return than any previous investment that we have made in Silicon Metal. And the reason is that we think that we have the capabilities to build the most powerful in terms of performance, not in terms of energy consumption, the most powerful furnace that you can build in terms of output versus size versus energy consumption. But for sure we are going to expect a return which is higher than our work and our cost of capital.

Okay, thank you very much.

Thank you. Due to time constraints we will not be taking any further questions and I would now like to hand back to Marco Levy for any closing remarks.

Thank you. I want to emphasize FerroGlobal's resilience in being able to navigate successfully this uncertain market environment while at the same time strengthening our balance sheet and positioning the company for growth. Thank you for participation. We look forward to hearing from you on our next call. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.