Ferroglobe PLC

As a reminder, this conference call may be recorded. I would now like to turn the call over to Alex Ritonen, Ferraglobe's Vice President of Invest Relations. You may begin.

Thanks, Nadia. Good morning, everyone, and thank you for joining Ferraglobe's first quarter 2025 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 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 Ferraglobe's most recent SEC filings and exhibits to those filings, which are available on our website at ferraglobe.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 IFRS measures. Reconciliation of non-IFRS measures may be found in our most recent SEC filings. Before I turn the call over to Marco, our Chief Executive Officer, I want to announce that we'll be participating in the B. Riley Securities Conference in California on May 21 and 22. We hope to see you there. Marco?

Thank you, Alex, and thank you all for joining us today. We really appreciate your continued interest in Ferraglobe. As we noted during our fourth quarter call, market conditions have remained challenging, significantly impacting our first quarter results. We saw continued declines in realized prices and weak demand across key segments. In particular, Silicon Metal, our largest segment, experienced a 27% drop in volume. Additionally, the US Silicon Metal index pricing, as of March 31, was 9% quarter over quarter and 22% from the third quarter. This was the primary driver of our first quarter negative adjusted dividend of $27 million. That said, we believe that we are at or near the bottom of the current cycle. Looking ahead, we anticipate a strong adjusted dividend recovery in the second quarter, followed by continued momentum in Q3. We expect to deliver a positive adjusted dividend in the second quarter. Accordingly, we are maintaining our full year 2025 guidance. Several regulatory trade measures are currently being introduced to curb the influx of low priced imports that have been disrupting market dynamics and suppressing prices, negatively impacting our volumes. We expect these developments to stabilize the market and create a more constructive environment in the quarters ahead. Let me walk you through some of the key trade measures. In the US, the Department of Commerce announced its final determination in the anti-dumping and countervailing duty investigation of all ferro-silicon imports from Russia, Malaysia, Kazakhstan, and Brazil, cheating on fair pricing practices and subsidies that have armed domestic producers. The newly imposed final duties are substantial, including the basic 10% tariff imposed on all countries. Russia's combined anti-dumping and countervailing duty are 1,042%. Kazakhstan ranged from 33% to 281%. Brazil at from 14% to 73%. And Malaysia from 17% to 51%. All effective as of March 28. These actions are expected to significantly improve the US ferro-silicon market in both the near and long term. Imports from these four countries accounted for approximately 140,000 tons in 2023, representing 71% of total US imports. While all domestic producers will benefit from this shift, Ferroglobe is particularly well positioned as the largest producer with operations that are nearly 100% backwards integrated. That said, we expect a short lag as existing channel inventories are drawn down before demand begins to accelerate. Initial signs confirms this trend with US-phased prices firming since the beginning of April. We believe this will result in a healthier and more balanced market. In Europe, progress has been made to counteract the impact of subsidized imports. On December 19, the European Commission launched a safeguard investigation into silicon metal, silicon-based alloys, and manganese alloys, which is expected to benefit all our product segments. The investigation is now completed with the European Commission working on its final recommendation. This will then be shared with EU members, requiring approvals from at least 15 of the 27 countries, representing 65% of the population. We believe this is a strong case, and we are optimistic that a favorable decision will be rendered. A provisional ruling is expected by the end of June with any associated measures effective immediately. These trade actions and safeguards, both in the US and Europe, are expected to begin benefiting the industry by the third quarter and have a positive lasting impact on our business. In addition, the US Silicon Metal producers filed a new petition on April 24 to stop unfairly priced silicon imports from Angola, Australia, Laos, Norway, and Thailand. This petition is seeking significant anti-dumping duties of up to 337% and additional countervailing duties. The Commerce Department is scheduled to initiate the investigation by May 14 with a preliminary ITC determination expected by June 9 of this year. Ferroglobe, the largest producer in North America, would be a significant beneficiary of a positive ruling. As you know, there is a lot of uncertainty in various markets around the world, and different tariff policies are being contemplated. While this poses a significant burden on exporters and importers, Ferroglobe benefits from its globally distributed facilities, which allow us to supply products locally and, in turn, avoid potential tariffs, giving Ferroglobe a competitive advantage over imported products. Besides the macro issues, we continue to focus on things that we can control. I will discuss a few of them. First, Sales and Operational Planning, S&OP, is a key initiative that will help us improve our demand forecasting and enhance our supply planning accuracy. This will enable us to manage working capital more while improving our ability to deliver products more efficiently. We have made great progress on this front, as evidenced by our strong inventory reduction in the first quarter. Our plan is to fully implement the S&OP by the end of 2025. Second, we are strengthening our commercial execution capabilities to make our sales organization more agile and effective. As part of this streamlining, we are optimizing our customer coverage to serve customers and segments better while breaking down silos and driving better collaboration across teams as one Ferroglobe. Our goal is to align our sale efforts with the S&OP process to capitalize on market opportunities as they arise. Finally, despite challenging market conditions in the third quarter, we successfully generated positive free cash flow by efficiently managing our working capital, highlighting the resilience of our operating model. We use this free cash flow to pay our quarterly dividend, which was increased by 8% in our repurchase shares, which we believe remain significantly undervalued. Next slide, please. As communicated on our last call, we expected the first quarter to be difficult with weak demand and soft prices, resulting in a negative adjusted dividend. Lower overall shipments and prices drove a 16% decline in revenue. The actual first quarter adjusted dividend of negative $27 million is in line with our budget. Despite the poor performance, we were able to generate $5 million of free cash flow in the quarter. Next slide, please. Moving to our segment update, I will start with Silicon Metal on slide 5. As expected, the first quarter was weak with Silicon Metal shipments declining 27% due to weak demand, high delta operation in France, and uncertainty related to trade measures and tariffs. Another factor impacting our volumes was a significant increase in imports into the US and Europe. Imports from Brazil, Australia, Malaysia, Norway, Thailand, and Laos into the US grew by 68,000 tons in 2024 over 2023. Europe also experienced a surge of silicon imports caused by a collapsing polysilicon market in Asia. We expect this headwind until the Asian polysilicon market recovers or safeguards become effective. Within the silicon segment, the chemical sector was also challenging as a result of increased low price imports to Europe. On the positive side, we are gaining traction in the aluminum market. We believe the first quarter marked the trough of this cycle and anticipate improved shipments in the second quarter with further volume pick up in the second half of the year. Increased imports also impacted pricing, which declined by 7% in Europe and 12% in the US. This makes the proposed anti-dumping and countervailing duty measure in the US against Angola, Australia, Laos, Norway, and Thailand a new safeguard imperative for securing a robust domestic supply chain for critical industries. Next slide, please. The silicon-based alloys market is exhibiting positive trends with first quarter volumes up 9% over the fourth quarter. This improvement was driven by an increase of 38% in North America and 3% in Europe. Both of these regions experienced an uptick in steel production in March. While prices remained relatively flat during the first quarter, we see initial signs of the positive impact from the US phase A decision. Our dedicated effort to acquire new customers and regain past customers is paying off. Another positive sign is that the index prices have improved by 17% since the beginning of April. This bodes well with the coming quarter. We expect additional firming of prices and incremental volumes as the impact of the US phase A case becomes more pronounced. The upcoming EU safeguard decision expected in June is anticipated to have a similar impact in Europe. Slide seven, please. Our manganese segment has been our strongest segment recently with solid demand continuing in the first quarter. Unfortunately, we were unable to meet this demand due to a delay in receiving manganese ore, which negatively impacted our volumes. As a result of these delays, we expect to make up for those lost tons in the second quarter with a substantial volume improvement. Overall, the manganese demand environment is quite constructive and potentially even stronger as we wait for the outcome of the EU safeguard decision. 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 nine for a review of the income statement. Sales decreased 60% sequentially in the first quarter to $307 million, while raw material costs declined only 5%, resulting in raw materials as a percentage of sales increasing to 77.6%, up from .2% in the prior quarter. More on that later. The decline in sales was driven by a 35% decrease in silicon metal revenue and a 5% decrease in manganese-based alloys, partially offset by a 7% increase in silicon-based alloys. The decline in silicon metal sales were the result of weaker volume and lower prices. Silicon-based alloys were a brighter spot, with sales increasing 7%. Manganese alloy revenue declined by 5% due to lower prices. Average selling price went down across the board with the biggest contributor coming from silicon metal, which was down 11% from the prior quarter, followed by manganese-based alloys down 4% and silicon-based alloys down 2%. Raw material increased as a percentage of sales from 68% to 78%, driven by lower fixed-cost absorption and higher energy costs. The company reported an adjusted EBITDA margin of negative 9% or $27 million adjusted EBITDA loss, representing a $37 million decline versus previous quarter, primarily due to the following factors. Lower prices contribute $24 million to the decline, while costs had a negative $15 million impact on adjusted EBITDA compared to the fourth quarter. Next slide, please. Silicon metal revenue declined by 35%, which was driven by a 27% drop in volumes and lower average selling prices, which decreased by 11%. This resulted in adjusted EBITDA of negative $15 million down from positive $17 million in the prior quarter, or EBITDA margins of negative 15% versus positive 10% in the prior quarter. The lower prices were the biggest factor in the P&L decline, with an impact of negative $18 million, followed by increased costs, which had a negative impact of $12 million. Next slide, please. Silicon baseloid revenue increased 7% in the first quarter, driven by a 9% increase in volume, partially offset by a 2% decline in price. The increasing volume positively impacted adjusted EBITDA by $2 million, offset by negative $3 million from lower prices, which was driven by an increasing sales mix of ferro-silicon standard. This resulted in adjusted EBITDA declining from $3 million in the prior quarter to $2 million in the first quarter of the year. Adjusted EBITDA margins were 3% in the first quarter versus 4% in the prior quarter. The product needs shift benefit the cost per ton, as ferro-silicon standard has a lower production cost. Next slide, please. Manganese baseloid revenues were down 5% from the fourth quarter, driven by a 1% decline in volume and a 4% decline in average selling price. Lower volume negatively impacted adjusted EBITDA by $2 million, while price had a negative impact of $5 million. In addition, higher cost had a negative impact of $6 million, which was the result of higher energy cost and island plants in France. Next slide, please. Despite the challenging market environment, we generated $5 million of free cash flow, driven primarily by a $25 million reduction in working capital, as we continued to focus on improving operational efficiencies. We also collected an energy rebate of $32 million. Cash flow from operations was $19 million in the first quarter, down from $32 million in the prior quarter. CapEx in the first quarter was $14 million, down from $18 million in the prior quarter. For upcoming cash flow items, we expect to make the final safety loan principal repayment of $18 million in the second quarter. Next slide, please. During the first quarter, we maintained a strong balance sheet while increasing our dividend and continued to buy back shares. Our dividend was increased to $0.04 per share, or up 8% over the prior quarter. During the quarter, we repurchased 720,000 shares at an average price of $3.75 for a total of $2.7 million. Since the third quarter of 2024, when we initiated our share buyback through the first quarter of 2025, we have repurchased 1.3 million shares for approximately $5 million. In addition, we made two strategic investments. The first was an additional investment of $3 million in Coreshell in the first quarter, making our total investment $10 million through April. Our increased investment is for the continued development of the 60-amp pilot plant to scale production. The second investment of $8 million relates to our commitment to production in Norway. We remain net cash positive at the end of the quarter with a balance of $19 million versus $39 million at the end of the fourth quarter. Adjusted gross debt at the end of the first quarter was $110 million, up from $94 million in the prior quarter. Our capex declined by $4 million to $14 million in the first quarter. And we expect maintenance capex for the full year to be in the range of the $60 million. At this time, I will turn the call back to Marco.

Thank you, Beata. Let's move into the key takeaways on slide 16. We are maintaining our adjusted EBITDA guidance of $100 million, $170 million for the year with the first quarter in line with our budget. We expect meaningful improvement in the second quarter and further strengthening in the second half of the year. With the US ferro-silicon case now finalized and the US safeguards decision nearing, we are confident that the trade measures will positively impact our business going forward. The silicone metal case petition was just fired in the US, so it is too early to speculate how it plays out. However, we are optimistic about that case as well. Given this development, we believe our performance will be much improved for the remainder of the year. Importantly, we continue to maintain a strong balance sheet with a positive net cash position, demonstrating our resilience and allowing us to manage the business effectively in the current environment. Operator, we are ready for questions.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 1-1 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 1-1 again. List and bell will compile the query in a row, so this will take a few moments. Once again, if you would like to ask a question, please press star 1-1.

And now we're going to take our first question.

And it comes to the line of Nick Giles from B Riley Security. If your line is open, please ask your question.

Good morning, operator and everyone. Marco, you reiterated guidance even though one queue. Sorry, I should have mentioned this is Heather Shabalin on behalf of Nick Giles. Marco, you reiterated guidance even though one queue is negative. So how we should think about this cadence of improvement in the two queue, three queue, four queue in 2025 if you could add some color and volume and cost and the price as well, which would be helpful.

OK. Thank you for the question. Well, first of all, the negative results were expected by us. Like we underlined, they are in line with our budget for this year. We have kept our wide guidance of $100, $170 million that is basically where we try to account for various scenarios that might develop Q2, Q3, Q4 of this year. We believe that the trade case will bring a little bit more balance in the market and will favor local producers like FerroGlobe, in the Americas, and in Europe. On top, we have the evidence that when strong measures are applied, like in the case of ferro-silicon in the US, in spite of the rather weak demand, we see a positive reaction both in terms of index pricing, as mentioned, and volumes. And we are waiting, of course, for a confirmation of the safeguards in Europe that they are nearing. And we expect as of July also more clarity on how the new anti-dumping and anti-circumvention case on silicone metal is going to set in the market. So these five points make us feel confident that our performance is definitely going to improve in the rest of the year. And this is why we have decided to keep the same guidance.

Thank you, Ian. And if I could expand on this one a little bit, follow up. I want to touch on the end markets. Where are you seeing the most strength and weakness with Europe or US and maybe Asia? So can we get an update on the outlook for the Asian polysilicon market? If you can, would be very helpful. Thank you.

Thank you for the question. Yeah, I can start from Asia. I think, of course, there are these measures on imports from Southeast Asian countries that are being implemented that block the, I think they block, due to their size, they block the export from these countries. But some other countries like Indonesia or India are going to see their business increasing as they will be allowed to export sales and modules to the US. How these changes are going to play in terms of opportunities to supply silicone metal from Europe to polysilicon players to produce cells in Indonesia, we will probably have to be validated in the coming weeks. The decision is rather fresh. Concerning demand of steel, which is another key indicator for us, the indication from this year is that steel is going to be rather flat. We see clearly that India keeps on having a positive increase of production of steel while the other key areas, in particularly Europe and US, don't register any major significant change. In aluminum, we expect definitely improved in demand in the US due to measures that are going to incentivize the production of aluminum in the US. In Europe, aluminum prices are going up. And it is our understanding that the aluminum producers are looking for protection similar to what we are asking for in terms of safeguards. So we have to see how this situation develops. Overall, to summarize, we see a rather stable situation of demand for our alloys business while we wait for trade measures before seeing a significant improvement on silicone metal demand.

I appreciate all this color, Marc. And if you allow me to squeeze one more, it's nice to see share purchases. But my question is, what would you need to see to step up magnitude in shareholders' returns? Thank you.

Let me start, but then I allow Beatriz to elaborate. But like we said, we are running the company under a very difficult and hostile environment, still generating cash. We expect to generate more cash in the coming quarters. And we expect to continue our opportunistic repurchase policy. And the amounts of repurchase will really depend on the cash available. As you know, our priority is always to have enough cash to run the company. And we will run our assets in the coming quarters. We need to spend the minimum level of CAPEX. We have indicated $50 million for this year. And then we will have the opportunity to repurchase share during the rest of the year. Beatriz, anything?

Yeah, maybe just a couple of data points. So far we've had, we've purchased 720,000 shares in the first quarter of 2025 at an average price of $3.75. From Q3 2024 through Q1 2025, we bought 1.3 million shares for a total of $5.1 million. And then your question is, if we plan to ramp up the purchase. And it's our view that we will assess our cash position together with the forecast market, as Marco was describing, which are currently, unfortunately, mixed. And we believe our share price is at the value at the moment. And our ultimate goal is to maximize the long-term shareholder value for sure. On the other side, it took us some time to achieve a strong balance sheet. Now that we have made cash positive, we want to keep a weight on the plate. Let me put it like that, to leverage our balance sheet to execute the buy-back. And just finally, as we have demonstrated over the past few years, we are proven on how we use our cash. And our first priority was to reduce the leverage of the company, which we have accomplished. And we followed this success with a modest dividend that we have been increasing this year. And of course, share buy-backs. Hopefully, this answers your question.

It does answer. Thank you very much, Marco, Patrice, and Alex. Best of luck going forward. Thank you. Thank you. Thank you.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 1-1 on your telephone keypad. Dear speakers, I don't have further questions at this time. I would now like to hand the conference over to the speaker, Marco Levy, for any closing remarks.

Thank you all again for your participation. We look forward to updating you on the next call in August. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect. Have a nice day.