Q1 2021 Ferroglobe PLC Earnings Call
Good morning, ladies and gentlemen, I'll walk with the third those first quarter 2021 earnings call. At this time all participants are in a listen only mode. Later, we'll conduct a question and answer session and instructions will be given at that time as a reminder of this conference call may be recorded.
I would now like to turn the call low, but you beaches Garcia of call pair of gloves, Chief Financial Officer, you may begin.
Thank you.
Good morning, everyone and thank you for joining here of sort of below the first quarter 2021 earnings conference call.
Joining me today are Michael Levy, our Chief Executive Officer. They know how many of you kind of loves the Chief operating officer, and Deputy Chief of accept the default weekend and good after that though I want to ask sort of regional director and EVP of strategy and Investor Relations and of course 11 could have control of it.
Before we get the started with some prepared remarks I'm going to read the brief attainment.
Please turn to slide two at this time.
The statements made by management during this conference call that the forward looking a base of current expectations risk factors that could cause I'm told visuals to differ materially from these forward looking statements can be colony federal blows. Most recent S T SEC filings and the exhibits to those filings which.
The available on our webpage the redo the ones you don't set of love of Dot Com.
In addition, this discussion English really of finished two of every deal of desk at the media gross debt net debt and adjusted diluted earnings per share, which I've known you for its measures reconciliation of these no not yet finished measures may be found in our most recent SEC filings.
This is likely.
During today's call. We finished we will first review the highlights for the first quarter, that's kind of how our business and operating of vitamin then I will provide some additional details on our financial performance and key drivers behind of what they sold it.
And finally, we'll provide an update on the execution of our just said they took place at this time.
I'd now like to turn the call over to Marco Levi, Our Chief Executive Officer makes it slightly.
Yeah.
Thank you for Antares and welcome to all of the first quarter of 2021 earnings call.
It is the pleasure to present some of the strong first quarter results, particularly following the challenging year, we faced in 2020.
Despite the lingering tight of COVID-19, we're witnessing economic activity like cool thing gets out there many of the space.
Okay.
And we are certainly capturing the benefits of stronger demand across all of our end markets.
In part.
We feel that whole base of recovery is called the industry by surprise and the tone of many of our customers going into the new year, we will still one of caution and uncertainty.
Waiver as we turned the corner and entered 2021.
We have seen an acceleration in activity and some signs of demand strength that is expected to continue at least through third quarter of D. C.
We are finally.
The inflection point, which is underpinned by a solid supply demand fundamentals across all products in our portfolio.
While we are excited about the positive shift in the market that's true.
Yeah actually.
With the progress we have made that sounds low.
The people from you in the first quarter.
The ongoing efforts to transform this business operationally and strengthen the business financially.
Positions us well to compete and capitalize on this market opportunity.
We have been selectively are starting some previously idled capacity in line with our long term plan, all while driving down costs by focusing on operational improvements.
Additionally, we've made significant advancements in our comprehensive financing during Q1.
And now I'll have the consent of an overwhelming majority of our existing noteholders to force. Your next danger of her to refinance and extend the notes.
This is a highly favorable outcome for the company.
Given the shorter timeline to closing and lower professional fees to execute.
And last week, we announced the successful the signing of the nodes per change the agreement relating to $40 million of the $60 million in new secured notes issuance. The 40 million is now in the process of being settled.
Regarding the strategic plan I am happy to report that with the first quarter of the execution of phase behind us.
Maintaining the strong pace in implementing the plan and we remain on track to hit our targets for the year.
The current market condition set the stage for an exciting 2021.
It is important to highlight the phone growth strategy is not simply counting on the secret code of recovery.
<unk> resilience and discipline in the south.
The us successfully navigate turbulent times now needs to be repurposed or bolstering the competitiveness of our company with a nice to watch the video recovery for our stakeholders.
Part of the stoppages to distinguish ourself.
He's focused on the innovation that supports our global customer base in the development of solutions driving sustainable products.
To support the school, we have refocused our research and development of airports toward the development of cost effective and versatile the range of advanced silicon products that can serve.
The effective substitute for Arnold active materials and lead to margin batteries.
We have developed the technical expertise for nano and micro silicon the well suited for this trend and they've been supplying saving of leading companies research institutions and academic centers.
Given that the overall feedback from end users has been positive we have decided to dedicate the pilot line at our Cibola facility in Spain to increase our exports on this exciting opportunity.
Overall, we are of good momentum in the business. This remains the fever the ear for further growth in our first quarter results highlight that we have started off on the right.
Moving ahead to slide six please.
First quarter sales were $361 million up 13% from the previous quarter.
Dominantly driven by.
Our realized selling prices.
The pickup in the overall demand that they once the main thing the previously hasn't fully come through in Q1 financials, but will certainly contribute going forward.
During the quarter of our total volumes across the old products were up $2 four per cent in part of the minimal increase is attributable to the work down of our inventory levels throughout 2020, coupled with the increase in demand for certain products in Q4 2020.
The net impact of these well starting the year with relatively low inventory levels.
The net loss for the first quarter was $68 5 million. This compares to a net loss of one number of $39 eight millions in the previous quarter, which includes some impairment charges.
We have strong recovery in our adjusted the EBITDA.
During Q1, our adjusted EBITDA was $22 $1 million, which is an improvement of 302% from the previous quarter.
Our operating cash flow increased from $3 5 million in Q4 to $18 $3 million in Q1.
Despite some significant one time cash payments, particularly relating to the repayment of debt, we generated positive free cash flow of it.
The old one was part of by top line growth coupled with the cost the improvement from actions taken throughout 2020 driving margin improvement.
Well there aren't increasing production also provided better fixed cost absorption across our operating footprint.
To date, we have experienced some increase in the important logistical costs, but there have been successfully mitigating the impact for continuous casting and improve production efficiency.
Despite the increase in our top line, our working capital improved by $5 nine millions of quarter over quarter, primarily driven by a reduction of inventories and the efforts supported the year as part of the strategic plan.
The gross debt decreased by $36 $5 million during the quarter.
We ended the quarter with gross debt of $419 million and net debt of till the end of $34 million.
The repayment of the previous asset based loan and other transaction related costs offset the cash generated from operations during the quarter.
And we saw a decline of $48 million in total cash ended the quarter with $84 million, which includes 6 million of cash.
S business continues to improve.
And additionally, the parts of the financing close we've mapped the earlier expect to see a gradual improvement in our cash position.
Next slide please.
Turning first to see the comment though on slide seven.
Teraflops of realized average selling price for silicon metal was 2200 of $95 per tonne in quarter one.
The flat from $2260 per ton the per year per quarter.
Quarter.
The index price is in the U S. That's the only increased by approximately 21% during the quarter one of the European index increased by 22% during the same period.
Keep in mind the taps.
Proxy matter, the 60% of our first quarter of business was contracted it.
Fixed prices in late 2020, when the market the outlook was bleak.
And the pricing environment was much lower.
Furthermore, the index based contracts as a.
Lack some of the increasing prices will only be realized.
The realized in Q2 and beyond.
And finally, we have the larger than usual proportion of our silicon volume in Q1 are located to our joint venture of biomass to settle the offtake balances from two to 2020.
All of these factors contributed to the flat pricing quarter over quarter, but this will improve in Q2.
The volume trends charts on the right of slide seven shows the 13% increase in silicon metal shipments over the previous quarter to 61275 times.
EBITDA from our suite of kind of business improved considerably from $1 $9 million in Q4 to $14 8 million in Q1.
Volumes price and costs all contributed to the improvement during the quarter.
On the cost side, we had the net benefit of the $9 seven meals for the quarter, specifically four 2 million ounces tied to one off expenses incurred in port the floor, which are not repeated this quarter.
In Q1, we had the benefit of $2 4 million from improved contract terms. This benefit will continue for a few quarters.
And finally.
We had the 3 million net the impact from improved fixed cost absorption coupled with the positive impact for my wife areas key technical measure of initiatives.
Overall the.
The supply demand picture for Silicon metal is the best we've seen in years.
In the past, we discussed all the inventory levels throughout the value chain that diminished, especially during the pandemic lockdowns.
Restocking of the change was the niche of catalyst driving demand recovery. However, today the high level of consumption for final products.
Minimum and chemical sector is driving demand for our products on the chemical side of the business the increase in the adult for medical related products.
It's meant to the infrastructure and construction and increasing daily consumables provide the strong foundation for the industry poised for continued growth globally.
On the aluminum side the pickup in activities largely driven by the recovery in the Alto demand both in North America and in Europe, as well as the growing shift towards sustainability is illumina.
Becomes the material of choice, even its lightweight and recyclability.
Sales into the photovoltaic market.
Which was predominantly North America for US has not recovered as many of our customers if not restart the previously idle capacity.
In addition of two strong demand bottlenecks in the raw material sourcing and logistics F created additional of barriers limiting supply and sort of supporting the idea of price environment.
Given this backdrop, we feel the stage of set for strong demand and pricing for a large part of 2021.
To take advantage of this market, we decided to restart the furnace at the bombing first quarter 2021, and one furnace at one cliche in second quarter 2021.
Brian This split the 3000 tons of silicon capacity on the non oil basis.
Combination of our index based contracts and freely negotiated the volumes, particularly with the new capacity growth.
By the an attractive opportunity to capitalize on these trends.
Next slide please.
The only to silicon based alloys on the.
The eighth.
During the quarter the average selling price increased by the eight 9% to $1665 per metric ton.
Top.
1528 per metric ton in the fourth quarter.
During the quarter, we realized $7 four increasing sales volumes sales volumes of Silicon based alloys were approximately about 30 of 62000 items. The loss in Q1 of about 4000 tons higher than the previous quarter.
Our silicon based alloys are going into the steel market.
And the remarkable start to the year.
And the market was.
In 2020 due to COVID-19, we have a significant portion of the capacity.
The period of Lockdown.
Throughout 2020, we're sort of inventories of Ferro alloys also declining steadily as our customers to diligently manage their working capital.
Our quarterly improvement.
We are merely attributable to sales of ferrosilicon, which has gained benefit from the restart of sales capacity, especially blast furnaces in Europe for the.
Theyre more our founder of sales also improved on the back of grab one of the recovery across the global automotive end market.
From our perspective, what's the.
The government as the recovery to pre COVID-19 levels is now shaping up to be a scenario, where we can have a longer period of demand strength.
In addition to the pent up demand, we're now monitoring the initial impact from deployment of funds from government stimulus schemes and the infrastructure spending plans.
On the back of this market strength, we have decided to restart the furnace at the hour emotionally facility in South Africa, which is dedicated to ferrous silicon and foundry.
The furnace was the restarted in early March.
A lot of capacity of 19000 tons.
EBITDA for our Silicon based alloys business was positively impacted by price and volumes, partially offset by the area of course.
Nearly half of the cost the impact is attributable to the factory side of the portfolio, where the product mix is likely all of our fixed cost of suction in Europe without any of <unk> costs.
Additionally, the restart of our furnaces in South Africa was out of the labor and related the restart costs by approximately $1 million.
And finally the.
Accounting treatment the hall CEO of two price in Spain. The resulted in lower costs in Q4, having a negative impact in terms of the quarter over quarter comparison.
Next slide please.
Turning now to manganese based alloys.
During the quarter of the average selling price increased by 13, 9% to 1001 out of $74 per metric ton.
Shipments during the first half.
<unk> were down seven 6% of.
The decrease of approximately 6000.
The previous quarter.
With the strong demand for manganese alloys at the year end, our inventory levels were relatively low coming into first quarter of.
<unk> Luckily this limited our ability to fully capitalize on the market demand during the quarter.
Additionally, we had some downtime at the facility in Spain, which also adversely impacted our production.
EBITDA contribution from this business was positive $10 million in Q1 versus negative $1 million in the fourth quarter and is predominantly attributable to pricing.
On the cost side of the average cost of manganese ore was flat quarter over quarter.
With the strong momentum still the.
Capital, we've I wanted expectation of manganese ore of course, the remaining at the attractive areas due to new capacity coming on line.
We are anticipating spread levels to be supportive for this business throughout the quarter three of this year.
In light of the demand outlook, we are in the process of temporarily at least starting our second third and I've said more around the facility in Norway.
<unk> 56000 tons of capacity on an annualized basis.
I would now like to turn the call of our two batteries to review of the financial results in more detail.
Thank you Michael.
Beginning with the slide 11, I will touch on a few of specific line items on our income statement.
Also the kind of $61 million during Q1 with 30% higher than the 351 billion, though net of say in the.
The pie you of course that this increase in <unk> was driven by a 12% 12 per cent increase in average realized prices, which more than offsets the 2% decrease in C bench across our portfolio.
During the quarter hour of cost of sales decreased by 8%, especially the thing in the doubling of our gross profit from 15% in Q4 to 31% in tier. One. This is due to our continued cost efficiency Air force. That's the way that the avoidance of some one of course, which adversely impacted the prior year.
What day.
The decrease the operating income by approximately $6 $2 million that is due to the accounting treatment relating to the C. O two emissions flight of the.
Production is marginally higher core day to work with it we have not we have not recognized any income even do it up during the <unk>.
Of course, then given that the 2021 low ones in Europe has not been granted yet.
Operating expenses totaling $56 $8 million was higher than the previous call of duty, mainly because of the one off impact in the United States in Q4.
The reported the EVP of NATO $18 9 million in Q1, when accounting for the one time costs relating to the implementation of the strategic plan. The adjusted EBITDA was positive $22 1 million next slide please.
Quarter over quarter, we did have a 2% increase in outside of adjusted EBITDA from $5 7 million in Q4 to $22 1 million Boe of that in Q1 named Bill's line in our avid has realized selling price had been that the thinking.
The largest impact contributing $22 5 million, though that good.
The new efficiency program, Okay P M. The leave it the first vigilance, reducing our volume of of course called T V. The thing 1 million net.
Generally the pick up in production of close the platform dual fixed cost absorption with the.
Which is a factor of having an adverse impact in Q4.
The increase in head office expenses is attributable to a third party consultant than it's been which decreased in Q1.
They sort of some of it look any claim and the legal expenses tied to specific transactions.
During the quarter without the adverse impact of steaming from the third market that adjustment related to our reputation of C. O two by even an increase in the cost for the site.
Slide 13 please.
Turning now to slide 15, I wouldnt be the off balance sheet in greater detail.
The destocking by the level or anything of the cash and restricted cash we get asked about the fall of refinancing film sales would be paid not only the ABL in the United States, but we also paid back later sort of created and all of the obligations with the specific Linda as part of the satisfaction the aggregated cash impact of the <unk>.
<unk> was approximately 45 million net hence.
Hence we have the cash consumption during the quarter. Despite the I'm speaking of operating cash flow of.
The 84 million of cash flow kind of quoted in one of the $6 million.
Now, let's take the at least compared to the 28 million the latter of cash which was previously restricted on the day.
The a b E.
The repayment of the ABL and cash consume in fact, our gross and net debt over the phone.
Our net leverage of precision improved during the COVID-19 then and is currently <unk> 79 times.
Total assets were approximately $1 8 billion at the end of Q1, the slight decrease of $48 million of it.
The Playa of balance I didn't due to the net loss during the call it the nature.
Next slide please.
In aggregate, we turn to free cash flow positive $9 million during Q1 the cash.
Cash flow from operating activities during the quarter was $18 $2 million reported EBITDA was $18 $9 million.
Cash flow from investing activities was made at the $9 million of table with the board to approximately 2 million of capital expenditure of $7 million for the reported case of Seo tool right.
Lastly, cash flow from financing activities was made at the $56 $2 million for the quote that in.
In addition to the cash required to repay the avion announcing the Audi obligations, we made our semiannual bond coupon payment.
Next slide please.
Now turning to slide 15.
Working capital by $5 million during the first quarter, despite the increase in stage.
When looking at the working capital evolution. Please keep in mind. The the target we have set for the Oh of $49 million that is defined measured as of now it is on.
Rolling 12 months basis to account for cyclicality. The woods, we have thought of it we are targeting our average 2020, we're working copy that to the $49 million out of nowhere that our baseline of it for 2020.
The slide 16 please.
During the quarter, both our gross debt decreased by $37 million to the full funding of $19 million, while our net debt increased by $10 million to take on the $34 million net in.
In the percentage of repaying the Playa asset based loan in the United States, we have to say that a few of the obligations with the lending, including net debt of created as well. That's the retiring of credit card program. These lead to the cash decline during the quarter.
Next slide please.
Yeah.
As you would know from our announcement made on March 28, the company and then into I look up of agreement with members of an outgrowth of that.
All of the testing not all of this representing in aggregate the approximately 60% of the 2022 senior notes and tightest copied day in relation to our capital base and the extension of maturity of the senior notes.
Since our last update to the vessels the cost me my TD of throw this one day 10 section.
The particular over 96% of our adult COVID-19 has now shown their support for the people of side by exceeding to the low cap at Neiman.
And as a consequence, we have elected to implement it does auction by way of an exchange wholesale instead they'll find the English no. A scheme of arrangement. This is expected to enable the transaction to be completely completed more quickly than would otherwise be the case and at the lowest cost.
The preparation of the loan form documents in satisfaction of the milestones on the day low cutback Leamon is proceeding in order of the T. L mistakes as expected in particular the group has entered into a note purchase agreement with members of the article goodwill relating to the issuance of finding Nathan $40 million.
Of the aggregate $60 million at new senior secured notes the conditions of Michigan's do they know of boutiques of agreement have been satisfied and the initial 40 million easing the process of being settled.
We are the still considering the appropriate flow for the equity raise you may recall that at the time of the March 28th announcement, we would of course he didn't conducting the new IQ database in the form of five P.
Pmt's Vitaceous shadow fitting of available towards Hook, one day, where the state of I think the option and seek to finalize I took the soon.
We are optimistic that the remainder of the transaction will complete weekend the timeline provided.
Paul in the lockup agreement and prior to the longest till the date of September 28 2021.
We look forward to reported back to you as we hit the additional milestones at this time I would like to turn the call back over to Michael who will provide an update on the strategic plan.
Thank you batteries the al.
Turning to slide 19.
At this time I would like to think of a few minutes to provide an update on our strategic plan.
Given that the we're now running full speed ahead on the execution of initiatives across all day of deal creation areas. We intend to provide the quarterly update on our progress from both the quantitative and according to keep basis eating on some key highlights.
To start the let me reiterate our targets for the year.
Correcting to realized 55 million sort of incremental EBITDA benefit in 2021, as well as 49 million of sort of working capital improvement of which Bethany I liked it.
On the VITAS side, we've captured four 705 millions of benefit through specific initiatives tied to turnaround plan, which accounts for 9% of our I'm a lot of targets.
It is worth noting that the $475 million exactly the impact which flows into our P&L.
Also please keep the mine that the savings are not expected to be captured in the linear fashion as say the larger initiatives are weighted toward the back half of the year.
With the way these initiatives are collectively progressing we remain confident in delivering our targets.
With regards to footprint optimization of we formally engaged with European works Council of March 29, two commenced the restructuring in Spain and France.
In Spain, the negotiation of the failure to officially started on April eight.
On May 13, 2021, because of the station period ended without an agreement between the parties and fair enough I think of the zinc.
Which communicate his decision regarding the collective dismissal of the legal representation of the worker and the Labor authority.
So the brand because of the CCAR we communicate.
Seizures.
In France, the branch of the implies the consultation period of four months. The procedures started officially on April 13 and sales.
Global management of these working since then.
The linked gorge, social dialogue and transparency.
Another area that we have significant progress is our continuous plan of efficiency.
Well how does this work stream builds on our previous KTM program. We are revamping our processes for implementation and are investing in training our workforce to execute these types of projects most effectively.
The expertise provided by the current something firm. We are leveraging is also of the tremendous value and improving our benchmarking and measurement capabilities. As we are clearly starting to see a concept of shift and excitement brewing around this program.
Centralized procurement.
What was the big undertaking because we had to reorganize the department in terms of personnel and training people to function on the new organization.
I commend the team set forth the them quickly establishing this platform.
The first quarter, we launched sit out rfps and started to see the benefits of operating in this manner.
As the organization gets used to working under the new formation, we see the opportunity to broaden the scope of this work starting to capture of saving.
On commercial excellence.
Well the student sub categories, we are progressing along.
During the quarter there has been at the remainder of the airport on reviewing and reallocating resources to better serve our customers.
Through the development of improved account planning and customer coverage, we seek to develop a partnership with our key customers, while enhancing and optimizing the order book.
Over time, our goal is to focus on value added products and having the strong partnership with our customers is critical to achieve this.
And lastly on working capital improvement most of the efforts today as being so.
Centered on the <unk>.
In the 30 management.
We are creating targets based on the kpis in an effort to improve the overall efficiency throughout the cycle.
Overtime, we would move to other areas such as accounts payable and accounts receivable, but the initial wave of working down both raw material and finished good inventory based on newly the NP five targets is proving to be a significant improvement.
Based on the way the targets. He is a measure of it we have seen significant improvement in Q1, let's say the rolling average is intended to account for seasonality. So this trend line may flow.
Looked away from quarter to quarter.
Overall the.
We remain confident in delivering on the working capital targets as well.
Yeah.
Beyond the numbers.
We are focused on fundamentally changing the DNA of this company.
In terms of unifying the global work force.
Getting the culture.
Centered on ex us and training our workforce at all levels of two operating of different manner.
This journey is just starting but we are thrilled with the overall level of engagement and results so far.
It doesn't really look forward to keeping our stakeholders updated on this journey over the coming quarters.
At this time I will ask the operator to please open the line for questions.
Thank you.
Ask a question you would need the press Star then one on your telephone to withdraw your question. Please press the pound key please standby, while we compile the Q&A roster.
Thank you. Our first question comes from the line of Brian Day Rubio with Baird. Your line is now open.
Yeah.
Thank you.
Yeah.
And part of me Brian Your line is now open.
Okay.
Yeah.
As a reminder to ask a question you would need the press Star then one of your telephone.
Okay.
Thank you.
I would now turn the call back over to Marco.
Thank you.
Love you for closing remarks.
Thank you Thats concludes the I'll walk first quarter earnings call as I mentioned at the beginning of the goal. The stars are aligned in terms of all parts of the company showing strong prospects for the year.
Now it is up to us to execute on the old phones existing order book. The addition of new capacity and the ongoing improvements in how we operate the company will all support our ability to capitalize on this opportunity.
The progress of the financing side is also critical to our success now that we have mitigated some risks the path forward provides us comfort that we can continue to execute on our plan.
<unk> are shaping up nicely and we look forward to keep you updated on our progress. Thank you again for your participation have a great day.
Ladies and gentlemen, you may now disconnect.
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