Ferroglobe PLC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Financials: Posted revenue of $1.6 billion, adjusted EBITDA of $154 million, and free cash flow of $164 million. Repaid remaining senior secured notes, becoming net cash positive for the first time, and initiated a capital return program with quarterly dividends and share buybacks.
• Trade Measures: Global trade uncertainties with antidumping/countervailing duties, tariffs, and safeguards create uncertainty but are expected to benefit domestic producers. U.S. trade commission actions on ferrosilicon from certain countries and EU safeguard investigations on silicon metal, alloys, etc., are impacting markets.
• Operational Tools: Implementing Sales and Operation Planning (S&OP) to drive incremental improvement, already seeing reduced working capital in Q4. Continued investment in Coreshell partnership for promising tech results, bullish on silicon metal's role in EV batteries as a graphite replacement in anodes.
• Market Conditions: Challenging environment in Europe and North America in recent months but signs of market bottom with stabilized indexes and rising prices. Steel production growth forecasts and improved manufacturing PMIs provide optimism.

Segment Performance

• Silicon metal: Q4 revenue declined 17% to $161 million, adjusted EBITDA declined to $17 million due to higher costs, lower prices, and reduced volumes. Full year sales were up slightly. Revenue contribution percentage not explicitly stated but it's part of the overall $1.6 billion revenue.
• Silicon-based alloys: Q4 adjusted EBITDA improved slightly to $3 million, driven by cost improvement, but volumes were pressured by low demand and aggressive imports. Average realized prices declined 3% over the third quarter.
• Manganese alloys: Q4 revenue declined 13% to $78 million, driven by a 17% price decrease, partially offset by a 5% increase in shipments. Adjusted EBITDA decreased $9 million due to tighter spreads and higher cost manganese ore inventory. Full year, manganese alloy segment growth offset other declines.

Guidance

• Initiated adjusted EBITDA guidance of $100 million to $170 million for 2025 due to market uncertainty, timing of trade cases, potential tariffs, and geopolitical issues.
• First quarter expected to be negative due to low prices, weak demand, and idling of French operations. Second and third quarters anticipate improvement with potential trade decision impacts.
• Adjusted EBITDA range is a result of uncertainty in trade measures and market conditions, with the lower end being conservative and the higher end based on partial success of trade duties.

Risks

• Trade Uncertainty: Antidumping, countervailing duties, tariffs, and safeguards create uncertainty in global trade flows, impacting market conditions and business performance.
• Market Conditions: Challenging environment in Europe and North America with potential continued weakness in the first half of 2025, though signs of bottoming are seen.
• Timing of Trade Cases: Uncertainty around the timing of final determinations in trade cases (e.g., EU safeguard investigation final determination in Q4 2024, U.S. duties on certain countries announced March 21) affects business outlook.
• Geopolitical Issues: Geopolitical factors can impact trade flows, prices, and market demand, adding to the uncertainty in guidance.

Question and Answer

• Q: Nick Giles asked about annual guidance, specifically pricing and volume implications and how much of the high end is from trade measures versus improved demand A: Marco Levi stated the lower end is conservative based on current conditions, while the higher end is based on partial success of trade duties imposing, with estimated prices and volumes driving the range. Beatriz García-Cos mentioned a 1% variance in pricing impacts EBITDA by ~$14 million.
• Q: Nick Giles followed up on silicon metal growth markets and brownfield expansion A: Marco Levi emphasized belief in silicon metal's role in EV batteries, working with multiple companies including Coreshell, and progress on U.S. brownfield expansion with permit submission in progress.
• Q: Martin Englert asked about French energy credit for 2024 and 2025 guidance A: Beatriz García-Cos said total 2024 energy credit was ~$60 million, Q4 impact was $24 million with $32 million collected in Jan 2025, and 2025 credit expected to be lower than 2024 but negotiating better 2026 contract.
• Q: Kyle Mowery asked about European production cost impact of quota system and U.S. ferrosilicon rulings A: Marco Levi discussed uncertainty around EU safeguards, expecting increased capacity utilization in Europe to favor better cost absorption, and reduced imports from certain countries in U.S. leading to potential demand impact and new customer contracts for Ferroglobe.
• Q: Kyle Mowery asked about rate of return for new U.S. facility investment A: Marco Levi stated they expect a much higher return than previous investments, higher than WACC and cost of capital, based on building a high-performance furnace for silicon metal production.