Ferroglobe PLC: Q4 and Full Year 2019 Financial Summary
Business Context and Reporting Period
This Form 6-K, filed on March 2, 2020, reports the unaudited financial results for Ferroglobe PLC for the quarter and full year ended December 31, 2019. Ferroglobe is a global producer of silicon metal and specialty alloys. The reporting period reflects significant operational challenges, including pricing pressures, volume declines, and costs associated with temporary production curtailments.
Key Financial Metrics
| Metric | Q4 2019 | Q4 2018 | FY 2019 | FY 2018 |
|---|---|---|---|---|
| Sales | $364.4 million | $591.1 million | $1.60 billion | $2.24 billion |
| Net Loss | $(75.7) million | $(74.2) million | $(288.1) million | $24.6 million (Profit) |
| Adjusted EBITDA | $(38.1) million | $23.2 million | $(37.0) million | $230.1 million |
| Adjusted EBITDA Margin | -10.5% | 3.9% | -2.3% | 10.3% |
| Diluted EPS | $(0.44) | $(0.34) | $(1.67) | $0.25 |
| Adjusted Diluted EPS | $(0.32) | $0.03 | $(0.68) | $0.36 |
| Gross Debt | $481 million | N/A | $481 million | $645 million |
| Cash & Restricted Cash | $127.6 million | N/A | $127.6 million | $216.6 million |
Note: FY 2019 Net Loss includes a goodwill impairment charge of $174.0 million.
Material Changes vs. Prior Period
- Revenue Decline: Full-year sales dropped 28% to $1.60 billion, driven by a 16.8% decrease in average selling prices and a 14.9% decline in total shipments. Silicon metal volumes fell 32.4% year-over-year.
- Profitability Deterioration: The company swung from a net profit of $24.6 million in 2018 to a net loss of $288.1 million in 2019. Adjusted EBITDA turned negative at $(37.0) million for the full year, compared to $230.1 million in 2018.
- Cost Pressures: Cost of sales as a percentage of sales increased to 82.5% in Q4 2019 from 72.8% in Q3 2019. This was due to product mix shifts, inventory write-downs ($4.8 million in Q4), and costs related to idling plants ($8.5 million in Q4).
- Balance Sheet Optimization: Gross debt decreased by $75 million in Q4 2019 to $481 million, primarily due to refinancing activities. Working capital decreased by $97 million, largely driven by a $120 million reduction in inventory levels.
Outlook, Management Commentary, and Risks
- Strategic Plan: Management is developing a new strategic plan aimed at returning the company to profitability. A new CEO, Dr. Marco Levi, was appointed in January 2020.
- Liquidity Initiatives: The company successfully executed cash-generating initiatives, including the sale of non-core assets (South African timberlands) and refinancing of debt facilities.
- North American ABL: Closed a new $100 million asset-based revolving loan in October 2019, replacing the previous RCF. This facility has no leverage-based covenants.
- European A/R Program: Refinanced the accounts receivable securitization program in December 2019 ($150 million facility), releasing approximately $23 million in cash at closing and an additional $31.5 million in February 2020.
- COVID-19 Impact: As of the filing date, the business had not been directly impacted by the coronavirus, though management is monitoring the situation closely.
- Risks: Key risks include continued pricing and volume pressures, higher energy costs, operational disruptions, and the potential impact of global economic downturns on steel and aluminum demand.
Investor Verification Checklist
- Debt Covenants: Verify the specific terms and covenants of the new North American ABL and European A/R programs to ensure compliance flexibility.
- Inventory Valuation: Review the extent of inventory write-downs and the sustainability of the inventory reduction strategy.
- Cost Structure: Assess the permanence of cost savings from the "KTM" (Keep The Margin) program versus one-time idling costs.
- Market Recovery: Monitor silicon metal and alloy price indices to gauge the effectiveness of industry-wide capacity curtailments.
- Cash Burn: Track operating cash flow trends to ensure the company can sustain operations while executing its strategic turnaround plan.