Ferroglobe PLC: Q2 2017 Financial Summary
Business Context and Reporting Period
This Form 6-K, filed on August 30, 2017, reports the unaudited financial results for Ferroglobe PLC for the quarter ended June 30, 2017. Ferroglobe is a global producer of silicon metal and silicon- and manganese-based alloys. The reporting period marks the first quarter since the company's merger in which it reported a net profit.
Key Financial Metrics
- Revenue: $425.8 million, an 8% increase from $396.0 million in Q1 2017.
- Net Profit: $1.0 million ($0.02 per diluted share), compared to a net loss of $8.1 million in Q1 2017.
- Adjusted Net Profit: $6.0 million ($0.05 per diluted share) attributable to the parent, compared to an adjusted loss of $4.8 million in Q1 2017.
- EBITDA: Reported EBITDA was $36.8 million (up 19% QoQ). Adjusted EBITDA was $43.9 million (up 42% QoQ).
- Margins: Adjusted EBITDA margin improved to 10.3% from 7.8% in the prior quarter.
- Cash Flow: Operating cash flow was $20.1 million; Free cash flow was $5.8 million.
- Debt and Liquidity: Net debt increased to $435 million from $407 million in Q1 2017. Liquidity stood at $320 million.
Material Changes vs. Prior Period
The company returned to profitability driven by price recovery and stabilized volumes. Key drivers included:
- Pricing: Average selling prices increased across key products: Silicon metal (+6.3% to $2,210/MT), Silicon-based alloys (+7.7% to $1,586/MT), and Manganese-based alloys (flat at $1,308/MT).
- Volumes: Silicon metal shipments rose 9.4% QoQ. Silicon-based alloys decreased 5.9% QoQ, while Manganese-based alloys increased 1.1% QoQ.
- Working Capital: Increased by $35.4 million during the quarter, primarily due to inventory and receivable build-up associated with the recovery cycle.
Outlook, Risks, and Unusual Items
Management Commentary and Outlook: Management expects prices to continue improving through 2017. The company is focused on sustained performance across all segments and maintaining a leverage target below 2x.
Recent Developments:
- Trade Cases: The U.S. Department of Commerce issued preliminary countervailing duties (3.69% to 120%) on silicon metal imports from Australia, Brazil, and Kazakhstan. Antidumping determinations are expected in October 2017. Similar proceedings are ongoing in Canada.
- Asset Divestiture: The company failed to receive regulatory approval to divest hydro-electric operations in Spain as of July 26, 2017, and is exploring other options.
- Liquidity Financing: On July 31, 2017, Ferroglobe entered a $250 million accounts receivable securitization program to maximize liquidity.
- Operational Status: The Venezuela plant has halted operations since May 2017. Facilities in Argentina and South Africa are operating at reduced capacity (50% and 65%, respectively) due to local conditions.
Investor Verification Checklist
- Verify the sustainability of silicon metal price increases in North America following the preliminary U.S. trade rulings.
- Monitor the outcome of the Canadian antidumping/countervailing duty investigations expected in October and November 2017.
- Assess the timeline and feasibility of divesting the Spanish hydro-electric assets given the recent regulatory rejection.
- Review the operational status and potential recovery of the Venezuela facility and the utilization rates in Argentina and South Africa.
- Confirm the impact of the $250 million securitization on future liquidity and interest costs.