Century Aluminum Company — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Century produces primary aluminum at smelters in the United States and Iceland. Results are driven chiefly by aluminum prices and premiums, power and raw-material costs, and production volume and product mix.
Financial performance
| Metric | Q1 2022 | Comparable period |
|---|---|---|
| Net sales | $753.6 million | $444.0 million in Q1 2021; $659.1 million in Q4 2021 |
| Gross profit (loss) | $93.2 million | $(20.7) million in Q1 2021; $69.4 million in Q4 2021 |
| Operating income (loss) | $81.3 million | $(36.9) million in Q1 2021 |
| Net income (loss) | $17.7 million; $0.18 diluted EPS | $(140.0) million; $(1.55) diluted EPS in Q1 2021; $60.4 million in Q4 2021 |
| Operating cash flow | $37.4 million | $(49.8) million in Q1 2021 |
| Capital expenditures | $26.0 million cash outflow | $7.4 million cash outflow in Q1 2021 |
Gross margin was approximately 12.4% in Q1 2022, compared with approximately negative 4.7% in Q1 2021 (calculated from reported sales and gross profit). Sales increased 70% year over year, principally from higher LME and regional premium realizations and higher shipment volume and mix. Primary aluminum shipments were 211,411 tonnes, versus 195,697 tonnes in Q1 2021.
Management reported that year-over-year gross profit improved by $113.9 million. Higher metal prices and premiums and favorable volume/mix were partly offset by higher raw-material prices, higher power costs, and increased operating costs. The average Q1 LME price was $3,267 per tonne and the average Midwest premium was $794 per tonne. Q1 results also included a $56.7 million net loss on forward and derivative contracts, versus a $98.1 million loss in Q1 2021; rising LME and Midwest premium forward prices were the principal sequential-quarter driver of the derivative loss.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $26.6 million; restricted cash was $21.6 million. Total assets were $1.69 billion and shareholders’ equity was $439.8 million.
- Total reported debt was $447.6 million, including $70.3 million outstanding on the U.S. and Iceland revolving facilities and $40.0 million under the Grundartangi casthouse facility. The latter facility had no reported balance at year-end 2021.
- Unused availability under revolving facilities was $127.7 million. Together with cash and cash equivalents, reported total liquidity was approximately $154.3 million. The company said it was in compliance with applicable debt covenants.
- Operating cash flow improved to $37.4 million from a cash use of $49.8 million in Q1 2021, primarily reflecting current-quarter income, partly offset by working-capital movements. Cash and restricted cash together increased $7.5 million during the quarter.
Material developments, outlook and risks
- Energy costs: Management expected combined capacity demand charges at Hawesville and Sebree to rise to approximately $11.5 million per quarter beginning June 1, 2022, from an average of $0.4 million per quarter over the four quarters ended March 31, 2022.
- Projects and spending: The Mt. Holly restart was expected to be completed in Q2 2022, subject to market conditions, bringing the facility to 75% of full capacity. The Grundartangi casthouse project was expected to continue through the second half of 2023 and was to be funded through its term facility. Management estimated 2022 capital spending of approximately $40 million for ongoing investment and sustainability projects, excluding the Mt. Holly restart and casthouse project.
- Operations and cyber event: Hawesville was operating at approximately 80% of capacity after its restart work; completion of the fifth potline rebuild was expected over the next several years, subject to market conditions. A February 2022 cyber incursion affected some servers; systems were restored. The company was still quantifying costs and production impacts but did not expect a material financial-statement impact.
- Concentration and derivatives: Glencore accounted for approximately 57% of Q1 sales and owned 42.9% of common stock (46.4% on a fully diluted basis). Derivative positions expose results and liquidity to aluminum, power, and foreign-exchange price movements and may require collateral; restricted cash pledged for derivative collateral was $18.5 million at quarter-end.
- Contingencies: The company disclosed litigation and other claims, including retiree medical settlement obligations. A $28.4 million Hawesville-related contingent power obligation was fully offset by a derivative asset; management believed no payments would be required under current operating conditions but noted circumstances could change. Additional pension contributions of approximately $2.4 million annually were scheduled for 2022–2025, subject to possible acceleration.
- No formal earnings forecast was provided. Management stated operating results for the first three months are not necessarily indicative of full-year results. It said cash from operations and financing activities should cover business needs over the next 12 months. The filing noted risks from aluminum and raw-material prices, energy availability and cost, Ukraine-related developments, supply chains, labor, financing, and other factors. Management reported no material change to previously disclosed risk factors.
Most important facts for investors to verify
- Whether aluminum prices, premiums, shipments, and product mix sustain the sharp sales and gross-profit improvement.
- The realized impact of higher Kentucky power capacity charges beginning June 2022 and other power-price exposure.
- Derivative settlements, collateral requirements, and the effect of price movements on earnings and liquidity.
- Progress, cost, timing, and production benefits of the Mt. Holly restart and Grundartangi casthouse project.
- Glencore-related revenue concentration and transactions, revolving-credit availability, and upcoming facility maturity dates.
- The final financial and operational impact of the February cyber incident, and developments in legal, pension, and contingent obligations.