Ferroglobe PLC: FY2023 Form 20-F Summary
Business context and reporting period
Ferroglobe is a global producer of silicon metal, ferrosilicon, silicon-based alloys and manganese-based alloys, with related quartz and coal mining, hydroelectric power and advanced-materials activities. Its products serve the aluminum, silicone, steel, automotive, photovoltaic, semiconductor and electric-vehicle battery industries. The filing covers the fiscal year ended December 31, 2023, and was filed May 13, 2024. Financial statements are prepared under IFRS as issued by the IASB and reported in U.S. dollars.
The filing is an annual report and does not provide a clearly identifiable standalone fourth-quarter 2023 income statement or cash-flow statement.
Key financial metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Sales | $1,650.0 million | $2,597.9 million | Down 36.5% |
| Operating profit | $196.9 million | $660.5 million | Down 70.2% |
| Profit for the year | $98.5 million | $443.8 million | Down 77.8% |
| Profit attributable to parent | $82.7 million | $440.3 million | Down 81.2% |
| Basic EPS | $0.44 | $2.34 | Down 81.2% |
| EBITDA | $262.9 million | $732.1 million | Down 64.1% |
| FX-adjusted EBITDA | $270.5 million | $742.1 million | Down 63.6% |
| Operating margin | 11.9% | 25.4% | Down 13.5 percentage points |
| Net margin | 6.0% | 17.1% | Down 11.1 percentage points |
| Cash flow from operations | $178.4 million | $405.0 million | Down 56.0% |
| Capital expenditures | $83.7 million | $52.2 million | Up 60.4% |
| Cash, including restricted cash | $137.6 million | $322.9 million | Down 57.4% |
| Net debt | $114.3 million | $136.0 million | Down 16.0% |
Revenue, volumes and profitability
- Revenue declined across the principal product categories as both prices and volumes weakened. Silicon metal revenue fell 35.3% to $722.2 million; manganese-based alloys fell 50.7% to $259.2 million; and ferrosilicon fell 41.1% to $330.9 million.
- Average selling prices declined materially: silicon metal to $3,715 per metric ton from $5,332; manganese-based alloys to $1,141 from $1,778; and ferrosilicon to $2,238 from $3,623.
- Shipments decreased for silicon metal by 7.1%, manganese-based alloys by 23.1%, and other silicon-based alloys by 11.3%; ferrosilicon shipments were broadly stable according to the filing's product tables.
- Raw-material and energy expense decreased 31.6% to $879.3 million, but increased to 53% of sales from 49% because selling prices declined faster than the cost base.
- Other operating income was $101.0 million, including $80.3 million related to carbon-dioxide emission allowances. The company also recorded a substantial French electricity benefit under ARENH and related EDF arrangements; the filing states the 2023 benefit was approximately $186.2 million and warns that future benefits will be significantly lower or could become a net expense.
- Impairment losses were $25.3 million, principally relating to the Selma facility, Boo and the Cee-Dumbria facility. This was lower than the $57.0 million impairment charge in 2022.
- Finance costs fell 44.0% to $38.8 million, primarily following debt repayments and redemptions. Income tax expense declined to $57.5 million from $148.0 million.
Cash flow, liquidity and debt
- Operating cash flow was positive at $178.4 million, but substantially below 2022. Working capital declined to $510.7 million from $700.9 million, reflecting lower inventories and receivables.
- Cash used in investing activities was $81.8 million, including $83.7 million of capital expenditures focused on productivity, efficiency, maintenance and expansion projects.
- Financing cash outflow was $282.1 million, primarily reflecting the $150.0 million partial redemption of the Reinstated Senior Notes, additional note repurchases and repayment of the Reindus loan.
- Total outstanding debt was $311.0 million at December 31, 2023, comprising $61.5 million current debt and $249.5 million long-term debt. Approximately 77% of interest-bearing debt was fixed-rate and 23% floating-rate.
- The $100 million North American ABL Revolver was undrawn at year-end. The company stated that available working capital and expected cash generation were sufficient for present requirements.
- In February 2024, after year-end, the company fully redeemed the remaining $147.6 million principal amount of its 9.375% Senior Secured Notes due 2025, paying accrued interest and a $4.1 million call premium from cash.
- Debt agreements, including the SEPI loan and ABL facility, restrict dividends, related-party payments, additional debt, liens and certain corporate actions. Subsidiary cash totaling approximately $91.0 million was subject to restrictions on transfers to affiliates at year-end.
Material changes versus the prior comparable period
- FY2023 marked a sharp normalization from the unusually strong pricing and margins of 2022. Management attributed the decline to weaker demand, inflation, higher interest rates, lower steel and aluminum activity, and reduced chemical and photovoltaic demand.
- European and Asian silicon-metal prices converged, while U.S. prices retained a premium. Management reported a trend reversal and price recovery beginning in the fourth quarter of 2023, although the filing does not quantify fourth-quarter results separately.
- Production was curtailed or plants were idled in Spain and parts of Europe because of energy economics and weak market conditions. The Polokwane facility in South Africa restarted and operated at approximately 65% capacity by year-end; Selma was idled in December 2023.
- Polokwane and South African operations increased sales but remained pressured by ramp-up costs and electricity constraints. South Africa experienced significant load shedding, which management expects could continue through 2028.
- The company acquired a high-purity quartz property in South Carolina for approximately $11.0 million and expects to commence mining in 2024. It also signed power purchase agreements covering 130 GWh in 2023.
- Ferroglobe sold its Château Feuillet silicon-alloy facility in 2023 and continued restructuring activities in France.
Guidance, outlook, risks and unusual items
The filing does not provide formal numerical revenue, EBITDA or production guidance for 2024. Management's stated strategy is to optimize the asset footprint, improve plant efficiency, strengthen pricing and commercial execution, centralize procurement, improve working capital, reduce leverage and develop higher-value products including silicon-based battery-anode materials and battery-grade manganese products.
- Energy exposure: Electricity is a major production cost. The unusually large French energy benefit in 2023 is not expected to recur at the same level, creating a material risk to future margins.
- Commodity cyclicality: Results depend heavily on global prices and demand for silicon metal, silicon alloys, manganese alloys, steel, aluminum, silicone and photovoltaic products.
- Customer concentration: The ten largest customers represented approximately 51% of consolidated sales; Dow Silicones Corporation alone represented 17.0% of sales.
- Operational and supply-chain risk: The company depends on reliable electricity, coal, manganese ore, quartz, electrodes, transportation and mining permits. Approximately 84% of third-party coal purchases came from Colombia.
- Environmental and legal matters: The company paid a $2.6 million civil penalty under a Beverly, Ohio Clean Air Act consent decree and must install additional pollution-control equipment. Environmental, asbestos, employment and other litigation remains subject to uncertainty.
- Internal controls: Management concluded that disclosure controls and internal control over financial reporting were ineffective at December 31, 2023. KPMG issued an adverse opinion on internal control effectiveness. The remaining material weakness relates to impairment controls, information-technology general controls and controls at Ferroglobe France.
- Governance and ownership: Grupo Villar Mir held 40.1% of voting power and has significant influence over corporate matters. Related-party energy arrangements with affiliates of Grupo VM remain material.
- Liquidity and refinancing: The February 2024 note redemption reduced debt but also used cash. Investors should assess post-redemption liquidity, restricted subsidiary cash and upcoming SEPI and other government-loan maturities.
- Unusual accounting items: 2023 results benefited from French energy arrangements and carbon-allowance income, while impairment charges, restructuring provisions, power contracts and contingent consideration affected comparability.
Most important facts for investors to verify
- Whether silicon-metal, ferrosilicon and manganese-alloy prices and shipment volumes continued the recovery described as beginning in Q4 2023.
- The recurring versus non-recurring portion of the approximately $186.2 million French energy benefit and the expected 2024 impact of its reduction or reversal.
- Cash and liquidity after the February 2024 redemption of the remaining senior secured notes, including restricted cash and subsidiary-transfer restrictions.
- Progress in remediating the material weakness in internal control over financial reporting and whether the weakness is resolved by December 31, 2024.
- Performance and impairment sensitivity of the Polokwane, Puertollano, Selma and other potentially impaired cash-generating units.
- Execution of plant restarts, Spanish furlough extensions, French restructuring and South African electricity arrangements.
- Exposure to customer concentration, particularly Dow Silicones Corporation and the top ten customers.
- Potential cash costs from power purchase commitments, environmental compliance, carbon allowances, litigation, mining permits and contingent consideration.