Ferroglobe PLC current report, Q1 FY2020

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.