Ferroglobe PLC: Q3 2019 Financial Summary
Business Context and Reporting Period
This Form 6-K, filed on December 2, 2019, reports the unaudited financial results for Ferroglobe PLC for the quarter ended September 30, 2019. Ferroglobe is a leading global producer of silicon metal and silicon- and manganese-based specialty alloys. The reporting period reflects a challenging market environment characterized by reduced demand, customer destocking, and declining selling prices across all major product lines.
Key Financial Metrics
| Metric | Q3 2019 | Q2 2019 | Q3 2018 |
|---|---|---|---|
| Sales (Revenue) | $381.7 million | $409.5 million | $524.4 million |
| Net Loss | $(140.1) million | $(43.7) million | $(2.9) million |
| Diluted EPS | $(0.83) | $(0.24) | $(0.01) |
| Adjusted Net Loss (Parent) | $(16.1) million | $(22.2) million | $(0.1) million |
| Adjusted EBITDA | $(7.2) million | $5.0 million | $43.9 million |
| Adjusted EBITDA Margin | -1.9% | 1.2% | 8.4% |
| Net Debt | $368.3 million | $478.3 million | N/A |
| Cash Used in Operations | $(82.3) million | $(37.4) million | $(7.9) million |
Material Changes vs. Prior Periods
- Revenue Decline: Sales decreased 6.8% quarter-over-quarter (QoQ) and 27.2% year-over-year (YoY). This was driven by a 3.8% drop in total shipments and a 3.5% decrease in average selling prices.
- Significant Impairment: The reported net loss of $(140.1) million includes a non-cash goodwill impairment charge of $174.0 million related to US and Canadian operations. Excluding this charge, the adjusted net loss was $(16.1) million.
- EBITDA Deterioration: Adjusted EBITDA turned negative at $(7.2) million, a decline from $5.0 million in Q2 2019, primarily due to lower volumes and pricing pressure.
- Balance Sheet Improvements: Net debt decreased by $110.0 million to $368.3 million, largely due to proceeds from asset divestitures used to repay debt.
- Working Capital: Reported working capital increased to $578.7 million due to the consolidation of securitized trade receivables. Excluding this consolidation, working capital decreased to $397.0 million.
Guidance, Outlook, and Management Commentary
Management expects market weakness to linger through the remainder of 2019 and into 2020. The company is executing a "right-sizing" strategy to align production with reduced demand and improve the cost structure.
- Operational Changes: Ferroglobe announced significant production curtailments, reducing annualized silicon metal capacity by 56,000 tons, silicon-based alloys by 88,000 tons, and manganese-based alloys by 125,000 tons. Facilities in France, North America, and Norway were idled or reduced.
- Divestitures: The company successfully closed the sale of FerroAtlántica (gross proceeds $171.2 million), Ultracore Polska ($2.2 million), and South African timberlands ($8.58 million). Proceeds were used to repay debt.
- Financing: On October 11, 2019, the company closed a new five-year, $100 million North American asset-based revolving credit facility (ABL) with no leverage-based covenants, replacing the previous facility to enhance financial flexibility.
- Outlook: While some positive data points are emerging in key products, the company anticipates continued uncertainty. The focus remains on returning to positive cash flow and maximizing profitability once market conditions improve.
Investor Verification Checklist
- Goodwill Impairment: Verify the assumptions used for the $174.0 million impairment charge and the revised carrying value of goodwill ($29.7 million).
- Securitization Consolidation: Review the impact of the September 2019 amendment to the accounts receivable securitization program on working capital and debt metrics.
- Production Curtailments: Assess the effectiveness of the announced capacity reductions in stabilizing prices and margins in Q4 2019 and 2020.
- Liquidity Position: Monitor the utilization of the new $100 million ABL and the status of the French energy asset sale process.
- Market Recovery: Track the recovery of average selling prices for silicon metal and alloys, which have declined significantly year-over-year.