Ferroglobe PLC — FY2021 Form 20-F Summary
Reporting period: The filing is an annual report for the fiscal year ended December 31, 2021, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS as issued by the IASB and presented in U.S. dollars. Ferroglobe is a global producer of silicon metal, silicon-based alloys and manganese-based alloys, with mining and hydroelectric operations across multiple regions.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Sales | $1,778.9 million | $1,144.4 million | +55.4% |
| Operating profit (loss) | $31.4 million | $(184.4) million | Improved by $215.7 million |
| Loss for the year | $(115.4) million | $(249.8) million | Loss reduced by $134.4 million |
| Loss attributable to parent | $(110.6) million | $(246.3) million | Loss reduced by $135.7 million |
| Basic and diluted loss per share | $(0.63) | $(1.46) | Improved |
| Cash flow from operating activities | $(1.3) million | $154.3 million | Declined by $155.6 million |
| Capital expenditures | $27.6 million | $30.3 million | Down 8.8% |
| Cash, restricted cash and equivalents | $116.7 million | $131.6 million | Down $14.9 million |
| Gross financial debt | $618.6 million | $551.5 million | Up $67.0 million |
Raw materials and energy consumption increased 41.8% to $1,184.9 million, but declined to 66.6% of sales from 73.0% in 2020. Operating margin was approximately 1.8%, compared with a negative operating margin of approximately 16.1% in 2020. Net loss margin improved to approximately 6.5% from 21.8%.
Year-end assets totaled $1,523.3 million and equity totaled $320.0 million. Inventories increased to $289.8 million from $246.5 million, while trade and other receivables increased to $381.1 million from $242.3 million. Working capital increased to $464.9 million from $339.6 million, absorbing substantial cash.
Revenue and operating performance
- Silicon metal revenue increased to $637.7 million from $463.2 million; shipments rose 22.5% and average selling price increased 12.4% to $2,511 per metric ton.
- Manganese-based alloy revenue increased to $469.1 million from $267.5 million; shipments rose 20.2% and average selling price increased 46% to $1,492 per metric ton.
- Ferrosilicon revenue increased to $337.8 million from $176.4 million; shipments rose 21.3% and average selling price increased 35.8%.
- Other silicon-based alloy revenue increased to $161.8 million from $126.8 million.
- Europe–Manganese generated operating profit of $26.2 million compared with a $34.6 million loss in 2020. North America–Silicon generated $26.0 million compared with a $59.2 million loss.
- Europe–Silicon remained loss-making, with an operating loss of $8.1 million compared with a $48.7 million loss in 2020. South Africa–Silicon generated $12.4 million compared with a $16.3 million loss.
Material changes versus prior comparable period
- Demand recovered from COVID-19-related disruption, while supply constraints, Chinese production curtailments and stronger steel, aluminum and chemical markets supported higher prices and volumes.
- Operating results benefited from improved asset utilization, production reallocation, furnace performance and cost-cutting initiatives.
- Impairment expense largely normalized: 2021 included a net impairment gain of $0.1 million versus a $73.3 million charge in 2020. The 2020 charge included impairments at Niagara Falls, Polokwane, Château-Feuillet and the Puertollano solar-grade silicon project.
- Other operating income increased to $110.1 million, primarily reflecting higher carbon-emission allowance values. Other operating expense increased to $296.8 million, also largely because of higher carbon-emission costs.
- Finance costs increased to $149.2 million from $67.0 million. The increase included approximately $90.8 million of one-time accounting charges related to the 2021 debt refinancing, including advisory fees, bondholder equity and other refinancing costs.
- The company recorded a $27.4 million restructuring provision, primarily related to France and Spain.
- The company permanently shuttered capacity at the Niagara Falls facility in the United States and Château-Feuillet facility in France; the Niagara facility was sold during 2021.
Debt, liquidity and capital structure
- In July 2021, Ferroglobe completed a restructuring that exchanged approximately 98.588% of the old 9.375% senior notes due 2022 for approximately $345.1 million of 9.375% senior secured notes due 2025, issued $60 million of 9% super senior secured notes due 2025 and raised $40 million of new equity.
- At December 31, 2021, debt instruments totaled $440.3 million, bank borrowings totaled $99.0 million and lease liabilities totaled $18.4 million.
- The company’s principal liquidity sources were the secured notes and a European receivables factoring facility. Factoring provided approximately $659.1 million of advances during 2021, with approximately $93.1 million of factoring borrowings outstanding at year-end. The company exceeded the contractual factoring limit and obtained a temporary increase.
- The North American $100 million ABL Revolver was fully repaid in March 2021.
- Contractual obligations totaled approximately $1.17 billion, including $757.6 million of long- and short-term debt obligations and $294.6 million of power purchase commitments.
- Management concluded that working capital was sufficient and that there was no substantial doubt about the company’s ability to continue as a going concern, based on its 2022 budget, five-year model, order book, refinancing, factoring capacity and additional funding.
Guidance, outlook and management commentary
- Management reported that improved demand and pricing momentum continued into the first quarter of 2022 and that the first-half 2022 order book reflected materially improved pricing and customer demand.
- The 2020 turnaround plan targets $180 million of cost savings and $70 million of working-capital cash release between 2021 and 2024. Ferroglobe reported that it achieved the $70 million working-capital release target in 2021 and expects to continue cost reduction, procurement, footprint optimization, commercial improvement and process initiatives in 2022.
- Management expected improved manganese-alloy spreads and continued steel demand in 2022, with ferrosilicon supported by construction and automotive demand. The filing does not provide formal quantitative revenue or earnings guidance.
- In February and March 2022, Spanish state-owned SEPI approved a €34.5 million loan for Spanish subsidiaries. The loan carries maturity dates in 2025 and includes restrictions on dividends, share repurchases, certain intercompany payments and use of proceeds.
Principal risks, contingencies and unusual items
- Results remain highly exposed to cyclical metals demand, product prices, electricity, coal, manganese ore, electrodes, logistics, foreign exchange and customers’ ability to absorb cost increases.
- European energy prices were extremely volatile in 2021, particularly in Spain. The company was negotiating power purchase agreements and remained exposed to wholesale electricity prices and regulatory changes.
- The Russia-Ukraine conflict created potential supply-chain and payment disruptions involving metallurgical coke, anthracite, electrodes and other inputs. Management reported mitigating actions but could not assure that the conflict would not materially affect results.
- The company’s ten largest customers represented approximately 48.1% of 2021 revenue; Dow Silicones represented 12.2%.
- Ferroglobe is negotiating with U.S. authorities regarding Clean Air Act notices for its Beverly, Ohio facility. Potential injunctive relief, pollution-control spending and civil penalties cannot presently be estimated; statutory maximum penalties are stated as $93,750 per day per violation through December 2021 and $109,024 per day thereafter.
- Approximately 100 former FerroPem employees have declared asbestos-related injuries in France; the company recorded a $1.1 million provision, but possible aggregate liability remains uncertain.
- The company had material weaknesses in internal control over financial reporting relating to the control environment, information and communication, control activities, financial close and reporting, manual journal-entry review and impairment controls. Management and Deloitte issued adverse opinions on ICFR effectiveness, although Deloitte issued an unqualified opinion on the consolidated financial statements.
- Ferroglobe reached a March 2022 agreement with the French Works Council involving approximately 195 potential job terminations and 35 transfers, subject to labor-authority approval.
- Grupo Villar Mir beneficially owned approximately 48.6% of outstanding shares and had significant influence over shareholder and governance matters. The company paid no dividends in 2021 or 2020.
Investor verification checklist
- Verify the sustainability of 2022 pricing, volumes and margins after the expiration of fixed-price contracts entered into during the COVID-19 period.
- Reconcile reported operating improvement with the sharp decline in operating cash flow and the growth in inventories, receivables and factoring borrowings.
- Review the maturity, collateral, covenants and refinancing requirements of the 2025 secured notes, government loans and factoring facility.
- Assess the company’s exposure to European electricity prices, carbon allowances, raw-material availability and Russia-related supply disruptions.
- Monitor remediation of the material weaknesses in internal control and the company’s next ICFR assessment.
- Follow the Beverly, Ohio environmental proceedings, French asbestos claims, Spanish REINDUS-loan reimbursement process and other litigation contingencies.
- Confirm completion and financial impact of the French restructuring and the conditions attached to the €34.5 million SEPI loan.