CENTURY ALUMINUM CO annual report, FY2021

Century Aluminum Company — 2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021; this is an annual report, not a standalone fourth-quarter filing. Century produces primary aluminum at facilities in the United States and Iceland and operates a carbon-anode plant in the Netherlands.

Financial and operating performance

Metric20212020
Net sales$2,212.5 million$1,605.1 million
Gross profit (loss)$124.2 million$(36.5) million
Gross margin5.6%(2.3)%
Operating income (loss)$66.0 million$(80.5) million
Net income (loss)$(167.1) million$(123.3) million
Basic and diluted loss per share$(1.85)$(1.38)
Cash from (used in) operating activities$(64.7) million$42.9 million
Capital expenditures$83.0 million$13.4 million
  • Primary aluminum shipments were 783,647 tonnes, down from 811,176 tonnes. Revenue from primary aluminum shipments rose to $2,158.8 million from $1,556.1 million.
  • Average LME aluminum price increased to $2,475 per tonne from $1,702; the U.S. Midwest premium averaged $581 versus $267, and the European Duty Paid premium averaged $272 versus $126.
  • Gross profit improved by $160.8 million, principally from $640.9 million of favorable LME and regional-premium realizations. These gains were partly offset by higher power costs ($251.1 million unfavorable), raw-material costs ($99.1 million unfavorable), operating costs, and lower volume.
  • Net loss included a $212.4 million loss on forward and derivative contracts, compared with a $17.3 million loss in 2020, and a $24.7 million loss on early extinguishment of debt. A $30.6 million tax benefit included a discrete $49.8 million benefit relating to the Helguvik investment.
  • Cash and cash equivalents were $29.0 million at year-end, versus $81.6 million. Management reported total liquidity of approximately $99.5 million, including $70.5 million of unused revolving-credit availability.
  • Total debt was approximately $451.2 million, versus $315.9 million. Current borrowings included $63.6 million under the U.S. revolver and $50.0 million under the Iceland revolver; the latter was classified as current based on expected repayment timing. Stockholders’ equity was $421.0 million, down from $546.1 million.

Material changes and business developments

  • Hawesville returned to approximately 80% of capacity during 2021. Mt. Holly’s restart was underway, targeting 75% of capacity, with completion expected in the second quarter of 2022, subject to market conditions.
  • Century began construction of a 150,000-tonne-per-year billet casthouse at Grundartangi. Production was expected to begin in the first quarter of 2024; the project is supported by a facility permitting borrowings up to $130 million, with no borrowings outstanding at year-end.
  • In 2021, Century issued $250 million of 7.5% senior secured notes due 2028 and $86.3 million of 2.75% convertible notes due 2028. Proceeds were used in part to retire the 12% notes due 2025, repay revolver borrowings, and fund transaction costs. The refinancing extended major debt maturities but generated the $24.7 million extinguishment loss.
  • Operating cash flow turned negative, primarily reflecting higher input and power costs, working-capital investment, and hedge settlements. Investing cash outflow increased mainly with Mt. Holly restart spending.

Outlook, risks, and unusual items

  • Management stated that cash from operations and financing activities should be adequate for operating and business needs over the next 12 months. It estimated 2022 capital spending of approximately $30 million, excluding Mt. Holly restart and Grundartangi casthouse spending. The filing does not provide earnings or revenue guidance.
  • Key sensitivities include LME aluminum prices and regional premiums, electricity and alumina costs, production volumes, and the availability and cost of power. Hawesville and Sebree have market-based power arrangements; power-price spikes and interruptions could materially affect costs and operations.
  • Customer concentration is significant: Glencore accounted for approximately 60% of 2021 sales and Southwire approximately 14%. Glencore also beneficially owned 42.9% of outstanding common stock (46.4% fully diluted), creating customer, governance, and related-party concentration risks.
  • Derivatives produced substantial 2021 accounting losses as forward aluminum and Midwest-premium prices rose. At year-end, derivative liabilities were $146.2 million and derivative assets were $42.9 million. Hedging can also require collateral and affect liquidity.
  • On February 16, 2022, Century detected a cybersecurity intrusion that disrupted some systems. The company reported no material production impact at that time, but said the ultimate financial and operational effects could not yet be determined.
  • Other exposures include restart and construction execution risks, labor relations and rising labor costs, take-or-pay commitments, environmental and climate regulation, litigation, and potential limits on use of tax assets. The company recorded a $3.9 million Vernon environmental settlement payment in 2021.
  • Independent auditors issued unqualified opinions on the financial statements and internal control over financial reporting. The filing reports effective disclosure controls and internal controls as of year-end.

Important facts for investors to verify

  • Whether the Mt. Holly restart met its schedule and budget, and what production and cost improvements followed.
  • Actual spending, financing draws, construction progress, and expected returns for the Grundartangi casthouse project.
  • How operating cash flow and liquidity respond to power prices, aluminum prices, working-capital needs, and derivative settlements.
  • Debt maturities, revolving-facility availability and covenant headroom, including the repayment classification of Iceland revolver borrowings.
  • Customer-contract terms and continued dependence on Glencore and Southwire, including related-party transactions and Glencore’s ownership influence.
  • Any subsequent quantified effects of the February 2022 cybersecurity incident, including remediation costs, lost revenue, or insurance recovery.