Ferroglobe PLC — 2020 Form 20-F Summary
Business context and reporting period
Ferroglobe is a global producer of silicon metal, silicon-based alloys and manganese-based alloys, with related quartz and coal mining operations and hydroelectric interests in France. Its products serve the aluminum, steel, silicone, polysilicon, photovoltaic, automotive, foundry and chemical industries. The filing is an annual report for the fiscal year ended December 31, 2020, prepared under IFRS as issued by the IASB. The source does not provide standalone fourth-quarter financial statements; the reported figures are annual results.
Spanish hydroelectric operations were sold in August 2019, and prior-period results were recast as discontinued operations. Ferroglobe had 169,197,366 ordinary shares outstanding excluding treasury shares at December 31, 2020.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Sales | $1,144.4 million | $1,615.2 million | Down 29.1% |
| Operating loss | $(184.4) million | $(355.6) million | Loss narrowed |
| Operating margin | (16.1%) | (22.0%) | Improved |
| Loss from continuing operations | $(244.4) million | $(370.3) million | Loss narrowed |
| Net loss | $(249.8) million | $(285.6) million | Loss narrowed |
| Loss attributable to parent | $(246.3) million | $(280.6) million | Loss narrowed |
| Basic loss per share | $(1.46) | $(1.66) | Improved |
| Cash flow from operating activities | $154.3 million | $(31.2) million | Improved by $185.5 million |
| Capital expenditures | $30.3 million | $32.4 million | Down 6.7% |
| Cash, restricted cash and equivalents | $131.6 million | $123.2 million | Up $8.4 million |
| Gross financial debt | $551.5 million | $606.4 million | Down $54.8 million |
| Net financial debt | $420.0 million | $483.2 million | Down $63.2 million |
| Total equity | $365.7 million | $602.3 million | Down $236.6 million |
Gross financial debt consisted primarily of $350.0 million of 9.375% senior unsecured notes due March 1, 2022, $107.6 million of bank borrowings, $22.5 million of lease liabilities and $63.9 million of other financial liabilities. Current gross financial debt was $156.6 million, or 28.4% of total gross financial debt. Working capital declined to $339.6 million from $474.0 million, mainly because of lower inventories and receivables.
Cash flow benefited from reductions in inventories and receivables, refunds of income taxes and the sale of approximately $34.2 million of CO2 emission rights. Investing cash flow was an outflow of $31.9 million, while financing cash flow was an outflow of $113.3 million. No dividends were paid in 2020 or 2019.
Material changes versus the prior comparable period
- Revenue declined $470.8 million, primarily because COVID-19 reduced customer demand and shipment volumes across major product categories.
- Shipments fell approximately 13.5% for silicon metal, 32% for silicon-based alloys and 33% for manganese-based alloys.
- Average selling prices declined to approximately $2,234 per metric ton for silicon metal, $1,899 for other silicon-based alloys and $1,022 for manganese-based alloys.
- Cost of sales decreased 35% to $835.5 million, while staff costs and other operating expenses declined 24.6% and 41.5%, respectively, reflecting headcount reductions, lower production and reduced logistics and corporate costs.
- Impairment losses decreased to $73.3 million from $175.9 million. The 2020 charges included $35.7 million for Niagara Falls, $8.7 million for Polokwane, $17.9 million for Château-Feuillet and $11.0 million for the solar-grade silicon project. The 2019 charge primarily reflected $174.0 million of North American goodwill impairment.
- Operating performance improved in the fourth quarter as demand recovered to levels similar to those before the pandemic. Management stated that first-quarter 2021 demand was higher than fourth-quarter 2020 levels.
- The company closed out its cross-currency swap in March 2020, receiving $3.6 million, and terminated its receivables securitization program in October 2020. A new factoring arrangement was established, with $74.8 million recorded as current borrowings at year-end.
- Headcount declined to 3,270 employees from 3,462 at December 31, 2019 and 4,368 at December 31, 2018.
Guidance, outlook, risks and unusual items
Management did not provide formal quantitative earnings guidance. Its turnaround plan focuses on footprint optimization, plant efficiency, commercial excellence, centralized procurement, reductions in selling, general and administrative expenses, and working-capital improvement. Management expects improved silicon metal, ferrosilicon and manganese-alloy market conditions to support 2021 pricing and demand, but the filing emphasizes substantial uncertainty.
The financial statements contain a going-concern emphasis. Management and the auditor identified substantial doubt arising from uncertainty over refinancing or restructuring the 2022 Notes, potential change-of-control obligations, and the difficulty of forecasting cash flows during the COVID-19 pandemic. The financial statements were nevertheless prepared on a going-concern basis without adjustments for the outcome of these uncertainties.
After year-end, Ferroglobe repaid the remaining ABL balance of approximately $39.5 million on March 16, 2021. On March 27, 2021, the company entered into a lock-up agreement supporting a proposed restructuring that would involve:
- $60 million of new senior secured notes due June 30, 2025, bearing 9.0% interest;
- At least $40 million of new equity, potentially issued at a 40% discount to a reference volume-weighted average share price; and
- An exchange of the existing Notes for new senior secured notes due December 31, 2025, bearing 9.375% interest.
Approximately 96% of the Notes were reported as subject to the lock-up agreement, but completion was conditional and not assured. The proposed equity issuance and related fees could materially dilute existing shareholders. The filing also identifies exposure to cyclical metals demand, energy and raw-material prices, power supply interruptions, foreign exchange, customer concentration, trade measures, labor disruptions, environmental obligations, mining permits, litigation and the financial condition of the controlling shareholder, Grupo Villar Mir.
Material unusual or contingent items include a $31.8 million provision related to the Cee-Dumbría tolling agreement following an adverse Spanish court ruling, approximately $1.1 million of asbestos-related provisions, ongoing U.S. Clean Air Act proceedings at the Beverly facility with potential injunctive relief and civil penalties, and a Spanish stamp-tax dispute involving approximately €1.4 million of reassessed tax plus interest and a proposed penalty of approximately €0.6 million.
Internal control over financial reporting was deemed ineffective by management and Deloitte because of material weaknesses involving the control environment, financial close and reporting controls, information and communication, and controls over impairment assumptions. Management planned remediation during 2021.
Most important facts for investors to verify
- Whether the proposed debt exchange, $60 million senior secured note issuance and at least $40 million equity raise were completed, and the resulting maturity, collateral priority, covenants and dilution.
- Whether cash generation and available liquidity are sufficient after the ABL repayment, factoring borrowings, debt service, power commitments and other contractual obligations.
- Whether the company’s improved fourth-quarter 2020 and first-quarter 2021 demand trends continued, particularly for silicon metal, ferrosilicon and manganese-based alloys.
- Whether the turnaround plan produced sustainable cost reductions and improved margins rather than benefits primarily from working-capital releases, lower production or one-time items.
- Whether further impairments arise from idled facilities, the solar-grade silicon project or the remaining U.S. goodwill balance of $29.7 million.
- The potential cash impact and timing of environmental, asbestos, Cee-Dumbría, stamp-tax and other legal or regulatory matters.
- Progress in remediating the material weaknesses in internal control over financial reporting.
- The effect of customer concentration, including the ten largest customers representing approximately 50.7% of 2020 revenue and Dow Silicones Corporation representing 13.2%.