keywords :
Q4 2018 Earnings Highlights
“Volumes were strong in Q4, compensating for some of the weakness we experienced at the end of Q3, while pricing in our main products weakened further as a result of challenging market conditions,” said Pedro Larrea, CEO of Ferroglobe. “Our cash generating initiatives in the second half of 2018 delivered a significantly improved balance sheet at the end of the year.”
In Q4 2018, Ferroglobe posted a net loss of $(15.2) million, or $(0.08) per share. On an adjusted basis, Q4 2018 net loss was $(7.0) million, or $(0.05) per share.
Q4 2018 reported EBITDA was $27.1 million, down from $45.0 million in the prior quarter. On an adjusted basis, Q4 2018 EBITDA was $32.1 million, down 28.7% from Q3 2018 adjusted EBITDA of $45.0 million. The Company reported adjusted EBITDA margin of 5.3% for Q4 2018, compared to adjusted EBITDA margin of 8.5% for Q3 2018.
Full Year 2018 Earnings Highlights
For Full Year 2018, Ferroglobe posted a net profit of $83.5 million, or $0.52 per share. On an adjusted basis, Full Year 2018 net profit was $52.1 million, or $0.28 per share.
For the Full Year 2018 reported EBITDA was $296.5 million, up 105.6% from $144.2 million in the prior year. 2018 adjusted EBITDA was $253.1 million, up 37.1% from $184.5 million in 2017. The Company reported adjusted EBITDA margins of 11.1% for Full Year 2018, compared to adjusted EBITDA margins of 10.6% for 2017.
| Quarter Ended | Quarter Ended | Quarter Ended | Year Ended | Year Ended | ||||||||||
| $,000 (Unaudited) | December 31, 2018 | September 30, 2018 | December 31, 2017 | December 31, 2018 | December 31, 2017 | |||||||||
| Revenue | $ | 603,519 | $ | 526,838 | $ | 468,218 | $ | 2,274,038 | $ | 1,741,693 | ||||
| Net (loss) profit | $ | (15,244) | $ | (2,916) | $ | 6,280 | $ | 83,484 | $ | (5,822) | ||||
| Diluted EPS | $ | (0.08) | $ | (0.01) | $ | 0.04 | $ | 0.52 | $ | (0.00) | ||||
| Adjusted net (loss) income attributable to the parent | $ | (7,006) | $ | 77 | $ | 8,056 | $ | 52,050 | $ | 18,516 | ||||
| Adjusted diluted EPS | $ | (0.05) | $ | 0.00 | $ | 0.05 | $ | 0.28 | $ | 0.11 | ||||
| Adjusted EBITDA | $ | 32,111 | $ | 45,042 | $ | 53,670 | $ | 253,053 | $ | 184,533 | ||||
| Adjusted EBITDA margin | 5.3% | 8.5% | 11.5% | 11.1% | 10.6% | |||||||||
Mr. Larrea continued: “Full year 2018 results are the strongest in Ferroglobe’s history, although our performance in the latter half of the year suffered as a result of deteriorating market conditions. We reacted promptly to this change by optimizing our global production platform while maintaining the flexibility to seize opportunities as the market recovers. We have curtailed production in our silicon metal and manganese-based alloys businesses. That said, market conditions remain challenging and we continue to look at further measures to control our costs, improve our financial performace and deliver free cash flow.”
Cash Flow and Balance Sheet
Cash flow generated by our operations during Q4 2018 was $109.2 million, with working capital decreasing by $84.1 million. Net debt was $428.8 million as of December 31, 2018, significantly down from $510.9 million as of September 30, 2018. Mr. Larrea added: “We have delivered on all our cash generating initiatives in the second half of 2018 and achieved a greater than expected net debt reduction. Through this effort, we have been able to navigate a complex 2018. We added significant new assets in the first half and then encountered deteriorating market conditions in the second half and still ended the year overall with nearly breakeven free cash flow, which includes all cash flows used in investing activities.”
On February 22, 2019, Ferroglobe obtained the consent of its lenders for an amendment to its revolving credit facility that affords the Company additional flexibility under its financial maintenance covenants in the coming quarters. The amendment suspends the existing covenant to maintain a maximum total net leverage ratio during an interim period beginning with the first quarter of 2019 through the first fiscal quarter of 2020, and provides a new covenant to maintain a maximum secured net leverage ratio and a new covenant to maintain a minimum cash liquidity level. The new covenants will be in effect only during the interim period, after which the existing covenant to maintain a maximum total net leverage ratio will be reinstated. The amendment also reduced the aggregate commitments under the revolving credit facility from $250 million to $200 million.
“Our top priority remains focusing on our financial performance and generating cash flow through improvements in operations, reductions in working capital, divestiture of non-core assets, and lowered interest expense,” added Mr. Larrea. “We expect to continue to reduce our net debt through the first half of 2019. The renegotiated terms of our revolving credit facility reinforce the strength of our balance sheet and our ability to face evolving market conditions with confidence.”
Discussion of Fourth Quarter 2018 Results
The Company notes that the financial results presented for the fourth quarter and for full year 2018 are unaudited and may be subsequently adjusted for items including impairment of long-lived assets such as the assets associated with our solar-grade silicon project. Any subsequent changes, if required, will be reflected in our audited Annual Report on Form 20-F.
Sales
Sales for the three months ended December 31, 2018 of $603.5 million were 28.9% higher than sales of $468.2 million for the three months ended December 31, 2017. Total shipments in the fourth quarter of 2018 were up 42.1% and the average selling price was down 10.9% versus the same period in the prior year. Sales for the full year 2018 of $2,274 million were up 30.6% compared to $1,742 million for 2017. For the full year, total shipments were up 23.3% and the average selling price was up 5.9% compared with 2017. Sales for the fourth quarter of 2018 and the full year benefited from the Company’s manganese-based alloy plants in Mo i Rana (Norway) and Dunkirk (France), acquired on February 1, 2018, albeit partially offset by lower average selling prices.
Sales Prices & Volumes By Product
| Quarter Ended | Quarter Ended | Quarter Ended | Year Ended | Year Ended | |||||||||||||||||
|
December 31, 2018 |
September 30, 2018 |
Change |
December 31, 2017 |
Change |
December 31, 2018 |
December 31, 2017 |
Change | ||||||||||||||
| Shipments in metric tons: | |||||||||||||||||||||
| Silicon Metal | 93,364 | 81,686 | 14.3% | 83,785 | 11.4% | 352,578 | 325,884 | 8.2% | |||||||||||||
| Silicon-based Alloys | 81,197 | 75,964 | 6.9% | 70,399 | 15.3% | 311,703 | 283,021 | 10.1% | |||||||||||||
| Manganese-based Alloys | 147,445 | 98,280 | 50.0% | 72,374 | 103.7% | 424,358 | 274,119 | 54.8% | |||||||||||||
| Total shipments* | 322,006 | 255,930 | 25.8% | 226,558 | 42.1% | 1,088,639 | 883,024 | 23.3% | |||||||||||||
| Average selling price ($/MT): | |||||||||||||||||||||
| Silicon Metal | $ | 2,429 | $ | 2,636 | -7.9% | $ | 2,440 | -0.5% | $ | 2,647 | $ | 2,270 | 16.6% | ||||||||
| Silicon-based Alloys | $ | 1,719 | $ | 1,802 | -4.6% | $ | 1,741 | -1.3% | $ | 1,845 | $ | 1,608 | 14.7% | ||||||||
| Manganese-based Alloys | $ | 1,158 | $ | 1,211 | -4.4% | $ | 1,346 | -14.0% | $ | 1,244 | $ | 1,327 | -6.3% | ||||||||
| Total* | $ | 1,668 | $ | 1,841 | -9.4% | $ | 1,873 | -10.9% | $ | 1,870 | $ | 1,765 | 5.9% | ||||||||
| Average selling price ($/lb.): | |||||||||||||||||||||
| Silicon Metal | $ | 1.10 | $ | 1.20 | -7.9% | $ | 1.11 | -0.5% | $ | 1.20 | $ | 1.03 | 16.6% | ||||||||
| Silicon-based Alloys | $ | 0.78 | $ | 0.82 | -4.6% | $ | 0.79 | -1.3% | $ | 0.84 | $ | 0.73 | 14.7% | ||||||||
| Manganese-based Alloys | $ | 0.53 | $ | 0.55 | -4.4% | $ | 0.61 | -14.0% | $ | 0.56 | $ | 0.60 | -6.3% | ||||||||
| Total* | $ | 0.76 | $ | 0.84 | -9.4% | $ | 0.85 | -10.9% | $ | 0.85 | $ | 0.80 | 5.9% | ||||||||
| * Excludes by-products and other | |||||||||||||||||||||
During Q4 2018, the average selling prices decreased between 4% and 8% for all of our products quarter-over-quarter, reflecting weak overall market conditions. Average selling prices for 2018 are well above 2017 for silicon metal and silicon-based alloys. Manganese-based alloys prices in 2018 have deteriorated significantly despite persistently high ore prices. We expect the relationship between market prices of manganese-based alloys and ore prices to revert to its historical correlation over time.
Sales volumes in Q4 significantly increased as compared to Q3, partly because of delayed shipments at the end of Q3. Activity in full year 2018 has shown healthy growth overall, with volume increases over 2017 of 8% to 10% in silicon metal and silicon-based alloys, respectively. A year-to-year comparison of manganese-based alloys volumes is not meaningful in light of the Company’s acquisition of new manganese-based alloy assets in early 2018.
Cost of Sales
Cost of sales was $445.8 million for the three months ended December 31, 2018, an increase from $284.6 million for the three months ended December 31, 2017, primarily driven by higher volumes and higher input costs for raw materials and energy. Cost of sales was $1,444.8 million for the full year 2018, an increase from $1,043.4 million for the same period in 2017, primarily driven by higher sales and increases in energy and raw material prices, particularly the prices of manganese ore and electrodes.
Staff Costs and Other Operating Expenses
Staff costs and other operating expenses for the three months and full year ended December 31, 2018 were $154.4 million and $625.0 million, respectively compared to $142.2 million and $541.9 million for the corresponding periods in 2017. The increases were primarily related to labour costs for the newly acquired manganese-based alloy plants.
Operating (Loss) Profit
Operating (loss) profit was $(3.0) million and $177.4 million, respectively for the three months and full year periods ended December 31, 2018, compared to an operating loss of $(1.6) million and an operating profit of $39.7 million for the three months and full year ended December 31, 2017. Included in the full year 2018 was a $37.3 million bargain purchase gain related to the Company’s purchase of manganese-based alloy plants mentioned above. The bargain purchase gain was reduced by $7.4 million in the forth quarter of 2018 as a result of purchase price accounting adjustments.
Net (Loss) Profit Attributable to the Parent
As a result of the various factors described above, we reported a net (loss) attributable to the Parent of $(13.3) million, or $(0.08) per share, for the three months ended December 31, 2018 compared to a net profit attributable to the Parent of $6.4 million, or $0.04 for the three months ended December 31, 2017. We reported net income attributable to the Parent of $89.5 million, or $0.52 per share, for the full year 2018, compared to a net loss of $(0.7) million, or ($0.00) per share for 2017.
Adjusted EBITDA
Adjusted EBITDA of $32.1 million, or 5.3% of sales, for the three months ended December 31, 2018 was lower than adjusted EBITDA of $53.7 million, or 11.5% of sales, for the three months ended December 31, 2017. Adjusted EBITDA of $253.1 million, or 11.1% of sales for the full year 2018, was higher than adjusted EBITDA of $184.5 million, or 10.6% of sales for 2017.
Other recent developments
Phillip Murnane has taken a temporary medical leave of absence from his duties as Chief Financial Officer and we expect him to be on leave for the next few weeks. During Phil’s absence, José M. Calvo-Sotelo (Deputy CFO and EVP - Corporate Development of Ferroglobe and former CFO of Grupo FerroAtlántica), is assuming the duties of the CFO.