Ferroglobe Reports Results for Third Quarter of 2018

Sales of $527 million; Net Loss of $3 million; Adjusted EBITDA of $45 million

• Q3 sales of $526.8 million, compared to $583.0 million in Q2 2018 and $451.6 million in Q3 2017
• Q3 net loss of $2.9 million compared to a net profit of $66.0 million in Q2 2018 and a net loss of $5.0 million in Q3 2017
• Q3 adjusted net income attributable to parent of $0.1 million compared to $25.7 million in Q2 2018 and $9.2 million in Q3 2017
• Q3 adjusted EBITDA of $45.0 million compared to $86.3 million in Q2 2018 and $56.1 million in Q3 2017
• YTD sales of $1.67 billion compared to $1.27 billion in the prior year period
• YTD net income of $98.7 million compared to a net loss of $12.1 million in the same period in the prior year
• YTD adjusted net income of $59.1 million compared to $10.5 million in the same period in the prior year
• YTD adjusted EBITDA of $220.9 million compared to $130.9 million in the same period in the prior year

LONDON, Nov. 26, 2018 (GLOBE NEWSWIRE) — Ferroglobe PLC (NASDAQ: GSM) (“Ferroglobe”, the “Company”, or the “Parent”), the world’s leading producer of silicon metal, and a leading silicon- and manganese-based specialty alloys producer, today announced results for the third quarter of 2018.

Earnings Highlights

In Q3 2018, Ferroglobe posted a net loss of $2.9 million, or $(0.01) per share on a fully diluted basis. On an adjusted basis, Q3 2018 net profit was $0.1 million, or $0.00 per share on a fully diluted basis.

Q3 2018 reported EBITDA was $45.0 million, down from $130.9 million in the prior quarter. On an adjusted basis, Q3 2018 EBITDA was $45.0 million, down 47.9% from Q2 2018 adjusted EBITDA of $86.3 million. The Company reported adjusted EBITDA margin of 8.5% for Q3 2018, compared to adjusted EBITDA margin of 14.8% for Q2 2018. Year-to-date adjusted EBITDA was $220.9 million, up 68.8% from $130.9 million in the same period in the prior year.

“Following strong growth in our business over several sequential quarters, market conditions in our main products deteriorated through Q3,” said Pedro Larrea, CEO of Ferroglobe. “However, Ferroglobe is still showing solid results overall for the first nine months of 2018, with adjusted EBITDA up 69% year-over-year to $220.9 million, leverage remaining below 2.0x and a comfortable liquidity position.”

Mr. Larrea continued: “In response to the evolving markets for our key products, Ferroglobe has taken swift action to optimize our position across our global production base. In this regard, we are curtailing production in our silicon metal and manganese-based alloys businesses in order to take advantage of our diversified portfolio by optimizing production among our most cost effective plants and geographies. We also continue to look at further measures to control our costs, to draw down inventories, and to enhance our free cash flow profile. That said, we are operating in a volatile environment currently and our financial results may continue to be challenged in the near-term.”

Cash Flow and Balance Sheet

Cash used for operations during Q3 2018 was $7.9 million, with working capital increasing by $36.0 million. Net debt was $510.9 million as of September 30, 2018, up from $475.3 million as of June 30, 2018. “We did not meet our cash flow goals in the third quarter,” said Phillip Murnane, Ferroglobe’s CFO. “The deterioration in market conditions during the quarter left us with elevated inventories, a key factor in our decision to curtail our production.”

“Generating free cash flow through improvements in operations, reductions in working capital, non-core asset sales, and lowered interest expense remains our top priority” added Mr. Murnane. “Given our Q3 results, our free cash flow targets for the second half of 2018 have become a ‘stretch’  goal.  Regarding the potential refinancing of our $350 million of Senior Notes, we will continue to evaluate the credit markets and will act when the timing is right. In the mean time, our financial position remains strong, with total liquidity of approximately $250 million and no material debt maturities until 2022.”

Discussion of Third Quarter 2018 Results

Sales

Sales for the three months ended September 30, 2018 of $526.8 million were 16.7% higher when compared to sales of $451.6 million for the three months ended September 30, 2017. For the quarter, total shipments were up 14.3% and the average selling price was up 2.1% on Q3 2017. Sales for the nine months ended September 30, 2018 of $1,671 million were up 31.2% when compared to $1,273 million for the nine months ended September 30, 2017. For the nine month period, total shipments were up 16.8% and the average selling price was up 13.2% compared with the same period in 2017. Sales for the quarter and nine month period were aided by the Company’s manganese-based alloy plants in Mo i Rana (Norway) and Dunkirk (France), acquired by the Company on February 1, 2018.

Sales Prices & Volumes By Product

During Q3 2018, the average selling prices decreased by between 5% and 7% for all of our products quarter-over-quarter, reflecting overall market conditions. However, average selling prices for 2018 are well above 2017 for silicon metal and silicon-based alloys, and at levels that are compatible with historical trends. Manganese-based alloys prices in 2018 have significantly deteriorated, despite persistently high ore prices, a situation that should revert going forward based on historical market precedent.

Sales volumes in Q3 also decreased as compared to Q2, primarily as a consequence of seasonal slowdown in Europe and the impact of changing trade flows.  Activity to date in 2018 shows healthy growth, with volume increases over the same period in the prior year of 7% to 8% in silicon metal and silicon-based alloys. A year-to-year comparison of manganese-based alloys volumes is inapt in light of the Company’s acquisition of new manganese-based alloy assets earlier this year.

Cost of Sales

Cost of sales was $334.5 million for the three months ended September 30, 2018, an increase from $267.4 million for the three months ended September 30, 2017, primarily driven by higher input costs for raw materials and energy and higher volumes. Cost of sales was $999.0 million for the nine months ended September 30, 2018, an increase from $758.8 million for the same period in 2017, primarily driven by higher sales and increases in raw materials and energy prices, particularly manganese ore and electrodes. Cost of goods sold as a percentage of sales increased to 63.5% for the three months ended September 30, 2018 from 59.2% for the three months ended September 30, 2017, whilst for the nine months ended September 30, 2018, cost of sales as a percentage of sales was 59.8% compared to 59.6% for the nine months ended September 30, 2017.

Staff Costs and Other Operating Expenses

Staff costs and other operating expenses for the three months ended September 30, 2018 and the nine months ended September 30, 2018 were $153.2 million and $470.6 million, respectively compared to $133.9 million and $399.7 million for the corresponding periods in 2017. The increases were primarily related to labour costs for the newly acquired manganese-based alloy plants.

Operating Profit

Operating profit was $14.3 million and $180.4 million, respectively for the three and nine month periods ended September 30, 2018, compared to $27.3 million and $41.3 million for the three and nine month periods ended September 30, 2017. Included in the nine months ended September 30, 2018 was a $44.6 million bargain purchase gain related to the Company’s purchase of manganese-based alloy plants mentioned above.

Net Loss Attributable to the Parent

As a result of the various factors described above, we reported a net loss attributable to the Parent of $1.2 million, or ($0.01) per diluted share, for the three months ended September 30, 2018 and a net loss attributable to the Parent of $3.3 million, or ($0.02) for the three months ended September 30, 2017. We reported net income of $102.9 million, or $0.60 per diluted share, for the nine months ended September 30, 2018, compared to a net loss of $7.0 million, or ($0.04) per diluted share for the nine months ended September 30, 2017.

Adjusted EBITDA

Adjusted EBITDA of $45.0 million, or 8.5% of sales, for the three months ended September 30, 2018 was lower than adjusted EBITDA of $56.1 million, or 12.4% of sales, for the three months ended September 30, 2017. Adjusted EBITDA of $220.9 million, or 13.2% of sales for the nine months ended September 30, 2018, was higher than adjusted EBITDA of $130.9 million, or 10.3% of sales for the nine months ended September 30, 2017.

Other recent developments

In light of financial performance in Q3 2018, near-term market outlook and the Company’s continued focus on cash generation and deleveraging its balance sheet, no interim dividend has been declared or is payable in respect of Q3 2018.

On August 21, 2018 the Company announced a $20 million programme for the purchase of its ordinary shares. 2,894,049 ordinary shares in the Company have been purchased under the programme, of which 1,152,958 shares have been cancelled and 1,741,091 are held in Treasury. The average price paid per share was $6.89. The programme closed on November 7, 2018.

Ferroglobe’s Executive Chairman, Javier López Madrid, has advised the Company that, on October 3, 2018, the Supreme Court of Spain (Tribunal Supremo) substantially confirmed the ruling of the Spanish High Court (Audiencia Nacional) in the case related to the misuse of corporate credit cards by 65 former directors and executives of Bankia S.A and/or Caja Madrid, including Mr López Madrid. The proceeding against Mr López Madrid relates to expenditure totalling €34,807.81 incurred between 2010 and 2012 and has been previously disclosed by the Company in its regulatory filings and its press release of March 16, 2017. Mr. López Madrid has advised the Company that, pursuant to the legal framework applicable to this case, he has applied for a suspension or a replacement of his sentence with the payment of a fine of €7,120.  The Company’s Board of Directors has closely monitored the developments in this case, agreed that Mr. López Madrid remain as a director of the Company and continues to support him in his role as Executive Chairman.

Conference Call

Ferroglobe management will review the third quarter results of 2018 during a conference call at 9 a.m. Eastern Time on Tuesday, November 27, 2018.

The dial-in number for participants in the United States is 877‑293‑5491 (conference ID 3499477). International callers should dial +1 914‑495‑8526 (conference ID 3499477). Please dial in at least five minutes prior to the call to register. The call may also be accessed via an audio webcast available at https://edge.media-server.com/m6/p/uz3q9tfh.

About Ferroglobe

Ferroglobe is one of the world’s leading suppliers of silicon metal, silicon-based specialty alloys, and ferroalloys serving a customer base across the globe in dynamic and fast-growing end markets, such as solar, automotive, consumer products, construction and energy. The Company is based in London. For more information, visit http://investor.ferroglobe.com.

Forward-Looking Statements

This release contains “forward-looking statements” within the meaning of U.S. securities laws. Forward-looking statements are not historical facts but are based on certain assumptions of management and describe the Company’s future plans, strategies and expectations. Forward-looking statements often use forward-looking terminology, including words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “forecast”, “guidance”, “intends”, “likely”, “may”, “plan”, “potential”, “predicts”, “seek”, “will” and words of similar meaning or the negative thereof.

Forward-looking statements contained in this press release are based on information currently available to the Company and assumptions that management believe to be reasonable, but are inherently uncertain. As a result, Ferroglobe’s actual results, performance or achievements may differ materially from those expressed or implied by these forward-looking statements, which are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company’s control.

Forward-looking financial information and other metrics presented herein represent the Company’s goals and are not intended as guidance or projections for the periods referenced herein or any future periods.

All information in this press release is as of the date of its release. Ferroglobe does not undertake any obligation to update publicly any of the forward-looking statements contained herein to reflect new information, events or circumstances arising after the date of this press release. You should not place undue reliance on any forward-looking statements, which are made only as of the date of this press release.

Non-IFRS Measures

EBITDA, adjusted EBITDA, adjusted diluted profit per ordinary share and adjusted profit are non-IFRS financial metrics that, we believe, are pertinent measures of Ferroglobe’s success.

Ferroglobe has included these financial metrics to provide supplemental measures of its performance. The Company believes these metrics are important because they eliminate items that have less bearing on the Company’s current and future operating performance and highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures.

INVESTOR CONTACT:
Phillip Murnane: +44 (0) 203 129 2265
Chief Financial Officer
Email: phillip.murnane@ferroglobe.com

Ferroglobe PLC and Subsidiaries
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