Q4 2023 Earnings Summary
- Improving market conditions may lead Ferroglobe to exceed its EBITDA guidance: Since setting the 2024 EBITDA guidance of $100 million to $170 million, market prices for silicon metal and alloys have shown significant improvement. If current spot prices remain stable or improve further, Ferroglobe could meet or even surpass the upper end of its guidance. Management expressed optimism about achieving or exceeding the top level of the guidance, potentially resulting in higher EBITDA than initially projected.
- Aggressive operational cost reductions will enhance profitability: Ferroglobe is implementing aggressive cost reduction initiatives to improve operational efficiency and reduce expenses. These actions are expected to add additional EBITDA and are fully under the company's control. By improving operational performance and reducing costs, Ferroglobe aims to enhance profitability regardless of market fluctuations.
- Strengthened balance sheet and return of capital to shareholders signal confidence: Ferroglobe has significantly strengthened its balance sheet, achieving an unlevered position, and has initiated a dividend for the first time since 2018. The company is also considering a share buyback program, believing that its shares are undervalued. Returning capital to shareholders demonstrates management's confidence in the company's financial stability and future prospects, potentially increasing shareholder value.
- Significant reduction in expected benefits from the French energy agreement in 2024, decreasing from $186 million in 2023 to less than $40 million, negatively impacting EBITDA.
- Uncertain sustainability of recent price improvements due to weak demand and lack of structural change in demand, raising concerns about maintaining current price levels and impacting future profitability.
- Significant increases in input costs, such as coal prices increasing over 100% (adding $150 million in costs) and energy costs increasing $35 million, combined with lower production volumes leading to decreased fixed cost absorption, negatively affecting margins.
-
EBITDA Guidance Upside
Q: Will current market prices lead to higher EBITDA?
A: Management indicated that if current silicon metal and alloy prices persist or improve, they may reach or exceed the high end of their EBITDA guidance of $170 million for 2024. Prices have improved since the guidance was set, and they are optimistic about achieving better results. -
Free Cash Flow and Capital Allocation
Q: Will you be free cash flow positive and how will you allocate capital?
A: The company expects to be free cash flow positive in 2024 across the entire guidance range. Factors include release of working capital, gross debt below $100 million, and pro forma net cash positive of $91 million in Q1. They initiated a modest dividend of $1.3 cents per share and plan opportunistic share buybacks after shareholder approval in June. -
Impact of Reduced Energy Credits
Q: How will lower energy credits affect EBITDA?
A: The benefit from energy credits in France is expected to decrease to up to $40 million in 2024, down from $186 million in 2023. This reduction is due to lower French electricity prices, estimated at $70 to $80 per megawatt hour. -
Cost Savings vs. Input Cost Increases
Q: How are input costs affecting your cost savings?
A: Despite achieving $225 million in cost savings, significant increases in coal and energy costs have negatively impacted the bottom line by approximately $150 million. Coal costs increased over 100% to $472 per ton, affecting the company which consumed about 0.5 million tons in 2023. -
Silicon Metal Pricing Outlook
Q: What is your outlook on silicon metal prices and demand?
A: Prices have improved recently but sustainability is uncertain due to lack of structural demand change. Management is cautiously optimistic and is implementing aggressive operational improvements to capitalize on current pricing. -
EV Battery Market Initiatives
Q: What is your involvement in the EV battery sector?
A: The company has two initiatives: a joint venture targeting up to 30% silicon content in battery anodes, and a partnership aiming to supply silicon metal for full silicon anodes. These align with their strategy to grow in the silicon metal for batteries market. -
Shareholder Approval for Buyback Program
Q: When will the share buyback program be approved?
A: Shareholder approval for the buyback program is expected at the AGM in June, as required for a British company listed on NASDAQ. -
High-Value Silicon Metal Pricing
Q: What are prices for your premium silicon metal products?
A: Premium silicon metal for batteries sells between $10 and $15 per kilo, and other premium applications between $4,000 and $4,500 per metric ton. These prices are decoupled from index prices.
Research analysts covering Ferroglobe.