Ferroglobe PLC Presentation at CRU Silicon Metal Conference Lisbon - November 14, 2018
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Ferroglobe PLC Presentation at
Advancing Materials Innovation
CRU Silicon Metal Conference Lisbon
NASDAQ: GSM November 14, 2018
-0-Forward-Looking Statements and Non-IFRS Financial Metrics This presentation contains forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended. Forward-looking statements are not historical facts but are based on certain assumptions of management and describe our future plans, strategies and expectations. Forward-looking statements can generally be identified by the use of forward-looking terminology, including, but not limited to, "may," “could,” “seek,” “guidance,” “predict,” “potential,” “likely,” "believe," "will," "expect," "anticipate," "estimate," "plan," "intend," "forecast," or variations of these terms and similar expressions, or the negative of these terms or similar expressions. Forward-looking statements contained in this presentation are based on information currently available to Ferroglobe PLC (“we,” “our,” “Ferroglobe,” the “Company” or the “Parent”) and assumptions that we believe to be reasonable, but which are inherently uncertain. As a result, our 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 or implicate known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. We caution you that all such statements, as well as forward-looking statements made orally in the presentation hereof, involve or implicate myriad risks and uncertainties, including without limitation, risks that Ferroglobe will not successfully integrate the businesses of Globe Specialty Metals, Inc. and Grupo FerroAtlántica SAU, that we will not realize estimated cost savings and/or the value of certain tax assets, synergies and growth, and/or that such benefits may take longer to realize than expected. Important factors that may cause actual results to differ include, but are not limited to: (i) unanticipated costs of integration, including operating costs, customer loss and business disruption being greater than expected; (ii) our ability to optimize organizational and governance structure; (iii) our ability to hire and retain key personnel; (iv) regional, national or global political, economic, business, competitive, and market conditions; (v) changes in the cost and/or availability of raw materials or energy; (vi) competition in the metals and foundry industries; (vii) environmental and other regulatory risks; (viii) our ability to identify and evaluate liabilities associated with acquired assets prior to their acquisition; (ix) our ability to manage operational risks including industrial accidents and natural disasters; (x) our ability to manage international operations; (xi) changes in technology; (xii) our ability to acquire or renew permits and approvals; (xiii) changes in law and/or regulation and/or compliance costs affecting Ferroglobe; (xiv) conditions in the credit markets; (xv) risks associated with assumptions made in connection with critical accounting estimates and legal proceedings; (xvi) the risks of currency fluctuations and foreign exchange controls; and (xvii) the risks of local, regional and international unrest, economic downturn, tax assessments, tax adjustments, and changes in tax rates. The foregoing list is not exclusive or exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that may affect our business, including those described in the “Risk Factors” section of Ferroglobe’s Registration Statement on Form F-1, Annual Reports on Form 20-F, Current Reports on Form 6-K and other documents we file from time to time with the United States Securities and Exchange Commission. We do not give any assurance (1) that we will achieve our expectations, or (2) concerning any result or the timing thereof, in each case, with respect to any regulatory action, administrative proceedings, government investigations, litigation, warning letters, consent decrees, cost reductions, business strategies, earnings or revenue trends or future financial results. Forward-looking financial information and other non-historical metrics presented herein represent our key goals and are not intended as guidance or projections for the periods presented herein or any future periods. We do not undertake or assume, and expressly disclaim, any obligation to update publicly any of the forward-looking statements in this presentation to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. We caution you not to place undue reliance on any forward-looking statements, which are made only as of the date of this presentation. EBITDA, adjusted EBITDA, adjusted diluted profit (loss) per ordinary share and adjusted profit (loss) attributable to Ferroglobe are non-IFRS financial metrics that, we believe, are pertinent measures of Ferroglobe’s success. The Company has included these financial metrics to provide supplemental measures of its performance. We believe these metrics are useful 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. For additional information, including a reconciliation of the differences between such non-IFRS financial measures and the comparable IFRS financial measures, please refer to our periodic filings with the U.S. Securities & Exchange Commission, available in the SEC Filings section under the Investors tab on our website, www.ferroglobe.com. -1-
Topics for discussion
Introduction to Ferroglobe
Near-term observations on the silicon metal market
Medium-term outlook supported by strong fundamentals
-2-Introduction to Ferroglobe
Ferroglobe is a leading global player in advanced materials
Global leader in an attractive growing industry
Best in class operations with unique competitive advantages
Entrepreneurial culture with strong growth track record
Unrivaled technology development and know-how
Disciplined financial management
-4-Global leader in niche, high-value markets
The leading player in silicon metals… …and one of the leading ferroalloys producers
Silicon Metal Capacity (000, mt) Other Ferroalloys Capacity (000, mt)
341 2,145
207 1,260
164
879
710 670
96
62 60 53 355
48 250
Privat Group
Source: Ferroglobe, public filings -5-Diverse product mix provides exposure to a variety of end markets
-6-Unparalleled global operations and diversified product offering
provides Ferroglobe and its customers unique optionality
Factories
Production flexibility
Mining
Production optionality
Energy
London, UK Natural F/X hedge
Broadest product range
Global customer reach
Low cost operations
High barriers to entry
Capacity by Geography
(000, mt) Europe North America South America Africa Asia Total
Silicon 178 91 - 72 - 341
Ferrosilicon / Foundry Alloys 225 120 109 112 - 566
Manganese-based Alloys 623 - 34 - - 657
Other Silicon-Based Alloys 27 - 10 - - 37
Total - 1,601
-7-Ferroglobe has amongst the broadest range of capabilities in
silicon metal and ferroalloys
Broadest range of products
Diversified and flexible production footprint
Experience in worldwide international logistics
Unrivalled quality and reliability
Track record for innovation and finding customized solutions for our customers
-8-Near-term observations on the silicon metal market
Key messages
Macroeconomic picture remains positive
Trade war: more rhetoric than reality to date
Trade case ‘overhang’ has passed ― corrections to supply, demand, and pricing
Recent headlines need to be put into historical perspective
Ferroglobe will continue to remain disciplined ― swift actions as market evolves
- 10 -Global macroeconomic view remains positive with
steady growth forecasted for 2019
Real GDP Growth, by Country Group Global Growth Outlook (% Change in GDP)
Source: IMF, World Economic Outlook, Oct. 2018
Note: Grey area denotes projections
Source: IMF, World Economic Outlook, Oct. 2018
- 11 -Historical context for the recent evolution in SiMe prices
Silicon Metal Price recovery in 2017
‘amplified’ due to
preliminary trade case
outcome
Capacity creep as pricing
environment improved in
($/t)
2017, including emerging
markets benefiting from a
strong USD
‘Overhang’ impact of trade
case that lead to surplus
inventories by customer in
advance of final outcome
Source: CRU
- 12 -Global silicon supply significantly exceeded demand
during Q2 and Q3…
Quarter over Quarter Change in Global Silicon Metal Supply/Demand
100
75
50
(‘000 t)
25
0
-25
-50
-75 2Q-15 3Q-15 4Q-15 1Q-16 2Q-16 3Q-16 4Q-16 1Q-17 2Q-17 3Q-17 4Q-17 1Q-18 2Q-18 3Q-18
Global Consumption Global Supply
Source: CRU
- 13 -($/t)
3,550
2,550
3,350
3,750
2,350
2,750
2,950
1,750
1,950
3,150
2,150
Source: CRU
Oct. 2008
Feb. 2009
Jun. 2009
Oct. 2009
Feb. 2010
Jun. 2010
Oct. 2010
Feb. 2011
Jun. 2011
Oct. 2011
Feb. 2012
Jun. 2012
Oct. 2012
Feb. 2013
Jun. 2013
US (98.5% Si, 5-5-3 EXW)
Oct. 2013
Feb. 2014
Jun. 2014
Silicon Metal Pricing ― U.S.
Oct. 2014
Feb. 2015
Jun. 2015
Oct. 2015
10 Year Average
Feb. 2016
Jun. 2016
Oct. 2016
Feb. 2017
Jun. 2017
Oct. 2017
reached near historical averages in recent months
Feb. 2018
Jun. 2018
Oct. 2018
…coupled with stockpiled inventory, the index price in the U.S.
- 14 -Source: CRU
($/t)
3,350
3,550
2,350
2,550
2,950
3,750
1,950
2,750
3,150
1,750
2,150
Oct. 2008
May 2009
Dec. 2009
Jul. 2010
Feb. 2011
Sept. 2011
Apr. 2012
Nov. 2012
Jun. 2013
EU (98.5% Si, 5-5-3 DDP)
Jan. 2014
Aug. 2014
Mar. 2015
Silicon Metal Pricing ― Europe
Oct. 2015
May 2016
Dec. 2016
Jul. 2017
year averages, respectively
10 Year Average
Feb. 2018
Sept. 2018
($/t)
2,050
2,450
2,650
1,450
1,650
1,850
2,250
1,250
Oct. 2008
Apr. 2009
Oct. 2009
Apr. 2010
Oct. 2010
Apr. 2011
Oct. 2011
Apr. 2012
Oct. 2012
Apr. 2013
China (98.5% Si, 5-5-3 FOB)
Oct. 2013
Apr. 2014
Oct. 2014
Apr. 2015
Oct. 2015
Silicon Metal Pricing ― China
Apr. 2016
Oct. 2016
Apr. 2017
Oct. 2017
10 Year Average
Apr. 2018
Oct. 2018
…while the European and China indices dropped below the ten
- 15 -Catalysts for near-term pricing recovery
Trade case impact has passed ― lower inventory stockpiles by end users
Strong demand fundamentals across the chemical, aluminum and photovoltaic sectors
Limited new capacity to enter the market
Continued environmental shutdowns in China; greater internal consumption
Increasing input costs pressuring margins ― provides an inherent pricing floor
Quicker market discipline and reactivity ― curtailments, idling capacity
- 16 -After surplus inventory overhang in 2018, CRU is projecting a
global balance deficit in early 2019…
Global Silicon Metal ― Production vs. Consumption
900
799 813 790
776 757 772 769 773 765
(‘000 t)
800 738
699 723 704 720 693 707
700
600
1Q-18 2Q-18 3Q-18e 4Q-18e 1Q-19e 2Q-19e 3Q-19e 4Q-19e
Global Production Global Consumption
Global Silicon Metal ― Surplus / (Deficit)
150
95
100
(‘000 t)
40
50 19 19 25
4
0
-24 -14
-50
1Q-18 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19 3Q-19 4Q-19
Source: CRU
- 17 -…however, CRU underestimates the capacity changes
made by Ferroglobe
Ferroglobe Silicon Metal Capacity
250
-40k tons
Silicon Metal capacity reductions:
218
• Selma, AL (2 furnaces)
• Beverly, OH (1 furnace)
200
178 • Château-Feuillet, France: 2 furnaces
• Laudun, France: 1 furnace
150
(‘000 t)
127 -36k tons
100 91
72 72
50
0
Europe North America Africa
March 2018 Pro Forma for planned changes
- 18 -Increasing input and production costs will tend to force price
increases
115 150
Estimated world SiMe Production Cost Index SiMe Pricing vs Production Cost Index
Coal
140
110
130
Quartz
Index = 100 (1Q-16)
Index = 100 (1Q-16)
105 120
110
Oil /
Natural
Gas 100
100
90
95
Electrodes
80
1Q-16 2Q-16 3Q-16 4Q-16 1Q-17 2Q-17 3Q-17 4Q-17 1Q-18 2Q-18 3Q-18
CRU - US Spot Price ($/t)
90
1Q-16 2Q-16 3Q-16 4Q-16 1Q-17 2Q-17 3Q-17 4Q-17 1Q-18 2Q-18 3Q-18 SiMe Production Cost Index ($/t)
- 19 -Medium-term outlook for silicon metal
Steady global silicones consumption growth at levels
beyond GDP
World Silicon Demand Driven by Silicones Production
Recent growth from global
YoY
Growth
2.9% 5.8% 6.7% 7.5% 7.3% 5.7% economic expansion expected
to continue
2,400 2,253
2,200 2,133 Recent consumption gains
1,987
2,000 1,848 constrained by production
1,732 capacity
(‘000s)
1,800 1,637
1,591
1,600
Announced expansions
1,400
support additional growth
1,200
expectations
1,000
2017 2018e 2019e 2020e 2021e 2022e 2023e
New applications and product
Source: CRU
developments
Major Silicones Demand Drivers
Growth in automotive and Personal care and
Global population growth
transportation consumer products
Housing and commercial Increasing consumer Advancements in medical
construction electronics equipment
- 21 -Despite recent Chinese reform, the global demand for
photovoltaic industry expected to remain solid
Global Photovoltaic Demand
Photovoltaic installations doubled
between 2015 and 2017
Rebound in demand
expected ― lower PV
prices make installations
Drop in 2018 PV installations
more attractive following Chinese reform
announcements in June, especially
cutbacks in polysilicon production
150 Chinese subsidy policy changes
125 Global polysilicon output expected
100 to rebound, as lower rates of
installation in China, US, and
(GW)
75
Japan is offset by rapid increases
50 in India and other countries
25
Grid parity and ease of installation
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e 2019e 2020e
will make solar the energy of
choice in the coming years
Source: IHS
- 22 -Aluminum demand expected to continue delivering steady
growth for silicon metal
Global Finished Aluminum Demand Outlook Global stocks as days of consumption
Lowest stocks to consumption ratio since Sept.2008
2017 2018e 2019e 2020e
North America (mm, tons) 6.8 6.8 6.9 7.1
(Y/Y Growth) -0.5% 2.5% 1.8%
Europe (mm, tons) 9.2 9.5 9.6 9.8
(Y/Y Growth) 3.0% 1.7% 1.5%
China (mm, tons) 34.9 36.7 38.4 40.0
(Y/Y Growth) 5.2% 4.5% 4.1%
World (mm, tons) 63.8 66.7 69.0 71.3
(Y/Y Growth) 4.5% 3.5% 3.3%
Trade war impact: more rhetoric than reality
Despite the imposition of wide-ranging tariffs and large anti-dumping duties on Chinese foil and sheet, Chinese
aluminium exports have increased substantially in 2018 (year-over-year)
Source: AME Metals & Mining
- 23 -Chinese domestic demand growth coupled with supply
curtailments is favorable to the global landscape
Chinese Silicon Production and Exports Chinese Exports as % of Production
45%
43%
41%
39%
37%
(‘000 t)
35%
33%
31%
29%
27%
25%
2016 2017 2018e 2019e 2020e 2021e 2022e 2023e
Export share of production (%)
- 24 -Final remarks
Overall fundamentals for silicon metal are strong worldwide:
― Solid demand momentum
― Supply tightness
― Cost inflation impacting marginal producers
At current prices certain producers (specifically new entrants) unlikely to cover
true cost of production, including depreciation and financing costs
Producers forced to remain disciplined and react to changing market dynamics:
balancing production vs. commercial strategies vs. profitability
Ferroglobe is uniquely positioned to serve a variety of customers, products and
geographies and will apply this flexibility to switch production of products to the
most profitable locations
Producing at a loss is not an option!
- 25 -Ferroglobe PLC Presentation at
CRU Silicon Metal Conference Lisbon
Advancing Materials Innovation
NASDAQ: GSM November 14, 2018
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