- 0 - Ferroglobe PLC Presentation at CRU Silicon Metal Conference Lisbon November 14, 2018 Advancing Materials Innovation NASDAQ: GSM
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Ferroglobe PLC Presentation at CRU Silicon Metal Conference Lisbon
November 14, 2018
Advancing Materials Innovation
NASDAQ: GSM
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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.
Forward-Looking Statements and Non-IFRS Financial Metrics
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Topics for discussion
Introduction to Ferroglobe
Near-term observations on the silicon metal market
Medium-term outlook supported by strong fundamentals
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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
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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)
Pri
vat
Gro
up
Source: Ferroglobe, public filings
341
207
164
96
62 60 53 48
2,145
1,260
879 710 670
355 250
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Unparalleled global operations and diversified product offering provides Ferroglobe and its customers unique optionality
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
Factories
Mining
Energy
London, UK
Broadest product range
Global customer reach
Low cost operations
Production flexibility
Production optionality
Natural F/X hedge
High barriers to entry
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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
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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
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Global macroeconomic view remains positive with steady growth forecasted for 2019
Real GDP Growth, by Country Group
Source: IMF, World Economic Outlook, Oct. 2018 Note: Grey area denotes projections
Global Growth Outlook (% Change in GDP)
Source: IMF, World Economic Outlook, Oct. 2018
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Historical context for the recent evolution in SiMe prices
Price recovery in 2017 ‘amplified’ due to preliminary trade case outcome
Capacity creep as pricing
environment improved in 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
Silicon Metal
Source: CRU
($/t
)
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Global silicon supply significantly exceeded demand during Q2 and Q3…
Source: CRU
Quarter over Quarter Change in Global Silicon Metal Supply/Demand
-75
-50
-25
0
25
50
75
100
Global Consumption Global Supply
(‘0
00
t)
1Q-17 2Q-17 3Q-17 4Q-17 1Q-18 2Q-18 3Q-18 1Q-16 2Q-16 3Q-16 4Q-16 2Q-15 3Q-15 4Q-15
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1,750
1,950
2,150
2,350
2,550
2,750
2,950
3,150
3,350
3,550
3,750O
ct. 2
00
8
Fe
b. 2
00
9
Jun
. 20
09
Oct
. 20
09
Fe
b. 2
010
Jun
. 20
10
Oct
. 20
10
Fe
b. 2
011
Jun
. 20
11
Oct
. 20
11
Fe
b. 2
012
Jun
. 20
12
Oct
. 20
12
Fe
b. 2
013
Jun
. 20
13
Oct
. 20
13
Fe
b. 2
014
Jun
. 20
14
Oct
. 20
14
Fe
b. 2
015
Jun
. 20
15
Oct
. 20
15
Fe
b. 2
016
Jun
. 20
16
Oct
. 20
16
Fe
b. 2
017
Jun
. 20
17
Oct
. 20
17
Fe
b. 2
018
Jun
. 20
18
Oct
. 20
18
US (98.5% Si, 5-5-3 EXW) 10 Year Average
…coupled with stockpiled inventory, the index price in the U.S. reached near historical averages in recent months
Source: CRU
($/t
)
Silicon Metal Pricing ― U.S.
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1,750
1,950
2,150
2,350
2,550
2,750
2,950
3,150
3,350
3,550
3,750O
ct. 2
00
8
May
20
09
Dec
. 20
09
Jul.
20
10
Fe
b. 2
011
Sep
t. 2
011
Ap
r. 2
012
No
v. 2
012
Jun
. 20
13
Jan
. 20
14
Au
g. 2
014
Mar
. 20
15
Oct
. 20
15
May
20
16
Dec
. 20
16
Jul.
20
17
Fe
b. 2
018
Sep
t. 2
018
EU (98.5% Si, 5-5-3 DDP) 10 Year Average
…while the European and China indices dropped below the ten year averages, respectively
Silicon Metal Pricing ― China
Source: CRU
($/t
)
Silicon Metal Pricing ― Europe
($/t
)
1,250
1,450
1,650
1,850
2,050
2,250
2,450
2,650
Oct
. 20
08
Ap
r. 2
00
9
Oct
. 20
09
Ap
r. 2
010
Oct
. 20
10
Ap
r. 2
011
Oct
. 20
11
Ap
r. 2
012
Oct
. 20
12
Ap
r. 2
013
Oct
. 20
13
Ap
r. 2
014
Oct
. 20
14
Ap
r. 2
015
Oct
. 20
15
Ap
r. 2
016
Oct
. 20
16
Ap
r. 2
017
Oct
. 20
17
Ap
r. 2
018
Oct
. 20
18
China (98.5% Si, 5-5-3 FOB) 10 Year Average
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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
Increasing input costs pressuring margins ― provides an inherent pricing floor
Quicker market discipline and reactivity ― curtailments, idling capacity
Continued environmental shutdowns in China; greater internal consumption
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Global Silicon Metal ― Surplus / (Deficit)
After surplus inventory overhang in 2018, CRU is projecting a global balance deficit in early 2019…
Global Silicon Metal ― Production vs. Consumption
Source: CRU
699
776 799 738
693
772 813 790
723 757
704 720 707 769 773 765
600
700
800
900
1Q-18 2Q-18 3Q-18e 4Q-18e 1Q-19e 2Q-19e 3Q-19e 4Q-19e
Global Production Global Consumption
-24
19
95
19
-14
4
40 25
-50
0
50
100
150
1Q-18 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19 3Q-19 4Q-19
(‘0
00
t)
(‘0
00
t)
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…however, CRU underestimates the capacity changes made by Ferroglobe
218
127
72
178
91
72
0
50
100
150
200
250
Europe North America Africa
March 2018 Pro Forma for planned changes
Ferroglobe Silicon Metal Capacity
Silicon Metal capacity reductions: • Selma, AL (2 furnaces) • Beverly, OH (1 furnace) • Château-Feuillet, France: 2 furnaces • Laudun, France: 1 furnace
-40k tons
-36k tons
(‘0
00
t)
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90
95
100
105
110
115
1Q-16 2Q-16 3Q-16 4Q-16 1Q-17 2Q-17 3Q-17 4Q-17 1Q-18 2Q-18 3Q-18
Increasing input and production costs will tend to force price increases
Coal
Quartz
Oil /
Natural Gas
Electrodes
Estimated world SiMe Production Cost Index
Ind
ex =
10
0 (
1Q-1
6)
SiMe Pricing vs Production Cost Index
Ind
ex =
10
0 (
1Q-1
6)
80
90
100
110
120
130
140
150
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 ($/t)
SiMe Production Cost Index ($/t)
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Steady global silicones consumption growth at levels beyond GDP
Recent growth from global economic expansion expected to continue
Recent consumption gains constrained by production capacity
Announced expansions support additional growth expectations
New applications and product
developments
World Silicon Demand Driven by Silicones Production
2.9% 5.8% 6.7% 7.5% 7.3% 5.7% YoY
Growth
(‘0
00
s)
1,591 1,637 1,732
1,848 1,987
2,133 2,253
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2017 2018e 2019e 2020e 2021e 2022e 2023e
Global population growth
Housing and commercial construction
Growth in automotive and transportation
Increasing consumer electronics
Personal care and consumer products
Advancements in medical equipment
Source: CRU
Major Silicones Demand Drivers
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Despite recent Chinese reform, the global demand for photovoltaic industry expected to remain solid
0
25
50
75
100
125
150
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e 2019e 2020e
Photovoltaic installations doubled between 2015 and 2017
Drop in 2018 PV installations following Chinese reform announcements in June, especially cutbacks in polysilicon production
Global polysilicon output expected to rebound, as lower rates of installation in China, US, and Japan is offset by rapid increases in India and other countries
Grid parity and ease of installation will make solar the energy of choice in the coming years
Global Photovoltaic Demand
(GW
)
Chinese subsidy policy changes
Rebound in demand expected ― lower PV
prices make installations more attractive
Source: IHS
- 23 -
Aluminum demand expected to continue delivering steady growth for silicon metal
Lowest stocks to consumption ratio since Sept.2008
Global Finished Aluminum Demand Outlook
Source: AME Metals & Mining
Global stocks as days of consumption
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)
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Chinese domestic demand growth coupled with supply curtailments is favorable to the global landscape
25%
27%
29%
31%
33%
35%
37%
39%
41%
43%
45%
2016 2017 2018e 2019e 2020e 2021e 2022e 2023e
Export share of production (%)
Chinese Silicon Production and Exports Chinese Exports as % of Production
(‘0
00
t)
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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
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!
Producers forced to remain disciplined and react to changing market dynamics: balancing production vs. commercial strategies vs. profitability