Good day, ladies and gentlemen, and welcome to the Ferroglobe First Quarter 2019 Earnings Investor Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today’s conference is being recorded. I'd now like to introduce your host for today's conference, Mr. Pedro Larrea, Ferroglobe's Chief Executive Officer. Sir, please go ahead.

Good morning, everyone, and thank you for joining the Ferroglobe first quarter 2019 conference call. Unfortunately, Phil Murnane, our CFO, cannot join on today's call as he is attending the funeral of a close family member, which is taking place as we speak. In any event, Phil will be fully available for the investor calls in the coming days. On behalf of Ferroglobe, we send our sincerest condolences to Phil and his family and we greatly appreciate his continued dedication and commitment under a very difficult personal circumstances. Joining me on the call are Gaurav Mehta, who was recently appointed EVP of Investor Relations, in addition to his ongoing role of EVP of Strategy; and José María Calvo-Sotelo, the Deputy CFO. Before we get started with some prepared remarks, I am going to read a brief statement. Please turn to slide 1 at this time. Statements made by management during this conference call that are forward-looking are based on current expectations. Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Ferroglobe's most recent SEC filings and the exhibits to those filings, which are available on our webpage, www.ferroglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA and adjusted diluted earnings per share, which are non-IFRS measures. Reconciliations of these non-IFRS measures may be found in our most recent SEC filings. Next slide please. On the call today, we will review the Q1 results across our core products, including some consolidated financial highlights. Then we will provide an update on market outlook for the remainder of 2019 and the company's near-term plans. On slide 3, as you have seen in our earnings press release, all in all, first quarter results were disappointing and the rate of deterioration in end market…

Thank you, Pedro. Turning now to slide 11. The working capital decrease in the first quarter, $5 million was driven by a reduction in inventories and accounts receivable, partially offset by a decrease in accounts payable. Both these movements reflect the quarterly decline in sales and operating volumes. Our focus on cash generation resulted in cash and cash equivalents, remaining unchanged from the prior quarter at record levels of approximately $217 million. Maintaining the strong cash position have been achieved despite a number of factors, including weak quarterly P&L performance, interest payments of $18.5 million during the quarter due to – our bond coupon, the evolution of payables after yearend and the delayed receipt of up to $15 million in last year. Next slide please. The cash generation initiatives including the decrease in working capital drove a reduction in our net debt levels by $9 million. We ended the quarter with net debt of approximately $420 million and with net leverage remaining at a comfortable level of 2.4 times, well below levels we have navigated in prior cycles. Next slide please. On slide 13, we look at our cash generation in more detail. The profit for the first quarter was negative $28.6 million. Adjusting for non-cash item, our profit was approximately $13.6 million. The net change in inventories, accounts receivable and accounts payable contributed to the positive operating cash inflow of $15.2 million. The cash was then used for interest payments of $18.5 million and income tax payments of $1.6 million, resulting in net cash provided from operating activities of $8.7 million. Payments for maintenance CapEx were contained at a level of $13.4 million, resulting in free cash flow for the first three months of negative $4.7 million. As we consider our near-term initiatives, we remain committed to deleverage and…

Thank you, Gaurav. So if we turn now to slide 15. During our previous earnings call at the end of February, we noted the changes in sentiments expressed by our customers and industry analysts across our end markets, as they provided their outlook for 2019. The activity levels realized during the first quarter suddenly confirms this high degree of caution, and our ongoing discussions with customers reinforce that this sentiment will linger. Despite the uncertainty surrounding trade conflict and political instability, the global macro environment continues to be perceived by most analysts and experts as relatively strong. So the kind of demand slowdown we are witnessing in our end markets is somehow surprising. While it is impossible to pinpoint all the specific reasons driving the change in customer behavior, there are certain trends which are clearly impacting our sales into each major end market. Sales of silicon-based alloys and manganese-based alloys into the steel sector are impacted by a slowdown in steel demand, although, coming down from historical highs. In our various Q1 results forecast, several global leaders in the steel sector announced lowered expectations for the year and planned actions to curtail capacity. This trend will clearly continue to impact our business into the steel sector. Our sales into the aluminum industry are being impacted by the slowdown in the automotive industry, as manufacturers struggle with evolving emissions regulations and trade war -- and trade war uncertainty amongst other factors. Beyond auto sales, customers are also commenting on general slowdown in demand for aluminum going into building and construction, all the transportation including airplanes and everyday consumer goods. The most perplexing end market is chemicals. Our silicon metal ultimately goes into thousands of everyday consumer and industrial products. Given the relatively healthy global economy, the drop in volumes into…

[Operator Instructions] Our first question comes from the line of Vincent Anderson with Stifel. Your line is now open.

Yeah, thank you. So just with regards to volumes, if this current demand environment were to hold here for the remainder of the year purely hypothetically, what would your volumes look like on the year-over-year basis?

Well, as you've seen, mainly on silicon metal, there is a significant decrease in total volumes in Q1. I wouldn’t expect today that such low volumes would continue for the entirety of the year. But you could of course make the arithmetic calculation of what would be the decline in volumes for silicon metal. When we look at both manganese alloys and silicon alloys, our expectations today is that, Q1 volumes are sustainable for the rest of the year and we would be even contemplating if granted by demand and price evolution that there could be some slight increases in volumes for manganese alloys in the second part of the year.

All right. That's helpful. So I'm assuming your electrode prices are more or less fixed for 2019, but how should we think about the margin impact of declining coal prices and when we could start to see that show up in your earnings if we haven't already?

That has started to show slightly in the margins and in the second half of the year, you could track almost dollar-by-dollar, the international coal indexes or AP-2 for instance. I think AP-2 in the first half of the -- sorry, in this first five months of the year have dropped like $10 or $15 per ton. That doesn't translate directly to our coal cost, but I would say it mostly reflects into our coal costs. So, we should be seeing significant decrease in coal cost in the second half of the year. If you think of Ferroglobe buying in international markets around 0.5 million tons of coal a year, that is 0.25 million tons in the second half of the year. And if you think of price decreases of $5 to $10 in the second half of the year, that gives you what would be the cost reduction from coal, for instance, again in the second half of the year.

That's very helpful as well. Thanks. I just have one more. Just to clarify on the sale of the hydroelectric assets, this is -- the Dumbria plant is the only one that was originally tied to these assets? Or is there still a risk that the unions pressed for the local authorities to include, for instance, the sub-owned plants in approving a transfer?

That risk doesn't exist in our view.

Okay. Alright. Thanks.

[Operator Instructions] Our next question comes from the line of Sarkis Sherbetchyan with B. Riley FBR. Your line is now open.

Hey, good morning and thanks for taking my question here. So, first, I wanted to ask about just the hydro assets sales. Can you maybe remind us what the sales and EBITDA contribution is for the plants you are potentially going to get rid of the transaction?

Yeah. So, as you know, these hydro assets have slight volatile results as a consequence of volatile hydro activity which is rainfall and also as a consequence of volatile power market prices in Spain. So, EBITDA contributions have, as we have seen fluctuate a lot. In average, in the past five years, the contribution of the assets we are selling are between €13 million to €16 million per year.

Great. Thanks for that. And then if I just kind of step back and think about the comments regarding the additional consideration maybe cutting capacity in ferrosilicon. Maybe can you highlight the amount of capacity you're thinking of potentially cutting?

We haven't made any decisions. Right now in the ferrosilicon arena and what is, I'd say a bit contradicting and we are monitoring is that volumes are healthy. We are seeing good demand from our customers still to date. We have a -- I would say a solid book going forward, but it's just prices of course going down. So, we will -- we are just monitoring loss-making facilities and making sure that we take action as soon as we can. Right now, we have made no decision.

Understood. And I think if I take kind of the comments you outlined with regard to the end markets and some of the slowdowns versus what we're seeing in the global macro picture. Is there something you can point to, to help us understand kind of the differentials and call it metals prices that maybe geographically that's kind of impacting perhaps the volumes or the results? Just kind of help us understand that delta.

Well, if you really scratch through the different products, I would say, when we look at our volume reduction first in manganese alloys, the manganese alloys, really our volume reduction has been a voluntary one. So, the volume reduction is just the capacity cutbacks we have -- we decided to make. The rest of our manganese alloys facilities are running at full capacity. And again, the order book is well filled in and the margins are improving month-by-month. So, on that side of the business, I would say that we are seeing positive trend in terms of margin and stable volumes. If we look at silicon alloys, the main driver is being and you see that in the indexes and we have -- you have the graph there in one of our slides, the driver there is being price decline. And that is just to a large extent getting back to historical averages, but in a context of cost inflation that has really reduced the margins very, very significantly. But again, in terms of volumes that you have seen in Q1, volumes are not suffering all that much. So, it is really silicon metal where we have seen in our end markets, I would say, evolutions that are surprising to a large extent and mainly on the chemical side. We do have some explanation on aluminum. We have talked about the scrap issue in North America. And of course, the uncertainties in the auto industry. So those are, I would say, understandable or explainable. In terms of solar, we believe it is a temporary slowdown and we are very confident that throughout the second half of this year, but that is difficult to tell. We could see a rapid pick up there. And as we were describing in the presentation, it is really on the chemical side where we are a bit more perplexed by a slowdown in demand from some of our or most -- or almost all of our bigger customers. And the only hypothesis -- and it is really a hypothesis, we are not certain about that. The only hypothesis we can make is about some destocking in the entire value chain.

Got it. That's pretty helpful. So you wouldn't necessarily say it's necessarily a loss of customer volume, it's simply destocking?

That is our hypothesis as I was saying. Yes.

Okay. Thank you. I'll hop back in into queue.

We have a follow-up question from the line of Vincent Anderson with Stifel. Your line is now open.

Yes. Thanks. I just wanted to go back to costs for a minute. So with regard to your electricity costs in Europe, so this year I was wondering if you had any expectations for where you can see costs go with the new Spanish interruptibility auctions later in the year? And then looking beyond that, how are you thinking about the competitiveness of assets in the face of increasing carbon emissions? Or recovery emissions costs, I would say.

And so, it's two different questions. With the first one, we do face uncertainty with the -- with interruptibility in Spain. The evolution of the interruptibility rebate in the first half of the year was very, very negative. I would say that, fortunately, this time the auction was only for six months, because it was typically for one year. So now, we are facing another auction for the second half of this year. We hope we would expect that the auction or the results of the auction would be better than first half. But I'm not optimistic that they would be as good as 2018. We also know that there have been some additional regulation on energy intensive consumers like ourselves, with some additional rebates being granted, not huge and there is negotiations taking place with government to improve that further. But right now, frankly, there is still uncertainty as how all of that will evolve. With regard to the implications for divestiture over the hydro assets on CO2 impact. That is really -- it doesn't really apply, we really have up to today two different businesses, one in the energy business, the other is the ferroalloys business. And the ferroalloys business has its own regulation in terms of CO2 impact and how that is measured. And we couldn't really compensate with our hydro asset. So it really has no impact in that regard in my view.

All right. Thanks. And then just real quick. Does your new power supply agreement in Niagara Falls come with a commitment to restart that facility in the near term?

No. No news in that regard.

All right. Thank you.

Thank you.

That concludes today's question-and-answer session. I'd like to turn the call back to Mr. Larrea for closing remarks.

Well, before we conclude, I would like to first reiterate my sincerest condolences to Phil and to his family. And as he has to announced his departure within two months, I would also like on behalf of the company and the board to thank Phil for his many contributions. During his tenure, he has shown outstanding commitment to Ferroglobe, even under very difficult personal circumstances. We have enjoyed working with Phil and wish him the best in his future endeavors. And that concludes our Q1 earnings call. Thanks again for your participation. We look forward to hearing from you on the next call. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.