Good morning ladies and gentlemen and welcome to Ferroglobe’s second quarter 2020 earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference call may be recorded. I would now like to turn the call over to Beatriz Garcia-Cos, Ferroglobe’s Chief Financial Officer. You may begin.

Good morning everyone and thank for joining Ferroglobe’s second quarter 2020 conference call. Joining me today are Marco Levi, our Chief Executive Officer; Gaurav Mehta, EVP Strategy and Investor Relations; and Jorge Lavin, Group Controller. Before we get started with some prepared remarks, I’m going to read a brief statement. Please turn to Slide 1 at this time. The 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 exhibits to those filings, which are available on our website, www.ferroglobe.com. In addition, this discussion includes reference to EBITDA, adjusted EBITDA, gross debt, net debt, 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. During today’s call, we will first review the highlights for Q2 as well as our business and operations environment. I then will provide some additional details on our financial performance and key drivers behind our results. Finally, we will provide an update on the strategic plan. I would now like to turn the call over to Marco Levi, our Chief Executive Officer. Next slide, please.

Thank you Beatriz. Good morning, afternoon, evening to everyone. Before we get into some specifics for the quarter, I want to acknowledge the continued hard work and dedication of our employees around the world. The threat of COVID-19 continues to impact each of our employees and we are taking every measure possible to ensure a safe work environment. We are fortunate that our employees have not had any serious illnesses to date and that the 14 individuals who had contracted the virus have fully recovered. Furthermore, we can confidently and proudly claim that none of these cases were contracted in the workplace. We thank our workforce globally for their resilience and commitment, and they have come together during these trying times to drive the company forward. Our ability to successfully navigate COVID-19 has been in large part due to the efforts and execution of our crisis management team. We assembled this team in the early days of the pandemic. It serves as an effective forum for various functional areas such as commercial and procurement to voice concerns on a real time basis. This facilitates communication and helps us find quick solution as issues arise. Overall, Ferroglobe is making progress on various operational, financial, and strategic initiatives, acting with determination and urgency to deliver safe and healthy operations, improve stability, and we anticipate a return to profitability. The strong recovery in the second quarter’s financial results is a testament to our success in implementing recent initiatives. By diligently executing on the items within our control, we have adapted to a fluid environment and continue to make progress operationally and financially. During the second quarter, we have realized higher average prices across all the product categories. We have expanded margins, returning the company to a positive quarterly EBITDA, improved working capital, and…

Thank you Marco. Beginning with Slide 10, sales of $250 million during Q2 were 20% lower than the $311 million of sales in the prior quarter. This decrease in sales was driven by a 24% decline in sales volumes partially offset by a 7% increase in the average selling prices. The decline in volumes was felt across all three product categories. During the quarter, our cost of sales declined by 37%, resulting in a gross margin excluding D&A of 39%. This was an improvement of 17% over the prior quarter where our comparable gross margin was 22%. The cost of sales improvement in Q2 was primarily attributable to lower energy costs, particularly in Europe, as well as lower cost of manganese ore. Other operating expenses decreased by $3.6 million to $35.9 million in Q2, a decline of 9%. The decline in other operating expenses was a result of lower commercial expenses due to slower volume activity. The Q2 operating loss before adjustments was $5.5 million, an improvement of $42.8 million in the prior quarter driven by lower cost of sales, staff costs, and other operating expenses as well as higher other operating income. Adjusted EBITDA was positive $22.4 million, an improvement from negative $17.6 million in Q2. Adjusted EBITDA margin improved by 14.6% to 9% in Q2. Slide 11, please. The sequential improvement in adjusted EBITDA quarter-over-quarter is attributable to a few key factors. Cost improvements contributed $16.3 million. Marco covered the key drivers of the cost improvement during his review of the three product categories. Atypical activity contributed another $10 million to the quarterly EBITDA. In Q1, we incurred several expenses related to the capacity reductions across the platform. This quarter does not have the same drag and so $3.3 million is attributable to productivity tied to operational adjustments.…

Thank you Beatriz. Now turning to Slide 18, please. Finally, I want to provide an update on our strategic plan. As a reminder, in our prior call we highlighted that we were working alongside a premier consulting company to conduct a deep review of our business with the objective of identifying process improvements and operational changes that will drive efficiency and enhance the economics of the business on both the revenue and cost sides. We approached this project with a clear goal: to identify the value creation levers that are going to accelerate the company’s return to profitability and create a Ferroglobe which becomes the global reference for silicon metal and the ferroalloys we produce. As we look back at recent trends and market activity, it is clear that the competitive environment today is different than just a few years ago. We have seen new market entrants, a change in trade flows, and have experienced shockwaves like the one we are currently facing with the pandemic. This has enforced the need to transform Ferroglobe to ensure that the business is flexible operationally and resilient to market changes in order to drive profitability through the cycle. The new strategic plan has a series of specific initiatives identified for the next three years. As we successfully execute on this plan, we aim to meet the following targets. On the top line, we think that revenue can be increased by $175 million. This increase is not dependent on a recovery in volume and pricing. I will explain a bit more shortly. We set targets to improve EBITDA by an incremental $150 million and we will continue improving our working capital, which will contribute $70 million to cash. How are we going to do this? When we initiated this project, we took an unbiased…

[Operator instructions] Our first question comes from the line of Nick Jarmoszuk with Stifel. Your line is open, please go ahead.

Hi, good morning. Thank you for the update on the strategic plan. A couple questions on Slides 18 and 19. First one is with the footprint and product optimization, is there any capex that’s needed to upgrade assets, and are there any environmental reclamation liabilities that are triggered from this plan as well?

Well, regarding capex, there will be expenses related to some labor cost but no major capital investment. We have not factored any potential remediation costs in any of these activities, excluding one case that I prefer not to mention at this stage.

Okay. So over the next three-year period, how can we think about what maintenance capex levels will be?

Yes, we already answered this question in the past. We expect to increase our capital spending from the current rate to a rate of $70 million, $75 million per year.

Okay, and then in terms of thinking about the working capital improvement of $70 million, you’re also going to have the top line improvement which is going to require investment, so is that $70 million improvement a cash benefit that is reflective of the strategy versus how much working capital would have been required for the growth in revenue? Does that question make sense?

It makes sense. Beatriz can clearly reply to you.

Yes, so as part of the strategy exercise, we plan to reduce the working capital as a percentage of our sales, so it means that effectively this $70 million that you mentioned will come through a cash release along our strategy exercise. This will be a mix of--a combination of efforts between inventories, mainly obviously, but as well an improvement in our accounts receivables and our accounts payable, so it will be a combination of the three items within the working capital.

But as the top line grows, there will be a net working capital investment nonetheless, correct?

Exactly, but as a percentage of sales, this will be reduced, yes.

Okay. Then earlier in the presentation on Slide 8--I’m sorry, Slide 7, how should we think about the price sensitivity in the silicon alloys to what’s happening in the spot market?

I missed the last part of the question.

I’m asking what’s the pricing sensitivity to the spot market.

To the spot market? Well, in our case we have part of our business under contracts and part of the business is spot. What we have noticed in the last quarter is an increased amount of transactions based on lower volumes, so a much more erratic order path that has of course impacted the average price of these alloys.

So of the book, how much is contracted versus spot?

We do not report this number.

Okay, all right. Last question regarding some of the capital market activities, what amount of cash can we think about being released with the new AR program?

We’ll not be releasing this information, but obviously we’ll do that on due course as soon as we close the transaction.

Okay, that’s all I had. Thank you for the time.

Thank you. Our next question comes from the line of Brett Levy with [indiscernible]. Your line is open, please go ahead.

Hey guys, good quarter. When you say $150 million, I want to know from what quarter is--you know, if it was the first quarter, which was like negative 5 annualized, that would get you to a lower number. If you took $22 million annualized, now you’re at $88 million and you add 150 million to that and it’s really quite spectacular, so I just want to know sort of 150 million from what quarter.

Well, 150 is the cushion on a yearly basis, so we plan to add a cushion of $150 million of EBITDA on a yearly basis, and then we’re going to have ups and downs, like typical of a cyclical business, but what we want to prevent is the situation where we end up delivering negative EBITDA, so we want to establish a cushion of 150 million on a yearly basis.

Okay, so again, there’s got to be an EBITDA overall target, so again I just--you know, first quarter was negative and second quarter was quite positive. I guess the question would be are you targeting to have total EBITDA of more than $150 million?

Absolutely, absolutely. If you look at the cycle of our EBITDA, we have been delivering between minus 37 to plus 230, what I can recall in terms of numbers, and to these numbers you have to add the 150.

Okay, I see, so it would be kind of an average of those or something?

Yes.

All right. Then it’s one of those things, when you hold your conference calls through the quarter, I know you’re facing headwinds in manganese, but for some of your other metrics as you’re progressing with your strategic plan, are you still tracking positively?

Well, we do not comment on the current quarter. All we can see is a sort of stabilization of the manganese ore price in the recent weeks. This is what everybody can track.

What I’m asking you really is, are you making good progress on your working capital and cost cutting efforts in the third quarter as well?

Well, we have started the implementation of the execution plan as we speak, and like I said, my time horizon to achieve what I consider ambitious but achievable targets, it will take three years.

All right. Then the last one, I know you’re negotiating a new bank agreement and you’ll talk about it when you get it, but--and I think you’re seeking a lot of flexibility and better terms, but your bonds are trading at a steep, steep discount. Would one of the terms that you seek to negotiate would be the ability to buy back bonds at a discount?

What we are aiming on the discussions with regards to the bonds is to gain--is to extend the maturity, as we discussed on previous calls. We are looking to all the options, but we are prioritizing maturity, the extension of the maturity.

And are there negotiations ongoing with bond holders?

I cannot disclose anything at this point.

I got you, all right. Yes, I was going to say, you’ve got quite a maturity wall coming up, kind of by the end of your implementation of the plan. If you could extend maturities, that would be very positive. That’s it for me. Thank you guys.

Thank you.

Thank you.

Thank you. I’m showing no further questions. I would like to turn the conference back over to Marco Levi for any further remarks.

That concludes our second quarter 2020 earnings call. As I mentioned at the beginning of the call, this quarter’s performance is certainly trending in the right direction; however, we have much more work to do, especially with regards to execution of our new strategic plan. I am confident that the actions we are currently undertaking along with the new initiatives which are being developed as part of our strategic plan will help us get there and ensure a stronger, more competitive Ferroglobe. 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 participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.