Globe Specialty Metals' CEO Discusses Q4 Results - Earnings Call Transcript

Globe Specialty Metals, Inc. (GSM)

Q4 2012 Earnings Call

August 21, 2012 09:00 am ET

Executives

Malcolm Appelbaum - Chief Financial Officer

Jeff Bradley - Chief Executive Officer/Chief Operating Officer

Analysts

Ian Zaffino - Oppenheimer & Company

Martin Engler - Jefferies & Company

Ian Corydon - B. Riley & Company

Richard Garchitorena - Credit Suisse

Phil Gibbs - KeyBanc Capital Markets

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Globe Specialty Metals scheduled Fourth Quarter Fiscal 2012 Earnings Investor Call for August 21, 2012.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Malcolm Appelbaum, Chief Financial Officer and Mr. Jeff Bradley, Chief Executive Officer.

I would like to turn the call over to Mr. Appelbaum. Please begin.

Malcolm Appelbaum

Good morning. I am going to read a brief statement and then hand it over to our CEO, Jeff Bradley.

Statements made by management during this conference call that are forward-looking statements are based on current expectations. Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Globe's most recent SEC filings and the exhibit to those filings. Jeff?

Jeff Bradley

Good morning. Thank you for joining us on the call this morning. I'm pleased to report that our fiscal 2012 was a record year for earnings.

Net income for the year was $54.6 million and EBITDA was $129.1 million. For the fourth quarter on a comparable basis net income increased 4%, and EBITDA was up 10% to $32.5 million versus Q3. These improvements coupled with our outlook for the future led our board of directors to approve a 25% increase in the annual dividend to $0.25 a share from $0.20 a share last year.

This is the third consecutive year of dividend increases since our IPO on NASDAQ in 2009. We continued in the quarter our unending focus on driving out cost from our business. This quarter we saw the positive impact of our many cost reduction initiatives. Costs were down from the last quarter in almost every one of our plants by an aggregate amount of more than $4 million and we also had a significant reduction in working capital as we focused on inventory turns and other such working capital metrics.

In the last quarter, on June 13 th, we acquired a 51% interest in Quebec Silicon LP. The total net cash break was $34 million, which is approximately a third of the cost to build a new plant with much less risk and in much less time.

Although the plant and its operations require a certain improvements, this facility is one of the most modern silicon plants in the western world and the only silicon metal producer in Canada. With this acquisition, Globe is now the only merchant silicon producer in North America. We have identified numerous opportunities to improve the operation and we will implement them over the next six to nine months.

We selected one of our strongest and most experienced silicon production managers to assemble and lead a team of some of the best skilled operations people in the company to drive improvements at the plant. They each have specific areas of expertise, and are on the ground early on the first day working with the production people to implement overall operational improvement initiatives.

These changes should lead to improved efficiency at the furnaces, lower labor costs and increased output. In addition to this, we have already seen improvements in the performance of the furnaces with the addition of our specialty low ash Alden coal. Our Alden coal operation is now meeting expectations and contributes meaningfully to our costs and silicon operations.

Silicon sale for the balance of 2012 continue to be steady driven by demand from the chemicals, aluminum and solar markets we serve. The outlook for the steel industry, the end-market for our ferrosilicon is trending positively and strong demand from auto and energy sectors are fueling steel consumption in the U.S. Demand for our specialty alloys sold to foundries continues to grow as the U.S. automotive demand remained strong.

We remain optimistic about the markets for our silicon metal, silicon alloys, silica fume and specialty low ash coal. We are seeing early signs of increasing demand in many end markets as some of our customers request more supply than anticipated. We will continue to drive operating initiatives in order to improve productivity, lower our costs, and increase cash flow.

In closing, as always, we will continue to pursue accretive growth opportunities that will enhance shareholder value. Mal?

Malcolm Appelbaum

Thank you, Jeff. We have a few financial related slides, which you'll view automatically if you are listening to the call through our website. Just click on the maximize button on the bottom of the window to expand the slide to full screen, otherwise the slides are posted in the events and presentation section of our website www.glbsm.com.

EBITDA on a comparable basis for the fourth quarter increased 10% over the third quarter, primarily due to higher shipments and reduced cash production cost partially offset by an expected modest reduction in average selling prices.

Silicon metal shipments increased 17% in the fourth quarter for a total of 5,100 metric tons over the third quarter with approximately half of the increase coming from the timing of customer shipments and half from the newly purchased Quebec Silicon. Silicon based alloy shipments increased 2% in the quarter.

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