Ferroglobe PLC (GSM) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ferroglobe Fourth Quarter 2017 Earnings Investor Conference Call.

(Operator Instructions) As a reminder, this conference call may be recorded.

I will now turn the conference over to CFO, Joe Ragan.

You may begin.

Good morning, and thank you for joining the Ferroglobe Fourth Quarter and Calendar Year 2017 Conference Call.

I'm going to read a brief statement and then hand the call over to Pedro Larrea.

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 Ferroglobe's most recent SEC filings and the exhibit to those filings, which are available on our web page, www.ferroglobe.com.

In addition, this discussion includes 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.

Now I'll turn the call over to Pedro Larrea, our CEO.

Good morning, everyone, and thank you for joining us on the call today.

2017 was an exceptional turnaround year for Ferroglobe, and we're thrilled that the business has performed according to our expectations through Q4.

Ferroglobe is the strongest it has ever been, both operationally and financially.

The road to this point has not been an easy one because of the market conditions we encountered after the company was formed, but our disciplined approach has paid off.

The company returned to profitability and to a sound financial situation through a strong and consistent execution of a well throughout -- thought-out action plan.

From our solid and diversified platform, the acceleration of our cash flow generation will take us from the recovery phase in 2017 to further growth in 2018.

Now let's move forward and go into more detail.

Next slide, please.

Q4 performed as expected, finishing a consistent performance all along 2017 with results that continue to improve and confirm the recovery from 2016.

We posted a quarterly net profit of an -- on an adjusted basis and delivered a significant increase in earnings for Q4.

In Q4, we delivered a 3.7% increase in revenues versus Q3, 2.1% decrease in adjusted EBITDA versus Q3, net profit of $32.1 million with an adjusted net profit of $11.1 million compared to $9.2 million for Q3.

Volume recovery, coupled with increases in average selling prices across most core products ensured performance for Q4 was as expected.

EBITDA margin was slightly lower by 70 basis points at 11.7% for the fourth quarter compared to 12.4% for the third quarter of 2017 due to some seasonal and one-off cost increases.

We believe that this recovery trend is the result of a well-thought-out approach to respond to the market dynamics by, on the one hand, ensuring a focused commercial strategy and, on the other hand, adopting flexible industrial operations by optimizing our production facilities.

Next slide, please.

2017 has represented a continuous and sustained recovery.

In Q4, you can see that strong revenue contributions from silicon metal and silicon-based alloys more than offset a modest revenue decrease in manganese-based alloys due to lower shipments in the quarter.

These 3 product areas have contributed differently to our revenue growth over the fourth quarter with silicon metal increasing 5% over the prior quarter while silicon-based alloys increased 11% and manganese-based alloys decreased slightly by 2%.

In addition, our vertical integration and diversification of product mix uniquely positions us to benefit from market fluctuations, and it is this business agility that has and will continue to sustain us and fuel our growth.

Similarly to last quarter, our revenue contribution is diversified across our 3 primary products with silicon metal still the largest contributor at 43%, followed by silicon-based alloys at 26% and manganese-based alloys at 21%.

Other products make up the remaining 9%.

Our 3 main product families are now providing nearly equal contributions to EBITDA, which allows us to maximize opportunity due to improved prices and ensure a more balanced and diversified business mix.

However, these products serve an even more diverse group of growing end markets, with silicon metal used for aluminum, silicones and solar products while manganese-based alloys are used for steel and silicon-based alloys for different grades of steel and foundry.

Next slide, please.

Turning to discuss our sequential contributions to sales growth in the fourth quarter of 2017, sales were $468.2 million, up 3.7% from the previous quarter.

Selling prices for Ferroglobe's key products continued to improve over the course of the quarter and the fiscal year across both North America and Europe.

Both silicon metal and silicon alloys prices and volumes -- and volume improvements were a key driver in the quarter.

Silicon metal experienced a significant improvement, driven by strong demand.

Manganese-based alloys showed a slight decrease in volume due to plant outages in one of our production plants in Spain.

Our ability to optimize our core product mix based on price and volumes in an agile way and sound sales approach ensured we delivered quarter-over-quarter growth while protecting our margins.

Next slide, please.

On the next 3 slides, we will discuss pricing and volume trends, earning contribution and market observations for each of our key products.

Turning first to silicon metal.

As you can see on the chart, market prices have continuously trended upward over the past several months, and the market continues to move in this direction.

Consistent with this trend, our average selling price increased by 4.7% from the third quarter to $2,440 per metric ton as trade actions and strong demand continued to show their influence.

European prices during Q4 have been gaining positive momentum in light of increased costs and favorable exchange rates in different locations worldwide, particularly China.

We have seen a stabilization of demand and volumes across our core products with silicon metal experiencing a 0.4% increase compared to Q3.

We are now at shipment rates, almost 85,000 tons per quarter, that are approaching maximum production capacity.

Increased costs are a reflection of the proactive annual overhauls of several plants in additional to seasonal increase in energy prices in Europe as well as restart costs for Selma.

Both overhaul and increased production capacity will make a positive contribution throughout 2018.

Next slide, please.

Now moving to silicon-based alloys.

The average selling price increased 5.8% from the third quarter to $1,741 per metric ton, higher than at any point in Ferroglobe's records.

Sales volume experienced a 5.3% increase quarter-over-quarter.

Polysilicon prices remain at historically strong levels with European prices 12% higher this quarter following an increase in China pricing.

Steel and foundry industries are performing very solidly all over the world, increasing demand for our silicon-based alloys and tightening the supply-demand balance in all markets.

Next slide, please.

Turning now to manganese-based alloys.

The average selling price for manganese alloys decreased marginally from the third quarter by 0.2% to $1,346 per metric ton, which is still the second-highest level in over 5 years.

Manganese alloys has started to face pricing pressure toward the end of Q2, but have remained basically flat since, while manganese ore prices have been trending up and will lower the margins in the first months of 2018.

Manganese ore prices are continuously increasing, and we expect this trend to eventually reflect in a manganese alloys price increase in the coming months.

Sales volumes were also slightly down 1.7% from the prior quarter due to overhaul in one of our Spanish plants, but has been up across the year.

Our plants are continuing to run at full capacity, and we expect demand to stay strong.

Next slide, please.

Our commercial strategy yielded strong results during the recovery throughout 2017.

It confirms that the difficult decisions we made were the right ones.

We continued to optimize our business platform and reap the benefits of our vertical integrations and diverse product portfolio, which allows us to quickly adapt to a dynamic market.

Some of these activities include optimization of products and facilities and minimizing downtime or conversion of furnaces to capture market opportunities as they evolve.

Whilst adjusted EBITDA had a slight decrease for Q4 of 2.1%, this is not indicative of a threat.

Costs in Q4 were affected by 3 nonrecurrent factors, one-off costs of $5.4 million, mainly due to overhauls in some of our facilities, increased energy costs in Europe and increased manganese ore prices.

Next slide, please.

For the calendar year of 2017 as a whole, we delivered a successful turnaround with 10.5% increase in revenues versus 2016, net profit increased to $20 million versus a net loss of $358.6 million in 2016, a 163.9% increase in adjusted EBITDA compared to 2016.

Our adjusted EBITDA margins more than doubled by 620 basis points to 10.7% compared to 4.5% for 2016.

Our vertical integration and optionality in geography, foreign exchange and product mix affords us excellent business agility, allowing us to capitalize on dynamic changing market forces.

And with the recent acquisitions of 2 manganese alloys -- alloy facilities, we have doubled the size of our manganese portfolio, which will have a significantly positive impact on our business going forward.

We will continue to execute our strategy in a smart and disciplined way, taking a rational sales approach to our primary market.

Our strong performance is driven both by significant improvements in the external environment as well as actions taken by Ferroglobe during the past period.

In the external environment, prices for our key products continued to improve over the course of the year.

In addition to improved pricing, the company saw stabilization of demand and volumes across its core products with our sales price per ton increasing across 3 key products year-on-year from between 3% and 15% for silicon metal and silicon-based alloys, respectively, to 61% for manganese-based alloys.

At the same time, actions across the company taken in these and prior quarters ensured we were able to fully capture the benefits of these trends.

The disciplined execution of our commercial strategy is focused to enhance our profitability.

And in addition to general price recovery, we continue to focus on delivering contracts above spot and index prices.

As a result, we are optimizing our production facility and operating near full capacity utilization.

We will benefit from these capacity restarts beginning Q1 and throughout 2018.

Ultimately, these dynamics will significantly accelerate our EBITDA generation beginning Q1.

Next slide, please.

As previously stated, average selling prices of our core products have shown a significant increase.

This price recovery is the most relevant factor in the excellent EBITDA performance through 2017.

Increased costs in 2017 compared to 2016 were predominantly attributable to manganese ore costs and foreign exchange impact.

Meanwhile, actual operational and SG&A costs were kept under control, even in an environment of increased production and inflationary pressures.

Next slide, please.

As we managed through the cycle in 2016, the company as a whole made a tremendous effort of financial discipline and focus, reducing working capital by almost $100 million that year.

It may be worth remembering that this allowed Ferroglobe to generate positive free cash flow during the downturn.

Once sales volumes from prices have started to recover throughout 2017, it remained a priority to continue to reduce working capital, which we have done by an additional $80 million.

We have achieved this by reducing DSOs through a securitization program to optimize the velocity of working capital.

As you can see at the bottom of the chart, there have been significant improvements in the fixed cost areas of the business around the world.

We have reduced those costs by more than 20% or $140 million since 2015 through the implemented synergies program, sharing of best practices and disciplined capacity management.

Approximately $50 million of those costs reductions correspond to plants that have been idled, and a significant portion of this $50 million will be reinstated as those facilities are being restarted.

With this, let me now turn over to Joe for a review of financials for both Q4 and calendar year 2017.

Thank you, Pedro.

Go to the next slide.

That's Slide 16.

It's important to note that the financial results presented are unaudited and may be adjusted for certain items, including contemplated noncore asset sales.

These items will be properly reflected in the 20-F annual report that we will be filing in April.

With that said, sales volumes was 226,558 metric tons for the fourth quarter, up 1.2% from the third quarter, and net sales were $468.2 million, a 3.7% increase compared to the third quarter.

Average selling price across all products was $0.85 per pound, up on average from $0.82 per pound in the third quarter or 3.7%.

For Q4, we posted a net profit of $32.1 million or $0.19 per share on a fully diluted basis.

On an adjusted basis, our net profit was $11 million or $0.06 per share on a fully diluted basis.

For the year, volume was 883,024 metric tons, down 2.9% from 2016, and net sales were $1.7 billion versus $1.6 billion, up 10.5% year-over-year.

Additionally, for 2017, we posted a net profit of $20 million or $0.15 per share on a fully diluted basis.

On an adjusted basis, our net profit was $21.5 million or $0.13 per share on a fully diluted basis.

We reported EBITDA of $48.9 million for the fourth quarter, down from $54.3 million in the prior quarter.

On an adjusted basis, EBITDA was $54.9 million, down slightly at 2.1% from the third quarter of 2017.

For 2017, we reported EBITDA of $170.9 million, up from a negative EBITDA of $247.4 million in 2016.

On an adjusted basis, EBITDA was $185.8 million, an increase of 163.9% compared to $70.4 million adjusted EBITDA in the prior year.

During the quarter, we continued to adhere to our strategy of optimizing our product mix offset by higher costs, which resulted in an 11.7% EBITDA margin compared to 12.4% for the third quarter of 2017.

For the full year of 2017, we achieved EBITDA margin of 10.7% compared to 4.5% for 2016, an excellent improvement and validation of our strategy and execution.

(inaudible) working capital for Q4 was decreased by $89 million, primarily as a result of implementing the accounts receivable securitization facility.

For 2017, we reduced total working capital by $80.4 million.

We continued to generate positive cash flows with Q4 operating cash flows of $61.6 million and free cash flow of $23.3 million.

Total free cash flow for the year 2017 totaled $82 million.

Next slide.

We ended the fourth quarter with net debt of $386.9 million down compared to $394.3 million at the end of the third quarter of 2017 and $405.4 million compared to December 2016.

Our net debt ratios continue to improve as profitability has increased sequentially.

Next slide.

On this slide, you will see our debt evolution over time.

On a quarterly basis, net debt was down from the prior quarter and currently stands at $386.9 million net and $571 million gross for the fourth quarter, down from $394 million net and $584 million gross, respectively, in the third quarter.

In addition, our debt is down from $405 million net and $601 million gross year-on-year.

We remain committed to continue this trend, reducing our nominal debt balance as well as improving our leverage, which is now slightly higher than 2x [net debt.]

Next slide.

We remain focused on carefully managing our cost structure and ensuring strict control in our operations.

As you can see, we ended the fourth quarter with working capital of $288 million, a significant reduction, while sales increased by 10.5% over 2017.

Next slide.

Before I hand the call over to Pedro, I'd like to quickly reiterate some of the key highlights of our financial performance for 2017.

As mentioned, our adjusted EBITDA increased 163% in 2017 to $185.8 million, up from an adjusted EBITDA of $70.4 million in 2016.

We continued to generate positive cash flows.

During the fourth quarter, the company generated operating cash flow of $61.3 million and free cash flow of $24 million, with total free cash flow of $82 million for the calendar year 2017.

And we continue to maintain our strong balance sheet and reported net debt of $387 million down, compared to $405 million at the end of 2016.

In just one year, we devolved from high leverage levels to around 2x net debt-to-EBITDA.

In addition, this morning, we closed a new $250 million revolving credit facility that matures in 2021 with 2 1-year extension options to maturity.

This is an international facility that completes the recapitalization of the company at the Ferroglobe PLC level.

We remain focused on delivering long-term value to our shareholders in a number of ways and, more specifically, by evaluating business decisions like M&A and CapEx, and pursuing them if they're immediately accretive to Ferroglobe.

As such, we will continue to maintain our conservative capital structure in order to put our company in good position to act quickly on growth opportunities when they are attractive, but also providing flexibility in case of a downturn.

Lastly, we remain committed to pursuing cost improvements through technical performance, portfolio optimization and SG&A streamlining.

Now I return the call back to Pedro for some closing remarks.

Thank you, Joe.

Although the past few quarters, we have been receiving a lot of questions around pricing, given the recovery.

However, it is equally important to highlight the supported trends across our end markets.

Fundamentally, in aluminum and steel, we are seeing similar trends, which support the pull-through demand we are currently experiencing.

When we look at the capacity side of the equation in these end markets, both industry are operating at healthy utilization rates in the 70% to 80% range, in line with historical averages.

This discipline in the market generally results in a favorable pricing environment for a period of time.

The Chinese crackdown on financial noncompetitive and environmentally noncompliant aluminum and steel capacity across the industrial space has also benefited industrial products and in other regions, and we expect this trend to continue.

Our steel and aluminum customers are well-positioned to benefit from changes in regulation.

Another interesting data point, in our view, is inventory levels trend for the aluminum and steel and sectors.

Global aluminum stocks are near a 9-year low while global steel stocks are near a 5-year low.

With the relatively strong global economic backdrop and rationalized production, we expect that there will be a continued pull-through of demand as producers and distributors look to build up stocks, back to historical levels.

On chemicals and silicons, we are seeing a strong North American market.

In Europe, we expect the chemical sector to slightly outpace GDP, which the World Bank forecasts at 2.1% growth in 2018.

Lastly, turning to polysilicon.

And despite the ongoing new trade barriers imposed by both China and the U.S., the fundamentals remain strong on a global basis.

The overall photovoltaic installation projected for 2018 is over 100 gigawatts.

We're seeing a pickup in activity in emerging markets and countries, which are now adopting energy policies focused on renewables.

Overall, our global production footprint will allow us to make the necessary adjustments to capitalize in continued growth in solar as activity in new parts of the world start to accelerate.

Next slide, please.

Overall, we grew positive about the demand fundamentals across our end markets, which are supported by ongoing and emerging mega trends.

Trends such as population growth, urbanization and increasing consumer spending fundamentally drive the demand for the thousands of products where Ferroglobe's metals and alloys are essential.

Additionally, we are excited by developments in areas such as energy efficiency and reliance on technology, which are driving innovation.

As companies try to create solution in these areas, there's an increasing need for new advanced materials.

The growing need for advanced material is probably most supported by favorable supply dynamics globally.

I just mentioned the evolving situation in China with respect to aluminum, steel and other industries.

This is certainly benefiting Ferroglobe's European business across our products, and we expect this trend to continue in China in 2018.

At the same time, there isn't significant new capacity coming online in our industry.

Increased costs in different parts of the world are discouraging new capacity additions and are also placing a floor on the prices of our products going forward.

Some producers are switching overcapacity from one product to another, but our unique position in this industry allows us to take advantage of this trend by optimizing our production portfolio across the different product families.

Next slide, please.

The acquisition of the manganese alloys plants in Norway and France was completed on February 1. This acquisition represents the return of Ferroglobe to its strategy of growth through value-enhancing acquisitions in its businesses.

The acquisition is immediately accretive for Ferroglobe and enhances the value of our business for additional volume and diversification with very limited upfront investment.

The newly acquired plants almost double our production capacity in the manganese alloys business, diversifies our production platform to 3 countries and positions Ferroglobe as one of the most significant players in the manganese alloys and manganese ore markets.

More detail on financial of these 2 plants and on the return of investment will be provided on the Q1 2018 results as we consolidate them in our accounts.

Next slide, please.

In closing, 2017 was an exceptional year for Ferroglobe, and we are thrilled that the business has performed according to our expectations through Q4.

The company returned to profitability through strong and consistent execution of business fundamentals, and our cash flow position is better than ever.

We have taken decisive action in 2017.

We have remained focused on operational excellence and have captured significant cost improvements, and we're committed to continuous improvements through our KTM program.

The entire organization has successfully adapted its mindset to an acceleration in working capital velocity and has been able to generate significant free cash flow, and we have rigorously executed our commercial strategy and continue to work on brand recognition in existing and new markets.

We expect prices to continue to improve in the near future, and we remain focused on effectively capturing this trend.

We are now well into the contracting season for 2018, and we are glad to see that we're being able to communicate to our customers our view of the market evolution.

All in all, we expect a sustained performance across our business as we move into Q1 and Q2 and throughout 2018.

We are glad about the trend of our business, and we remain committed to improving profitability in the short and medium term.

This opens a new exciting period for Ferroglobe.

We now have multiple options to grow our business through technological innovations and new acquisitions and, at the same time, improve our financial strength and contemplate different alternatives to returning value to our shareholders.

All in all, Ferroglobe is back to a trend that will provide multiple opportunities for growth and value to all our stakeholders.

With that, I'd like to open the call up for questions.

(Operator Instructions) Our first question comes from the line of Martin Englert of Jefferies.

So you had detailed about $5.4 million of one-off costs but also called out some other costs incremental to that, such as electricity and ore.

What do you think the total one-off costs were for the quarter, including those items too?

Just the total of those items is around $10 million.

But consider that in Q1, some of that will remain.

So like manganese ore prices are still high, and seasonally, energy prices in Q1 in Europe are also high.

So when you think of Q1 compared to Q4, those may remain at those levels.

So all in all, if you compare Q4 to Q3, you can talk about one-offs that are -- for those 2 items, at around $10 million, but that doesn't mean that necessarily all of them go away in Q1.

Certainly, the $5.4 million one-offs do go away in Q1.

The others, not all of them necessarily.

That's helpful.

And when I think about the full year moving through 2018 and any kind of sustained cost step-ups, can you provide some detail on any anticipated step-ups versus 2017 for items like electricity, electrodes, coal and FX?

Well, I think we've talked a lot about electrodes.

I think electrodes when comparing 2018 to 2017 is going to be several tens of millions of dollars comparing 2018 to 2017.

Then electricity prices, because in Europe they are seasonal and volatile, we still don't know, but there is going to be some impact of power prices in Europe, which could, more or less, replicate what we have had in Q4 at the end of this year.

But again, it depends a lot on a number of factors affecting European power markets.

So that is a volatile number.

And in terms of ore, we see ore -- manganese ore, I mean, manganese ore levels are going to stay pretty much, we believe, where they are today, but we also are very confident that this is going to push manganese alloys prices up.

So in terms of margin, we expect a recovery of margins as we go through 2018.

That's helpful.

And looking at the company's footprint now, if you were to mark to market annual EBITDA run rate on today's spot prices, looking at U.S. silicon at about $1.44 per pound, euro at $1.22, ferrosilicon is pretty high at around $0.80 to over $0.90 per pound, any idea of the range of EBITDA on a mark to market that you could generate with the current footprint and assets?

So Martin, I think you can run those numbers, and we don't provide guidance.

We are -- we're very confident.

We are optimistic about the trend of the business in Q1.

We know what is going on in the market.

As we were saying, demand is strong.

There is rationalization in our end markets.

We see just a wave of good trends, both in terms of volumes and prices in our materials, in our markets, and we remain very confident that the trend is very, very positive for Q1 and going forward.

Our next question comes from the line of Ian Zaffino of Oppenheimer.

Joe, I think you mentioned a lot of M&A maybe with the use of cash.

Where is maybe buybacks or maybe resumption of a dividend fit in, in your thinking?

Well, we certainly -- the board is considering all of the capital allocation alternatives.

We haven't done really significant cash usages from M&A.

So we've done very smart M&A transactions that have been very low in cash levels.

So the board is considering the dividend policy and will let us know.

And then, when you think about buybacks, maybe give us a comment on that.

And then as far as M&A, what are you looking to achieve through M&A?

Is it different alloys?

Is it -- what do you want to kind of do on the M&A front?

I'll take the buyback question, and Pedro can take the M&A.

We are looking at buybacks in the total context of capital allocation.

So as we talk about dividends, which we like dividends, we've been a dividend payer in the past and we've done stock buybacks in the past as well, so we are looking at all those options.

So we'll let you know as soon as there's a decision.

But I'll let Pedro do the M&A and discuss it.

I think we've been very, very clear in the past.

We are a company that has traditionally grown through acquisitions.

We will continue to do that.

We're actively pursuing opportunities all the time.

We have -- we're looking at different alternatives, I would say, on a daily basis.

We are, in principle, restricting ourselves to the industries in which we are already.

We're not looking at diversifying into other industries.

So that is our focus.

But within our industries, we are looking at geographical expansion, and also in some cases, we may be contemplating vertical integration.

Our next question comes from the line of Vincent Anderson of Stifel.

Just a quick point of clarification.

Did I hear correctly that your audited year-end results may see some assets move to a held-for-sale status?

And if so, which assets would those potentially be?

Yes.

We are looking at some of our small noncore assets.

They're just not -- they're not manufacturing facilities.

So it's a small number.

I -- we haven't disclosed that -- those transactions, Vincent.

So I just wanted to let you know that we could move some, but it won't be a very big number.

Okay.

And then, when you look at your 2018 European silicon metal book, how much of your 2018 capacity right now is available to the U.S. market if the economics warrants it?

And on kind of a go-forward basis, how much of your European silicon metal capacity would you consider to be dedicated to that market due to ongoing customer relationships or minimum market share that you'd want to maintain?

And how much could conceivably be redirected elsewhere?

Well, I mean, we are, of course, now expecting very shortly in the coming first days and then weeks of final termination on trade cases in North America, and a lot of what are the regional movements may depend on that.

So I would prefer not to give our views today until we know all the final determinations.

But at the end of the day, we see strong demand across our businesses.

And specifically on silicon metal, I think there's going to be a good news in terms of pull-through of strong demand in our end market.

And we have visibility, which nobody else in our industry has, of allocating our production capacity depending on where are the best opportunities.

We will do that, and we will be running at full capacity.

Now where those tons go, we will see as the markets and the trade cases are clarified.

If I could ask one more, getting maybe a little bit more detail on M&A.

Would you consider an acquisition in the UMG or polysilicon arena if the technology was competitive with what you're developing in-house?

And then switching gears, you mentioned at your Investor Day that China remains a strategic area of interest for acquisition.

Are you currently seeing opportunities develop there as a result of this particularly disruptive winter in terms of assets available-for-sale?

Or is there still too much uncertainty around the precise implementation of environmental controls to be active in China right now?

Wow, that's a lot of questions, so I will try to -- I mean, we -- as I was saying, we're looking into different opportunities, both of expansion geographically in our own businesses and vertical integration.

Would we look at polysilicon production?

It's certainly not one of our priorities, but it is true that we are developing our own polysilicon technology and our own polysilicon production.

So very soon, that will be part of our business, and of course, we will need to be attentive to opportunities in that arena.

It's certainly not a priority for us, but it is something that we would be ready to analyze.

In terms of China, I think the -- what is very interesting going forward in China is whether there is a rationalization of the industry as a whole as it is happening in other industries.

We believe that will happen, and we are analyzing the dynamics there.

Right now, we're looking at nothing specific in China, but we remain, again, just very attentive on what are the dynamics and how that is evolving in the coming years.

And if the time is right, we may be looking at specific opportunities.

As I say, nothing at this point in China that is specifically an opportunity we would be looking at.

(Operator Instructions) Our next question comes from the line of Sarkis Sherbetchyan of B. Riley.

So first, just wanted to go back to the Slide 8 on the silicon metals snapshot pricing trend.

It looks like the indexes for both the U.S. and EU that you displayed for 4Q were above your average realized price.

Can you maybe give us a sense for, if the prices that you're booking into 1Q are above those benchmark rates or not?

Well, I think we have described that in the past.

There's 2 effects that have a -- that drives the -- our average selling price being below the index.

One is the fact that, of course, we booked some fixed price volumes at the beginning of the year.

The other is that some of the indexed contracts are indexed on previous months.

So you would always see a bit of a lag -- a time lag in the price recovery.

As we go into Q1, we see that correcting.

So we will be having average selling price that is much more in line with the indexes themselves as we could say we rebase our pricing to actual pricing.

There will be still a bit of a time lag with some index contracts, but all in all, we will be much more in line with the index.

And then, I think on the last quarter's call, you disclosed securing volumes.

I think it was 60% of your expected sales that were negotiated above then rates.

Can you maybe give us a sense for where that book of business stands?

Is it 60% plus contracted?

Or are you kind of retaining the balance for flexibility in your view of the market?

We -- and it -- I always say it changes a lot from one product to another.

Silicon metal in 2017 was 43% of our sales.

In 2018, it's going to be -- with the acquisition of the new manganese assets, it's going to be more around 35% or so.

So bearing that in mind, if we talk about silicon metal, we have booked or secured a volume that is somewhere around 65% of our -- of total expectation.

Now just a nuance is that because some of those bookings are, let's say for instance, quarterly bookings, if we assume that those quarterly bookings would be renewed in the coming quarters, which is, I would say, a reasonable assumption to some extent, then our bookings would be more around 80%, which we think is a reasonable number.

And we leave some space for additional bookings and for increased prices as we go forward.

The rest of the products are both for silicon and manganese alloys.

They work much more on a quarterly basis, and prices and bookings are more done on a -- I want to say more on a real-time basis than on an annual basis.

That's very helpful.

And as you've discussed the $5.4 million in incremental kind of one-off costs here for the overhaul of the production plants and restarts, et cetera, do you anticipate on some carryover or spillover of these costs for 1Q or 2Q?

Anything that we should expect on that front?

No.

Nothing on that specific front.

Perfect.

And then, I think you mentioned your expectation for a little bit of compression, perhaps, on the manganese business as ore is rising, and then I suppose you expected some price recovery there to then help you on the margins.

Is that something we should expect maybe for the second half of fiscal '18 or earlier?

From -- I mean, we're seeing -- interestingly, we're seeing dynamics that are very similar to what was happening a little more than a year ago, where ore started going up significantly and then manganese alloys followed and then manganese ore actually went down and manganese alloys stayed up there.

We think that it is likely that the dynamics similar to those ones may be happening in this year.

So I would see -- again, as you mentioned, I think you're right, we would see some margin compression in Q1 and Q2, and we expect a recovery in the second half of this year.

Understood.

And finally, on the U.S. trade case.

Any comments here as the hearings have been underway, and obviously, there's some public data that's been filed for those hearings?

So just any comments that you can share on either expectations or just what you're seeing real time?

Well, we've always said this, we -- it is in our view and in our opinion, that is why we filed the cases, we think there was unfairly trade material coming in, in 2016.

We believe the data are strong in that respect.

It is also clear that, that injured the local industry.

We are also very strong and very confident that the argument is solid, and we now need -- we just need to expect the DOC to come with -- the Department of Commerce with final determination, we think, tomorrow; and then, the International Trade Commission in the coming few weeks.

But we are, of course, confident that our arguments are strong.

Our next question comes from the line of Martin Englert of Jefferies.

Just a few follow-up questions here.

Can you remind us of the U.S. and Europe's silicon metal fixed contract exposure?

And any detail that you could provide on how contracts were settling on those in 2018 versus 2017?

Yes.

We are -- and again, talking about silicon metal, around 60% of our sales for 2018 are on fixed pricing.

Now when you look at average pricing for 2017 at $2,200 and something, it's slightly less than $2,300 per ton, and you look at where the indexes are today in silicon metal, I mean, as I was saying, you could be expecting a 2018 sales to be pretty much in line with current indexes, all in all, taking all the different countries index prices, some time lag, et cetera.

So the increased 2018 to 2017 is very significant.

That's helpful.

And then, a couple items on modeling in run rates, expected tax rate through 2018, CapEx, depreciation, amortization and then how your interest expense may look within put -- with the new facility here on the current debt load.

Yes.

31% on the rate for 2018 going to 29% in 2019.

We'll upgrade CapEx of $80 million to $100 million per year, and that's all maintenance CapEx; depreciation should stay around $110 million to $120 million.

Martin, it depends on the step-up value of the acquired manganese assets.

So we don't have that exact number yet for depreciation.

And interest will -- we'll state some more, we weren't drawn on the revolver.

So the new revolver is slightly lower, but we don't think we'll have very high drawn balances.

So that won't really be a big impact for the year.

Okay.

So a similar interest expense run rate as to what we've been seeing in some recent quarters more or less, correct?

That's correct, slightly lower, but similar.

Okay.

And then, any way we should be thinking about allocated to noncontrolling off of the earnings in 2018?

I'm not sure I understood that.

The earnings allocated to noncontrolling interests.

It's similar to -- the production JVs will have similar allocations in 2017.

And I'm showing no further questions at this time.

I'd like to hand the call back over to Pedro Larrea for any closing remarks.

Well, thank you very much, everybody, for listening to us today.

As I was saying, again, we think we are opening a new very exciting period for Ferroglobe, and we look forward to returning value to our shareholders and to all our stakeholders.

Thank you very much again.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude today's program.

You may all disconnect.

Everyone, have a great day.

Bye.