Edited Transcript of EAF earnings conference call or presentation 6-Feb-20 3:00pm GMT

The improvements we've made at safety are also indicative of the trade we're doing ought motivate continual improvement across the company. This continued improvement -- continual improvement trade extends across the complete business.

Now turning ought glide 5 during more above 2019 results. GrafTech delivered favorable Q4 '19 results, including quarterly net allowance of $175 million, which led ought complete year net allowance of $745 million.

The company also generated complete year EBITDA of above $1 billion and release cash flow of above $740 million during we managed softer impartial conditions.

The state Steel federation reported 2019 global steel production, excluding China, was down slightly compared ought foregoing year. Graphite electrode inventories linger elevated during many customers, besides we're seeing early evidence that destocking is running its course. We persist ought wish Graphite electrode inventory destocking along the first half of the year. We wish inventories ought reject and conditions ought improve during we impress into the backward half of 2020.

We trust steel manufacturing difficulties are short-term trends that will trade themselves out above time. Longer term, EAF steelmakers persist ought receive impartial fragment from integrated producers during evidenced by the new electrical arc furnace builds were seen at the United States. And during a reminder, GrafTech continues ought advantage from substantial vertical integration with low-cost, high-quality petroleum needle coke and from our long-term contracts.

Turning ought glide 6. GrafTech has sold almost 2/3 of our cumulative ability via long-term take-or-pay contracts. These contracts supply profitability and visibility of earnings. during you know, certain of our customers cause filed during bankruptcies and other customers are experiencing some econmic difficulties. With both developments, we wish ought collision contracted sales volumes ought a arrange moving forward. at response ought this, along with some variability permitted within certain LTA provisions, we cause adjusted our 2020 estimate shipments of volumes.

Now I'll go it above ought Quinn above glide 7 during more detail above our quarterly econmic results.

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Quinn J. Coburn, GrafTech International Ltd. - VP, CFO & Treasurer [4]

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Okay. Thanks, Dave. Fourth area 2019 econmic results linger firm despite some softening -- despite some of the softening impartial conditions that Dave spoke ought earlier.

Fourth area net sales of $415 million were at queue with the sequential area besides down from a year ago chiefly owing ought lower volumes. We persist ought code produce ought exist more at queue with recent sales volumes cottage maintaining price performance.

During the fourth quarter, we produced and sold 41,000 metric tons. ask is expected ought rebound somewhat at the second half of 2020, at queue with the ordinary steel impartial cycle and during customers trade along inventories. almost 80% of our fourth area revenues were from customers with long-term agreements.

Long-term career pricing was relatively stable. at Q4, non-LTA pricing was down compared ought Q3 2019. Based above bookings ought date, we wish ought growl on additional declines at the first area of 2020. This quarter, we discontinued disclosure of weighted medium realized pricing during competitive reasons. We will persist ought supply the revenue footnote ought our econmic statements at our SEC filings.

Turning ought glide 8 during econmic results. Fourth area 2019 net allowance totaled $175 million or $0.61 per diluted share. Q4 2019 adjusted EBITDA of $235 million declined from the foregoing year epoch owing ought lower sales volumes and higher raw materials costs, specifically third-party petroleum needle coke costs.

Fourth area 2019 release cash flow of $200 million was approximately at queue with the foregoing year during favorable working main changes offset lower operational results. during a reminder, Q1 tends ought exist a relatively mean release cash flow area owing ought timing of certain annual cash impose payments.

Turning ought glide 9. GrafTech has a sound pursue record of release cash flow generation. at 2019, GrafTech generated almost $750 million of release cash flow.

In condition of uses of cash, almost half our release cash flow, or $360 million, was returned ought shareholders along dividends and fragment repurchases. We also repaid $350 million of debt during that time. Shareholder returns and debt repayment linger the key priority during uses of cash.

Turning ought Page 10. Since our IPO, we cause reduced debt by 18% and repurchased almost 11% of our shares noted during of year-end. Given our sound release cash flow generation, we view fragment repurchases during a highly accretive employ of cash. at 2020, we wish ought persist ought concentrate above shareholder returns and debt repayment. We project ought employ almost 50% ought 60% of our cash during debt repayment with the balance earmarked during shareholder returns.

Now turning ought glide 11. at 2020, we wish main expenditures ought exist at the $60 million ought $70 million range, at queue with 2018 and 2019, allowing us ought allege our high-quality, low-cost asset base. main expenditures are focused above high-return, quick payback projects ought reduce operating cost, enlarge productivity and ripen products that our customers value. at addition, we will persist ought invest at health, safety and environmental performance.

Shareholder returns are expected ought embrace chiefly our normal quarterly dividends and fragment repurchases. Our normal quarterly dividend rest unchanged. We also cause almost $79 million of our previously announced $100 million blank impartial fragment repurchase program remaining. We completed $11 million of the blank impartial fragment repurchases at 2019 and cause repurchased a farther $10 million consequently distant this year. The timing of future fragment repurchases will depend above fragment price, trading volumes and other impartial conditions.

We persist ought code our debt levels ought align with the visibility that we cause ought our release cash flow. We repaid $225 million of debt at the fourth area of 2019 and anticipate making farther debt repayments at the years ought come.

I'll now go it backward ought Dave above glide 12.

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David J. Rintoul, GrafTech International Ltd. - President, ceO & Director [5]

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Thanks, Quinn. The long-term expectation during EAF steelmaking growth rest strong, and we trust GrafTech is robust positioned ought advantage from that growth. electrical arc furnaces forge up almost 30% of global steel production, and that fragment is expected ought persist ought cause above time. electrical arc furnaces are advantaged relative ought integrated mills owing ought their elastic price structure, lower main intensity and improve environmental performance. at addition, GrafTech's vertical integration into petroleum needle coke offers a competitive advantage during needle coke ask from electrodes and electrical vehicle batteries persist ought backward long-run needle coke pricing.

With low-cost, vertical integrated produce and a commercial tactic focused above long-term impose and quality, we wish ought persist ought generate meaningful cash flow -- release cash flow and are committed ought deploying that cash during shareholder returns and balance sheet improvement.

This concludes our prepared remarks. We will now blank the summon during questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first puzzle comes from David Gagliano with BMO main Markets.

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David Francis Gagliano, BMO main Markets Equity investigation - Co-Head of Metals & Mining investigation and Metals & Mining Analyst [2]

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Okay. Great. I impartial had a little above the modern impartial conditions and the alter at the career position. First puzzle is what are the plans during the displaced 12,000 tons during 2020?

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David J. Rintoul, GrafTech International Ltd. - President, ceO & Director [3]

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So we cause the commercial department working difficult above attitude opportunities that we conceive will exist available ought us.

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David Francis Gagliano, BMO main Markets Equity investigation - Co-Head of Metals & Mining investigation and Metals & Mining Analyst [4]

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Okay. consequently the project -- okay. consequently somewhat related, I guess, can you give us a sensation during ought what your expectations are during complete year 2020 sales volumes?

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Quinn J. Coburn, GrafTech International Ltd. - VP, CFO & Treasurer [5]

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Sure, David. It's Quinn. during we indicated final quarter, our utilization has been down above the past combination of quarters, and we used to persist ought wish that utilization ought exist down at the first half of next year. during we indicated at our prepared remarks, we carry out wish a recovery at the second half of next year. And one worry I used to note, during we've noted previously, Q1 does nurse ought exist our weakest area of the year, consequently we used to anticipate that again this year.

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David Francis Gagliano, BMO main Markets Equity investigation - Co-Head of Metals & Mining investigation and Metals & Mining Analyst [6]

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Okay. And then I'll impartial test one more. above the pricing, I know competitive reasons. besides obviously, it's a few challenging without any friendly of visibility above where the impartial is other than random news points out of China and other places. can you give us a sensation during ought where -- impartial a hill or something during ought where you growl on attitude prices currently during your market?

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Quinn J. Coburn, GrafTech International Ltd. - VP, CFO & Treasurer [7]

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Sure. hire me speak ought that during a second. Yes, consequently during you noted, we did interval giving prices during competitive reasons. during you know, it's no a practice at our industry. none of our competitors give the pricing. We'll cottage announce the sales volumes each quarter, and we'll also announce the other revenue disclosures that we've published at the past.

We mentioned that 80% of our revenue this area was from long-term agreements. We had almost 4% from byproducts and other revenue, and the break was attitude and short-term agreements. consequently that's the news that we've typically given at our footnotes, and we'll persist ought give that news going forward. With that information, you ought exist capable ought acquire a rational opinion of where we were.

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David Francis Gagliano, BMO main Markets Equity investigation - Co-Head of Metals & Mining investigation and Metals & Mining Analyst [8]

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Okay. What was the career price that flowed through?

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Quinn J. Coburn, GrafTech International Ltd. - VP, CFO & Treasurer [9]

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Sure. The career price was $9,900. That was the medium price during the year, and it was similar during Q4.

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David Francis Gagliano, BMO main Markets Equity investigation - Co-Head of Metals & Mining investigation and Metals & Mining Analyst [10]

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Okay. Great. That's helpful. And then impartial one final puzzle from me. I apologize. impartial the -- obviously, the alter at 2020, the reduction at the contracted positions. can you give us a sensation during ought how much is left at condition of exposure during the remaining career book during 2020, 2021 and 2022 at this point?

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David J. Rintoul, GrafTech International Ltd. - President, ceO & Director [11]

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I conceive the table above Page 5, I trust it was, gave an symptom -- think me, Page 6, gave an symptom of our estimate during this year and the following 2 years that are left above the LTAs, Dave.

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David Francis Gagliano, BMO main Markets Equity investigation - Co-Head of Metals & Mining investigation and Metals & Mining Analyst [12]

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Understood. Well, I guess I'm assuming you're referring ought the estimated take-or-pay shipments with the block table that says 130, 125 and 117? And...

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David J. Rintoul, GrafTech International Ltd. - President, ceO & Director [13]

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That's correct.

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David Francis Gagliano, BMO main Markets Equity investigation - Co-Head of Metals & Mining investigation and Metals & Mining Analyst [14]

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Okay. And what I'm wondering is how much of those volumes carry out you -- used to you speak are at danger of being renegotiated alike we impartial saw?

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David J. Rintoul, GrafTech International Ltd. - President, ceO & Director [15]

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Well, consequently look, we've estimated, and that's what that table indicates, where we trust we are at. And we will persist ought bug the status going forward. besides at this point at time, that's our best estimate of where the -- this year and the next 2 years will carry us.

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Operator [16]

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Our next puzzle comes from Alex Hacking with Citi.

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Alexander Nicholas Hacking, Citigroup Inc, investigation fragment - Director [17]

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I guess following up above Dave's question, during your friendly of attitude volumes reset into 2020, where carry out you estimate medium attitude price is going ought exist at the first quarter, right? We're at the center of Feb now, consequently I conceive you cause a beautiful good sensation of that.

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David J. Rintoul, GrafTech International Ltd. - President, ceO & Director [18]

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Well, I conceive during Quinn referenced, we saw reject at 2019 at attitude pricing that equated ought approximately 25%. We carry out wish ought growl on a farther reject at Q1 and carry out cottage cause optimism that during the inventories rebalance themselves along the first half of the year, we'll growl on a recovery at the second half of the year. And I guess at this point, that's almost during distant during we can go.

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Alexander Nicholas Hacking, Citigroup Inc, investigation fragment - Director [19]

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So I guess can you give us any assist quantifying that at the first area consequently that we can effectively xerox what revenues are going ought be? Or you impartial don't anticipate ought controversy further?

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David J. Rintoul, GrafTech International Ltd. - President, ceO & Director [20]

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Well, I conceive during Quinn referenced, we acknowledge from competitive reasons what we ought and possibly ought no disclose at this point at time. And I conceive with that at mind, the guidance we've provided here at this summon is almost during -- is during distant during we're going ought go, Alex.

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Alexander Nicholas Hacking, Citigroup Inc, investigation fragment - Director [21]

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Okay. exhibit enough. I guess another question. And I don't know, you energy no reply either. besides during we conceive almost your third-party needle coke at 2020 versus 2019, how ought we conceive almost the cadence there year-on-year?

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Quinn J. Coburn, GrafTech International Ltd. - VP, CFO & Treasurer [22]

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