GrafTech's Focus on Cost Management and Market Outlook for Improved Financial Performance
2023-07-30
GrafTech, a financial company, recently held a call meeting with its top executives and analysts to discuss the company's performance and address investor concerns. The meeting outcome revealed the company's strong focus on cost management, as it actively evaluates raw material sources, qualifies new suppliers, and drives costs out of the business through its procurement technology teams. The operating teams are also working on reducing scrap and waste in the production process and identifying opportunities to decrease usage levels of key variable cost elements.
One of the most interesting points discussed in the meeting was the company's anticipation of a decline in market pricing for certain key elements of its cost structure, such as energy and decant oil, in the medium to long term. With an expected increase in capacity utilization and sales volume returning to more normalized levels in 2024, GrafTech is optimistic that its cost per metric ton will significantly improve beyond the current year.
This focus on cost management is crucial for the company's financial performance, as it aims to improve profitability and overall financial health by reducing costs and optimizing operations. It demonstrates the company's proactive approach to managing expenses and ensuring long-term sustainability.
In terms of the market outlook, GrafTech is focused on cost management and anticipates a decline in certain cost elements. With an expected increase in capacity utilization and sales volume, the company is optimistic about improving its cost per metric ton. In the first quarter, the company generated $25 million of cash from operations and $3 million of adjusted free cash flow. It maintains a gross debt-to-adjusted EBITDA ratio of 2.4 times and a total liquidity of approximately $462 million.
During the meeting, the key drivers of the business for GrafTech were highlighted, including cost management, market pricing, capacity utilization, sales volume, cash flow, debt-to-EBITDA ratio, liquidity, capital allocation strategy, industry tailwinds, steel industry's shift to electric arc furnace steelmaking, graphite electrode demand, and petroleum needle coke demand. The company is actively focused on reducing costs, evaluating raw material sources, and qualifying new suppliers. It also expects market pricing to decline for certain cost elements. GrafTech anticipates an increase in capacity utilization and sales volume, which is expected to improve its cost per metric ton. The company is closely managing working capital levels and maintaining sufficient liquidity.
Regarding the company's plans for products and services, GrafTech is studying the EV anode battery side and developing a better understanding of the opportunities and how it might participate. However, no firm commitments have been made yet, and there is no specific timeline or milestones mentioned for the commercialization or earnings contribution from their endeavors in this area. Additionally, the company aims to achieve production levels at Saint Marys to de-risk its pin supply chain, with volumes produced based on market conditions. GrafTech also mentions the potential use of its graphite products in the EV supply chain, particularly in North America, as domestic use of graphite products is encouraged.
The competitive landscape in the industry is evolving as GrafTech focuses on sustainable competitive advantages and meeting the needs of electrode customers. The company has a competitive edge with three high-capacity electrode manufacturing facilities and substantial vertical integration into petroleum needle coke. It is also exploring opportunities in the electric vehicle market, leveraging its assets and technical know-how to meet the expected demand growth. This could involve expanding existing facilities or partnering with third parties. Additionally, GrafTech aims to leverage its graphitization resources and knowledge to produce synthetic graphite, further expanding its competitive position.
Looking ahead, GrafTech's outlook for the quarter and year indicates that the first quarter of 2023 will be the lowest point in terms of sales volume and cost per ton. This is expected due to the residual effect of a suspension in late 2022, a shift in revenue mix, higher costs, and softness in graphite electrode demand. However, the company anticipates gradual improvement throughout 2023 and further acceleration in 2024. It remains cautious about the softness in graphite electrode demand and expects continued weakness in this area.
For 2023, GrafTech's capital spending plans are expected to be in the range of $55 million to $60 million. These investments will support growth, including the restart of the St. Marys operations. The company aims to maintain sufficient liquidity while making targeted investments and expects to be free cash flow positive for 2023.
In conclusion, the recent call held by GrafTech provided valuable insights into the company's focus on cost management, market outlook, product/service plans, competitive landscape, and future projections. With a proactive approach to reducing costs and optimizing operations, GrafTech aims to improve its financial performance and ensure long-term sustainability in a rapidly evolving industry.