Earnings Call Transcript
Ferroglobe PLC (GSM)
Earnings Call Transcript - GSM Q4 2022
Operator, Operator
Good morning, ladies and gentlemen, and welcome to Ferroglobe's Fourth Quarter and Full Year 2022 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 Anis Barodawalla, Ferroglobe's Vice President of Investor Relations and Corporate Strategy. You may begin.
Anis Barodawalla, Vice President of Investor Relations and Corporate Strategy
Thank you. Good morning, everyone, and thank you for joining Ferroglobe's fourth quarter and full year 2022 conference call. Joining me today are Marco Levi, our Chief Executive Officer; and Beatriz García-Cos, our Chief Financial Officer. Before we get started with some prepared remarks, I'm going to read a brief statement. Please turn to slide 2 at this time. Statements made by management during this conference call that are forward-looking are based on current expectations. 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 exhibits to those filings, which are available on our webpage, ferroglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA, adjusted gross debt, net debt and adjusted diluted earnings per share, among other non-IFRS measures. Reconciliation of non-IFRS measures may be found in our most recent SEC filings. At this time, I would now like to turn the call over to Marco Levi, our Chief Executive Officer. Next slide, please.
Marco Levi, CEO
Thank you, Anis, and good morning and good afternoon to everyone. Before turning to our 2022 results, I would like to recognize our people. It is through their hard work and commitment that we were able to achieve the best performance in our 100-year history. Despite the global volatility and its impact on many industries, we have been resilient and continue to deliver strong results. This is a testament to the strength of our business model. It is also a clear indication of the confidence that our customers have in our ability to navigate through these challenging times. Through a combination of favorable prices, operational agility, commercial excellence, and cost discipline, Ferroglobe generated strong results in 2022 with revenue, EBITDA, and free cash flow, all setting record highs for the company. Our business fundamentals are solid and the value creation plan that was initiated a couple of years ago has made the company stronger and more competitive. The market opportunity for us is driven by the growing trend towards onshoring and the transition to greener energy sources. As a leading producer of silicon metal, we are well-positioned to capitalize on high demand and markets such as solar and battery. The onshoring movement driven by initiatives like the Inflation Reduction Act in the US and similar initiatives in Europe are having a significant impact on the criticality of silicon metal in the solar value chain. This solidifies our position in the market. This is a clear indicator of the growing demand for renewable energy and the increased focus on local sourcing and production. It presents a unique opportunity for a company like ours. We are well positioned to take advantage of these trends and deliver strong results. We are committed to driving a competitive advantage in the solar industry through our state-of-the-art silicon metal technology. Our focus on efficient furnace design, maximizing energy efficiency, and providing access to advanced technologies not only improves our operations but also reduces project risk for our customers. In addition to solar, we also see substantial growth opportunities in the coming years, driven primarily from batteries used in electric vehicles. In the battery market, silicon metal provides significant advantages over graphite, the current standard used in battery anodes, including a dramatic increase in battery capacity and the reduction in charging time. As this technology improves, the industry is expected to see rapid adoption, driving strong growth in silicon metal for the foreseeable future. Over the past two years, we have focused on improving our business efficiency through cost reductions and increased capital efficiency, positioning us well for future growth. The value creation plan that we launched in 2020 has had a transformational effect on our company, not just in terms of how we operate but also in our ability to generate strong EBITDA. As of December 31, 2022, the value creation plan has generated approximately $150 million in cost savings and an additional $40 million in commercial excellence on a run-rate basis. By the end of 2023, we expect to reach our increased target of $225 million. By continually improving our balance sheet and optimizing our capital structure, we are ensuring that we have the resources and the flexibility we need to capitalize on opportunities and navigate any challenges that may arise. We are progressing with our commitment to release working capital. We released $55 million in the fourth quarter, and we anticipate additional working capital release over the next two quarters. These releases combined with EBITDA generation should lead us to become net cash positive during 2023. While there is some uncertainty in the short term, our long-term story is robust. We are confident in our ability to navigate these challenges and remain focused on delivering strong results for our investors. In the fourth quarter, demand for our products decreased due to closures in European steel and aluminum sectors as a result of higher energy prices, which caused our customers to lower their inventory levels. We are seeing early signs of improvement particularly in the automotive and construction sectors, and we expect inventory levels to normalize in the near future, driving demand for our products. I would like to take a moment to highlight the exceptional work of our management team in successfully optimizing our energy costs. Through proactive communication with governments, regulators, energy providers, and customers, we have been able to take advantage of opportunities in France to generate revenues through a compensation agreement with an energy provider in Q4. In addition, we have secured an extremely favorable energy contract, providing low-cost energy for our assets in France for the coming years. We have a management team that is not only focused on delivering strong results but also on finding innovative ways to improve our operations and remain ahead of the curve. Next slide, please. Let's focus on silicon metal. Revenue was $184 million, down from $264 million in Q3, a decline of 30%. Adjusted EBITDA for this segment declined from $130 million in Q3 to $89 million in Q4, down 21%. We have successfully achieved strong margins of over 30%, despite declining prices and production and notable improvement compared to historical levels. This demonstrates our ability to control costs and respond to market demand while preserving margins. Our silicon metal business was down due to a challenging market environment impacting both price and volume. Volume declined 22% sequentially in Q4 to approximately 39,500 metric tons. Our average realized price for silicon metal sales decreased 11% compared to the previous quarter, resulting in a negative impact on EBITDA of $16 million. Costs improved by $23 million relative to the prior year quarter, primarily due to the energy compensation agreement in France and CO2 compensation. However, this was partially offset by the increase in energy costs and raw materials. During the fourth quarter, various aluminum manufacturers in Europe shut down due to high energy prices, resulting in decreased demand for silicon metal. However, we are seeing some encouraging signs of demand for aluminum from the automotive sector. Concerns around the economic outlook in Q4 led to low demand for customers in the chemical sector. We expect this weakness to persist until late Q1 or early Q2. However, we anticipate a rebound for silicon metal due to increased demand for silicones in electronics, medical, cosmetics, and consumer goods. Slide 6, please. Moving to silicon-based alloys. Revenue was $127 million, down 29% over the previous quarter. Adjusted EBITDA for Q4 was $37 million, down 38% from the third quarter. Sales volumes declined 19% over the prior quarter, negatively impacting EBITDA by $9 million, while average realized pricing was down 13% over the same period, negatively impacting EBITDA by $22 million. Costs were favorable relative to the prior quarter, mainly due to energy compensation in France of $8 million and CO2 compensation of $2 million, which was partially offset by higher coal prices in Europe, which amounted to $2 million. The demand for our silicon-based alloys has decreased due to ongoing weakness in the markets, particularly steel used in construction. Additionally, the rise in energy prices in Europe has resulted in continued shutdowns of capacity among steel producers. Europe has seen a significant change in the supply of ferrosilicon due to Slovakia being down and Russia being out of the market. We see a lot of materials coming from Kazakhstan and China negatively impacting the price of non-specialty grades. Our strategy to focus on higher margin specialty and foundry products has enabled us to improve margins compared to commodity grade silicon alloys. Moving to slide 7, let's move to manganese alloys. Manganese-based alloys revenue was $91 million in Q4, down 7% over the previous quarter. Adjusted EBITDA for Q4 was $20 million, up 34% from the third quarter. Adjusted EBITDA and margins showed improvement in the fourth quarter indicating positive momentum after adjusting for earn-out provisions. Sales volumes were up slightly over the prior quarter, having a negligible impact on adjusted EBITDA, while average realized pricing was down 7% over the same period, which negatively impacted EBITDA by $11 million. The cost impact was positively influenced by the energy compensation agreement in France, which amounted to $11 million, and the CO2 compensation of $2 million. The demand outlook remains cautious as a result of weakness in steel. The ongoing conflict between Russia and Ukraine has placed upward pressure on energy costs and caused partial disruption to 1.1 million tons of Ukrainian source materials, but the market has since made up for these losses leading to a decrease in prices. The current spread between alloy and ore is around $700 per metric ton, above the historical average of $550 per metric ton. The Gabon landslide has led to a rise in manganese ore prices, which could potentially cause alloy prices to increase. Now I would like to turn the call over to Beatriz García-Cos, our Chief Financial Officer, to review the financial results in more detail.
Beatriz García-Cos, CFO
Thank you, Marco. I will begin by reviewing the income statement on slide 9. I'm pleased to announce a historic year for Ferroglobe. The strong market combined with the structural improvements from our value creation plan enabled us to generate the strongest annual result in the company's history with record revenue of $2.6 billion and record adjusted EBITDA of $860 million for the year. Revenue for the fourth quarter was $449 million, down 24% from the third quarter. The sequential decline in the fourth quarter was driven by lower volumes and pricing across the portfolio. During Q4, raw materials and energy consumption remained flat from the third quarter, resulting in raw materials and energy consumption as a percentage of sales increasing to 63%, up from 48% in the third quarter. We saw a significant increase in energy costs during the fourth quarter. To effectively manage this, we used our flexible asset footprint to shift production to lower energy cost regions and temporarily halt operations in France. We will receive energy compensation and, therefore, optimize our profitability. In the fourth quarter, we recognized an impairment charge of $44 million, which was related to our tolling agreement governing Cee-Dumbría plants and our two manganese plants in Spain. This charge was a result of high energy prices. This impairment for fiscal year 2022 was recognized in Q4. Adjusted EBITDA margins remained strong at 29%, down slightly from 31% in Q3, despite weak market conditions. On a full-year basis, the cost of raw material and energy consumption as a percentage of sales improved to 49%, compared to 67% in 2021. This improvement was due to strong pricing and operational leverage from our flexible asset base. Net profit for the full year was an extraordinary $462 million compared to a net loss in the prior year of $150 million. For the fourth quarter, net profit was $28 million compared to $99 million in the third quarter. Our adjusted diluted profit per share decreased to $0.42 in quarter four versus $0.64 in quarter three. Next slide, please. Our adjusted EBITDA in the fourth quarter was $130 million, down from $185 million in the prior quarter, representing a decline of 30%. Adjusted EBITDA margins during the period remained solid at 29%, roughly in line with Q3. Average selling price across our portfolio declined by 11%, resulting in a negative price impact of $50 million. Overall, volumes declined by 60% over the prior quarter, which had a negative impact on adjusted EBITDA of $41 million. Costs had a positive impact of $46 million. This was due to the energy compensation received in France. Slide 11, please. Adjusted EBITDA for the full year was $860 million versus $179 million in 2021. Adjusted EBITDA margins improved to 30% versus 10% in 2021. Average selling price had the biggest impact on our 2022 adjusted EBITDA, driven by an increase of 59% among the portfolio in 2022, resulting in a benefit of approximately $1 billion. Higher costs adversely impacted adjusted EBITDA for the year by $324 million, driven by higher energy prices in Spain and higher raw material prices, partially offset by energy compensation in France of $50 million. Next slide, please. We ended Q4 with a cash balance of $323 million, up from $237 million in the prior quarter, an increase of $86 million driven by working capital release and EBITDA generation. Net debt declined from $194 million in the third quarter to $137 million at year-end, the lowest level in the company's history. Our reduction in net debt was primarily the result of cash generated during the quarter, underpinned by the working capital release. We are focused on continuing to reduce our leverage and expect to be net cash positive during 2023. Next slide, please. During 2022, we generated record operating cash flow of $405 million and free cash flow of $343 million. This represents a significant improvement over 2021 where operating cash flow was negative $1 million and free cash flow was negative $25 million. In the fourth quarter, we generated operating cash flow of $118 million, up from $55 million in Q3. Free cash flow in Q4 was $94 million versus $40 million in the third quarter with a $55 million release of working capital. Cash flow from investing activities or CapEx in 2022 was negative $62 million versus negative $24 million in 2021. The increase in cash flow from investing activities is attributable to higher CapEx spending which was driven by increased investment in our plant. We achieved our CapEx plan in 2022 and plan to expand our CapEx program beyond maintenance and invest in growth for our core business and ESG. Lastly, cash flow from financing activities for 2022 was negative $130 million. This includes the repayment of our super senior debt and coupon payment. In the fourth quarter, cash flow from financing activities was negative $8 million versus negative $109 million in the prior quarter. Next slide, please. As part of our overall strategy to reduce debt, we repaid $80 million from one of our Spanish government loans in February 2022. We are actively exploring different options related to our senior secured notes with the overall objective to optimize our capital structure. At this time I'll turn the call back over to Marco.
Marco Levi, CEO
Thank you, Beatriz. Referring now to the corporate update on Slide 16. Our ability to develop high purity silicon metal provides numerous opportunities that will drive growth for the company in the coming years. The solar market is a large and growing market that is comprised primarily of high purity silicon, which is the most common semiconductor material used in solar cells, representing approximately 95% of the solar modules. High purity silicon also plays an important part in the advancement of battery technology for electric vehicles, replacing graphite with silicon in the anode of batteries provides significant advantages that will drive rapid adoption as the technology is perfected. Current technology enables 5% to 10% of the graphite to be replaced by silicon. This mix is expected to increase dramatically over the next five years. We are partnering with battery developers to refine this technology and have made significant progress. We have started production and we are in the early stages of commercialization. We expect to be a leading provider as this technology is adopted. We are excited about this opportunity as we expect it to generate high margins and strong growth for the foreseeable future. Onshoring trends provide an additional driver for growth, with increasing demand for critical materials to be produced closer to home. Our global footprint puts us in a unique position to benefit from this trend. We are capitalizing on the growing demand for silicon metal by expanding our capacity and enhancing our global footprint with minimal capital investment. In 2022, we successfully added 22,000 tons of capacity at our Selma, Alabama plant. We are currently in the process of adding an additional 55,000 tons at our plant in Polokwane, South Africa. We successfully restarted the first furnace in Polokwane in November and completed the restart of the second furnace in January. These efforts demonstrate our commitment to meeting the increased demand for silicon metal in a sustainable and low-cost manner. These facilities are strategically located and are an important part of our global asset footprint. They are low-cost plants serving customers locally in Europe, the United States, the Middle East, and Asia. They enable us to shift production to address volatility in the energy markets as we have experienced in Europe. In 2022, we published our first global ESG report achieving a significant milestone that demonstrates our commitment to improving our environmental performance and contributing to the green transition. Our plan includes several key initiatives. We are focused on improving our operational efficacy to reduce our carbon footprint, reduce waste, and increase our energy efficiency. We are also focused on increasing our usage of renewable energy and we work to transition to clean energy, which we believe is essential to create a sustainable future. For the first time, we are providing annual guidance to give investors additional insight into our business performance. We project to generate adjusted EBITDA of approximately $270 million to $300 million in 2023. Given the current order activity from our customers and overall end markets, we expect the first quarter to be down from Q4 and represent the bottom of the current cycle. We anticipate an acceleration beginning in the second quarter. Projections show flat to slightly lower volume in 2023 with a 1% change in volume affecting EBITDA by approximately $8 million. With that update, I will turn the call over to the operator and open the line for questions.
Operator, Operator
Thank you. We will now take the first question, which comes from Martin Englert from Seaport Research Partners.
Martin Englert, Analyst
Hello, good afternoon, everyone.
Marco Levi, CEO
Good afternoon, Martin.
Martin Englert, Analyst
For the EBITDA guidance, the annual EBITDA guide of $270 million to $300 million. Could you discuss maybe some of the price or average price assumption volume assumption and costs that are underlying that?
Marco Levi, CEO
Yes, Martin, these are the indications that I can give you. We expect weaker volumes in 2023, about 6% lower volumes mainly related to the fact that we are not running our plants in France in the first quarter. In terms of pricing, we see silicon rather stable across the year. As you know, the level of silicon price in this graph is much higher than in the previous quarter, in the previous years, in the previous cycle, sorry. While for alloys, we see some price recovery, as we speak. So we assume that there will be some appreciation of our alloy pricing during the year linked to the demand recovery in particular in Europe. Concerning costs, most of the raw materials are becoming more affordable with some exceptions. Manganese ore is going up mainly due to the event in Gabon. Coal is extremely volatile, at least the wash coal, that we buy for our furnaces. So, we don't see short term a significant reduction in coal price. And the energy picture varies depending on the country. But as you know, we are contracted everywhere at an affordable cost, except for Spain. But in Spain now, energy price is more affordable and we have restarted production at some of our furnaces.
Martin Englert, Analyst
Thank you for that information. I apologize for the call quality; I've missed some of your comments about the net $50 million benefit in France related to energy credits or rebates. Could you please summarize that and explain the impact it had in Q4?
Marco Levi, CEO
Yes. The benefit in France is related to the way the contract works between us and the energy supplier. So we were in a position to consume less energy in France in quarter four. As a consequence, we got compensated based on the contract terms.
Martin Englert, Analyst
Okay. Looking ahead, is that the conclusion? I know you're not planning to operate the assets in France in Q1, but is there anything else or any additional benefit expected in Q1 or at any other time in 2023?
Marco Levi, CEO
We expect to be competitive out of our assets in France in terms of cost position during Q2 and Q3 the rest of 2023. We haven't changed our plan to restart our plants in France at the beginning of the second season.
Martin Englert, Analyst
Okay. If I could, one final one here. Working capital relative to sales, I believe it was 39% this quarter. I understand the intention to work that down during the first half of 2023, but any other detail that you can share on that metric as we move through Q1 and Q2?
Marco Levi, CEO
Yes. What I can tell you is that we have a pretty solid target reduction of $55 million in Q4, but we expect a reduction between $90 million and $120 million due to working capital in the first quarter. Then, we will proceed with further reduction in Q2, basically getting back to more affordable levels of working capital to run our business.
Martin Englert, Analyst
Okay. And again the target is 21%, or maybe a little bit because of some of the manganese or maybe just a couple of points above that in the back half of the year?
Marco Levi, CEO
You're correct. The 21% was associated with optimal inventory levels amidst strong sales and elevated prices. Our plan is to operate the silicon and silicon alloy business within a working capital range of 21% to 23%. However, for manganese alloys, we anticipate needing an additional 2 to 3 percentage points of working capital due to the extended cycle and our lack of back integration. We're adjusting our approach to hit the right level; it's a dynamic situation, but that's our direction.
Martin Englert, Analyst
Okay. Thank you for all the detail and congratulations on results.
Marco Levi, CEO
Thank you, Martin.
Operator, Operator
Thank you. We will now take the next question. It comes from the line of Lucas Pipes from B. Riley Securities. Please go ahead. Your line is open.
Lucas Pipes, Analyst
Thank you very much, operator, and good morning, everyone. A great job on the quarter. My first question is on the additional savings and commercial excellence opportunities. You outlined $225 million at the end of this year. I wondered if you could maybe expand a bit on where you're seeing the additional opportunities from the previously identified savings. Thank you very much.
Marco Levi, CEO
Yes. As you know, we started this program in 2020. While you implement the initiatives, you do not capture the full value during every year. So there is a certain trend. We have implemented all the initiatives. While we have been able to capitalize in 2022 on part of them, we expect to be able to implement the full program by 2023. In particular, to give you a little more granularity, we are factoring $75 million throughout footprint optimization. We stopped production in Château Feuillet, we stopped our production in Monzón. We shut down Niagara Falls. All of this has given $75 million to the bottom line. $70 million comes from continuous plant improvements. I mentioned several times, our KPN program, which is about implementing technologies at each one of our furnaces to improve the yield and the raw material usage of each furnace. So this is another $70 million, $30 million have come until now, but I think we will be able to do much better from purchasing centralization. As you know, Lucas, we have centralized most of our purchasing activities; strategic raw materials services, spare parts, basically energy. So everything is centralized. We get $30 million out of that. We have calculated about $50 million coming from commercial excellence. If you sum up the numbers, it brings you to $225 million.
Lucas Pipes, Analyst
That is very helpful. I really appreciate that detail. And going back to the annual 2023 EBITDA guidance range of $270 million to $300 million, I believe you offered a sensitivity of $8 million for a 1% change in volume. Would you be able to offer similar sensitivity on the pricing side?
Marco Levi, CEO
You are correct to identify the important point. For 2023, the main question is whether demand will return as we anticipate. As a result, we are primarily focusing on how changes in volumes affect our EBITDA. This explains our recent comments alongside the guidance. A 1% variation in prices likely has a greater impact than the same change in volumes. However, considering my earlier remarks on pricing, we feel quite confident about our pricing outlook for 2023.
Lucas Pipes, Analyst
That is very helpful. I appreciate your confidence on that front. That's really good to hear. I'll try to squeeze one last one and I'll go back into the queue. On the Silicon Metals segment in Q4, volumes declined, margins expanded. I assume that's related mostly to the energy compensation you received, but anything else you would add to that dynamic? It's typically unusual to see in the sector. So I appreciate any distant color on that?
Marco Levi, CEO
Yeah. I must say the main factor is that what we told investors in terms of trends of silicon metal pricing was right. We said due to the structure in the market pricing is not going to go back to the levels of the trough of the previous cycles, and this is a key element. The other element is the energy compensation. Also, there were, like we said in the presentation, a certain level of CO2 compensation impacting favorably the silicon metal results. In terms of input costs, we are still, as I likely commented before, mainly coal.
Lucas Pipes, Analyst
I appreciate all the color, continued best of luck. Thank you.
Marco Levi, CEO
Thank you, Lucas.
Operator, Operator
Thank you. We will now take the next question. It comes from the line of Logan Gilmartin from Marina Capital. Please go ahead. Your line is open.
Unidentified Analyst, Analyst
Hey guys, congrats on the quarter. Your guidance to positive net cash position this year, how should we think about the outlook for returning capital to shareholders in terms of buybacks or dividends? Can you give any color on timing? Thanks.
Beatriz García-Cos, CFO
Hey, Logan, this is Beatriz speaking. As you know, our current indenture, we don't have the ability to pay dividends. But as we are executing on the reduction of the debt with the senior notes, we expect to have the ability to pay dividends. Then the company needs to define the right policy to be able to pay these dividends and share buybacks if this answers your question.
Unidentified Analyst, Analyst
Thank you.
Operator, Operator
Thank you. We will now take the next question. It comes from the line of Michael Lam from Jemekk. Please go ahead. Your line is open.
Michael Lam, Analyst
Yes, good morning. I have two questions. The first one is about the recent news from South Africa regarding widespread blackouts and electricity shortages. Is it the case that your plants operate in a stable environment while the electricity grid outside, where you're sourcing, is facing all the issues?
Marco Levi, CEO
Thank you for the question. We are closely monitoring the situation in South Africa. So far, we haven't faced any significant energy issues. When we made the decision to restart Polokwane, we ensured we were well-prepared with our energy providers. The situation in South Africa is particularly intense right now, but we are operating at full production.
Michael Lam, Analyst
Are you continuing with the ramp-up, or might you slow down the ramp-up for now due to the electric situation?
Marco Levi, CEO
No. We continue with the ramp-up. We are ramping up Polokwane's third furnace in April. We have already contracted the volumes also for the third furnace. So Polokwane at this stage is expected to run at full capacity starting sometime in the second quarter.
Michael Lam, Analyst
Okay. The second question is regarding your sales volumes not only in Q4 but also in Q3. There appears to be a decline in demand, accompanied by de-stocking and increased imports from countries like China and Kazakhstan. However, despite the substantial decrease in volumes, the users of metals do not seem to be affected to the same extent. For instance, auto production is increasing in Europe, and steel production is also rising. What do you estimate the percentage of volume decline to be that is attributed solely to de-stocking, considering that this will eventually rebound?
Marco Levi, CEO
You're absolutely right about the situation. Just to clarify, my earlier comments regarding Kazakhstan and China pertained to ferrosilicon, not silicon metal. Regarding the outlook, the supply chain is in good shape. With a stable employee supply chain and a moderate beginning of demand, we anticipate solid sales volumes in the second and third quarters of this year.
Michael Lam, Analyst
Okay. I have one last question, a follow-up to an earlier inquiry about dividends. While it's not directly related to dividends, you're holding a significant amount of cash. Though you're currently earning a decent return on that cash due to prevailing interest rates, I've noticed that bonds were trading below the buyout rate for the upcoming anniversary. Given the size of your cash reserves, why not proactively buy back some of those bonds in the market? Doing so could save you money, especially since I observed that your interest expense in Q4 was relatively high compared to your net debt. This is likely due to your 9% debt interest while you’re earning 3% on cash, creating a mismatch in interest rates.
Marco Levi, CEO
Yeah. You and I are aligned. We are executing exactly along these lines. We will update the investors as soon as we make other significant progress. But we are implementing this initiative as we speak.
Michael Lam, Analyst
All right. Sounds good. Thank you.
Beatriz García-Cos, CFO
Thank you.
Operator, Operator
Thank you. We will now take the next question. It comes from the line of Brian DiRubbio from Baird. Please go ahead. Your line is open.
Brian DiRubbio, Analyst
Good afternoon, Marco and Beatriz.
Marco Levi, CEO
Hi.
Brian DiRubbio, Analyst
A couple of quick questions for you. Marco, as you look at 2023 and sort of all the various puts and takes, do you view that as more of a mid-cycle result that you think the company going to generate, or is this more of trough results in your opinion?
Marco Levi, CEO
Well, I mentioned that we see Q1 being a weak quarter, and then we expect the demand at least in Europe cautiously ramping up. So this is the way we see it. Our guidance on EBITDA gives you, I think, a good indicator of what we have been doing to secure profitability of this company also during the trough of the cycle.
Brian DiRubbio, Analyst
Understood. That's helpful. And then Beatriz, just as we think about longer term two questions sort of about the debt structure. First, if you do conduct a refinancing, are you looking to have some prepayable debt, or you want something more fixed in place? And how should we think about what your target leverage is over a cycle?
Beatriz García-Cos, CFO
Yes. Thank you for the questions. So let me take one step back. We said that we want to reach a gross debt level of $200 million. At the moment, the majority of our debt is made of the senior notes, right? It's a fixed 81% of our debt in total fixed-interest rates. The main part is the senior notes at 9.75. As Marco was saying, if you were listening, we are executing on the senior notes. Going forward, we need to see what is the best option for Ferroglobe. We want to run the company with an approximate level of $200 million. The type of debt instrument will depend on how the debt market evolves in the next quarter.
Brian DiRubbio, Analyst
Fair enough. Appreciate the thoughts. Thank you so much.
Operator, Operator
Thank you. We will now take the next question. It comes from the line of Andrew Cohen from Brennan. Please go ahead. Your line is open.
Unidentified Analyst, Analyst
Hi, thanks for taking my question. I was just going back to the presentation from February of 2021, where the estimates of the $470 million of EBITDA for 2023 remain decently lower silicon metal prices at least environment and lower cost savings expectations. I was just wondering if you guys could bridge that delta between the guidance for 2023 and the updated guidance for 2023 and where you were in the presentation? And also is there a cadence for inventory coming down in the first quarter given that we're decently above 21% of sales in total working capital right now? Thanks.
Marco Levi, CEO
Yes. Andrew, let me start from the second question because I already answered the same question to Martin from Seaport. We have reduced working capital $55 million in quarter four. We are expecting a more significant reduction in Q1. I gave a range in the area of $80 million to $100 million in Q1, and we further go down during quarter two. We expect to move towards 21% to 23% working capital on revenue for silicon and silicon-based alloys, a couple of more points on manganese due to the long cycle that we have in manganese. Regarding the bridge versus the cleansing presentation, I think I don't have it with me. But the key elements are; one, we have over-delivered on our value creation plan because at the beginning of the value creation plan, we expected the creation of a buffer of $180 million EBITDA, while we are creating more than that $225 million. What we couldn't foresee at the time was the price evolution in the market, related to getting out of the covered period. There were products in demand, customers looking for supply security, and pricing has been evolving at a higher level than we could forecast.
Unidentified Analyst, Analyst
Yes. And I guess that's sort of my point is it seems like both the cost savings and the pricing are in your favor, and you have the EBITDA guide lower than what that guide was. So maybe I'm missing something but I was just trying to reconcile that.
Marco Levi, CEO
Well, the EBITDA guidance takes into account the effect of the value creation plan, the fact that we have lower volumes in the first quarter and our assumption on pricing.
Operator, Operator
Thank you. We will now take the next question. It comes from the line of Thomas Murphy from Odeon Capital Group. Please go ahead. Your line is open.
Thomas Murphy, Analyst
Hi. Good morning. Just two quick questions. The first is, what is the CapEx outlook for 2023? And the second has to do with the 9% senior notes, which a lot of people have referenced. But as it relates to the 9% senior notes features, and I should know this off hand, I apologize, I don't. But do they restrict dividends? Does the notes restrict dividend out to the equity?
Beatriz García-Cos, CFO
Yes, you are right. With the current indenture, we can't pay dividends. As I was saying before, we are executing on our senior notes. This will allow us to have the ability to pay dividends. Of course, then the company needs to define what is the financial policy in terms of dividends and buybacks.
Marco Levi, CEO
Referring to CapEx, we plan in 2023 the same amount of CapEx for maintenance and EH&S at the level of $75 million, the same amount of CapEx that we have spent last year. As previously communicated, we have been starting our assets of CapEx. We are bringing them up to the level that we want with a reinvestment program of $75 million for two years. On top I mentioned the growth opportunities that we have. We are going to invest more CapEx this year in a very judicious way, meaning that any kind of growth CapEx is going to be analyzed and presented to the Board for approval. So we are stage-gating some growth CapEx in 2023.
Thomas Murphy, Analyst
Thank you. The rest of my questions have already been asked. So thank you and have a great day.
Beatriz García-Cos, CFO
Thanks, Thomas.
Marco Levi, CEO
Thanks, Thomas.
Operator, Operator
Thank you. I would now like to hand back over to the speakers for final remarks.
Marco Levi, CEO
Thank you. That concludes our fourth quarter and full year 2022 earnings call. I am proud of our performance and results in 2022. We have demonstrated that Ferroglobe is able to perform while transforming. I truly believe there is significant value to be unlocked, making Ferroglobe a compelling investor proposition. Thank you again for your participation. We look forward to hearing from you on the next call. Have a great day.
Operator, Operator
That does conclude our conference for today. Thank you for participating. You may all disconnect.