Quarterly Report • Nov 13, 2020
Quarterly Report
Open in ViewerOpens in native device viewer
| CONSOLIDATED QUARTERLY REPORT FOR THE THIRD QUARTER OF 2020 |
4 |
|---|---|
| INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2020 (UNAUDITED) |
15 |
| INTERIM CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME |
16 |
| INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION | 17 |
| INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY | 18 |
| INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS | 20 |
| NOTES | 21 |
| RATIOS IN ACCORDANCE WITH APPENDIX 13A FROM REGULATION 5/2018 ISSUED BY FSA |
40 |
4
Consolidated Financial Results for the Third Quarter of 2020 (Q3 2020) as Compared to the Third Quarter of 2019 (Q3 2019) (unaudited)
The companies part of ALRO Group are: ALRO S.A. – manufacturer of aluminium, Alum S.A. – producer of alumina, Sierra Mineral Holdings I, Ltd. – bauxite mining, Vimetco Extrusion S.R.L. – extrusion business line, Conef S.A. – holding and management company, Global Aluminium Ltd. – holding company and Bauxite Marketing Ltd - marketing. Having this structure, the Group created an integrated production chain assuring the raw materials for ALRO.
| Indicator | Q3 2020 | Q3 2019 | Q1-Q3 2020 | Q1-Q3 2019 |
|---|---|---|---|---|
| Primary aluminium production (tonnes) | 64,472 | 72,173 | 201,635 | 214,840 |
| Processed aluminium production (tonnes) | 22,575 | 24,589 | 74,226 | 79,164 |
| Alumina production (tonnes) | 111,619 | 130,607 | 314,577 | 357,286 |
| Bauxite production (tonnes) | 300,452 | 410,448 | 1,039,793 | 1,527,688 |
| Sales (thousand RON) | 581,013 | 656,135 | 1,941,955 | 2,162,353 |
| EBITDA1 (thousand RON) |
52,392 | -1,454 | 482,651 | 233,665 |
| EBITDA margin (%) | 9.0% | -0.2% | 24.9% | 10.8% |
| Adjusted net result2 (thousand RON) |
20,429 | -95,115 | 282,210 | -18,688 |
| Net result (thousand RON) | 19,690 | -102,429 | 273,352 | -22,721 |
| Indicator | Q3 2020 | Q3 2019 | Q1-Q3 2020 | Q1-Q3 2019 |
|---|---|---|---|---|
| Primary aluminium production (tonnes) | 64,472 | 72,173 | 201,635 | 214,840 |
| Processed aluminium production (tonnes) | 15,730 | 19,027 | 54,850 | 62,938 |
| Primary aluminium sales (tonnes) | 41,029 | 38,253 | 122,664 | 116,400 |
| Processed aluminium sales (tonnes) | 16,768 | 19,284 | 57,221 | 63,053 |
| Sales (thousand RON) | 541,413 | 600,389 | 1,764,258 | 1,931,172 |
| EBITDA1 (thousand RON) |
23,926 | -27,546 | 369,953 | 78,707 |
| EBITDA margin (%) | 4,4% | -4,6% | 21,0% | 4,1% |
| Adjusted net result2 (thousand RON) |
5,156 | -101,026 | 226,165 | -57,274 |
| Net result (thousand RON) | 4,646 | -108,481 | 216,418 | -109,962 |
| Adjusted net result2 per share (RON) |
0.007 | -0.142 | 0.317 | -0.080 |
| Net result per share (RON) | 0.007 | -0.152 | 0.303 | -0.154 |
1 EBITDA: earnings before interest, taxes, depreciation, amortization and impairment; 2
Adjusted Net Result: Net result plus/(minus) non-current assets impairment, plus/(minus) the loss/(gain) from derivative financial instruments for which hedge accounting was not applied, plus/(minus) deferred tax.
The 9-month period ended 30 September 2020 was dominated by the global economic and health crisis generated by the coronavirus pandemic. However, the Group has slipped through this difficult period, keeping all its production units fully operational and without locking down its activity, and has continuously produced bauxite, alumina and aluminium products.
Amid this economic situation, Alro Group has efficiently managed the negative consequences of the pandemic, by implementing in its locations, protocols and operational, administrative and health procedures for prevention of the Covid-19 spreading, designed to protect the health of its employees and ensure a chain of continuous supply for its customers.
The quarantine imposed in Europe at the beginning of the 2nd quarter of 2020 caused disturbances of exports from Romania and imports from the countries affected by the pandemic for certain raw materials and materials. Primary aluminium deliveries were less impacted because our main customers are established in Romania. However, the Processed Aluminium Division was deeply impacted by the pandemic, since the flat rolled products are mainly exported to European countries. Even under these circumstances, a good sales performance was obtained for extruded products, as these increased by 21% in Q1-Q3 2020 as compared to Q1-Q3 2019.
However, the alleviation of restrictions in Europe at the end of the second quarter of 2020 did not bring visible signs of economic revival in the aluminium industry in Q3 2020, and the sales were influenced by the excess of inventory created on the primary products market in the first part of 2020 and by the lack of demand on automotive and aerospace market, both of which were severely affected during this period.
As concerns the international aluminium pricing, a decrease was recorded in 2020 in its quotation at the London Metal Exchange (LME): from an average LME of 1,804 USD/ tonne for the 9 months ended 30 September 2019, to 1,633 USD/ tonne for the 9 months ended 30 September 2020. The same downward LME trend remained in Q3 2020 when the LME average was 1,704 USD/ tonne dropping by 58 USD/ tonne as compared to Q3 2019 (Q3 2019: 1,762 USD/ tonne). Later, in October 2020, a rebounce could be noted, with the LME quotation reaching values of over 1,850 USD/tonne.
These unfavorable conditions of the world economy, which affected all the aluminium industry operators, have negatively impacted the Group's financial performance, and caused a 10% decrease in turnover in Q1-Q3 2020 as compared to Q1-Q3 2019 (Q1-Q3 2020: RON 1,941,955 thousand versus Q1-Q3 2019: RON 2,162,353 thousand). The evolution remained similar in Q3 2020, when the Group reported a turnover of RON 581,013 thousand, dropping by 11% as compared to the level recorded in Q3 2019, i.e. RON 656,135 thousand.
| Revenues from contracts with customers (RON '000) | Q3 2020 | Q3 2019 | Q1-Q3 2020 | Q1-Q3 2019 |
|---|---|---|---|---|
| Revenues from bauxite segment | 2,262 | 14,022 | 48,306 | 54,810 |
| Revenues from alumina segment | 19,098 | 24,896 | 75,047 | 114,839 |
| Revenues from primary aluminium segment | 275,360 | 293,749 | 851,452 | 914,867 |
| Revenues from processed aluminium segment | 282,140 | 321,087 | 958,493 | 1,072,210 |
| Other | 2,153 | 2,381 | 8,657 | 5,627 |
| Total | 581,013 | 656,135 | 1,941,955 | 2,162,353 |
ALRO Group Quarterly Report at 30 September 2020 6
The deliveries of primary aluminium products increased by 2% in Q1-Q3 2020 as compared to the same period of the previous year, mainly due to the sales of aluminium wire rod. Demand in the cable industry was stable in Q1-Q3 2020, which allowed the Group to sell approximately 3,000 tonnes more aluminium wire rod in Q1-Q3 2020 than in Q1-Q3 2019. The Group expects the coronavirus pandemic not to have a major impact on the cable sector, as cable manufacturers are considered essential in the public utilities sector, which is a strategic area.
Another range of primary products, for which the Group recorded a sales growth, especially in Q3 2020, is billets. In this field, the Group managed to sell over 670 tonnes of billets more in Q3 2020 as compared to Q3 2019, due to the demand increase extruded division starting with September 2020.
The sales of processed aluminium products decreased slightly by 3% in Q1-Q3 2020 as compared to the same period of 2019. Out of these, flat rolled products decreased by 9%, mainly due to low demand for coils in line with the reduced activity of our customers in the aeronautics and automotive sectors. However, signs of revival have been noticed for plate sales since Q2 2020, which increased by over 790 tonnes in Q3 2020 as compared to Q3 2019, the plates being the Group's highest value added processed product.
Despite the negative factors surrounding the aluminium producers, the quantitative sales of extruded products were higher by over 3,500 tonnes during the 9 months ended 30 September 2020 compared to the same period of previous year and by over 1,400 tonnes in Q3 2020 compared to Q3 2019, and these consisted mainly of deliveries of standard profiles and customized profiles for solar power plants.
The contribution of the sales to third parties in the Primary Aluminium segment was RON 851,452 thousand in Q1-Q3 2020 and represented 44% of the Group's total revenues (Q1-Q3 2019: RON 914,867 thousand; 42%). Third party sales of Processed Aluminium segment represented 49% of the Group's total revenues during the period ended 30 September 2020 being in amount of RON 958,453 thousand (during 9 months ended 30 September 2019: RON 1,072,210 thousand, i.e. 50%).
In Q1-Q3 2020, the production of the Primary Aluminium division decreased by 6% as compared to Q1-Q3 2019, mainly due to the lower internal consumption of slabs, entailed by the decrease in the quantity of processed products. The same downward evolution of the primary aluminium production continues to be recorded in Q3 2020 when the decrease was 11% (Q3 2020: 64,472 tonnes versus Q3 2019: 72,173 tonnes). However, this decrease was mainly offset by the production of aluminium wire rod and billets, which had a cumulative increase of approximately 6,900 tonnes in Q1-Q3 2020 as compared to the same period of the previous year and over 3,100 tonnes in the third quarter alone, as the Group took advantage of the beneficial market demand for wire and billets. In the Processed Aluminium Division, the production reported in Q1-Q3 2020 was lower by 6% than the production achieved in the same period of the previous year (Q1-Q3 2020: 74,226 tonnes versus Q1-Q3 2019: 79,164 tonnes) and by 8% in Q3 2020 as compared to the 3rd quarter of the previous year (Q3 2020: 22,575 tonnes versus Q3 2019: 24,589 tonnes). The extrusion production recorded an increase by 19% in the period of 9 months 2020 as compared to the same period of 2019 and, in Q3 2020, it recorded an increase by 23% as compared to Q3 2019, as the Group seized the opportunity of a demand for its solar power industry customized profiles. This increase partially offset the decline in the production of flat rolled products caused by the decreasing market demand for these types of products, in the context of the crisis generated by the coronavirus pandemic, which mainly affected the automotive and aerospace industries in the 9 months of 2020.
As regards the cost of goods sold, the Group reported a similar level in Q1-Q3 2020 (Q1-Q3 2020: RON 1,965,388 thousand as compared to Q1-Q3 2019: RON 1,963,138 thousand) and a decrease of RON 19,941 thousand in Q3 2020 as compared to Q3 2019 (Q3 2020: RON 600,678 thousand versus Q3 2019: RON 620,619 thousand), due to the drop in the purchase prices of raw materials, in line with the specific markets prices and with the Group's strategy to reduce costs in 2020, while the Romanian energy market continued to report the same upward trend in electricity prices. The decrease in the cost of goods sold during the analyzed period is the result of the Group's Management adopting a progressive approach for anticipating and monitoring market trends, adopting an anti-crisis strategy involving the sale of current production and accumulated inventories and optimizing the purchasing of raw materials and other supplies.
The gross result decreased during the period of 9 months 2020 ended 30 September 2020 reaching a negative value of RON 23,433 thousand, as compared to the period of 9 months ended 30 September 2019 when profit was reported of RON 199,215 thousand, due to the low demand caused by the coronavirus pandemic and lower LME prices. The downward trend continued to be recorded also in Q3 when the gross result was a loss in the amount of RON 19,665 thousand in Q3 2020 as compared to the profit recorded in Q3 2019 amounting to RON 35,516 thousand. The cost of goods sold that determined the gross loss for the period did not include the compensation received by the Group, which was included under Other operating income below.
In Q1-Q3 2020, other operating income reached the value of RON 596,316 thousand (as compared to Q1-Q3 2019: RON 148,534 thousand) and mainly includes the government grants of RON 547,919 thousand (Q1-Q3 2019: nil) recorded by the Alro Group as compensation for higher energy costs as per EU legislation on the EU-ETS scheme, for the full year 2019 and on an accrual basis for the first nine months 2020. In Q3 2020 the Group recognized revenues from government grants related to the EU-ETS compensation scheme amounting to RON 94,158 thousand (Q3 2019: nil). For more details, see also the Group's interim condensed consolidated financial statements for the nine months ended 30 September 2020, as well.
The amount of RON 25,333 thousand reported in Q3 2020 representing net foreign exchange gains results mainly from the revaluation of the loans and other liabilities of the Group in foreign currencies (in Q3 2019: a loss of RON 36,270 thousand).
The Group's net result in Q1-Q3 2020 was a net profit of RON 273,352 thousand as compared to a net loss of RON 22,721 thousand reported in the same period of the previous year. The trend was the same in the third quarter of 2020 when the net profit was in amount of RON 19,690 thousand as compared to the net loss of RON 102,429 thousand reported in Q3 2019.
The reconciliation between the net result and the adjusted net result for Q1-Q3 2020 and Q1-Q3 2019 is detailed below:
| Adjusted net result | Q3 2020 | Q3 2019 | Q1-Q3 2020 | Q1-Q3 2019 |
|---|---|---|---|---|
| NET RESULT (RON '000) | 19,690 | -102,429 | 273,352 | -22,721 |
| Plus/(minus) charge/ (reversal) of non-current assets impairment expense/(income) |
- | - | - | -4,790 |
| Plus/(minus) the loss/(gain) from derivative financial instruments for which hedge accounting was not applied |
- | 6,870 | - | 6,160 |
| Plus/(minus) deferred tax expense/ (income) | 739 | 444 | 8,858 | 2,663 |
| ADJUSTED NET RESULT | 20,429 | -95,115 | 282,210 | -18,688 |
in RON '000, except per share data
| Q3 2020 | Q3 2019 | Nine months ended 30 September |
Nine months ended 30 September |
|
|---|---|---|---|---|
| 581,013 | 656,135 Revenue from contracts with customers | 2020 1,941,955 |
2019 2,162,353 |
|
| -600,678 | -620,619 Cost of goods sold | -1,965,388 | -1,963,138 | |
| -19,665 | 35,516 Gross result | -23,433 | 199,215 | |
| -71,879 | -71,398 General, administrative and selling expenses | -213,327 | -208,776 | |
| 103,964 | 3,867 Other operating income | 596,316 | 148,534 | |
| -739 | -8,315 Other operating expenses | -4,454 | -12,945 | |
| 11,681 | -40,330 Operating result (EBIT) | 355,102 | 126,028 | |
| -12,944 | -19,057 Interest expenses | -46,694 | -57,687 | |
| - | -6,870 Gains (losses) from derivative financial instruments, net | - | -6,160 | |
| -3,192 | -3,686 Other financial gains / (losses), net | -11,535 | -12,933 | |
| 25,333 | -36,270 Net foreign exchange gains / (losses) | 11,201 | -50,660 | |
| 20,878 | -106,213 Result before income taxes | 308,074 | -1,412 | |
| -1,188 | 3,784 Income tax | -34,722 | -21,309 | |
| 19,690 | -102,429 Result for the period | 273,352 | -22,721 | |
| Other comprehensive income / (expense), net of tax: | ||||
| Items that will not be reclassified subsequently to profit or loss | ||||
| -3 | -9 Remeasurements of post-employment benefit obligations | -3 | -11 | |
| Items that may be reclassified subsequently to profit or loss: | ||||
| -4,714 | 4,209 Translation adjustment | -5,480 | -890 | |
| -4,717 | 4,200 Other comprehensive income / (expense) for the period, net of tax |
-5,483 | -901 | |
| 14,973 | -98,229 Total comprehensive income / (expense) for the period | 267,869 | -23,622 | |
| Result attributable to: | ||||
| 19,642 | -102,469 Shareholders of Alro SA | 273,081 | -23,235 | |
| 48 | 40 Non-controlling interest | 271 | 514 | |
| 19,690 | -102,429 | 273,352 | -22,721 | |
| Total comprehensive income / (expense) attributable to: | ||||
| 14,953 | -98,294 Shareholders of Alro S.A. | 267,631 | -24,132 | |
| 20 | 65 Non-controlling interest | 238 | 510 | |
| 14,973 | -98,229 | 267,869 | -23,622 | |
| Earnings per share | ||||
| 0.028 | -0.144 Basic and diluted (RON) | 0.383 | -0.033 |
| 30 September 2020 | 31 December 2019 | |
|---|---|---|
| Assets | ||
| Non-current assets | ||
| Property, plant and equipment | 1,106,820 | 1,169,009 |
| Investment properties | 672 | 696 |
| Intangible assets | 6,683 | 9,611 |
| Goodwill | 92,459 | 94,284 |
| Right-of-use assets | 11,719 | 13,258 |
| Deferred tax asset | 28,114 | 37,294 |
| Other non-current assets | 10,082 | 3,866 |
| Total non-current assets | 1,256,549 | 1,328,018 |
| Current assets | ||
| Inventories | 599,740 | 828,948 |
| Trade receivables, net | 58,951 | 76,352 |
| Current income tax receivable | 2,002 | 6,225 |
| Other current assets | 404,871 | 93,137 |
| Restricted cash | 66,985 | 46,164 |
| Cash and cash equivalents | 331,417 | 83,182 |
| Total current assets | 1,463,966 | 1,134,008 |
| Total assets | 2,720,515 | 2,462,026 |
| Shareholders' Equity and Liabilities | ||
| Shareholders' equity | ||
| Share capital | 370,037 | 370,037 |
| Share premium | 86,351 | 86,351 |
| Other reserves | 339,030 | 342,667 |
| Retained earnings | -33,101 | 36,446 |
| Result for the period | 273,081 | -67,734 |
| Equity attributable to shareholders of Alro S.A. | 1,035,398 | 767,767 |
| Non-controlling interest | 2,423 | 2,185 |
| Total shareholders' equity | 1,037,821 | 769,952 |
| Non-current liabilities | ||
| Bank and other loans, non-current | 259,177 | 374,271 |
| Leases, non-current | 4,367 | 6,161 |
| Provisions, non-current | 37,394 | 36,704 |
| Post-employment benefit obligations | 45,729 | 46,637 |
| Government grants, non-current portion | 45,632 | 47,970 |
| Other non-current liabilities | 48 | 890 |
| Total non-current liabilities | 392,347 | 512,633 |
| Current liabilities | ||
| Bank and other loans, current | 945,417 | 869,667 |
| Leases, current | 4,085 | 4,321 |
| Provisions, current | 3,507 | 2,793 |
| Trade and other payables | 192,145 | 206,386 |
| Current income taxes payable | 10,200 | 2,551 |
| Government grants, current portion | 4,267 | 4,267 |
| Other current liabilities | 130,726 | 89,456 |
| Total current liabilities | 1,290,347 | 1,179,441 |
| Total liabilities | 1,682,694 | 1,692,074 |
| Total shareholders' equity and liabilities | 2,720,515 | 2,462,026 |
| Balance at 1 January 2019 | 370,037 | 86,351 | 367,834 |
|---|---|---|---|
| Result for the period | - | - | - |
| Other comprehensive income / (expense) | |||
| Translation adjustment | - | - | - |
| Remeasurements of post-employment benefits | - | - | - |
| Other comprehensive income / (expense) | - | - | - |
| Total comprehensive income / (expense) for the period | - | - | - |
| Transactions with owners of the company recognized directly in equity | |||
| Distributions to owners of the company | |||
| Appropriation of prior year result | - | - | 4,213 |
| Dividends distribution | - | - | - |
| Balance at 30 September 2019 | 370,037 | 86,351 | 372,047 |
| Balance at 1 January 2020 | 370,037 | 86,351 | 372,397 |
| Result of the period | - | - | - |
| Other comprehensive income / (expense) | |||
| Translation adjustment | - | - | - |
| Remeasurements of post-employment benefits | - | - | - |
| Other comprehensive income / (expense) | - | - | - |
| Total comprehensive income / (expense) for the period | - | - | - |
| Transactions with owners of the company recognized directly in equity | |||
| Distributions to owners of the company | |||
| Appropriation of prior year result | - | - | 1,810 |
| Balance at 30 September 2020 | 370,037 | 86,351 | 374,207 |
| Total shareholders' equity |
Non-controlling interests |
Attributable to shareholders of Alro SA |
Result for the period |
Retained earnings | Total other reserves |
Translation reserve |
|---|---|---|---|---|---|---|
| 1,172,824 | 1,739 | 1,171,085 | 235,006 | 135,358 | 344,333 | -23,501 |
| -22,721 | 514 | -23,235 | -23,235 | - | - | - |
| -890 | -4 | -886 | - | - | -886 | -886 |
| -11 | - | -11 | - | -11 | - | - |
| -901 | -4 | -897 | - | -11 | -886 | -886 |
| -23,622 | 510 | -24,132 | -23,235 | -11 | -886 | -886 |
| -326,614 | - -14 |
- -326,600 |
-235,006 - |
230,793 -326,600 |
4,213 - |
- - |
| 822,588 | 2,235 | 820,353 | -23,235 | 39,540 | 347,660 | -24,387 |
| 769,952 | 2,185 | 767,767 | -67,734 | 36,446 | 342,667 | -29,730 |
| 273,352 | 271 | 273,081 | 273,081 | - | - | - |
| -5,480 | -33 | -5,447 | - | - | -5,447 | -5,447 |
| -3 | - | -3 | - | -3 | - | - |
| -5,483 | -33 | -5,450 | - | -3 | -5,447 | -5,447 |
| 267,869 | 238 | 267,631 | 273,081 | -3 | -5,447 | -5,447 |
| - | - | 67,734 | -69,544 | 1,810 | - | |
| 1,037,821 | 2,423 | 1,035,398 | 273,081 | -33,101 | 339,030 | -35,177 |
| Cash flow from operating activities | September 2020 308,074 |
September 2019 |
|---|---|---|
| 20,878 -106,213 Result before income taxes |
-1,412 | |
| Adjustments for: | ||
| 40,711 38,877 Depreciation and amortisation |
127,550 | 112,426 |
| - - Impairment of property, plant and equipment |
- | -4,790 |
| -13 - Movement in provisions |
714 | -27,299 |
| -2,217 -1,489 Change in allowance for impairment of inventory |
2,912 | 13,818 |
| 188 -241 Change in allowance for impairment of doubtful receivables |
132 | -193 |
| -10 5,257 Loss on disposal of property, plant and equipment |
436 | 5,943 |
| -23,792 37,524 Net foreign exchange (gains)/ losses on loans revaluation |
-12,591 | 46,489 |
| -673 -1,037 Interest income |
-2,653 | -4,046 |
| 12,944 19,057 Interest expense |
46,694 | 57,687 |
| - - Dividend income |
-2 | - |
| - 6,870 Effect of derivative financial instruments |
- | 6,160 |
| Changes in working capital: | ||
| 32,211 -21,513 Change in inventories |
225,729 | -21,646 |
| 165,411 -18,121 Change in trade receivables and other assets |
-295,646 | -16,507 |
| 15,914 -22,104 Change in trade and other payables |
24,064 | 15,560 |
| -18,464 -16,962 Income taxes (paid)/refunded |
-13,996 | -36,703 |
| -12,915 -15,413 Interest paid |
-44,283 | -55,828 |
| - -211 Cash receipts/ (payments) from derivatives, net |
-701 | 8,151 |
| 230,173 -95,719 Net cash generated by / (used in) operating activities |
366,433 | 97,810 |
| Cash flow from investing activities | ||
| -19,734 -31,251 Purchase of property, plant and equipment and intangible assets, net |
-60,446 | -112,822 |
| - - Government grants received |
- | 4,895 |
| 625 354 Proceeds from sale of property, plant and equipment |
870 | 942 |
| - - Dividends received |
2 | - |
| -8 169 Change in restricted cash |
-30,021 | -1,040 |
| 647 1,023 Interest received |
2,564 | 3,704 |
| -18,470 -29,705 Net cash used in investing activities |
-87,031 | -104,321 |
| Cash flow from financing activities | ||
| 898 756 Proceeds from loans and leasing |
103,961 | 373,409 |
| -39,343 -1,581 Repayment of loans |
-135,064 | -34,806 |
| -12 -87,325 Dividends paid |
-44 | -324,649 |
| -38,457 -88,150 Net cash provided by/(used in) financing activities |
-31,147 | 13,954 |
| 173,246 -213,574 Net change in cash and cash equivalents |
248,255 | 7,443 |
| 158,124 424,658 Cash and cash equivalents at beginning of period |
83,182 | 203,609 |
| 47 91 Effect of exchange rate differences on cash and cash equivalents |
-20 | 123 |
| 331,417 211,175 Cash and cash equivalents at end of period |
331,417 | 211,175 |
Interim condensed consolidated financial statements for the nine months ended 30 September 2020 (unaudited)
in RON '000, except per share data
| Note | Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|
|---|---|---|---|
| Revenue from contracts with customers | 5 | 1,941,955 | 2,162,353 |
| Cost of goods sold | -1,965,388 | -1,963,138 | |
| Gross profit | -23,433 | 199,215 | |
| General, administrative and selling expenses | 7 | -213,327 | -208,776 |
| Other operating income | 8 | 596,316 | 148,534 |
| Other operating expenses | -4,454 | -12,945 | |
| Operating result (EBIT) | 355,102 | 126,028 | |
| Interest expenses | 9 | -46,694 | -57,687 |
| Gains (losses) from derivative financial instruments, net | - | -6,160 | |
| Other financial gains / (losses), net | -11,535 | -12,933 | |
| Net foreign exchange gains / (losses) | 11,201 | -50,660 | |
| Result before income taxes | 308,074 | -1,412 | |
| Income tax | 10 | -34,722 | -21,309 |
| Result for the period | 273,352 | -22,721 | |
| Other comprehensive income / (expense), net of tax: | |||
| Items that will not be reclassified subsequently to profit or loss | |||
| Remeasurements of post-employment benefit obligations | -3 | -11 | |
| Items that may be reclassified subsequently to profit or loss: | |||
| Translation adjustment | -5,480 | -890 | |
| Other comprehensive income / (expense) for the period, net of tax | -5,483 | -901 | |
| Total comprehensive income / (expense) for the period | 267,869 | -23,622 | |
| Result attributable to: | |||
| Shareholders of Alro SA | 273,081 | -23,235 | |
| Non-controlling interest | 271 | 514 | |
| 273,352 | -22,721 | ||
| Total comprehensive income / (expense) attributable to: | |||
| Shareholders of Alro S.A. | 267,631 | -24,132 | |
| Non-controlling interest | 238 | 510 | |
| 267,869 | -23,622 | ||
| Earnings per share | |||
| Basic and diluted (RON) | 11 | 0.383 | -0.033 |
Dr. Ing Gheorghe DOBRA Ec. Genoveva NĂSTASE Chief Executive Officer Chief Financial Officer
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
These financial statements were authorized for issue by the management on 12 November 2020.
ALRO Group Quarterly Report at 30 September 2020 16
in RON '000
| Note | 30 September 2020 | 31 December 2019 | |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 12 | 1,106,820 | 1,169,009 |
| Investment properties | 672 | 696 | |
| Intangible assets | 6,683 | 9,611 | |
| Goodwill | 13 | 92,459 | 94,284 |
| Right-of-use assets | 11,719 | 13,258 | |
| Deferred tax asset | 10 | 28,114 | 37,294 |
| Other non-current assets | 10,082 | 3,866 | |
| Total non-current assets | 1,256,549 | 1,328,018 | |
| Current assets | |||
| Inventories | 15 | 599,740 | 828,948 |
| Trade receivables, net | 58,951 | 76,352 | |
| Current income tax receivable | 2,002 | 6,225 | |
| Other current assets | 16 | 404,871 | 93,137 |
| Restricted cash | 17 | 66,985 | 46,164 |
| Cash and cash equivalents | 17 | 331,417 | 83,182 |
| Total current assets | 1,463,966 | 1,134,008 | |
| Total assets | 2,720,515 | 2,462,026 | |
| Shareholders' Equity and Liabilities | |||
| Shareholders' equity | |||
| Share capital | 370,037 | 370,037 | |
| Share premium | 86,351 | 86,351 | |
| Other reserves | 339,030 | 342,667 | |
| Retained earnings | -33,101 | 36,446 | |
| Result for the period | 273,081 | -67,734 | |
| Equity attributable to shareholders of Alro S.A. | 1,035,398 | 767,767 | |
| Non-controlling interest | 2,423 | 2,185 | |
| Total shareholders' equity | 1,037,821 | 769,952 | |
| Non-current liabilities Bank and other loans, non-current |
18 | 259,177 | 374,271 |
| Leases, non-current | 18 | 4,367 | 6,161 |
| Provisions, non-current | 37,394 | 36,704 | |
| Post-employment benefit obligations | 45,729 | 46,637 | |
| Government grants, non-current portion | 45,632 | 47,970 | |
| Other non-current liabilities | 48 | 890 | |
| Total non-current liabilities | 392,347 | 512,633 | |
| Current liabilities Bank and other loans, current |
18 | 945,417 | 869,667 |
| Leases, current | 18 | 4,085 | 4,321 |
| Provisions, current | 3,507 | 2,793 | |
| Trade and other payables | 192,145 | 206,386 | |
| Current income taxes payable | 10,200 | 2,551 | |
| Government grants, current portion | 4,267 | 4,267 | |
| Other current liabilities | 130,726 | 89,456 | |
| Total current liabilities | 1,290,347 | 1,179,441 | |
| Total liabilities Total shareholders' equity and liabilities |
1,682,694 2,720,515 |
1,692,074 2,462,026 |
|
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
Chief Executive Officer Chief Financial Officer
These financial statements were authorized for issue by the management on 12 November 2020.
| Balance at 1 January 2019 | 370,037 | 86,351 | 367,834 |
|---|---|---|---|
| Result for the period | - | - | - |
| Other comprehensive income / (expense) | |||
| Translation adjustment | - | - | - |
| Remeasurements of post-employment benefits | - | - | - |
| Other comprehensive income / (expense) | - | - | - |
| Total comprehensive income / (expense) for the period | - | - | - |
| Transactions with owners of the company recognized directly in equity | |||
| Distributions to owners of the company | |||
| Appropriation of prior year result | - | - | 4,213 |
| Dividends distribution | - | - | - |
| Balance at 30 September 2019 | 370,037 | 86,351 | 372,047 |
| Balance at 1 January 2020 | 370,037 | 86,351 | 372,397 |
| Result for the period | - | - | - |
| Other comprehensive income / (expense) | |||
| Translation adjustment | - | - | - |
| Remeasurements of post-employment benefits | - | - | - |
| Other comprehensive income / (expense) | - | - | - |
| Total comprehensive income / (expense) for the period | - | - | - |
| Transactions with owners of the company recognized directly in equity | |||
| Distributions to owners of the company: | |||
| Appropriation of prior year result | - | - | 1,810 |
| Balance at 30 September 2020 | 370,037 | 86,351 | 374,207 |
| Total shareholders' equity |
Non-controlling interests |
Attributable to shareholders of Alro SA |
Result for the period |
Retained earnings | Total other reserves |
Translation reserve |
|---|---|---|---|---|---|---|
| 1,172,824 | 1,739 | 1,171,085 | 235,006 | 135,358 | 344,333 | -23,501 |
| -22,721 | 514 | -23,235 | -23,235 | - | - | - |
| -890 | -4 | -886 | - | - | -886 | -886 |
| -11 | - | -11 | - | -11 | - | - |
| -901 | -4 | -897 | - | -11 | -886 | -886 |
| -23,622 | 510 | -24,132 | -23,235 | -11 | -886 | -886 |
| - | - | -235,006 | 230,793 | 4,213 | - | |
| -326,614 | -14 | -326,600 | - | -326,600 | - | - |
| 822,588 | 2,235 | 820,353 | -23,235 | 39,540 | 347,660 | -24,387 |
| 769,952 | 2,185 | 767,767 | -67,734 | 36,446 | 342,667 | -29,730 |
| 273,352 | 271 | 273,081 | 273,081 | - | - | - |
| -5,480 | -33 | -5,447 | - | - | -5,447 | -5,447 |
| - | -3 | - | -3 | - | - | |
| -5,483 | -33 | -5,450 | - | -3 | -5,447 | -5,447 |
| 267,869 | 238 | 267,631 | 273,081 | -3 | -5,447 | -5,447 |
| - | - | 67,734 | -69,544 | 1,810 | - | |
| 1,037,821 | 2,423 | 1,035,398 | 273,081 | -33,101 | 339,030 | -35,177 |
Dr. Ing Gheorghe DOBRA Ec. Genoveva NĂSTASE Chief Executive Officer Chief Financial Officer.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
These financial statements were authorized for issue by the management on 12 November 2020.
in RON '000
| Note | Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|
|---|---|---|---|
| Cash flow from operating activities | |||
| Result before income taxes | 308,074 | -1,412 | |
| Adjustments for: | |||
| Depreciation and amortisation | 127,550 | 112,426 | |
| Impairment of property, plant and equipment | - | -4,790 | |
| Movement in provisions | 714 | -27,299 | |
| Change in allowance for impairment of inventory | 15 | 2,912 | 13,818 |
| Change in allowance for impairment of doubtful receivables | 7 | 132 | -193 |
| Loss on disposal of property, plant and equipment | 436 | 5,943 | |
| Net foreign exchange (gains)/ losses on loans revaluation | -12,591 | 46,489 | |
| Interest income | -2,653 | -4,046 | |
| Interest expense | 9 | 46,694 | 57,687 |
| Dividend income | -2 | - | |
| Effect of derivative financial instruments | - | 6,160 | |
| Changes in working capital: | |||
| Change in inventories | 225,729 | -21,646 | |
| Change in trade receivables and other assets | -295,646 | -16,507 | |
| Change in trade and other payables | 24,064 | 15,560 | |
| Income taxes (paid)/refunded | -13,996 | -36,703 | |
| Interest paid | 9 | -44,283 | -55,828 |
| Cash receipts/ (Payments) from derivatives, net | -701 | 8,151 | |
| Net cash generated by / (used in) operating activities | 366,433 | 97,810 | |
| Cash flow from investing activities | |||
| Purchase of property, plant and equipment and intangible assets, net | -60,446 | -112,822 | |
| Government grants received | - | 4,895 | |
| Proceeds from sale of property, plant and equipment | 870 | 942 | |
| Dividends received | 2 | - | |
| Change in restricted cash | 17 | -30,021 | -1,040 |
| Interest received | 2,564 | 3,704 | |
| Net cash used in investing activities | -87,031 | -104,321 | |
| Cash flow from financing activities | |||
| Proceeds from loans and leasing | 18 | 103,961 | 373,409 |
| Repayment of loans | 18 | -135,064 | -34,806 |
| Dividends paid | 11 | -44 | -324,649 |
| Net cash provided by/(used in) financing activities | -31,147 | 13,954 | |
| Net change in cash and cash equivalents | 248,255 | 7,443 | |
| Cash and cash equivalents at beginning of period | 83,182 | 203,609 | |
| Effect of exchange rate differences on cash and cash equivalents | -20 | 123 | |
| Cash and cash equivalents at end of period | 17 | 331,417 | 211,175 |
Dr. Ing Gheorghe DOBRA Ec. Genoveva NĂSTASE Chief Executive Officer Chief Financial Officer
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
These financial statements were authorized for issue by the management on 12 November 2020.
in RON '000, except per share data
Alro S.A. (the Company or the Parent Company) is a joint stock company that was established in 1961 in Romania, and is one of the largest vertically integrated aluminium producers in Europe, by production capacity. The shares of Alro S.A. are traded on the Bucharest Stock Exchange under the symbol ALR.
The Company's administrative and managerial offices are located in Romania, with the headquarters in 116, Pitesti Street, Slatina, Olt County.
Vimetco N.V. (the Netherlands) is the major shareholder of Alro S.A., holding 54.19% of the Company's share capital at 30 September 2020. Vimetco N.V. is a privately held company and its registered office is at Strawinskylaan 403, World Trade Center, A Tower, 4th floor, 1077 XX Amsterdam, The Netherlands. The Company's ultimate controlling entity is Maxon Limited (Bermuda).
Alro S.A. and its subsidiaries (collectively referred to as the Group) form a vertically integrated producer of primary and processed aluminium products: in Sierra Leone the bauxite is extracted, which is used to produce alumina in the Alum refinery at Tulcea; this is further used by Alro at its smelter in Slatina to produce aluminium. Alro casts aluminium into primary products that are sold or processed as higher value added products (flat rolled or extruded) within Alro or Vimetco Extrusion facilities. The Group has its customers primarily in Central and Eastern Europe.
These interim condensed consolidated financial statements were authorised for issue by the management on 12 November 2020.
These interim condensed consolidated financial statements of Alro and its subsidiaries (further named interim condensed consolidated financial statements) for the 9 months ended 30 September 2020 are unaudited and have been prepared in accordance with IAS 34 Interim financial reporting as adopted by the European Union (EU). The accounting policies are in accordance with the Ministry of Public Finance Order no. 2844/2016, with subsequent amendments, which is in accordance with the International Financial Reporting Standards (IFRS) adopted by the European Union (EU)*.
Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements as at and for the year ended 31 December 2019. These interim condensed consolidated financial statements do not include all the information required for full annual financial statements and should be read in conjunction with the annual financial statements of the Group for the year ended 31 December 2019.
The financial statements of Alro Group are available in hard copy at the Parent Company's premises, upon request. They are also available on the website of the Parent Company www.alro.ro within the applicable legal time frame.
These interim condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Group will be able to realize its assets and discharge its liabilities in the normal course of business.
* The Ministry of Public Finance Order no. 2844/2016, with subsequent amendments, is in accordance with the International Financial Reporting Standards (IFRS) adopted by the European Union (EU), except for IAS 21 The effects of changes in foreign exchange rates regarding functional currency, except for the provisions of IAS 20 Accounting for Government Grants regarding the recognition of revenue from green certificates, except for the provisions of IFRS 15 Revenue from contracts with customers regarding the revenue from taxes of connection to the distribution grid.
The functional currency of the parent company is the Romanian leu (RON). For each entity the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency and translated in the presentation currency.
The rates applied in translating foreign currencies to RON were as follows:
| 30 September 2020 | 31 December 2019 | |
|---|---|---|
| USD exchange rate at the end of the period** | 4.1617 USD/RON | 4.2608 USD/RON |
| Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|
| USD average exchange rate*** | 4.2931 USD/RON | 4.2168 USD/RON |
**) as communicated by National Bank of Romania
***) computed as an average of the daily exchange rates communicated by the National Bank of Romania
These financial statements are presented in RON thousand, rounded to the nearest unit.
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2019. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Several amendments and interpretations apply for the first time in 2020, but do not have an impact on the interim condensed consolidated financial statements of the Group:
- Conceptual Framework in IFRS standards. The IASB issued the revised Conceptual Framework for Financial Reporting on 29 March 2018. The Conceptual Framework sets out a comprehensive set of concepts for financial reporting, standard setting, guidance for preparers in developing consistent accounting policies and assistance to others in their efforts to understand and interpret the standards. IASB also issued a separate accompanying document, Amendments to References to the Conceptual Framework in IFRS Standards, which sets out the amendments to affected standards in order to update references to the revised Conceptual Framework. It's objective is to support transition to the revised Conceptual Framework for companies that develop accounting policies using the Conceptual Framework when no IFRS Standard applies to a particular transaction.
- Amendment to IFRS 3 Business Combinations,issued on 22 October 2018 (not yet adopted by EU) intended to improve the definition of a business and assist entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. The amendments clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs; narrow the definitions of a business and of outputs by focusing on goods and services provided to customers and by removing the reference to an ability to reduce costs; add guidance and illustrative examples to help entities assess whether a substantive process has been acquired; remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs; and add an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The amendments apply prospectively to transactions or other events that occur on or after the date of first application.
- Amendments to IAS 1 and IAS 8: Definition of Material, issued on 31 October 2018. The amendments clarify and align the definition of 'material' and provide guidance to help improve consistency in the application of that concept whenever it is used in IFRS. The new definition states that 'information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity'. The amendments clarify that materiality will depend on the nature or magnitude of information. An entity will need to assess whether the information, either individually or in combination with other information, is material in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. Although the amendments to the definition of material is not expected to have a significant impact on financial statements, the introduction of the term 'obscuring information' in the definition could potentially impact how materiality judgements are made in practice, by elevating the importance of how the information is organised in the financial statements.
- Amendments to IFRS 9, IAS 39 and IFRS 17: Interest Rate Benchmark Reform, issued on 26 September 2019. The Amendments relate to the issues affecting financial reporting in the periods before replacement of an existing interest rate benchmark with an alternative interest rate. The Amendments provide relief from the highly probable and prospective assessments required by IFRS 9 and IAS 39 for hedging relationships that are affected by the uncertainties of the inter-bank offered rates ('IBORs') reform. With the same objective, the Amendments provide relief from the retrospective assessment under IAS 39. The exceptions described in the Amendments apply only to those hedging relationships directly affected by uncertainties of the IBOR reform including cross-currency interest rate swaps (for the interest component affected).
- Amendment to IFRS 16 Leases Covid 19-Related Rent Concessions (issued on 28 May 2020). The amendment exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the Covid-19 pandemic are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications. It applies to Covid-19-related rent concessions that reduce lease payments due on or before 30 June 2021. The amendment is effective starting 1 June 2020.
The following new standards, amendments to standards and interpretations have been issued in 2020 but are not effective for the financial year beginning 1 January 2020 and have not been early adopted by the Group:
- Amendment to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current (issued on 23 January 2020). The amendments are effective for annual reporting periods beginning on or after 1 January 2023, with earlier application permitted. The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current or non-current. The amendments affect the presentation of liabilities in the statement of financial position and do not change existing requirements around measurement or timing of recognition of any asset, liability, income or expenses, nor the information that entities disclose about those items. Also, the amendments clarify the classification requirements for debt which may be settled by the company issuing own equity instruments. These Amendments have not yet been endorsed by the EU. The directors do not anticipate that the application of the standard in the future will have an impact on the Group's consolidated financial statements.
- Amendments to IFRS 3 Business Combinations (issued on 14 May 2020). The amendments update a reference in IFRS 3 to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations. Amendment also add a requirement that, for transactions and other events within the scope of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 (instead of the Conceptual Framework) to identify the liabilities it has assumed in a business combination; and add to IFRS 3 an explicit statement that an acquirer does not recognise contingent assets acquired in a business combination. The amendments are effective for annual periods beginning on or after 1 January 2022 and have not yet been endorsed by the EU. The directors do not anticipate any impact on the Group's financial statements.
- Amendments to IAS 16 Property, Plant and Equipment (issued on 14 May 2020). The amendments prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in profit or loss. The amendments are effective for annual periods beginning on or after 1 January 2022 and have not yet been endorsed by the EU. The directors do not anticipate any impact on the Group's financial statements.
- Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets (issued on 14 May 2020). Amendments specify which costs a company includes when assessing whether a contract will be loss-making. The amendments are effective for annual periods beginning on or after 1 January 2022 and have not yet been endorsed by the EU. The directors do not anticipate any impact on the Group's financial statements.
- Annual Improvements to IFRS Standards 2016 – 2018 Cycle (effective for annual periods beginning on or after 1 January 2022), issued on 14 May 2020. The improvements are not expected to have a material impact on the Group's or financial statements.These annual improvements are a collection of amendments to IFRSs:
- IFRS 1 First-time Adoption of International Financial Reporting Standards. The amendment permits a subsidiary that applies paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by its parent, based on the parent's date of transition to IFRSs.
- IFRS 9 Financial Instruments. The amendment clarifies which fees an entity includes when it applies the '10 per cent' test in assessing whether to derecognise a financial liability. An entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other's behalf.
- IFRS 16 Leases. The proposed amendment to Illustrative Example 13 accompanying IFRS 16 would remove from the example the illustration of the reimbursement of leasehold improvements by the lessor. The proposed amendment would resolve any potential confusion regarding the treatment of lease incentives that might arise because of how lease incentives are illustrated in that example.
- IAS 41 Agriculture. The amendment aligns the fair value measurement requirements in IAS 41 with those in other IFRS Standards.
- Amendments to IFRS 17 Insurance Contracts (issued on 25 June 2020). The amendments are designed to reduce costs by simplifying some requirements in the Standard; make financial performance easier to explain; and ease transition by deferring the effective date of the Standard to 2023 and by providing additional relief to reduce the effort required when applying IFRS 17 for the first time. The amendments have not yet been endorsed by the EU. The directors do not anticipate any impact on the Group's financial statements.
- Amendments to IFRS 4 Insurance Contracts – deferral of IFRS 9 (issued on 25 June 2020), not yet endorsed by the EU. The amendments provides some entities with a temporary exemption from application of IFRS 9; and gives all entities with insurance contracts the option, following full adoption of IFRS 9, to present changes in fair value on qualifying designated financial assets in other comprehensive income (OCI) instead of profit or loss (referred to as the "overlay approach").
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 (issued on 27 August 2020), not yet adopted by the EU. The amendments complement those issued in 2019 and focus on the effects on financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate as a result of the reform. The Phase 2 amendments provide additional temporary reliefs from applying specific IAS 39 and IFRS 9 hedge accounting requirements to hedging relationships directly affected by IBOR reform.
The preparation of interim condensed consolidated financial statements requires the Management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. The actual results may differ from these estimates.
In preparing these interim condensed consolidated financial statements, the significant judgements made by the management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements for the year ended 31 December 2019.
Set out below is the disaggregation of the Group's revenue from contract with customers:
| Nine months ended 30 September 2020 |
||||||
|---|---|---|---|---|---|---|
| Segments | Bauxite | Alumina | Primary aluminium |
Processed aluminium |
Others | Total |
| Type of good or service | ||||||
| Sale of bauxite | 141,753 | - | - | - | - | 141,753 |
| Sale of alumina | - | 508,146 | - | - | - | 508,146 |
| Sale of primary aluminium | - | - | 1,488,878 | - | - | 1,488,878 |
| Sale of processed aluminium | - | - | - | 959,675 | - | 959,675 |
| Other revenues and services performed | 11,304 | 1,746 | - | - | 37,418 | 50,468 |
| Total revenue from contracts with customers | 153,057 | 509,892 | 1,488,878 | 959,675 | 37,418 | 3,148,920 |
| Segments | Bauxite | Alumina | Primary aluminium |
Processed aluminium |
Others | Total |
|---|---|---|---|---|---|---|
| Type of good or service | ||||||
| Sale of bauxite | 218,255 | - | - | - | - | 218,255 |
| Sale of alumina | - | 603,554 | - | - | - | 603,554 |
| Sale of primary aluminium | - | - | 1,633,868 | - | - | 1,633,868 |
| Sale of processed aluminium | - | - | - | 1,073,376 | - | 1,073,376 |
| Other revenues and services performed | 18,613 | 819 | - | - | 28,000 | 47,432 |
| Total revenue from contracts with customers | 236,868 | 604,373 | 1,633,868 | 1,073,376 | 28,000 | 3,576,485 |
The 9 months of 2020 was a challenging period mainly due to the lower LME quotations and declining trend of the specific prices for bauxite and alumina in the international market that led to lower revenue compared to the first 9 months of 2019 (for details please see Note 6).
Set out below, is the reconciliation of the revenue from contracts with customers with the amounts disclosed in the segment information in Note 6: Nine months ended
| 30 September 2020 | ||||||
|---|---|---|---|---|---|---|
| Revenue | Bauxite | Alumina | Primary aluminium |
Processed aluminium |
Others | Total |
| Revenue from contracts with customers | 153,057 | 509,892 | 1,488,878 | 959,675 | 37,418 | 3,148,920 |
| Inter-segment transactions | -104,751 | -434,845 | -637,426 | -1,182 | -28,761 | -1,206,965 |
| Total Group revenue (Note 6) | 48,306 | 75,047 | 851,452 | 958,493 | 8,657 | 1,941,955 |
| Revenue | Bauxite | Alumina | Primary aluminium |
Processed aluminium |
Others | Total |
|---|---|---|---|---|---|---|
| Revenue from contracts with customers | 236,868 | 604,373 | 1,633,868 | 1,073,376 | 28,000 | 3,576,485 |
| Inter-segment transactions | -182,058 | -489,534 | -719,001 | -1,165 | -22,374 | -1,414,132 |
| Total Group revenue (Note 6) | 54,810 | 114,839 | 914,867 | 1,072,211 | 5,626 | 2,162,353 |
Transactions between operating segments are based on transfer prices that are set on an arm's length basis in a manner similar to transactions with third parties. For the way the Group monitors the performance of its segments, please see Note 6.
For management purposes, the Group is organized on a vertically integrated basis into four divisions: bauxite, alumina, primary aluminium and processed aluminium. For the purpose of resource allocation and assessment of segment performance the divisions are the basis on which the Group reports its segment information to the chief operating decision maker. The bauxite segment is located in Sierra Leone. The alumina segment located in Tulcea, Romania, uses bauxite to produce alumina, which is the principal raw material for aluminium smelting. The Primary aluminium division manufactures primary aluminium products like wire rod, slabs, billets and ingots and the Processed aluminium segment develops and sells flat rolled products, such as sheets, plates, coils and extruded products. Both the Primary and Processed aluminium divisions are located in Slatina, Romania. No operating segments have been aggregated to form the above reportable operating segments.
Segment revenues and expenses are directly attributable to the segments; joint expenses are allocated to the business segments on a reasonable basis. The income, expenses and result per segments include the transfers between business segments.
In order to have a better visibility on the operational and financial performance of the Group segments, to be able to benefit from its synergies as an integrated group, the Management monitors the segments results whereby the inter-segment transactions are reported at their cost. For the purpose of this note, the inter-segment transfers of the bauxite and alumina segments, represented by deliveries of raw material, and also the transfers of the aluminium segments, consisting of slabs transfered by Alro to its own processing division and billets transferred to the Vimetco Extrusion extruding plant, are reflected at their complete cost, regardless of the fact whether they are within the same entity or not.
The management monitors interest income and expense on a net basis.
Alro Group revenues and results for the nine months ended 30 September 2020 and 2019 by segment, were as follows:
| Bauxite | Alumina | Primary aluminium |
Processed aluminium |
Others | Inter segment operations |
Total | |
|---|---|---|---|---|---|---|---|
| Nine months ended 30 September 2020 | |||||||
| Sales to external customers | 48,306 | 75,047 | 851,452 | 958,493 | 8,657 | - | 1,941,955 |
| Inter-segment transfers | 103,603 | 422,475 | 801,665 | 1,182 | 28,761 | -1,357,686 | - |
| Total sales revenues | 151,909 | 497,522 | 1,653,117 | 959,675 | 37,418 | -1,357,686 | 1,941,955 |
| Segment results (gross profit) | 30,484 | 18,764 | -78,762 | 1,882 | 8,146 | -3,947 | -23,433 |
| Other operating income & expenses, net | -27,591 | -16,790 | 87,472 | 47,149 | 288,351 | -56 | 378,535 |
| Operating result (EBIT) | 2,893 | 1,974 | 8,710 | 49,031 | 296,497 | -4,003 | 355,102 |
| Total depreciation, amortisation and impairment |
18,847 | 19,497 | 58,050 | 31,822 | - | -667 | 127,549 |
| EBITDA | 21,740 | 21,471 | 66,760 | 80,853 | 296,497 | -4,670 | 482,651 |
| Interest and other finance costs, net | -58,229 | ||||||
| Net foreign exchange gains / (losses) | 11,201 | ||||||
| Result before income taxes | 308,074 | ||||||
| Nine months ended 30 September 2019 | |||||||
| Sales to external customers | 54,810 | 114,839 | 914,867 | 1,072,210 | 5,627 | - | 2,162,353 |
| Inter-segment transfers | 163,517 | 471,142 | 839,240 | 1,165 | 22,373 | -1,497,437 | - |
| Total sales revenues | 218,327 | 585,981 | 1,754,107 | 1,073,375 | 28,000 | -1,497,437 | 2,162,353 |
| Segment results (gross profit) | 46,252 | 57,712 | 50,488 | 48,516 | 7,299 | -11,052 | 199,215 |
| Other operating income & expenses, net | -33,718 | -25,828 | -70,724 | -54,706 | 112,815 | -1,026 | -73,187 |
| Operating result (EBIT) | 12,534 | 31,884 | -20,236 | -6,190 | 120,114 | -12,078 | 126,028 |
| Total depreciation, amortisation and impairment |
16,171 | 16,252 | 49,895 | 25,993 | - | -674 | 107,637 |
| EBITDA | 28,705 | 48,136 | 29,659 | 19,803 | 120,114 | -12,752 | 233,665 |
| Interest and other finance costs, net | -76,780 | ||||||
| Net foreign exchange gains / (losses) | -50,660 | ||||||
| Result before income taxes | -1,412 | ||||||
In the first 9 months of 2020, the aluminium segments were sensitive to the decrease of the LME quotation by 172 USD/t compared to the average level for the same period of the last year, which determined lower revenues. At the same time, they were affected by the increased prices of utilities, which is a specificity of the Romanian economic environment where electricity prices are higher than in many other European countries. As concerns the sale of upstream products, in 2020, in respect of alumina, due to a declining trend of the specific prices in the international market, Alum decreased its sales to third parties, considering that it was more economically advantageous to support mainly the Group's needs. The category Other operating income and expenses, net includes revenues from the sale of CO2 emission certificates by the Group from its surplus: in Alum in total amount of RON 23,538 thousand during 9 months ended 30 September 2020 (in the first 9 months of 2019: RON 62,294 thousand) and in Alro in total amount of RON 12,523 thousand during the 9 months ended 30 September 2020 (in the first 9 months of 2019: RON 45,404 thousand). In 2020 the category Other operating income and expenses, net includes also government grants of cummulatively RON 547,919 thousand (in 9 months of 2019: nil), as a compensation for indirect energy costs incurred in 2019 and in the first 9 months of 2020. The government grant is receivable as a result of approval by EU of Romanian plans to compensate large energy-consuming enterprises for higher electricity prices resulting from their indirect emission costs, and the Group received the amount related to the year 2019 in September 2020 (see Note 8). The subsidies for the 9 months ended 30 September 2020 are allocated per segments based on the electricity costs incurred directly and indirectly (through the raw materials produced by one segment and transferred to another segment, such as the aluminium metal). The subsidies for the year 2019 are not allocated per segments, being related to the costs of the entire year 2019, and are included in the column Others.
Had the Group received the portion of government grants for the costs of the first 9 months of the year 2019, in the first 9 months of 2019 itself, it would have compensated the electricity costs incurred in the corresponding financial period and the result for 2019 would have been higher by RON 187,460 thousand due to this subsidy, while the results per segments for the two comparative years would have been as follows:
Nine months ended 30 September 2020 (recomputed by including only the subsidy related to 9 months 2020):
| Bauxite | Alumina | Primary aluminium |
Processed aluminium |
Others | Inter segment operations |
Total | |
|---|---|---|---|---|---|---|---|
| Sales to external customers | 48,306 | 75,047 | 851,452 | 958,493 | 8,657 | - | 1,941,955 |
| Inter-segment transfers | 103,603 | 422,475 | 801,665 | 1,182 | 28,761 | -1,357,686 | - |
| Total sales revenues | 151,909 | 497,522 | 1,653,117 | 959,675 | 37,418 | -1,357,686 | 1,941,955 |
| Segment results (gross profit) | 30,484 | 18,764 | -78,762 | 1,882 | 8,146 | -3,947 | -23,433 |
| Other operating income & expenses, net | -27,591 | -16,790 | 87,472 | 47,149 | 38,404 | -56 | 128,588 |
| Operating result (EBIT) | 2,893 | 1,974 | 8,710 | 49,031 | 46,550 | -4,003 | 105,155 |
| Total depreciation, amortisation and impairment |
18,847 | 19,497 | 58,050 | 31,822 | - | -667 | 127,549 |
| EBITDA | 21,740 | 21,471 | 66,760 | 80,853 | 46,550 | -4,670 | 232,704 |
| Interest and other finance costs, net | -58,229 | ||||||
| Net foreign exchange gains / (losses) | 11,201 | ||||||
| Result before income taxes | 58,127 | ||||||
Nine months ended 30 September 2019 (recomputed by including the subsidy related to 9 months 2019):
| Bauxite | Alumina | Primary aluminium |
Processed aluminium |
Others | Inter segment operations |
Total | |
|---|---|---|---|---|---|---|---|
| Sales to external customers | 54,810 | 114,839 | 914,867 | 1,072,210 | 5,627 | - | 2,162,353 |
| Inter-segment transfers | 163,517 | 471,142 | 839,240 | 1,165 | 22,373 | -1,497,437 | - |
| Total sales revenues | 218,327 | 585,981 | 1,754,107 | 1,073,375 | 28,000 | -1,497,437 | 2,162,353 |
| Segment results (gross profit) | 46,252 | 57,712 | 50,488 | 48,516 | 7,299 | -11,052 | 199,215 |
| Other operating income & expenses, net | -33,718 | -21,376 | 37,684 | 19,893 | 112,815 | -1,026 | 114,272 |
| Operating result (EBIT) | 12,534 | 36,336 | 88,172 | 68,409 | 120,114 | -12,078 | 313,487 |
| Total depreciation, amortisation and impairment |
16,171 | 16,252 | 49,895 | 25,993 | - | -674 | 107,637 |
| EBITDA | 28,705 | 52,588 | 138,067 | 94,402 | 120,114 | -12,752 | 421,124 |
| Interest and other finance costs, net | -76,780 | ||||||
| Net foreign exchange gains / (losses) | -50,660 | ||||||
| Result before income taxes | 186,047 |
Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables, inventories, property, plant and equipment and intangible assets, net of allowances for impairment. While most of such assets can be directly attributed to individual segments, the carrying amount of certain assets used jointly by two or more segments is allocated to the segments on a reasonable basis. Segment liabilities include all operating liabilities and consist principally of trade payables, wages and taxes payable and accrued liabilities. Segment assets and liabilities do not include deferred income taxes, borrowings, financial liabilities and other un-allocatable items.
Segment assets and liabilities at 30 September 2020 and 31 December 2019, respectively, were as follows:
| Alro Group | Bauxite | Alumina | Primary aluminium |
Processed aluminium |
Others | Inter segment operations |
Total |
|---|---|---|---|---|---|---|---|
| 30 September 2020 | |||||||
| Total assets | 151,354 | 668,639 | 808,921 | 579,422 | 1,285,899 | -773,720 | 2,720,515 |
| Total liabilities | 290,163 | 249,192 | 313,070 | 131,638 | 1,128,963 | -430,332 | 1,682,694 |
| 31 December 2019 | |||||||
| Total assets | 171,003 | 616,066 | 931,095 | 668,465 | 723,149 | -647,752 | 2,462,026 |
| Total liabilities | 314,851 | 231,710 | 168,508 | 164,851 | 1,119,874 | -307,720 | 1,692,074 |
ALRO Group Quarterly Report at 30 September 2020 27
Total assets representing Others include mainly investments in subsidiaries, administrative buildings, deferred tax asset, government grants and derivative financial instruments.
Total liabilities representing Others include mainly borrowings, provisions and, when applicable, dividends.
Inter-segment operations include intercompany eliminations.
| Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|
|---|---|---|
| Staff costs | -94,541 | -92,901 |
| Third party services | -44,952 | -47,484 |
| Consulting and audit | -20,410 | -18,941 |
| Consumables | -8,579 | -8,467 |
| Taxes other than income taxes | -6,337 | -6,765 |
| Depreciation and amortisation | -9,237 | -6,519 |
| Insurance | -5,963 | -6,494 |
| Marketing and public relations | -3,244 | -3,635 |
| Travelling | -1,092 | -3,721 |
| Research and development costs | -11,419 | -8,562 |
| Other | -7,421 | -5,480 |
| Change in allowance for doubtful debts | -132 | 193 |
| Total | -213,327 | -208,776 |
Travelling expenses decreased in the first 9 months of 2020 compared to the same period of the previous year mainly due to travel restrictions imposed by Covid-19 safety measures.
During the 9 months of 2020, the Group recognized higher research and development costs after the placing into operation in the first half of 2019 of the equipments under the EU funded project for the research infrastructure for the aluminium alloy heat treated plates with high qualification industrial applications at Alro and also the project for the research of aluminum hydroxide technology (dry and wet) at Alum. The target of these projects is to establish new technologies to obtain plates for industrial application and to increase the level of innovation and market competitiveness of the Group, while expanding the products portfolio to include new products.
| Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|
|---|---|---|
| Other operating income | ||
| Rental income | 1,617 | 1,331 |
| Government grants | 551,257 | 3,071 |
| Income from sale of emission rights | 36,061 | 107,698 |
| Income from unused provision reversals | - | 15,228 |
| Income from claims and penalties | 5,439 | 6,671 |
| Reversal of impairment of property, plant and equipment | - | 4,790 |
| Other income | 1,942 | 9,745 |
| Total other operating income | 596,316 | 148,534 |
During the 9 months ended 30 September 2020, the Group recognized an amount of RON 547,919 thousand as Government grants representing a compensation to which it is entitled for its high electricity costs (nil in 9 months of 2019). The compensation scheme is a part of Romania's plans to partly compensate large energy-consuming enterprises for higher electricity prices resulting from their indirect emission costs, in accordance with the EU Emissions Trading Scheme (ETS). The amount represents the compensation for indirect emission costs included in the energy expenses incured by the Group in the year 2019, and, on an accrual basis, for 9 months of 2020. The compensation for the year 2019, namely RON 249,946 thousand, was already received by the Group companies in September 2020. See also Note 16 Other current assets and Note 17 Cash and cash equivalents.
Additionally, in the 9 months ended 30 September 2020 the category Government grants includes an amount of RON 3,201 thousand (in 9 months of 2019: RON 2,977 thousand) representing government grants from EU funds received in the period 2013 - 2019 for the investment in equipment intended for the production activity, as well as for purchasing of equipments for research and development activities within the Group. The grants are recognized as income linearly during the useful life of the equipments for which they were received.
During the 9-month period ended 30 September 2020, the Group sold CO2 emission certificates of RON 36,061 thousand (9 months 2019: RON 107,698 thousand) and included them under Income from sale of emission certificates, benefiting from the increase in the price of CO2 emission certificates. The Group was in the position to have a surplus of emission certificates as it made numerous efforts to invest in energy efficiency in the latest years.
In 2019, the amount of RON 15,228 thousand under the category Income from unused provision reversals represents the release of an unused provision for remuneration of staff and management recorded by the Group at 31 December 2018. No such provision was recognised by the Group as at 31 December 2019.
In the category Income from claims and penalties in 9 months of 2020 RON 440 thousand represent income from penalties received from one of the suppliers that failed to perform its contractual obligations related to energy supply in 2017 (in 9 months of 2019: RON 2,765 thousand). Another amount of RON 2,993 thousand included in the same category in 9 months of 2019, represents an insurance indemnity received for a piece of equipment which was damaged during a fire incident that took place in 2018 at the Processing mill premises.
In the 9-month period ended 30 September 2019 an amount of RON 6,540 thousand was included in Other income, representing an adjustment of the alumina stock following the capital repairs that were made to one of the alumina silos in the Primary aluminium division.
| Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|
|---|---|---|
| Interest expense | -46,694 | -57,687 |
| Total | -46,694 | -57,687 |
Interest expense decreased during the period of 9 months ended 30 September 2020 compared to the same period of the previous year mainly due to lower LIBOR and ROBOR benchmark interest rates.
Interest expense includes the amount of RON 8,804 thousand (during the period of 9 months ended 30 September 2019: RON 9,427 thousand) representing transaction costs on loans, which are recognized during the period as interest expense based on the effective interest rate method. The cash effectively paid as transaction costs in 2020 for loans was of RON 3,723 thousand and it is included in the Statement of cash flow under Interest paid (during the period of 9 months ended 30 September 2019: RON 8,893 thousand).
Income tax expense is recognized based on management's best estimate of the annual income tax rate expected for the full financial year applied to the pre-tax income of the interim period. The effective income tax rate for the 9 months ended 30 September 2020 is 11.3% (for the same period of 2019: -1,509.1%).
The effective income tax rate for the period of 9 months ended 30 September 2020 is mainly influenced by the usage of RON 63,751 thousand representing exceeding borrowing costs carried forward by Alro from prior periods (during 9 months 2019: RON 108,803 thousand were considered as non-deductible expenses), thus causing a significant negative value of effective income tax rate. Due to a better EBITDA in the current period, which is used as a threshold in the determination of deductible borrowing cost, Alro had used all the 2020 borrowing costs as deductible expenses and also a part of prior years non-deductible exceeding borrowing cost, which according to local legislation can be carried forward indefinitely. According to the Romanian Fiscal Code, which transposes the EU Directive no.
2016/1164, issued in 2016, the exceeding borrowing costs include interest, expenses for obtaining finance and leasing, capitalized interest and foreign exchange losses above a threshold of EUR 1,000,000 per annum are deductible only up to the level of 30% of EBITDA. Romania implemented the above mentioned EU directive starting 1 January 2018.
Additionally an amount of RON 55,987 thousand representing tax losses carried forward from prior periods were used by Alro to offset its current income tax liability. As a result, the total amount of net deferred income tax asset decreased from RON 37,294 thousand as at 31 December 2019 to RON 28,114 thousand as at 30 September 2020.
According to the Government's set of measures to support businesses during the Covid-19 pandemics, companies in Romania are allowed to delay the payment of taxes until 25 December 2020 without penalties or interest. The Group adopted strategies to benefit its overall cashflow and, for one of its subsidiaries, took the opportunity to defer the payment of approximately RON 55 million on the basis of this facility.
The main components of the income tax expense in the consolidated interim statement of profit or loss and comprehensive income are:
| Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|
|---|---|---|
| Income tax | ||
| Current income tax | -25.864 | -18.646 |
| Deferred income tax | -8.858 | -2.663 |
| Income tax | -34.722 | -21.309 |
| Total income taxes | -34.722 | -21.309 |
| Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|
|---|---|---|
| Net result attributable to the owners of the Entity | 273,081 | -23,235 |
| Weighted average number of ordinary shares | 713,779,135 | 713,779,135 |
| Basic and diluted earnings per share (RON/share) | 0.383 | -0.033 |
Basic and diluted per share data are the same as there are no dilutive securities.
No interim dividends were declared by the Group related to the 9 months ended 30 September 2020 and to the 9 months ended 30 September 2019.
During the 9 months ended 30 September 2020, the Group paid dividends in amount of RON 44 thousand to the shareholders in respect of dividends declared for the previous years (in the same period of 2019 the Group paid RON 324,649 thousand of the dividends declared for 2018).
At 30 September 2020, the book value of Property, plant and equipment of the Group is RON 1,106,820 thousand (at 31 December 2019: RON 1,169,009 thousand). During the 9-month period ended 30 September 2020, the Group's additions to property, plant and equipment were of RON 59,134 thousand (during the 9-month period of the year 2019: RON 84,707 thousand).
During the 9-month period ended 30 September 2020, the Group continued the investments started in 2018 in projects to implement a new low energy pot design ("AP12LE") that will allow the Group to reduce the amount of electricity needed to produce aluminium while maintaining the current production. The AP12LE technology implementation is part of the Group's long term programme for enhancing the energy efficiency of its technological processes. The programme will be continued in the following years until all the pots are relined according to the new technology.
At the same time, the Group allocated resources to maintain and improve the equipment parameters at Alum, in order to increase the economic efficiency and for reducing emissions, following the application of the best techniques available in the field. Simultaneously with the investment activity within the technological processes, the Group performed various refurbishing works and purchased equipment necessary to support the mining activity in Sierra Leone.
The depreciation expense for 9 months of 2020 was of RON 117,969 thousand, while in the same period of the year 2019, it was of RON 109,796 thousand.
The borrowing costs capitalized in the Property, plant and equipment during the 9 months ended 30 September 2020 were of RON 696 thousand at an average interest rate of 5.28% p.a. (during the 9 months ended 30 September 2019: RON 1,169 thousand at an average interest rate of 6.53 % p.a.).
At 30 September 2020, the net book value of property, plant and equipment pledged for securing the Group's borrowings amounts to RON 876,652 thousand (at 31 December 2019: RON 926,526 thousand).
The Group performs its annual impairment test in December and when circumstances indicate that the carrying value may be impaired. As a result of the several factors, such as high volatility of aluminium market, COVID-19 pandemic outbreak with a severe impact on global manufacturing operations, prices and demand indicated that aluminium manufacturing cash-generating unit may be impaired, at 30 June 2020, an impairment test of the property, plant and equipment of Alro was carried out. The resulting recoverable value of these property, plant and equipment was higher than their net book value, so no impairment expense was recognized. As at 30 September 2020 the management has not identified impairment indications additional to those for which the test as at 30 June 2020 was performed, therefore no separate impairment tests of the property, plant and equipment were made as at 30 September 2020.
The recovery value of the cash generating unit (CGU) Alro was determined based on a fair value of CGU less costs to sell calculation by using future cashflows extracted from budgets estimated by the management of the company. The cashflows in perpetuity beyond this period were extrapolated by using a growth rate of 2.0% per annum (at 31 December 2019: 2.2%), in line with forecast inflation. Average EBITDA margin was assumed at 13.8% (at 31 December 2019: 9.7%) for the next five years increasing to a stable level of 14.7% afterwards (at 31 December 2019: 11.0%) and remaining constant at this value in perpetuity. The fair value measurement was categorized as a Level 3 fair value based on the inputs in the valuation technique used.
The key assumptions for the cash-generating unit Alro used during the impairment test performed as at 30 June 2020 were:
| 30 June 2020 | 31 December 2019 | |
|---|---|---|
| Discount rate | 9.8% | 9.3% |
| Growth rate, average of next five years | 7.20% | 6.60% |
| EBITDA margin, average of next five years | 13.80% | 9.70% |
The estimated recoverable amount of the CGU Alro exceeded its carrying amount by approximately RON 2,006,800 thousand (at 31 December 2019: RON 1,040,000 thousand). The following table shows the amount up to which the key assumptions used would need to change individually for the estimated recoverable amount to be equal to the carrying amount:
| 30 June 2020 | 31 December 2019 | |
|---|---|---|
| Discount rate | 22.1% | 14.9% |
| Growth rate, average of next five years | -2.80% | 0.80% |
| EBITDA margin, average of next five years | 8.60% | 8.20% |
| EBITDA margin, terminal value | 6.50% | 7.60% |
| Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|
|---|---|---|
| Balance 1 January | 94,284 | 90,837 |
| Translation adjustment | -1,825 | 5,067 |
| Balance at 30 September | 92,459 | 95,904 |
The goodwill is allocated to the cash generating units as follows (after conversion into RON at the period end exchange rate):
| 30 September 2020 | 31 December 2019 | |
|---|---|---|
| Alro Group | 72,893 | 74,263 |
| Global Aluminium Ltd. | 19,140 | 19,595 |
| Goodwill at acquisition of Vimetco Extrusion | 426 | 426 |
| Total | 92,459 | 94,284 |
Goodwill is tested for impairment annually (as at 31 December) and when circumstances indicate the carrying value may be impaired. As a result of the several factors, such impairment indications as decreasing aluminium prices, falling demand and the general negative effect of COVID-19 pandemic outbreak over the global economy were detected, at 30 June 2020, an impairment test of the goodwill allocated to Alro Group cashgenerating unit was carried out. The resulting recoverable value was higher than the net book value, so no impairment expense was recognized.
The recoverable amount of the cash-generating unit Alro Group was determined based on fair value less costs of disposal, estimated using discounted cash-flow techniques and applying a market-based measurement. This method requires eliminating all owner specific synergies from the cash-flow projections other than those synergies that any market participant would be able to realize. The fair value measurement was categorized as a Level 3 fair value measurement based on the inputs in the valuation technique used.
The cash flow projections were based on the business plan estimated by the directors covering a five-year period. Cash flows beyond the fiveyear period are extrapolated using the estimated growth rates stated below.
The key assumptions used in the estimation of the recoverable amount are set out in the following table. The values assigned to key assumptions and estimates used to measure the recoverable amount of the CGU Alro Group reflect past experience, are consistent with external sources of information and are based on management's expectations of market development. The production quantities were estimated based on past experience, represent management's best estimate of future production and reflect company's investment plans. Sales prices were based on the long-term aluminium prices derived from available industry and market sources. Operating costs were projected based on the historical performance and adjusted for the current market conditions and inflation.
| Key assumptions | 30 June 2020 | 31 December 2019 |
|---|---|---|
| Discount rate, after-tax | 9.8% | 9.3% |
| Growth rate (average of next five years) | 7.1% | 6.9% |
| EBITDA margin (average of next five years) | 15.9% | 12.3% |
Growth rates during the next five years are based on published industry research, directors' future expectations of economic and market conditions, the result of capital investments and anticipated efficiency improvements. The growth rate beyond the five-year period was assumed in line with the forecasted inflation, namely 2.0% (at 31 December 2019: 2.2%).
EBITDA margin is the average margin as a percentage of revenue over the five-year forecast period. It is based on the average levels experienced over the past years, with adjustments made to reflect the expected future sales volumes and price fluctuations.
The estimated recoverable amount of the CGU Alro Group exceeded its carrying amount by approximately RON 2,075,000 thousand (31 December 2019: RON 1,380,000 thousand).
The most sensitive key assumptions used in impairment test of CGU Alro Group are the discount rate and EBITDA margin. An increase of the discount rate to 18.7% and a decrease of EBITDA margin to 10.7% applicated separately, would cause the estimated recoverable amount to be equal to the carrying amount (31 December 2019: increase to 14.2% and decrease to 10.6% respectively).
As at 30 September 2020 the management has not identified impairment indications additional to those for which the test as at 30 June 2020 was performed, therefore no separate impairment tests of the goodwill was made as at 30 September 2020.
Set out below, is an overview of financial assets and financial liabilities held by the Group as at 30 September 2020 and 31 December 2019.
| 30 September 2020 | 31 December 2019 | |
|---|---|---|
| Financial assets | ||
| At amortised cost | ||
| Cash and bank balances | 398,402 | 129,346 |
| Receivables | 421,878 | 133,567 |
| Fair value through profit or loss (FVTPL) | ||
| Designated as at FVTPL | 19,180 | 11,761 |
| Total financial assets | 839,460 | 274,674 |
| 30 September 2020 | 31 December 2019 | |
|---|---|---|
| Financial liabilities | ||
| Fair value through profit or loss (FVTPL) | - | - |
| Amortised cost: | ||
| Trade and other payables | 319,391 | 267,220 |
| Non-current bank and other loans | 263,544 | 380,432 |
| Current bank and other loans | 949,502 | 873,988 |
| Total financial liabilities | 1,532,437 | 1,521,640 |
Total financial assets increased during the 9-month period of the year 2020 compared to the end of 2019 mainly due to Government grants of RON 297,973 thousand recognized by the Group, in relation to the EU Emissions Trading Scheme. The receivable comprises the compensation to which the Group is entitled for the energy costs incurred in the first 9 months of 2020 (please see Note 8).
Trade and other payables increased at 30 September 2020 compared to the end of 2019 mainly due to measures adopted by the Romanian Government to support businesses during the Covid-19 pandemic, measures which state that Romanian companies are allowed to delay the payment of taxes until 25 December 2020 without penalties or interest. The Group took the opportunity, for one of its subsidiaries, to defer the payment of approximately RON 55 million on the basis of this facility.
There were no reclassifications between the categories of financial assets during the 9 months 2020 and 2019.
The fair values of financial assets and financial liabilities are determined as follows:
• The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets is determined with reference to quoted market prices (includes listed redeemable notes, bills of exchange, debentures and perpetual notes).
• The fair value of other financial assets and financial liabilities (excluding derivative instruments) is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments.
Below is presented an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2 fair value measurements are those derived from valuation techniques containing inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Group does not have level 3 financial instruments.
There were no transfers between levels of the fair value hierarchy used in measuring the fair value of financial instruments.
The Management consider that the fair values of financial assets and financial liabilities recognised at amortised cost in the financial statements approximate their carrying amounts largely due to the short term maturities, low transaction costs of these instruments as of financial position date, and for the long-term borrowings due to the fact that the long term loans have variable interest and the bank margins are similar with those for the recently contracted bank loans.
The fair value of the following financial assets and liabilities approximate their carrying amount:
15. Inventories
| 30 September 2020 | 31 December 2019 | |
|---|---|---|
| Raw and auxiliary materials | 255,803 | 358,838 |
| Work in progress | 207,274 | 222,379 |
| Finished goods | 182,192 | 290,610 |
| Less: allowance for obsolescence | -45,529 | -42,879 |
| Total | 599,740 | 828,948 |
The decrease in value of inventories as at 30 September 2020 compared to 31 December 2019 is a result of the Group management's strategy to optimize the levels of safety stocks of the raw and auxiliary materials and finished products that was placed in operation and of the consequent efforts to reduce inventories. The sales plan was made in such a way so as to sell available output and significantly decrease the stock levels, and during the 9 months of 2020 the Group identified and took advantage of the opportunities existing in the market, especially for aluminium wire rod, aluminium billets, extruded products, and this is visible in the variation of finished products presented above. Furthermore, new procedures were implemented for stock control and acquisitions of raw materials and spare parts.
The value of inventories pledged for securing the Group's borrowings amounts to RON 559,951 thousand (at 31 December 2019: RON 800,944 thousand).
The movement in adjustments for the impairment of inventories is the following:
| Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|
|---|---|---|
| Balance at beginning of the year | -42,879 | -28,148 |
| (Charge) to cost of goods sold | -4,594 | -14,748 |
| Reversal to cost of goods sold | 1,682 | 930 |
| Translation adjustments | 262 | -705 |
| Balance at end of the period | -45,529 | -42,671 |
| 30 September 2020 | 31 December 2019 | |
|---|---|---|
| Government grants receivable | 297,973 | - |
| VAT recoverable | 65,730 | 55,479 |
| Other current assets | 10,717 | 11,916 |
| Advances to suppliers | 5,941 | 12,475 |
| Prepayments | 24,529 | 13,388 |
| Allowance for sundry doubtful debtors | -19 | -121 |
| Total | 404,871 | 93,137 |
Government grants receivable represent compensations for the high electricity prices resulting from the indirect emission costs under the EU Emission Trading Scheme (ETS). As per European and Romanian regulations, the Group is entitled to receive the aforesaid compensations for the electricity costs incurred in 2019 and in 2020. In September 2020, the Group collected RON 249,946 thousand as compensations for the electricity costs incurred in 2019. Additionally, at 30 September 2020 the Group recognized, on an accrual basis, the amount of RON 297,973 thousand representing the compensations for the 9-month period of 2020. For further details please see also Note 8 Other operating income and Note 17 Cash and cash equivalents.
| 30 September 2020 | 31 December 2019 | |
|---|---|---|
| Cash at banks in RON | 295,392 | 10,604 |
| Cash at banks in other currencies | 35,939 | 72,534 |
| Petty cash and cash equivalents | 86 | 44 |
| Total | 331,417 | 83,182 |
Cash at banks in RON increased at 30 September 2020 compared to the end of previous year as a result of the receipt in September 2020 of the compensation for the indirect emissions costs incurred in 2019 by energy intensive companies in amount of RON 249,946 thousand. For further details please see also Note 8 Other operating income and Note 16 Other current assets.
A part of the Group's bank accounts (RON 317,973 thousand as at 30 September 2020 and RON 73,127 thousand as of 31 December 2019) were pledged to guarantee the borrowings from banks.
| 30 September 2020 | 31 December 2019 | |
|---|---|---|
| Restricted cash | 66,985 | 46,164 |
| Total | 66,985 | 46,164 |
Restricted cash represents cash held in banks as collateral deposits under the provisions of loan agreements.
The change in restricted cash represents a collateral deposit of RON 30,000 thousand which was placed with a lending bank for a new revolving facility concluded in February 2020 (refer to Note 18). Also, as a result of the extension until February 2024 of one of the noncash facilities, the related collateral deposit in amount of RON 9,200 thousand was reclassified from Restricted cash as of 31 December 2019 to Other non-current assets as of 30 September 2020.
| 30 September 2020 | 31 December 2019 | |
|---|---|---|
| Long-term borrowings | ||
| Long-term bank loans | 1,070,807 | 1,209,745 |
| Less: Short-term portion of long-term bank loans | -811,630 | -835,474 |
| Bank loans, non-current | 259,177 | 374,271 |
| Leases, non-current | 4,367 | 6,161 |
| Total long-term borrowings and leases | 263,544 | 380,432 |
| Short-term borrowings | ||
| Short-term bank loans | 100,512 | 1,747 |
| Short-term portion of long-term bank loans | 811,630 | 835,474 |
| Bank loans | 912,142 | 837,221 |
| Other loans | 33,275 | 32,446 |
| Short-term bank loans, total | 945,417 | 869,667 |
| Leases, current | 4,085 | 4,321 |
| Total short-term borrowings and leases | 949,502 | 873,988 |
| Total borrowings and leases | 1,213,046 | 1,254,420 |
The bank Borrowings of the Group have maturity dates between November 2020 and December 2024. Alro has initiated discussions for extending the working capital facilities with the current and new potential lenders, with the aim to extend the maturity of the loans for another similar period. At the time these interim condensed consolidated financial statements were authorized for issue, discussions with the banks and the approval process were at an advanced level in respect of the terms and conditions for extending the two revolving loans with maturity in November 2020.
The related interest rates for the loans ranged between 2.80% for EUR and 19% for SLL (Sierra Leone Leones) in 2020 and 2019.
In February 2020, the Parent Company obtained a revolving facility in amount of RON 100,000 thousand for working capital with the maturity in November 2020.
In March 2020, another subsidiary of the Group in Sierra Leone obtained finance from a local commercial bank amounting to SLL 6,000,000 thousand (the equivalent of RON 2,582 thousand) for working capital. The loan is repayable in equal instalments until August 2021.
At 30 September 2020, the Group had the amount of RON 35,251 thousand undrawn and available from the borrowing facilities contracted with the banks (at 31 December 2019: RON 735 thousand).
In February 2020 the Parent Company signed the extension until February 2024, of the non-cash facility for letters of credit and letters of guarantee of RON 46,000 thousand and until February 2021, the one of USD 30,000 thousand for electricity acquisition purposes.
At 30 September 2020, the Group had the amount of RON 92,468 thousand unutilized and available from the non-cash facilities for letters of credit and letters of guarantee (at 31 December 2019: RON 72,881 thousand).
According to the existing borrowing agreements the Group is subject to certain restrictive covenants. These covenants require the Group, among other things, to refrain from paying dividends to its shareholders and at 31 December and 30 June of each year to maintain a minimum or maximum level for certain financial ratios, including: debt service coverage ratio, net debt to EBITDA, net debt to equity, current ratio, net financial debt to shareholders equity, solvency ratio, interest cover ratio, total net leverage ratio.
The Group borrowings are secured with accounts receivable amounting to RON 70,624 thousand (at 31 December 2019: RON 55,422 thousand), with their current accounts opened with banks (see Note 17), with collateral deposits of RON 75,200 thousand (at 31 December 2019: RON 45,200 thousand), with property, plant and equipment (land, buildings, equipment) with a net book value of RON 876,652 thousand (2019: RON 926,526 thousand) and with inventories of RON 559,951 thousand (2019: RON 800,944 thousand).
The Group has estimated that the fair value of the borrowings and the leases equals their carrying amount, mainly due to the fact that the long term loans have variable interest and the bank margins are similar with those for the recently contracted bank loans. Their fair value belongs to the level 3 of the fair value measurement hierarchy.
The Group enters, under normal terms of business, into certain transactions with shareholders, companies under common control, directors and management. The transactions between the related parties are based on mutual agreements, are not secured, and the management considers such transactions to be on an arm's length basis.
The main related parties with whom the Group had transactions during the period are:
| Related party | |
|---|---|
| Vimetco N.V. | Major shareholder |
| Paval Holding SRL | Shareholder |
| Alum S.A. | Subsidiary |
| Vimetco Extrusion SRL | Subsidiary |
| Conef S.A. | Subsidiary |
| Sierra Mineral Holdings 1, Ltd | Subsidiary |
| Global Aluminum Ltd. | Subsidiary |
| Bauxite Marketing Ltd. | Subsidiary |
| Vimetco Trading SRL | Common control |
| Vimetco Management Romania SRL | Common control |
| Vimetco Power Romania SRL | Common control |
| Conef Gaz SRL | Common control |
| Conef Energy SRL | Common control |
| Centrul Rivergate SRL | Common control |
| Rivergate Rating Group | Common control |
| Rivergate Fire SRL | Common control |
| Henan Zhongfu High Precision Aluminium | Common control |
Group transactions are eliminated on consolidation.
The primary related party transactions are described below:
| Sales of goods and services | Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|---|---|---|
| Companies under common control | 1,149 | 995 |
| Total goods and services provided to related parties | 1,149 | 995 |
| Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|
|---|---|---|
| Companies under common control | -164,482 | -215,026 |
| Total goods and services purchased from related parties | -164,482 | -215,026 |
The purchases from related parties include acquisitions of gas for the production process by the Group companies from their related party Conef Gaz (during the 9-month period ended 30 September 2020: RON 122,636 thousand; during the 9-month period ended 30 September 2019: RON 171,896 thousand). Additionally, the companies within the Group received services of a supportive nature from other entities under common control such as advisory services, sales agency services, guard, logistics and administrative services.
The following balances were outstanding at 30 September 2020 and 31 December 2019:
| 30 September 2020 | 31 December 2019 | |
|---|---|---|
| Companies under common control | 4,072 | 3,557 |
| Allowance for doubtful receivables | -394 | -394 |
| Total trade and other accounts receivable from related parties | 3,678 | 3,163 |
| - non-current | - | - |
| - current | 3,678 | 3,163 |
| Trade and other accounts payable: |
| 30 September 2020 | 31 December 2019 | |
|---|---|---|
| Companies under common control | 9,224 | 7,118 |
| Total trade and other accounts payable to related parties | 9,224 | 7,118 |
During the 9 months ended 30 September 2020, the Parent Company paid dividends of RON 44 thousand to shareholders in respect of dividends declared for the previous years. During the 9 months ended 30 September 2019, the Parent Company paid dividends declared for 2018 in total amount of RON 324,635 thousand, out of which an amount of RON 176,982 thousand was paid to the major shareholder Vimetco N.V. and an amount of RON 75,809 thousand to its shareholder Paval Holding SRL.
The total compensation of the Group's key management personnel included in General, administrative and selling expenses in the Statement of Profit or Loss and other Comprehensive Income amounts to RON 8,305 thousand (during the 9 months of the year 2019: RON 7,348 thousand), while the expense for determined contribution plan (social contributions) during the 9 months of the year 2020 was RON 1,630 thousand (during the 9 months of the year 2019: RON 1,614 thousand).
A number of key management personnel, or their close family members, hold positions in other companies that result in them having control or significant influence over these companies.
A number of these companies transacted with the Group during the year. The terms and conditions of these transactions were no more favourable than those available, or which might reasonably be expected to be available, in similar transactions with non-key management personnel related companies on an arm's length basis.
| Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|
|---|---|---|
| Goods and services purchased from entities controlled by key management personnel or their close family members |
23 | 84 |
| Total | 23 | 84 |
As at 30 September 2020, the Group's commitments pertaining to the investments amounted to RON 30,042 thousand (31 December 2019: RON 42,873 thousand).
As at 30 September 2020, the Group had contracts for purchases of raw materials, electricity, other consumables and utilities in amount of RON 513,062 thousand (31 December 2019: RON 957,574 thousand).
The Parent Company has a commitment concluded with the financing bank of one of its subsidiaries (Vimetco Extrusion) where it is mentioned, among others, that the Company should not, by its actions, cause circumstances in which the subsidiary might not be able to discharge its liabilities towards the financing bank. The Management does not expect that this commitment might materialize into cash outflows from the Company, as the conditions imposed by it are totally under the control of Alro.
As at 30 September 2020 the Group was subject to a number of lawsuits resulting from the normal course of the business. Management believes that these actions will not have a significant impact on the financial performance and financial position of the Group.
The Group as a plaintif: in 2016, the Parent Company contested before the Court of Law a decision of the Competition Council that fined the Company by RON 21,239 thousand for an alleged vertical agreement on the energy market, which was firmly challenged by the Company, as well as several Romanian Energy Regulatory Authority ("ANRE") orders regarding the calculation of green certificate quota for the Company's energy consumptions in 2015 and regarding the quota settlement methodology. The disputes are ongoing before the competent Courts of Law. The appeal against the sanction decision issued by the Competition Council was rejected by the Primary Court - the Bucharest Court of Appeal. The Company will use legal remedies to defend its position in the case.
The Group as a defendant: in March 2020, the Parent Company of the Group was notified by the United States International Trade Commission that several companies in the United Stated filed a petition for the establishment of antidumping tariffs for certain aluminium products originating from 18 countries, including Romania, imported in United States between 2017 and 2019. The petition is filled by the US Aluminium Association and is concerning the aluminium sheets between 0.2 mm and 6.3 mm, made from common alloys (1xxx, 3xxx and 5xxx series). In case of the sheets of Romanian origin, produced by Alro S.A., the preliminary antidumping tariff, determined by the US Department of Commerce and applicable immediately, is of 83.94%. The tariffs which are the subject of the petition must be paid by the importers, not by the producers and they are not imposed retroactively. For Alro Group, the potential loss would be the decrease of future sales to USA market, since the American importers are thus descouraged to continue buying from us. The Company is continuing to consider the petition as unfounded and the calculations which are behind it as erroneous and intends to vigorously defend its position in front of the American authorities involved.
Starting September 2019, the Parent Company of the Group has been subject to a fiscal audit by the National Agency for Fiscal Administration related to income tax and VAT transactions, for the period January 2013 - December 2014. At the date of approval of these interim condensed consolidated financial statements the fiscal inspection was not completed. The Group management does not estimate a significant financial impact as a consequence of this fiscal audit.
At 30 September 2020, one of the Group subsidiaries was subject to fiscal audit from the National Agency for Fiscal Administration regarding the period 2013 - 2018. At the date when these interim condensed consolidated financial statements were approved, the fiscal inspection was not finalized. The Group's management does not expect any significant financial impact from this fiscal audit.
In March 2020, the Group subsidiary Sierra Mineral Holdings 1, Limited received an information from the National Mining Agency on a new review of the regulatory document for all mining companies in Sierra Leone. The review was postponed due to the SARS-CoV- 2 pandemic. Management could not estimate, at the date when these interim condensed consolidated financial statements were approved, the potential impact that this review would have on the financial statements of the Group.
On 7 October 2020, the Temporary Framework scheme for State aid in the form of guarantees on loans was published in the Official Gazette of Romania (the "EximBank Guarantees under the Covid-19 state aid scheme"). This scheme supports the Large Enterprises among others, in contracting new loans (investment or working capital) secured by a state guarantee covering maximum 90% of the facility amount for a period that may not exceed 4 years for working capital, respectively 6 years for investment loans. The Group is contemplating the possibility to apply for the scheme and to benefit from its advantages in contracting its future loans.
There were no other material subsequent events that could have a significant impact on these financial statements.
Ratios in accordance with Appendix 13A from regulation 5/2018 issued by FSA
| Ratio description | Formula | Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|---|---|---|---|
| Current ratio | Current assets/ Current liabilities | 1.13 | 2.31 |
| Gearing ratio | Long-term borrowings/ Equity x 100 | 25.39 | 138.25 |
| Long-term borrowings/ Capital employed x 100 | 20.25 | 58.03 | |
| Receivables turnover | Receivables average balance/ Turnover x 270 | 9.41 | 8.75 |
| Non-current assets turnover | (Turnover x 360/ 270)/ Non-current assets | 2.06 | 2.09 |
At 30 September 2020, the Current Ratio as well as the Gearing ratio decreased as a result of the classification from long term to short term at 30 September 2020, of some bank loan facilities with maturities within one year from the reporting date.
To ensure the comparability of the ratios Current Ratio and Gearing Ratio, the ratios for 30 September 2020 are presented below, adjusted with the aforementioned credit facilities by transferring them in the Long-term borrowings from the Current liabilities category.
| Ratio description | Formula | Nine months ended 30 September 2020 |
Nine months ended 30 September 2019 |
|---|---|---|---|
| Adjusted current ratio | Current assets/ Current liabilities | 2.40 | 2.31 |
| Adjusted gearing ratio | Long-term borrowings/ Equity x 100 | 90.95 | 138.25 |
| Long-term borrowings/ Capital employed x 100 | 47.63 | 58.03 |
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.