Interim / Quarterly Report • Jun 30, 2013
Interim / Quarterly Report
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07:00 London, 09:00 Helsinki, 15 August 2013 - Afarak Group Plc ("Afarak" or "the Company") (LSE: AFRK, OMX: AFAGR) Interim Report
| KEY FIGURES (EUR million) | Q2/13 | Q2/12 | Change | H1/13 | H1/12 | Change | FY/12 |
|---|---|---|---|---|---|---|---|
| Revenue | 31.4 | 31.0 | 1.4% | 63.0 | 76.5 | -17.7% | 128.6 |
| EBITDA | 6.2 | 1.6 | 296.6% | 10.3 | 4.7 | 119.9% | 9.2 |
| EBITDA margin | 19.6% | 5.0% | 16.4% | 6.1% | 7.2% | ||
| EBIT | 0.0 | -4.8 | -2.0 | -8.4 | -16.8 | ||
| EBIT margin | 0.1% | -15.4% | -3.2% | -10.9% | -13.0% | ||
| Earnings before taxes | -2.5 | -4.2 | -5.3 | -6.3 | -19.6 | ||
| Earnings margin | -8.0% | -13.5% | -8.4% | -8.2% | -15.2% | ||
| Profit | -1.8 | -2.3 | -1.9 | -4.3 | -16.6 | ||
| Earnings per share, basic, EUR | -0.01 | -0.01 | -0.01 | -0.01 | -0.06 |
"I am pleased to report that the positive trend started in Q1 has continued into the second quarter. There is a significant improvement compared to the same period last year and in the second quarter we have managed an improvement over last year's revenue despite the lower sales and difficult market conditions. We were also able to increase profitability and generate positive cash flow. This was achieved by focusing on value added speciality products, increase in the sales of ferrochrome, increased mining production and lowering our cost base. This improved revenue allowed us to pay a EUR 0.01 capital redemption per share to our shareholders in May this year and to shift our focus to new investment opportunities.
Regardless of the processing volumes being lower in the second quarter compared to the equivalent period last year, we secured a higher margin. Despite the fact that the ferrochrome market remains difficult to predict, we have seen some positive growth in that segment.
In the longer term I firmly believe that ferrochrome, particularly the speciality and super alloys segment, will again be in high demand. At the same time we are not waiting for the market to change, but are continuously evaluating different initiatives that could strengthen our position and provide new growth opportunities.
In addition we have significantly restructured our organisation and the way we work to streamline costs. Our focus remains on generating cash and increasing profits. The Company has also changed its name and we now are operating under the name Afarak Group plc."
The global economic outlook continues to be uncertain in 2013. Despite the Eurozone crisis continues, there are signs of an increase in the demand for commodities. The ferroalloy market however, is still expected to continue to be volatile during the year with signs of improvement expected at the end of the year or the first quarter of next year. The Group is preparing for significant price fluctuations and will continue to adapt its production levels accordingly. The Company is also continuing its cost saving initiatives and restructuring of functions and this is expected to bring material costs savings in 2013 compared to previous financial year. In light of this the Group expects its financial performance for the full year 2013 to significantly improve compared to 2012.
Fluctuations of exchange rates between the Euro, the South African Rand, the Turkish Lira and the US Dollar can significantly impact the Company's financial performance.
The previous outlook, published in the first quarter interim results on 8 May 2013, was:
The global economic outlook continues to be uncertain in 2013 as the Eurozone crisis continues and demand for commodities, primarily driven by Chinese consumption, remains weak. The ferroalloy market is expected to continue to be volatile during the year. The Group is preparing for significant price fluctuations and will continue to adapt its production levels accordingly. At Mogale Alloys, part of the FerroAlloys division, the decision has been taken to participate in Eskom's electricity buyback program. The Company is also continuing its cost saving initiatives and restructuring of functions and this is expected to bring material costs savings in 2013 compared to previous financial year. In light of this the Group expects its financial performance for the full year 2013 to significantly improve compared to 2012.
Fluctuations of exchange rates between the Euro, the South African Rand, the Turkish Lira and the US Dollar can significantly impact the Company's financial performance.
Afarak follows the disclosure procedure enabled by Disclosure obligation of the issuer (7/2013) published by the Finnish Financial Supervision Authority, and hereby publishes its Q2/2013 interim report enclosed to this stock exchange release. The Interim Report is attached to this release and is also available on the Company's website at www.afarakgroup.com.
Management will host an investor conference call in English on 15 August 2013 at 14.00 Finnish time, 12.00 UK time. Please dial-in at least 10 minutes beforehand, quoting the reference: 44732.
Finnish number +358 (0)800 919 339
UK number +44 (0) 844 762 0 762
AFARAK GROUP PLC Danko Koncar CEO
For additional information, please contact:
Afarak Group Plc Danko Koncar, CEO, +44 (0)20 7376 1175, [email protected]
Investec Bank Plc Jeremy Wrathall, +44 (0)20 7597 5970 George Price, +44 (0)20 7597 5970
Financial reports and other investor information are available on the Company's website: www.afarakgroup.com.
Afarak Group is a chrome mining and minerals producer focused on delivering sustainable growth with a speciality alloys business in southern Europe and a ferro alloys business in southern Africa. The Company is listed on NASDAQ OMX Helsinki (AFAGR) and the Main Market of the London Stock Exchange (AFRK). www.afarakgroup.com
Distribution: NASDAQ OMX Helsinki London Stock Exchange main media www.afarakgroup.com
This Interim Report is prepared in accordance with the IAS 34 standard and is unaudited. All the corresponding comparable figures of 2012 are presented in brackets, unless otherwise explicitly stated.
Sales from processing:
| Tonnes | Q2/13 | Q2/12 | H1/13 | H1/12 | FY/12 |
|---|---|---|---|---|---|
| Processing, Speciality Alloys | 5,944 | 6,869 | 11,606 | 13,759 | 27,324 |
| Processing, FerroAlloys | 4,745 | 5,698 | 14,076 | 31,622 | 39,125 |
| Processing, Total | 10,689 | 12,567 | 25,682 | 45,381 | 66,449 |
The Group's sales from processing, which includes all the products produced at the Mogale Alloys and EWW processing plants, were 10,689 (Q2/2012: 12,567) tonnes, a decrease of 14.9% compared to the equivalent period in 2012, which was mainly attributable to the decision to participate in Eskom's electricity buyback program in South Africa but also the decision to remain disciplined and not to compromise the sales prices or margins in a weak market.
After very challenging business conditions in the first quarter we could see better conditions when entering into second quarter of 2013, with South African benchmark price increasing from 112.50 USc/lb Cr to 127.00 USc/lb Cr. We could see a noticeable recovery in shipments especially to the speciality stainless steel plants in tube, oil & gas, turbine and aerospace industries.
The Global stainless steel production market has been forecasted to achieve an all-time high figure of 36.4 million tonnes in the calendar year, 2013. This would be approximately 3% above the previous year, with China, Taiwan and Korea the most aggressive producers and exporters. The established markets such as the EU, United States and Japan remain below the pre-crisis high of 2007.
Chinese standard stainless steel and ferro chrome production continues to expand faster than anywhere else. A year-on-year increase of more than 7% is forecasted for 2013, giving total production of over 17 million tonnes. The other established stainless steel producing nations in the Far East are experiencing difficulties as a result of the fast growing Chinese industry, both Taiwan and South Korea are expected to decrease their stainless steel production this year. The situation in Japan is improving slightly, weakening currency improving exports and a marginal increase in crude stainless steel production is anticipated to give a total of over 3.1 million tonnes.
In the United States economic indicators have been largely positive; output in the first half of 2013 has matched expectations and we have improved our forecasts for the remainder of the year, to give an annual market total of more than 2 million tonnes, which is an increase of over 3%, year-on-year basis. We also observed encouraging signs in Industrial activities in the second quarter. The European Union remained depressed during the second quarter. The countries in the south of the continent have shown little sign of recovery. Even in Germany, where the effects of the financial crisis were offset by strong sales of luxury cars and other consumer goods to Asia, their economy has also slowed with a reduction in standard stainless steel and ferro chrome production of nearly 2% on last year's figure expected.
Afarak believes that the confidence should return to the market during end of the year 2013 or the first quarter of next year if, as expected, the economic climate improves. Raw material costs are likely to rise during this period as demand traditionally improves at this time. Consequently, the Board believe that the first half of 2014 could be the start of a sustained revival in stainless steel transaction values.
| EUR million | Q2/13 | Q2/12 | Change | H1/13 | H1/12 | Change | FY/12 |
|---|---|---|---|---|---|---|---|
| Revenue | 31.4 | 31.0 | 1.4% | 63.0 | 76.5 | -17.7% | 128.6 |
| EBITDA | 6.2 | 1.6 | 296.6% | 10.3 | 4.7 | 119.9% | 9.2 |
| EBITDA margin | 19.6% | 5.0% | 16.4% | 6.1% | 7.2% | ||
| EBIT | 0.0 | -4.8 | -2.0 | -8.4 | -16.8 | ||
| EBIT margin | 0.1% | -15.4% | -3.2% | -10.9% | -13.0% | ||
| Profit | -1.8 | -2.3 | -1.9 | -4.3 | -16.6 |
Revenue for the second quarter 2013 increased by 1.4% to EUR 31.4 (31.0) million compared to the equivalent period in 2012. This minor increase in revenue was mainly attributable to the increase in sales volumes in the FerroAlloys segment. EBITDA for the second quarter 2013 improved substantially compared to the equivalent period in 2012 to EUR 6.2 (1.6) million. This was not only attributable to improved profitability in the FerroAlloys segment but also a reduction in costs across all our operations.
Earnings per share was EUR -0.01 (-0.01).
The Group's liquidity, as at 30 June 2013, was EUR 17.7 (44.3) (31 December 2012: 14.2) million. Operating cash flow in the second quarter was EUR 4.8 (14.4) million. Afarak's gearing at the end of the second quarter was -7.9% (6.7%) (31 December 2012: -5.4%). Net interest-bearing debt was EUR -15.6 (15.9) (31 December 2012: -11.4) million.
Total assets on 30 June were EUR 285.4 (382.6) (31 December 2012: 304.2) million. The equity ratio was 71.2% (62.2%) (31 December 2012: 69.2%). Decrease in total assets value during quarter two was mainly due to the translation of the South African Rand denominated assets as the currency weakened significantly in June 2013.
Capital expenditure for the second quarter 2013 totalled EUR 2.6 (9.3) million which relates primarily to the acquisition of property surface rights in South Africa as well as sustaining capital expenditure at the Speciality Alloys segment.
At the end of the second quarter 2013, Afarak had 754 (794) employees. The average number of employees during the second quarter of 2013 was 757 (799).
Number of employees by segment *:
| 30.6.2013 | 30.6.2012 | Change | 31.12.2012 | |
|---|---|---|---|---|
| Speciality Alloys | 423 | 432 | -2.1% | 423 |
| FerroAlloys | 328 | 353 | -7.1% | 335 |
| Other operations | 3 | 9 | -66.7% | 10 |
| Group total | 754 | 794 | -5.0% | 768 |
*Including personnel of joint ventures.
The Group's target is to introduce standardised health, safety and environmental policies and procedures across the Group's operations and continue its programme focused on pro-active safety and environmental measurements as part of its aim to achieve "Zero Harm". This standardisation process is on-going and is expected to be finalised during 2013.
In the second quarter of 2013 the results obtained in decreasing the lost time injury frequency were satisfactory with only minor incidents reported. Afarak continues all efforts, including training, to further improve the safety performance.
Afarak aims to conduct its business in a sustainable way and to preserve the environment by minimising the environmental impact of its operations. The Group has programmes on all sites to monitor and address its impact on the environment.
The Speciality Alloys business consists of TMS, the mining and beneficiation operation in Turkey, and EWW, the chromite concentrate processing plant in Germany. TMS supplies EWW with high quality chromite concentrate which produces speciality products including Specialised Low Carbon and Ultra Low Carbon Ferrochrome. Excess chrome ore from TMS is exported.
Production:
| Tonnes | Q2/13 | Q2/12 | Change | H1/13 | H1/12 | Change | FY/12 |
|---|---|---|---|---|---|---|---|
| Mining* | 16 808 | 17 729 | -5,2 % | 33 057 | 36 983 | -10,6 % | 72,098 |
| Processing | 4 618 | 7 484 | -38,3 % | 11 593 | 14 225 | -18,5 % | 25,129 |
* Including both chromite concentrate and lumpy ore production
Production decreased to 21,426 (25,213) tonnes for the second quarter 2013, compared to the equivalent period in 2012. This was mainly due to a decision to reduce work shifts in order to better respond to reduced demand in the market. In addition the maintenance shutdown at EWW was held in June as opposed to July due to considerable maintenance work required. Mining at TMS operated at normal levels.
| EUR million | Q2/13 | Q2/12 | Change | H1/13 | H1/12 | Change | FY/12 |
|---|---|---|---|---|---|---|---|
| Revenue | 18.7 | 22.3 | -16% | 37.0 | 43.6 | -15.1% | 76.5 |
| EBITDA | 3.1 | 4.5 | -32.2% | 6.0 | 7.7 | -21.9% | 11.0 |
| EBITDA margin | 16.4% | 20.4% | 16.4% | 17.8% | 14.3% | ||
| EBIT | -1.3 | 0.4 | -2.7 | -0.8 | -6.7 | ||
| EBIT margin | -6.8% | 1.8% | -7.2% | -1.9% | -8.7% |
Revenue for the second quarter decreased by 16.0% to EUR 18.7 (22.3) million and EBITDA decreased by 32.2% to EUR 3.1 (4.5) million compared to the equivalent period in 2012. The decrease in revenue was due to lower sales volumes and decreased sales prices. EBIT and EBITDA has been increased by nonrecurring sale of land in Turkey and sale of professional services aggregating EUR 1.7 million.
As at 30 June 2013, the business had 423 (432) employees.
The FerroAlloys business consists of the processing plant Mogale Alloys and the joint ventures Stellite mine and Mecklenburg mine in South Africa. The business produces chrome ore, Charge Chrome and Silico Manganese for sale to global markets.
| Tonnes | Q2/13 | Q2/12 | Change | H1/13 | H1/12 | Change | FY/12 |
|---|---|---|---|---|---|---|---|
| Mining* | 134 787 | 38 144 | 253,4 % | 188 494 | 93 377 | 101,9 % | 140,346 |
| Processing | 7 665 | 10 824 | -29,2 % | 12 285 | 20 762 | -40,8 % | 50,522 |
* Including both chromite concentrate and lumpy ore production by the joint ventures
Production in this segment increased substantially to 134,787 (38,144) tonnes in the second quarter of 2013 when compared to the same period in 2012, this was driven by two main factors. The first, production at the Stellite mine resumed in April 2013 and improved mining methods gave increased quantities and also improved quality of the mine. The second, production at the Mecklenburg mine ramped up as planned during the quarter and the opencast mine is now in full production.
Production at Mogale Alloys, however, was reduced by the decision to participate in Eskom's electricity buyback program which ended in May 2013, production at Mogale resumed in June 2013.
| EUR million | Q2/13 | Q2/12 | Change | H1/13 | H1/12 | Change | FY/12 |
|---|---|---|---|---|---|---|---|
| Revenue | 12.7 | 8.6 | 46.6% | 26.0 | 32.9 | -21.0% | 52.1 |
| EBITDA | 3.7 | -1.4 | 357.6% | 7.3 | 0.6 | 1077.7% | 3.5 |
| EBITDA margin | 28.9% | -16.4% | 27.9% | 1.9% | 6.7% | ||
| EBIT | 1.9 | -3.6 | 3.7 | -3.8 | -4.8 | ||
| EBIT margin | 15.0% | -41.6% | 14.1% | -11.7% | -9.3% |
* Revenue of the joint ventures is not included in the Group's revenue
Revenue for the second quarter improved to EUR 12.7 (8.6) million compared to the equivalent period in 2012, representing an increase of 46.6%. The increase in revenue was mainly due to the improvement in sales prices, the increase in demand for chrome ore, and the resumed production at Mogale. EBITDA for the second quarter increased to EUR 3.7 (-1.4) million. The increase in EBITDA compared to the equivalent period in 2012 was driven by the improved market demand for chrome ore, and the reduction in cost of production due to weakening of the South African Rand. EBITDA was negatively affected by EUR -0.8 (-0.5) million as the joint venture share of profits includes financial expenses which relate to unrealised exchange difference which has not yet been materialised.
EUR million Q2/13 Q2/12 Change H1/13 H1/12 Change FY/12 Revenue 3.4 2.2 56,3 % 4.1 5.1 -20,6 % 6.6 EBITDA 0.4 -0.8 0.3 -2.6 -1.6 EBITDA margin 12.8% -36.1% 6.5% -51.3% -24,6 % EBIT 0.2 -1.0 -0.1 -3.0 -2.4 EBIT margin 6.1% -45.5% -3.2% -58.9% -36,2 % Financial income and expense -0.8 -0.5 -2.3 -0.4 -1.0
The share of profit from joint ventures is made up as follows:
Afarak's share of joint ventures revenue for the second quarter improved to EUR 3.4 (2.2) million compared to the equivalent period in 2012, representing an increase of 56.3%. The increase in revenue was mainly due to the improvement in sales prices, the increase in demand for chrome ore, and the increase in volumes sold due to the Mecklenburg mine material. EBITDA for the second quarter increased to EUR 0.4 (-0.8) million. Increase in EBITDA compared to the equivalent period in 2012 was driven by the improved market demand for chrome ore as well as improved mining methods helped in lowering mining costs. A substantial part of the financial expenses relate to unrealised exchange difference which has not yet been materialised.
period -0.6 -3.2 -2.4 -4.6 -4.7
As at 30 June 2013, the business had 328 (353) employees.
Profit for the
For the second quarter of 2013, the EBITDA from unallocated items was EUR -0.6 (-1.9) million including a EUR 0.0 (0.2) million non-cash expense for the share-based payments. The improvement in EBITDA was mainly due to the restructuring at headquarters level that took place in the first quarter of 2013.
The Company announced on 30 April 2013 that it has entered into a settlement agreement with Rautaruukki Oyj ("Rautaruukki") in relation to the dispute regarding the Company's and Rautaruukki's right to use and register trademarks and company names containing the word 'ruukki'.
According to the settlement agreement, the Company and its subsidiaries are required to change their names to ones that do not contain the word Ruukki within six months (the "Transition Period"). Rautaruukki will compensate the Company in relation to the name change and both the Company and Rautaruukki will bear all of their own legal and other costs incurred in connection with the dispute. After the Transition Period, Rautaruukki and the Company will withdraw all claims and other actions that they have filed against each other and the Company will assign Rautaruukki all rights and trademarks in relation to the 'Ruukki' name.
The Company's Annual General Meeting ("AGM") was held on 8 May 2013. The AGM adopted the financial statements. The AGM resolved in accordance with the proposal of the Board of Directors a capital redemption of EUR 0.01 per share for the year ended on 31 December 2012. The capital redemption was paid on 21 May 2013. The AGM discharged the members of the Board of Directors and the CEO from liability for the financial period 2012.
The AGM resolved that all Board Members are paid EUR 3,000 per month. Those members of the Board of Directors that are executives of the Company are not entitled to receive any remuneration for the Board membership.
The AGM resolved that the Board of Directors comprises of six members. Dr Jelena Manojlovic, Ms Bernice Smart, Mr Markku Kankaala, Dr Danko Koncar, Mr Michael Lillja and Dr Alfredo Parodi were re-elected to the Board. At its meeting held after the Annual General Meeting, the Board of Directors elected from among its members Dr Jelena Manojlovic as Chairman and Ms Bernice Smart as Deputy Chairman. The Board appointed from among its members the following members to the Committees: Audit Committee:
Bernice Smart, (Chairman), Markku Kankaala, Alfredo Parodi
The Nomination and Remuneration committee Jelena Manojlovic (Chairman), Michael Lillja, Bernice Smart
The AGM resolved that authorised public accountant firm Ernst & Young Oy is re-elected as the Auditor of the Company for the year 2013.
The AGM authorised the Board of Directors to resolve on the share issue and on the issuing of stock options and other special rights that entitle to shares. A maximum of 24,843,200 new shares or shares owned by the Company can be emitted. The authorisation contains the right to decide on derogating from shareholders' pre-emptive right to share subscription. The authorisation replaced all previous authorisations and it is valid two years from the resolution of the Annual General Meeting.
The AGM authorised the Board of Directors to resolve upon acquiring a maximum of 15,000,000 of the Company's own shares. The authorisation replaces all previous authorisations and it is valid 18 months from the decision of the Annual General Meeting.
On 1 July 2013 Mogale Alloys has entered into a contract in relation to the installation of ferroalloy refining and granulation equipment. The equipment complements Mogale's current four furnaces producing low phosphor ferrochrome and low phosphor silicomanganese. Once the installations are complete, a significant part of the current ferrochrome production can be converted to granulated medium carbon ferrochrome. This is in line with the Company's goal to provide niche products into mature markets to increase profitability and optimise shareholder value. The project commenced in July 2013 and first production of speciality alloys will commence in Q3 2014.
On 5 July 2013 the Company held an Extraordinary General Meeting ("EGM"). The EGM resolved that that the non-executive Board Members who serve on the Board's Committees shall be paid additional EUR 1,500 per month for the committee work. The director's monthly remuneration fee of EUR 3,000 remained
unchanged. Furthermore, The EGM resolved to change the name of the Company and the article 1 of the Company's Articles of Association was amended to the following:
1) Company name and domicile The name of the company is Afarak Group Oyj and domicile is Helsinki. The company name in English is Afarak Group Plc.
On 10 July 2013, the Company announced that it is contemplating a directed share issue to Singaporean Sail Resources Pte. The share issue would consist of up to five million new ordinary shares. The shares will be offered in derogation of the pre-emptive subscription right of shareholders and the implementation of the share issue would be pursuant to the authorisation granted to the Company's Board of Directors at the Company's Annual General Meeting on 8 May 2013. The Board of Directors aimed to resolve on the terms and conditions of the share issue by the end of July 2013 but the negotiations of the final terms and conditions are still on-going and the Company expects to complete the negotiations in near future.
On 18 July 2013, the Company's new name was registered in the Finnish Trade Register.
On 19 July 2013, the Company's NASDAQ OMX Helsinki Tradable Instrument Display Mnemonic ("TIDM") changed from RUG1V to AFAGR and London Stock Exchange TIDM changed from RKKI.L to AFRK.L. The ISIN and SEDOL numbers, being FI0009800098 and B28LN87 respectively, remained unchanged.
Afarak Group Plc's shares are listed on NASDAQ OMX Helsinki (AFAGR) and on the Main Market of the London Stock Exchange (AFRK).
On 30 June 2013, the registered number of Afarak Group Plc shares was 248,432,000 (248,432,000) and the share capital was EUR 23,642,049.60 (23,642,049.60).
On 30 June 2013, the Company had 4,297,437 (4,414,682) own shares in treasury, which was equivalent to 1.73% (1.78%) of the issued share capital. The total amount of shares outstanding, excluding the treasury shares held by the Company on 30 June 2013, was 244,134,563 (244,017,318).
At the beginning of the period under review, the Company's share price was EUR 0.44 on NASDAQ OMX Helsinki and GBP 0.35 on the London Stock Exchange. At the end of the review period, the share price was EUR 0.42 and GBP 0.34 respectively. During the second quarter of 2013 the Company's share price on NASDAQ OMX Helsinki ranged from EUR 0.40 to 0.46 per share and the market capitalisation, as at 31 June 2013, was EUR 104.3 (1.1.2013: 111.8) million. For the same period on the London Stock Exchange the share price range was GBP 0.36 to 0.37 per share and the market capitalisation was GBP 84.5 (1.1.2013: 87.0) million, as at 30 June 2013.
Based on the resolution at the AGM on 8 May 2013, the Board is authorised to buy-back up to a maximum of 15,000,000 of its own shares. This authorisation is valid until 8 November 2014. The Company did not carry out any share buy-backs during the second quarter of 2013.
On 5 June 2013 Afarak received a notification that Kermas Limited, which comprises the indirect interest of the Chairman of the Board Dr Jelena Manojlovic and the CEO Dr Danko Koncar, has acquired 29,467 ordinary shares in the Company at an average price of EUR 0.4223 per share between 31 May 2013 and 4 June 2013. The trades were made on the NASDAQ OMX Helsinki. Accordingly Kermas Limited, now holds voting rights attached to 70,795,967 Shares, representing 28.99 per cent of the issued share capital of the Company excluding treasury shares.
The changes in the key risks and uncertainties are set out below. Further details of the risks and uncertainties have been published in the Group's 2012 Financial Statements.
Afarak´s financial performance is dependent on the general market conditions of the mining, smelting and
minerals processing business. Global financial markets have been very volatile, exacerbated by the Eurozone crisis, and there is uncertainty as to how commodity prices will respond for the rest of 2013, which could considerably impact the Company's revenue and financial performance in 2013.
Changes in foreign exchange rates, if adverse, could have a substantial negative impact on the Group's profitability, in particular changes in US Dollar/South African Rand. In order to better manage its foreign exchange US Dollar/South African Rand exposure, the Group has entered into forward contract arrangements.
Afarak's processing operations in Germany and South Africa are intensive users of energy, primarily electricity. Fuel and energy prices globally have been characterised by volatility and cost inflation. In South Africa the majority of the electricity supply, price and availability are controlled by one entity, Eskom. Increased electricity prices and/or reduced or uncertain electricity supply or allocation may negatively impact Afarak's current operations, which could have an impact on the Group's financial performance.
The global economic outlook continues to be uncertain in 2013. Despite the Eurozone crisis continues, there are signs of an increase in the demand for commodities. The ferroalloy market however, is still expected to continue to be volatile during the year with signs of improvement expected at the end of the year or the first quarter of next year. The Group is preparing for significant price fluctuations and will continue to adapt its production levels accordingly. The Company is also continuing its cost saving initiatives and restructuring of functions and this is expected to bring material costs savings in 2013 compared to previous financial year. In light of this the Group expects its financial performance for the full year 2013 to significantly improve compared to 2012.
Fluctuations of exchange rates between the Euro, the South African Rand, the Turkish Lira and the US Dollar can significantly impact the Company's financial performance.
The previous outlook, published in the first quarter interim results on 8 May 2013, was:
The global economic outlook continues to be uncertain in 2013 as the Eurozone crisis continues and demand for commodities, primarily driven by Chinese consumption, remains weak. The ferroalloy market is expected to continue to be volatile during the year. The Group is preparing for significant price fluctuations and will continue to adapt its production levels accordingly. At Mogale Alloys, part of the FerroAlloys division, the decision has been taken to participate in Eskom's electricity buyback program. The Company is also continuing its cost saving initiatives and restructuring of functions and this is expected to bring material costs savings in 2013 compared to previous financial year. In light of this the Group expects its financial performance for the full year 2013 to significantly improve compared to 2012.
Fluctuations of exchange rates between the Euro, the South African Rand, the Turkish Lira and the US Dollar can significantly impact the Company's financial performance.
| Closed period | Reporting date | |
|---|---|---|
| Q3 Interim Report 2013 | 9.10.-8.11.2013 | 8 November 2013 |
| H1/2013 6 months EUR '000 |
Speciality Alloys |
Ferro Alloys |
Unallocated items |
Eliminations | Group total |
|---|---|---|---|---|---|
| Revenue | 36,973 | 26,033 | 171 | -152 | 63,025 |
| EBITDA | 6,047 | 7,274 | -2,983 | 0 | 10,338 |
| EBIT | -2,672 | 3,666 | -3,007 | 0 | -2,012 |
| Segment's assets | 144,805 | 109,775 | 92,018 | -61,187 | 285,411 |
| Segment's liabilities | 88,613 | 44,896 | 13,085 | -59,975 | 86,619 |
| H1/2012 6 months |
Speciality Alloys |
Ferro Alloys |
Unallocated items |
Eliminations | Group total |
|---|---|---|---|---|---|
| EUR '000 | |||||
| Revenue | 43,522 | 32,947 | 418 | -380 | 76,537 |
| EBITDA | 7,739 | 618 | -3,656 | 0 | 4,701 |
| EBIT | -845 | -3,839 | -3,677 | 0 | -8,361 |
| Segment's assets | 189,872 | 179,211 | 33,438 | -19,935 | 382,586 |
| Segment's liabilities | 55,863 | 101,298 | 6,408 | -18,751 | 144,818 |
| FY 2012 | Speciality | Ferro | Unallocated | Eliminations | Group |
|---|---|---|---|---|---|
| 12 months | Alloys | Alloys | items | total | |
| EUR '000 | |||||
| Revenue | 76,456 | 52,050 | 912 | -836 | 128,582 |
| EBITDA | 10,954 | 3,504 | -5,259 | 29 | 9,229 |
| EBIT | -6,677 | -4,820 | -5,300 | 29 | -16,768 |
| Segment's assets | 172,655 | 125,222 | 21,308 | -14,945 | 304,240 |
| Segment's liabilities | 53,975 | 48,360 | 5,669 | -14,329 | 93,674 |
| EUR '000 | Q2/13 | Q2/12 | H1/13 | H1/12 | FY/12 |
|---|---|---|---|---|---|
| Revenue | 31,408 | 30,976 | 63,025 | 76,537 | 128,582 |
| Other operating income | 5,311 | 5,079 | 11,349 | 8,798 | 13,000 |
| Operating expenses | -29,975 | -31,324 | -61,639 | -76,005 | -127,620 |
| Depreciation and amortisation | -6,124 | -6,335 | -12,350 | -13,062 | -25,997 |
| Items related to associates (core) | 1 | 2 | 2 | 5 | 6 |
| Share of profit from joint ventures | -578 | -3,177 | -2,399 | -4,635 | -4,740 |
| Operating profit | 44 | -4,779 | -2,012 | -8,361 | -16,768 |
| Financial income and expense | -2,568 | 609 | -3,253 | 2,067 | -2,822 |
| Profit before tax | -2,524 | -4,170 | -5,265 | -6,294 | -19,590 |
| Income tax | 695 | 1,896 | 3,404 | 1,954 | 2,957 |
| Profit for the period | -1,829 | -2,274 | -1,860 | -4,340 | -16,633 |
| Profit attributable to: | |||||
| Owners of the parent | -1,992 | -1,559 | -2,063 | -3,348 | -15,493 |
| Non-controlling interests | 164 | -715 | 203 | -993 | -1,141 |
| Total | -1,829 | -2,274 | -1,860 | -4,340 | -16,633 |
| Earnings per share for profit | |||||
| attributable to the shareholders | |||||
| of the parent company, EUR | |||||
| Basic earnings per share, EUR | -0.01 | -0.01 | -0.01 | -0.01 | -0.06 |
| Diluted earnings per share, EUR | -0.01 | -0.01 | -0.01 | -0.01 | -0.06 |
| EUR '000 | Q2/13 | Q2/12 | H1/13 | H1/12 | FY/12 |
|---|---|---|---|---|---|
| Profit for the period | -1,829 | -2,274 | -1,860 | -4,340 | -16,633 |
| Other comprehensive income | |||||
| Remeasurements of defined benefit pension plans |
0 | 0 | 0 | 0 | -4,904 |
| Exchange differences on translating foreign operations |
-8,683 | -1,187 | -13,324 | 1,029 | -6,096 |
| Income tax relating to other comprehensive income |
3,005 | 1,152 | 4,824 | 361 | 1,991 |
| Other comprehensive income, net of tax | -5,678 | -35 | -8,499 | 1,390 | -9,009 |
| Total comprehensive income for the period | -7,507 | -2,309 | -10,360 | -2,950 | -25,642 |
| Total comprehensive income attributable to: | |||||
| Owners of the parent | -7,008 | -1,480 | -9,509 | -2,054 | -23,853 |
| Non-controlling interests | -498 | -830 | -851 | -896 | -1,789 |
| EUR '000 | 30.6.2013 | 30.6.2012 | 31.12.2012 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Investments and intangible assets | |||
| Goodwill | 64,309 | 102,365 | 68,990 |
| Investments in associates | 77 | 77 | 75 |
| Other intangible assets | 32,370 | 55,752 | 43,539 |
| Investments and intangible assets total | 96,755 | 158,194 | 112,603 |
| Property, plant and equipment | 37,356 | 45,065 | 41,108 |
| Other non-current assets | 60,697 | 63,963 | 55,343 |
| Non-current assets total | 194,809 | 267,222 | 209,054 |
| Current assets | |||
| Inventories | 42,222 | 39,782 | 50,455 |
| Receivables | 30,692 | 31,321 | 30,573 |
| Cash and cash equivalents | 17,688 | 44,260 | 14,158 |
| Current assets total | 90,601 | 115,364 | 95,186 |
| Total assets | 285,411 | 382,586 | 304,240 |
| EQUITY AND LIABILITIES | |||
| Equity attributable to owners of the parent | |||
| Share capital | 23,642 | 23,642 | 23,642 |
| Share premium reserve | 25,740 | 25,740 | 25,740 |
| Paid-up unrestricted equity reserve | 242,725 | 245,128 | 245,167 |
| Translation reserves | 599 | 12,795 | 8,045 |
| Retained earnings | -100,229 | -80,343 | -99,192 |
| Equity attributable to owners of the parent | 192,478 | 226,962 | 203,402 |
| Non-controlling interests | 6,314 | 10,806 | 7,163 |
| Total equity | 198,792 | 23,768 | 210,566 |
| Liabilities | |||
| Non-current liabilities | |||
| Deferred tax liabilities | 11,462 | 22,738 | 16,906 |
| Provisions | 11,521 | 14,510 | 12,893 |
| Share of joint ventures' losses | 14,288 | 10,829 | 11,805 |
| Pension liabilities | 15,717 | 10,853 | 15,815 |
| Financial liabilities | 129 | 59,267 | 114 |
| Non-current liabilities total | 53,117 | 118,196 | 57,533 |
| Current liabilities | |||
| Advances received | 0 | 363 | 0 |
| Other current liabilities | 33,502 | 26,259 | 36,141 |
| Current liabilities total | 33,502 | 26,622 | 36,141 |
| Total liabilities | 86,619 | 144,818 | 93,674 |
| Total equity and liabilities | 285,411 | 382,586 | 304,240 |
| EUR '000 | 30.6.2013 | 30.6.2012 | 31.12.2012 |
|---|---|---|---|
| Cash and cash equivalents | 17,688 | 44,260 | 14,158 |
| Interest-bearing receivables | |||
| Current | 3,052 | 3,183 | 6,005 |
| Non-current | 47,208 | 57,010 | 48,501 |
| Interest-bearing receivables | 50,260 | 60,193 | 54,507 |
| Interest-bearing liabilities | |||
| Current | 1,998 | 949 | 2,719 |
| Non-current | 84 | 59,215 | 64 |
| Interest-bearing liabilities | 2,082 | 60,164 | 2,782 |
| NET TOTAL | 65,866 | 44,289 | 65,882 |
| EUR '000 | Property, plant and equipment |
Intangible assets |
|---|---|---|
| Acquisition cost 1.1.2013 | 98 453 | 252 654 |
| Additions | 3 099 | 3 307 |
| Disposals | -79 | 0 |
| Reclass between items | 200 | -276 |
| Effect of movements in exchange rates | -7 219 | -19 806 |
| Acquisition cost 30.6.2013 | 94 453 | 235 879 |
| Acquisition cost 1.1.2012 | 98 014 | 299 162 |
| Additions | 3 965 | 8 824 |
| Disposals * | -594 | -30 255 |
| Reclass between items | 551 | 113 |
| Effect of movements in exchange rates | -3 483 | -25 191 |
| Acquisition cost 31.12.2012 | 98 453 | 252 654 |
* Including changes in earn-out liabilities and in contingent purchase considerations
| EUR '000 | H1/13 | H1/12 | FY/12 |
|---|---|---|---|
| Profit for the period | -1,860 | -4,340 | -16,633 |
| Adjustments to profit for the period | 15,609 | 12,001 | 29,570 |
| Changes in working capital | -803 | 8,399 | -6,003 |
| Discontinued operations | 0 | -225 | -743 |
| Net cash from operating activities | 12,946 | 15,835 | 6,191 |
| Acquisition of subsidiaries and associates, net of cash acquired |
-404 | -25,091 | -25,070 |
| Capital expenditure and other investing activities |
-5,309 | -2,855 | -4,512 |
| Proceeds from repayments of loans and loans given |
82 | -2,571 | -3,919 |
|---|---|---|---|
| Net cash used in investing activities | -5,631 | -30,516 | -33,501 |
| Capital Redemption | -2,442 | 0 | 0 |
| Proceeds from borrowings | 0 | 53 | 59 |
| Repayment of borrowings, and other financing activities |
-879 | -5,154 | -22,294 |
| Net cash used in financing activities | -3,321 | -5,101 | -22,234 |
| Net increase in cash and cash equivalents | 3,994 | -19,782 | -49,545 |
| EUR '000 | A | B | C | D | E | F | G | H |
|---|---|---|---|---|---|---|---|---|
| Equity at 31.12.2011 | 23 642 | 25 740 | 245 128 | 11 501 | -80 185 | 225 826 | 14 348 | 240 173 |
| Total comprehensive income 1-6/2012 |
1 294 | -3 348 | -2 054 | -896 | -2 950 | |||
| Share-based payments Acquisitions and |
406 | 406 | 1 | 407 | ||||
| disposals of subsidiaries | 2 784 | 2 784 | -2 646 | 139 | ||||
| Equity at 30.6.2012 | 23 642 | 25 740 | 245 128 | 12 795 | -80 343 | 226 962 | 10 807 | 237 769 |
| Total comprehensive income 7-12/2012 |
-4 750 | -17 049 | -21 799 | -893 | -22 692 | |||
| Share-based payments | 39 | 461 | 500 | -1 | 499 | |||
| Acquisitions and disposals of subsidiaries |
-2 260 | -2 260 | -2 750 | -5 010 | ||||
| Equity at 31.12.2012 | 23 642 | 25 740 | 245 167 | 8 045 | -99 192 | 203 402 | 7 163 | 210 565 |
| Total comprehensive income 1-6/2013 |
-7 446 | -2 063 | -9 509 | -851 | -10 360 | |||
| Share-based payments | 1 026 | 1 026 | 1 | 1 027 | ||||
| Capital redemption | -2 441 | 0 | -2 441 | |||||
| Equity at 30.6.2013 | 23 642 | 25 740 | 242 725 | 599 | -100 229 | 192 478 | 6 314 | 198 792 |
| EUR '000 | H1/13 | H1/12 | FY/12 |
|---|---|---|---|
| Sales to joint ventures | 26 | 495 | 564 |
| Sales to other related parties | 18 | 50 | 98 |
| Purchases from joint ventures | -3,854 | -2,239 | -4,342 |
| Financing income from joint ventures | 566 | 1,098 | 1,889 |
| Financing expense to other related parties | -52 | -54 | -104 |
| Loan receivables from joint ventures | 35,825 | 36,876 | 37,120 |
|---|---|---|---|
| Loan receivables from other related parties | 10,221 | 10,000 | 10,293 |
| Trade and other receivables from joint ventures | 4,829 | 4,055 | 4,821 |
| Trade and other receivables from other related | |||
| parties | 33 | 0 | 44 |
| Trade and other payables to joint ventures | -18 | 1,001 | 0 |
| H1/13 | H1/12 | FY/12 | |
|---|---|---|---|
| Return on equity, % p.a. | -1.8% | -3.6% | -7.4% |
| Return on capital employed, % p.a. | 2.4% | -3.1% | -4.5% |
| Equity ratio, % | 71.2% | 62.2% | 69.2% |
| Gearing, % | -7.9% | 6.7% | -5.4% |
| Personnel at the end of the period | 754 | 794 | 768 |
The balance sheet date rate is based on exchange rate published by the European Central Bank for the closing date. The average exchange rate is calculated as an average of daily rates from the European Central Bank during the year.
The key exchange rates applied in the accounts:
Average rates
| H1/13 | H1/12 | FY/12 | |
|---|---|---|---|
| TRY | 2.3809 | 2.3361 | 2.3135 |
| USD | 1.3134 | 1.2965 | 1.2848 |
| ZAR | 12.1153 | 10.2942 | 10.5511 |
Balance sheet rates
| 30.6.2013 | 30.6.2012 | 31.12.2012 | |
|---|---|---|---|
| TRY | 2.521 | 2.2834 | 2.3551 |
| USD | 1.308 | 1.259 | 1.3194 |
| ZAR | 13.0704 | 10.3669 | 11.1727 |
Financial ratios and indicators have been calculated with the same principles as applied in the 2012 financial statements. These principles are presented below.
Return on equity, % = Profit for the period / Total equity (average for the period) * 100
Return on capital employed, % = (Profit before taxes + financing expenses) / (Total assets - interest-free liabilities) average * 100
Equity ratio, % = Total equity / (Total assets - prepayments received) * 100
Gearing, % = (Interest-bearing debt - liquid funds) / Total equity * 100
Net interest-bearing debt = Interest-bearing debt - liquid funds
Earnings per share, basic, EUR = Profit attributable to owners of the parent company / Average number of shares during the period
Earnings per share, diluted, EUR = Profit attributable to owners of the parent company / Average number of shares during the period, diluted
Operating profit (EBIT) = Operating profit is the net of revenue plus other operating income, plus gain/loss on finished goods inventory change, minus employee benefits expense, minus depreciation, amortisation and impairment and minus other operating expense. Foreign exchange gains or losses are included in operating profit when generated from ordinary activities. Exchange gains or losses related to financing activities are recognised as financial income or expense.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) = Operating profit + depreciation + amortisation + impairment losses
This Interim Report is prepared in accordance with the IAS 34 standard. The Company applies new or amended IFRS standards and interpretations from their effective date or after they have been endorsed for application within the EU. The revised standard, IAS 19 Employee Benefits, became effective from the beginning of the financial year 2013. The Company has also resolved to begin to apply the new standards IFRS 10, IFRS 11 and IFRS 12 as well as the revised standards IAS 27 and IAS 28 in the financial statements for the year 2013. The changes in the standards are applied retrospectively. Consequently, Afarak has restated its financial information for 2012. The restated financial information has been published in a stock exchange release on 7 May 2013.
The preparation of the Interim Report in accordance with IFRS requires management to make estimates and assumptions that affect the valuation of the reported assets and liabilities and other information, such as contingent liabilities and the recognition of income and expenses in the income statement. Although the estimates are based on the management's best knowledge of current events and actions, actual results may differ from the estimates.
The figures in the tables have been rounded off, which must be considered when calculating totals. Average exchange rates for the period have been used for income statement conversions, and period-end exchange rates for balance sheet.
The Interim Report data are unaudited.
| Q2/13 | Q2/12 | H1/13 | H1/12 | FY/12 | ||
|---|---|---|---|---|---|---|
| Share price development in London Stock Exchange |
||||||
| Average share price* | EUR | 0.43 | 0.76 | 0.43 | 0.79 | 0.54 |
| GBP | 0.37 | 0.62 | 0.37 | 0.65 | 0.43 | |
| Lowest share price* | EUR | 0.42 | 0.67 | 0.39 | 0.66 | 0.39 |
| GBP | 0.36 | 0.54 | 0.33 | 0.54 | 0.32 | |
| Highest share price* | EUR | 0.43 | 0.90 | 0.47 | 1.05 | 1.06 |
| GBP | 0.37 | 0.73 | 0.40 | 0.86 | 0.86 | |
| Share price at the end of the period** |
EUR | 0.40 | 0.67 | 0.40 | 0.67 | 0.43 |
| GBP | 0.34 | 0.54 | 0.34 | 0.54 | 0.35 | |
| Market capitalisation at the end of the period** |
EUR million |
98.5 | 166.3 | 98.5 | 166.3 | 106.5 |
| GBP million |
84.5 | 134.2 | 84.5 | 134.2 | 87.0 | |
| Share trading development |
||||||
| Share turnover | thousand shares |
5 | 43 | 45 | 57 | 288 |
| Share turnover | EUR thousand |
2 | 33 | 19 | 45 | 154 |
| Share turnover | GBP thousand |
2 | 27 | 16 | 37 | 125 |
| Share turnover | % | 0.0 % | 0.0% | 0.0 % | 0.0% | 0.1% |
Share-related key figures
| Share price development in NASDAQ OMX Helsinki |
||||||
|---|---|---|---|---|---|---|
| Average share price | EUR | 0.42 | 0.78 | 0.44 | 0.90 | 0.67 |
| Lowest share price | EUR | 0.40 | 0.63 | 0.39 | 0.63 | 0.38 |
| Highest share price | EUR | 0.46 | 0.90 | 0.48 | 1.02 | 1.02 |
| Share price at the end of the period |
EUR | 0.42 | 0.66 | 0.42 | 0.66 | 0.45 |
| Market capitalisation at the end of the period |
EUR million |
104.3 | 164.0 | 104.3 | 164.0 | 111.8 |
| Share trading development |
||||||
| Share turnover | thousand shares |
431 | 731 | 1,995 | 2,638 | 5,600 |
| EUR | ||||||
| Share turnover | thousand | 180 | 568 | 887 | 2,368 | 3,773 |
| Share turnover | % | 0.2 % | 0.3% | 0.8 % | 1.1% | 2.3% |
* Share prices have been calculated on the average EUR/GBP exchange rate published by Bank of Finland.
** Share price and market capitalisation at the end of the period have been calculated on the EUR/GBP exchange rate published by Bank of Finland at the end of the period.
Formulas for share-related key indicators
Average share price = Total value of shares traded in currency / Number of shares traded during the period
Market capitalisation, million = Number of shares * Share price at the end of the period
This report contains forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within the Company's control or can be predicted by the Company.
Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements. Save as required by law (including the Finnish Securities Markets Acts (495/1989), as amended, or by the Listing Rules or the Disclosure and Transparency Rules of the UK Financial Services Authority), the Company undertakes no obligation to update any forward-looking statements in this report that may occur due to any changes in the Directors' expectations or to reflect events or circumstances after the date of this report.
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