DIFFICULT CONDITIONS IN FERRO-ALLOY SEGMENT IMP...

07:00 London, 09:00 Helsinki, August 10, 2018 - Afarak Group Plc ("Afarak" or "the Company")

DIFFICULT CONDITIONS IN FERRO-ALLOY SEGMENT IMPACT OVERALL FINANCIAL PERFORMANCE

Quarter two of 2018 was particularly difficult for Afarak. The FerroAlloys segment showed a bad performance and negatively affected the Group’s financial result. This was mainly due to low quality ore bodies encountered, which had a  significant impact on the operations in South Africa

		Q2/18	Q2/17	Q1/18	H1/18	H1/17	2017
Revenue	EUR million	54.3	47.4	50.2	104.5	104.1	198.8
EBITDA	EUR million	1.2	4.8	-0.7	0.5	17.5	18.0
EBIT	EUR million	-0.4	3.3	-2.4	-2.8	14.4	11.4
Earnings before taxes	EUR million	-3.3	1.0	-2.5	-5.8	7.8	4.2
Profit from continuing operations	EUR million	-2.7	1.4	-1.9	-4.6	5.6	5.2
Profit from discontinued operations	EUR million	0.0	1.5	0.0	0.0	1.5	1.5
Profit	EUR million	-2.7	2.9	-1.9	-4.6	7.1	6.7
Earnings per share	EUR	-0.01	0.01	-0.1	-0.02	0.02	0.02
EBITDA margin	%	2.2	10.2	-1.4	0.5	16.8	9.0
EBIT margin	%	-0.8	7.0	-4.7	-2.7	13.8	5.7
Earnings margin	%	-6.2	2.0	-5.0	-5.6	7.5	2.1
Personnel (end of period)		1,032	923	1,015	1,032	923	1,017

QUARTER TWO 2018 HIGHLIGHTS

• The Company increased its sales of processed material by a high 24.8%, to 25,929 (Q2/2017: 20,773) tonnes and revenues rose by 14.6% to EUR 54.3 (Q2/2017: 47.4) million;
• Mining output also grew on account of the new mining activity at Vlakpoort and a comparatively year-on-year better performance at Mecklenburg, which still remained below expectations. Overall, tonnage mined increased by 36.4%, to 150,852 (Q2/2017: 110,630) tonnes;
• The Group’s EBITDA stood at EUR 1.2 (Q2/2017: 4.8) million and the EBITDA margin was 2.2% (Q2/2017: 10.2%);
• EBIT was EUR -0.4 (Q2/2017: 3.3) million, with the EBIT margin at -0.8% (Q2/2017: 7.0%);
• Profit for the period from continuing operations totalled EUR -2.7 (Q2/2017: 1.4) million, affected largely by unrealised foreign exchange losses;
• Cash flow from operations stood at EUR -4.8 (Q2/2017: -7.3) million, while further EUR 2.6 million was invested in projects and equipment. Net interest-bearing debt increased to EUR 10.5 (-5.0) (31 March 2018: 3.3) million, partly offsetting operating losses, capital expenditure and a relative increase in working capital committed;
• Cash and cash equivalents at 30 June totalled EUR 5.5 (30 June 2017: 11.7) (31 March 2018: 10.5) million

FIRST HALF 2018 HIGHLIGHTS

• Revenues remained stable at the same level of a year earlier;
• Whereas revenue in the Speciality Alloys segment was buoyant and expanded by 16.6%, to EUR 51.3 (H1/2017: EUR 44.0) million, revenue in the FerroAlloys segment contracted by close to 10.0%;
• Profitability was impacted by the negative performance of the FerroAlloys segment, due to the interplay of lower market prices and specific adverse conditions that the plants faced in South Africa;
• EBITDA for the first half of 2018 contracted, compared to the historically high result posted in the equivalent period in 2017, to EUR 0.5 (17.5) million. The share of joint venture profit for the period amounted to EUR -1.4 (4.1) million;
• Profit for the first half stood at EUR -4.6 (7.1) million.

MARKET SENTIMENT FOR THE THIRD QUARTER 2018

The third quarter is typically driven by seasonal effects. During the summer period in the northern hemisphere, general activity tends to slow down. In the southern hemisphere, winter shut-downs are scheduled for maintenance. Quarter three ferrochrome benchmark price contracted to USD 138 c/lb, from USD 142 c/lb in quarter two. Hence it is higher than in quarter three 2017. On the other side, Chrome Ore prices in China have already contracted below levels of USD180/MT in July and August

CEO GUY KONSBRUCK

“The second quarter presented some serious challenges for Afarak, mainly concerning the operations in South Africa. Unfortunately, our mining teams in Stellite and Mecklenburg came across some difficulties throughout the quarter. As a mining company, we cannot always predict the geology.  The unexpected quality of ore mined affected downstream processing at Mogale, cost of production and pricing of both mined and processed materials. In addition, the unfavorable exchange rate movements also impacted our bottom-line.

The interplay of these factors led to an overall poor financial performance in the FerroAlloys segment. The growth in revenues we achieved, despite lower prices compared to a year earlier, did not translate into improved profitability.

The Specialty Alloys business segment fully met our expectations. The mines in Turkey continued to perform well and the additional plant investments have led to an increase in productivity and outputs. Processing levels at our EWW plant in Germany continued to increase. We also enjoyed increased demand for our products. Currency exposures, particularly the weakening of the US Dollar, negatively affected our profitability, though.

In South Africa, the financial performance of the FerroAlloys segment heavily impacted the Group’s results. Operational issues, which were beyond control of local and Group management, lead to this unsatisfactory situation. As a natural resource company, we are dependent on the resources we mine. Unfortunately, during the quarter, our mining teams came across inferior quality ore bodies which led to a number of challenges throughout the processing stages and also when selling the end products.

On behalf of management, I would like to thank the teams across all our operations especially the teams in South Africa for their commitment and effort during this challenging period. Local management was aligned to optimize solutions and focus on cost-cutting and control initiatives.

Despite the challenges, Afarak continued with planned investments and project development and remained committed towards sustainability. During the quarter we continued with our efforts to invest in health and safety and it is with great satisfaction that we report that the safety performance in South Africa has improved considerably. We remain determined to protect our workers across our plants and business units. Our commitment to support local communities in their socio-economic development remains unaltered as we continued to support a number of initiatives.

Moving forward, the third quarter always presents seasonal challenges to the industry. The market remains highly volatile. Although quarter three ferrochrome benchmark price contracted to USD 138 c/lb, from USD 142 c/lb in quarter two, it is higher than quarter three 2017. From an operational perspective, Mogale will be operating without furnace number 3, due to an unexpected maintenance activity. Mining activity will be adapted to the present poor demand. We will continue to prepare the underground operations in Mecklenburg. Our PGM plant project is completed and we will start production during the quarter, adding to our product range and further diversifying our revenue streams. Mogale has also completed two important investment projects, starting to operate its own metal recovery plant and a foundry grade chrome ore concentrate producing plant, in this quarter. Both these plants are expected to make a positive contribution to our revenues and profitability going forward”

FINANCIAL REPORTING IN 2018

The Interim Report for Q3 will be published on Friday 16^th November 2018 and the closed period will be between 16^th October and 16^th November 2018.

The Board of Directors
Afarak Group

For additional information, please contact:
Guy Konsbruck, CEO, [phone], [e-mail]
Jean Paul Fabri, [phone], [e-mail]

Financial reports and other investor information are available on the Company's website: www.afarak.com.

Afarak Group is a specialist alloy producer focused on delivering sustainable growth with a Speciality Alloys business in southern Europe and a FerroAlloys business in South Africa. The Company is listed on NASDAQ Helsinki (AFAGR) and the Main Market of the London Stock Exchange (AFRK).

Distribution:
NASDAQ Helsinki
London Stock Exchange
Main media

www.afarak.com

Attachment

• Afarak_Quarterly_2018_Q2_EN