LSE- and Nasdaq-listed specialty alloys producer Afarak Group has managed to narrow its loss to €16.1-million for the six months ended June 30, compared with an interim loss of €29.2-million reported for the first six months of 2019.
However, despite an improvement in financial performance, CEO Guy Konsbruck says the company is suffering from lower demand for its products and may need to raise further funds to meet its liquidity needs as long as Covid-19 persists.
The company says it sold 46% less processed material in the six months under review, at 23 356 t, compared with the 43 334 t of processed material sold in the prior comparable six months.
Afarak’s loss before interest, taxes, depreciation and amortisation decreased to €2.8-million in the interim period, compared with a loss before interest, taxes, depreciation and amortisation of €12.9-million reported for the six months ended June 30, 2019.
The company had €6.1-million of cash on hand at the end of June.
Konsbruck says the company experienced unprecedented turmoil owing to Covid-19, with a turbulent future forecasted, making determining future prices or volumes very difficult.
He adds that lower demand for chrome and alloys will have an impact on the group’s sales and production cycles, while profitability and cash flow remain strained.
“At the start of the year, we were on the right track of recovery, where we have seen stronger performance in the speciality alloys segment and recovery in the ferroalloys segment. Unfortunately, the global economic downturn originated by Covid-19 halted this and showed to be the most challenging business environment that I have ever experienced in my professional career.
“Having said this, we have still managed to show good signs of recovery when compared to the first half of last year. Our specialty segment remained profitable. We have reduced our overall [loss before interest, taxes, depreciation and amortisation] by 78.2%, we have reduced our working capital by 36.3%, we have further reduced our total inventory by 36.7% and our total costs by 26.1%,” Konsbruck reports.
He further explains that the pandemic has caused a significant decrease in demand and market prices both in the ferroalloys and speciality alloys segments.
“We have reduced our production in the speciality alloys segment to reflect that trend. We have also put the Mogale plant under care and maintenance, as the energy costs during the South African winter period is making profitable production impossible.
“We made good progress in the mining assets and hope to be producing platinum group metals by end of the year. We are also continuing to prepare the Serbian mines and sintered magnesite plant for commercial production.”
Afarak managed to maintain and preserve the group assets, by applying strict and rigorous cash management.
Nevertheless, the company is still in a critical situation and cannot count on any financial Covid-19-associated help from any government where it has production assets.
The company has therefore been evaluating sources of incremental capital for some time. It has proven to be a difficult exercise as the company’s reputation was already severely damaged by disputes that arose in 2015.
One year ago, a “special audit” was initiated by a group of minority shareholders. Even though the initiators eventually withdrew their demand, Afarak still had to go through an unnecessary and lengthy process, says Konsbruck.
He adds that the company has been actively cooperating with the special auditors, but has still not received a commitment on when the process will be terminated or finalised.
Moreover, Afarak was issued a fine in September last year by the Finnish Financial Supervisory Authority, which the company considers to be "unjustified and completely exaggerated".
Afarak’s appeal is still to be processed in court.
“It is also unfortunate that Afarak is still incorrectly associated to investigations against one of its stakeholders, although we have stated many times that the company is not a party to this at all.
“All this ‘corporate noise’ does not encourage banks and other financial institutions. The management continues to explore further options, including fund raising through shareholders. We will keep all shareholders appraised of further developments.”
Konsbruck concludes that it is difficult to predict how the markets will evolve in the second half of the year, but Afarak is ready to swiftly resume 100% production capacity, once global industrial activity recovers.