AMBR.L Regulatory News (AMBR)

LONDON, 9 June 2017

AMBRIAN PLC

Preliminary Results for the year ended 31 December 2016

Ambrian plc ("Ambrian" or the "Company" and, together with its subsidiaries, the "Group") today announces its audited consolidated results for the twelve months ended 31 December 2016.

Highlights

· First full year of production at the cement plant in Mozambique

· Run-down of the metals trading business is nearing completion

· Turnover of US$ 1.05 billion (2015: turnover of US$1.90 billion)

· Gross profit of US$ 1.22 million (2015: gross loss of US$ 4.01 million)

· Loss before interest, tax, depreciation and amortisation ("LBITDA") reduced to US$ 6.04 million (2015: LBITDA of US$ 8.75)

· Loss before tax, but before impairment charge, US$ 9.85 million (2015: loss before tax of US$ 9.36 million)

· Loss before tax, including an impairment charge on the cement operations of $21.29 million (2015: $nil), of US$ 31.14 million (2015: loss before tax of US$ 9.36 million)

· Tangible net asset value at 31 December 2016 of US$ 27.04 million (2015: US$ 50.97 million) equivalent to a tangible net asset per share of US¢ 10.97 (2015: US¢ 20.67)

· Total equity at 31 December 2016: US$ 29.22 million (2015: US$ 53.43 million)

Commenting on the results, Martin Abbott, non-executive Chairman, stated:

"The metals business is being run down following the Company's announcement in October 2016 to withdraw from the business. We appreciate the support of all stakeholders over this period in order to execute the contracts in an orderly way. We expect the business to be closed by mid-year 2017 when the working capital in the business will be converted to cash. 

We are pleased with the technical performance of the cement plant in 2016, despite the full benefits of this performance having yet to materialise. The challenging conditions in Mozambique, particularly as regards to adverse exchange rate movements, punitive interest rates and sharp public spending cuts in infrastructure, have deeply affected the construction sector. However, we continue to believe in the long-term growth potential of Mozambique. With an improving commodity outlook, Mozambique's largest export sectors are now picking up. The challenge remains to ensure that future wealth from these sectors is deployed efficiently in other economic sectors and infrastructure projects without corrupt practices undermining the country's efforts. We expect improving the country's transport network and access to power will become significant drivers of the construction sector and hence spur demand for cement and concrete based products. "

Enquiries

Notes to Editors

Ambrian is active is sourcing and marketing a range of industrials metals, minerals and value added products to end users worldwide. We pursue selective strategic acquisitions and ventures which can demonstrate a compelling industrial, commercial and financial justification and ultimately strengthen Ambrian's supply chain and value added activities. Ambrian's services add the right value at every stage of the supply chain; we plan procurement and logistics to streamline and simplify transportation and deliver on time commodities in the most cost efficient manner from remote locations to wherever they are needed by our customers. Ambrian also capitalizes on opportunities to improve margins and grow shareholder value through diversifying into sourcing and processing. This has enabled it to expand its business into the manufacturing and distribution of branded cement products to the residential and non-residential sectors in Central Mozambique.

Ambrian is quoted on the Alternative Investment Market of the London Stock Exchange under the ticker symbol AMBR. Further information on the Group is available on the Company's website www.ambrian.com or the website of Cimentos da Beira Lda www.cdb.co.mz.

Chairman's and Chief Executive's statement

For the year ended 31 December 2016 the Group gross profit was US$ 1.22 million on a turnover of US$ 1.05 billion (2015: gross loss of US$ 4.01 million on a turnover of US$ 1.90 billion).  

For the period under review EBITDA was a loss of US$ 6.04 million (2015: US$ 8.75 million loss), the loss being primarily a function of administrative and employment costs. 

Group loss before tax and impairment charge for 2016 amounted to US$ 9.85 million (2015: loss before tax of US$ 9.36 million). Within this, metal trading activities reported a loss before tax, including provisions for closure, of US$ 3.97 million for the period (2015: loss before tax of US$ 8.92 million). The cement business reported a loss before tax and impairment charge of US$ 5.73 million for the period (2015: profit before tax of US$ 0.67 million), largely attributable to interest expenses adversely affected by punitive rates applied on local borrowings in Mozambique. An impairment charge of US$ 21.29 million (2015: nil) on the cement plant was incurred after an assessment by management, considering such factors as future expected cashflows, exchange rates, discount rates and the expected terminal value of the plant.

Overview

2016 saw a recovery for commodities with the Bloomberg Commodities Index (a broadly diversified commodity price index) gaining over 10%, breaking a five-year streak of annual losses. The recovery in industrial metals prices was supported by strong Chinese demand and expectations of increased infrastructure spend after the US elections. Realisation by market participants that the fear of an oversupply in many markets was overdone was further supported by declining inventory levels, increasing confidence that strong demand could be sustainable. Underperforming base metals for most of 2016, the copper market experienced a shift in sentiment towards the end of the year. 

Despite the recovery in commodity markets, the Board of Directors concluded that the Company's capital base was not sufficient, and its organization not adapted, to grow the metal trading activities into a robust, diversified and scalable business model.  Accordingly, the Board of Directors decided that the Company's metal trading activities would be wound down in an orderly fashion and closed. Unlike capital engaged in the Company's industrial assets, capital employed in the metal trading activities can be released within a relatively short time span.  As a result, over the last quarter of 2016, most staff engaged in the Company's trading and logistics operations were retrenched with a skeleton staff retained temporarily to run down the existing contracts. All trading activities will have been terminated and contracts closed by mid-2017. Following the decision to close the metal trading activities, the Company moved to smaller head office premises in London and is closing down the offices in China, Taiwan and Singapore. 

Weak commodity prices and the anemic general trading environment contributed to Mozambique's sharp slowdown in economic activity over the period under review. This was further compounded by the revelation of large undisclosed borrowings contracted by state controlled entities, the sharp reduction in foreign direct investments and the international community's decision to stop supporting the country's budget deficits. Mozambique's real GDP growth dropped to 3.3% from 6.6% in 2015 and the local currency depreciated by up to some 40 percent against the US dollar during 2016, fuelling 25 percent inflation by the end of October 2016. The sharp deterioration in economic conditions has had a significant impact on households and a nascent small and medium sized business sector. Reduced investments in real estate, construction and financial services combined with the public sector's consolidation and monetary tightening are also contributing to the slowdown in growth. It is against this backdrop that our cement grinding operations in Central Mozambique, Cimentos da Beira, completed its first full year of operation. 

The market for cement in Central Mozambique grew just under 5 percent in 2016 when compared to 2015 which is below historic growth trends. Cement sales achieved by our subsidiary in 2016 were lower than forecast as a result of increasing competitive pressure combined with reduced disposable income and difficult credit conditions affecting the local residential and nonresidential sectors. Significantly weaker public spending on infrastructure and delayed project execution also affected construction activities and cement apparent consumption. Cimentos da Beira captured approximately 18% of the Central Mozambique local cement market estimated at around 700 thousand tonnes a year. Although below our target market share, we refrained being drawn into aggressive marketing tactics for the sake of increasing sales volumes. Simultaneously to the local currency collapsing against the US dollar, realised cement prices in US dollar equivalent were under intense pressure throughout the year improving only marginally by year-end having bottomed out from record lows during September 2016. More frequent and successive industry wide price increases in local currency have yet to compensate fully for the sharp drop in the local currency against the US dollar and allow the industry to generate normalised cash margins which are customary in this business. 

The operating performance of the plant has not raised any particular issues with efficiencies and usage factors improving steadily since the plant's commissioning at the end of 2015. Our staff in Beira are also working hard to obtain ISO 9001 accreditation for the plant which we expect to achieve before the end of 2017. This accreditation and certification of its products will allow Cimentos da Beira to supply cement to large public and private projects for which accreditation is a prerequisite. Despite constant efforts to reduce our cost base or milling at night so as to benefit from the low tariff structure, unit costs will decrease significantly only with the expected higher asset utilisation. 

Board changes

Robert Adair who had served as Chairman and a member of the board of directors since February 2015, resigned as a non-executive Director of the Company. Robert decided that after steering the company through the merger with Consolidated General Minerals plc and the start-up of the cement plant in Mozambique it was an opportune time to step down. We would like to thank Robert for his valuable contribution to the Company over the last number of years and in particular during the time running up to the merger, and wish him well in the future. Martin Abbott was appointed as non-executive Chairman. In December 2016, Oliver Benz was appointed to the Board as a non-executive Director. 

Outlook

It is anticipated that the metal trading business will have run off all its positions and all staff will have been retrenched by mid-2017. At that point, all metal trading working capital will have been turned to cash. 

The Sub-Saharan African economic outlook remains clouded despite some encouraging news such as Mozambique's gas production prospects that are shaping expectations for a growth recovery. With an improving commodity outlook, Mozambique's largest exports such as coal are beginning to show some colour. The challenge remains for the country to ensure that future wealth from these sectors is deployed efficiently to spur growth in the non "mega project" sector without corrupt practices undermining such efforts. Over the first quarter of 2017 cement demand in Central Mozambique contracted by approximately 9% compared to the first quarter of 2016. Adverse weather conditions are only part of the explanation as the sector continues to be affected by a high interest rate environment, reduced liquidity and little public spending on critical infrastructure. We remain cautiously optimistic as we enter the second half of 2017. Demand for cement in emerging economies customarily mirrors economic growth patterns and can be greatly exceeded during an infrastructure expansion. We expect that starting in 2018, projects to improve the country's derelict transport network and access to power will become significant drivers of the construction sector and hence spur demand for cement and concrete based products. 

Cimentos da Beira continues to consolidate its business model and focus on improving distribution channels as well as operational efficiencies, targeting a 30 percent market share in Central Mozambique. Over the past year we have achieved a commercial transformation which has resulted in our products and services being differentiated and well received by end users despite the competitive landscape. Combined with the strengthening of the local currency by some 20% since the beginning of 2017, successive price increases implemented by the industry are slowly bringing cement price to levels customarily seen in neighboring countries. We therefore expect that barring unforeseen circumstances, cash margins for the industry should improve over the course of 2017. This will be further entrenched as we attempt to source locally approximately 30% of our raw material requirements instead of relying on imports. 

We constantly review our strategy and the necessity to protect our capital base. This has proven to be difficult in the current environment. Also, we are of the opinion that a one-asset publicly quoted company is not a long term sustainable value proposition for our stakeholders. Accordingly, we continue to assess a number of strategies, investments and corporate transactions which we believe could assist the Group in protecting its capital base and improve its corporate profile.

Martin Abbott Jean-Pierre Conrad

Chairman Chief Executive

Ambrian plc

Consolidated statement of comprehensive incomefor the year ended 31 December 2016

Ambrian plc

Consolidated statement of changes in equityfor the year ended 31 December 2016

Ambrian plc

Consolidated statement of changes in equityfor the year ended 31 December 2016 (continued)

Ambrian plc

Consolidated statement of financial positionat 31 December 2016

Ambrian plc

Consolidated statement of financial positionat 31 December 2016 (continued)

Ambrian plc

Consolidated statement of cashflowsfor the year ended 31 December 2016

1. Basis of preparation

The financial information set out in this announcement does not constitute the Group's statutory accounts for the year ended 31 December 2016 or 2015 but is derived from those accounts. Statutory accounts for the 2015 have been delivered to the Registrar of the Companies, and those for 2016 will be delivered in due course.

The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under section 498 (2) or (3) of the Companies Act 2006. The results for the year ended 31 December 2016 were approved by the Board of Directors on 8 June 2017 and are audited.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of international Financial Reporting Standards (IFRS's) as endorsed for use in the European Union, this announcement does not itself contain sufficient information to comply with IFRS's. The accounting policies adopted in this announcement have been consistently applied and are consistent with the policies used in the preparation of the statutory accounts for the period ending 31 December 2016.

The consolidated financial statements of the Group have been prepared in accordance with the Companies Act 2006 and International Financial Reporting Standards (IFRS) as developed and published by the International Accounting Standards Board (IASB) as adopted by the European Union (EU). 

Presentational currency

The financial statements have been presented in US Dollars which is the functional currency of the company.

2. Segmental analysis

The Group has three reportable segments attributable to its continuing operations including Head office:

· Physical metals and minerals trading

· Cement operations

· Head office costs relate to overheads incurred in connection with operating the public limited company, providing support functions to the Group.

The Investment portfolio segment has become insignificant during the year but is shown for comparative purposes. The measurement of the segmental revenue, profit before tax, capital expenditure, depreciation, total assets, total liabilities and net assets have been prepared using consistent accounting policies across the segments.

Factors that management used to identify the Group's reportable segments

The Group's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different strategies.

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the management team including the Chief Executive, Chief Operating Officer and the Finance Director.

3. Earnings per ordinary share

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year, excluding shares held in the Employee Benefit Trust at 31 December 2016 of 6,259,046 (2015: 6,259,046), Treasury shares at 31 December 2016 of 4,500,058 (2015: 4,500,058) and Non-treasury shares at 31 December 2016 of 8,484,467 (2015: 28,812,192).

The calculation of diluted earnings per share is based on the basic earnings per share adjusted to allow for the issue of shares through the share option schemes on the assumed conversion of all dilutive options.

Reconciliations of the earnings and weighted average number of shares in the calculations are set out below. Diluted earnings per share has not been calculated as the Company is loss making. The loss attributable to the owners of the Company used in the calculation below is that presented in the consolidated statement of comprehensive income.

4. Non-controlling interest

The non-controlling interest ("NCI") disclosed in the consolidated statement of comprehensive income and consolidated statement of financial position at 31 December 2016 is represented by

The 20% economic interest in Cimentos da Beira ("CdB"), is held by the Industrial Development Corporation of South Africa Limited ("IDC") by means of a convertible loan agreement whereby the IDC has an option to subscribe for 20% of the issued share capital of CdB following the repayment of the IDC loans by CdB. The IDC has a right to 20% of any dividends declared by CdB until such time that it holds no financial interest in CdB.

There is a 20% minority interest in Ambrian Resources AG held by shareholders other than Ambrian plc.

5. Metals Trading Business 

In October 2016, the Group decided to close the metals trading business with a gradual run-down of all open contracts. The segment was not technically a discontinued operation or classified as held-of-sale at 31 December 2016 and therefore no reclassifications have been made in the financial statements. The disclosure below shows the statement of comprehensive income of the metals trading business included in the consolidated statement of comprehensive income.