IFL.L Regulatory News (IFL)

23 Feb 2009 07:00

23 February 2009

International Ferro Metals Limited

("IFL" or the "Company")

Interim Financial Results for the half year to 31 December 2008

International Ferro Metals Limited (LSE: IFL), the integrated ferrochrome producer, presents its interim results for the half year ended 31 December 2008.

Highlights

Lower sales volumes and lower ferrochrome pricing resulted in

Revenue of ZAR526m for the December 2008 half, up 43% on the December 2007 half, but down 66% on the June 2008 half

Gross profit of ZAR69m for the December 2008 half, up 288% on the December 2007 half, and down 90% on the June 2008 half

Loss before tax of ZAR27m in the December 2008 half, slightly greater than the loss in the December 2007 half of ZAR24m but reversed from the June 2008 half profit

Achieved power-reduction adjusted nameplate production of an average of 20,339 tonnes per month in August and September 2008

Both furnaces switched off on 25 November 2008, all major capital projects deferred, excluding maintenance and upgrade spend and co-generation project

Rapid deterioration in the conventional industry-wide ferrochrome pricing mechanism led to material sales adjustments and write-down of inventories

Finished stock inventory of 42,523 tonnes as at 31 December 2008

No interim dividend to be paid

Post period highlights 

Management has successfully taken action to reduce ongoing fixed costs

Furnace maintenance and upgrade programme on track to complete by 31 March 2009

Furnaces expected to be available to restart production, depending on market conditions, from 1 April 2009. Full ramp-up possible within 4 weeks

Inventory level as at 31January 2009 was 33,338 tonnes

Market conditions appear to have begun to stabilise with ferrochrome inventories declining and spot prices stabilising, although large chrome ore stockpiles are a concern

Price negotiations on outstanding shipments finalised

Outstanding receivable expected to be collected by mid-March 2009

David Kovarsky, Chief Executive Officer of IFL commented: 

"The period under review has been overshadowed by extraordinary global events to which IFL has responded quickly and prudently. The Company has cut production, is controlling costs and conserving cash, but at the same time ensuring the operations are in good shape for the return of demand for ferrochrome. We have a world class facility with highly skilled operators and management team, and are confident we will get through the current economic crisis and resume our growth trajectory."

There will be a presentation to analysts of the interim results on Monday 23 February 2009 at 8.30am (UK time) at 16 Lincoln's Inn Fields, London WC2A 3ED. A recording of the presentation will be available on the website.

For further information please visit www.ifml.com or contact:

International Ferro Metals Limited

David Kovarsky, Chief Executive Officer

Mob: +27 82 650 1192

Brunswick Group

Patrick Handley / Carole Cable

Tel: +44 (0) 20 7404 5959

Numis Securities Limited

John Harrison / Stuart Skinner

Tel: +44 (0) 20 7260 1000

About International Ferro Metals:

International Ferro Metals produces ferrochrome, the essential ingredient in stainless steel, from its integrated chromite mine and ferrochrome processing operations in South Africa. International Ferro Metals is listed on the London Stock Exchange under the symbol IFL.

Forward Looking Statements

This announcement contains certain forward looking statements which by their nature, contain risk and uncertainty because they relate to future events and depend on circumstances that occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements.

  Operational and Financial Review

The Group reported a loss before tax of ZAR26.8 million for the six month period ended 31 December 2008, compared to loss before tax of ZAR23.9 million for the prior year comparable period and profit before tax of ZAR654 million for the six months ended 30 June 2008. The significant decline in profit compared to the June 2008 half is attributable to the unprecedented sharp reduction in global ferrochrome demand and the resulting low prices experienced over the last quarter of calendar 2008 triggered by the global financial crisis.

After achieving record production during the first quarter of financial year 2009, the Company responded swiftly to deteriorating market conditions by powering down its furnaces in November 2008 and focusing on selling its inventory. The conventional industry-wide ferrochrome pricing mechanism subsequently collapsed, resulting in retrospective downward price revisions of sales contracts. The Company therefore incurred significant price reductions and writedowns of inventories over the December half. Price negotiations on all outstanding shipments have now been finalised. All outstanding receivables are expected to be collected by mid-March 2009.

As a result of sales volumes decreasing from 145,996 tonnes in the June half 2008 to 49,435 tonnes in the December half 2008 combined with significantly lower ferrochrome prices, revenue decreased by ZAR1 billion, from ZAR1.55 billion in June half 2008 to ZAR526 million in December half 2008. Consequently gross profit decreased from ZAR711 million in June half 2008 to ZAR69 million in the December half 2008.

Administration and other expenses increased from ZAR125 million in the June half 2008 to ZAR196 million in the December half 2008, primarily due to the write down of inventories and the non-absorption of fixed production costs during the period.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) decreased from ZAR712 million in the June half 2008 to a loss of ZAR2 million in the December half 2008.  Net interest expense decreased by ZAR39 million between December half 2008 and June half 2008, due to reduced debt levels. The Group recognised deferred tax of ZAR31 million during the reporting period.

Profit after tax increased from a loss of ZAR24 million in the December half 2007 to a profit of ZAR3 million in the December half 2008, which translated into an increase in headline earnings per share from a loss of 4.54 cents per share (0.32p) to a profit of 0.81 cent per share (0.05p).

There has been net cash flow utilised in operating activities of ZAR321 million over the reporting report, arising from an increase in working capital of ZAR268 million, including an increase in inventories, after writedowns, of ZAR397 million. Other significant cash flow expenditures during the December half 2008 were investment in property, plant and equipment of ZAR104 million, dividend payments of ZAR76 million and the purchase of 3.9 million IFL shares amounting to ZAR20 million. The net cash balance, after short term borrowings and including restricted cash, amounts to ZAR526 million at 31 December 2008.

  Capital Commitments

The Company resolved to defer all major capital expenditure. Only capital expenditure relating to the maintenance and upgrade of the plant and the co-generation project is ongoing. The Company is using the plant shutdown period to undertake maintenance of the plant and upgrade certain elements aimed at enhancing operational performance once production is resumed. The capacity improvements include the expansion of the feed bins to provide greater input flexibility, a redesign of the feed chutes to reduce maintenance and a modification to the pressure rings to allow greater energy input into the furnaces. The maintenance and upgrade programme is on track for completion by 31 March 2009. The furnaces are expected to be available for production from 1 April 2009, subject to market conditions.

Ferrochrome Market Review

The fall in the quoted ferrochrome price from US$1.92 per pound in the June quarter of 2008 to US$0.79 per pound in the March quarter of 2009 reflects the impact of the world slowdown in economic activity, and low volumes are still being recorded at this price. There is a continuing reduction in stainless steel and ferrochrome inventories that has been accelerated to approximately 72% of world ferrochrome production being suspended as at 31 January 2009 (CRU February 2009) There are some signs, particularly in China, that ferrochrome inventories are diminishing with most stainless steel producers generally having relatively low ferrochrome stocks and spot prices appear to have stabilised. There is, however, a large stockpile of chrome ore in China that will be converted to ferrochrome but at this time it appears that these stocks will be sold only when prices increase.

The dramatic reduction in global ferrochrome supply leads industry commentators to estimate that industry stocks should reduce from 22 weeks to 8 weeks of consumption by calendar year end. (CRU February 2009) 

Cost control

Management have successfully reduced fixed costs by terminating engagements with contractors and contract staff and reducing maintenance expenditure and internal transport.

The Board has now resolved to decrease the number of phantom options granted to directors and staff on 30 December 2008 from 17.1 million to 10.1 million, and suspended its staff bonus plan for financial year 2009. The revised options granted to directors and staff are as follows:

Management is enforcing the ongoing review of fixed costs, the implementation of increased controls over expenditure and assessments of salary and wage reductions.

Dividends

The Board of Directors resolved not to declare an interim dividend for the six months ended 31 December 2008. The Board will review the dividend policy later in the financial year based on the global ferrochrome market and on the date on which IFL's production restarts.

Outlook

The sharp contraction of ferrochrome production indicates that ferrochrome inventories could normalize towards the end of calendar 2009. The Company's capital programme and strong current cash position (strengthened by the expected cash receipt of all outstanding receivables by mid-March 2009) means IFL will be in a strong position to resume efficient production and capture market share once demand returns.

The abridged interim financial statements follow, the full set for the period is available on the Company web site www.ifml.com 

  Abridged Financial Statements

Consolidated Income Statement

For the half year ended 31 December 2008

  Consolidated Balance Sheet

At 31 December 2008

  Consolidated Cash Flow Statement

For the half year ended 31 December 2008