Net sales in January–June 2020 totalled EUR 172.6 million ̶ EBITDA increased significantly year-on-year

(The financial data from Terrafame Ltd presented in this factsheet are unaudited FAS figures. Unless otherwise stated, the figures in parentheses refer to the corresponding period of the previous year.)

January–June 2020 in brief

• Nickel production increased by 13.8 per cent to 15,462 (13,584) tonnes. Zinc production increased by 10.7 per cent to 29,929 (27,036) tonnes.
• The average price of nickel in the London Metal Exchange increased by 1.4 per cent during the review period to USD 12,483 (12,315) per tonne.
• The average price of zinc in the London Metal Exchange decreased by 25.1 per cent during the review period to USD 2,046 (2,732) per tonne.
• During the review period, net sales increased by 22.3 per cent to EUR 172.6 (141.2) million.
• The increase in net sales was driven by good production volumes during early 2020 and hedges that reduced the direct impact of falling market prices and dollar exchange rate developments on net sales. During the review period, deliveries continued as normal despite the coronavirus pandemic.
• Net sales in April–June increased by 27.1 per cent year-on-year to EUR 76.5 (60.2) million. Net sales during the comparison period were impacted by the scheduled annual maintenance break in May 2019 and the lower prices compared to the previous year.
• EBITDA for the review period increased significantly year-on-year to EUR 19.1 (1.5) million which accounts for 11.1 (1.1) per cent of net sales.
• Operating profit for the period amounted to EUR -0.6 (-16.1) million.
• Free cash flow from operations was EUR 12.1 (-28.3) million.
• The combined 12-month LTIFR of Terrafame and its partner companies was 15.2 (7.9).
• The LTIFR among Terrafame’s own employees was 11.5 (7.2) and the LTIFR for partner companies was 17.8 (8.7).
• During the review period, the coronavirus pandemic did not adversely affect Terrafame's operations and the construction of the battery chemicals plant progressed as planned. In mid-March, Terrafame established a specific committee to handle topics related to the coronavirus outbreak, and instructions have been issued to ensure the continuity of operations under exceptional circumstances. The scheduled annual maintenance break normally held in May, has been postponed to August due to the coronavirus-related restrictions on gatherings. In Kainuu, Finland, the coronavirus epidemic remains stable.

1) Free cash flow after maintenance capex = EBITDA - Change in net working capital - Maintenance capital expenditure excluding right-of-use assets.
 

CEO Joni Lukkaroinen:

”The coronavirus pandemic that cast a shadow over the first months of the year did not adversely affect Terrafame's operations during the review period. Deliveries continued as normal, and the construction of the battery chemicals plant has also progressed as planned. Net sales increased by 22.3 per cent to EUR 172.6 (141.2) million. EBITDA for the review period increased significantly year-on-year to EUR 19.1 (1.5) million which accounts for 11.1 (1.1) per cent of net sales.

During the first years of operation Terrafame has focused on the production ramp-up. We got the year 2020 off with a good start and broke our quarterly nickel production record with 8,362 tonnes in the first quarter. This new record beats our previous record from 2018 by 8.5 per cent. And shortly before midsummer, Terrafame’s cumulated nickel production since the start of its operations exceeded 100,000 tonnes. During the same period we have produced 215,000 tonnes of zinc. We have developed our operations year by year, and the trust in the company has improved. The combined efforts of all of our personnel deserve a thank-you for this.

In 2018, we decided to move the company downstream in the metal refinery chain, and in the summer of 2020 the construction of the new battery chemicals plant is entering its final stages. The first trial use procedures will be initiated in the near future as the installation work in the main process areas progresses. The operating organisation of the production plant is also nearly established and personnel training has progressed in the spring and in the summer. The recruitment to the battery chemicals plant have increased the number of Terrafame’s personnel by 100 persons year-on-year and the number of partner companies’ personnel by over 350 persons, respectively.There have been some delays in material and equipment deliveries because of the coronavirus pandemic, but production is scheduled to begin in the first half of 2021 as planned. In early 2020, the impacts of the coronavirus pandemic were reflected on the demand for electric vehicles also, although according to the available estimates demand is starting to recover and the long-term outlook are strong.

The supply chains in the automotive industry are complex, and the materials and components required in car manufacturing are delivered trough a multi-tiered supply chain. Terrafame wishes to offer products with a responsible and fully transparent supply chain from start to finish. In June, we published our Sustainability Programme for 2020–2024 where we have listed objectives regarding eg. energy efficiency and by-product recycling. A further objective is to diminish our carbon footprint. The Sustainability Programme sets an ambitious goal: to protect the local environment and to promote sustainable development globally.

The 12-month lost-time injury frequency rate (LTIFR) for Terrafame’s own employees was 11.5 (7.2). The LTIFR for partner companies was 17.8 (8.7) and the combined LTIFR of Terrafame and all of its partner companies was 15.2 (7.9). Even if the numbers don’t support it yet, this spring we have achieved improving results regarding the LTIFR of our contractors, in particular. We intend to continue our efforts to changes the safety culture at the industrial site. The coronavirus epidemic is currently stable in Finland and in Kainuu. However, we are closely monitoring the situation and are prepared to update our operations to reflect any changes in the overall situation, if necessary.”

 

Market developments

Electric vehicles and EV battery markets

According to Rho Motion analysts’ estimates, the global EV sales were approximately 738,000 (852,000) units in January–May 2020 which is 13 percent less than during the corresponding period in 2019.

In February 2020, the impact of coronavirus resulted in a significant reduction in Chinese EV sales but already in March the data showed a rebound from February’s historic lows and EV sales in China have continued to recover since. Whereas in early 2020 European sales were at the forefront of the EV market, global EV sales decreased in April  by around 30 percent due to a large decrease in European and North American sales outweighing the continued recovery in sales in China. However, overall EV sales increased by around 26 percent in May compared with April 2020 due to a recovery in EV sales in all major markets. The recovery in sales in the European region is estimated to slowly continue over the coming months, supported by several subsidy packages in major regions.

The sales weighted average battery pack size was 54 kWh in May 2020 compared with 55 kWh in May 2019. In terms of chemistry development, recovering EV sales in China against lower sales in Europe have increased the share of NCM811 batteries and their market share in May 2020 was already 11 percent compared with only 1,5 percent in May 2019. In addition, roll-out of several new EV models in China also increased the market share of the high nickel batteries, mainly NCM622. The global market share of NCM622 batteries was 34 percent in May 2020 compared with 15 percent in May 2019. Rho Motion expects recovering EV sales to contribute to rising battery demand over the rest of 2020.

Nickel and zinc

In the second quarter, the market price of nickel was USD 12,243 per tonne in the London Metal Exchange (LME), a decrease of 3.8 per cent from the first quarter in 2020 (12,723). In April–June 2020, the price of nickel fell by 0.1 per cent year-on-year (12,258). However, the price of nickel increased in January–June by 1.4 per cent year-on-year with the average price of nickel approximately USD 12,483 (12,315) per tonne. Following the steep decline due to the coronavirus pandemic earlier in the year, the market price development of nickel has recently stabilised thanks to production cuts and the recovery of the Chinese markets.

In the second quarter, the market price of zinc was USD 1,964 per tonne in the London Metal Exchange (LME) which is 7.7 per cent lower than in the first quarter of 2020 (2,128). In April–June 2020, the price of zinc fell by 28.9 per cent year-on-year (2,763). In January–June, the price of zinc fell 25.1 per cent year-on-year and was on average USD 2,046 (2,732) per tonne.

The combined nickel stock levels at the London Metal Exchange (LME) and Shanghai Futures Exchange (SHFE) amounted to 262,517 tonnes. The stock levels increased compared to both the situation at the end of the first quarter of 2020 (257,439) and year-on year (182,122). The stock levels equalled just below 6 (4) weeks’ demand. At the end of the review period, the zinc stock levels totalled 220,457 tonnes equalling approximately one week’s demand. A significant decrease in the zinc stock levels was witnessed in China, but in the LME, there was a marked increase in the zinc stock levels. At the end of the first quarter of 2020, the combined zinc stock levels totalled 234,008 tonnes while at the end of the second quarter of 2019 the zinc stock levels totalled 177,318 tonnes.

Exchange rate

In the second quarter of 2020, the average EUR/USD exchange rate was 1.10 and remained, thus, level compared to Q1. The average EUR/USD exchange rate was 1.14 and 1.12 in Q1 and Q2 of 2019, respectively.

 

Metals production

Nickel production increased by 13.8 per cent in the review period to 15,462 (13,584) tonnes. Zinc production increased by 10.7 per cent to 29,929 (27,036) tonnes. The production increased thanks to the successful production process and the resulting high capacity utilisation rate.

In the second quarter, nickel production increased 12.8 per cent year-on-year to 7,100 (6,296) tonnes. Zinc production increased by 14.2 per cent to 14,387 (12,602) tonnes.

The scheduled annual maintenance break normally held in May, has been postponed to August due to the coronavirus-related restrictions on gatherings.

 

Net sales and financial performance

During the review period, net sales increased by 22.3 per cent to EUR 172.6 (141.2) million. The increase in net sales was driven by good production volumes during early 2020 and hedges that reduced the direct impact of falling market prices and dollar exchange rate developments on net sales. Deliveries continued as normal during the review period despite the coronavirus pandemic.

Net sales in the second quarter increased by 27.1 per cent year-on-year to EUR 76.5 (60.2) million. Net sales during the comparison period were impacted by the scheduled annual maintenance break in May 2019 and the lower prices compared to the previous year.

Hedging had a major impact on the company's net sales during the review period. In the latter part of the year 2019, the strategic level of hedging for nickel deliveries in particular was raised to take advantage of the increased market prices. This had a clear positive impact on net sales for the review period.

EBITDA for the review period increased significantly year-on-year to EUR 19.1 (1.5) million which accounts for 11.1 (1.1) per cent of net sales. The EBITDA improved clearly year-on-year in the second quarter, in particular, when the declined net sales in the comparison period were reflected on profitability.

Operating profit for the period was EUR -0.6 (-16.1) million, and free cash flow from op