Good morning, everyone, and thank you for attending OM Holdings webinar this morning. My name is Eugene. I'm the Group Financial Controller of OM Holdings, and I will be hosting this webinar together with Richie from the IR department. OM's Holdings is a manganese and silicon smelting company with vertical exposure in mining and trading, and we have just released our first half twenty twenty-four results last Wednesday. I'm delighted to have OM' Managing Director, Adrian Low, with me today. He will run through the key points, followed by a Q&A session. If you would like to submit a question during the webinar, please use the Q&A function at the bottom of your screen. If we are unable to present your question to Adrian during the seminar, we'll attempt to address the query, post this webinar.
Without any further ado, I'm pleased to hand over to Adrian for the presentation. Adrian, over to you.
Thanks, Eugene. Thanks, Richie, and thank you everyone for dialing in this morning. So we're pleased today to present to you our half year results for the first half of 2024 . So let's dive into the financial highlights. Thank you. So I think if you look at the top line for the first half of twenty twenty-four, you know, a lot of factors that come into play here. I think if you look at pricing, notwithstanding the blip in sili manganese prices that we saw the first half of this year, off the back of suspension of manganese ore from South32. If you strip that away, look at all the averages, you know, I think in the first half of twenty twenty-four, across the silicon and the manganese phase, prices have still come down.
Notwithstanding that, I think we were able to sort of claw back and push back on that to get a revenue number that's not too different from the first half of 2023. So I think if you look at all the factors, you know, our prices are marginally down, alloy production and consequently, sales has notched up. But at the same time, we also recorded lower volumes of manganese ore traded. And again, to remind everyone, traded volumes are basically all that's distributed from our investment in South Africa. That should be borne in mind as well as other ores that we are trading, as well as our own consumption.
Okay, so off of that sort of slight fall in revenue, I think you know, you look at our EBITDA number of $46.6 million, marginally lower than the first half of 2023, and a profit attributable to owners of $12.8 million. So I think, as we've said for you know, a few presentations now, we always expect that cash flow generation should fall in line with EBITDA. You know, ours is not a unnecessarily complex business, and so you know, we are, we're sort of pleased to see that that has fallen in line. I think if you look at cash generation at $69 million in the first half of this year, that's a bit more than EBITDA.
And so, you know, I think part of that fluctuation is due to working capital changes, and this will come and go, right? Depending on the inventory levels of the plant, depending on market conditions, depending on the kind of products that we're chasing. And so this is, you know, I think this is now fairly normal. So of the cash generated, vast majority of that went into loan repayment, and, you know, I'll touch on this, in one of the later slides. Okay, so I think if you look at the results in the first half and sort of contrast that against, the first half of 2023, I think what's maybe more instructive, is to look at that, you know, relative to what happened in the second half of 2023, where we saw...
If you look at the chart, you know, we saw prices declining, obviously in a sort of monotonically declining price environment, especially in the manganese side, where you are taking the input cost that is very often lagged. That will translate into lower earnings, and that obviously reverses itself when the trend reverses. So I think, you know, you see that play out in the red line. I'm sorry, the chart is squeezed in such a tight space, but that more or less explains, you know, the lower earnings, especially on the manganese side, in the second half of last year. And so now this year, I think, you know, we're very pleased that that trend has reversed itself.
So if you compare the first half of this year compared to, you know, the two distinct halves of last year, you will see that, you know, that cycle has begun to reverse itself. Notwithstanding, you know, obviously the decline, overall decline in prices. So, you know, I think this is something that we have mentioned to shareholders and analysts. And, you know, bears repeating that the profitability and the ability of company to generate cash is not always directly dependent on kind of the top line prices that you see. But obviously, they're very, very correlated. So I think in terms of the market balance on the silicon side, things have not really changed substantially since our last update.
On the manganese front, you know, unfortunately, I think the blip has been rather short-lived. And so, you know, this goes to show that a lot of the bottlenecks in terms of the supply chain is actually occurring on the offering and not actually at the smelting at the processing end. And so, you know, you could see that the latest prices for ferrosilicon and manganese alloys, silicon manganese, in this case, at the end of August, ferrosilicon closed at $1,325, while silicon manganese closed at $945, and so that has retraced quite substantially. So I think part of obviously part of that good has been booked in the first half.
I would say that, you know, when silicon manganese prices were in sort of the four-digit territory, 1,100, 1,200, part of that has obviously been booked in June, a bit in May, I would say, and with the rest sort of coming in, in July. You will see that then reflect in the second half numbers, at least for July. Okay. In terms of production updates, there really has not been any changes, and so I think we're still on track for what we have guided. You can see the numbers below, and as well as the last four years' historical performance. For smelting, I think shareholders have been asking, and we have been commissioning the silicon metal furnace from July.
I think you know that process has not led to any unexpected surprises, I would say. So you know we are really in sort of the midst of fine-tuning what you know the sort of optimal production parameters should look like. I think we're close to achieving that. That being said, I think at the end of the day to have that optionality at those furnaces gives us the power to choose. What we decide to produce, whether that's a sort of bespoke version of ferrosilicon, whether that's regular commodity grade ferrosilicon, whether that's silicon metal or any of the sort of derivative grades, will be market dependent.
Obviously, you know, part of the reason why we have spent so much working capital in accumulating various raw materials is to position ourselves to make sure that, you know, we're selling into the right market at the right time. Okay, next slide. I think I'll take a couple of slides just to talk through the numbers in the first half. You know, on the revenue front, as I've already explained, a couple of factors at play here. Lower oil volumes, higher alloy volumes, and at the same time, marginally lower alloy prices were the main contributing factors. I think, yeah, you know, you see a marginal decline in revenue and also a marginal decline in GP margins.
In terms of the EBITDA breakdown, I think that sort of flows through from lower revenue. And at the same time, kind of recovering profitability, as we saw, as I explained earlier, where profitability was high in the first half of last year, came down in the second half, and now we're seeing that kind of recover, notwithstanding, obviously, what the prices are doing. And the lower contribution mainly came from smelting, and there's an increase in contribution from trading. I would say, if you look at the last couple of years, you know, trading is really just more or less kind of returning to its traditional normal value.
But obviously, in the first half, it was contributed marginally by higher volumes traded specifically for alloys as well, where the company also took the opportunity to fulfill customers' orders with alloys that it could source and procure from other origins. And in terms of mining, I think I missed that in the previous slide, but the Ultra Fines plant restart is underway. We are in the process of preparing manpower and also preparing the site for that restart. And you know, Q4 is the target for the company for when we'll put everything together and you know, recommission that plant. Okay. The company has talked about a focus on debt repayment and bringing debt down to a sustainable and manageable level.
I think, you know, the track record shows that, and I've definitely been saying this for a few years. So, you know, we're very pleased that in the first half of 2024, that gearing ratio has come down to 0.5. So, you know, if you look at the cash flow statement, and, you know, in this sort of simple summary, cash flow movements for the first half, we generated $69.4 million from operations, and, the vast majority of that, you know, went back into repaying debt. So obviously, this is not, this is not all principal. Part of it is, is a revolving facility that, you know, we pay and draw down as, as we need.
And part of that is sort of trade lines, TR, what have you. But the commitment is there to ensure that, you know, we are always chipping away at that total debt level and, you know, sort of conserving cash for distribution, for new projects, and so on. So that is the gist of what we've done with the cash in the first half of twenty twenty-four. I think in terms of investing activities, in terms of CapEx spending, we have said this before at a few forums, and, you know, I think we'll repeat it again, but for this year, twenty twenty-four, twenty-five, and maybe into twenty twenty-six, we will be focusing on cash management.
Working out the optimal capital structure, working out what our plans should look like, you know, in 2026 and beyond, what sort of CapEx should we be spending on. And, you know, that, that will... The actual sort of bigger sized CapEx will take a back seat as we clean all these things up. And post that, I think, you know, we will be able to present shareholders, you know, with plan on what the final sort of growth, sorry, excuse me, what the final growth phase of Sarawak should look like. And obviously, I think at this point in time, and, you know, currently in each question that we can't run away from is, what is our internal view on the price of carbon?
And so this is something that is, you know, obviously very, very critical from a, you know, environmental perspective. At the same time, also from a cost perspective, as, you know, various jurisdictions, banks, you know, start talking about carbon pricing and sort of carbon-intensive activities. So cannot be understated. I think this is something that the company will be focusing on. And obviously the key thing is not to spend CapEx preemptively, too far preemptively before the price is sort of written on the wall. So that's it for this slide.
I think, in the last slide, really, you know, we're just here to recap, sort of give a quick snapshot of the company, its performance and then sort of its key ratios. With that, I will end this presentation and leave more time for Q&A.
... Thank you, Adrian, for the presentation. We will now move on to the question and answer session. We've received some questions from participants of the webinar. Adrian, the very first question is, "What was the group's loan repayment quantum against gross profit for the last five years?
Yeah, I mean, that's a very relevant question, right? I don't have the numbers in front of me, but I think, you know, off the top of my head, that every half year we report, you know, debt paid down. But obviously, as I mentioned just now, that's, you know, comprised of trade finance, revolving facilities, and so on. But I think if you look at total debt, so term loan, so what started out as a project financing from the get-go, I think that has been reduced by about $100 million in the last five years. So, and, you know, profit numbers, revenue numbers are publicly available. So, you know, that gives you a sense, roughly, of how much of that has gone towards debt repayment.
Thank you, Adrian. The next question is: "Were there any investor relation forums held by OMH in the last five years?
So, yeah, I mean, you know, absolutely right. I think in the last couple of years, as I've, you know, sort of grown into this IR position, we have instituted the quarterly webinars, as well as the one you're on right now, sort of half-yearly platforms for people to ask questions and for us to explain, you know, really some of the nuances that might not be picked up. Because, you know, while the business is relatively simple and straightforward, I think there are nuances between the products, between cycles, and, you know, sometimes you have to look at it and frame it in the right, from the right angle.
Besides that, I think we have taken part in, you know, numerous events, held by banks, brokers, you know, both in Australia and in Malaysia. I think, you know, if you look at the AGM, you know, given the fact that we're dual listed, I think we try to provide that platform in sort of different countries at different times. So it's been held, off the top of my head, you know, the last five years, it's been held in Perth, you know, in KL, in Singapore to provide access to different shareholders, you know, to be present and to ask questions and really engage with management. Because, you know, it won't just be me, but there'll be a lot more people.
So, you know, obviously there are a lot more events that we can take part in, and that's always something that's on our minds.
Thank you, Adrian, for the insight. The next question we received: "What was OMH's record for the last five years' dividend against net and gross profit?
Again, I don't have those numbers, but you know, I think it's fair to say that we have more or less paid 10%-30% of net profit after tax. You know, if you look back at the last couple of years, you know, might have reached 30%. This was... You know, I think even before we announced the dividend policy, that has been the case. You know, at the time of announcing the dividend policy, I think we sort of explicitly said that the dividend policy is really formalizing an existing practice, and I think that's not gonna change, you know, in the near future.
Thank you, Adrian. The next question we received: "Can management expedite the expansion of the smelter as soon as possible?
The short answer is no. I don't think we can, you know, expedite the expansion of the smelter. Look, I mean, there are various considerations here, right? If we are gonna expand, number one, the selection and choice of product, the type of equipment we're gonna choose, the labor intensity of that process. What I will say is that, on-site land is available, substation capacity is available. You know, our original substation was rated for five hundred megawatts, and obviously, I think if you were to go out and build a substation like that today, in sort of today's cost environment, it would cost you double of what it cost us, ten years ago.
And last but not least, I think most importantly, we have to look at what should we do with cash, right? And I think, this was asked maybe a few years ago, and, you know, we've said that we try to balance debt repayment against, you know, conserving cash growth and distribution to shareholders. And I think that, you know, really hasn't changed. If anything, you know, as we pay down debt, as we, you know, get debt down to a sustainable, manageable level, where, you know, say, most of the debt hypothetically would really be sort of short-term revolving in nature, then, you know, obviously, that frees up cash to pursue, you know, expansion plans and sort of accelerate that.
Thank you, Adrian. The next question actually has three parts to it. So if you need me to repeat any of the questions, please do let me know. The first part of the question is: "Is the midterm gearing target for OMH?" The second question: "OMH- Is OMH planning to distribute excess free cash flow to shareholders or use for further acquisition or more asset base and divestments?" And the last part being: "What's the long-term target?
Okay. Well, I mean, the first question is on Gearing Ratio, was that right?
Yes, that's correct.
Look, I mean, our gearing ratio now is 0.5, right?
Yes.
So I think there isn't really a target to say. I think it's more along the lines of, you know, what sort of debt should we as a business be taking on considering that, one, the business is highly cyclical, and number two, you know, quite a fair bit of working capital is required to run the business in a way that, you know, we think it should be run, right? And there are many philosophies around this. You can run it in a very straightforward way. You know, I just want to produce a single product, I'll buy, you know, the same thing day in, day out.
But obviously, you know, we believe that the way we're running it is more optimal in terms of cash generation, in terms of profit to shareholders, and so on. But so, you know, this is, we're sorry, this is not a very clear answer, but I think, you know, what we wanna do is to bring down the level of debt that may potentially be at risk when, you know, market cycle comes around. And really only keep the, say, debt of revolving nature that, you know, can go up and go down as and when the company needs it in a normal course of business.
I think, in saying that, the answers has to be lower than where we are now, but maybe not substantially lower. Then I think this goes naturally into the second question: what would the company do, once sort of cash is being accumulated? You know, I think the short answer is that it has to go back to shareholders, right? In what way and form and what shape, you know, I think dividends is the most natural. But at the same time, you know, obviously there is this competing tension with, you know, what are the future growth projects? You know, we've shared this in the past, right? The future growth projects, potential ones, are expansion of production, you know, additional furnaces.
How do you reduce your carbon footprint? There are two ways of doing this. One, you know, to reduce your Scope 2, the heat, heat recycling, power generation, is the most natural, and it's actually fairly mature, right? That's something that, you know, I've said we've done, pre-feasibility work on. The last thing would be, how do you lower your Scope 1 emission, which would be, how do you replace, the metallurgical coke and, you know, various forms of coke that we're consuming? To do that really is, you know, forestry management. You would have to be involved in the production of carbon itself. That's something obviously that can be done in Sarawak.
It's something that, you know, we are aware that a lot of our neighbors and sort of people in the industry are looking at, and naturally, that's something that we're looking at as well.
Thank you, Adrian. I think we have time for one final question, but this question also consists of two parts. The first part is: What is the current status on the five-year extension to the tax holiday for OM Sarawak? And the second part is: Am I correct in thinking OMH has been paying the tax and will receive a refund if the extension is successful?
So it sits with IRB. Unfortunately, there has been no change to that status, but, you know, absolutely correct, that we have been providing for it, and that will be reversed, you know, when that's done. So I think, you know, just to see what has been provided for you, you can just look at, you know, financial statements.
Thank you, Adrian. I think that's all the time that we have today. If any participants do have any further questions, post this webinar, please feel free to send us your questions, and we will try to address them as soon as we can after the conclusion of this webinar. With this, thank you, Adrian, for taking us through the numbers for the first half of this year. And thank you, everyone, for attending this webinar on a Wednesday morning. Thank you very much.
Thank you. Thanks, everyone.