Good morning, everyone, and thank you for attending today's OM Holdings investor webinar. My name is Nicola Gosatti of Corporate Storytime. OM Holdings Limited is a vertically integrated, low-cost manganese ore and ferroalloy producer, and I'm delighted to have OM Holdings Managing Director, Adrian Low, with me again today to run through an investor presentation following the release of OM's first half of 2023 production and market update. The presentation will be followed by a Q&A session, and if you'd 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 this morning, we'll attempt to address the query post the webinar. So without any further ado, I am pleased to hand over to Adrian, who will present his comprehensive update. Adrian, over to you.
Thank you. Thanks, Nicola. So thank you everyone for dialing in this morning for our half year results. I'm just gonna jump straight into the numbers, talk through some of the ratios with a quick market update, and I think we'll leave more time for Q&A. And I understand from Nicola that there have been a couple of questions that have already been lodged. So in the first half of 2023, I think you know, it's, it's, it's no surprise that revenue has declined largely in line with the market. So with weekly prices provided on the website for the investors and shareholders who aren't aware, you can find it under the IR section. You can actually see ferrosilicon and silicomanganese prices move almost real time.
So what you're seeing now on screen, the numbers that were delivered in the first half of 2023, are more or less in line with that price decline. So in reality, I think, you know, the volumes that we've traded or, you know, sort of produced and sold haven't really changed all that much. With that decline in revenue, you see a sort of a commensurate decrease in EBITDA, as well as profit after tax. So EBITDA more or less halved in the first half of 2023, and profit after tax declined as well. I'll talk more about this in the next couple of slides, and, you know, sort of try to break down the earnings structure.
But, at this point, I think, what's, what's, off-note, I guess, to shareholders as well, is that we actually consumed, cash flow, for operations in the first half of 2023, and so this obviously was a bit different from, prior years. Having said that, I think, if you sort of strip that down and, and just look at, operating profit, without working capital changes, so sort of remove, all the movement in inventory, then you'll see that that figure is actually more or less, not too dissimilar from EBITDA. I think it's, it's just above, $55 million, generated, at the operating profit line. So with all this, we generated $0.0259 per share.
I think I will just jump straight into the market because, you know, I think you have to sort of see those numbers in the context of what's happening in the broader market. So prices declined continuously, I think, for almost two years from the peak. So the peak, again, you know, for people who have been with us for a while, was in September, October 2021. And from that point in time, you know, we always knew it wasn't gonna last.
With such a huge run-up in prices, that's cost obviously a lot of sort of flushed a lot of cash into the system, one, and two, created an incentive to increase production, and I think we've seen both these sort of play out over the last three years. So, you know, I think we are at some kind of inflection point. I know that I've said that at some point in time in the past, but in the last couple of weeks, and I think there are a few things that bear paying attention to. So one of sort of the elements in the room would be what's happening in China.
China's steel production, the real estate sector in China and what the government's trying to do around that. So this is very pertinent for ferrosilicon. And secondly, the power situation in India, because that directly impacts the sort of cost structure of our competitors for silicon manganese. And so I think it's also worth remembering that at this point in time, you know, as prices come down, we are constantly consuming raw materials that were purchased earlier and booking in lower revenues. So, you know, that decline in selling prices will not be matched by, you know, sort of commensurate decline in cost.
This sort of reverses itself or sort of the situation sort of changes when prices are stable, albeit at a lower level, where there aren't any changes due to time, right? You're sort of literally consuming raw material and selling your output at sort of constant levels. So I think that's something that I think is worth pointing out, and we'll probably see it play out, you know, if not in the second half of this year, then more towards the fourth quarter of this year. So this lag effect, I think, is something that you know, we like to emphasize and that I mention every now and then to shareholders and analysts.
So just as an update, you know, there's a lot of text and information in this sort of bottom half of the slide. I'm not gonna talk through the numbers. Sorry, not gonna talk through the text, but instead I'll just give a brief update, for Q2, first half production for people who miss our, our quarterly. And so, you know, I think, this year, at the start of the year, we guided towards, something like 350,000 tons, production. And, so two things have changed since then. We have been able to bring more workers back on board, number one. And secondly, with the, sort of commissioning delay in the metallic silicon furnaces, we have actually converted that to produce ferrosilicon.
So just on a ton basis, you know, ferrosilicon is more productive, if you will. And so we have been able to push those numbers, now up to, I think, a maximum of 400,000 tons. So that's just above, 10% increase, on the upper range of our guidance. So the numbers are all on screen. I think, you know, I wouldn't talk through them, but. You know, it's important that in a low price environment, sorry, in a low price environment, that we're able to sort of squeeze margins, and lower our overheads per ton produced.
I think what we're doing, have done in the first half, and what we're actually actively managing now the second half, is sort of working towards this objective. Okay, so I'm just gonna talk very briefly through, you know, how sort of revenue has changed, you know, margins, and as well as the EBITDA structure. So again, like I mentioned in the first slide, a lot of the decline in revenue is purely due to prices. So in fact, if you look at the tonnage traded, I think, we're looking at a 1% decrease, between first half 2022, and first half 2023.
And so the earnings compression, again, sort of, going back to the point I was making earlier, is largely due to costs sort of, not falling, as quickly as selling prices. But just given the sort of cyclical nature of, of, just the markets we're in, or, or, you know, even the broader commodity markets, input prices and output prices are highly correlated, and so I think this is something that will just have to wash through, the system. So if you look at the, EBITDA structure, I think, you know, nothing has really changed, between the first half and the second half, besides the fact that it's actually lower. But, you know, smelting still accounts for the vast majority, of what we make.
I think with some contribution from obviously trading and associates, and associates here would be the two people on my- and I think, it's probably worth noting that, the 37% semi-carbon ore of South African origin has been under pressure for the better part of this year. And so I think, that's something that has to sort of digest out, sort of digest itself, sorry, through time, right? And then this, this is largely done through the Chinese market. Excuse me.
So I think, the last thing I'd just like to, to sort of talk about in the slide is, you know, although, it looks like a huge decline from the first half of 2022 to first half of 2023, I think what's, what's probably better, you know, sort of a frame of reference, would be what we did in the second half of 2022. And this is because, you know, with the high earnings for, for the full year 2022, in, in reality, a lot of that, you know, more than 70% of that was actually made in the first half of 2022. So if you look at a 2H 2022 versus 1H 2023 comparison, it's actually just a marginal decline.
So I think what we're doing, what we've achieved in the first half is more or less reflecting two points. One is that, you know, the market has just been in a continuous decline, and two, we've sort of managed to stay resilient, if you will, by making a lot of adjustments to production, to the product type, and to how we're managing raw material. Obviously, during the COVID period, and you know, FY 2022, towards the second half, we were still digesting material that raw material that we had purchased in the first half of 2022. And likewise, the first half of 2023, we have been digesting raw material purchased in the second half of 2022.
And so a lot of that higher inventory cost has been consumed now. And so, you know, we look forward to seeing how things will go in the second half of this year. So a short point to note, I think, this is the first time in a few years that we've seen an uptick in total debt and the gearing ratio. So I think this is something that we should probably explain to shareholders and investors. And so what has happened between 2022 and 2023 is we have, first of all, continued paying down the project finance debt. We paid $18.6 million the first time this year. So that's a sort of long-term PF facility.
At the same time, at the same time, because of, you know, a very significant acquisition we made at the end of last year, we have had to sort of top up cash balances, through the utilization of, sort of short-term revolving credit facilities. And so this is something that's ongoing. It's, it's not a long-term debt, has to be repaid regularly at, at fixed intervals, you know, through, through the year. And, that-- the utilization of that has actually brought up, gearing ratios to 0.71, you know, from the 0.6 levels, in the last few years. So I think when you look at, sort of cash flow changes, in the bottom left-hand corner, you will see more or less, what I've just described.
Okay, and so I think that brings us to the end of the presentation. I'll leave you with a company snapshot. You can see all the ratios, updated, you know, based on trailing twelve months, with our latest first half results. And, I think, it's again worth remembering that the commodity markets are very volatile, and very low markets are volatile. I think it's incredible - it's incredibly important to be able to sort of withstand these cycles. And so shareholders that have been with us, I think, you know, for more than, say, the last 5, 6 years, would have seen that what we're doing right now, given market conditions relative to historical performance, is actually a lot better. And I think that that's due to two points.
One, I think we are a lot more familiar with managing inventory, and managing our product mix in, in a very sort of, almost real-time fashion. We're much more in sync... sync with, with, the Southeast Asian markets, that has grown tremendously over the last five years. Five years ago is not what it is today. Secondly, I think, our power prices have become even more, entrenched in the sense that, structurally, even, you know, just given how bad the Chinese, economy is today, you know, when you look at power prices in the north, when you look at power prices in the most competitive iron ore producing regions in China, they are still not, cheaper and more competitive than what we're paying.
This is, you know, vastly different from how it was a couple years ago. So I think, you know, this, this, resilience, given where we are in the cycle, it actually speaks a lot, to how the company has evolved and changed, over the last five years. Partly, you know, growth on our side and partly just, due to changes in, in the Chinese power policy as well as, you know, the structural change in coal prices. So I think, I'll end on that note. I just have this one last slide, sorry, on, on the, development plan and, and roadmap.
Again, you know, this is sort of the same thing that we keep repeating to shareholders, and that is to look towards sort of what the final configuration of Sarawak is, and that is, you know, for output of between 600-700,000 tons. And beyond that, you know, we'll start doing a lot of optimization around emissions, lowering, lowering our per ton CO2, and working towards sort of optimizing costs from there. So that's the end of the presentation. Happy to take questions at this point.
Thank you, Adrian, for that presentation. We'll now move on to our Q&A section. Our first question: Does OM have a dedicated department to liaise with institutional investors?
Yes. So, the answer to that is yes. You can contact, you know, our IR department, Jenny and Richie at, you know, email addresses in every single announcement. I think if you look at the media releases there as well. So, failing that, drop us a note on the website sort of form. There's this sort of drop-down form, you can select IR, and then, yeah, drop us a note.
Fantastic. Our second question: Has the dividend policy been impacted due to lower pre-tax profit for the first half of 2023?
Right. So the answer is no. I think when we, you know, when the board approved the dividend policy, and then when that was, sort of deliberated, it was, designed to be robust. The idea is to have something in place, that will pay something, rain or shine, obviously subject to cash flow. But I think, that, that's something that will not change. So the dividend policy remains in place.
Thanks, Adrian. Our next question: The buyer for OMQ, are they planning to reopen the smelter and use the furnaces?
Yes. So that's a very astute question. I think first time I'm receiving this one. So the answer is that we can't really share at this point what the plans are. I think maybe just speaking towards you know speaking to our own plans 12-18 months ago at some point in time you know I had this question and I think I said that there were a couple options available. One negotiate something with the government to the extent that's possible and try to reopen the furnace by you know some kind of reconfiguration but basically take the market risk. Two use the land as is. It's prime real estate. It's 5 km away from the port.
And three, you know, keep the furnace, but sort of use that as sort of a side sideline, if you will, that's sort of generating cash, but sort of focus on the logistics aspect of being next to the port. So I think these options are all open to the new buyer. We are in the process of doing a due diligence with them, and I think we expect that to sort of play out in the next six months or so. As far as I'm aware, you know, they are from the industry, so I would hazard to guess that they would still like to do something, you know, that has to do with smelting. So that's probably all we can share at this point.
Thanks, Adrian. And the second part of that question was: Why doesn't OM Holdings move the two OMQ furnaces to Sarawak?
Yeah. So... Sorry, I'm just thinking where to start. You know, the-- just a couple of years ago, there was this company, Gulf Manganese, that tried to move two furnaces from South Africa to Indonesia, and I think that wasn't very successful. And the thing is, at this point in time today, the cost structure of a furnace, I mean, let's just sort of strip it down, right? It's the building itself, so civil engineering, that's actually a huge cost component to building a furnace, right? It has to be, you know, solid foundations, able to take a lot of weight, built to a certain height.
The furnace itself, the shell, the sort of refractory bricks that line the shell, that sort of insulate the furnace from the hot metal inside. And then sort of what goes above, right? So control systems, raw material feed, the electrode suspension system. I think these are all sort of costs that aren't... You know, you can't easily save costs just moving the shell, right? And, you know, technology has changed so much that, what-- So what we had, what we have in Sarawak, the electrode suspension system plus the electrical engineering wiring. It's actually the first, forget the name, but I think it's laterally compensated system in the world that's running ferrosilicon.
You know, if you just move what we have in OMQ and Tinsukia over to Sarawak, you're not gonna get—Number one, you're not gonna get a lot of the cost savings. And then number two, you're just gonna sort of retrofit very, very old technology, you know, shove it into a new shell. So I think that's actually not that helpful. You know, in the scheme of things, you're not gonna save a lot. And you might even end up with sort of production parameters, you know, efficiencies that are lower than what we are already achieving in Sarawak. Yeah, hope that answers the question.
Thanks, Adrian. That was a good, thorough answer to the question. Our next question: Does OM Holdings have an ESG policy, and can you make sustainable alloy metal?
Right. So okay, so that's there are two parts to that question. I think, yes, we do have ESG policies. You know, we have filed, I think, for the second year running, our sustainability report, or sustainability statement. So this year, I think, we have managed to get assurance on CO2 emissions on the Scope 1 and Scope 2. We are working towards Scope 3. It is, you know, sort of, tough nut to crack. It's a lot to do, but I think, for our industry, Scope 3, you know, is just minuscule compared to what we are emitting for Scope 1 and Scope 2.
A lot of the targets, a lot of the policies that we have in place, are disclosed in the ESG sort of sustainability statement. We do have a slide in, you know, sort of a standard presentation deck on the key targets for every year. I think that the sort of key focus areas for us on the environmental side, as well as the social side, being, you know, being listed since 1998 on the governance side, you know, I wouldn't say that's not our area of focus, but that's something that, you know, we've always done.
On the environmental side, we're focusing on, you know, emissions into the air, on the ground, so solid waste, as well as water, sort of, pollution levels, right? So these are all addressed in detail in the sustainability report. On the social side, I think, we're trying to do a lot of integration into, to Sarawak. You know, when we invested in Sarawak, we had maybe 80% foreign workforce, and that sort of flipped around to become maybe 20%-30% foreign. So that's something that, you know, upscaling developing a, a sort of, long pipeline for talent in the region is something we're focusing on. The second part of the question was on sustainable alloys, was it, Nicola? Yes.
So thanks. You know, on that front, I think it's difficult to sort of put a label to ferroalloys that we're producing and call it sustainable, because that's not an area of focus for our customers at this point. A lot of them are asking for just standard Scope 1, Scope 2 reporting, especially steel mills in the US and Europe. And you know, this is something that will have to change, I think, in the next one or two years, with you know, CBAM in Europe. I think you know, we'll have to report... Sorry, our customers will have to report the CO2 footprint for the alloys, you know, very, very soon.
And so I think, you know, until such time that, you know, sort of, monetary value becomes attached to the carbon footprint of our alloys, you know, it's difficult to, you know... Put another way, it's not as meaningful to call our alloys sustainable until there's some kind of monetary gain to be had from that. But otherwise, you know, I think we are in a position to attach CO2 emissions to every ton of product that we sell, actually, and that's something that we will work towards doing, you know, in the next 1-2 years' time.
Thanks, Adrian. Our next question is: What is the company's short and medium-term outlook for the Chinese steel market, giving OM Holdings products' prices are determined by these market forces?
Right. So, yeah, I would say ferrosilicon prices are very much affected by the Chinese steel industry, and then sort of, by extension, the real estate industry. So in the short term, it's surprisingly robust. I think if you look at so future prices for the last 5-7 days, there has been significant uptick in iron ore futures as well as, you know, met coal, coking coal and metallurgical coal prices. And so that's all reflecting a lot of news that has been put out by the Chinese government. I think a lot of new laws or sort of policies around real estate, around mortgages, were released in the last 5 days.
I was just in China a couple of days ago and, you know, sort of saw this sort of play out in real time, and I think that there is real excitement on the ground. So that's probably a reason why, you know, we're seeing this short-term euphoria, I guess, in the commodity markets. That said, it hasn't really translated into alloy prices. And again, this speaks to the sort of disconnect between demand and supply, right? In the last two years or so, I think it's largely a sort of demand-led price increase. And right now, what we're seeing is just a supply-side driven bearishness for alloy prices.
And the reason for that is just, there is no shortage of alloy producers in China at this point in time. The idle capacity is there. It can be switched on. It just happens that, you know, they are not as competitive and find that it's more meaningful to turn that off. But you can see that sort of reflected in futures prices. For manganese alloys, I think it's not as relevant to look at China. You know, we should probably look at countries like Ukraine, India, as well as other sort of manganese alloy-producing countries.
Thanks so much, Adrian. That does appear to cover the majority of the questions from our audience today, and if we have missed your question, we will attempt to answer it after our webinar. If you do have any further questions, please forward them to info@corporatestorytime.com. We will make a recording of this webinar available via OM Holdings and Corporate Storytime social media accounts in the coming days. This concludes our webinar for today, so thanks, everyone, for attending. And thank you once again to the OM Holdings team and Adrian for the update. Thanks, Adrian.
Thank you. Thanks, everyone, for dialing in. Bye.
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