Fox Marble Holdings PLC (LON:FOX) Chief Executive Officer Chris Gilbert caught up with DirectorsTalk for an exclusive interview to discuss their H1 results, the recent Chinese order, new office in Dubai and growing their quarry production and extraction rates.
Q1: We saw your interim results this morning for the six months ended June, what do the results for H1 mean for the company?
A1: I think the things to bear in mind when reviewing this is that for the first half of this year, the bulk of our activity had to do with extraction of blocks from the quarries and the sale of those blocks and because the winter this year lasted longer than it normally does, it’s always a bit variable, we weren’t able really to get back into the quarries until pretty much the end of April.
So, what we’re looking at here is 2 months activity and revenue from the 2 months’ activity so although it’s a 6-month period, we’re really talking about income from May and June. Despite the fact that this is only a 2-month period, we increased our revenue from the H1 2017 period by a lot, so on the previous year we’ve almost doubled it. This is a function of the increased rate of production in our principal quarries where we’re focussing our attention.
So, we are encouraged by the fact we were able to achieve that in such a short period of time.
Q2: You made reference to the recent Chinese order, what does that mean for Fox Marble?
A2: People with long memories will remember that a couple of years ago we were very engaged with a Chinese company who had visited Kosovo and we’d visited them in Beijing, they were a very large company and they purchased a trial order of 100 tonnes or something for which they paid. These were blocks they wanted to put through their gang saws in order to test the blocks and, I think, provide themselves with some sample material to put into the market. They were very very positive about the fact they were going to come back, and order significant quantities and they never did so we were very disappointed about this. We had questions at the time about what we were doing in China and what had happened to the activity that we were engaged in and the short answer is nothing happened.
So, this is significant for us because this is us back in China, this is now a significant relationship with a customer who come back every month and take in excess of 300 tonnes a month in order to service a contract they’ve got for which our silver/grey, our Selene, which obviously is one of our most popular materials, has been specified. They’re saying they need at least 5,000 tonnes in order to complete this project, we don’t know where it is except we do know that it’s in China.
So, this company based in Xiamen have visited the quarry three times, four times now if you include the initial inspection visit, they’ve come back three times and they’ve ordered quantities of our blocks on three occasions regularly, like clockwork, every month and we’re shipping it off. In fact, I was in Kosovo last week and I could see that there were 300-400 tonnes that they’d marked of blocks lying around on the ground waiting to be shipped off in containers to Xiamen.
So, for us, this is a real engagement now in China, we’ve established a base in China with these people from which, obviously, we hope to grow an even more significant business. This is based on the fact that our material has now infiltrated the market, it’s been installed in a big project somewhere, presumably at some point in time they’ll tell us, and we can go and take photographs of it and develop our business in China on from that. So, it’s important for us and we felt it was worth referencing it.
Q3: I also notice you’ve opened an office in Dubai?
A3: We have, and this is something we’ve spent some time doing, established ourselves in the GCC region because obviously it’s a very big, it’s a very dynamic region for natural stones, we don’t do granite, but they obviously use a lot of granite there as well. It’s particularly relevant in Dubai because of the Expo 2020 activities that are taking place in 2 years’ time for which they’re building like crazy at the moment. They seem to have come back from the brink, obviously in the crisis in 2008 and it’s very dynamic there.
The reason that we’ve got some confidence in our activities there is that we’ve already entered into an agreement, we’ve sold $500,000 worth of material, we have a sales and purchase agreement signed to that effect and more importantly, we’ve got the $500,000 so that’s encouraging for us.
So, our H2 activities are developing nicely and this is part of the mix. We expect to do a great deal more in the whole region so ranging through from Saudi to the rest of the emirates territories through to Qatar, Kuwait and Oman.
Q4: As the factory comes on stream fully, how do you expect this to impact on Fox going forward?
A4: The factory does several things for us, the first thing that it does is it allows us the opportunity to deliver slabs processed in our own factory and more importantly, cut to size which are basically tiles, stairs, all different shapes and sizes of material specifically cut for specification from our customers.
This represents the single biggest step I think in the company’s evolution going forward. Not only can we do this ourselves rather than having to outsource it to third parties with all of the difficulties, plus we’re paying margin away that we now retain, but also it means that we are utilising material from our quarries that we would not necessarily be able to sell at full price. It might be a block that’s marked, or it’s got a crack in it or a corner missing and instead of compromising our block material in the marketplace, we take that straight to the factory where we process it and of course it’s just as good as all the other material because the stone itself is inherently very high quality and very desirable.
That improves the yield in the quarries dramatically which is wonderful for us and it gives us a much wider market and a much wider constituency. So, we’re now shipping orders all over the world from the factory in the cut to size arena using some of these very high-tech machines we’ve got installed and commissioned and are now working away so the whole thing is now completely fully operational. We will expect that to start to feed through into our revenues lines, well it’s already doing that.
What that does is it shifts the mix of our products so whereas 12 months ago, we were a company for which 100% of the revenue we got came from the sale of blocks and now that mix is shifting so that the proportion is changing and of course, the margins are higher in processed material. People have said to me ‘where do you think this company will be in 12 months from now in terms of block processed marble mix’ and that’s a difficult question to answer. My personal ambition would be that this would be a mix of 50/50 in terms of volume and of course, that gives us a better than 50/50 mix in terms of the higher margin material and if we can achieve that, I’ll be very happy. So, that’s where we’re aiming at, at the moment.
Q5: Talking about volumes, is the quarry production and extraction rate going to continue to grow do you think?
A5: It needs to, and it needs to for the obvious reason of obviously it’s more money but the reason that it really needs to be is the demand for Fox Marble’s material is growing to the point where we can no longer fulfil the demand that is being generated out in the marketplace. So, every block of particularly Selene, our silver/grey marble, we could sell 3 times over so the obvious thought there is if we trebled our production, that would be a good thing to do, that’s what we’re focussed on.
We’ve also got the Illirico Bianco in its various shades coming on stream as the quarry benches widen and developed and we got a bit deeper and we know the demand for our off-white Illirico Bianco is going to be as exciting as the silver/grey and the other material we have in our quarry, Macedonian Alexandrian White. In fact, internally, I have said rather courageously that I think by the end of next year, our biggest selling product our biggest selling material will be the Illirico Bianco, so we’ve got a couple of small wagers on this, but I’d be surprised if I wasn’t right.
So, it’s important that we do not just continue to grow but that our extraction rates across our range of marbles, particularly in the Malishevë M3 quarry, does expand.
