Fox Marble Holdings PLC (LON:FOX), the AIM listed company focused on marble quarrying and finishing in Kosovo and the Balkans region has today announced its final results for the year ended 31 December 2018.
Highlights for the year ended 2018
· Total production of 13,094 tonnes of marble at the Prilep Alpha and Maleshevë quarries (2017 – 8,811 tonnes).
· Revenue for the year of €1.4 million (2017 – €1.2 million) with further advances of €0.3 million for future sales. 5,059 tonnes of block material sold in 2018 (2017 – 4,641 tonnes), together and over 7,000 sqm of processed material sold (2017 – 5,000 sqm).
· Operating loss for the year of €2.5 million (2017 – €2.9 million). Loss for the year of €2.3 million (2017 – €3.4 million).
· Acquisition of Gulf Marble Investments Limited for €1.8 million funded by the issuance of a convertible loan note. Through the acquisition Fox Marble has effectively obtained direct control over the quarry licence, acquired previously leased quarry equipment, and eliminated the royalty of 40% of gross revenue over the Prilep Alpha quarry payable to Gulf Marble Investments Limited under the original operating agreement.
Highlights year to date 2019
· Sales to 30 April 2019 of €515k (30 April 2018 – €76k) reflect a strong start to the year, given the winter shutdown of the quarries which generally results in very slow sales in the first few months of the year.
· Production in the four months to 30 April 2019 of 5,940 tonnes (2018 2,147 tonnes). This significant increase in production over this period is a reflection of capital investment made in the quarries to date.
· The Company has entered into an important new contract to provide the stone to construct a temple in the United Arab Emirates. Fox Marble will provide most of the stone for the interior of the building. An initial deposit of $100k has been paid, and the total value of the contract over the next two years is expected to be in the region of $2.4 million.
· Capital investment of €550k has been made in the Prilep Alpha quarry, to drive increased levels of production and to support the delivery of material under the new temple contract.
· On 4 April 2019, the Company announced the conditional acquisition of Green Power Sh.p.k and Scope Sh.p.k for a total consideration of 16,000,000 shares in the Company. These acquisitions will give Fox Marble the direct rights to the Maleshevë quarry in their entirety, eliminate the annual royalty which would have been due under the operating agreement, and reduce monthly outgoings for equipment and maintenance at the factory.
The Annual Report and Accounts for the year ended 31 December 2018 together with the Notice of Annual General Meeting and the associated form of proxy was posted to shareholders on the 4 June 2019.
The Annual Report, the Notice and related documents are available on Fox Marble’s website and can be downloaded from: www.foxmarble.net/investors.
The AGM will be held at 11.00am on 26 June 2019 at CMS Cameron McKenna Nabarro Olswang LLP, Cannon Place, 78 Cannon Street, London, EC4N 6AF.
In my report last year I said that our objectives for 2018 were to achieve notably higher sales and to significantly reduce operating losses. We have increased sales and reduced operating losses but not to the extent we had planned, which is disappointing. Notwithstanding this we have made progress with further investment in the development of our quarries, sales momentum continuing to build, further investment in our marble processing factory, and by strengthening our financial position and organisation.
Our long term goal is to expand our capacity, and to create a premium marble brand, through which Kosovo and the region is established as a major centre of marble production in the world. Our focus during 2019 will be to continue to develop our quarries and expand yields, to increase the output of processed material from our factory, to supply quality stone on time to our existing customers, to widen our customer base and identify new markets. We will continue to invest in systems and processes as our business grows and to ensure we maintain high standards of corporate governance and look after our workforce through effective training and disciplined health and safety practices.
Our sales in 2018 were lower than planned largely as a result of the slower than required growth in production. Accordingly, since the Company’s financial year end, we have invested a further €550,000 in equipment for our Prilep Alpha quarry and have introduced a new quarry team and practices to substantially increase production levels. At Maleshevë we have continued to invest significant resources and effort to accelerate the development of this quarry to produce multiple open high volume benches capable of producing blocks in the quantities required to meet demand. We are beginning to see the benefits of this investment with a step up in production in the first four months of 2019.
We are encouraged by the signs of momentum building in the development of our customer base. We have a core of recurring block sale customers with orders from a number of countries including India, China, Turkey and the United Arab Emirates; the latter including an important contract to provide marble for a new temple.
The demand for our Illirico Selene marble from Maleshevë is currently outpacing production and Alexandrian White, and more recently Alexandrian Blue, from our Prilep Alpha quarry are in strong demand.
2018 was a significant year for our marble processing factory at Lipjan, Kosovo. The factory is now fully operational, has a very wide range of processing capability and has been well received locally with visits by the Prime Minister of Kosovo and other important dignitaries. A key objective during 2019 is to drive a material increase in the sale of processed marble from our factory to the local Kosovan and Balkan markets and overseas.
We have also made a number of important moves to strengthen the Group’s organisation and financial position. We acquired Gulf Marble Investments Limited for €1.8 million in October 2018, thus effectively eliminating the royalty payable to Gulf Marble Investments Limited of 40% of gross revenue from the Prilep Alpha quarry. In April 2019 we announced the acquisition of Green Power Sh.p.k and Scope Sh.p.k for consideration of £1 million and £300k respectively, to be satisfied by the issue of 16 million shares in Fox Marble. These acquisitions give Fox Marble direct rights to the Maleshevë quarry, eliminate the annual royalty payable under the operating agreement and acquire outright assets previously operated under a hire purchase arrangement.
During the year we have continued to develop our planning on Stone Alliance and have commenced fund raising to get this project moving forward to the next stage. Stone Alliance has licences over 40 quarries so the opportunity is significant.
The results for the year reflect on-going costs incurred in developing our quarries, quarry operating expenses, overhead expenditure and financing costs. The loss for the year of €2.3 million is less than in 2017 (€3.4 million). Net cash at 31 December 2018 was €0.4 million and at 30 April 2019 was €0.96 million. Costs and cash remain under very tight control.
I would like to thank all our employees who are very committed and work very hard, and, importantly have embraced our vision to establish Kosovo and the Balkans as a major supplier of high quality marble worldwide.
We have made an encouraging start to 2019. Production for the period to 30 April 2019 was 5,940 tonnes compared to 2,147 tonnes last year and sales were €515k compared to €76k. As last year, our objectives for the year are to achieve a material increase in production and sales, to significantly reduce operating losses. Our target for the year is to achieve a close to cash break-even position for the year as a whole. This will be critically dependent on our ability to produce marble to the required quality and on time to meet orders and to significantly grow sales of processed marble.
Sales and marketing
Sales for the year ended 2018 were €1.4 million, with a further €0.3 million in advances received from customers. Whilst sales growth has not been as strong as expected, this has been driven by lower than expected quarry production volumes in Maleshevë. The demand for our Illirico Selene marble is currently outpacing production. We have seen encouraging signs in the development of our customer base, with a core of recurring block sale customers, with steady and regular demand for our material. We expect these customers to form the backbone of expected revenues in 2019.
· In 2018, the Company has seen its first significant orders from China. A Chinese customer has purchased and paid for 894 tonnes of Illirico Selene in three separate shipments. This customer has confirmed it wishes to purchase 300 tonnes of this material each month during 2019. We have completed shipment of over 300 tonnes of material to the customer since the M3 quarry reopened in late March 2019 and expect further orders over the remainder of the year.
· Turkey continues to be a consistent market for the Company, with over 1,200 tonnes of material sold in 2018. The customer has confirmed it expects demand for the material to continue in 2019.
· In January 2018, the Company started production of a new material at the Prilep Alpha quarry called Alexandrian Blue. The new material has dense blue grey banding with smaller bands of white which produce a marked blue tone and is akin to the highly desirable Zebrino marble from Northern Italy. This new material will be quarried alongside Alexandrian White which is already in commercial production at the quarry. Fox Marble sold, and received payment for, 441 tonnes of Alexandrian Blue extracted in December 2018 to a single customer. Following this order, the Company entered into a sales agreement with this customer to purchase Alexandrian Blue with an expected value in excess of €1 million. The same customer has confirmed their intention to also purchase 3,500 tonnes of Illirico Selene. Since the start of 2019 the client has purchased a further 475 tonnes of material.
· In 2018, the Company established an office in Dubai to service the Gulf Cooperation Council region and entered into a purchase agreement for processed marble. The Company completed two large cut-to-size orders to a client in the UAE at the end of 2018, including the production of 50,000 10 cm x 10 cm tiles, which were secured via our new Dubai office.
· In 2019, the Company has entered into a significant new contract to provide the stone to construct a stone temple in the United Arab Emirates. Fox Marble will provide the majority of the stone for the interior of the building. An initial deposit of $100k has been paid, and the total value of the contract over the next two years is expected to be in the region of $2.4 million. Capital investment in quarry equipment of €550k has been made in the Prilep Alpha quarry, to drive the increased levels of production and to support the delivery of material, under this contract.
Sales to 30 April 2019 of €515k (30 April 2018 – €74k) reflect a strong start to the year, given the winter shutdown of the quarries which generally results in very slow sales in the first quarter of the year.
A 5,400 square metre double skinned steel factory for the cutting and processing of blocks into polished slabs and tiles has been erected on a 10-hectare site that the Company acquired in Lipjan in 2013, close to Pristina airport in Kosovo.
2018 was a transformative year for our factory. With full slab production operational from the last quarter of 2017, 2018 was focused on meeting growing demand for cut to size stone in addition to finished slabs. The Italian Gravellona Machine Marmo Computer Numerical Control (“CNC”) machine was installed in March 2018 and was very quickly producing its first tiles for export. Since then, cut to size capacity has been increased with the purchase of four bridge saws, two edge polishers, a cylinder (column) milling machine and a dedicated tile polishing line which became operational in the first quarter of 2019. Operating processes have been consistently refined and the factory is now operating two full shifts per day all year round.
The factory has been showcased as a key example of the benefits of investment in Kosovo and visited by various dignitaries including the Prime Minister of Kosovo, the British Ambassador, and the Chairman of the Kosovo All Parties Parliamentary Group from Westminster.
Production at our own factory in Kosovo provides several key benefits to the Company:
· Reduction in the cost of processing, increasing the margins on the sale of processed slabs and tiles. Previously, the Company has relied on processing facilities provided by third parties in Italy and Albania. This involved additional costs for both processing, transport and storage.
· Access to the local Balkans market where we are the only domestic supplier of slabs and tiles.
· Entry into the international tile market helped by the lower cost base that the factory will provide.
· Improvement in quarry yields as we can process more marginal blocks that would not be attractive to our international block customers due to shipping and tariff costs.
· Greater flexibility in responding to our customers’ needs as we will no longer have to rely on third party processing.
In 2018 and 2019, Fox Marble entered into certain hire purchase arrangements with Scope Sh.p.k (“Scope”), a company incorporated in Kosovo, to acquire and install in the factory plant and machinery including the new CNC machine which was announced on 16 April 2018.
On 4 April 2019 the Company announced it had conditionally agreed to acquire the entire issued share capital of Scope for a consideration of £300,000 to be satisfied by the issue of 3,000,000 new ordinary shares in the Company at a price that equates to 10 pence per share. The consideration paid for Scope is less than the value of the future payments due under the hire purchase agreements being acquired as part of its acquisition and will reduce future cash outflows at the factory.
In July 2013, the Company acquired the rights to the Maleshevë quarry in Kosovo from a local company. The licence to the quarry is for 20 years with an irrevocable option to extend the period by a further 20 years thereafter. The Company incurs a royalty of 20% on net profit generated from the sale of block marble to the previous licence holder of the quarry.
In October 2015, the Company acquired the rights to a further 300-hectare site close to the Company’s existing licence resource in Maleshevë from a local company. By November 2015, this quarry had been opened and the first blocks extracted and sent for testing. The quarry was operated subject to an agreement with the licence holder, Green Power Sh.p.k (“Green Power”), a company incorporated in Kosovo, which granted Fox Marble’s Kosovan subsidiary the rights to develop and operate the quarry, in return for a royalty arrangement.
These quarries contain a mixture of Illirico Bianco, Illirico Superiore and the silver-grey marble Illirico Selene. The initial market response to both the Illirico Selene and Illirico Bianco was significant and to address this anticipated demand the Company has invested significant resources and effort since 2016 to accelerate the development of these quarries to produce multiple open high volume benches capable of producing blocks in the quantities to meet demand. The Company quarried 7,278 tonnes during 2018 (2016 – 6,526 tonnes).
On 4 April 2019, Fox Marble announced it had conditionally acquired the entire share capital of Green Power, for a consideration of £1,000,000 to be satisfied by the issue of 13,000,000 new ordinary shares in the Company at a price that equates to 7.69 pence per share.
Since entering into the initial agreement with Green Power no royalty had been paid, due to the costs associated with development of the quarry. With increasing production and expected sales of the materials the Board determined that it was in the best interest of the Company to control the asset, given the anticipated royalties that were due to be paid, and approved the acquisition.
The Company entered into an agreement to operate a quarry in Prilep, North Macedonia in 2013. The agreement was for a period of 20 years with an irrevocable option to extend the period for a further 20 years thereafter. The Prilep quarry contains a highly desirable white marble. This is one of a small cluster of quarries, in the Stara river valley, overlooked by the Sivec pass.
The Prilep Alpha quarry is controlled by a local partner who has appointed Fox Marble to operate the quarry on its behalf.
The introduction of a new quarry team at the site in November 2018 increased the total production for the quarry to 5,816 tonnes (2017 – 2,285 tonnes). This 130% increase in production was achieved primarily in the last six weeks of the year and provides an encouraging outlook for 2019 production at this quarry. The Company has invested in further capital equipment in this quarry in early 2019. Since the start of the year 4,407 tonnes has been quarried from the site.
Acquisition of Gulf Marble
On 8 October 2018, Fox Marble acquired Gulf Marble Investments Limited (Dubai) its investment partner in the Prilep Alpha quarry in North Macedonia, including all the rights attached to that Company. Under the terms of the original agreement to acquire the Prilep Alpha quarry in North Macedonia in 2013, Gulf Marble Investments Limited provided the funds to acquire the licence to the site and capital investment amounting to €1.7 million, and then entered into an operating agreement with Fox Marble to operate the quarry. In compensation Gulf Marble Investments Limited was provided with a royalty amounting to 40% of the gross revenues received from the sale of its block marble from the quarry.
Through the acquisition of 100% of the share capital of Gulf Marble Investments Limited, Fox Marble has effectively acquired the licence to the site eliminating the royalty of 40% of gross revenue that was payable to Gulf Marble Investments Limited under the original agreement, as well as acquiring the capital equipment held by Gulf Marble. Consideration for the acquisition was the issue of a convertible loan note with a carrying value of €1.785 million. Following the completion of this transaction Fox Marble will be eligible to retain 65% of the gross revenue from the sale of block marble from the quarry. A Royalty of 35 % of gross revenue will remain payable to the original licence holder of the quarry.
The Company also has the rights to an additional quarry nearby, Prilep Omega, which it acquired in 2014.
Following a copyright dispute over the rights to use the name “Sivec” for the Company’s white dolomitic marble quarried in North Macedonia, Fox Marble has relaunched its white marble under the trade name Alexandrian White.
This site was the first of our quarries to be opened in November 2012. It is being exploited across three separate locations (Cervenillë A, B & C) from which red (Rosso Cait), red tinged grey (Flora) light and darker grey (Grigio Argento) marble is being produced in significant quantities. The polished slabs from this quarry have sold well. The most noteworthy sales included those to St George PLC (Berkeley Homes) for the prestigious Thames riverside Chelsea Creek development.
In 2016, the decision was made to focus quarry resources at the nearby Maleshevë quarry in order to accelerate development to address expected demand. Quarry staff and equipment were therefore re allocated from this quarry. The quarry remains open on a maintenance basis and quarrying can be restarted at all three sites at less than three weeks’ notice.
The quarry at Syriganë is open across four benches. The site contains a variety of the multi-tonal breccia and Calacatta-type marble and produces significant volumes of breccia marble in large compact blocks. Output is marketed as Breccia Paradisea (predominantly grey and pink) and Etrusco Dorato (predominantly gold and grey).
On 19 January 2018, the Company issued 26,283,331 new Ordinary Shares with a nominal value of £262,833 at a price of 10.5 pence per share to raise £2,759,750. Proceeds from the placing and subscription were used to fund the expansion of production capabilities at Fox Marble’s quarries and factory, to repay existing debt obligations and to provide the Company with additional working capital as demand increases as it continues to develop sales channels.
In addition, the Company discharged £783,000 of its outstanding loans and other liabilities by the issue of a further 7,457,140 new Ordinary Shares to certain Directors and to Brandon Hill Capital Limited at a price of 10.5 pence per share.
On 30 January 2018, the Company settled outstanding liabilities in relation to the Series 1 Loan Note due to Amati Global Investors Limited and all liabilities in relation to the short term borrowings due to Peers Hardy (UK) Limited.
On 30 July 2018 the holders of the series 3 and 5 Loan notes have subscribed for an additional £300,000 of Loan notes on the same terms as the existing loan notes.
On 30 September 2018 the Company issued a convertible loan note with a value of £300,000 on the same terms as existing loan notes. As consideration for the acquisition of Gulf Marble Investments Limited, Fox Marble has issued an Unsecured Convertible Loan Note (“Loan Note”) in the amount of €1,785 million. Under the terms of the Loan Note, the holder may elect to convert at a conversion price of 130% of the 3 month volume weighted average share price. The Loan Note is repayable from the 1 October 2020. The Loan Note carries an interest rate of Libor plus 1.5% payable annually in arrears.
Fox Marble issued 13,263,161 new ordinary shares in the Company at 9.5p per share on 4 February 2019. Gross proceeds of this issue of equity amounted to £1,260,000. The New Ordinary Shares rank pari passu with the existing ordinary shares.
Fox Marble issued a further £700,000 in Convertible Loan Notes under the same terms as existing Loan Notes issued by the Company. The Convertible Loan Notes will carry an interest rate of 8%, per annum. The Convertible Loan Notes are due for conversion or repayment on 18 February 2022 with a conversion price set at 10.5p.
Proceeds from the issue of shares have been used to fund capital equipment at Fox Marble’s quarry sites, to expand production capabilities and to supply increased demand for material in 2019.
Please refer to the Report of the Directors for the going concern assessment by the Directors.