PROFIT WARNING – DECREASE IN EBITDA
Afarak Group SE (LSE: AFRK) has issued a profit warning, projecting a significant decline in its full-year 2025 EBITDA to approximately €0.7 million, down from €2.6 million in 2024, despite an increase in revenue to €141.3 million. This downturn is attributed to the anticipated recovery in the stainless steel market failing to materialise, ongoing pricing pressures, and a weaker US dollar impacting the ferro-chrome segment. Additionally, chrome ore prices have fallen, and delays in the commissioning of the Vlaakport wash and solar plants in South Africa have further strained margins, with full capacity utilisation now expected in the first quarter of 2026.
The company has previously communicated its strategic focus on enhancing production capabilities and optimising costs, as outlined in its interim financial release for H1 2025. In that report, Afarak indicated expectations for a stable market for standard grade low carbon ferro-chrome with potential for modest price increases. However, the recent update reveals that these expectations have not been met, as the anticipated recovery in stainless steel demand did not occur, leading to continued pricing pressures and a decline in margins. The company has been finalising investment decisions to boost chrome ore concentrate output in South Africa, with plans to commission a new wash plant and solar energy facility by the end of September 2025.
Afarak's financial position shows a precarious balance sheet, with the projected EBITDA decline raising concerns about its funding capacity and ability to sustain operations amidst rising costs. The company has been actively pursuing cost-optimisation measures, but the combination of lower margins and increased operational challenges may necessitate additional capital raises or restructuring to maintain liquidity. The revenue growth to €141.3 million is a positive indicator; however, the stark contrast with the EBITDA forecast highlights the volatility and risks inherent in the ferro-alloys market.
In terms of peer comparison, Afarak operates in a niche segment of the ferro-alloys market, making direct comparisons somewhat challenging. However, companies such as OXB (LSE: OXB) and other small-cap players in the ferro-chrome and specialty alloys sector may provide relevant benchmarks. OXB, while primarily focused on biopharmaceuticals, shares a small-cap market profile, but does not directly compete in the same commodity space. The absence of direct peers within the same development stage and commodity focus limits the ability to draw comprehensive comparisons. Nonetheless, the broader market dynamics affecting small-cap ferro-alloy producers, including pricing pressures and operational challenges, are relevant for understanding Afarak's position.
The significance of this announcement lies in its implications for Afarak's value creation pathway and the de-risking of its assets. The projected EBITDA decline raises concerns about the company's operational sustainability and its ability to navigate the challenging market environment. With the Vlaakport wash and solar plants expected to reach full capacity only in Q1 2026, the company faces a critical juncture where strategic decisions regarding investment and operational efficiency will be paramount. The outlook for the ferro-chrome market remains uncertain, and Afarak's ability to adapt to these challenges will be crucial in determining its future performance and market position.