Iofina : 2019 Interim Results

23 September 2019

Iofina plc

("Iofina", the "Company" or the "Group")

(LSE AIM: IOF)

INTERIM RESULTS

EBITDA up 172%; Construction of IO#8 underway

Iofina plc, specialists in the exploration and production of iodine and manufacturers of specialty chemical products, is pleased to announce its Interim Results for the six months ended 30 June 2019 (the "Period").

During the Period the Group significantly strengthened its financial performance, with revenue up 29% to $14.53m (H1 2018: $11.30m) and EBITDA up 172% to $1.97M (H1 2018: $0.72m). The $3.23m increase in revenue and substantial increase in EBITDA was a result of the growth in sales volumes and higher iodine prices.

The Group's four IOsorb® iodine production plants produced a total of 286.7 metric tonnes ("MT") of crystalline iodine, an 8.6% increase from the prior year (H1 2018: 264.1 MT). The Group is pleased to confirm that a fifth IOsorb® plant, IO#8, is now in the first phase of construction and the new partner in IO#8 is anticipated to provide opportunities for future plants at future sites.

KEY FINANCIAL POINTS:

• Revenue increased by 29% to $14.53m (H1 2018: $11.30m);
• Gross profit increased by 53% to $3.90m (H1 2018: $2.55m), and from 23% to 27% of sales;
• EBITDA increased by 172% to $1.97m (H1 2018: $0.72m), and from 6% to 14% of sales;
• Operating profit was $1.21m (H1 2018 loss $0.05m);
• Loss before and after tax was $0.30m (H1 2018 $0.75m) (profit of $0.13m if $0.43m residual non-cash convertible loan notes charges are excluded);
• Basic loss per share was $0.002 (H1 2018: $0.006);
• Cash balances were $10.26m (H1 2018: $3.0m) ($5.05m unspent from fundraise after debt repayment of $3.26m, $5.21m other cash);
• Equity increased by $8.31m cash from fundraising and $4.19m from debt converted to equity;
• Debt was restructured by extending term and removing convertibility, and reduced by $7.46m to $18.18m.

KEY OPERATIONAL AND MARKET HIGHLIGHTS:

• IO#8 is in the first phase of construction;
• Production of crystalline iodine up 8.6% to 286.7 metric tonnes ("MT") (H1 2018: 264.1 MT)
• Iodine prices have continued to rise with the current spot price at or near $33/kg
• Launch of IofinaEX, licensed in Kentucky to process and develop products derived from hemp such as CBD
• Incorporation of IofinaEX Global, a specialist division focused on the production of hemp derived products in Central America and the Caribbean
• Iofina Chemical continues strong performance with a diverse portfolio of iodine and other halogen products and has increased capacity of some key products to meet demand.

OUTLOOK

• Iodine market remains tight, with iodine prices likely to move higher with Chilean supply being squeezed
• Iodine expansion remains on track, with the new partner at IO#8 providing opportunities for future plants at future sites.

Commenting on today's results, Dr. Tom Becker, President and CEO stated: "It has been an exceptionally strong first half for Iofina, with the Group having achieved a record revenue of $14.53 million in the period. This, together with the significantly improved EBITDA, has been a result of an increase in iodine production accompanied by growth in sales volumes and higher iodine prices.

"The Company has been working diligently to expand its iodine production capabilities further and is delighted to confirm that IO#8 is currently in its first phase of construction. Whilst iodine expansion remains on track, the Group has also successfully launched IofinaEX and IofinaEx Global, entities that are designed to directly benefit from the profitable and rapidly growing hemp market.

"The strengthening iodine market, coupled with our timely execution of iodine expansion and product development, will ensure that Iofina expands in line with its growth strategy and achieves a record profit in 2019 and future years to come."

Enquiries:

Iofina plc

Dr. Tom Becker, CEO & President

Tel: [phone]

www.iofina.com

finnCap Ltd

Christopher Raggett/Anthony Adams/Camille Gochez

Tel: [phone]

Media Contact:

Yellow Jersey

Charles Goodwin/Harriet Jackson

Tel: [phone]

Overview

Iofina plc ("Iofina" or the "Company") is the holding company of a group of companies (the "Group") involved in the exploration and production of iodine with complete vertical integration into its specialty chemical derivatives business. Iofina Resources ("IR") identifies, develops, builds, owns and operates iodine extraction plants, currently focused in North America, based on Iofina's WET® IOsorb® technology. Iodide is isolated from a brine waste stream produced from existing oil and gas operations, and without Iofina, this resource would not be realised. The isolation of iodine from this waste stream adds value to Iofina and its shareholders, our oil and gas partners and the overall global iodine market. Iodine containing or other halogen based products are produced at and sold through the Company's wholly owned subsidiary Iofina Chemical ("IC") with the major raw material being the Group's produced iodine. Additionally, the Group's crystalline IOflo® iodine is sold directly to other iodine end-users through IC. IofinaEX ("EX") is a new venture for the Group exploring hemp derived products such as CBD and is licensed to process hemp in the state of Kentucky. IofinaEX Global is exploring hemp derived product opportunities outside of the USA.

Financial Review

Highlights

The most notable features of the period under review were the 172% $1.23m increase in EBITDA, and the debt restructure and equity fundraise. The bulk of the EBITDA improvement reflected increases in iodine prices, with the balance related to sales volume increases. The fundraise resulted in net funds received of $8.31m, followed by the repayment of $3.26m debt and the conversion of a further $4.19m of debt into equity.

Sales

Total sales increased by $3.23m (29%) to $14.53m. Sales of iodine products increased by 46% from $6.72m to $9.77m, while non-iodine sales increased by 4% from $4.59m to $4.75m. Sales volumes of IOsorb® plant produced iodine increased by 27% overall, comprising an increase of 123% in sales of raw iodine offset by a reduction of 27% in sales of crystallised iodine in derivative compounds. The net volume increase reflects both increased production at IOsorb® plants with the most recent IO#7 plant in full production throughout the period, and also some reduction in work in progress inventories of derivative compounds. The average raw iodine selling price achieved was 15% higher for the six months to 30 June 2019 compared to the same period last year. Sales prices of derivative compounds overall reflected the same value per kilogram increase as raw iodine, though the rate of increase in certain products is somewhat lagging behind the raw iodine increases. Non-iodine sales continued to perform strongly, with a net volume increase of 10%, offset by some price reductions associated with higher volumes.

Operational expense

Iofina Resources' IOsorb® plant average production costs per kilogram for the period were 2.5% higher than for H1 2018. Manufacturing and fulfilment costs at the Iofina Chemical plant were overall 1% higher than for H1 2018. Administrative expenses were up by 5% on 2018, this reflecting $102k of additional non-cash share option charges compared to 2018. Against this background of well contained operational expenditure the great majority of the benefit of the sales increases described above has been able to flow through to gross profit (up by $1.34m and increased from 23% to 27% of sales) and EBITDA (up by $1.23m and increased from 6% to 14% of sales) - operational gearing in action.

Interest payable

Interest payable of $1.09m is significantly greater than the $0.62m amount for H1 2018. The increase reflects the provisions of the debt restructure agreement, completed on 29 March 2019 but including new interest rates retroactive to 1 January 2019. The H1 2018 interest payable of $0.62m represents interest capitalised at 5% on convertible loan notes of $20m plus capitalised interest to date, and interest capitalised at 6% in the same fashion on the term loan of $3m. The H1 2019 interest of $1.09m represents interest payable quarterly at 7.5% on the $25.63m total balance of the loan notes (convertibility removed) and the term loan including accrued interest at 31 December 2018. This balance was reduced to $18.18m by the repayment of the term loan balance of $3.26m on 20 June 2019 and the conversion of $4.19m loan notes debt into equity on 14 June 2019. The revised terms also included an arrangement of fee of 1% on all debt outstanding as of 31 December 2018, to be paid on 1 July 2020. The 2019 interest payable amount includes $135k amortisation of this fee. Based on the reduced amount of debt of $18.18m outstanding as of 30 June 2019 it is anticipated that interest payable in the second half of 2019 will be reduced to $687k and amortisation of arrangement fees for the same period will be $61k, assuming in both cases that there are no further alterations to the balance of debt outstanding.

Finance expense accounting

The September 2016 debt agreements continued legally in force until completion of the restructure agreements on 29 March 2019, and therefore the residual amounts of the conversion rights accounting were carried forward into 2019. These appear as loan note discount expense of $0.81m and derivative liability revaluation credit of $0.39m, both non-cash items. However, as noted above, there were increased rates of interest effective 1 January 2019 under the new agreements, inter alia in anticipation of the removal of convertibility. Consequently there was in effect an overlap in the accounting for the previous and the new agreements, and a very high total finance expense of $1.52m. If one discounts the non-cash net conversion rights expense of $0.43m as de facto relating to prior to 1 January 2019, then the H1 2019 loss after tax shown of $0.30m would become a profit of $0.13m.

Fundraise and cash flow

The equity fundraise completed in June 2019 brought in funds of $8.31m net of expenses. The principal purposes of the fundraise were to pay off the outstanding term loan of $3.26m, on which the interest rate increased from 7.5% to 12.0% as of 1 June 2019, and to accelerate the expansion of the business, in the first instance by funding the imminent building of a new IOsorb® plant at a cost in the region of $3m. The loan of $3.26m was paid off in June 2019 and therefore $5.05m of the sums raised remained at 30 June 2019. Operating cash flow was $1.77m positive in H1 2019 (H1 2018 $0.32m positive). Deducted from this amount are $0.12m of capital expenditure (H1 2018 $0.75m), and interest paid of $0.95m (H1 2018 Nil). Therefore excluding the $5.05m from the fundraise the net cash inflow for the period was $0.69m (H1 2018 $0.43m outflow). Adding in the cash on hand of $4.52m at the start of the year brings the total at 30 June 2019 excluding fundraise funds to $5.21m, and with the $5.05m fundraise funds to $10.26m.

Debt

The debt restructuring that was completed at the end of March 2019 removed the former share conversion rights and the option to capitalise interest payable, and extended the repayment date from 1 June 2019 to 1 July 2020. As described above, interest rates were increased from 5% and 6% to 7.5% and there is a 1% arrangement fee on the total sum outstanding at 31 December 2018. All debt is now therefore treated as term loans with interest payable quarterly, and comprehensive security remains in place. Debt outstanding at 31 December 2018 was $25.64m, and that sum has been reduced by repayment of the previous term loan due to one debt holder of $3.26m as part of the utilisation of the equity fundraise, and the conversion by the other debt holder of $4.19m of previous loan notes into equity. After these reductions the balance of debt outstanding at 30 June 2019 was $18.18m.

Iofina Resources

During H1 2019 (the "Period") Iofina Resources produced a total of 286.7 metric tonnes ("MT") of crystalline iodine from its four Oklahoma IOsorb® iodine production plants, an 8.6% increase from the prior year (H1 2018: 264.1 MT).

IR continues to execute its strategy of minimising production costs and process improvements resulting in a 5% increase in iodine recovery efficiencies year-over-year. Efficiency improvements, particularly at IO#4 and IO#6, were achieved within H1 2019. The Company placed a greater emphasis on the small details of operations of its WET® IOsorb® process by reviewing everything from sampling and testing procedures to data collection and input and all steps in the IOsorb® process. The team continues to execute other process improvement projects at its other current sites.

During the Period the Company ramped up its exploration program. IR increased its area of focus and the frequency of sampling and testing in specific areas. This has resulted in the identification of additional locations for future IOsorb® plants. The Company recently announced an agreement and start of construction of IO#8, an important continuation of its corporate growth policy. This plant is expected to be online in H1 2020 and will significantly increase iodine production. Iofina has partnered with a new company for the source of the brine water raw material for IO#8. The new location is outside of the Company's current core area, but is located in a rapidly expanding portion of oil and gas drilling in western Oklahoma. This is in-line with the Company's iodine production expansion strategy, which was re-launched in 2018 with the development of the very successful IO#7 plant. IR continues to identify possibilities for future sites with various partners and the Iofina team is committed to continue to grow its iodine production operation in the ever-expanding worldwide iodine market. Diversity and increasing the number of plants it operates gives Iofina's customers additional comfort in the reliability of Iofina's iodine supply. The Company is currently assessing the future use of IO#5 which is currently not in operation.

Iofina Chemical

All of the Group's products are currently sold through Iofina Chemical, a specialty chemical enterprise that has been in operation for over 35 years and is well respected and known globally in the specialty iodine product market. IC continues to develop sales channels for IR's produced crystalline iodine and IC's specialty chemical products. IC prides itself as a dynamic organisation, which can quickly meet customers' needs and develop new chemistries to continue to grow the Company's portfolio of specialty chemical products.

Iofina Chemical, Inc. closed the first half of 2019 with the highest first half sales in Company history. IC's sales closed June 2019 at $14.53m, 29% higher than H1 2018. IC expects sales to continue to be strong in H2 2019. Sales of the Group's crystalline iodine were higher than for any half year in Group history. Additionally, sales of non-iodine products are also robust and the Group has added additional shifts to meet product demand. With the increasing sales of the Group's crystalline iodine, Iofina has achieved REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) compliance for iodine, and iodine samples have been sent for evaluation at new opportunities in the EU. IC has purchased additional equipment for two iodide products to meet customer demands and it is working on a pilot expansion of a non-iodine process to scale up to larger reactions in order to meet the increasing needs of our major customer.