The sharp drop in the average prices in euros of lead and zinc over 2008 (25% and 47% respectively) impacted sales and margins.
Nonetheless, non-recurring items (with no impact on net cash) had a negative effect on 2008 net income:
Additional asset impairment: a negative EUR5.4 million.
New provisions relating to on-going litigation before Labour tribunal: EUR15.5 million (at current value).
Operating activities generated cash flow of EUR14 million compared to EUR42.2 million in 2007. The company allocated more than EUR16 million to capital expenditure and debt repayment in 2008. At end 2008 the company’s available net cash remained high at EUR77 million.
Lead: highly volatile market:
The average price of lead fluctuated between $3,500 per tonne in March 2008 to below $900 per tonne in December 2008. Investor fund redemptions led to the precipitous drop in the price of this metal, as for other raw materials, reflecting the loss of market confidence in the world economy. Warehouse stocks of lead on the London Metal Exchange (LME) at the end of 2008, were similar to that at beginning of the year at 45,000 tonnes in spite of having reached 100,000 tonnes in mid-year. Supply and demand levels reversed over the year, from a deficit of 67,000 tonnes in 2007 to a 19,000 tonnes surplus in 2008.
Zinc: a market affected by the global recession:
Zinc prices underwent sharp peaks and troughs over 2008, with a high of $2,825 per tonne on March 6, 2008 and a low of $1,042 per tonne on December 12, 2008. Warehouse stocks of zinc on the LME rose from some 88,000 tonnes at the beginning of 2008 to 254,000 tonnes at the end of 2008.
For year-ended 2008, lead accounted for 67% of total company sales, compared to 22% for zinc, 7% for special metals and 4% for the plastics branch.
In 2007, lead accounted for 66% of total company sales compared to 27% for zinc, 4% for special metals and 3% for the company’s plastics branch.
Lead:
Following an exceptional year in 2007 with 140,000 tonnes of used batteries recycled, 2008 ended on about 122,000 tonnes processed by the company’s three recycling plants due to lower stocks at battery collection centres. The third quarter of 2008 showed a decline in battery collection attributable to the sharp drop in prices for scrap and metals. Operating income using the LIFO method for inventory valuation was EUR3.1 million. Under IFRS which requires use of the weighted average valuation method, the company’s Lead segment showed an operating loss of EUR17.3 million, due essentially to the effect of the drop in the lead price in valuing lead inventories and work in progress at the Nordenham plant.
Zinc:
The Zinc segment reported an operating loss of EUR3.5 million. Steelworks’ electric arc furnace dust recycling (Harz Metall GmbH (Zinc) and Recytech SA, 50%-held by the company) were adversely affected by the sharp fall in zinc prices. Starting from the third quarter of 2008, steelworks and other suppliers reduced production, which led to a decrease in materials to be processed. The plant stoppages for maintenance planned for the course of 2009 were therefore advanced to end December 2008 for Harz Metall GmbH and early January 2009 for Recytech SA (50%-held by the Recylex).
Special metals:
Sales in special metals for 2008 increased by 16% over 2007 as a result of the start-up of the German plant of RMO (Reinstmetalle Osterwieck GmbH), specialized in arsenic tetrachloride following the purchase of assets of the company Astron.
Plastics:
The C2P S.A.S. plant at Villefranche-sur-Saone had an excellent first half in 2008 before the decline in orders from the automotive sector in the second half of 2008. Total sales remained unchanged from 2007 through 2008.
Other segments:
Other segments include those of the company’s holding companies, as well as expenses for remediation of closed sites. In 2008, total expenses for this item amounted to EUR9.1 million.
Recent developments and outlook for the future:
Metals prices rose slightly in the beginning of 2009 but they remain far below those observed over the past few years. During January and February 2009, prices for lead and zinc varied between $1,000 per tonne and $1,200 per tonne. As demand for zinc is still flat, the company’s electric arc furnace dust recycling plants continue to be shut down for maintenance over the first quarter of 2009. “Given the economic slowdown with few prospects of recovery visible in the short term, the company is strongly focusing on its net cash position by adjusting production to match demand and by reducing capital expenditures, working capital and operating costs” states Yves ROCHE, chief executive officer of Recylex.
