Company Announcements

Afarak Group and LL Resources GmbH sign a combination agreement – Afarak to become major player in specific commodities

Afarak Group SE        Insider information,         12 May 2023 at 9:00 EET

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, HONG KONG, JAPAN, NEW ZEALAND, SINGAPORE, SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE THE RELEASE, PUBLICATION OR DISTRIBUTION WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION. FOR FURTHER INFORMATION, PLEASE SEE THE “IMPORTANT NOTICE” BELOW.

Afarak Group SE (“Afarak” or “Afarak Group”), a vertically integrated ferroalloys producer supplying specialist products to the steel and stainless-steel industries, has signed an agreement (“Combination Agreement”) on combining LL Resources GmbH (“LLR”), a globally operating mining, processing and trading establishment with focus on ferro-alloys, steel products, scrap, coke, coal, bitumen, fertilizer and other materials, into Afarak Group.

The whole transaction is carried out under Finnish law, but it has been structured as an “Einbringung” under Austrian tax law. In the European Union Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States this term has been translated as “transfer of assets” in English or “varojensiirto” in Finnish. Under the Finnish Companies Act the “Einbringung” is a directed share issue to the current shareholders of LLR against a contribution in kind. The said transaction is hereinafter described as the “Transaction” or “Combination”.

The Transaction is executed by Afarak issuing new shares as consideration to the shareholders of LLR. The total consideration (“Consideration”) of the Transaction to LLR’s current shareholders has been agreed to have a value of approximately EUR 59,5 million. The Consideration will be paid in full by issuing 140,000,000 new Afarak shares (“Consideration Shares”) in connection with the execution of the Transaction. The Consideration Shares will be directed for subscription of the shareholders of LLR’s shareholders. Following execution, LLR will become a fully owned subsidiary of Afarak. Consequently, the former shareholders of LLR will hold in aggregate approximately 35 % of the total amount of shares and votes of Afarak following execution of the Transaction.

The completion of the Transaction is subject to e.g.

• approval of the Transaction by the Shareholders of Afarak;
• merger control approval in Austria and Germany;
• Foreign Direct Investment (FDI) clearance and approval in Austria;
• approval of the Prospectus by the Finnish Financial Supervisory Authority for the listing of the Consideration Shares in Finland and needed approval in the UK;
• fulfilment of other customary terms and conditions of a transaction of this type.
  
  

Founded in 2011, LLR has rapidly developed into a prominent player in the global commodity sector with majority of its business in the steel industry supply chain. With a turnover of EUR 406,373,000 in 2022, LLR acts mainly as a global trading and recycling company offering a wide variety of ferro-alloys and metals for the steel industry, but developing in other commodities as well.

The LLR group is headed by the parent company LL-resources GmbH in Graz, Austria, having an extended trading activity and holding, among other things, the following other assets:

• LEMETCO GmbH in Duisburg, Germany, a well-known trading company;
• OELSCHLAEGER GmbH in Brüggen, Germany, a recycling company producing premium quality secondary aluminum;
• L3-Logistics GmbH and L3-Logistics GmbH-Duisburg GmbH, a well-known logistics service provider and warehousing company;
• Nordic Ferro Alloys A.B., in Fagersta, Sweden, a recycling company producing premium quality ferro-titanium;
• S.I.A LLR-Ecotech, in Riga, Latvia, a recycling company producing ferro-titanium;
• ASFA D.O.O.in Serbia;
• LL Resources Deutschland GmbH;
• MSN GmbH & Co. KG; and
• LL Resources Immobilien Deutschland GmbH
• LL Resources USA, LLC

Additionally, the LLR group holds minority shareholdings in the following entities:

• S.I.A eVan, in Liepāja, Latvia, a catalyst recycling company producing ferro-vanadium;
• Wire d.o.o, In Limbuš, Slovenia, producing cored wire for the steel and foundry industry.

Together with Afarak’s EWW smelter in Germany and its magnesite and refractory operations in Serbia, the newly formed commodity group would present a European alternative to the steel and foundry industry with a strong focus on ESG (Environmental, Social and Governance).

KEY FIGURES of LLR

2021 AND 2022 AUSTRIAN GAAP

EUR 1.000.000	1.1.-31.12.2021	1.1.-31.12.2022
Net Sales	278.2	406.4
EBITDA	13.1	22.9
EBIT	13.7	24.4
	31.12.2021	31.12.2022
Equity ratio, %	29.2%	29.0%
Equity	15.6	21.9
Balance sheet total	53.3	75.5

        
The new entity to emerge with the Combination would have a turnover of approximately 674.5 EUR million and the Group would employ about 730 people.

Subject to the completion of the Combination, LLR’s business will be reported as part of Afarak’s Ferro-Alloy segment.

BUSINESS BENEFITS AND BENEFITS FOR THE INVESTORS

Thorstein Abrahamsen, Chairman of the Board, Afarak Group SE:

“In line with Afarak's growth strategy, we are seeking growth both organically and through acquisitions. With the combination of the two companies, we will have additional skilled personnel, which enables the Afarak Group to continue to grow and develop. As a result of the combination, we achieve synergy gain due to the similarity between Afarak’s and LLR's businesses. When we combine our expertise, we are capable to offer a wider range of products to our clients, operate more efficiently, improve our profitability and respond to competition. In the future, Afarak will be more able than before to diversify its revenue streams.”

Dr. Roman Lurf, Managing Director, LL Resources GmbH:

“Over the last decade LL-resources GmbH (LLR) has proven that it is able to deliver sustainable and extraordinary growth combined with significant stakeholder return. This is part of LLR’s company DNA which is going to support the combined company to maximize shareholder value.

Together we have a proven strategy to realize the full shareholder value of the combination, including an exceptional pool of talented professionals, stable and profitable production units, and many new projects in the pipeline already. Additionally, our company cultures are well aligned, with strong commitments to zero harm, inclusion, and diversity, and industry-leading environmental, social and governance performance. With this combination we expect to generate synergies and unlock significant potential along our value chains and the combined company is going to represent a leading strategic European based but globally acting commodity player focused on sustainable commodities for our first-class partners around the world.”

LLR in brief:

LLR group’s revenue in 2022 was EUR 406,373,000 (EUR 278,217,000 in 2021), while the group’s EBITDA in 2022 was EUR 22,920,000 (EUR 13,132,000 in 2021) and the consolidated net assets value in 2022 was EUR 21,885,000 (EUR 15,567,000 in 2021). LLR’s financial statement have been prepared in compliance with the Austrian Accounting Standards. LLR group employs around 130 employees.

Transaction in brief:

Subject to the completion of the Transaction, Afarak will pay EUR approximately EUR 59.5 million as the Consideration for LLR’s share capital to LLR’s current owners.

The current owners of LLR are: LLR-Holding GmbH, Motus Capital GmbH, Trade Services Handels GmbH and GK Consulting S.à.r.l.

The Consideration will be paid in full by means of 140,000,000 new Afarak shares to be issued and directed to LLR’s current shareholders in proportion to their current ownership in LLR in connection with the execution of the Transaction.

LLR's net debt in the financial statement of 2022 amounted to EUR 48,173,000 according to the Austrian Accounting Standards. In accordance with the terms of the Combination Agreement, Afarak will receive LLR’s cumulative cash flow from 1 January 2023 until the completion of the Transaction (the so-called locked box mechanism).

The subscription price of the Consideration Shares to be issued has been agreed at 0.425 per share, corresponding to the volume-weighted average price of the Afarak share on Nasdaq Helsinki Oy's stock market listing for 20 trading days before the Letter of Intent regarding this transaction was signed.

Share issue in brief

After the new Consideration Shares subscribed in connection with the Transaction have been registered with the Finnish Trade Register, the total number of issued and outstanding shares in Afarak will be 407,041,814.

The number of Consideration new shares to be issued and subscribed in connection with the Transaction represents approximately 35 per cent of Afarak's share capital after the registration of the Consideration Shares with the Finnish Trade Register. The Consideration Shares entitle Afarak to potentially distribute a full dividend and other distribution of funds, as well as producing other shareholder rights in the company from the time after the Consideration Shares have been registered with the Finnish Trade Register and Afarak's shareholders’ register.

Afarak will apply for the admission of the Consideration Shares (being of the same share class as Afarak’s current shares) for public trading on Nasdaq Helsinki Oy's stock exchange listing and for the London Stock Exchange after the Consideration Shares have been registered with the Finnish Trade Register.

Conditions and estimated Schedule of the Transaction

The completion of the Transaction is subject to e.g.:

• approval of the Transaction by the Shareholders of Afarak;
• merger control approval in Austria and Germany;
• Foreign Direct Investment (FDI) clearance and approval in Austria;
• approval of the Prospectus by the Finnish Financial Supervisory Authority for the listing of the Consideration Shares in Finland and needed approval in the UK;
• fulfilment of other customary terms and conditions of a transaction of this type.
  
  

Afarak estimates the relevant authority clearances and approval will take some time and the current best estimate is that the Transaction would be executed in the third quarter of 2023.

Financial impact to Afarak

Subject to the completion of the Transaction, it will have a financial impact on Afarak. At this stage, Afarak will keep its 2023 guidance unchanged until the completion of the Transaction is confirmed.

Important notice

This release is not an offer for sale of securities in the United States. Securities may not be sold in the United States absent registration with the United States Securities and Exchange Commission or an exemption from registration under the U.S. Securities Act of 1933, as amended. The Company does not intend to register any part of the share issue in the United States or to conduct a public offering of securities in the United States.

The distribution of this release may be restricted by law and persons into whose possession any document or other information referred to herein comes should inform themselves about and observe any such restrictions. The information contained herein is not for publication or distribution, in whole or in part, directly or indirectly, in or into United States, Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, South Africa or any other jurisdiction where such publication or distribution would violate applicable laws or rules or would require additional documents to be completed or registered or require any measure to be undertaken in addition to the requirements under Finnish law. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. This release is not directed to,and is not intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction.

This release does not constitute a prospectus as defined in the Prospectus Regulation and, as such, it does not constitute or form part of, and should not be construed as, an offer to sell, or a solicitation or invitation of any offer to buy, acquire or subscribe for, any securities or an inducement to enter into investment activity in relation to any securities. No part of this release, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. The information contained in this release has not been independently verified, does not purport to be full or complete and may be subject to change. No representation, warranty or undertaking, expressed or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. The Company or any of its affiliates, advisors or representatives or any other person, shall have no liability whatsoever (in negligence or otherwise) for any loss however arising from any use of this release or its contents or otherwise arising in connection with this release. Each person must rely on their own examination and analysis of the Company, its securities and the Transaction, including the merits and risks involved.

This release includes forward-looking statements that are based on present plans, estimates, projections and expectations and are not guarantees of future performance. They are based on certain expectations and assumptions, which, even though they seem to be reasonable at present, may turn out to be incorrect. Investors should not rely on these forward-looking statements. Numerous factors may cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied in the forward-looking statements. The Company or any of its affiliates, advisors or representatives or any other person undertakes no obligation to review or confirm or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise after the date of this release. Further, there can be no certainty that the transaction will be completed in the manner and timeframe described in this release, or at all.

Helsinki, May 12, 2023

AFARAK GROUP SE

Board of Directors

For additional information, please contact:

Afarak Group SE

Guy Konsbruck, CEO, +356 2122 1566, guy.konsbruck@afarak.com

Financial reports and other investor information are available on the Company's website: www.afarak.com.

Afarak Group is a specialist alloy producer focused on delivering sustainable growth with a Speciality Alloys business in southern Europe and a FerroAlloys business in South Africa. The Company is listed on NASDAQ Helsinki (AFAGR) and the Main Market of the London Stock Exchange (AFRK).

Distribution:
NASDAQ Helsinki
London Stock Exchange
Main media

www.afarak.com