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Iofina increases revenues and turns a profit despite industry challenges

The firm weathered lower iodine prices and more red tape that wiped out some of its competitors in 2016
Iofina IOsorb processing plant
Things are looking better for the coming year or two

Iodine producer Iofina plc (LON:IOF) managed to increase revenues and remain profitable last year, despite it being a difficult period for the industry as a whole.

For the 12 months to 31 December 2016, the AIM-quoted group generated revenues of US$22.5mln, a year-on-year rise of 11% (2015: US$20.3mln) as it sold a record 474.2mln tonnes of IOflo iodine.

Gross profits dipped to US$2.7mln (2015: US$4.3mln), although remaining in the black was no mean feat given that iodine prices fell 20% or so in 2016.

WATCH: Iofina boss  'pretty pleased' with 2016 performance

On top of the challenges posed by the lower prices, regulatory changes for fracking operations in the US – from which Iofina gets a lot of its feed – also hampered brine water supply.

That the company was able to turn a decent profit in a difficult trading environment has a lot to do with the tight rein it keeps on expenses, and Iofina continued to trim costs at its IOsorb processing plants in 2016.

“The board is pleased with the company's 2016 performance, which saw revenue increase 11%, record sales of IOflo iodine and record sales of non-iodine derivatives,” said President and chief executive Tom Becker.

“During the year Iofina and its partners faced regulatory changes affecting brine disposals at Arbuckle disposal wells, and where practical, made improvements to our systems to provide as much iodide rich brine to our production facilities as possible.

“Iofina is committed to controlling existing plant operational costs as well as looking to produce at new sites to expand production and reduce our overall production costs.”

Strong financial footing secured

Last summer, Iofina announced a new debt restructuring deal which also saw it secure an additional US$10mln of funding.

The maturity date for the US$20mln convertible debts owed to Stena Investment (US$15mln) and Panacea Limited (US$5mln) was pushed back until June 2019, while interest rates were lowered to 5% from 6% as well. That has allowed the firm to reduce its immediate cash payments.

On top of that, Stena greed to extend a further US$10mln line of credit which is designed to give Iofina flexibility for its operations and expansion plans.

Becker said the financing progress made in 2016 was ‘important’, adding that it “will assist the group in executing its business objectives”.

Outlook much improved as prices rally, regulations ease

The iodine price, which obviously has a huge impact on Iofina’s financial performance, has been on the wane in recent years and fell another 20% in 2016.

With prices under pressure for a prolonged period, several of Iofina’s competitors have been forced to scale back or close their operations entirely.

Pleasingly for investors and for Iofina, iodine prices are showing signs of stabilising and have bounced off the late-2016 lows.

This bodes well for the coming years, especially when coupled with its lower cost base and fewer competitors.

Regulatory bodies also seem to be relaxing their stance a little bit, with one example being the state of Oklahoma.

New rules and restrictions have been brought in in recent years in response to the increased amount of oil and gas exploration which authorities think could be linked to higher numbers of earthquakes over the past few years.

This “seismic activity” fell in 2016 and has continued to decline into 2017 which means that any further action that could affect the supply of waste water and brine to Iofina is unlikely.

As for first half production figures for this year, Becker said Iofina was still on track to produce 215-230 million tonnes of iodine.

finnCap thinks shares are worth almost double

City broker finnCap reckons Iofina shares are undervalued and are worth almost double what they’re currently changing hands for.

Analyst Raymond Greaves, who has a target price of 20p, said this morning: “Iofina performed as well as it could in a tough environment in 2016.

“Amidst fraccing restrictions and iodine prices down a further 20%+, the company restructured its convertible debt, took proactive steps to move 2x IOsorb plants to more productive sites and reduced production cost.

“The outlook for FY2017+ is starting to look a little brighter.”

Shares opened 2% lower at 12.25p on Friday.

--Updates for share price and broker comment--

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