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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Ferrexpo Plc | LSE:FXPO | London | Ordinary Share | GB00B1XH2C03 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 4.00 | 8.30% | 52.20 | 52.60 | 53.00 | 54.90 | 50.70 | 51.50 | 6,598,560 | 16:35:04 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Iron Ores | 1.25B | 220M | 0.3678 | 1.43 | 314.62M |
From Apr 2019 to Apr 2024
TIDMFXPO
RNS Number : 9649M
Ferrexpo PLC
03 August 2017
3 August 2017
Ferrexpo plc
("Ferrexpo", the "Group" or the "Company")
2017 Half Year Results
Ferrexpo plc today announces its financial results for the six months ended 30 June 2017.
Steve Lucas, Non-Executive Chairman, said:
"We are pleased to report another excellent set of results, which demonstrate that demand for Ferrexpo's high quality iron ore pellets from the world's leading steel manufacturers remains strong. The premium we achieved in sales of pellets was significantly higher than in 2016.
"The Group continues to manage costs, which has benefitted both operating margins and cash flow, while we have increased our levels of capital investment. We continue to lay the groundwork to grow output incrementally towards our target of 20 million tonnes a year.
At the same time we have substantially strengthened our balance sheet and have reduced net debt to less than one times last twelve months' EBITDA.
"While the outlook for the iron ore price remains uncertain, pellet premiums remain supported and we are confident of achieving a good result for the year."
1H 2017 Financial Summary:
Hot Features
Premium
US$ million (unless otherwise 6 months 6 months Change Year ended
stated) ended 30.06.17 ended 31.12.16
30.06.16
------------------------------------- ---------------- ---------- ------- -----------
Total pellet production (kt) 5,160 5,723 -10% 11,200
------------------------------------- ---------------- ---------- ------- -----------
Pellet sales volumes(A) (kt) 5,065 6,017 -16% 11,697
------------------------------------- ---------------- ---------- ------- -----------
Avg PLATTS CFR 62% iron ore fines
price(A) (US$/t) 74.4 51.7 44% 58.3
------------------------------------- ---------------- ---------- ------- -----------
Revenue 591 458 29% 986
------------------------------------- ---------------- ---------- ------- -----------
C1 cash cost(A) (per tonne) 31.7 25.7 23% 27.7
------------------------------------- ---------------- ---------- ------- -----------
Underlying EBITDA(A) 287 160 79% 375
------------------------------------- ---------------- ---------- ------- -----------
Underlying EBITDA margin (A) 48.5% 34.9% 38.0%
------------------------------------- ---------------- ---------- ------- -----------
Profit for the period after special
items 216 78 177% 189
------------------------------------- ---------------- ---------- ------- -----------
Diluted EPS after special items
(US cents) 36.60 13.14 179% 31.91
------------------------------------- ---------------- ---------- ------- -----------
Dividend per share (US cents) 3.3 - 100% 6.6
------------------------------------- ---------------- ---------- ------- -----------
Net cash flow from operating
activities 194 142 37% 332
------------------------------------- ---------------- ---------- ------- -----------
Capital investment(A) 45 24 88% 48
------------------------------------- ---------------- ---------- ------- -----------
Net debt(A) 481 753 -36% 589
------------------------------------- ---------------- ---------- ------- -----------
Liquidity (including undrawn
facilities) 143 44 225% 145
------------------------------------- ---------------- ---------- ------- -----------
Net debt to last twelve months'
EBITDA (A) 0.96x 2.54x 62% 1.57x
------------------------------------- ---------------- ---------- ------- -----------
Health and Safety
-- We regret to report one work related fatality (1H 2016: one) -- Group LTIFR (A) of 0.9 per million man hours (1H 2016: 0.89; 2H 2016: 1.44)
Market Environment
-- Strong market environment for high grade iron ore products including pellets -- Increase in pellet premiums reflected market conditions -- Average realised FOB price increased compared to 1H 2016 -- Strong customer demand from the Group's long term target customers
Operational
-- 1H 2017 pellet production 5.2MT (1H 2016: 5.7MT) reflects planned pelletiser maintenance -- 2H 2017 production to be marginally ahead of 1H 2017
-- C1 cash cost (A) US$31.7 per tonne (1H 2016: US$25.7 per tonne) reflects higher commodity priced inputs, local inflation, stable Hryvnia against the Dollar and lower production levels
-- Ferrexpo remains one of the lowest cost pellet producers in the world -- Mining licence for Ferrexpo Poltava Mining (FPM) renewed in July 2017 for 20 years until 2037
-- Higher capex (A) of US$45 million (1H 2016: US$24 million) reflects improved financial liquidity
-- Full year 2017 capex (A) likely to be approximately US$100 million
Financial
-- Revenue up 29% to US$591 million (1H 2016: US$458 million) on higher iron ore prices and pellet premiums
-- Underlying EBITDA (A) up 79% to US$287 million (1H 2016: US$160 million) on higher revenue and tightly controlled costs
-- 1H 2017 underlying EBITDA margin (A) 49% vs. 34% in 1H 2016 -- Profit before tax up US$149 million to US$241 million (1H 2016: US$92 million) -- Net cash flows from operating activities up 37% to US$194 million (1H 2016: US$142 million) -- US$163 million of debt repaid in 1H 2017, including a US$50 million prepayment of PXF debt
-- Net debt (A) of US$481 million at lowest level 2012 (31 December 2015: US$589 million; 30 June 2016: US$753 million)
-- Net debt to last twelve months EBITDA (A) 0.96x (30 June 2016:2.5x; 31 December 2016: 1.57 x)
-- Available liquidity as of 30 June 2017 in line with 31 December 2016 at US$143 million (31 December 2016: US$145 million)
-- Dividend of 3.3 US cents declared (1H 2016: nil)
Outlook
-- The Board expects demand for high quality iron ore, especially pellets, to remain strong through 2H 2017
Alternative Performance Measures
Words with the symbol (A) are defined in the Alternative Performance Measures
There is an analyst and investor meeting at 09.00 GMT today at the offices of Deutsche Bank at Winchester House, 75 London Wall, London EC2N 2DB. A live video webcast and slide presentation of this event will be available on www.ferrexpo.com. It is recommended that participants register at 08.45. The presentation will be hosted by Steve Lucas (Chairman), Kostyantin Zhevago (CEO) and Chris Mawe (CFO).
Webcast link: http://edge.media-server.com/m/p/ni4krjca
For further information contact:
Ferrexpo: Ingrid McMahon +44 207 389 8304 Maitland: James Isola +44 207 379 5151
Notes to Editors:
Ferrexpo is a Swiss headquartered iron ore company with assets in Ukraine. It has been mining, processing and selling high quality iron ore pellets to the global steel industry for 40 years. Ferrexpo's resource base is one of the largest iron ore deposits in the world. The Group is currently the 3rd largest exporter of pellets to the global steel industry and the largest exporter of pellets from the Former Soviet Union. In 2016, it produced 11.2 million tonnes of pellets reflecting a 2% increase in production of the Group's highest quality pellets (A) to a record 10.5 million tonnes. Ferrexpo has a diversified customer base supplying steel mills in Austria, Slovakia, the Czech Republic, Germany and other European states, as well as in China, India, Japan, Taiwan and South Korea. Ferrexpo is listed on the main market of the London Stock Exchange under the ticker FXPO. For further information, please visit www.ferrexpo.com
Introduction
Ferrexpo is pleased to report an excellent set of financial results underpinned by strong demand for its product. Improved levels of global steel output in 1H 2017 compared to 1H 2016 increased demand for higher grade ore, including pellets. The Group was able to capitalise on its marketing strategy of selling its pellets to the best steel mills around the world. As a result the price premium that Ferrexpo received over the benchmark iron ore fines price increased significantly compared to 2016.
In the first half of 2017, Group underlying EBITDA (A) increased by 79% to US$287 million (1H 2016: US$160 million) while net debt (A) reduced by US$108 million to US$481 million as of 30 June 2017 (31 December 2016: US$589 million) and the ratio of net debt to the last twelve months' EBITDA (A) fell below 1 times.
Ferrexpo is pleased to declare an interim dividend of US3.3 cents per share (1H 2016: nil).
We deeply regret, however, to report a fatality during the period. Ferrexpo's goal remains firmly focused on achieving zero fatalities or injuries.
Outlook
The Board of Ferrexpo expects demand for high quality iron ores, especially pellets, to remain strong in the second half of 2017, underpinned by continued improvement in global economic activity as well as long term growth drivers which require steel mills to reduce their emissions per tonne of steel, increase their efficiencies and improve the quality of their final product.
On the supply side, barriers to entry into the pellet market remain high, given that capital investment for new pelletising capacity alone can be in the region of US$100 per tonne. Nevertheless, it is expected that additional capacity could come to the market in 2018 and 2019. Long term growth drivers and the marginal cost of pellet production, however, should ensure that pellet premiums remain well supported at or above the long-run average of approximately US$30 per tonne.
While Ferrexpo's costs are influenced by commodity prices, the Hryvnia exchange rate, local inflation and production levels, the Group expects to retain its competitive cost position within the industry and to continue to benefit from its past investment and its high quality customer portfolio.
Dividends
The Directors have declared an interim dividend of 3.3 US cents per Ordinary Share (1H 2016: nil) for payment on 8 September 2017 to shareholders on the register at the close of business on 11 August 2017. The ex-dividend date will be 10 August 2017. The dividend will be paid in UK Pounds Sterling, with an election to receive in US Dollars.
Ferrexpo's dividend policy is to pay a base level of sustainable dividends through the commodities cycle of approximately US$40 million per annum (or 6.6 US cents per year). The dividend will be split equally between an interim dividend and a final dividend payable normally in October and May following the Company's interim results and Annual General Meeting.
The Board will assess the merits of additional returns to shareholders via special dividends, to be paid from cash flows in excess of the Group's needs when taking into account debt repayments and development capital expenditure (A) . If appropriate, the Group will target special dividends of around US$40 million per financial year (or 6.6 US cents per share) to be paid at an appropriate time in its reporting cycle.
The Board's strategy is to maintain a balance between sustainable and attractive shareholder returns, investment in growth opportunities and balance sheet strength.
Health and Safety
Throughout Ferrexpo, safety is of paramount consideration. The Group's LTIFR(A) in 1H 2017 showed an improvement compared to 2H 2016. It is distressing, however, to record a fatal injury in 1H 2017 (1H 2016: one). Any loss of life in the workplace is a tragic event and is quite unacceptable. The chief executive, Kostyantin Zhevago, the Group Chief Operating Officer, Jim North, and the FPM management team are analysing work practices, procedures, standards and culture in order to drive further improvement.
The Group's LTIFR (A) in 1H 2017 was 0.9 per million man compared to 1.44 per million man hours in 2H 2016. The 1H 2017 result included an improvement at FPM, compared to 2H 2016, with a reduction in lost time injuries to 1.15 per million man hours. Compared to 1H 2016, however, FPM saw an increase in lost time injuries per million man hours.
It is pleasing to note that as of 30 June 2017 FYM had recorded 3.7 million man hours without a lost time injury, while the Group's barging operations have been free of lost time injury for nine months.
Lost Time Injury Frequency Rate (A) LTIFR 1H 2017 1H 2016 2H 2016 2016 --------- -------- -------- -------- ----- - FPM 1.15 0.56 1.68 1.14 --------- -------- -------- -------- ----- - FYM 0.00 0.74 0.00 0.38 --------- -------- -------- -------- ----- - FBM 0.00 0.00 0.00 0.00 --------- -------- -------- -------- ----- Ukraine 0.96 0.58 1.42 1.01 --------- -------- -------- -------- ----- Barging 0.00 5.83 1.76 3.70 --------- -------- -------- -------- ----- Group 0.90 0.89 1.44 1.17 --------- -------- -------- -------- -----
Financial Review
Revenue
Group revenue increased 29% to US$591 million (1H 2016: US$458 million). This was driven by a 58% increase in Ferrexpo's realised FOB price due to significantly higher pellet premiums of approximately US$43 per tonne (compared to approximately US$21 per tonne in 1H 2016). The Group's received price also benefited from a higher average 62% Fe iron ore fines price of US$74 per tonne compared to US$52 per tonne in 1H 2016, an increase of 43%.
C3 freight, which is the benchmark freight index from Tubarao, Brazil to Qingdao, China and used as reference in industry pricing contracts, increased to approximately US$13 per tonne from approximately US$7 per tonne in 1H 2016. This freight increase reduced the Group's overall realised price. For further information see Market Review and Marketing
Sales volumes (A) of 5.1 million tonnes (1H 2016: 6.0 million tonnes) were just below production levels of 5.2 million tonnes due to timing of shipments at the half year end.
Costs
C1 Cost of Production
The Group's average C1 cash cost of production (A) was US$31.7 per tonne in 1H 2017 compared to US$25.7 per tonne in 1H 2016.
Of the US$6.0 per tonne increase in the C1 cost, US$2.2 per tonne related to commodity price inflation including diesel fuel, gas and steel price increases. This was in line with the higher iron ore price environment in the first half of 2017 compared to the same period in 2016 (the 62% Fe iron ore fines price increased by 44% period on period).
Ukrainian producer price inflation was approximately 14% on average compared to the first half of 2016. Local cost inflation, specifically related to higher electricity tariffs and wages increased the C1 cost by US$1.3 per tonne. The Hryvnia was relatively stable against the US Dollar with an average of UAH26.76 per Dollar for 1H 2017 compared to UAH25.47 per Dollar for 1H 2016.
Lower production volumes of 5.2 million tonnes in the first half of the year (1H 2016: 5.7 million tonnes), which were principally due to required plant maintenance including a planned 55-day shut down for pellet line number 4, increased the C1 cash cost by approximately US$1.3 per tonne, while additional maintenance costs added a further US$1.2 per tonne.
The Group's C1 cost represent the cash costs of production of iron pellets from own ore, divided by production volume from own ore, and excludes non-cash costs such as depreciation, pension costs and inventory movements, costs of purchased ore, concentrate and production cost of gravel.
Selling and Distribution Costs
Selling and distribution costs were in line with the prior period at US$100 million (1H 2016: US$101 million). Lower sales volumes were offset by higher international freight rates that were driven principally by a 34% increase in the oil price during the period.
For further information see Marketing
Currency
Ferrexpo prepares its accounts in US Dollars. The functional currency of the Ukrainian operations is the Hryvnia.
During the first half of 2017 the Hryvnia appreciated from UAH27.19 per US Dollar as of 1 January 2017 to UAH26.10 per US Dollar as of 30 June 2017. The average rate for the period was UAH26.76 per US Dollar compared to UAH25.47 per US Dollar in 1H 2016.
Ukrainian Hryvnia vs. US Dollar
Spot (1.8.17) 30.6.2017 1.1.2017 Average Average Average
1H 2017 1H 2016 FY 2016
-------- -------------- ---------- --------- --------- --------- ---------
UAHper
US$ 25.86 26.10 27.19 26.76 25.47 25.55
-------- -------------- ---------- --------- --------- --------- ---------
Source: National Bank of Ukraine
Underlying EBITDA (A)
Underlying EBITDA (A) for the period increased by 79%, or US$127 million, to US$287 million compared with US$160 million in 1H 2016. This reflected higher revenue of US$133 million due to increased iron ore prices and pellet premiums, while costs increased by US$17 million principally due to higher commodity prices and local cost inflation.
Interest and Debt
Net debt to EBITDA (A) for the last 12 months was 0.96x compared to 1.57x as of 31 December 2016.
Net debt declined by US$108 million to US$481 million as of 30 June 2017 compared to US$589 million as of 31 December 2016. Compared to 30 June 2016, net debt declined 36% or by US$272 million (30 June 2016 net debt: US$753 million).
As of 30 June 2017, Ferrexpo's available liquidity was US$143 million (31 December 2016: US$145 million) composed of US$93 million cash and a US$50 million undrawn amount within the existing pre- export finance facility. This was prepaid in the period and remains unutilised in order to optimise funding costs.
The Group has trade finance facilities of US$80 million which can be used to finance certain shipments, of which US$7 million was utilised at the end of June 2017.
Interest expense on financial liabilities declined by 11% to US$25 million compared to US$28 million for 1H 2016 due to a lower outstanding debt balance. The average cost of debt for the period ended 30 June 2017 was 7.7% (average 30 June 2016: 6.5%). The increased average rate reflected amortisation of the Group's pre-export finance facility which has a lower cost compared to the Group's outstanding US$346 million Eurobond partly offset by lower average borrowings.
Further details on finance expense are disclosed in Note 8
Tax
The income tax expense for 1H 2017 was US$27 million (1H 2016: US$14 million) based on an expected weighted average tax rate before special items of 11.9% for the full year. The effective income tax expense for the period reflected a partial de-recognition of the deferred tax asset on restricted cash balances and the recognition of a deferred tax asset at FYM. The latter is related to losses incurred in prior periods which are expected to be offset against future taxable profits.
Further details on taxation are disclosed in Note 9
Profit for the Period
Profit for the period increased by US$139 million to US$216 million (2016: US$78 million). This was driven by the strong EBITDA performance.
Cash Flows
Net cash flows from operating activities increased 37% to US$194 million in 1H 2017 (1H 2016: US$142 million). This included a US$63 million working capital increase following a traditionally low working capital position at the end of 2016. Trade receivables also increased during the first half of the year given the higher iron ore price during the period.
Capital Investment (A)
Capital expenditure (A) in 1H 2017 was US$45 million compared to US$24 million in 1H 2016. The higher expenditure in 2017 reflected improved liquidity, with approximately US$33 million spent on sustaining capital and the remainder on medium fine crushing lines as part of the expansion project to increase the Group's concentrate capacity by 1.5 million tonnes.
Debt Maturity Profile
As of 30 June 2017, Ferrexpo's net debt to EBITDA (A) ratio on a twelve month basis was 0.96 times.
Total gross debt as of the period end was US$574 million, of which a principal amount of US$340 million (including US$7 million of trade finance) falls due in the next twelve months (US$87 million in 2H 2017).
As of 30 June 2017, Ferrexpo had available liquidity of US$143 million. Over the last twelve months the Group has generated US$271 million of net cash, after capital investment of US$70 million and US$39 million of dividend distributions.
The Group's debt facilities consist of US$169 million outstanding on an amortising US$350 million Pre Export Finance Facility, US$346 million of Eurobonds due for repayment in equal parts in April 2018 and April 2019, US$51 million of export credit agency funding amortising monthly over the next 48 months, and US$7 million of trade finance facilities outstanding.
Ferrexpo will continue to assess new financing options as it sees appropriate while repaying its debt obligations as they fall due from its own cash generation and liquidity.
For information see Update on risks
Related Party Transactions
There were no significant related party transactions to report for the six months ended 30 June 2017. For full disclosure of related party transactions see Note 19 on the accounts
Market Review
Pellet Demand
Global steel production in 1H 2017 increased by 4.5% to 836 million tonnes (1H 2016: 800 million tonnes)([1]) . This primarily reflected strong growth in crude steel output in China of 4.6% to 420 million tonnes in 1H 2017 (1H 2016: 402 million tonnes).
Crude steel output in the key pellet markets of Europe, South Korea and Taiwan was also strong increasing by 4.1%, 3.7% and 7.7% respectively. Europe, Japan, South Korea and Taiwan account for 28% of seaborne iron ore imports; however, in terms of pellet demand they account for approximately 50% of seaborne pellet consumption.
Increased steel demand and improving mill profitability, which during the period reached the highest level since the global financial crisis of 2008, led to an increase in utilisation rates which underpinned demand for higher grade iron ores, including pellet.
Of note in the first half of 2017 was the divergence in price for differing qualities and types of iron ore. For example, the average price difference between 65% Fe pellets FOB and 58% Fe iron ore fines CFR was US$43 per tonne([2]) . Ferrexpo, as a producer of 65% Fe pellets, is well placed to continue to benefit from this trend.
US$ per PLATTS CFR PLATTS CFR 65% Fe Difference % difference tonne unless 58% Fe fines 62% Fe fines pellets 58% Fe fines 58% Fe fines otherwise (A) FOB Brazil vs. 65% vs. 65% stated Fe pellets Fe pellets --------------- -------------- -------------- ------------ -------------- -------------- Avg price 1H 2017 65 74 108 43 66% --------------- -------------- -------------- ------------ -------------- --------------
Source: Platts
Looking ahead to 2021, CRU expects consumption of pellets to outstrip demand for iron ore lump or fines. The table below shows that pellet consumption is forecast to grow by 4.4% on a compound annual growth basis while lump consumption is expected to grow by 2.8% and consumption of fines is expected to decline by 0.8%.
Consumption of iron ore 2016 2021 Change CAGR (MT) ------------------------- ------ ------ ------- ------ Pellets 417 517 100 4.4% ------------------------- ------ ------ ------- ------ Lump 297 342 45 2.8% ------------------------- ------ ------ ------- ------ Sinter Fines 1,350 1,297 -53 -0.8% ------------------------- ------ ------ ------- ------ Total 2,064 2,156 92 0.9% ------------------------- ------ ------ ------- ------
Source: CRU, Market Outlook July 2017
(1) Source: World Steel Association
(2) Source: Platts Company
Factors driving the growth in consumption of pellets include:
-- Rationalisation of Chinese steel capacity, which is likely to result in fewer but larger blast furnaces with higher capacity utilisation rates and more stringent environmental and quality controls. This should underpin demand for higher grade iron ore such as pellets.
-- Steel mills in China (and the rest of the world) are under pressure to minimize their environmental impact, and increased use of pellets reduces steel emissions as pellets do not require sintering.
-- As steel mills look to move further down the value chain and produce more sophisticated high-strength steels, they are required to use higher quality inputs.
China is the marginal buyer of pellets in the seaborne market, as historically it has used domestically produced pellets in its blast furnace burden mix. Ferrexpo believes that due to the above factors, especially environmental concerns, as well as a lack of domestic pellet feed in a low iron ore price (A) environment, seaborne pellets will become a larger proportion of the burden mix in future.
Pellet Supply
The pellet market continues to have high barriers to entry with the table below showing that the most recent capacity additions to the seaborne market cost around US$100 per tonne for pelletising capacity alone. When developing a pellet plant, however, it is usually also necessary to invest in mining, beneficiation and logistics capacity.
Recent capacity additions to the pellet market
New pellet Duration Tonnes Cost Cost / Description
capacity tonne
-------------- ---------- ------- ------------- --------- -------------------------------
Samarco 2011-2014 8.3MT R$6.459BN US$391/ Construction of 9.5MT
(US$3.251BN tonne concentrator
equivalent) Construction of slurry
pipeline with 20MT
capacity
Construction of 8.3MT
pelletiser
9MT increase in port
capacity
-------------- ---------- ------- ------------- --------- -------------------------------
Metalloinvest 2012-2015 5MT RUB16BN US$92 / Construction of pellet
(US$460M tonne plant
equivalent)
-------------- ---------- ------- ------------- --------- -------------------------------
NMLK 2011-2016 6MT RUB41BN US$233 Construction of pellet
(US$1.4BN / tonne plant US$680M or US$113/tonne
equivalent) Expanded mining &
beneficiation capacity
-------------- ---------- ------- ------------- --------- -------------------------------
Source: Company announcements
High prices, if sustained, will attract new entrants to the market, and Ferrexpo estimates that besides Samarco, approximately 7 to 10 million tonnes of idled higher-cost capacity could return. Given the possibility of this supply entering the market in 2018/2019, CRU forecasts non-Chinese pellet premiums to normalise around their long-term price forecast of approximately US$30 per tonne. This is set by the 90(th) percentile of the pellet cost curve and is required for the majority of current pellet plants to cover their full cost of converting pellet feed into pellet.
CRU Pellet Cost Curve
http://www.rns-pdf.londonstockexchange.com/rns/9649M_1-2017-8-2.pdf
Note: the above cost curve represents the full operating cost to convert pellet feed into pellet.
Source: CRU long-term Iron Ore Market Outlook, July 2017
Historically there has been limited growth in pellet supply due to the high barriers to entry. According to CRU, between 2000 and 2016 total exports of pellets increased by only 5 million tonnes, compared to an 839 million tonne increase in sinter fines. The graph below shows that non-Chinese pellet premiums are relatively stable compared to the iron ore fines price.
http://www.rns-pdf.londonstockexchange.com/rns/9649M_1-2017-8-2.pdf
Operational Review
Marketing
Sales volumes (A) for 1H 2017 totalled 5.1 million tonnes in line with the lower production levels of 5.2 million tonnes. Final sales volumes (A) were impacted by the timing of shipments at the half year end as well as stock pile replenishment following low stock levels at the end of 2016. Sales volumes (A) included 37 thousand tonnes of FPF (Ferrexpo Pellet Feed) sold to Japan in 1H 2017 (1H 2016: 39 thousand tonnes).
The table below shows the breakdown of sales by key market regions. Sales to North East Asia increased by 7 percentage points to 20% compared to 13% in the first half of 2016. This reflected an increase in sales volumes (A) to two customers of 50% and 29% respectively.
Of total sales volumes (A,) 94% represented Ferrexpo Premium Pellets of 65% Fe, an increase compared to 1H 2016 of 93%.
Sales Volume (A) by Market Regions:
6 months ended 6 months ended
30.06.17 30.06.16
---------------------------- --------------- ---------------
Central Europe 52% 46%
---------------------------- --------------- ---------------
North East Asia 20% 13%
---------------------------- --------------- ---------------
Western Europe 17% 17%
---------------------------- --------------- ---------------
Turkey, Middle East, India 7% 6%
---------------------------- --------------- ---------------
China and South East Asia 3% 18%
---------------------------- --------------- ---------------
Total sales volume (A)
(million tonnes) 5,065 6,017
---------------------------- --------------- ---------------
Ferrexpo benefits from a diversified sales portfolio, while its logistics routes to customers provide a competitive advantage given Ukraine's central geographical location.
The Group's long-term volume contracts are all based on a spot index iron ore fines price using various reference periods, plus a negotiated pellet premium based on international pricing trends. The current average length of the Group's sales contracts is approximately three years. The table below shows the breakdown of sales by pricing terms. No volume during the period was sold, on spot given the strong demand from the Group's long-term target customers.
Sales Volume (A) by Pricing Terms:
6 months ended 6 months ended
30.06.17 30.06.16
---------------------------- --------------- ---------------
Monthly spot index 73% 79%
---------------------------- --------------- ---------------
Current quarter spot index 14% 10%
---------------------------- --------------- ---------------
Lagging 3 month spot index 14% 9%
---------------------------- --------------- ---------------
Spot sales fixed on day 0% 3%
---------------------------- --------------- ---------------
Total sales volume (A)
(million tonnes) 5,065 6,017
---------------------------- --------------- ---------------
Ferrexpo's realised price for its 65% Fe iron ore pellets is calculated by taking the average PLATTS CFR China iron ore fines index for an agreed time period (see sales volume by pricing terms), adjusting for quality and adding a pellet premium. For sales to the Far East, delivery is made on CFR terms with the resulting FOB netback determined by the actual cost of freight. For sales to European and regional markets, delivery is generally made on FOB/DAP terms which is determined by deducting a transparent freight market index such as C3.
Key Price Data:
US$ per tonne 1H 2017 1H 2016 2H 2016 ------------------------------- -------- -------- -------- Avg PLATTS iron ore fines CFR China index 74 52 65 ------------------------------- -------- -------- -------- Avg PLATTS Atlantic pellet premium 45 29 34 ------------------------------- -------- -------- -------- C3 freight index 13 7 11 ------------------------------- -------- -------- --------
The above table represents average numbers for a six-month period and does not show actual price movements during the period which would affect final customer pricing. It also shows benchmark index pricing, which may differ from the final price received by Ferrexpo.
The C3 freight index, published by the Baltic Exchange, represents the industry benchmark price to transport goods by sea from Tubarao, Brazil to Qingdao, China. The C3 index increased by 88% during the period compared to 1H 2016 primarily due to a higher oil price, this resulted in a lower net back price for the Group in 1H 2017.
Pellet Production
Pellet production of 5.2 million tonnes in 1H 2017 (1H 2016: 5.7 million tonnes) was impact by a planned 55-day refurbishment of a pellet line (line number 4) in March and April. This is part of a programme to refurbish all four of the Group's pellet lines, as is required approximately every 15 years.
FPM completed the refurbishment of line number 3 in 2014. The remaining two lines (numbers 2 and 1) will be refurbished over approximately 55 days in 1Q 2018 and 1Q 2019 respectively.
The Group expects to increase pellet production marginally in 2H 2017 compared to 1H 2017. The increase will be moderated by the ongoing maintenance programme which includes a 21 day shutdown on pellet line number 2 in 2H 2017.
The Group continues to maintain a high proportion of 65% Fe pellets within its production (A) mix. The ratio of Ferrexpo Premium Pellets increased by 1.5% in 1H 2017 to 95% of total production volumes (1H 2016: 94% of total production volumes).
The table below summarises production in the first half of 2017 compared to the first half of 2016.
Pellet Production (A) 1H 2017 and 1H 2016 ('000)
1H 2017 1H 2016 %
======== ======== ======
Pellet production from own
ore 5,138.6 5,700.1 -9.9
- 62% Fe FBP 257.9 363.9 -29.1
- 65% Fe FPP (incl. FPP+) 4,880.7 5,336.2 -8.5
Production from third party
materials 21.6 23.2 -7.1
- 62% Fe FBP 0.00 0.0 -
- 65% Fe FPP (incl. FPP+) 21.6 23.2 -7.1
Total Pellets Produced 5,160.1 5,723.3 -9.8
----------------------------- -------- -------- ------
- 62% Fe FBP 257.9 363.9 -29.1
- 65% Fe FPP (incl. FPP+) 4,902.2 5,359.4 -8.5
of which % of FPP (incl.
FPP+) 95% 94% 1.5
----------------------------- -------- -------- ------
Note: Ferrexpo Basic Pellets (FBP), Ferrexpo Premium Pellets (FPP) and Ferrexpo Premium Pellets Plus (FPP+). Production in 1H 2017 included 37kt of concentrate that was sold as pellet feed to a customer in North East Asia (1H 2016: 39kt).
Ferrexpo is pleased to report that FPM's mining licence was renewed in July 2017 for a further 20 years until 2037. FYM's mining licence was renewed in 2012 and will expire in 2032.
Capital Investment(A)
Ferrexpo currently has one approved project to add approximately 1.5 million tonnes of concentrate at a cost of around US$50 million (including associated infrastructure).
Ferrexpo plans to develop its production capabilities and output by means of investments evaluated on strict financial parameters. In 2017 the Group expects total capex to be in the region of US$100 million.
The Group is currently completing engineering designs to incrementally increase the capacity of its existing pellet lines on an incremental basis.
Ukraine
After a challenging macro-economic and political period, Ukraine has made significant progress over a relatively short period. In three years the economy has returned to growth with an increase in GDP of 2.3% in 2016 and expected growth of 2.5% in 1H 2017, following a contraction of -9.9% in 2015 and -6.6% in 2014.
The government has implemented a number of reforms and changes to legislation, such as tax liberalization and changes to the energy sector, which have helped to improve the overall business climate. Continued structural reforms to improve transparency and to further liberalise the economy are necessary to attract higher levels of international investment and to ensure consistent and low cost access to debt capital markets. This will allow Ukraine's rate of growth to increase.
For further information see Update on Risks: Political and Legal risks pertaining to Ukraine
Board Appointments
On 15 June 2017, Mr Simon Lockett was appointed to Ferrexpo's board as an Independent Director. It is planned that he will succeed Oliver Baring as Senior Independent Director after a few months. Mr. Lockett has extensive experience of natural resources operations in emerging markets, having worked for Shell and as the CEO of Premier Oil plc for over nine years. The Board believe he is well equipped to understand and add value to Ferrexpo and to be the Senior Independent Director.
As previously announced, Sir Malcolm Field did not seek re-election at the Group's AGM in May 2017. The Board has benefited greatly from his experience and wishes to thank him for his service.
Update on Risks
The Group considers that the risks facing the business, as highlighted of the 2016 Annual Report and Accounts published in March 2017, remain relevant. An update is provided below on material developments of key risks during the first half of 2017.
-- Debt maturity profile
As of 30 June 2017, gross debt was US$574 million and cash was US$93 million. In addition the Group has an undrawn pre-export finance facility of US$50 million and trade finance facilities of US$80 million (of which US$7 million was utilised at the period end).
US$87 million of debt falls due in 2H 2017, and in 1H 2018 US$253 million will be due for repayment including a US$173 million Eurobond redemption in April. In 1H 2019 Ferrexpo will make a final Eurobond repayment of US$173 million. Following this, and assuming no new debt facilities, the Group will be largely debt-free.
Should the Group's operations not perform as expected or should the iron ore price (A) or pellet premium reduce markedly from current levels there is a risk that the Group may not be able to fully service the above debt repayments without additional debt facilities.
The Group has healthy debt metrics, with net debt (A) to last 12 months' EBITDA of 0.96x as of 30 June 2017. As a result of Ferrexpo's lower gearing and good cash flow generation ability, as demonstrated in the first half of the year, the Group considers that its debt maturity profile is manageable.
-- Political and legal risks pertaining to Ukraine
Ukraine has made significant progress over the last three years, since the Revolution of Dignity, in addressing structural imbalances within its economy including tackling corruption, increasing transparency and implementing often unpopular economic reforms.
Ongoing conflict in Eastern Ukraine, political instability and other destabilising events (such as large scale cyber-attacks) continue to exert a damaging influence on society and the economy and could impact the ability of local companies, including Ferrexpo, to operate effectively or to obtain funding from international capital markets.
Reforms within Ukraine are often protracted and, in general, there is a low level of trust between industry and government institutions, and an excess of red tape and a lack of transparency can lead to slow and inconsistent decision-making.
As part of the reform programme, the reorganisation of government departments, or the involvement of the new anti-corruption bureau, can significantly slow or even halt normal administrative processes. This could lead to delays, for example, in the processing of tax refunds, the closure of tax audits or the issuance of relevant permits.
Other risks include a weak judicial system that is susceptible to outside influence and can take an extended period of time for the courts to reach final judgment.
For further information see Ukraine and Note 17 of the financial accounts
-- Global macroeconomic growth
The demand for steel, and hence iron ore, is driven by global economic growth trends, which is significantly influenced by Chinese economic growth as China has produced more than 45% of the world's steel output for the past 7 years.
Global steel production in 1H 2017 increased by 4.5% to 836 million tonnes (1H 2016: 800 million tonnes)([3]) . This primarily reflected strong growth in crude steel output in China of 4.6%. Overall Asian steel production increased by 4.8% and European output increased 4.1% compared to 1H 2016.
(3) Source: World Steel Association
An increase or decrease in Chinese and world economic activity will affect demand for steel and iron ore and will influence the sale price of our product.
-- Competitive environment
The pellet market is currently in supply deficit, which could encourage idled capacity or new supply to enter the market. In addition, Samarco has indicated that it intends to return to the market. Ferrexpo estimates that approximately 7 to 10 million tonnes of marginal high-cost capacity could return as well as potential volume from Samarco. The increase in supply of pellets could reduce the pellet premium. Furthermore, the current level of pellet premiums could encourage competing products and processes to be developed. For further information see Marketing, Pellet Supply
-- Iron ore price A and pellet premiums
Declines in the iron ore fines price negatively impacts the financial results of the Group. In 1H 2017, the PLATTS CFR China iron ore fines price fell from a high of US$95 per tonne in February to a low of US$54 per tonne in June. Should the iron ore fines price decline further in the second half of the year, it may negatively impact the Group's profitability and cash generation ability.
Further, Ferrexpo receives a pellet premium in addition to the iron ore fines price. Currently, a substantial portion of the Group's profitability is due to this premium. In 1H 2017, the PLATTS Atlantic pellet premium was US$45 per tonne which was the highest level for the industry since the Global Financial Crisis. Currently, the pellet premium represents a high proportion of the underlying iron ore fines price and there is a risk that premiums could reduce which would negatively impacting the Group's profitability and cash generation ability. For further information see Introduction and Market Review
-- C3 freight
Ferrexpo is exposed to international freight rates as all of its long term contracts are priced with reference to transparent indices such as the Baltic Exchange C3 freight price (capesize route from Tubarao, Brazil to Qingdao, China). In 1H 2017, the C3 index increased 88% to US$13.27 per tonne compared to the 1H of 2016. An increase in freight rates directly reduces the Group's received price.
-- Ukrainian currency
The Group receives all of its income from pellet sales in US Dollars while more than half of its total cost base is denominated in Ukrainian Hryvnia. Following a period of sharp devaluation against the US Dollar in 2014 and 2015 the Hryvnia has been relatively stable. The average Hryvnia per US Dollar in 2016 was UAH25.5 per Dollar while in 1H 2017 the Hryvnia appreciated from UAH27.19 per Dollar on 1 January to UAH26.09 per Dollar as of 30 June 2017. It is currently trading around UAH25.96 per Dollar.
Should the Hryvnia continue to appreciate against the US Dollar it could increase local costs in US dollar terms reducing Group profitability.
-- Ukrainian inflation
Local inflation in 1H 2017 averaged 14% (1H 2016: 18%). The areas of inflation that the Group is most exposed to are wages, electricity and rail tariffs. The Group looks to partly offset cost inflation through increases in mining and production efficiencies. There is a risk that the Group is unable to offset inflation through production efficiencies and that the Group's cost base could increase as a result. For further information see Costs and Ukrainian currency above.
-- Sustaining and expansion capital investment
The Company's facilities require continual sustaining capital expenditure (A) to maintain productive efficiency. The Group is currently completing a part refurbishment of its four pellet lines with two lines remaining. It is anticipated that these last two refurbishments will take place in 1Q 2018 and 1Q 2019. There is a risk that refurbishment of the lines may need to be brought forward or take longer than expected to complete which could impact production levels.
The Group is also investing to expand its concentrate capacity by around 1.5 million tonnes. This project may take longer to complete than expected which could impact production levels.
Directors' Responsibility Statement
The Interim Report complies with the Disclosure and Transparency Rules ('DTR') of the United Kingdom's Financial Conduct Authority in respect of the requirement to produce a half-yearly financial report. The Interim Report is the responsibility of, and has been approved by, the Directors.
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared in accordance with IAS 34;
-- the Interim Management Report includes a fair review of the important events during the first six months and description of the principal risks and uncertainties for the remaining six months of the year, as required by DTR4.2.7R; and
-- the Interim Management Report includes a fair review of disclosure of related party transactions and changes therein, as required by DTR 4.2.8R.
The Directors are also responsible for the maintenance and integrity of the Ferrexpo plc website.
A list of current Directors is maintained on the Ferrexpo plc website which can be found at www.ferrexpo.com.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
For and on behalf of the Board
Steve Lucas
Chairman
Chris Mawe
Chief Financial Officer
02 August 2017
INDEPENT REVIEW REPORT TO FERREXPO PLC
We have been engaged by the Company to review the Condensed financial statements in the Half year financial report for the six months ended 30 June 2017 which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated cash flow statement, the Consolidated statement of changes in equity and related notes 1 to 20. We have read the other information contained in the Half year financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the Condensed financial statements.
This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The Half year financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half year financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The Condensed financial statements included in this Half year financial report have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (IAS 34), as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the Condensed financial statements in the Half year financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the Condensed financial statements in the Half year financial report for the six months ended 30 June 2017 are not prepared, in all material respects, in accordance with IAS 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, UK
02 August 2017
Interim Consolidated Income Statement
Year-ended 31.12.16
6 months ended 30.06.2017 (unaudited) 6 months ended 30.06.2016 (unaudited) (audited)
Before
Before Special Before Special special Special
US$000 Notes special items items Total special items items Total items items Total
Revenue 3/4 591,049 - 591,049 457,921 - 457,921 986,325 - 986,325
Operating
expenses 5/7 (328,017) (79) (328,096) (330,555) (13) (330,568) (687,060) (2,501) (689,561)
Other operating
income 1,387 - 1,387 1,649 - 1,649 2,914 - 2,914
Operating foreign
exchange
(losses)/gains 6 (5,159) - (5,159) 2,119 - 2,119 13,832 - 13,832
------------------ ------ -------------- ------------ ------------ -------------- ------------ ------------ ---------- --------- ----------
Operating profit 259,260 (79) 259,181 131,134 (13) 131,121 316,011 (2,501) 313,510
------------------ ------ -------------- ------------ ------------ -------------- ------------ ------------ ---------- --------- ----------
Non-operating
expenses 7 - - - - - - - (8,525) (8,525)
Share of profit
from associates 2,995 - 2,995 1,286 - 1,286 3,726 - 3,726
Profit/(loss)
before tax and
finance 262,255 (79) 262,176 132,420 (13) 132,407 319,737 (11,026) 308,711
------------------ ------ -------------- ------------ ------------ -------------- ------------ ------------ ---------- --------- ----------
Net finance
expense 8 (27,804) - (27,804) (37,894) - (37,894) (67,002) - (67,002)
Non-operating
foreign exchange
gains/(losses) 6 6,583 - 6,583 (2,539) - (2,539) (10,311) - (10,311)
------------------ ------ -------------- ------------ ------------ -------------- ------------ ------------ ---------- --------- ----------
Profit/(loss)
before tax 241,034 (79) 240,955 91,987 (13) 91,974 242,424 (11,026) 231,398
------------------ ------ -------------- ------------ ------------ -------------- ------------ ------------ ---------- --------- ----------
Income tax
(expense)/credit 7/9 (28,682) 3,426 (25,256) (14,197) - (14,197) (43,733) 1,535 (42,198)
------------------ ------ -------------- ------------ ------------ -------------- ------------ ------------ ---------- --------- ----------
Profit/(loss) for
the period/year 212,352 3,347 215,699 77,790 (13) 77,777 198,691 (9,491) 189,200
------------------ ------ -------------- ------------ ------------ -------------- ------------ ------------ ---------- --------- ----------
Profit/(loss)
attributable to:
Equity
shareholders of
Ferrexpo plc 211,477 3,578 215,055 77,135 (13) 77,122 196,770 (9,416) 187,354
Non-controlling
interests 875 (231) 644 655 - 655 1,921 (75) 1,846
------------------ ------ -------------- ------------ ------------ -------------- ------------ ------------ ---------- --------- ----------
Profit/(loss) for
the period/year 212,352 3,347 215,699 77,790 (13) 77,777 198,691 (9,491) 189,200
------------------ ------ -------------- ------------ ------------ -------------- ------------ ------------ ---------- --------- ----------
Earnings/(loss)
per share:
Basic (US cents) 10 36.11 0.61 36.72 13.17 - 13.17 33.60 (1.60) 32.00
Diluted (US
cents) 10 35.99 0.61 36.60 13.14 - 13.14 33.51 (1.60) 31.91
------------------ ------ -------------- ------------ ------------ -------------- ------------ ------------ ---------- --------- ----------
The presentation of the income statement has been simplified in the current period, with the comparative information re-presented to be on a consistent basis, as set out in Note 2. There has been no restatement of the underlying financial information
Interim Consolidated Statement of Comprehensive Income
6 months ended Year ended
US$000 Notes 30.06.17 6 months ended 30.06.16 31.12.16
(unaudited) (unaudited) (audited)
Profit for the period/year 215,699 77,777 189,200
Items that may subsequently be reclassified to
profit or loss:
Exchange differences on translating foreign
operations 6 38,203 (32,824) (126,365)
Income tax effect (6,015) 4,501 16,607
Net other comprehensive income/loss before
reclassification of items to profit or loss 32,188 (28,323) (109,758)
-------------------------------------------------- ------ ------------------- ------------------------ -----------
Net other comprehensive income/loss to be
reclassified to profit or loss in subsequent
periods 32,188 (28,323) (109,758)
Items that will not be reclassified subsequently
to profit or loss:
Remeasurement gains/(losses) on defined benefit
pension liability 255 (395) 1,075
Income tax effect (25) 37 (246)
-------------------------------------------------- ------ ------------------- ------------------------ -----------
Net other comprehensive (loss)/income not being
reclassified to profit or loss in subsequent
periods 230 (358) 829
-------------------------------------------------- ------ ------------------- ------------------------ -----------
Other comprehensive income/(loss) for the
period/year, net of tax 32,418 (28,681) (108,929)
-------------------------------------------------- ------ ------------------- ------------------------ -----------
Total comprehensive income for the period/year,
net of tax 248,117 49,096 80,271
-------------------------------------------------- ------ ------------------- ------------------------ -----------
Total comprehensive income attributable to:
Equity shareholders of Ferrexpo plc 247,245 48,929 79,650
Non-controlling interests 872 167 621
-------------------------------------------------- ------ ------------------- ------------------------ -----------
248,117 49,096 80,271
-------------------------------------------------- ------ ------------------- ------------------------ -----------
Interim Consolidated Statement of Financial Position
As at As at As at
US$000 Notes 30.06.17 31.12.16 30.06.16
(unaudited) (audited) (unaudited)
Assets
Property, plant and equipment 11 617,391 574,839 615,598
Goodwill and other intangible assets 36,694 35,220 38,598
Investments in associates 3,837 2,165 2,478
Inventories 13 162,740 130,357 117,773
Other non-current assets 12,085 2,984 5,753
Income taxes recoverable and prepaid 9 5,866 5,630 36,522
Deferred tax assets 51,892 52,818 63,463
---------------------------------------------------------- ------ ------------ ------------ ------------
Total non-current assets 890,505 804,013 880,185
---------------------------------------------------------- ------ ------------ ------------ ------------
Inventories 13 101,430 78,935 100,799
Trade and other receivables 80,539 81,745 66,258
Prepayments and other current assets 19,114 21,387 19,442
Income taxes recoverable and prepaid 9 142 10,757 16,826
Other taxes recoverable and prepaid 12 21,421 21,389 34,483
Cash and cash equivalents 3/14 92,645 144,751 44,440
Restricted cash and deposits 17 - - 8,988
---------------------------------------------------------- ------ ------------ ------------ ------------
Total current assets 315,291 358,964 291,236
---------------------------------------------------------- ------ ------------ ------------ ------------
Total assets 1,205,796 1,162,977 1,171,421
---------------------------------------------------------- ------ ------------ ------------ ------------
Equity and liabilities
Issued capital 18 121,628 121,628 121,628
Share premium 185,112 185,112 185,112
Other reserves 18 (1,952,514) (1,984,758) (1,904,265)
Retained earnings 2,178,821 2,002,153 1,891,362
---------------------------------------------------------- ------ ------------ ------------ ------------
Equity attributable to equity shareholders of the parent 533,047 324,135 293,837
---------------------------------------------------------- ------ ------------ ------------ ------------
Non-controlling interest (45) (847) (616)
---------------------------------------------------------- ------ ------------ ------------ ------------
Total equity 533,002 323,288 293,221
---------------------------------------------------------- ------ ------------ ------------ ------------
Interest-bearing loans and borrowings 3/15 228,853 505,641 602,341
Defined benefit pension liability 16,615 15,489 17,687
Provision for site restoration 1,162 1,071 1,027
Deferred tax liabilities 572 586 186
---------------------------------------------------------- ------ ------------ ------------ ------------
Total non-current liabilities 247,202 522,787 621,241
---------------------------------------------------------- ------ ------------ ------------ ------------
Interest-bearing loans and borrowings 3/15 345,049 228,061 194,770
Trade and other payables 34,048 28,807 27,364
Accrued liabilities and deferred income 15,221 42,584 18,411
Income taxes payable 9 22,698 11,780 8,976
Other taxes payable 8,576 5,670 7,438
---------------------------------------------------------- ------ ------------ ------------ ------------
Total current liabilities 425,592 316,902 256,959
---------------------------------------------------------- ------ ------------ ------------ ------------
Total liabilities 672,794 839,689 878,200
---------------------------------------------------------- ------ ------------ ------------ ------------
Total equity and liabilities 1,205,796 1,162,977 1,171,421
---------------------------------------------------------- ------ ------------ ------------ ------------
The financial statements were approved by the Board of Directors on 2 August 2017.
Kostyantin Zhevago Christopher Mawe
Chief Executive Officer Chief Financial Officer
Interim Consolidated Statement of Cash Flows
6 months 6 months
ended ended Year ended
US$000 Notes 30.06.17 30.06.16 31.12.16
(unaudited) (unaudited) (audited)
Profit before tax 240,955 91,974 231,398
Adjustments for:
Depreciation of property, plant and equipment and amortisation of
intangible assets 5 22,295 25,690 50,671
Interest expense 8 26,949 36,891 64,975
Interest income 8 (184) (90) (175)
Losses on disposal of property, plant and equipment 5 2,103 1,615 4,446
Operating special items 7 79 13 2,501
Non-operating special items 7 - - 8,525
Share of profit from associates (2,995) (1,286) (3,726)
Movement in allowance for doubtful receivables (182) 738 252
Movement in site restoration provision 42 (449) (308)
Employee benefits 1,538 1,705 3,192
Share based payments 285 194 389
Operating foreign exchange losses/(gains) 6 5,159 (2,119) (13,832)
Non-operating foreign exchange (gains)/losses 6 (6,583) 2,539 10,311
--------------------------------------------------------------------- ------ ------------ ------------ -----------
Operating cash flow before working capital changes 289,461 157,415 358,619
--------------------------------------------------------------------- ------ ------------ ------------ -----------
Changes in working capital:
Decrease/(increase) in trade and other receivables 2,800 13,296 (3,578) Increase in inventories (45,945) (15,261) (41,540) Increase in trade and other accounts payable (22,974) 2,584 30,066 Decrease in VAT recoverable and other taxes recoverable and payable 3,526 15,524 24,345 --------------------------------------------------------------------- ------ ------------ ------------ ----------- Cash generated from operating activities 226,868 173,558 367,912 --------------------------------------------------------------------- ------ ------------ ------------ ----------- Interest paid (26,461) (28,641) (58,793) Income tax (paid)/refunded (5,383) (1,735) 24,438 Post-employment benefits paid (708) (746) (1,466) --------------------------------------------------------------------- ------ ------------ ------------ ----------- Net cash flows from operating activities 194,316 142,436 332,091 --------------------------------------------------------------------- ------ ------------ ------------ ----------- Cash flows from investing activities Purchase of property, plant and equipment and intangible assets (45,284) (23,737) (48,176) Proceeds from disposal of property, plant and equipment and intangible assets 103 35 47 Interest received 181 84 168 Dividends from associates 2,628 3,076 4,203 --------------------------------------------------------------------- ------ ------------ ------------ ----------- Net cash flows used in investing activities (42,372) (20,542) (43,758) --------------------------------------------------------------------- ------ ------------ ------------ ----------- Cash flows from financing activities Proceeds from borrowings and finance 15 - 9,267 19,115 Repayment of borrowings and finance 15 (162,507) (119,775) (195,918) Dividends paid to equity shareholders of Ferrexpo plc (39,050) - - --------------------------------------------------------------------- ------ ------------ ------------ ----------- Net cash flows used in financing activities (201,557) (110,508) (176,803) --------------------------------------------------------------------- ------ ------------ ------------ ----------- Net (decrease)/increase in cash and cash equivalents (49,613) 11,386 111,530 Cash and cash equivalents at the beginning of the period/year 144,751 35,330 35,330 Currency translation differences (2,493) (2,276) (2,109) --------------------------------------------------------------------- ------ ------------ ------------ ----------- Cash and cash equivalents at the end of the period/year 14 92,645 44,440 144,751 --------------------------------------------------------------------- ------ ------------ ------------ -----------
Interim Consolidated Statement of Changes in Equity
For the financial year
2016 and the six months Attributable to equity shareholders
ended 30 June 2017 of Ferrexpo plc
------------------------------------------------------------
Issued Other reserves Retained Total capital Non-controlling Total
US$000 capital Share premium (Note 18) earnings and reserves interests equity
At 1 January
2016 121,628 185,112 (1,876,624) 1,814,598 244,714 (783) 243,931
--------------- --------- -------------- --------------- ---------- --------------- ---------------- ----------
Profit for the
period - - - 187,354 187,354 1,846 189,200
Other
comprehensive
loss - - (108,523) 819 (107,704) (1,225) (108,929)
--------------- --------- -------------- --------------- ---------- --------------- ---------------- ----------
Total
comprehensive
loss for the
year - - (108,523) 188,173 79,650 621 80,271
Effect from
increase of
shareholding
in subsidiary - - - (618) (618) (685) (1,303)
Share-based
payments - - 389 - 389 - 389
At 31 December
2016
(audited) 121,628 185,112 (1,984,758) 2,002,153 324,135 (847) 323,288
--------------- --------- -------------- --------------- ---------- --------------- ---------------- ----------
Profit for the
period - - - 215,055 215,055 644 215,699
Other
comprehensive
income - - 31,959 231 32,190 228 32,418
--------------- --------- -------------- --------------- ---------- --------------- ---------------- ----------
Total
comprehensive
income for
the period - - 31,959 215,286 247,245 872 248,117
Equity
dividends
paid to
shareholders
of Ferrexpo
plc - - - (38,675) (38,675) - (38,675)
Share-based
payments - - 285 - 285 - 285
Effect from
increase of
shareholding
in subsidiary - - - 57 57 (70) (13)
--------------- --------- -------------- --------------- ---------- --------------- ---------------- ----------
At 30 June
2017
(unaudited) 121,628 185,112 (1,952,514) 2,178,821 533,047 (45) 533,002
--------------- --------- -------------- --------------- ---------- --------------- ---------------- ----------
For the six
months ended Attributable to equity shareholders
30 June 2016 of Ferrexpo plc
------------------------------------------------------------
Issued Share Other reserves Retained Total capital Non-controlling Total
US$000 capital premium (Note 18) earnings and reserves interests equity
At 1 January
2016 121,628 185,112 (1,876,624) 1,814,598 244,714 (783) 243,931
---------------- --------- --------- --------------- --------------- --------------- ---------------- ---------
Profit for the
period - - - 77,122 77,122 655 77,777
Other
comprehensive
loss - - (27,835) (358) (28,193) (488) (28,681)
---------------- --------- --------- --------------- --------------- --------------- ---------------- ---------
Total
comprehensive
loss for the
period - - (27,835) 76,764 48,929 167 49,096
Share-based
payments - - 194 - 194 - 194
---------------- --------- --------- --------------- --------------- --------------- ---------------- ---------
At 30 June 2016
(unaudited) 121,628 185,112 (1,904,265) 1,891,362 293,837 (616) 293,221
---------------- --------- --------- --------------- --------------- --------------- ---------------- ---------
Notes to the Interim Condensed Consolidated Financial Statements
Note 1: Corporate information
Organisation and operation
Ferrexpo plc (the "Company") is incorporated in the United Kingdom, which is considered to be the country of domicile, with its registered office at 55 St James's Street, London, SW1A 1LA, UK. Ferrexpo plc and its subsidiaries (the "Group") operate two mines and a processing plant near Kremenchug in Ukraine, an interest in a port in Odessa and sales and marketing activities around the world including offices in Switzerland, Dubai, Japan, China, Singapore and Ukraine. The Group also owns logistics assets in Austria which operates a fleet of vessels operating on the Rhine and Danube waterways and an ocean going vessel which provides top off services and operates on international sea routes. The Group's operations are vertically integrated from iron ore mining through to iron ore concentrate and pellet production and subsequent logistics. The Group's mineral properties lie within the Kremenchug Magnetic Anomaly and are currently being extracted at the Gorishne-Plavninskoye and Lavrikovskoye ("GPL") and Yeristovskoye deposits.
The majority shareholder of the Group is Fevamotinico S.a.r.l. ("Fevamotinico"), a company incorporated in Luxembourg and ultimately owned by The Minco Trust, of which Kostyantin Zhevago, the Group's Chief Executive Officer, is a beneficiary. At the time this report was published, Fevamotinico held 50.3% (31 December 2016: 50.3%; 30 June 2016: 50.3%) of Ferrexpo plc's issued Issued capital.
The Group's interests in its subsidiaries are held indirectly by the Company, with the exception of Ferrexpo AG, which is directly held. The Group's consolidated subsidiaries are disclosed in the Additional Disclosures of the Annual Report and Accounts 2016.
At 30 June 2017, the Group also holds through OJSC Ferrexpo Poltava Mining an interest of 49.4% (31 December 2016: 49.4%; 30 June 2016: 48.6%) in TIS Ruda, a Ukrainian port located on the Black Sea. As this is an associate, it is accounted for using the equity method of accounting.
Note 2: Summary of significant accounting policies
Basis of preparation
The interim condensed consolidated financial statements for the six months period ended 30 June 2017 have been prepared in accordance with International Accounting Standard ('IAS') 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all of the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2016.
The interim condensed consolidated financial statements do not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the full year is based on the statutory accounts for the financial year ended 31 December 2016. A copy of the statutory accounts for that year, which were prepared in accordance with International Financial Reporting Standards ('IFRS') issued by the International Accounting Standard Board ('IASB'), as adopted by the European Union as they apply to financial statements of the Group for the year ended 31 December 2016, have been delivered to the Register of Companies. The auditors' report under section 495 of the Companies Act 2006 in relation to those accounts was unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
The Group made changes to the presentation of its consolidated income statement in the interim condensed consolidated financial statements. These changes included i) the aggregation of "Cost of sales", "Selling and distribution expenses", "General and administrative expenses", "Other expenses", "Write-offs and impairment losses", and "Losses on disposal of property, plant and equipment" into a single line item "Operating expenses" and ii) the removal of references to "adjusted items" and "continued operations". These changes simplify the presentation, enhance the understandability of the financial statements and better align with industry practice of other listed mining companies. As a result, comparative period balances have been represented to align with these changes. The new presentation will also apply for the consolidated financial statements for the financial year ended 31 December 2017.
Going concern
The Group has assessed that, taking into account i) its available cash and cash equivalents, together with its undrawn committed facilities, available at the date of authorisation of the interim condensed consolidated financial statements, and ii) its cash flow projections for the twelve months from the date of the approval of the accounts, it has sufficient liquidity to meet its present obligations and cover working capital needs for the afore mentioned period and will remain in compliance with its financial covenants throughout this period. Therefore, the Group continues to adopt the going concern basis of accounting for the preparation of this set of financial statements.
Accounting policies adopted
The accounting policies and methods of computation adopted in the preparation of the interim condensed consolidated financial statements are the same as those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2016.
There are no new standards and interpretations to be applied for the financial year 2017 beginning on 1 January 2017. Amendments to existing standards with effective date 1 January 2017 are still subject to EU endorsement and not to be applied for the Group's interim condensed consolidated financial statements for the period ended 30 June 2017.
A description of the expected impact from the adoption of new accounting standards that are in issue, but are not yet effective is provided in Note 3 of the Annual Report & Accounts for the year ended 31 December 2016 and outlines the expected impact of the following standards that will become effective in future periods.
-- IFRS 9 Financial Instruments is effective for the financial year beginning on 31 December 2018 and the Group expects that the classification and measurement of its financial instruments under the new standard will remain largely unchanged.
-- IFRS 15 Revenue from contract with customers is effective for the 2018 financial year and the Group expects that there will be an impact in terms of the recognition of transport related revenue.
-- IFRS 16 Leases is effective for the 2019 financial year and the Group is in the process of assessing the impact of this new standard.
Full disclosure of the final assessment of the impact of these standards will be provided in the Annual Report & Accounts for the year ending 31 December 2017.
Seasonality
The Group's operations are not affected by seasonality.
Note 3: Segment information
The Group is managed as a single entity, which produces, develops and markets its principal product, iron ore pellets, for sale to the metallurgical industry. While the revenue generated by the Group is monitored at a more detailed level, there are no separate measures of profit reported to the Group's Chief Operating Decision-Maker ('CODM'). In accordance with IFRS 8 Operating Segments, the Group presents its results in a single segment, which are disclosed in the income statement for the Group. Management monitors the operating result of the Group based on a number of measures including Underlying EBITDA, gross profit and the net debt.
Underlying EBITDA and gross profit
The Group presents the Underlying EBITDA as it is a useful measure for evaluating the Group's ability to generate cash and its operating performance. The Group's full definition of Underlying EBITDA is disclosed in the Glossary
6 months ended Year ended
US$000 Notes 30.06.17 6 months ended 30.06.16 31.12.16
(unaudited) (unaudited) (audited)
Profit before tax and finance 262,176 132,407 308,711
Losses on property, plant and equipment 5 2,103 1,615 4,446
Share based payments 285 194 389
Operating special items 7 79 13 2,501
Non-operating special items 7 - - 8,525
Depreciation and amortisation 5 22,295 25,690 50,671
----------------------------------------- ------ --------------- ------------------------ -----------
Underlying EBITDA 286,938 159,919 375,243
----------------------------------------- ------ --------------- ------------------------ -----------
6 months ended Year ended
US$000 Notes 30.06.17 6 months ended 30.06.16 31.12.16
(unaudited) (unaudited) (audited)
Revenue 4 591,049 457,921 986,325
Cost of sales 5 (189,504) (192,059) (400,333)
Gross profit 401,545 265,867 585,992
--------------- ------ --------------- ------------------------ -----------
Net debt
Net debt as defined by the Group comprises cash and cash equivalents less interest bearing loans and borrowings.
US$000 Notes As at 30.06.17 As at 31.12.16 As at 30.06.16
(unaudited) (audited) (unaudited)
Cash and cash equivalents 14 92,645 144,751 44,440
Interest bearing loans and borrowings - current 15 (345,049) (228,061) (194,770)
Interest bearing loans and borrowings - non-current 15 (228,853) (505,641) (602,341)
----------------------------------------------------- ------ --------------- --------------- ---------------
Net debt (481,257) (588,951) (752,671)
----------------------------------------------------- ------ --------------- --------------- ---------------
The Group's balance of cash and cash equivalents decreased by US$52,106 thousand after debt repayments of US$162,507 thousand during the period ended 30 June 2017 (31 December 2016: US$195,918 thousand; 30 June 2016: US$119,775 thousand).
Note 4: Revenue
Revenue for the six months period ended 30 June 2017 consisted of the following:
6 months ended Year ended
US$000 30.06.17 6 months ended 30.06.16 31.12.16
(unaudited) (unaudited) (audited)
Revenue from sales of ore pellets and concentrate:
Export 562,757 428,552 921,861
------------------------------------------------------------ --------------- ------------------------ -----------
Total revenue from sale of iron ore pellets and concentrate 562,757 428,552 921,861
------------------------------------------------------------ --------------- ------------------------ -----------
Revenue from logistics and bunker business 26,956 27,834 61,207
Revenue from other sales and services provided 1,336 1,535 3,257
Total revenue 591,049 457,921 986,325
------------------------------------------------------------ --------------- ------------------------ -----------
Export sales of iron ore pellets and concentrate by geographical destination were as follows:
6 months ended Year ended
US$'000 30.06.17 6 months ended 30.06.16 31.12.16
(unaudited) (unaudited) (audited)
Central Europe 289,714 182,636 425,079
Western Europe 92,742 79,443 153,932
North East Asia 120,162 60,224 155,443
China and South East Asia 23,123 81,933 129,391
Turkey, Middle East and India 37,016 24,316 58,016
Total export revenue 562,757 428,552 921,861
-------------------------------- --------------- ------------------------ -----------
The Group markets its products across various regions. The disclosure of the segmentation reflects how the Group makes its business decisions and monitors its sales.
Information about the composition of the regions is provided in the Glossary.
Note 5: Operating expenses before special items
Operating expenses for the six months period ended 30 June 2017 consisted of the following:
6 months ended Year ended
US$000 30.06.17 6 months ended 30.06.16 31.12.16
(unaudited) (unaudited) (audited)
Cost of sales 189,504 192,059 400,333
Selling and distribution expenses 100,176 101,251 209,530
General and administrative expenses 19,542 18,185 38,647
Other operating expenses 18,795 19,060 38,550
Total operating expenses 328,017 330,555 687,060
-------------------------------------- --------------- ------------------------ -----------
Operating expenses include:
Employee costs 25,420 21,069 44,119 Inventory movements (8,621) 7,422 11,311 Depreciation of property, plant and equipment 3 22,100 25,459 50,233 Amortisation of intangible assets 3 195 231 438 Royalties and levies 9,794 8,760 15,294 Costs of logistics and bunker business 25,219 24,614 55,363 Audit and non-audit services 1,020 939 1,651 Community support donations 14,085 13,874 27,519 Losses on disposal of property, plant and equipment 2,103 1,615 4,448
Special items not included in the operating expenses are shown in Note 7.
Note 6: Foreign exchange gains and losses
Foreign exchange gains and losses for the six months period ended 30 June 2017 consisted of the following:
6 months ended Year ended
US$000 30.06.17 6 months ended 30.06.16 31.12.16
(unaudited) (unaudited) (audited)
Operating foreign exchange (losses)/gains
Revaluation of trade receivables (5,098) 2,287 14,240
Revaluation of trade payables (48) (163) (388)
Others (13) (5) (20)
------------------------------------------------------ --------------- ------------------------ -----------
Total operating foreign exchange (losses)/gains (5,159) 2,119 13,832
------------------------------------------------------ --------------- ------------------------ -----------
Non-operating foreign exchange gains/(losses)
Revaluation of interest-bearing loans 9,459 (2,203) (11,577)
Conversion of cash and cash equivalents (1,997) (102) (578)
Others (879) (234) 1,844
------------------------------------------------------ --------------- ------------------------ -----------
Total non-operating foreign exchange gains/(losses) 6,583 (2,539) (10,311)
------------------------------------------------------ --------------- ------------------------ -----------
Total foreign exchange gains/(losses) 1,424 (420) 3,521
------------------------------------------------------ --------------- ------------------------ -----------
Operating foreign exchange gains and losses are those items that are directly related to the production and sale of pellets (e.g. trade receivables, trade payables on operating expenditure). Non-operating gains and losses are those associated with the Group's financing and treasury activities and with local income tax payables.
The translation differences and foreign exchange gains and losses are predominantly depended on the fluctuation of the exchange rate of the Ukrainian Hryvnia against the US Dollar. The table below show shows the closing and average rate of the most relevant currencies of the Group compared to the US Dollar.
Average exchange rate Closing exchange rate
--------------------------------------------- ----------------------------------
US$ 6 months ended 6 months ended Year ended As at As at As at
30.06.17 30.06.16 31.12.16 30.06.17 31.12.16 30.06.16
UAH 26.762 25.466 25.551 26.099 27.191 24.854
EUR 0.9245 0.896 0.903 0.8764 0.956 0.902
----- --------------- --------------- ----------- ---------- ---------- ----------
Exchange differences arising on translation of non-USD functional currency operations (mainly in Ukrainian Hryvnia) are included in the translation reserve. See Note 18 for further details.
Note 7: Special items
Special items for the six months period ended 30 June 2017 consisted of the following:
Note 6 months ended Year ended
US$000 30.06.17 6 months ended 30.06.16 31.12.16
(unaudited) (unaudited) (audited)
Operating special items
Write-offs and impairment losses (79) 13 2,501
Total operating special items (79) 13 2,501
----------------------------------------------- ------ --------------- ------------------------ -----------
Non-operating special items
Allowance for restricted cash 17 - - 8,525
Total non-operating special items - - 8,525
----------------------------------------------- ------ --------------- ------------------------ -----------
Total special items before related tax effect (79) 13 11,026
----------------------------------------------- ------ --------------- ------------------------ -----------
Tax effect on special items - - (1,535)
----------------------------------------------- ------ --------------- ------------------------ -----------
Total special items after related tax effect (79) 13 9,491
----------------------------------------------- ------ --------------- ------------------------ -----------
Special tax items 9 3,426 - -
----------------------------------------------- ------ --------------- ------------------------ -----------
Special items are those items of financial performance that, due to their size and nature, the Group believes should be separately disclosed on the face of the income statement. These items are excluded from Underlying EBITDA, which is an Alternative Performance Measure (APM). Further information on the APMs used by the Group, including the definitions, is provided
-- Operating special items are those that relate to the operating performance of the Group and principally include write-offs and impairment losses and restructuring charges, if any.
-- Non-operating special items are items relating to changes in the Group's asset portfolio. In 2016, a non-operating special item arose in relation to the insolvency of the Group's transactional bank in Ukraine. See Note 17 for further details.
-- Tax special items are significant non-recurring tax items. Further details are provided in Note 9.
Note 8: Net finance expense
Net finance expense for the period ended 30 June 2017 consisted of the following:
6 months ended Year ended
US$000 30.06.17 6 months ended 30.06.16 31.12.16
(unaudited) (unaudited) (audited)
Finance expense
Interest expense on financial liabilities measured at
amortised cost (24,571) (28,172) (54,255)
Less capitalised borrowing costs 2,580 2,489 5,269
Interest on defined benefit plans (1,039) (1,093) (2,197)
Bank charges (4,690) (5,952) (11,372)
Other finance costs (268) (5,256) (4,622)
------------------------------------------------------------ --------------- ------------------------ -----------
Total finance expense (27,988) (37,984) (67,177)
------------------------------------------------------------ --------------- ------------------------ -----------
Finance income
Interest income 184 90 175
------------------------------------------------------------ --------------- ------------------------ -----------
Total finance income 184 90 175
------------------------------------------------------------ --------------- ------------------------ -----------
Net finance expense (27,804) (37,894) (67,002)
------------------------------------------------------------ --------------- ------------------------ -----------
Fees related to the Group's refinancing activities totalling US$5,230 thousand and US$4,554 thousand were included in other finance costs respectively in the comparative periods 30 June 2016 and 31 December 2016. No such fees for the period ended 30 June 2017.
Note 9: Taxation
The Group pays corporate profit tax in a number of jurisdictions and its tax rate is influenced by the mix of profits primarily between Ukraine, Switzerland, the United Kingdom and Dubai, as well as the level of non-deductible expenses for tax purposes in each of these jurisdictions. For the period ended 30 June 2017, the income tax expense was based on an expected weighted average tax rate before special items of 11.9% for the financial year 2017, compared to an effective tax rate before special items of 18.0% for the financial year 2016. The lower expected tax rate in the reporting period is driven by the capitalisation of available tax loss carry forwards for one of the Ukrainian subsidiaries, which became profitable during the financial year 2017.
As shown in Note 7, special tax items totalling US$3,426 thousand were recorded in the period ended 30 June 2017 (30 June 2016: nil; 31 December 2016: nil), which is the net effect from the following two events:
-- Capitalisation of a deferred tax asset from available tax loss carry forwards and temporary differences totalling US$28,822 thousand for an Ukrainian subsidiary, which become profitable in 2017 and is expected to be profitable in the future periods. It is expected that the available tax loss carry forwards will be used within the next two years to offset with taxable profits.
-- Considering the latest developments of ongoing court proceedings in Ukraine, the Group de-recognised a deferred tax asset of US$25,396 thousand, which was recognised in 2015 in respect of the allowance recorded on restricted cash and deposit balances as a result of the insolvency of the Group's transactional bank in Ukraine. See Note 17 for further information.
During the financial years 2013, 2014 and 2015, current VAT receivable balances in Ukraine were mainly recovered in exchange for prepayments of corporate profit tax. The Group received refunds of prepaid corporate profit tax totalling US$26,926 thousand during the second half of the financial year 2016 in respect of taxes prepaid by Ferrexpo Poltava Mining ("FPM") resulting in a reduction of the total balance in Ukraine to US$16,246 thousand as at 31 December 2016 (30 June 2016: US$52,616 thousand). As it was management's view that FPM's remaining balance will be offset with future profits, the amount of US$10,616 thousand was classified as current whereas US$5,630 thousand related to two other Ukrainian subsidiaries were classified as non-current reflecting the expected timing of the recovery.
Year ended
US$000 6 months ended 30.06.17 31.12.16 6 months ended 30.06.16
(unaudited) (audited) (unaudited)
Income tax receivable balance - current 142 10,757 16,826
Income tax receivable balance - non-current 5,866 5,630 36,522
Income tax payable balance (22,698) (11,780) (8,784)
---------------------------------------------- ------------------------ ----------- ------------------------
Net income tax receivable (16,690) 4,607 44,564
---------------------------------------------- ------------------------ ----------- ------------------------
As at 30 June 2017, the remaining balance of FPM's prepaid corporate profit tax was fully offset with taxable profits of the six month period ended at this date.
Note 10: Earnings per share and dividends paid and proposed
Basic EPS is calculated by dividing the net profit for the period attributable to ordinary equity shareholders of Ferrexpo plc by the weighted average number of Ordinary Shares.
Diluted earnings per share are calculated by adjusting the weighted average number of Ordinary Shares in issue on the assumption of conversion of all potentially dilutive Ordinary Shares. All share awards are potentially dilutive and have been considered in the calculation of diluted earnings per share.
6 months ended 30.06.17 6 months ended 30.06.16 Year ended 31.12.16
Before special items Special items (unaudited) Before special items Special items (unaudited) Before special items Special items (audited)
Earnings/(loss)
for the
period/year
attributable to
equity
shareholders per
share
Basic (US cents) 36.11 0.61 36.72 13.17 - 13.17 33.60 (1.60) 32.00
Diluted (US cents) 35.99 0.61 36.60 13.14 - 13.14 33.51 (1.60) 31.91
----------------------- --------------------- -------------- ------------------------ --------------------- -------------- ------------------------ --------------------- -------------- --------------------
The calculation of the basic and diluted earnings per share is based on the following data:
Year ended
Thousands 6 months ended 30.06.17 31.12.16 6 months ended 30.06.16
(unaudited) (audited) (unaudited)
Weighted average number of shares
Basic number of ordinary shares outstanding 585,641 585,503 585,462
Effect of dilutive potential ordinary shares 2,033 1,713 1,646
------------------------------------------------ ------------------------ ----------- ------------------------
Diluted number of ordinary shares outstanding 587,674 587,216 587,108
------------------------------------------------ ------------------------ ----------- ------------------------
The basic number of ordinary shares is calculated by subtracting the shares held in treasury from the total number of ordinary shares in issue.
Dividends
6 months ended Year ended
US$000 30.06.17 6 months ended 30.06.16 31.12.16
(unaudited) (unaudited) (audited)
Dividend proposed per Ordinary Share
Interim dividend for 2017: 3.3 US cents per Ordinary 19,328 - -
Share
Final dividend for 2016: 3.3 US cents per Ordinary Share - - 19,325
Special dividend for 2016: 3.3 US cents per Ordinary
Share - - 19,325
Total dividends proposed - - 38,650
---------------------------------------------------------- ---------------- ------------------------ -----------
6 months ended Year ended
US$000 30.06.17 6 months ended 30.06.16 31.12.16
(unaudited) (unaudited) (audited)
Dividend Paid per Ordinary Share
Final dividend for 2016: 3.3 US cents per Ordinary Share 19,679 - -
Special dividend for 2016: 3.3 US cents per Ordinary Share 19,371 - -
Total dividends paid during the period 39,050 - -
----------------------------------------------------------- --------------- ------------------------ -----------
No dividends were paid during the financial year 2016.
Note 11: Property, plant and equipment
During the six months period ended 30 June 2017, the Group acquired property, plant and equipment with a cost of US$45,539 thousand (30 June 2016: US$15,811 thousand; 31 December 2016: US$64,699 thousand) and disposed of property, plant and equipment at net book values of US$1,635 thousand (30 June 2016: US$3,698 thousand; 31 December 2016: US$12,164 thousand). The total depreciation charge for the period was US$26,863 thousand (30 June 2016: US$29,825 thousand; 31 December 2016: US$58,913 thousand).
The carrying value of property, plant and equipment includes capitalised borrowing costs on qualifying assets of US$17,698 thousand (31 December 2016: US$15,454 thousand; 30 June 2016: US$14,332 thousand).
Note 12: Other taxes recoverable and prepaid
As at 30 June 2017 taxes recoverable and prepaid comprised:
US$000 As at 30.06.17 As at 31.12.16 As at 30.06.16
(unaudited) (audited) (unaudited)
VAT receivable 21,290 21,303 34,372
Other taxes prepaid 131 86 111
-------------------------------------------- --------------- --------------- ---------------
Total other taxes recoverable and prepaid 21,421 21,389 34,483
-------------------------------------------- --------------- --------------- ---------------
As at 30 June 2017, US$19,673 thousand of the VAT receivable relates to the Group's Ukrainian business operations (31 December 2016: US$20,565 thousand; 30 June 2016: US$32,607 thousand) of which US$109 thousand (31 December 2016: US$427 thousand; 30 June 2016: US$8,594 thousand) was overdue. Management is of the opinion that the overdue balances will be recovered during the next 12 months in full.
The total VAT receivable balance shown in the table above is net of an allowance of US$1,052 thousand (31 December 2016: US$891 thousand; 30 June 2016: US$1,001 thousand) to reflect the uncertainties in terms of the recovery of VAT receivable balances related to one of the Ukrainian subsidiaries with its mine still being developed. Note 17 provides information on an ongoing court proceeding related to a VAT balance refunded by the Ukrainian tax authorities in 2015.
Note 13: Inventories
As at 30 June 2017 inventories comprised:
US$000 As at 30.06.17 As at 31.12.16 As at 30.06.16
(unaudited) (audited) (unaudited)
Raw materials and consumables 32,338 26,847 25,502
Spare parts 43,147 35,603 55,434
Finished ore pellets 20,119 12,408 15,843
Work in progress 4,064 2,522 2,508
Other 1,762 1,555 1,512
------------------------------------ --------------- --------------- ---------------
Total inventories - current 101,430 78,935 100,799
------------------------------------ --------------- --------------- ---------------
Raw materials and consumables 162,740 130,357 117,773
------------------------------------ --------------- --------------- ---------------
Total inventories - non - current 162,740 130,357 117,773
------------------------------------ --------------- --------------- ---------------
Total inventories 264,170 209,292 218,572
------------------------------------ --------------- --------------- ---------------
Inventories are held at the lower of cost or net realisable value.
Inventories classified as non-current comprise lean and weathered ore stockpiles that are, based on the Group's current processing plans, not planned to be processed within the next year. It is the Group's intention to process this ore at a later point of time and it is expected that it will take more than one year to process this stockpile, depending on the Group's future mining activities, processing capabilities and anticipated market conditions.
Note 14: Cash and cash equivalents
As at 30 June 2017 cash and cash equivalents comprised:
US$000 Notes As at 30.06.17 As at 31.12.16 As at 30.06.16
(unaudited) (audited) (unaudited)
Cash at bank and on hand 92,645 144,751 44,440
Total cash and cash equivalents 3 92,645 144,751 44,440
--------------------------------- ------ --------------- --------------- ---------------
The debt repayments during the period ended 30 June 2017 totalled US$162,507 thousand (30 June 2016: US$119,775 thousand) affecting the balance of cash and cash equivalents. Further information on the Group's gross debt is provided in Note 15.
The balance of cash and cash equivalents held in Ukraine amounts to US$13,593 thousand as at 30 June 2017 (31 December 2016: US$40,787 thousand; 30 June 2016: US$12,447 thousand).
The Group's exposure to liquidity, counterparty and interest rate risk as well as a sensitivity analysis for financial assets and liabilities are disclosed in Note 31 of the Annual Report and Accounts 2016.
Note 17 provides details on the Group's balance of restricted cash and deposits which has been fully provided for as currently not available to the Group.
Note 15: Interest bearing loans and borrowings
This note provides information about the contractual terms of the Group's interest bearing loans and borrowings, which are measured at amortised cost and denominated in US Dollars.
US$000 Notes As at 30.06.17 As at 31.12.16 As at 30.06.16
(unaudited) (audited) (unaudited)
Current
Eurobond issued 169,987 - -
Syndicated bank loans - secured 135,000 175,000 148,750
Other bank loans - secured 17,660 18,309 21,803
Other bank loans - unsecured 1,494 1,495 345
Obligations under finance leases 3,817 3,684 3,550
Trade finance facilities 7,492 19,025 9,306
Interest accrued 9,599 10,548 11,016
--------------------------------------------------------- ------ --------------- --------------- ---------------
Total current interest bearing loans and borrowings 3 345,049 228,061 194,770
--------------------------------------------------------- ------ --------------- --------------- ---------------
Non-current
Eurobond issued 169,987 337,685 335,530
Syndicated bank loans - secured 33,750 131,250 218,750
Other bank loans - secured 16,502 25,434 35,304
Other bank loans - unsecured 4,499 5,246 4,864
Obligations under finance leases 4,115 6,026 7,893
--------------------------------------------------------- ------ --------------- --------------- ---------------
Total non-current interest bearing loans and borrowings 3 228,853 505,641 602,341
--------------------------------------------------------- ------ --------------- --------------- ---------------
Total interest bearing loans and borrowings 573,902 733,702 797,111
--------------------------------------------------------- ------ --------------- --------------- ---------------
The Group has a revolving syndicated US$350 million pre-export finance facility, of which US$218,750 million is available and US$168,750 thousand drawn as at 30 June 2017 (31 December 2016; US$306,250 thousand; 30 June 2016: US$350,000 thousand). The amortisation of this facility commenced in November 2016 with eight quarterly commitment reductions of US$43,750 thousand to the final maturity date of 8 August 2018.
As at 30 June 2017 the major bank debt facilities were guaranteed and secured as follows:
-- Ferrexpo AG assigned the rights to revenue from certain sales contracts;
-- PJSC Ferrexpo Poltava Mining assigned all of its rights of certain export contracts for the pellets sales to Ferrexpo AG; and
-- the Group pledged bank accounts of Ferrexpo AG and Ferrexpo Middle East FZE into which sales proceeds from certain assigned sales contracts are exclusively received.
In addition to the major bank debt facility listed above, the Group has outstanding unsecured Notes at par value totalling US$346,385 thousand as at 30 June 2017 which fall due in two equal instalments of US$173,193 thousand on 7 April 2018 and 2019, respectively. The Notes have a 10.375% interest coupon payable semi-annually.
As at 30 June 2017, the Group has open trade finance facilities in the amount of US$7,492 thousand (31 December 2016: US$19,025 thousand; 30 June 2016: US$9,306 thousand), which are secured against receivables related to these specific trades.
All facilities are shown net of associated arrangement fees, except for the revolving syndicated pre-export finance facility, for which the fees are presented in prepayments and current assets and other non-current assets based on the maturity of the underlying facility and are amortised over the term of the facility.
Further information on the Group's exposure to interest rate, foreign currency and liquidity risk is provided in Note 31 of the Annual Report and Accounts 2016.
Note 16: Financial instruments
Fair values
Set out below are the carrying amounts and fair values of the Group's financial instruments that are carried in the interim consolidated statement of financial position:
Carrying amount Fair Value
------------------------------------------------- -------------------------------------------------
As at 30.06.17 As at 31.12.16 As at 30.06.16 As at 30.06.17 As at 31.12.16 As at 30.06.16
US$000 (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited)
Financial
assets
Cash and cash
equivalents 92,645 144,751 44,440 92,645 144,751 44,440
Restricted cash
and deposits - - 8,988 - - 8,988
Trade and other
receivables 80,539 81,745 66,258 80,539 81,745 66,258
Other financial
assets 516 9,700 8,107 516 9,700 8,107
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total financial
assets 173,700 236,196 127,793 173,700 236,196 127,793
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Financial
liabilities
Trade and other
payables 34,048 28,807 27,364 34,048 28,807 27,364
Accrued
liabilities 15,221 12,540 18,411 15,219 12,540 18,411
Interest
bearing loans
and borrowings 573,902 733,702 797,111 599,481 743,888 743,667
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total financial
liabilities 623,171 775,049 842,866 648,748 785,235 789,442
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Interest bearing loans and borrowings
The fair values of interest-bearing loans and borrowings are based on the discounted cash flows using market interest rates except for the fair value of the Eurobond issued, which is based on the market price quotation at the reporting date.
Other financial assets
The fair values of cash and cash equivalents, trade and other receivables and payables, restricted cash and deposits, other financial assets and accrued liabilities are approximately equal to their carrying amounts due to their short maturity.
The carrying amount and fair value of restricted cash and deposits is shown net of an allowance for cash and deposits held at Bank F&C, which are currently not available to the Group. See Note 17 for further information.
Note 17: Commitments and contingencies
Commitments
US$000 As at 30.06.17 As at 31.12.16 As at 30.06.16
(unaudited) (audited) (audited)
Operating lease commitments 47,927 46,779 42,150
Capital commitments on purchase of PPE 32,403 24,665 27,330
----------------------------------------- --------------- --------------- ---------------
Legal
In the ordinary course of business, the Group is subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition or the results of future operations of the Group.
Deposit Guarantee Fund and Liquidator of Bank F&C
The Group's transactional bank in Ukraine, Bank F&C ("BFC"), is currently going through the liquidation process after having been declared insolvent by the National Bank of Ukraine and put under temporary administration on 18 September 2015. The Group has recorded in previous periods a full allowance for its in Ukrainian Hryvnia denominated cash and deposit balances held with BFC on the date of introduction of temporary administration, totalling UAH4,265 million (US$163,420 thousand) as at 30 June 2017 (31 December 2016: US$156,866 thousand; 30 June 2016: US$162,632 thousand). The Group through its major subsidiaries in Ukraine is engaged in various court proceedings to maximise its recovery during the liquidation process of BFC.
The Group's principal subsidiary, PJSC Ferrexpo Poltava Mining ("FPM") is claiming the release of UAH217 million (US$8,322 thousand as of 30 June 2017), which was blocked after the introduction of the temporary administration of BFC on 18 September 2015. FPM has filed a cassation appeal in respect of an earlier adverse judgement received from the court and no date for the next hearing has been set yet.
Following the commencement of the liquidation process of BFC and in accordance with the applicable local legislation, FPM, LLC Ferrexpo Yeristovo Mining GOK ("FYM") and LLC Ferrexpo Belanovo Mining GOK ("FBM"), collectively referred to as "Ukrainian subsidiaries", submitted on 21 January 2016 their claims for cash and deposit balances held with BFC on the date of introduction of temporary administration totalling UAH4,262 million (US$163,194 thousand as of 30 June 2017).
On 22 April 2016, the liquidator of BFC issued certificates recognising UAH540 million (US$20,690 thousand as of 30 June 2017) of these claims and recognised these claims in the ninth rank. The afore-mentioned Ukrainian subsidiaries are currently involved in legal proceedings in respect of the under-recognition of the claims amounting to UAH 3,722 million (US$142,504 thousand as of 30 June 2017) and the ranking of the total claim in the liquidation process. The court proceedings commenced in October 2016 and following various hearings in the first half of the financial year 2017, all claims are currently stayed awaiting as the courts requested the examination of the records of BFC by an independent expert.
Tax and other regulatory compliance
Ukrainian legislation and regulations regarding taxation and customs continue to evolve. Legislation and regulations are not always clearly written and are subject to varying interpretations and inconsistent enforcement by local, regional and national authorities, and other governmental bodies. Instances of inconsistent interpretations are not unusual. The uncertainty of application and the evolution of Ukrainian tax laws, including those affecting cross-border transactions, create a risk of additional tax payments having to be made by the Group, which could have a material effect on the Group's financial position and results of operations. This includes the transfer pricing law, which continues to evolve to increase the power of the tax authorities. The Group does not believe that these risks are any more significant than those of similar enterprises in Ukraine.
Ukrainian withholding tax claims
Following a tax audit at PJSC Ferrexpo Poltava Mining ("FPM") claims were made by the Ukrainian tax authorities in relation to allegedly unpaid withholding tax totalling US$6,296 thousand (UAH170 million) and associated fines and penalties of US$1,555 thousand (UAH42 million) in respect of interest paid to a subsidiary of the Group in the United Kingdom in 2013 and 2014. Following the audits for afore mentioned years, the Ukrainian tax authorities also initiated tax audits for the years 2015 and 2016.
The management of the Group expects to continue to successfully defend any claims made by the tax authorities in the Ukrainian courts. Consequently, no provision has been made for the claimed withholding tax and associated fines and penalties as at 30 June 2017.
Ukrainian VAT
VAT amounting to US$3,141 thousand as at 30 June 2017, which was refunded by the Ukrainian tax authorities in 2015 is in the process of being considered by the Ukrainian court system. The Group expects to receive also a positive court decision from the third court instance and as a consequent, no liability has been recorded for the amount in the court. As of 30 June 2017, no recoverable VAT balances are in dispute and being heard in the court (31 December 2016: US$595 thousand; 30 June 2016: nil).
Note 18: Share capital and other reserves
The share capital of Ferrexpo plc at 30 June 2017 was 613,967,956 (31 December 2016: 613,967,956; 30 June 2016: 613,967,956) Ordinary Shares at par value of GBP0.10 paid for cash, resulting in share capital of US$121,628 thousand, which is unchanged since the Group's Initial Public Offering in June 2007. This balance includes 25,343,814 shares (31 December 2016: 25,343,814 shares; 30 June 2016: 25,343,814 shares), which are held in treasury, resulting from a share buyback that was undertaken in September 2008, and 2,916,419 shares held in the employee benefit trust reserve (31 December 2016: 3,024,899 shares; 30 June 2016:3,192,399 shares).
The translation reserve includes the effect from the exchange differences arising on translation of non-US Dollar functional currency operations (mainly in Ukrainian Hryvnia). The exchange differences arising on translation of the Group's foreign operations are initially recognised in the other comprehensive income. See also the Interim Consolidated Statement of Comprehensive Income of these financial statements for further details.
As at 30 June 2017 other reserves attributable to equity shareholders of Ferrexpo plc comprised:
For the financial
year 2016 and the
6 months ended
30.06.17
Uniting of Treasury share Employee Benefit Translation Total other
US$000 interest reserve reserve Trust reserve reserve reserves
At 1 January 2016 31,780 (77,260) (5,497) (1,825,647) (1,876,624)
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Foreign currency
translation
differences - - - (125,130) (125,130)
Tax effect - - - 16,607 16,607
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Total
comprehensive
loss for the year - - - (108,523) (108,523)
Share based
payments - - 389 - 389
------------------- ------------------- ------------------- ------------------ ------------------- --------------
At 31 December
2016 (audited) 31,780 (77,260) (5,108) (1,934,170) (1,984,758)
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Foreign currency
translation
differences - - - 37,974 37,974
Tax effect - - - (6,015) (6,015)
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Total
comprehensive
income/(loss) for
the period - - - 31,959 31,959
Share based
payments - - 285 - 285
------------------- ------------------- ------------------- ------------------ ------------------- --------------
At 30 June 2017
(unaudited) 31,780 (77,260) (4,823) (1,902,211) (1,952,514)
------------------- ------------------- ------------------- ------------------ ------------------- --------------
For the 6 months ended
30.06.16
Treasury Total
Uniting of interest Share Employee Benefit Trust Translation other
US$000 reserve reserve reserve reserve reserves
At 1 January 2016 31,780 (77,260) (5,497) (1,825,647) (1,876,624)
------------------------- ------------------------- --------- ------------------------- ------------ ------------
Foreign currency
translation differences - - - (32,336) (32,336)
Tax effect - - - 4,501 4,501
------------------------- ------------------------- --------- ------------------------- ------------ ------------
Total comprehensive loss
for the period - - - (27,835) (27,835)
Share based payments - - 194 - 194
------------------------- ------------------------- --------- ------------------------- ------------ ------------
At 30 June 2016
(unaudited) 31,780 (77,260) (5,303) (1,853,482) (1,904,265)
------------------------- ------------------------- --------- ------------------------- ------------ ------------
Note 19: Related party disclosure
During the periods presented the Group entered into arm's length transactions with entities under the common control of the majority owner of the Group, Kostyantin Zhevago and with associated companies and with other related parties. Management considers that the Group has appropriate procedures in place to identify and properly disclose transactions with the related parties.
Entities under common control are those under the control of Kostyantin Zhevago. Associated companies refer to TIS Ruda LLC, in which the Group holds an interest of 49.4%. This is the only associated company of the Group. Other related parties are principally those entities controlled by Anatoly Trefilov who re-signed as member of the supervisory board of PJSC Ferrexpo Poltava Mining as of 19 April 2017. In accordance with the Listing Rules, all transactions with the entities controlled by Anatoly Trefilov within one year of his resignation from the supervisory board will be still considered as related party transactions and disclosed as such.
All related party transactions entered into by the Group during the periods presented are summarised in the tables
Revenue, expenses, finance income and finance expenses
6 months ended 30.06.17 (unaudited) 6 months ended 30.06.16 Year ended 31.12.16
(unaudited) (audited)
----------------------------------------------- ------------------------------------------ ----------------------------------------
Entities Asso-ciated Other related parties Entities Asso- Other related parties Entities Asso- Other related
under compa- nies under ciated under ciated parties
common common compa- common compa-
US$000 control control nies control nies
Sales of
pellets (a) - - - 1,975 - - 1,975 - -
Other sales 136 - 75 120 - 36 234 - 143
---------------- --------- ------------ ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Total related
party
transactions
within revenue 136 - 75 2,095 - 36 2,209 - 143
---------------- --------- ------------ ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Materials (b) 3,533 - 4 3,119 - 4 6,954 - 8
Spare parts and
consumables
(c) 802 - - 715 - - 1,251 - -
Gas (d) - - - 4,297 - - 4,297 - -
---------------- --------- ------------ ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Total related
parties
transactions
within cost of
sales 4,335 - 4 8,131 - 4 12,502 - 8
---------------- --------- ------------ ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Selling and
distribution
expenses (e) 5,492 8,943 644 5,384 10,710 436 10,766 19,803 1,507
General and
administration
expenses (f) 284 - 267 345 - 317 673 - 92
Allowance for
restricted cash
and deposits
(g) - - - - - - 8,524 - -
---------------- --------- ------------ ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Total related
parties
transactions
within
expenses 10,111 8,943 915 13,860 10,710 757 32,465 19,803 1,607
---------------- --------- ------------ ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Finance
expenses 17 - - (22) - - (38) - -
---------------- --------- ------------ ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Net related
party finance
income 17 - - (22) - - (38) - -
---------------- --------- ------------ ---------------------- --------- ------- ---------------------- --------- ------- --------------------
The Group entered into various related party transactions. A description of the most material transactions, which are in aggregate over US$200 thousand (on an expected annualised basis) in the current or comparative periods is given below. All transactions were carried out on an arm's length basis in the normal course of business.
Entities under common control
a Spot sales of pellets in the amount of US$1,975 thousand as of 30 June 2016 to VA Intertrading AG (31 December 2016: US$1,975 thousand). No such sales as of 30 June 2017.
b Purchases of compressed air, oxygen and metal scrap from Kislorod PCC for US$1,748 thousand (30 June 2016: US$1,543 thousand; 31 December 2016: US$3,587 thousand);
b Purchases of cast iron balls from AutoKraZ Holding Co. for US$430 thousand (30 June 2016: US$495 thousand; 31 December 2016: US$1,269 thousand); and
b Purchases of cast iron balls from OJSC Uzhgorodsky Turbogas for US1,237 thousand (30 June 2016: US$976 thousand; 31 December 2016: US$2,063 thousand).
c Purchases of spare parts from CJSC Kyiv Shipbuilding and Ship Repair Plant ("KSRSSZ") in the amount of US$96 thousand (30 June 2016: US$190 thousand; 31 December 2016: US$410 thousand);
c Purchases of spare parts from Valsa GTV of US$500 thousand (30 June 2016: US$250 thousand; 31 December 2016: US$486 thousand); and
d Procurement of gas for US$4,297 thousand from OJSC Ukrzakordongeologia as of 30 June 2016 (31 December 2016: US$4, 297 thousand). No such transaction as at 30 June 2017.
e Purchases of advertisement, marketing and general public relations services from FC Vorskla of US$5,492 thousand (30 June 2016: US$5,384 thousand; 31 December 2016: US$10,766 thousand).
f Insurance premiums of US$188 thousand (30 June 2016: US$185 thousand; 31 December 2016: US$385 thousand) paid to ASK Omega for workmen's insurance and other insurances; and
g The Group recorded during the financial year 2016 an allowance for its cash and deposits held at Bank F&C resulting in a charge of US$8,524 thousand as a result of the latest developments of the ongoing court case (see also Note 14 and Note 17).
Associated companies
e Purchases of logistics services in the amount of US$8,943 thousand (30 June 2016: US$10,710 thousand; 31 December 2016: US$19,803 thousand) relating to port operations, including port charges, handling costs, agent commissions and storage costs.
Other related parties
e Purchases of logistics management services from Slavutich Ruda Ltd. relating to customs clearance services and the coordination of rail transit totalling US$644 thousand (30 June 2016: US$436 thousand; 31 December 2016: US$1,502 thousand).
f Consulting fees totalling US$256 thousand as at 31 December 2016 paid to David L. Frauman, who was appointed as Board member on 26 October 2015 and retired from the Board on 10 March 2016. The Group entered into the agreement with David L. Frauman when he was appointed as a member of the Board and this agreement was cancelled at the time of his retirement from the Board; and).
f Legal services in the amount of US$216 thousand (30 June 2016: nil; 31 December 2016: nil) provided by Kuoni Attorneys at law Ltd., which is controlled by a former member of the Board of Directors of Ferrexpo plc who resigned in November 2016, but still acts a s member of the Board of Directors of one of the subsidiaries of the Group.
Purchases of property, plant, equipment and investments
The table below details the transactions of a capital nature which were undertaken between Group companies and entities under common control, associated companies and other related parties during the periods presented.
6 months ended 30.06.17 (unaudited) 6 months ended 30.06.16 Year ended 31.12.16 (audited)
(unaudited)
------------------------------------- --------------------------------- -------------------------------
Entities Asso-ciated Other Entities Asso- Other Entities Asso- Other
under compa-nies related under ciated related under ciated related
common parties common compa- parties common compa- parties
US$000 control control nies control nies
Purchases
in the
ordinary
course of
business 63 - - 27 - - 37 - 1
----------- --------- ------------ ------------ --------- -------- ------------ --------- -------- ---------- Total purchases of property, plant and equipment 63 - - 27 - - 37 - 1 ----------- --------- ------------ ------------ --------- -------- ------------ --------- -------- ----------
There were no individual transactions which are exceeding US$200 thousand in the current period or comparative periods.
Balances with related parties
The outstanding balances, as a result of transactions with related parties, for the periods presented are shown in the table below:
6 months ended 30.06.17 (unaudited) Year ended 31.12.16 (audited) 6 months ended 30.06.16
(unaudited)
------------------------------------- ------------------------------ --------------------------------
Entities Asso-ciated Other Entities Asso- Other Entities Asso- Other
under compa-nies related under ciated related under ciated related
common parties common compa- parties common compa- parties
US$000 control control nies control nies
Investments
available-for-sale - - - - - - 5 - -
Prepayments for
property, plant and
equipment - - - - - - 28 - -
-------------------- --------- ------------ ------------ --------- ------- ---------- --------- ------- ------------
Total non-current
assets - - - - - - 33 - -
-------------------- --------- ------------ ------------ --------- ------- ---------- --------- ------- ------------
Trade and other
receivables (h) 220 3,559 50 257 4,576 48 282 3,608 179
Prepayments and
other current
assets (i) 1,167 - - 282 - 201 186 - -
Total current
assets 1,387 3,559 50 539 4,576 249 468 3,608 179
-------------------- --------- ------------ ------------ --------- ------- ---------- --------- ------- ------------
Trade and other
payables (j) 598 1,081 207 456 1,331 267 636 1,469 60
-------------------- --------- ------------ ------------ --------- ------- ---------- --------- ------- ------------
Current liabilities 598 1,081 207 456 1,331 267 636 1,469 60
-------------------- --------- ------------ ------------ --------- ------- ---------- --------- ------- ------------
A description of the most material balances which are over US$200 thousand in the current or comparative periods is given below.
Entities under common control
i Prepayments and other current assets totalling US$858 thousand relate to prepayments made to FC Vorskla for advertisement, marketing and general public relations services (31 December 2016: nil; 30 June 2016: nil).
Associated companies
h Trade and other receivables included US$3,559 thousand (31 December 2016: US$4,576 thousand; 30 June 2016: US$3,608 thousand) for dividends receivable from TIS Ruda LLC.
j Trade and other payables included US$1,081 thousand (31 December 2016: US$1,331 thousand; 30 June 2016: US$1,469 thousand) related to purchases of logistics services from TIS Ruda LLC.
Other related parties
i Prepayments and other current assets at the end of the comparative period ended 31 December 2016 included US$201thousand included prepayments made to Slavutich Ruda Ltd. for distribution services. No such prepayment as of 30 June 2017 and 2016.
h Trade and other payables of US$67 thousand were in respect of distribution services provided by Slavutich Ruda Ltd (31 December 2016: US$267 thousand; 30 June 2016: US$49 thousand).
Note 20: Events after the reporting period
No material adjusting or non-adjusting events have occurred subsequent to the period.
Alternative Performance Measures ('APM')
When assessing and discussing the Group's reported financial performance, financial position and cash flows, management may make reference to Alternative Performance Measures ("APM") that are not defined or specified under International Financial Reporting Standards ("IFRS").
The APMs used by the Group fall into two categories:
Financial APMs: These financial measures are usually derived from information included in the financial statements, which are prepared in accordance with IFRS.
Non-financial APMs: These measures incorporate certain non-financial information which management believes is useful when assessing the performance of the Group.
APMs are not uniformly defined by all companies, including those in the Group's industry. Accordingly, the APMs used by the Group may not be comparable with similarly titled measures and disclosures made by other companies. APMs should be considered in addition to, and not as a substitute for or as superior to, measures of financial performance, financial position or cash flows reported in accordance with IFRS.
Financial APMs:
Underlying EBITDA The Group calculates the Underlying EBITDA as profit before tax and finance plus depreciation and amortisation and net gains and losses from disposal of investments and property, plant and equipment and share based payments and operating and non-operating special items, including write-offs and impairment losses and other non-recurring exceptional items. The Underlying EBITDA is presented because it is a useful measure for evaluating the Group's ability to generate cash and its operating performance. See Note 3 for further details.
Underlying EBITDA margin Underlying EBITDA (see definition above) as a percentage of revenue
Net debt Net debt as defined by the Group comprises cash and cash equivalents less interest-bearing loans and borrowings. It provides an indication of the degree of indebtedness of the Group. See Note 3 for further details.
Net debt to Underlying EBITDA Net debt divided by the Underlying EBITDA (for the last twelve months). The ratio is a measurement of the Group's leverage, calculated as a company's interest-bearing liabilities minus cash or cash equivalents, divided by its Underlying EBITDA.
Capital expenditure Capital expenditure is defined as sustaining and development cash expenditure on property, plant and
(capex) equipment as shown in the Group's statement of cash flows. It indicates the level of investment into the Group's asset base to maintain and develop its businesses.
Non-financial APMs:
Iron ore price The PLATTS 62% Fe CFR China price for iron ore fines is an important industry indicator of the overall level of demand for iron ore.
Sales volumes Indicate the level of demand for the Group's products.
Production of The Group reports production of its premium pellets which includes Ferrexpo Premium Pellets ("FPP"),
premium pellets containing 65% Fe, and Ferrexpo premium pellets plus "FPP+", containing 65% Fe with enhanced basicity and low temperature disintegration properties. Ferrexpo's strategy is to sell high quality pellets to its customer base. Thus the level of production of premium pellets is an important indicator of whether the Group is adhering to its strategy.
C1 cash cost Represents the cash costs of production of iron pellets from own ore divided by production volume of own
of production ore. Non-C1 cost components include non-cash costs such as depreciation, inventory movements and costs of purchased ore and concentrate. The Group presents the C1 cash cost of production because it believes it is a useful measure of its cost competitiveness compared to its peer group.
LTIFR Lost time injuries frequency rate "LTIFR" per million man hours worked across the Company's mining and processing operations in Ukraine and its barging subsidiary on the Danube River. The Group presents LTIFR because it believes that it is an important indicator of how safe the work environment is.
Glossary
Act The Companies Act 2006
AGM The Annual General Meeting of the Company
Alternative Performance Measures used by the Group when assessing and discussing
Measures (APM) its reported financial performance, financial position
and cash flows that are not defined or specified
under International Financial Reporting Standards
("IFRS"). The Group uses financial and non-financial
APMs.
Articles Articles of Association of the Company
Audit Committee The Audit Committee of the Company's Board
Belanovo or Belanovskoye An iron ore deposit located immediately to the north
of Yeristovo
Benchmark Price Platts 62% Fe iron ore fines price CFR China
Beneficiation Process A number of processes whereby the mineral is extracted
from the crude ore
BIP Business Improvement Programme, a programme of projects
to increase production output and efficiency at FPM
Board The Board of Directors of the Company
Bt Billion tonnes
Capesize Capesize vessels are typically above 150,000 tonnes
deadweight. Ships in this class include oil tankers,
supertankers and bulk carriers transporting coal,
ore, and other commodity raw materials. Standard
capesize vessels are able to transit through the
Suez Canal
Capital Employed The aggregate of equity attributable to shareholders,
non-controlling interests and borrowings
Central Europe This segmentation for the Group's sales includes
Austria, Czech Republic, Hungary and Serbia
CFR Delivery including cost and freight
C1 cash cost of production Represent the cash costs of production of iron pellets
from own ore, divided by production volume, from
own ore, and excludes non-cash costs such as depreciation,
pension costs and inventory movements, costs of purchased
ore, concentrate and production cost of gravel
China and South East This segmentation for the Group's sales includes
Asia China, Indonesia, Malaysia, Taiwan and Vietnam
CIF Delivery including cost, insurance and freight
CIS The Commonwealth of Independent States
Code The UK Corporate Governance Code
Company Ferrexpo plc, a public company incorporated in England
and Wales with limited liability
CPI Consumer Price Index
CSR Corporate Safety and Social Responsibility
CSR Committee The Corporate Safety and Social Responsibility Committee
of the Board of the Company
DAP Delivery at place
DFS Detailed feasibility study
Diluted EPS Diluted earnings per share (EPS) are calculated by
adjusting the weighted average number of Ordinary
Shares in issue on the assumption of conversion of
all potentially dilutive Ordinary Shares
Directors The Directors of the Company
Dragline Excavators Heavy machinery used to excavate material. A dragline
consists of a large bucket which is suspended from
a boom
EBT Employee Benefit Trust
EPS Earnings per share
Executive Committee The Executive Committee of management appointed by
the Company's Board
Executive Directors The Executive Directors of the Company
FBM Ferrexpo Belanovo Mining, also known as BGOK, a company
incorporated under the laws of Ukraine
Fe Iron
Ferrexpo The Company and its subsidiaries
Ferrexpo AG Group Ferrexpo AG and its subsidiaries including FPM
Fevamotinico S.a.r.l. A company incorporated with limited liability in
Luxembourg
FOB Delivered free on board, which means that the seller's
obligation to deliver has been fulfilled when the
goods have passed over the ship's rail at the named
port of shipment, and all future obligations in terms
of costs and risks of loss or damage transfer to
the buyer from that point onwards
FPM Ferrexpo Poltava Mining, also known as Ferrexpo Poltava
GOK Corporation or PGOK, a company incorporated under
the laws of Ukraine
FRMC Financial Risk Management Committee, a sub-committee
of the Executive Committee
FTSE 250 The index of Financial Times Stock Exchange consisting
of the 101(st) to the 350(th) largest companies listed
on the London Stock Exchange
FYM Ferrexpo Yeristovo Mining, also known as YGOK, a
company incorporated under the laws of Ukraine
Group The Company and its subsidiaries
Growth Markets These are predominantly in Asia and have the potential
to deliver new and significant sales volumes to the
Group
HSE Health, safety and environment
IAS International Accounting Standards
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards, as adopted
by the EU
IPO Initial public offering
Iron ore concentrate Product of the beneficiation process with enriched
iron content
Iron ore sinter fines Fine iron ore screened to -6.3mm
Iron ore pellets Balled and fired agglomerate of iron ore concentrate,
whose physical properties are well suited for transportation
to and reduction within a blast furnace
JORC Australasian Joint Ore Reserves Committee - the internationally
accepted code for ore classification
K22 GPL ore has been classified as either K22 or K23
quality, of which K22 ore is of higher quality (richer)
KPI Key Performance Indicator
Kt Thousand tonnes
LIBOR The London Inter Bank Offered Rate
LLC Limited Liability Company
LTIFR Lost-Time Injury Frequency Rate
LTIP Long-Term Incentive Plan
m3 Cubic metre
Majority Shareholder Fevamotinico S.a.r.l., The Minco Trust and Kostyantin
Zhevago (together)
Mm Millimetre
Mt Million tonnes
Mtpa Million tonnes per annum
Natural Markets These include Turkey, the Middle East and Western
Europe and are those markets where Ferrexpo has a
competitive advantage over more distant producers,
but where market share remains relatively low
Net debt Net debt as defined by the Group comprises cash and
cash equivalents less interest-bearing loans and
borrowings.
Nominations Committee The Nominations Committee of the Company's Board
Non-executive Directors Non-executive Directors of the Company
NOPAT Net operating profit after tax
North East Asia This segmentation for the Group's sales includes
Japan and Korea
OHSAS 18001 International safety standard 'Occupational Health
& Safety Management System Specification'
Ordinary Shares Ordinary Shares of 10 pence each in the Company
Ore A mineral or mineral aggregate containing precious
or useful minerals in such quantities, grade and
chemical combination as to make extraction economic
Panamax Modern panamax ships typically carry a weight of
between 65,000 to 90,000 tonnes of cargo and can
transit both Panama and Suez canals
PPI Ukrainian producer price index
Probable Reserves Those measured and/or indicated mineral resources
which are not yet 'proved', but of which detailed
technical and economic studies have demonstrated
that extraction can be justified at the time of determination
and under specific economic conditions
Proved Reserves Measured mineral resources of which detailed technical
and economic studies have demonstrated that extraction
can be justified at the time of determination and
under specific economic conditions
Rail car Railway wagon used for the transport of iron ore
concentrate or pellets
Relationship Agreement The relationship agreement entered into among Fevamotinico
S.a.r.l., Kostyantin Zhevago, The Minco Trust and
the Company
Remuneration Committee The Remuneration Committee of the Company's Board
Reserves Those parts of mineral resources for which sufficient
information is available to enable detailed or conceptual
mine planning and for which such planning has been
undertaken. Reserves are classified as either proved
or probable
Sinter A porous aggregate charged directly to the blast
furnace which is normally produced by firing fine
iron ore and/or iron ore concentrate, other binding
materials, and coke breeze as the heat source
Special items Items of financial performance that are, due to their
size and nature, separately disclosed on the face
of the income statement and excluded from the Underlying
EBITDA
Spot price The current price of a product for immediate delivery
Sterling/GBP Pound Sterling, the currency of the United Kingdom
STIP Short-Term Incentive Plan
Tailings The waste material produced from ore after economically
recoverable metals or minerals have been extracted.
Changes in metal prices and improvements in technology
can sometimes make the tailings economic to process
at a later date
Tolling The process by which a customer supplies concentrate
to a smelter and the smelter invoices the customer
the smelting charge, and possibly a refining charge,
and then returns the metal to the customer
Ton A US short ton, equal to 0.9072 metric tonnes
Tonne or t Metric tonne
Traditional Markets These lie within Central and Eastern Europe and include
steel plants that were designed to use Ferrexpo pellets.
Ferrexpo has been supplying some of these customers
for more than 20 years. Ferrexpo has well-established
logistics routes and infrastructure to these markets
by both river barge and rail. These markets include
Austria, Czech Republic, Hungary, Serbia and Slovakia
Treasury Shares A company's own issued shares that it has purchased
but not cancelled
TSF Tailings storage facility
TSR Total shareholder return. The total return earned
on a share over a period of time, measured as the
dividend per share plus capital gain, divided by
initial share price
UAH Ukrainian Hryvnia, the currency of Ukraine
Ukr SEPRO The quality certification system in Ukraine, regulated
by law to ensure conformity with safety and environmental
standards
Underlying EBITDA The Group calculates the Underlying EBITDA as profit
before tax and finance plus depreciation and amortisation
and net gains and losses from disposal of investments
and property, plant and equipment and share based
payments and operating and non-operating special
items, including write-offs and impairment losses
and other non-recurring exceptional items
Underlying EBITDA Underlying EBITDA (see definition above) as a percentage
margin of revenue
US$/t US Dollars per tonne
VAT Value Added Tax
Value-in-use The implied value of a material to an end user relative
to other options, e.g. evaluating, in financial terms,
the productivity in the steel making process of a
particular quality of iron ore pellets versus the
productivity of alternative qualities of iron ore
pellets.
WAFV Weighted average fair value
Western Europe This segmentation for the Group's sales includes
Germany and Italy
WMS Wet magnetic separation
Yeristovo or Yeristovskoye The deposit being developed by FYM
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LLFETTAIFIID
(END) Dow Jones Newswires
August 03, 2017 02:01 ET (06:01 GMT)
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