TIDMFXPO
RNS Number : 3397P
Ferrexpo PLC
24 March 2009
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24 March 2009
Ferrexpo plc
Preliminary Results for the year ended 31st December 2008
Financial highlights
* Revenue up by 60.0% to US$1,116.9 million
* EBITDA up by 104.8% to US$503.9 million
* Underlying earnings up by 129.0% to US$347.4 million
* Free cash flow increased by 116.0% to US$300.3 million
* Dividend of 3.3 US cents per share amounting to US$20.0 million
Operating highlights
* Average price for pellets sold was 72.3% higher than in 2007
* 87.7% of sales accounted for by long term contracts with higher spot sales later
in year
* Total pellet production in 2008 maintained at 2007 level
* 8.5% increase in production of high quality (65% Fe) pellets from the Group's
own ore
* Substantial reductions in use of raw materials and energy per unit of output
* Significantly lower C1 costs in December
* Growth projects on hold while the Group focuses on cash conservation
Financial and production highlights
+------------+---------------+---------------+--------+
| (US$ | Twelve | Twelve | % |
| '000, | Months | Months |Change |
| unless | ended | ended | |
| stated) | 31 | 31 | |
| |December 2008 |December 2007 | |
+------------+---------------+---------------+--------+
| Iron | 27,763 | 28,934 |(4.0%) |
| ore | | | |
| production | | | |
| (kt) | | | |
+------------+---------------+---------------+--------+
| Pellet | 9,035 | 9,072 |(0.4%) |
| production | | | |
| (kt) | | | |
+------------+---------------+---------------+--------+
| Of | 4,014 | 3,701 | 8.5% |
| which | | | |
| 65% Fe | | | |
| content | | | |
| (kt) | | | |
+------------+---------------+---------------+--------+
| Revenue | 1,116,854 | 698,216 | 60.0% |
+------------+---------------+---------------+--------+
| EBITDA | 503,946 | 246,057 |104.8% |
+------------+---------------+---------------+--------+
| Profit | 313,048 | 134,035 |133.6% |
| for | | | |
| the | | | |
| period | | | |
+------------+---------------+---------------+--------+
| Underlying | 347,431 | 151,717 |129.0% |
| earnings | | | |
+------------+---------------+---------------+--------+
| Basic | 48.46 | 20.33 |138.4% |
| EPS | | | |
| (USc) | | | |
+------------+---------------+---------------+--------+
Kostyantin Zhevago, CEO of Ferrexpo plc, commented:
"Ferrexpo had a record year in 2008, and since the economic downturn has
continued to trade profitably. We improved all aspects of our business, and were
able to increase our operating efficiency and production quality during the year
while reducing cash costs in the fourth quarter. Together with our proximity to
our key customers and our established marketing presence and reputation in our
Traditional and Growth Markets and despite uncertain market conditions, this
leaves us well placed to continue to maintain positive margins and to increase
our market share in 2009."
For further information, please contact:
+-----------------------------------------+-----------------------------+
| Ferrexpo: | +44 207 389 8304 |
| Gavin Mackay | |
+-----------------------------------------+-----------------------------+
| Finsbury: | +44 207 251 3801 |
| Robin Walker | |
| Alex Simmons | |
+-----------------------------------------+-----------------------------+
Notes to editors:
Ferrexpo plc is a Swiss headquartered resources company with assets in Ukraine,
principally involved in the production and export of iron ore pellets, used in
producing steel. Current output is over 9 million tonnes, approximately 85% of
which is exported to steelmakers around the world. The Ferrexpo Group is listed
on the main market of the London Stock Exchange under the ticker FXPO. For
further information please visit www.ferrexpo.com.
CHAIRMAN'S AND CHIEF EXECUTIVE OFFICER'S REVIEW
Ferrexpo had a record year in 2008. Demand for iron ore was exceptionally strong
in the first part of the year, resulting in unprecedented international
benchmark price settlements in April. By leveraging our proximity to our major
customers and the strong relationships we have with them, our marketing arm was
able to achieve long term contract prices for our products in excess of even
these record benchmarks. Our mining operations also responded well to these high
levels of iron ore demand, delivering a strong production performance both in
terms of absolute output and in particular the proportion of higher-grade 65% Fe
pellets produced. Our Business Improvement Programme achieved further success in
reducing unit costs and increasing operational efficiency.
The fundamental elements of our business all outperformed during 2008, a year in
which we were able to maintain high levels of production and use our established
marketing strategy to good effect. This strong operational performance resulted
in a record financial performance which enabled the Group to maintain its
dividend and also to return further capital to shareholders via the substantial
on-market share buyback conducted in September.
In the fourth quarter of the year, both the iron ore market and global economic
conditions began to deteriorate. From the Group's perspective, iron ore demand
weakness manifested first in the Ukrainian domestic market, followed by sudden
decreased demand in most of our export markets. This challenging operating
environment required prompt action to find alternative markets, limit production
and reduce overall costs. Having reacted flexibly and taken the appropriate
measures, we were able to maintain our profitability through the final months of
the year. While November sales were weaker, an outstanding performance by our
marketing department and our established status as a reliable supplier enabled
us to return to the market quickly and successfully in December.
As a result, the Group delivered another strong operational and financial
performance in this difficult period and for the year as a whole.
2008 Results
The Group achieved contract price increases of more than 90% on average for the
2008/2009 contract year through strong customer relationships, 'value-in-use'
marketing and our ability to provide small-lot 'just-in-time' deliveries. This
generated a 72.3% increase for 2008 on the average price achieved in the
previous calendar year. These higher prices together with the production of
larger quantities of our premium 65% Fe grade pellets enabled us to grow both
revenues and profits during 2008, despite weakening global demand in the fourth
quarter.
As a result, revenues for 2008 increased by 60.0% compared to the prior year
(2007: US$698.2 million). Earnings before interest, tax, depreciation and
amortisation for the period increased by 104.8% to US$503.9 million (2007:
US$246.1 million), and pre-tax profit increased by 133.6% to US$375.6 million
(2007: US$160.8 million).
Actions to scale back our production slightly in the final part of the year
followed a ten month period of record output. Production for the full year
reached the same record levels achieved in 2007 but included a higher ratio of
high grade 65% Fe pellets (an increase of 8.5% compared to 2007). Our mining
operations again performed well, increasing production efficiency even during
the period of reduced output in the fourth quarter.
The Group's C1 costs fell sharply to US$34.7 per tonne in December 2008 compared
to US$42.3 per tonne for the full year. We faced significant cost pressures in
the first six months of the year, as a result of high Ukrainian inflation and
sharp increases in both cyclically priced and state-controlled inputs. In the
fourth quarter this trend was reversed and our C1 costs have since experienced
significant downward pressure due primarily to depreciation of the Ukrainian
Hryvnia, as well as lower oil and steel related costs and continued Business
Improvement Programme results. Overall our cost of production ended 2008 at the
same level as the end of 2007, providing a strong finish to 2008 and a
beneficial starting point for 2009. Distribution costs also rose sharply during
2008, but the rate of increase slowed considerably in the final months of the
year.
The Group's full year results exceeded all prior years.
Marketing and market environment
Ferrexpo enjoys several unique logistical advantages, the most notable of which
is our proximity to our key customers. Our operations in central Ukraine are
several times closer to our principal European markets than most of our global
competitors, and as a result we are in many cases the lowest cost supplier to
our customers. The advantage of proximity is enhanced by our location next to a
navigable river, established rail links between us and our customers, and our
joint venture bulk seaborne port facility on the Black Sea.
In 2008 we continued our strategy of selling the majority of our production on
long term contract to our well-established customer base. The Group remains
committed to building strong customer relationships, and we used our reliable
and growing pellet supply to support these long-standing customers during the
period of high demand. At the same time we continued to develop new global
market opportunities. When reduced demand in the fourth quarter affected our
Traditional and Natural Markets we were well placed to compensate with sales in
seaborne markets where demand was more resilient and Ferrexpo had an established
presence and reputation. In addition, by capitalising on our proximity to
Traditional and Natural Market customers and our ability to provide them with
continuous small lot iron ore deliveries, we are well placed to increase our
share of those markets. The Group remains the largest exporter of iron ore
pellets from Ukraine.
Management and people
In late October the Board concluded that along with the rest of the industry,
the Group was likely to face a more challenging market environment in the coming
months, and as a result it resolved to hold all strategic initiatives in
abeyance in the medium term and refocus the Group's activities on ensuring the
continuing strength of its existing operations. As a result of this change in
the strategic direction of the Group, Mike Oppenheimer, at the time Chief
Executive Officer, and Dennis McShane, then Executive Director Business
Development, informed the Board that they believed their roles to have changed
from the form envisaged previously, and resigned from the Board and left the
Group. We would like to thank them both for their contributions to the Group and
we wish them well for the future.
Following these developments, the Board approved Kostyantin Zhevago to lead the
Group, and unanimously appointed him as Chief Executive Officer. His role as
Chief Executive Officer of Ferrexpo is now Mr. Zhevago's principal activity.
The Group has achieved a great deal in 2008, despite the final months of the
year proving to be a particularly challenging period in the industry and
globally. We employ almost 9,000 management and staff, and the outstanding
results achieved by the Group across its entire business are a testament to the
positive response to these challenges by every one of them. We and the Board
would like to thank all the management and staff of Ferrexpo for their hard work
and dedication. Ferrexpo is very conscious of its responsibilities as one of the
major employers in Ukraine, and maintaining the employment of our people is a
priority. While we will continue to actively manage the size of our workforce
over time to maximise productivity, we are proud that we have been able to avoid
any forced redundancies during this difficult period in the industry.
Corporate governance and social responsibility
The Group has high standards of corporate governance, and the Board reaffirms
its commitment to these.
The Board's Corporate Safety and Social Responsibility ('CSR') Committee
continues to monitor the management of the Group's health, safety, environmental
and community programmes in line with best practice for mining companies. CSR
remains a priority and we are pursuing further initiatives to institutionalise
safety conscious behaviour in particular.
Growth projects and strategy
Significant progress was made with our growth projects in 2008, which concern
primarily the increase of output and product quality from our existing
operations and accessing more of the Group's substantial ore reserves at the
Yeristovskoye and Belanovskoye deposits. In November the Board suspended capital
expenditure on these projects, delaying them until the markets stabilise. These
projects remain a priority for the Group, and we aim to resume their development
as soon as economic conditions permit.
In the course of the year our discussions moved forward with a selection of
potential strategic investors in regard to partnering with the Group in some of
these growth projects to provide funding and additional project execution
capability. Following the suspension of expansionary capital expenditure in
November, this process was suspended but will be resumed when market conditions
allow.
In 2009 we will focus primarily on cash conservation. We aim to increase our
cost competitiveness through aggressive operating cost reduction, capital
management and continuing efficiency improvements, while leveraging our
strategic location and strong customer relationships to maintain sales and
production tonnages and to increase market share in our Traditional and Natural
Markets. While focus in 2009 will be firmly on our existing operations, the
Board and management retain the flexibility to resume investment in our growth
projects when the markets recover, and we have now taken all the necessary steps
to be able to react swiftly when that time comes. We have demonstrated in 2008
that we have the operational, financial and risk management capabilities
required to manage this strategy effectively.
Dividend
It is the view of the Board that Ferrexpo should pay modest consistent dividends
based on continuing profitability and that the business has sufficient
operational flexibility to respond to the demands it will face in 2009. The
Group has operations which are cash generative and can both support returns to
shareholders and form a platform to finance the development of its significant
world class undeveloped reserves.
The Board believes it is able and appropriate to continue with a dividend in
line with prior years, reflecting the flexibility of the business to both
develop its world class undeveloped reserves in normal times and slow its
investment plans and maintain dividends where there is a more uncertain outlook.
The Directors therefore recommend a dividend in respect of profits generated for
the Group in 2008 of 3.3 US cents per Ordinary Share for payment on 22 May 2009
to shareholders on the register at the close of business on 17 April 2009. The
dividend will be paid in UK pounds sterling with an election to receive US
dollars.
Outlook
The outlook for the iron ore market remains uncertain in the short term, as the
effects of the global economic crisis continue to be felt in 2009. Ferrexpo
remained cash flow positive and profitable during the final quarter of 2008,
despite weaker demand for iron ore and steel worldwide. Spot prices for iron ore
stabilised to some extent in December, as production cuts throughout the world
began to take effect and steel companies began to conclude their destocking
exercises. The Group has been able to take advantage of this trend, using its
strong marketing reputation to offset weaker Traditional and Natural Markets
with increased seaborne sales. The Group is exposed to the outlook for iron ore
pricing, but because of its specific logistical advantages and customer
relationships, the Board believes that it will be able to access the seaborne
market to compensate for weakness in its traditional markets and continue to
trade profitably. Pressure on the Group's margins resulting from decreasing iron
ore prices is likely to be partially offset by a decline in production costs
throughout the industry, and particularly in Ukraine, given the weakening local
currency.
During the course of 2008, volatility in the global economy and changes in the
industry's operating environment reduced growth expectations for our business in
the near term. In response to these events and at a time of uncertain short term
demand the Board has taken care to ensure that the options to develop our
substantial iron ore reserve base and to increase production and product quality
at our existing operation are preserved, whilst minimising cash outflow. We
expect these actions to underpin the business' sustainable performance and
protect shareholder value now and in the longer term. We remain focused on
building our organisation, adding capability in project execution and
consolidating our strengths in best practice mining and marketing in preparation
for the resumption of growth.
Despite spot prices falling as much as 70% from their peaks earlier in 2008,
iron ore was one of the better-performing commodities over the year. We remain
of the view that notwithstanding the current instability in world markets, the
fundamentals of steel demand remain strong in the medium and long term, driven
by growth from developing and industrialising nations.
Ferrexpo was able to maintain positive margins during the first two months of
2009, despite ongoing weakness in the global iron ore market. The substitution
of additional seaborne spot sales for weaker contract volumes in our Traditional
Markets enabled the Group to continue to trade profitably during the period, and
we are well placed to increase market share in 2009.
Michael Abrahams CBE DL Kostyantin Zhevago
Chairman Chief Executive Officer
BUSINESS REVIEW
Summary
The Group achieved a record financial performance in 2008 in the face of
challenging economic conditions in the latter part of the year. Operational and
managerial flexibility allowed us to both outperform our own targets in
production, sales and price up to October and then to quickly adapt to the
changing circumstances in the iron ore market in the final months of the year.
Operational goals set for the year were achieved, with marked improvements in
efficiency and product quality. Production levels ran at record rates through
most of the year and were ultimately comparable to 2007 following a decision to
reduce production in November and December in response to declining iron ore
demand, in order to both preserve cash and optimise unit production costs at a
time of uncertainty.
Among the world's smaller iron ore producers, we are very favourably located.
The Group's marketing activities in 2008 built on our status as the iron ore
supplier of choice for our key Traditional and Growth Markets. We achieved
contract price settlements ahead of the record benchmark prices set early in the
year and were subsequently also able to react flexibly to reductions in off-take
levels in the last two months of the year.
In 2008, 88.0% (by volume) of the Group's iron ore products were exported.
Approximately 87.7% of our 2008 sales by volume were made under long term supply
agreements with iron and steel producers. It is our strategy to increase the
number and duration of such contracts and build customer relationships and this
continued through 2008. The Group's principal export markets are Central and
Eastern Europe and China. At the end of 2008, 8.1 million tonnes of iron ore
were committed under long term framework contracts with major customers.
The Group holds the exclusive licences to a world class iron ore resource,
uniquely positioned close to our core markets. Our expansion plans were advanced
significantly in 2008 with the completion of the Detailed Feasibility Study
('DFS') for the new Yeristovskoye mine and the DFS for the project to upgrade
the capacity and quality of product coming from our existing well-established
operation. This progress has included the commencement of stripping activities
and further capital investment to increase capacity in the existing mine.
Following the hiatus in the iron ore market in late 2008, these projects have
been slowed to retain financial flexibility but are being advanced at a low
level to preserve their value pending a clearer market outlook for 2009.
Our primary focus in 2009 will be on the Group's existing mining operations. The
Group's operating subsidiary, Ferrexpo Poltava Mining ('FPM'), performed
strongly in 2008, demonstrating an established trend of continuous improvement
in operating efficiency, product quality and production output. These key
drivers will remain a focus in 2009 combined with further cost reduction
programmes targeting operating costs and optimising capital expenditure. These
programmes will be helped by both a lower local currency and more available
capacity at our key suppliers. We expect that this, together with significantly
reduced energy prices, will help contain cash costs of production in 2009.
Strategy
The Group holds the licences to a world class iron ore resource and is
positioned close to core steel-producing markets. The operations have been
producing continuously for several decades. The strategy remains to exploit
these reserves whilst maximising the return on the current operations utilising
our strategic location, customer relationships and low cost base.
Our long term plans are to commercialise our extensive undeveloped ore deposits
in a prudent and financially responsible manner, whilst ensuring continuous
production growth and cost competitiveness in our existing operations. Our
priorities are to maintain and improve operational, financial and risk
management capabilities within our existing operations and our development
projects in order to maintain flexibility throughout the economic cycle.
Operations
The mining operation at FPM is well developed and has produced iron ore on an
uninterrupted basis for over 30 years. The mining and processing operation is
situated on a large iron ore deposit located in Ukraine which is substantially
under-exploited.
Our principal business is the mining, processing and sale of iron ore in the
form of pellets, used in the production of steel. The Group owns and operates an
integrated mining and processing facility, comprising an open cut iron ore mine,
concentrating facility and pelletising plant in the city of Komsomolsk. Our
operations are fully integrated from the mining of ore through to the production
of pellets. All production is converted into pellets in our own facilities.
Third party iron ore concentrate is also converted into pellets to utilise
surplus plant capacity where this provides adequate margins.
The FPM operations are located on the Dnieper River in Ukraine in close
proximity to our major customers in Central and Eastern Europe. FPM has access
to both the Black Sea for ocean borne shipments throughout the world and to
extensive rail networks throughout Europe.
To access the large and growing market outside Ukraine, the marketing of iron
ore pellets for export is managed by the Group's specialist sales and marketing
arm, based in Switzerland with branches in Kiev and Shanghai.
Operating environment - Ukraine
Ukraine remains a beneficial place to conduct business, despite well-publicised
issues such as political instability, the natural gas dispute with Russia and
speculation as to the wider effects of the Russia-Georgia war on the region. The
Group has operated there continuously through Soviet rule, independence from
Russia and the Orange Revolution in 2004. The Ukrainian political sphere tends
not to interfere in Ukrainian business, and the workforce is for the most part
well educated and cost competitive.
Ukraine is a parliamentary presidential republic and formerly part of the Soviet
Union. The ruling coalition government broke up in September and a general
election is likely to take place in 2009. It is noteworthy that Ukraine has
continued to observe peaceful democratic political processes regardless of
government instability. The country intends to join the European Union as soon
as it is able to do so. Ukraine was granted a US$16.4 billion International
Monetary Fund loan in late 2008 in response to the significant effects of the
global financial crisis on its economy. This loan prescribes several conditions
which are likely to result in increased fiscal and economic discipline in
Ukraine, which is likely to benefit our business. Among others, these conditions
include a prohibition on intervening in the market to support the Ukrainian
currency, and more transparency around economic policy-setting.
Ukraine's economy is heavily reliant on the steel industry, and as a result the
country saw strong growth and high inflation in the first half of 2008, followed
by rapid contraction of the local metallurgical sector and the beginnings of a
severe economic downturn in the second half. The Ukrainian steel industry is
relatively high-cost and export-focused, and Ukraine has thus been more severely
affected than many other steel-producing nations by the economic downturn. These
developments are likely to have a positive effect on our cost base as Ukraine
takes measures to ensure the survival of its mining and metallurgical industry.
The local currency (the Hryvnia) was informally pegged to the US dollar at
approximately UAH5.05 per US dollar until early 2008. It has since weakened to
approximately UAH7.70 per US dollar, as a result of continuing high inflation.
The average exchange rate during 2008 was UAH5.29 per US dollar.
The country has seen high inflation in 2008, with the official domestic Producer
Price Index ('PPI') increasing by 23.0%, and the Consumer Price Index ('CPI')
increasing by 22.3%. The rate of annual increase in inflation peaked in July,
and has since begun to moderate.
Market environment
The demand for iron ore pellets is directly linked to steel demand which is
closely correlated to the global economic cycle. As a result the demand for
steel initially grew strongly in 2008 and then sharply reduced, bringing world
output in line with 2007. In the latter part of 2008 the global banking crisis
combined with a wider economic slowdown impacted the construction and automotive
industries, reducing steel demand at an unprecedented rate. This overall
weakening in demand has had a direct consequential effect on demand for iron ore
generally with the impact flowing through to the Group in November. In response
the Group and many of our competitors reduced supply significantly in the final
months of the year.
OPERATING REVIEW
Highlights
* Iron ore pellet production from the Group's own ore only slightly lower at 8.6mt
* 8.5% increase in production of high quality (65% Fe) pellets
* Substantial reductions in use of raw materials and energy per unit of output
* Dewatering, infrastructure and power established at Yeristovskoye deposit
* Two draglines delivered and assembled
Production - Operating Statistics
+-----+----------------------+--------+------------+------------+---------+--------+
| | | | | |
| | | | | Change |
+----------------------------+--------+------------+------------+------------------+
| ('000t unless otherwise | | 2008 | 2007 | +/- | % |
| stated) | | | | | |
+----------------------------+--------+------------+------------+---------+--------+
| Iron ore mined | | 27,763 | 28,934 | (1,171) | (4.1) |
+----------------------------+--------+------------+------------+---------+--------+
| | Fe content | % | 30.2 | 29.9 | 0.3 | 1.0 |
+-----+----------------------+--------+------------+------------+---------+--------+
| Iron ore processed | | 27,582 | 29,024 | (1,442) | (5.0) |
+----------------------------+--------+------------+------------+---------+--------+
| Concentrate produced | | 10,459 | 10,651 | (192) | (1.8) |
| ('WMS') | | | | | |
+----------------------------+--------+------------+------------+---------+--------+
| | Fe content | % | 63.4 | 63.5 | (0.2) | (0.2) |
+-----+----------------------+--------+------------+------------+---------+--------+
| Floated concentrate | | 6,167 | 5,620 | 547 | 9.7 |
+----------------------------+--------+------------+------------+---------+--------+
| | Higher grade | | 4,375 | 4,032 | 343 | 8.5 |
+-----+----------------------+--------+------------+------------+---------+--------+
| | Fe content | % | 67.1 | 67.3 | (0.2) | (0.3) |
+-----+----------------------+--------+------------+------------+---------+--------+
| Purchased concentrate | | 386 | 266 | 120 | 45.1 |
+----------------------------+--------+------------+------------+---------+--------+
| | Fe content | % | 65.2 | 64.1 | 1.1 | 1.7 |
+-----+----------------------+--------+------------+------------+---------+--------+
| Purchased iron ore | | 276 | 172 | 104 | 60.5 |
+----------------------------+--------+------------+------------+---------+--------+
| Pellets produced from own | | 8,608 | 8,793 | (185) | (2.1) |
| ore | | | | | |
+----------------------------+--------+------------+------------+---------+--------+
| | Higher grade | | 4,014 | 3,701 | 313 | 8.5 |
+-----+----------------------+--------+------------+------------+---------+--------+
| | Fe content | % | 65.0 | 65.1 | (0.1) | (0.2) |
+-----+----------------------+--------+------------+------------+---------+--------+
| | Lower grade | | 4,594 | 5,092 | (498) | (9.8) |
+-----+----------------------+--------+------------+------------+---------+--------+
| | Fe content | % | 62.2 | 62.2 | 0.0 | 0.0 |
+-----+----------------------+--------+------------+------------+---------+--------+
| Pellets produced from | | 427 | 279 | 148 | 53.1 |
| purchased concentrate and | | | | | |
| ore | | | | | |
+----------------------------+--------+------------+------------+---------+--------+
| | Lower grade | | 427 | 279 | 148 | 53.1 |
+-----+----------------------+--------+------------+------------+---------+--------+
| | Fe content | % | 62.2 | 62.2 | 0.0 | 0.0 |
+-----+----------------------+--------+------------+------------+---------+--------+
| Total pellet production | | 9,035 | 9,072 | (37) | (0.4) |
+----------------------------+--------+------------+------------+---------+--------+
| Pellet sales volume | | 8,711 | 9,261 | (550) | (5.9) |
+----------------------------+--------+------------+------------+---------+--------+
| Gravel output | | 2,751 | 3,162 | (411) | (13.0) |
+----------------------------+--------+------------+------------+---------+--------+
| Stripping volume | 000'm3 | 20,573 | 18,664 | 1,909 | 10.2 |
| | | | | | |
| | | | | | |
+-----+----------------------+--------+------------+------------+---------+--------+
The Group's operations continued to focus on the improvement of product quality
and operating efficiency in 2008. Record production was achieved for most of the
year and following demand reductions in November and December the operations
responded quickly, reducing unit costs and temporarily reducing production
whilst pushing up pellet quality.
The managed reduction in output resulted in a slight in a decline in total
pellet production of 0.4% for the full year after a record 10 month period to
October.
As a result the mine produced 27.8mt of iron ore in 2008, 4.0% less than in the
previous year. Selective mining techniques increased the proportion of rich
(K22) ore mined by 3.0%. This increase in the overall quality of the ore
increased the operational efficiency of the concentrating plant, thereby
improving pellet quality as measured by the proportion of higher grade pellets
produced.
As a result of the above actions, for the fifth year in a row we were able to
substantially increase our production of higher quality 65% Fe pellets.
Production of 65% Fe pellets from own ore increased by 8.5% to 4.0mt, and now
constitutes 44% of FPM's total production (42% in 2007), consistent with our
commitment to quality enhancement and our 'value in use' marketing strategy.
427.6kt of pellets were produced from purchased ore and concentrate in 2008 to
fill our surplus pelletising capacity. This occurred in the first nine months of
the year when this generated sufficient margin but was scaled down due to the
slowdown in demand and the consequent switch to the sale of the much higher
margin pellets produced from our own ore.
Business Improvement Programme ('BIP')
Following a three year period of skills transfer by GPR Dehler the managers and
employees of FPM are now leading the successful BIP forward. We have completed a
wide range of BIP workshops, building on the culture of continuous improvement.
We have continued to see positive results from the BIP, which continues to be a
priority for management in respect of both short and long term objectives and
KPIs. FPM continues to move towards global best practice across its operations.
Operating costs
Operating costs continued to benefit from efficiency gains in the production
process and from reducing oil and steel prices along with local currency
devaluation late in the year.
BIP-related and other efficiency gains enabled us to reduce the rates of
consumption of energy and raw materials in 2008. Consumption per tonne of
pellets produced from own ore for electricity, natural gas and diesel all
improved by between 1% and 3%. Efficiency programmes also resulted in a
reduction of the average number of employees at FPM by 10% in 2008, although as
a result of management actions no forced redundancies were necessary during the
year. Overall, 8,243 people were employed by FPM as of 31 December 2008.
Growth projects
As previously outlined, the Group has three major growth projects:
* The expansion of the current GPL open pit mine
* The GPL concentrator plant upgrade
* The new Yeristovskoye mine, processing plant and pelletising facility
We also have planned developments at the Belanovskoye and Galeshchina deposits
which are less advanced.
Significant work has been completed in 2008 to allow access to the substantial
undeveloped resources located adjacent to the existing operations. The DFS was
completed for the Yeristovskoye project in September and initial low level
stripping operations commenced in December along with the establishment of a
small project team, and a legal and managerial infrastructure. The scope of the
initial pre-stripping operation has been scaled down at the current time pending
further reviews in 2009; however operational expenditure and small future
commitments are being made at a limited level to enable the value of the project
to be maintained and to minimise delays to the original development schedule.
The capital expenditure for these projects was estimated at the peak of the
commodity cycle and consequently we believe that DFS capital costs will be
significantly reduced when final commitments to these projects are made. We
intend to recommence our growth projects as soon as circumstances allow, and we
expect full value to be realised for the expenditure to date.
DTP Terrassement S.A. (France) ('DTP') and the project management alliance with
Worley Parsons Europe Limited ('WP') are being maintained at a low level of
activity in order to retain growth options. We are also supporting a minimal
corporate subsidiary presence in Ukraine for DTP and WP as a base from which to
rebuild project momentum should the outlook improve during 2009.
Activity continues at the pushback of the current GPL open pit. This project was
on schedule and within budget prior to it being scaled back in October and
remains a priority once markets stabilise. The expansion enables us to take
advantage of currently under-utilised processing capacity. It will increase
production of 65% Fe pellets by approximately 15%. Of the original US$158
million of capital expenditure committed to this project in 2007, US$58 million
remains to be invested, primarily on stripping works.
The DFS for the GPL concentrator plant upgrade was also completed in September.
This project will enable all the Group's mined ore to be processed into 65% Fe
pellets and will potentially allow the production of Direct Reduction ('DR')
grade (68% Fe) pellets. 65% Fe pellets enjoy more robust demand, and DR pellets
would constitute a new premium product for Ferrexpo which we could sell into
world markets and in particular the Middle East, a growth market which can be
easily supplied.
A Preliminary Feasibility Assessment for the Belanovskoye mine was completed in
September, and work also continued on development options for Galeshchina, the
next deposit to the north of Belanovskoye. The Yeristovskoye and Belanovskoye
growth projects both remain a priority for the Group, as they continue to
represent an attractive option for the expansion of the Group's existing
business as they will enable access to our extensive uncommercialised resources.
Because these developments will take place on the same ore body currently being
exploited by the Group and their situation adjacent to our existing logistics
infrastructure, these investments represent low risk additions of new iron ore
capacity compared to many of the iron ore projects that have been announced
worldwide.
Strategic Investor Programme
During 2008 we identified several potential strategic investors. This was done
in order to share the risk of our development projects, which are substantial
for a company of Ferrexpo's size, by providing some of the additional funding
and execution capability required to progress our growth plans on an aggressive
timetable. This reached an advanced stage but was placed on hold following
severe falls in the valuations ascribed to commodity based companies in late
2008.
All of the potential Strategic Investors on the shortlist have reiterated their
willingness to continue to participate in the process once market conditions
improve.
Marketing
Marketing performance in 2008
In 2008, 88.0% of our output by volume was exported (2007: 81.0%) The share of
pellet sales to Ukrainian customers decreased from 19.0% in 2007 to 12.0% in
2008, primarily as a result of the collapse of the Ukrainian steel industry and
the consequent drop in local demand for iron ore from late 2008. We increased
export sales in response to this by actively selling into the spot market in
Asia and increasing shipments to long term export customers. Domestic Ukrainian
sales are made on an ex-works basis while export sales are usually made on a
Delivered at Frontier ('DAF') or Free on Board ('FOB') basis. Of the total
exported by the Group in 2008 by value, 17.9% was sold into China, with the
remainder sold into Central and Western Europe and Turkey. An analysis of sales
by market is contained in note 6 to the accounts.
The following table shows our principal export markets for iron ore pellets for
the years ended 31 December 2008 and 2007 (by volume):
+-----------------------------+--------------------+------------------+
| ('000t) | 2008 | 2007 |
+-----------------------------+--------------------+------------------+
| Traditional Markets | 5780.8 | 5,900.7 |
+-----------------------------+--------------------+------------------+
| Natural Markets | 323.2 | 187.9 |
+-----------------------------+--------------------+------------------+
| Growth Markets | 1,558.4 | 1,576.0 |
+-----------------------------+--------------------+------------------+
| Total | 7,662.4 | 7,664.6 |
+-----------------------------+--------------------+------------------+
Approximately 87.7% of our 2008 sales by volume were made pursuant to long term
supply contracts, a lower level of contract sales to that seen in 2007 due to
increased spot selling in the fourth quarter in response to deferrals from
contract customers. We commenced our first long term contract with a Turkish
steel mill in 2008, and have continued to supply our major customers in Eastern
and Central Europe and China, building on our track record of solid customer
relationships.
We announced in late October that we had received requests to defer deliveries
from several of our contract customers from the fourth quarter of 2008 to the
first quarter of 2009, as a result of rapidly falling demand for steel. These
deferrals came from customers in all of our market segments, and particularly in
Ukraine, Traditional Markets and Growth Markets (see definitions below), and
resulted in lower overall full year 2008 sales.
As a result, we sold some iron ore pellets in Q4 on shorter-term contracts
consistent with the terms of trade in these markets, or on the spot market. In
the fourth quarter we therefore increased spot sales to mitigate the effect of
the deferrals from contract customers, although these sales were made at lower
prices than those under contract. We expect that the proportion of sales that
will be made under long term contracts in 2009 may be lower than in 2008, as a
result of weaker steel demand in the first quarter. We nevertheless remain
committed to the strategy of maintaining a high level of the Group's sales under
long term contract.
We are well positioned to increase market share in 2009 particularly with our
contract customers in our Traditional Markets, as a result of our proximity to
these customers. Our ability to provide small-packet 'just-in-time' deliveries
to these customers is an attractive quality to those companies that are engaged
in careful inventory management. Ferrexpo will continue to sell aggressively
into these markets and as a small supplier aims to maintain output by improving
market share in these key regions.
We will also continue to focus on achieving higher prices through enhanced
pellet quality and a better understanding of our customers' requirements of our
products. This is necessary in order to capture the maximum price relative to
our competitors' delivered cost to the customer on a 'value to the customer'
basis.
Traditional Markets
Our 'Traditional Markets' are those markets that we have supplied historically,
and in which we enjoy a competitive advantage based on our location. These
include Austria, Ukraine, Poland, Slovakia, Romania, Bulgaria and Russia. The
former CIS countries within the Traditional Markets have been particularly
affected by the adverse conditions in global commodities markets, with Ukraine
the worst affected, given its steel export focus and relatively high steel
production costs. We believe that continued growth in per capita steel
consumption in many of these markets is likely to resume once stability returns
to the global economy, as most of them are effectively re-industrialising. Total
sales to Traditional Markets in 2008 were 5,780.8kt, a decrease of 2.0% compared
to 2007.
Natural Markets
'Natural Markets' are relatively new markets for us in regions where we believe
we have a competitive advantage which is yet to be exploited. This segment
includes Western Europe, Turkey and the Middle East. Turkey has plans to
significantly increase its steel making capacity, and FPM's proximity across the
Black Sea affords a significant mutual advantage to both the Group and iron ore
buyers in Turkey. We agreed our first long-term supply contract with a steel
mill in Turkey in 2008, and this segment represents a major target for future
sales growth. We are building commercial and technical relationships in the
Middle East as a base for our future planned sales as we continue to improve
product quality.
Growth Markets
'Growth Markets' are those which offer to add new and significant tonnage
expansion potential to our customer portfolio. Currently China is the major
target, where five long term contracts are in place providing a solid base for
future sales growth. We have a shorter shipping distance to these markets than
competitor iron ores from Brazil. The region also provides the primary source of
demand for spot market business, which began to see activity again in December
2008 following a period of de-stocking by Chinese steel mills.
Logistics
In 2008, we made significant progress in expanding our delivery chain logistics
capability in order to meet current and future growing customer demands. This is
a critical contributor to our long term market shares and margins. Our
49.9%-owned dry bulk minerals Panamax terminal on the Black Sea (the 'TIS-Ruda
Terminal-Yuzhny') is functioning well, and has proven an asset critical to our
efforts to increase seaborne sales in the face of Traditional Market demand
weakness. We will also continue our programme of railcar purchases once
development capital expenditure is resumed.
Our logistics strategy is to manage as much of the delivery chain to our
customers as possible in order to ensure on-time supply of the contracted
quality of product at the lowest cost. The total scope of our delivery logistics
chain includes rail, trans-shipment (loading and unloading), barge and ocean
vessels. We expect that little material capital will be expended in this area
until general economic conditions improve.
Pricing
We achieved an average DAF/FOB price for the pellets we sold in 2008 of US$124.6
per tonne, an increase of 72% over the average achieved price for 2007 (US$ 72.3
per tonne). Most of our export sales are based on annually negotiated prices
contained in supplements to our long term supply contracts. A proportion of
sales tonnage is linked to the international seaborne traded iron ore benchmark
price ('Benchmark Price') movement agreed between the major iron ore producers
and specific Western European or Asian steel producers for a given year. In 2008
we realised a premium to the Benchmark Price, after adjustments for the impact
of freight, quality, proximity and logistics. The Benchmark Price settlement in
April 2008 reflected an 86.7% increase on the prices for iron ore pellets in the
previous year. Variations in our achieved price stem from price variations of
pellets sold into different geographical segments, as well as the mix between
our 62% Fe pellets and our 65% Fe pellets (which attract a premium). In the
fourth quarter of 2008, in order to maintain production and margins, we made a
higher proportion of spot market sales than previously planned. These sales were
at prices below the contract price level, which also affected the 2008 average
achieved price.
Pellet premium
The iron ore pellet premium is the price paid by purchasers to producers of iron
ore pellets such as the Group in excess of the price of iron ore sinter fines,
to reflect the fact that pellets have undergone some processing. The Group's
pellets are therefore an intermediate product between raw ore and iron,
providing productivity gains in blast furnaces. Our pellets require less coke in
the steelmaking production process, beneficial when this is in tight supply or
relatively highly priced. The pellet premium also reflects other benefits of
using pellets, most notably their advantages for transporting and increased
environmental concerns with sinter production, particularly for blast furnace
operators in the European Union.
The iron ore pellet premium reached a record high in Europe of US$0.86 per dry
metric tonne unit (dmtu) following the price settlements in April 2008. We
expect the premium for our pellets to decline in 2009, as pellets tend to trade
at a very significant premium to iron ore fines only when the industry is in a
state of undersupply as was the case in the first part of 2008. The efficiency
gained through the use of pellets becomes less of a factor when blast furnaces
are not running at full capacity, as is the case currently. Nonetheless, any
decline in the pellet premium is likely to be moderated by the transport and
environmental benefits of using our pellets.
2009 Marketing strategy
Demand in 2009 will depend on the continued growth of steel output in China, the
resumption of steel production in Ukraine, and the end to the de-stocking of
iron ore inventories by steel mills and a return of global steel output to
sustainable levels. We remain well placed to continue to produce close to
capacity and to supply our key customers because of our proximity to them. We
have made significant progress already in increasing our market share to these
customers.
Economic conditions are also likely to result in decreased costs in the
industry, as inflationary pressures ease. This will be a partial reversal of the
changes to the cost structure of the iron ore industry witnessed over the past
five years as a result of declining availability of direct-charge lump ore and
the fact that incremental iron ore can only be supplied by increasingly distant
and relatively lower-quality ore bodies. The cost of the marginal tonne is
therefore expected to fall in 2009, providing some relief to the industry. In
keeping with this trend, the Group's cash costs in December were 18.0% lower
than the average for the year.
In contrast to past economic slowdowns and mining industry contractions, the
supply response to the current crisis has been swift and decisive. This bodes
well for an equally swift recovery, as it avoids the build up of inventories
which have historically prevented the recovery of commodity prices once growth
conditions resume. In the final quarter of 2008, steel producers reduced the
amount of iron ore that they purchased in an effort to de-stock their
inventories. Once this process is complete, reduced supply and low inventories
should give support to stronger iron ore prices.
Our sales strategy in 2009 will differ from that in 2008, as we react to deal
with the downturn in the global economy. We will maintain our strong customer
relationships and, where possible, use them to increase our market share
position in our Traditional and Natural Markets to capitalise on smaller lot
deliveries to customers. We believe that, for customers throughout Central
Europe, our products represent an attractive alternative to those of major
seaborne suppliers due to the lower costs of transporting pellets over a shorter
distance from Ukraine, together with an ability to provide many customers with a
continuous small-parcel delivery chain. We will also seek to maximise sales
volumes where possible by taking advantage of potential opportunities for
seaborne spot sales.
Corporate social responsibility
In 2008, we set out to entrench a behavioural safety culture at FPM.
Notwithstanding three tragic deaths during the year, considerable progress has
been made in this regard. Our goal in 2009 is to continue to strive for
improvements across all areas of CSR and especially safety. We continue to work
with Du Pont Safety Resources to achieve these priority objectives.
FINANCIAL REVIEW
Highlights
* Revenue up by 60.0% to US$1,116.9 million
* EBITDA up by 104.8% to US$503.9 million
* Underlying earnings1 up by 129.0% to US$347.4 million
* December C1 cash costs of production US$34.7/t - 18.0% below 2008 average of
US$42.3/t
* Free cash flow of US$300.3 million
* Sufficient headroom: US$87.8 million of cash available at year end
* Dividend of 3.3 US cents per share
Revenues
The Group's revenue for 2008 increased by US$418.7 million to US$1,116.9
million, reflecting growth of 60.0% compared with 2007. This strong performance
was due to increased production of 65% pellets (up 241kt) and better average
pellet prices which rose by 72.3% to US$124.6 per tonne on a DAF / FOB basis
compared with US$72.3 per tonne in 2007. Sales demand reduced in the fourth
quarter of 2008 and sales volumes for the year were 8,711kt (2007: 9,261kt). The
proportion of sales of our higher priced 65% Fe pellets increased to 44.6% for
2008 from 40.7% in 2007.
Costs and margins
C1 cost per tonne of pellets produced is the principal measure of operating
performance of the business. C1 cost is defined as the cash production cost from
own ore divided by the total volume of production. The majority of our C1 costs
are incurred in Ukrainian Hryvnia. C1 costs are expressed in dollars using the
weighted average exchange rate which applied in the year. In 2008 we achieved an
average C1 cash cost of production from own ore of US$42.34 per tonne compared
with US$31.79 per tonne in 2007.
During 2008, C1 costs increased for the first 10 months of the year, principally
as a result of domestic inflation, rising oil costs and increasing commodity
prices, particularly steel which is used in grinding media. In the later part of
the year, costs fell significantly as lower oil and commodity prices fed through
from our suppliers from September onwards.
The Ukrainian Hryvnia depreciated during 2008 from 5.05 to the US dollar at the
beginning of 2008 to 7.70 at the year end. The majority of this decrease
occurred in November and December 2008. As a result our C1 costs of production
fell significantly in December to US$34.7 per tonne from the peak of US$51.0 per
tonne reached in October 2008.
Selling and Distribution and Administration Costs
Selling and Distribution costs represent principally the cost of freight in
bringing the goods to the domestic Ukraine border. For certain sales, the Group
incurs additional costs to bring the product to the customer. Selling and
Distribution costs increased in 2008 on broadly flat volumes as a result of an
increased proportion of sales made on CFR terms and increases in domestic
freight tariffs, principally rail tariffs in Ukraine. Rail tariffs increased by
76% during 2008 in local currency terms and by 16% in US dollar terms.
General and Administration costs include one off charges as a result of the IPO
in 2007 and reorganisation costs incurred in the later part of 2008. Excluding
these one off items, these costs now reflect the new sustainable level post the
Initial Public Offering.
Other income and expenses
Additional provisions for uncollectable debts or slow moving receivables have
been made at the end of 2008, principally from customers in the CIS resulting
from the downturn in the steel market increasing costs in this area.
Currency translation
The functional currency of FPM is the Ukrainian Hryvnia. It is required that the
gains and losses on foreign currency denominated operating assets that result
from exchange rate movements are recorded as a separate item in the profit and
loss account. As a result of the weakening Hryvnia FPM made gains of US$29.3
million on foreign currency denominated net assets.
FPM has incurred foreign currency denominated financial liabilities to finance
its expansion. The assets acquired are valued in local currency at historical
costs and have not been revalued as a result of the weakening currency. The
associated revaluation of financial liabilities at the year end resulted in
pre-tax losses of US$72.8 million.
Write Offs and Impairment Losses
Investments by the Group in ATOL, an oil and gas exploration company, and
Stakhanov, a rail car manufacturer have been reflected in the books at current
market value at 31st December 2008. Due to the low level of the markets
generally and the low values currently attaching to oil and gas companies in
Ukraine, this resulted in combined impairments on these assets of US$27.3
million.
Negative Goodwill
During November and December 2008 FPM exercised its call option to repurchase
6.2% of its issued share capital at a cost of US$11.0 million from DCM Decometal
International Trading GmbH ('DCM'). This resulted in an increase in the Group's
ownership of FPM from 90.9% to 97.1%. As a result the value of the net assets
previously owned by minorities was credited to the profit and loss account of
the Group in accordance with IFRS and resulted in US$35.0 million of negative
goodwill.
Finance costs and Borrowings
Net finance costs reflect lower average debt during 2008 and lower average LIBOR
rates which attach to the majority of the Group's borrowing facilities. In
October, the Group drew down all but US$5.0 million of its available financing
in order to ensure availability of funding. This resulted in gross indebtedness
of US$307.9 million, leaving the Group holding US$87.8 million in cash and on
deposit as at the year end. Under the terms of the Group's principal loan
facility (a US$335 million pre-export finance facility), it is required to repay
US$6.1 million per month in 2009. At the 2009 year end this facility will have
partly amortised and it will continue to amortise through to December 2010 when
it expires.
In line with its treasury policy, the group currently places up to a maximum of
50% of its surplus cash on deposit within Ukraine in US dollars depending on
market conditions.
Taxation
The Group generates taxable income mainly in Switzerland and Ukraine. The tax
charge to profits in the year was 16.6%, the same level as in 2007. Full details
of the deferred tax movements are contained in note 18 to the accounts.
Earnings
As a result of the strong operational performance described above, underlying
earnings increased by 129.0% to US$347.4 million (2007: US$151.7 million). Along
with the lower number of shares in issue following the share buyback, this
improved EPS significantly. Fully diluted EPS rose to 48.46 US cents per share
in 2008 (2007: 20.33 US cents per share). Underlying EPS was similarly higher at
57.58 US cents per share in 2008 (2007: 24.86 US cents per share).
Share repurchase
In September 2008, the company repurchased 25.3 million of its own shares at an
average price (including applicable costs and duties) of 170p per share. Total
consideration including costs amounted to US$77.3 million. These shares are held
in treasury.
Balance sheet and cash flow
The cash flow of the business is summarised in the table below:
+----------------------------------------------+--------------+-----------------+
| US$ millions | Year ended | Year ended |
| | 31.12.08 | 31.12.07 |
+----------------------------------------------+--------------+-----------------+
| EBITDA | 503.9 | 246.1 |
+----------------------------------------------+--------------+-----------------+
| Working capital movements | (33.8) | (1.8) |
+----------------------------------------------+--------------+-----------------+
| Net financial payments | (15.4) | (24.0) |
+----------------------------------------------+--------------+-----------------+
| Income tax paid | (67.2) | (32.0) |
+----------------------------------------------+--------------+-----------------+
| Movement in provisions and other non-cash | (16.6) | 0.5 |
| items | | |
+----------------------------------------------+--------------+-----------------+
| Net cash flow from operating activities | 370.9 | 188.8 |
+----------------------------------------------+--------------+-----------------+
| Sustaining capital expenditure | (70.6) | (49.8) |
+----------------------------------------------+--------------+-----------------+
| Free cash flow | 300.3 | 139.0 |
+----------------------------------------------+--------------+-----------------+
| (Paid for)/received from: Expansionary | (205.8) | (54.6) |
| projects | | |
+----------------------------------------------+--------------+-----------------+
| Purchase of available for sale investments | (0.3) | (12.1) |
+----------------------------------------------+--------------+-----------------+
| Loans to associates | (4.0) | (5.0) |
+----------------------------------------------+--------------+-----------------+
| Distributions including to minorities and | (126.3) | (69.8) |
| share repurchases | - | 153.4 |
| Net IPO proceeds | | |
+----------------------------------------------+--------------+-----------------+
| Other receipts | 2.5 | 10.2 |
+----------------------------------------------+--------------+-----------------+
| Currency Translation Differences | (68.9) | (0.5) |
+----------------------------------------------+--------------+-----------------+
| Movement in Debt | (102.5) | 160.6 |
+----------------------------------------------+--------------+-----------------+
The strong operating results increased EBITDA by 104.8% to US$503.9 million,
reflecting an increase in EBITDA margin to 45.1 % in 2008 from 35.2% in 2007.
Net cash flow from operating activities amounted to US$370.9 million in 2008
(2007: US$188.8 million). Net Financial Indebtedness has increased to US$220.1
million at 31 December 2008 from the low levels of indebtedness in 2007 (31
December 2007: US$117.9 million). Operating cash flow was invested in new mining
equipment for the existing operations amounting to US$70.6 million, and in the
Yeristovskoye development project and stripping operations for the GPL mine
which together amounted to US$205.8 million.
The Group's share buyback referred to above, together with distributions to
shareholders of the Group, the payment of US$11.0 million for the repurchase of
FPM shares from DCM and distributions to FPM minorities of US$1.2 million
amounted to $126.3 million in total.
At the year end the Group held cash balances of US$87.8 million and had undrawn
credit facilities of US$5.0 million.
ACCOUNTS
Consolidated income statement
+------------------------------------+-------+--------------+------------+
| US$ 000 |Notes | Audited | Year ended |
| | | Year ended | 31.12.07 |
| | | 31.12.08 | |
+------------------------------------+-------+--------------+------------+
| Revenue | 3 | 1,116,854 | 698,216 |
+------------------------------------+-------+--------------+------------+
| Cost of sales | 4 | (434,238) | (335,936) |
+------------------------------------+-------+--------------+------------+
| Gross profit | | 682,616 | 362,280 |
+------------------------------------+-------+--------------+------------+
| Selling and distribution expenses | | (152,528) | (100,614) |
+------------------------------------+-------+--------------+------------+
| General and administrative | | (67,185) | (44,308) |
| expenses | | | |
+------------------------------------+-------+--------------+------------+
| Other income | | 6,387 | 4,844 |
+------------------------------------+-------+--------------+------------+
| Other expenses | | (38,040) | (5,096) |
+------------------------------------+-------+--------------+------------+
| Operating foreign exchange gain | | 29,309 | - |
+------------------------------------+-------+--------------+------------+
| Operating profit from continuing | | 460,559 | 217,106 |
| operations before adjusted items | | | |
+------------------------------------+-------+--------------+------------+
| Write-offs and impairment losses | | (27,326) | (1,568) |
+------------------------------------+-------+--------------+------------+
| Share of gains of associates | | 1,003 | 687 |
+------------------------------------+-------+--------------+------------+
| Negative goodwill | | 35,049 | - |
+------------------------------------+-------+--------------+------------+
| Initial public offering costs | | (4,120) | (34,004) |
+------------------------------------+-------+--------------+------------+
| Gain on disposal of | | 1,571 | 4,714 |
| available-for-sale investment | | | |
+------------------------------------+-------+--------------+------------+
| Profit before tax and finance | | 466,736 | 186,935 |
+------------------------------------+-------+--------------+------------+
| Finance income | 5 | 2,467 | 3,242 |
+------------------------------------+-------+--------------+------------+
| Finance expense | 5 | (20,834) | (25,950) |
+------------------------------------+-------+--------------+------------+
| Non-operating foreign exchange | | (72,788) | (3,467) |
| loss | | | |
+------------------------------------+-------+--------------+------------+
| Profit before tax | | 375,581 | 160,760 |
+------------------------------------+-------+--------------+------------+
| Tax | 6 | (62,533) | (26,725) |
+------------------------------------+-------+--------------+------------+
| Profit for the year | | 313,048 | 134,035 |
+------------------------------------+-------+--------------+------------+
| Attributable to: | | | |
+------------------------------------+-------+--------------+------------+
| Equity shareholders of Ferrexpo | | 292,436 | 124,076 |
| plc | | | |
+------------------------------------+-------+--------------+------------+
| Minority interest | | 20,612 | 9,959 |
+------------------------------------+-------+--------------+------------+
| | | 313,048 | 134,035 |
+------------------------------------+-------+--------------+------------+
| | | | |
+------------------------------------+-------+--------------+------------+
| Earnings per share: | | | |
+------------------------------------+-------+--------------+------------+
| Basic (US cents) | 7 | 48.60 | 20.41 |
+------------------------------------+-------+--------------+------------+
| Diluted (US cents) | 7 | 48.46 | 20.33 |
+------------------------------------+-------+--------------+------------+
+------------------------------------+------+---------------+------------+
| Dividends: | | | |
+------------------------------------+------+---------------+------------+
| Proposed ordinary dividend per | 7 | 3.3 | 3.2 |
| share (US cents) | | | |
+------------------------------------+------+---------------+------------+
| Proposed aggregate dividend (US$ | 7 | 20,000 | 19,449 |
| 000) | | | |
+------------------------------------+------+---------------+------------+
Consolidated balance sheet
+----------------------------------------+----------+-----------+-----------+
| US$ 000 | Notes | Audited | As at |
| | | As at | 31.12.07 |
| | | 31.12.08 | |
+----------------------------------------+----------+-----------+-----------+
| Assets | | | |
+----------------------------------------+----------+-----------+-----------+
| Property, plant and equipment | | 412,440 | 364,545 |
+----------------------------------------+----------+-----------+-----------+
| Goodwill and other intangible assets | | 103,755 | 156,827 |
+----------------------------------------+----------+-----------+-----------+
| Investments in associates | | 18,640 | 17,637 |
+----------------------------------------+----------+-----------+-----------+
| Available-for-sale financial assets | | 4,435 | 47,134 |
+----------------------------------------+----------+-----------+-----------+
| Other non-current assets | | 10,116 | 15,179 |
+----------------------------------------+----------+-----------+-----------+
| Deferred tax asset | | 14,043 | 8,107 |
+----------------------------------------+----------+-----------+-----------+
| Total non-current assets | | 563,429 | 609,429 |
+----------------------------------------+----------+-----------+-----------+
| Inventories | | 61,270 | 56,545 |
+----------------------------------------+----------+-----------+-----------+
| Trade and other receivables | | 58,157 | 43,575 |
+----------------------------------------+----------+-----------+-----------+
| Prepayments and other current assets | | 19,587 | 10,773 |
+----------------------------------------+----------+-----------+-----------+
| Income taxes recoverable and prepaid | | 5,835 | 5,350 |
+----------------------------------------+----------+-----------+-----------+
| Other taxes recoverable and prepaid | | 57,285 | 52,362 |
+----------------------------------------+----------+-----------+-----------+
| Available-for-sale financial assets | | 650 | 2,941 |
+----------------------------------------+----------+-----------+-----------+
| Cash and cash equivalents | 9 | 87,822 | 86,966 |
+----------------------------------------+----------+-----------+-----------+
| Total current assets | | 290,606 | 258,512 |
+----------------------------------------+----------+-----------+-----------+
| | | | |
+----------------------------------------+----------+-----------+-----------+
| Total assets | | 854,035 | 867,941 |
+----------------------------------------+----------+-----------+-----------+
| | | | |
+----------------------------------------+----------+-----------+-----------+
| Equity and liabilities | | | |
+----------------------------------------+----------+-----------+-----------+
| Share capital | | 121,628 | 121,628 |
+----------------------------------------+----------+-----------+-----------+
| Share premium | | 185,112 | 188,566 |
+----------------------------------------+----------+-----------+-----------+
| Other reserves | | (330,714) | 14,258 |
+----------------------------------------+----------+-----------+-----------+
| Retained earnings | | 470,098 | 216,616 |
+----------------------------------------+----------+-----------+-----------+
| Equity attributable to equity | | 446,124 | 541,068 |
| shareholders of the parent | | | |
+----------------------------------------+----------+-----------+-----------+
| Minority interest | | 11,769 | 45,854 |
+----------------------------------------+----------+-----------+-----------+
| Total equity | | 457,893 | 586,922 |
+----------------------------------------+----------+-----------+-----------+
| Interest bearing loans and borrowings | 9 | 231,373 | 146,008 |
+----------------------------------------+----------+-----------+-----------+
| Trade and other payables | | 570 | 2,666 |
+----------------------------------------+----------+-----------+-----------+
| Defined benefit pension liability | | 12,940 | 16,169 |
+----------------------------------------+----------+-----------+-----------+
| Provision for site restoration | | 1,071 | 1,746 |
+----------------------------------------+----------+-----------+-----------+
| Deferred tax liability | | 5,298 | 1,025 |
+----------------------------------------+----------+-----------+-----------+
| Total non-current liabilities | | 251,252 | 167,614 |
+----------------------------------------+----------+-----------+-----------+
| Interest bearing loans and borrowings | 9 | 74,523 | 54,284 |
+----------------------------------------+----------+-----------+-----------+
| Trade and other payables | | 35,033 | 25,380 |
+----------------------------------------+----------+-----------+-----------+
| Accrued liabilities and deferred | | 14,470 | 13,812 |
| income | | | |
+----------------------------------------+----------+-----------+-----------+
| Shares redemption liability | | - | 10,036 |
+----------------------------------------+----------+-----------+-----------+
| Income taxes payable | | 14,439 | 7,717 |
+----------------------------------------+----------+-----------+-----------+
| Other taxes payable | | 6,425 | 2,176 |
+----------------------------------------+----------+-----------+-----------+
| Total current liabilities | | 144,890 | 113,405 |
+----------------------------------------+----------+-----------+-----------+
| | | | |
+----------------------------------------+----------+-----------+-----------+
| Total liabilities | | 396,142 | 281,019 |
+----------------------------------------+----------+-----------+-----------+
| | | | |
+----------------------------------------+----------+-----------+-----------+
| Total equity and liabilities | | 854,035 | 867,941 |
+----------------------------------------+----------+-----------+-----------+
Consolidated cash flow statement
+---------------------------------------+---------+------------+-----------+
| US$ 000 | Notes | Audited | Year |
| | | Year ended | ended |
| | | 31.12.08 | 31.12.07 |
+---------------------------------------+---------+------------+-----------+
| Net cash flows from operating | 10 | 370,943 | 188,846 |
| activities | | | |
+---------------------------------------+---------+------------+-----------+
| Cash flows from investing activities | | | |
+---------------------------------------+---------+------------+-----------+
| Purchase of property, plant and | | (276,264) | (104,352) |
| equipment | | | |
+---------------------------------------+---------+------------+-----------+
| Proceeds from sale of property, plant | | 2,016 | 1,896 |
| and equipment | | | |
+---------------------------------------+---------+------------+-----------+
| Purchase of intangible assets | | (1,597) | (435) |
+---------------------------------------+---------+------------+-----------+
| Deposits lodged at banks | | - | 9,011 |
+---------------------------------------+---------+------------+-----------+
| Purchases of available-for-sale | | (266) | (12,126) |
| securities | | | |
+---------------------------------------+---------+------------+-----------+
| Proceeds from sale of financial | | - | 5,704 |
| assets | | | |
+---------------------------------------+---------+------------+-----------+
| Interest received | | 2,472 | 4,805 |
+---------------------------------------+---------+------------+-----------+
| Acquisition of minority interest in | | (11,048) | - |
| subsidiaries | | | |
+---------------------------------------+---------+------------+-----------+
| Loans provided to associates | | (4,000) | (5,000) |
+---------------------------------------+---------+------------+-----------+
| Net cash flows used in investing | | (288,687) | (100,497) |
| activities | | | |
+---------------------------------------+---------+------------+-----------+
| Cash flows from financing activities | | | |
+---------------------------------------+---------+------------+-----------+
| Proceeds from borrowings and finance | | 172,143 | 175,244 |
+---------------------------------------+---------+------------+-----------+
| Repayment of borrowings and finance | | (69,412) | (276,084) |
+---------------------------------------+---------+------------+-----------+
| Dividends paid to equity shareholders | | (38,954) | - |
| of the parent | | | |
+---------------------------------------+---------+------------+-----------+
| Dividends paid to minority interest | | (1,186) | (786) |
+---------------------------------------+---------+------------+-----------+
| Distribution under 50/50 tax ruling | | - | (5,000) |
+---------------------------------------+---------+------------+-----------+
| Proceeds from issue of share capital | | 2,123 | - |
| to minorities | | | |
+---------------------------------------+---------+------------+-----------+
| Proceeds from issue of share capital | | | |
| in Ferrexpo plc: | | | |
+---------------------------------------+---------+------------+-----------+
| Initial public offering proceeds | | - | 202,072 |
+---------------------------------------+---------+------------+-----------+
| Non-initial public offering | | - | 99 |
| proceeds | | | |
+---------------------------------------+---------+------------+-----------+
| Initial public offering costs | | - | (48,648) |
+---------------------------------------+---------+------------+-----------+
| Share buy back | | (77,260) | (64,055) |
+---------------------------------------+---------+------------+-----------+
| Net cash flows used in financing | | (12,546) | (17,158) |
| activities | | | |
+---------------------------------------+---------+------------+-----------+
| Net increase/(decrease) in cash and | | 69,710 | 71,191 |
| cash equivalents | | | |
+---------------------------------------+---------+------------+-----------+
| Cash and cash equivalents at the | | 86,966 | 16,236 |
| beginning of the year | | | |
+---------------------------------------+---------+------------+-----------+
| Currency translation differences | | (68,854) | (461) |
+---------------------------------------+---------+------------+-----------+
| Cash and cash equivalents at the end | | 87,822 | 86,966 |
| of the year | | | |
+---------------------------------------+---------+------------+-----------+
Notes to the Consolidated Financial Information
Note 1: General information
The financial information for the year ended 31 December 2008 does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985. The audited statutory accounts for the year ended 31 December 2007 have
been delivered to the Registrar of Companies and those for 2008 will be
delivered following the Company's annual general meeting convened for Tuesday,
19 May 2009.
The auditor has reported on the statutory accounts for year ended 31 December
2008. The auditor's report was unqualified.
Note 2: Summary of significant accounting policies
Whilst the preliminary announcement has been prepared in accordance with
International Financial Reporting Standards ('IFRS') and International Financial
Reporting Interpretation Committee ("IFRIC") interpretations adopted for use by
the European Union and with those parts of the Companies Act 1985 applicable to
companies reporting under IFRS, this announcement does not itself contain
sufficient information to comply with IFRS. The Board approved the full
financial statements that comply with IFRS on Monday, 23 March 2009. The
financial statements have been prepared under the historical cost convention as
modified by the recording of pension assets and liabilities and the revaluation
of certain financial instruments.
The accounting policies applied are consistent with those adopted and disclosed
in the Group's annual financial statements for the year ended 31 December 2007
except for the following.
The Group has adopted the following new and amended IFRS and IFRIC
interpretations as of 1 January 2008.
International Financial Reporting Interpretations Committee (IFRIC)
Effective date
* IFRIC 11 (IFRS 2) Group and treasury share transactions 1
January 2008
* IFRIC 14 (IAS 19) The limit on a defined benefit asset, minimum 1
January 2008
funding requirements and their interaction
Adoption of these standards did not have any effect on the financial performance
or position of the Group.
Changes occurring as a result of improvements to IFRSs
In May 2008 the IASB issued its first omnibus of amendments to its standards,
primarily with a view to removing inconsistencies and clarifying wording. There
are separate transitional provisions for each standard. The Group has early
adopted the following amendments to standards:
* IAS 1 'Presentation of financial statements'
* IAS 16 'Property, plant and equipment'
* IAS 23 'Borrowing costs'
* IAS 28 'Investment in associates'
* IAS 31 'Interest in joint ventures'
* IAS 36 'Impairment of assets'
* IAS 38 'Intangible assets'
The Group amended its accounting policies where applicable however the adoption
of the above standards did not have an impact upon the financial position or
performance of the Group.
Note 3: Revenue
Revenue for the year ended 31 December 2008 consisted of the following:
+------------------------+-------------+------------+
| US$ 000 | Audited | Year ended |
| | Year ended | 31.12.07 |
| | 31.12.08 | |
+------------------------+-------------+------------+
| Revenue from sales of | | |
| ore pellets: | | |
+------------------------+-------------+------------+
| Export | 973,420 | 560,805 |
+------------------------+-------------+------------+
| Ukraine | 134,413 | 128,731 |
+------------------------+-------------+------------+
| | 1,107,833 | 689,536 |
+------------------------+-------------+------------+
| | | |
+------------------------+-------------+------------+
| Revenue from services | 1,229 | 3,005 |
| provided | | |
+------------------------+-------------+------------+
| Revenue from other | 7,792 | 5,675 |
| sales | | |
+------------------------+-------------+------------+
| | 1,116,854 | 698,216 |
+------------------------+-------------+------------+
Export sales by geographical destination were as follows:
+-------------------------+-------------+------------+
| US$ 000 | Audited | Year ended |
| | Year ended | 31.12.07 |
| | 31.12.08 | |
+-------------------------+-------------+------------+
| Austria | 298,209 | 160,324 |
+-------------------------+-------------+------------+
| Serbia | 170,972 | 83,708 |
+-------------------------+-------------+------------+
| China | 173,761 | 103,223 |
+-------------------------+-------------+------------+
| Slovakia | 117,093 | 81,516 |
+-------------------------+-------------+------------+
| Czech Republic | 80,746 | 55,617 |
+-------------------------+-------------+------------+
| Russia | 42,606 | - |
+-------------------------+-------------+------------+
| Poland | 31,708 | 23,766 |
+-------------------------+-------------+------------+
| Turkey | 30,649 | 9,777 |
+-------------------------+-------------+------------+
| Bulgaria | 12,189 | 27,389 |
+-------------------------+-------------+------------+
| Italy | 10,340 | 3,418 |
+-------------------------+-------------+------------+
| Japan | 34 | 5,029 |
+-------------------------+-------------+------------+
| Romania | - | 7,038 |
+-------------------------+-------------+------------+
| Other | 5,113 | - |
+-------------------------+-------------+------------+
| | 973,420 | 560,805 |
+-------------------------+-------------+------------+
During the year ended 31 December 2008 sales made to three customers accounted
for approximately 52.5% of the net sales revenue (2007: 53.9%).
Note 4: Cost of sales
Cost of sales for the year ended 31 December 2008 consisted of the following:
+-----------------------------------------------+-------------+------------+
| US$ 000 | Audited | Year ended |
| | Year ended | 31.12.07 |
| | 31.12.08 | |
+-----------------------------------------------+-------------+------------+
| Materials | 98,020 | 98,733 |
+-----------------------------------------------+-------------+------------+
| Purchased ore and concentrate | 47,491 | 17,587 |
+-----------------------------------------------+-------------+------------+
| Electricity | 92,021 | 74,621 |
+-----------------------------------------------+-------------+------------+
| Personnel costs | 68,781 | 47,402 |
+-----------------------------------------------+-------------+------------+
| Spare parts and consumables | 32,034 | 14,663 |
+-----------------------------------------------+-------------+------------+
| Depreciation and amortisation | 28,860 | 25,635 |
+-----------------------------------------------+-------------+------------+
| Fuel | 41,517 | 28,086 |
+-----------------------------------------------+-------------+------------+
| Gas | 34,106 | 25,576 |
+-----------------------------------------------+-------------+------------+
| Royalties and levies | 6,764 | 8,570 |
+-----------------------------------------------+-------------+------------+
| Stock movement | (19,596) | (6,284) |
+-----------------------------------------------+-------------+------------+
| Other | 4,240 | 1,347 |
+-----------------------------------------------+-------------+------------+
| | 434,238 | 335,936 |
+-----------------------------------------------+-------------+------------+
Cost of sales is reconciled to "C1" costs in the following manner:
+----------------------------------------------+--------------+------------+
| US$ 000 | Audited | Year ended |
| | Year ended | 31.12.07 |
| | 31.12.08 | |
+----------------------------------------------+--------------+------------+
| Cost of sales | 434,238 | 335,936 |
+----------------------------------------------+--------------+------------+
| | | |
+----------------------------------------------+--------------+------------+
| Depreciation and amortisation | (28,860) | (25,635) |
+----------------------------------------------+--------------+------------+
| Purchased ore and concentrate | (47,491) | (17,587) |
+----------------------------------------------+--------------+------------+
| Processing costs for purchased ore and | (5,418) | - |
| concentrate | | |
+----------------------------------------------+--------------+------------+
| Production cost of gravel | (375) | (2,101) |
+----------------------------------------------+--------------+------------+
| Stock movement in the period | 19,596 | (6,284) |
+----------------------------------------------+--------------+------------+
| Pension service costs | (5,058) | (1,877) |
+----------------------------------------------+--------------+------------+
| Other | (2,214) | (2,879) |
+----------------------------------------------+--------------+------------+
| | | |
+----------------------------------------------+--------------+------------+
| C1 cost | 364,418 | 279,573 |
+----------------------------------------------+--------------+------------+
| | | |
+----------------------------------------------+--------------+------------+
| Own ore produced tonnes | 8,607,500 | 8,793,000 |
+----------------------------------------------+--------------+------------+
| C1 cash cost per tonne $ | 42.34 | 31.79 |
+----------------------------------------------+--------------+------------+
"C1" costs represent the cash costs of production of own ore divided by
production volume of own ore, and excludes non cash costs such as depreciation,
pension costs and stock movement, costs of purchased ore, concentrate and
production cost of gravel and excludes one-off items which are outside the
definition of EBITDA.
Note 5: Finance income/expense
Finance income and expenses for the year ended 31 December 2008 consisted of the
following:
+-----------------------------------------------+-------------+------------+
| US$ 000 | Audited | Year ended |
| | Year ended | 31.12.07 |
| | 31.12.07 | |
+-----------------------------------------------+-------------+------------+
| Finance income | | |
+-----------------------------------------------+-------------+------------+
| Interest income on bank deposits | 1,448 | 2,457 |
+-----------------------------------------------+-------------+------------+
| Other finance revenue | 1,019 | 785 |
+-----------------------------------------------+-------------+------------+
| | 2,467 | 3,242 |
+-----------------------------------------------+-------------+------------+
| Finance expense | | |
+-----------------------------------------------+-------------+------------+
| Interest expense on financial liabilities | (15,002) | (21,493) |
| measured at amortised cost | | |
+-----------------------------------------------+-------------+------------+
| Interest on defined benefit plans | (1,776) | (1,490) |
+-----------------------------------------------+-------------+------------+
| Bank charges | (336) | (1,642) |
+-----------------------------------------------+-------------+------------+
| Other finance costs | (3,720) | (1,325) |
+-----------------------------------------------+-------------+------------+
| | (20,834) | (25,950) |
+-----------------------------------------------+-------------+------------+
| | | |
+-----------------------------------------------+-------------+------------+
| Net finance expense | (18,367) | (22,708) |
+-----------------------------------------------+-------------+------------+
Other finance costs includes the unwinding of the discount on the site
restoration provision, discounting of the share redemption liability and other
costs.
Note 6: Income tax expense
The income tax expense for the year ended 31 December 2008 consisted of the
following:
+-----------------------------------------------+-------------+------------+
| US$ 000 | Audited | Year ended |
| | Year ended | 31.12.07 |
| | 31.12.08 | |
+-----------------------------------------------+-------------+------------+
| Current income tax | 79,016 | 31,163 |
+-----------------------------------------------+-------------+------------+
| Deferred income tax | (16,483) | (4,438) |
+-----------------------------------------------+-------------+------------+
| | | |
+-----------------------------------------------+-------------+------------+
| | 62,533 | 26,725 |
+-----------------------------------------------+-------------+------------+
The effective income tax rate differs from the corporate income tax rates. The
weighted average of the statutory rate was 18.2% for 2008 (2007: 17.6%). This is
calculated as the average of the statutory tax rates applicable in the countries
in which the Group operates, weighted by the profit/(loss) before tax of the
subsidiaries in the respective countries as included in the consolidated
financial information. The effective tax rate is 16.6% (2007: 16.6%).
The changes in the weighted average income tax rate are largely due to a change
in the profit/(loss) before tax in the various jurisdictions in which the Group
operates.
A reconciliation between the income tax charged in the accompanying financial
information and income before taxes multiplied by the weighted average statutory
tax rate for the year ended 31 December 2008 is as follows:
+-----------------------------------------------+-------------+------------+
| US$ 000 | Audited | Year ended |
| | Year ended | 31.12.07 |
| | 31.12.08 | |
+-----------------------------------------------+-------------+------------+
| Profit before tax | 375,581 | 160,760 |
+-----------------------------------------------+-------------+------------+
| | | |
+-----------------------------------------------+-------------+------------+
| Notional tax computed at the weighted average | 68,496 | 28,234 |
| statutory tax rate of 18.2% (2007: 17.6%) | | |
+-----------------------------------------------+-------------+------------+
| 50/50 Swiss tax ruling | - | (472) |
+-----------------------------------------------+-------------+------------+
| Derecognition of deferred tax asset | 4,359 | - |
+-----------------------------------------------+-------------+------------+
| Inflation related indexation of fixed assets | (12,456) | (6,084) |
| for tax | | |
+-----------------------------------------------+-------------+------------+
| Expenses not deductible for tax purposes | 9,669 | 4,675 |
+-----------------------------------------------+-------------+------------+
| Tax effect on asset impairment and negative | (7,849) | - |
| goodwill | | |
+-----------------------------------------------+-------------+------------+
| Tax related to prior years | (286) | 32 |
+-----------------------------------------------+-------------+------------+
| Other | 600 | 340 |
+-----------------------------------------------+-------------+------------+
| Income tax expense | 62,533 | 26,725 |
+-----------------------------------------------+-------------+------------+
Note 7: Earnings per share and dividends paid and proposed
Basic EPS is calculated by dividing the net profit for the year attributable to
ordinary equity shareholders of Ferrexpo plc by the weighted average number of
ordinary shares. The number of shares was assumed to be constant throughout
2007, the year of the Group's Initial Public Offering.
+-----------------------------------------------+--------------+------------+
| | Audited | Year ended |
| | Year ended | 31.12.07 |
| | 31.12.08 | |
+-----------------------------------------------+--------------+------------+
| Profit for the year attributable to equity | | |
| shareholders: | | |
+-----------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------+--------------+------------+
| Basic earnings per share (US cents) | 48.60 | 20.41 |
+-----------------------------------------------+--------------+------------+
| Diluted earnings per share (US cents) | 48.46 | 20.33 |
+-----------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------+--------------+------------+
| Underlying earnings for the year: | | |
+-----------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------+--------------+------------+
| Basic earnings per share (US cents) | 57.74 | 24.96 |
+-----------------------------------------------+--------------+------------+
| Diluted earnings per share (US cents) | 57.58 | 24.86 |
+-----------------------------------------------+--------------+------------+
The calculation of the basic and diluted earnings per share is based on the
following data:
+-----------------------------------------------+--------------+------------+
| Thousands | Audited | Year ended |
| | Year ended | 31.12.07 |
| | 31.12.08 | |
+-----------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------+--------------+------------+
| Weighted average number of shares | | |
+-----------------------------------------------+--------------+------------+
| Basic number of ordinary shares outstanding | 601,697 | 607,796 |
+-----------------------------------------------+--------------+------------+
| Effect of dilutive potential ordinary shares | 1,717 | 2,403 |
+-----------------------------------------------+--------------+------------+
| Diluted number of ordinary shares outstanding | 603,414 | 610,199 |
+-----------------------------------------------+--------------+------------+
The basic number of ordinary shares is calculated by reducing the total number
or ordinary shares in issue by the shares held in treasury.
Diluted earnings per share is 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 included in the calculation of diluted earnings per share.
'Underlying earnings' is an alternative earnings measure, which the directors
believe provides a clearer picture of the underlying financial performance of
the Group's operations. Underlying earnings is presented after minority
interests and excludes adjusted items. The calculation of underlying earnings
per share is based on the following earnings data:
+-----------------------------------------------+--------------+------------+
| US$ 000 | Audited | Year ended |
| | Year ended | 31.12.07 |
| | 31.12.08 | |
+-----------------------------------------------+--------------+------------+
| Profit attributable to equity holders | 292,436 | 124,076 |
+-----------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------+--------------+------------+
| Write offs/impairments | 27,326 | 1,568 |
+-----------------------------------------------+--------------+------------+
| IPO costs | 4,120 | 34,004 |
+-----------------------------------------------+--------------+------------+
| Negative goodwill generated on rights issue | (35,049) | - |
+-----------------------------------------------+--------------+------------+
| Gain on disposal of available-for-sale | (1,571) | (4,714) |
| investment | | |
+-----------------------------------------------+--------------+------------+
| Non-operating foreign exchange losses | 72,788 | - |
+-----------------------------------------------+--------------+------------+
| Tax on adjusted items | (12,619) | (3,217) |
+-----------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------+--------------+------------+
| Underlying earnings | 347,431 | 151,717 |
+-----------------------------------------------+--------------+------------+
Adjusted items are those items of financial performance that the Group believes
should be separately disclosed on the face of the income statement to assist in
the understanding of the underlying financial performance achieved by the Group.
Adjusted items that relate to the operating performance of the Group include
impairment charges and reversals and other exceptional items. Non-operating
adjusted items include gains and losses on disposal of investments and
businesses and non-operating foreign exchange gains and losses.
Dividends paid and proposed
+----------------------------------------------+--------------+
| US $000 | Audited |
| | Year ended |
| | 31.12.08 |
+----------------------------------------------+--------------+
| Dividends proposed | |
+----------------------------------------------+--------------+
| Final dividend for 2008: 3.3 US cents per | 20,000 |
| ordinary share | |
+----------------------------------------------+--------------+
| Total | 20,000 |
+----------------------------------------------+--------------+
| Dividends paid during the period | |
+----------------------------------------------+--------------+
| Interim dividend for 2008: 3.2 US cents per | 19,505 |
| ordinary share | |
+----------------------------------------------+--------------+
| Final dividend for 2007: 3.2 US cents per | 19,449 |
| ordinary share | |
+----------------------------------------------+--------------+
| Total | 38,954 |
+----------------------------------------------+--------------+
Note 8: EBITDA
The Group calculates EBITDA as profit from continuing operations before tax and
finance plus depreciation and amortisation (included in cost of sales,
administrative expenses and selling and distribution costs) and non-recurring
cash items included in other income, non-recurring cash items included in other
costs plus the net gain/(loss) from disposal of subsidiaries and associates. The
Group presents EBITDA because it believes that EBITDA is a useful measure for
evaluating its ability to generate cash and its operating performance.
+-----------------------------------------------+--------------+------------+
| US$'000 | Audited | Year ended |
| | Year ended | 31.12.07 |
| | 31.12.08 | |
+-----------------------------------------------+--------------+------------+
| Profit before tax and finance | 466,736 | 186,935 |
+-----------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------+--------------+------------+
| Write-offs and impairment losses | 27,326 | 1,568 |
+-----------------------------------------------+--------------+------------+
| Gain on disposal of available-for-sale | (1,571) | (4,714) |
| investment | | |
+-----------------------------------------------+--------------+------------+
| Initial public offering costs | 4,120 | 34,004 |
+-----------------------------------------------+--------------+------------+
| Share based payments | 1,495 | - |
+-----------------------------------------------+--------------+------------+
| Negative goodwill generated on rights issue | (35,049) | - |
+-----------------------------------------------+--------------+------------+
| Severance payments | 6,764 | - |
+-----------------------------------------------+--------------+------------+
| Depreciation and amortisation | 34,125 | 28,264 |
+-----------------------------------------------+--------------+------------+
| EBITDA | 503,946 | 246,057 |
+-----------------------------------------------+--------------+------------+
The severance payments disclosed above relate to the amounts paid to the former
CEO and the Director of Business Development upon their resignation.
Note 9: Net financial indebtedness
+-----------------------------------------------+--------------+------------+
| US$ 000 | Audited | Year ended |
| | Year ended | 31.12.07 |
| | 31.12.08 | |
+-----------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------+--------------+------------+
| Cash and cash equivalents | 87,822 | 86,966 |
+-----------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------+--------------+------------+
| Current borrowings | (74,523) | (54,284) |
+-----------------------------------------------+--------------+------------+
| Non-current borrowings | (231,373) | (146,008) |
+-----------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------+--------------+------------+
| Current commodity loans | (1,446) | (1,664) |
+-----------------------------------------------+--------------+------------+
| Non-current commodity loans | (570) | (2,569) |
+-----------------------------------------------+--------------+------------+
| | | |
+-----------------------------------------------+--------------+------------+
| Net financial indebtedness | (220,090) | (117,559) |
+-----------------------------------------------+--------------+------------+
Net financial indebtedness as defined by the Group comprises cash and cash
equivalents, term deposits, interest bearing loans and borrowings and amounts
payable for equipment.
Payables for equipment comprised balances due to foreign suppliers for mining
equipment denominated in USD and EUR which are interest-bearing.
Note 10: Reconciliation of profit before income tax to net cash flow from
operating activities
+----------------------------------------------+--------------+------------+
| US$ 000 | Audited | Year ended |
| | Year ended | 31.12.07 |
| | 31.12.08 | |
+----------------------------------------------+--------------+------------+
| Profit before income tax | 375,581 | 160,760 |
+----------------------------------------------+--------------+------------+
| Adjustments for: | | |
+----------------------------------------------+--------------+------------+
| Depreciation of property, plant and | 34,125 | 28,265 |
| equipment and amortisation of intangible | | |
| assets | | |
+----------------------------------------------+--------------+------------+
| Interest expense | 18,496 | 24,488 |
+----------------------------------------------+--------------+------------+
| Interest income | (2,467) | (3,242) |
+----------------------------------------------+--------------+------------+
| Share of income of associates | (1,003) | (687) |
+----------------------------------------------+--------------+------------+
| Movement in allowance for doubtful | 19,095 | 336 |
| receivables | | |
+----------------------------------------------+--------------+------------+
| Write/reversal of payables | (1,043) | - |
+----------------------------------------------+--------------+------------+
| Loss on disposal of property, plant and | 1,280 | - |
| equipment | | |
+----------------------------------------------+--------------+------------+
| Assets received free of charge | (325) | - |
+----------------------------------------------+--------------+------------+
| Write offs and impairment losses | 27,325 | 1,568 |
+----------------------------------------------+--------------+------------+
| Site restoration provision | 269 | 1,269 |
+----------------------------------------------+--------------+------------+
| Gains on disposal of investments available | (1,571) | (4,714) |
| for sale and other financial instruments | | |
+----------------------------------------------+--------------+------------+
| Employee benefits | 7,715 | 3,915 |
+----------------------------------------------+--------------+------------+
| IPO costs | 4,120 | 34,004 |
+----------------------------------------------+--------------+------------+
| Share based payments | 1,495 | - |
+----------------------------------------------+--------------+------------+
| Negative goodwill generated on rights issue | (35,049) | - |
+----------------------------------------------+--------------+------------+
| Non-operating foreign exchange gain | (29,309) | - |
+----------------------------------------------+--------------+------------+
| Non-operating foreign exchange loss | 72,788 | 3,467 |
+----------------------------------------------+--------------+------------+
| Operating cash flow before working capital | 491,522 | 249,429 |
| changes | | |
+----------------------------------------------+--------------+------------+
| | | |
+----------------------------------------------+--------------+------------+
| Changes in working capital | | |
+----------------------------------------------+--------------+------------+
| (Increase)/decrease in trade accounts | (36,167) | 13,951 |
| receivable and other receivables | | |
+----------------------------------------------+--------------+------------+
| (Increase)/decrease in inventories | (5,070) | (7,840) |
+----------------------------------------------+--------------+------------+
| Increase/(decrease) in trade and other | 8,094 | 6,534 |
| accounts payable | | |
+----------------------------------------------+--------------+------------+
| (Increase)/decrease in other taxes | (673) | (14,411) |
| receivable | | |
+----------------------------------------------+--------------+------------+
| Cash generated from operating activities | 457,706 | 247,663 |
+----------------------------------------------+--------------+------------+
| | | |
+----------------------------------------------+--------------+------------+
| Interest paid | (15,443) | (24,525) |
+----------------------------------------------+--------------+------------+
| Income tax paid | (67,217) | (32,018) |
+----------------------------------------------+--------------+------------+
| Post employment benefits paid | (4,103) | (2,274) |
+----------------------------------------------+--------------+------------+
| Net cash flows from operating activities | 370,943 | 188,846 |
+----------------------------------------------+--------------+------------+
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR VXLFLKXBEBBE
Ferrexpo (LSE:FXPO)
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Ferrexpo (LSE:FXPO)
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부터 7월(7) 2023 으로 7월(7) 2024
