TIDMFXPO
RNS Number : 8864W
Ferrexpo PLC
05 August 2009
5 August 2009
Interim Results Statement
Ferrexpo plc, ("Ferrexpo" or the "Group"), Ukraine's leading iron ore pellet
exporter, today announces its interim results for the period ended 30 June 2009.
Highlights
Operations
· Strong operational results reflect flexibility and resilience of the
business and successful marketing strategy
o Production at 100% of capacity in final four months of H1 2009
o Sales at 100% of output (4.2 mt in H1 2009 vs 4.5mt in H1 2008)
o Increase in 65% Fe pellet production as demand for higher quality remains
o Weak European demand compensated by increase sales to Asia (57% of volume)
o 15.4% decrease in C1 cost to US$34.5/t (H1 2008: US$40.9/t), further reduced
to US 33.5/t in June
Financial
· Resilient financial performance in the face of uncertain trading
conditions in iron ore market
o Remained profitable - Profit After Taxation US$28.7m (H1 2008: US$157.7m)
o Cash balances of US$74.3m at period end (Year End 2008: US$87.8)
o Revenue for the period of US$301.8m (H1 2008: US$519.5m)
o Decision on interim dividend deferred until October due to market conditions
in Q2 2009
Outlook
· Signs of normalisation of trade and increasing local and regional demand
for iron ore
· Spot prices for iron ore increasing, underpinning potential contract
price settlements
· Pricing upside in H2 2009 - Ferrexpo average achieved prices in H1 2009
approximately 10% below recent Vale settlements
· Flexible marketing, financial prudence and aggressive cost reductions to
drive near term strategy
· Aim to take advantage of current climate to increase market share,
continue 100% production and expand higher quality pellet production
· Major investment decisions still on hold but growth projects remain a
priority
Kostyantin Zhevago, Ferrexpo's CEO, commented:
"We are encouraged by Ferrexpo's results for the first half of 2009, which show
that we can withstand the most extreme of economic downturns. Despite the iron
ore market experiencing severe contraction, Ferrexpo was able to continue to
produce almost at last year's levels and remain profitable by increasing sales
to China and India, while maintaining sales to our traditional European markets
to the extent possible. Importantly, in this difficult economic climate we have
continued to strengthen and expand our customer relationships, and as market
stability slowly returns the Group is well positioned to continue to increase
its market share not only in the Asian growth markets, but also in its
traditional European markets."
For further information, please contact:
+-----------------------------------------+-----------------------------+
| Ferrexpo: | +44 207 389 8304 |
| Gavin Mackay | |
+-----------------------------------------+-----------------------------+
| Pelham PR: | +44 207 337 1538 |
| Charles Vivian | |
| Evgeniy Chuikov | |
+-----------------------------------------+-----------------------------+
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 around 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 Statement
I am pleased to report that Ferrexpo's business has remained resilient in the
first six months of 2009. Since late 2008 the market for iron ore and most other
commodities has experienced the most severe cyclical downturn in half a century.
The Group has performed well despite these challenging conditions, producing
creditable financial results underpinned by a very strong operational
performance during the period founded on a short term operating strategy to
maximise output in order to minimise cash costs, thereby expanding our market
reach during highly uncertain times. Ferrexpo remained profitable and cash
generative in the first half of 2009.
Results
The Group's results for the first half of 2009 reflect both the strength of our
business model and the current weakness in the global steel industry. Low iron
ore prices and the failure of an international benchmark price to materialise
impacted the Group's revenues, while a strong marketing effort and rigorous cost
control enabled us to maintain sales volumes and achieve consistently positive
margins. As a result, revenues and profits were lower in the first half of 2009
than they were for the equivalent period last year, but the Group's business
remains stable and profitable. Revenues in the period under review were US$301.8
million, 42% below those achieved in the first six months of 2008 (US$519.5
million). EBITDA for the period fell by 73% to US$60.3 million (US$228.0
million) and Group pre-tax profit fell by 81% to US$37.8 million (US$201.4
million).
Market Environment and Marketing
The global economic recession that began in the final quarter of 2008 has had a
marked negative effect on the market for iron ore, as a result of the close
correlation between steel demand and macroeconomic bellwethers such as the
construction and automotive industries. As a result the current iron ore market
environment is characterised by low prices and a lack of stable demand
visibility, together with a partial decoupling of steel demand reflected in weak
markets in Europe and other developed nations offset to some degree by stronger
demand in China, as demand there has resumed more quickly under the impetus of
extensive government-led economic stimulus programmes.
Marketing and distribution remain critical to our business, and they have given
us the flexibility to deal effectively with the current downturn. Despite
challenging market conditions, we have successfully continued to execute our
stated strategy of leveraging our proximity to our core customers and strong
customer relations, enabling the Group to continue to sell its entire production
and to respond to lower demand in its Traditional markets by increasing its
market share in those regions. We have also been able to substitute sales
volumes originally destined for contract customers in Europe with increased spot
market sales to China where necessary. The Group's TIS Ruda joint venture port
terminal at Yuzhny Port on the Black Sea has been central to the success of
these increased Asian sales as it has enabled preferential access to the
seaborne market. The Group sold 54% of its total spot and long term sales
volumes to China during the first half of the year.
Lower demand for iron ore worldwide has resulted in lower iron ore prices in the
current year. In addition, temporary reliance on the seaborne spot market has
exposed the Group to shipping freight rates from the Black Sea to China, which
increased strongly in the second quarter, placing pressure on the Group's
margins for seaborne business and impacting the overall average price achieved
by the Group on an FOB basis. The average achieved DAF/FOB price in the first
half of 2009 was US$66.5/t, 58% lower than in the equivalent period last year.
Signs of slowly increasing demand from certain of our customers in Europe and
Ukraine in the final months of the first half indicate a gradual normalisation
of trading for Ferrexpo and the beginning of a return to supplying more product
to our long term framework contract customers in our Traditional and Natural
markets. This trend is likely to become more pronounced if the pellet price
settlements by Vale with some of its customers become accepted as the new
international Benchmark price.
Operations
Ferrexpo's producing assets in Ukraine have performed exceptionally well in the
first six months of 2009. Early in the year a decision was taken to produce at
full capacity coupled with an aggressive marketing plan aimed at selling our
entire production to maximise revenue and minimise the effect of our fixed
costs. While production volumes in the first two months were lower than planned
due primarily to adverse weather conditions, this was largely offset by very
high production levels in the four months to 30 June. As a result the volume of
pellets produced from our own raw materials decreased slightly during the period
to 4.12 million tonnes compared to the first six months of 2008 (4.50 million
tonnes). The Group also resumed purchases of third party concentrate in May for
the first time this year, and we produced a small amount (15kt) of pellets from
this concentrate in that month. We will continue this practice in the second
half in order to make use of the excess capacity in our pelletising plant and
thereby minimise our costs, provided that we can continue to make a sufficient
margin from this business.
Increasing the quality of our product remains a priority for Ferrexpo,
particularly given that demand for higher quality 65% Fe pellets is more robust
in times of market weakness. The Group produced 2.00 million tonnes of these
higher grade pellets during the period, a 4.3% increase compared to the same
period last year (1.92 million tonnes).
The cost pressures which the Group faced for much of 2008 have eased
significantly. The Business Improvement Programme and other initiatives continue
to yield further improvements in efficiencies and productivity, and our policy
of producing at full capacity is successfully minimising the effect of our fixed
cost base. Ukrainian inflation has fallen, reaching 17.6% by the end of the
period, and the Ukrainian Hryvnia has remained relatively stable since December,
trading in a band between UAH7.6 and UAH8.0 to the US dollar. These factors
resulted in a C1 cash cost of production for the first half of 2009 of
US$34.5/t, comparable to that in December 2008 and 16% below the C1 cost in the
first half of last year. It is notable that the C1 cost in June was US$33.6/t,
indicating a falling cost trend despite recent increases in the oil price.
Investing Activities and Funding
In line with our commitment to financial prudence, the Group's focus remains on
cash conservation. Consequently our pipeline of major growth projects remains
substantially on hold, and no significant additional capital commitments will be
made until such time as the Board believes a sustainable recovery in the global
economy can be observed and the group has secured bank facilities which enable
it to invest with certainty. The Group's operating cash flow in the first half
of 2009 decreased by 67% to US$46.3 million compared to the same period last
year (US$140.6 million). Available cash is principally being used to pay down
debt and provide working capital headroom.
The current moratorium on significant capital expenditure has provided an
opportunity to re-examine the capital cost estimates and execution methodology
of our major projects and we expect that costs can be reduced substantially in
light of changed economic conditions. These projects to expand output and
increase product quality remain a priority for the Group and modest expenditure
is being undertaken to preserve the value of investments made to date and ensure
readiness for rapid implementation when the time is right. Importantly, we have
observed increasing demand for our higher quality 65% Fe pellets over our 62% Fe
pellets in the past months, and as a result the next major investment by the
Group is likely to be made to improve product quality, once financing becomes
available and cash flows increase. We will update the market on any revisions to
our investment plans in due course.
Dividend
We have been profitable in the first half albeit at a lower level than last
year. The Board believes that trading reached its low point in this period and
that we should be trading more profitably in the second half year. The Board
therefore has decided in the interests of maintaining a consistent and
sustainable dividend to defer the declaration of the interim dividend until
October when Ferrexpo's sales prices are likely to have aligned with the
emerging international benchmark settlements for iron ore pellets and more
normal trading conditions will apply.
People
The Group would not have been able to react so flexibly and quickly to the
global economic crisis without the tireless efforts of the management and staff
of Ferrexpo. The Board is deeply grateful for their efforts.
Corporate Governance and Social Responsibility
In keeping with our commitment to all our stakeholders, Ferrexpo remains
substantially compliant with the UK Combined Code on Corporate Governance. The
Group has a balanced and experienced Board dedicated to the highest standards of
corporate governance and capable of providing continuing best practice
management and strategic guidance to the company.
Corporate Social Responsibility remains the first priority of the management of
the Group, and the Corporate Social Responsibility Committee meets regularly to
monitor and oversee the ongoing health and safety of the Group's employees,
active engagement with local communities and environmental awareness. We are
pleased to report that the Group suffered no fatal accidents in the first six
months of 2009, and we observe good progress in the implementation of our
cultural and behavioural safety change programme.
Principal Risks and Uncertainties
The principal risks and uncertainties facing the Group over the next six months
relate to iron ore prices and freight rates. No formal international Benchmark
price settlement has yet been reached, and the Group therefore remains exposed
to the iron ore spot market and the freight market from the Black Sea to China.
While we believe that the outlook for the iron ore market has improved
marginally in the last six months, it remains uncertain. The Group will continue
to react flexibly to market changes and practice financial prudence in order to
mitigate these risks.
Strategy and Outlook
The Group remains focused on cash conservation and market development. The Group
will continue aggressive operating cost reduction, and adopt a flexible approach
to capital investment until additional funding is available to develop its
substantial reserves. We will continue to leverage 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 the outlook for the global iron ore market remains uncertain, demand for
iron ore in China is proving robust, driven by re-stocking, economic stimulus
programmes and continuing urbanisation. A contract price reduction of 48.3% for
iron ore pellets has been settled by Vale, the largest producer of iron ore
pellets globally, with steel mills in Japan, South Korea and Europe and while
Chinese steel mills have not yet ratified these settlements, we believe that
they constitute the beginning of a slow normalisation of trade. Ferrexpo
remained cash flow positive and profitable throughout the first half of 2009,
and continues to take advantage of its strong marketing reputation to offset
weaker Traditional and Natural Markets with increased seaborne sales.
In the second half of 2009, we plan to maintain financial prudence and continue
to react quickly and adapt to market changes. Our steadfast performance to date
highlights the success of this strategy and, coupled with our unique asset base,
we are well positioned to continue to trade profitably and to take advantage of
an economic recovery.
Michael Abrahams CBE DL
Chairman
OPERATING & FINANCIAL REVIEW
Operating Highlights
* Production volumes at 100% of capacity from March 2009
* Successfully increased spot sales substituting weaker contract customer demand
* Strong sales volumes, all production sold
* Increasing market share in Europe
* Product quality improved, 4.3% increase in production of higher grade 65% Fe
pellets
* Production costs in line with December 2008 and below Ukrainian CPI inflation
Financial Highlights
* Revenue in H1 2009 of US$301.8 million (H1 2008: US$519.5 million)
* EBITDA in H1 2009 of US$60.3 million (H1 2008: US$228.0 million)
* Profit after tax in H1 2009 of US$28.7 million (H1 2008: US$157.7 million)
* US$74.3 million of cash on balance sheet at period end (Year End 2008: US$87.8)
* Net Debt of US$222.3 million at period end (Year End 2008: US$220.1)
OPERATING REVIEW
Key Statistics
+---+------------------------+--------+-----------------+---------------+---------+
| | UOM | 6 months ended | 6 months | % |
| | | 30 June 2009 |ended 30 June | Change |
| | | | 2008 | |
+----------------------------+--------+-----------------+---------------+---------+
| | | | | |
+----------------------------+--------+-----------------+---------------+---------+
| Iron ore mined | 000't | 13,694 | 14,361 | (4.6) |
+----------------------------+--------+-----------------+---------------+---------+
| Average Fe content | % | 30.30 | 30.06 | 0.8 |
+----------------------------+--------+-----------------+---------------+---------+
| | | | | |
+----------------------------+--------+-----------------+---------------+---------+
| Produced concentrate | 000't | 4,991 | 5,440 | (8.3) |
+----------------------------+--------+-----------------+---------------+---------+
| Average Fe content | % | 63.35 | 63.41 | (0.1) |
+----------------------------+--------+-----------------+---------------+---------+
| | | | | |
+----------------------------+--------+-----------------+---------------+---------+
| Purchased concentrate | 000't | 17 | 52 | 67.3 |
+----------------------------+--------+-----------------+---------------+---------+
| Average Fe content | % | 65.56 | 65.78 | (0.3) |
+----------------------------+--------+-----------------+---------------+---------+
| | | | | |
+----------------------------+--------+-----------------+---------------+---------+
| Purchased iron ore | 000't | - | 149 | - |
+----------------------------+--------+-----------------+---------------+---------+
| Average Fe content | % | - | 33.01 | - |
+----------------------------+--------+-----------------+---------------+---------+
| | | | | |
+----------------------------+--------+-----------------+---------------+---------+
| Total pellet production | 000't | 4,139 | 4,596 | (9.9) |
| (BFP) | | | | |
+----------------------------+--------+-----------------+---------------+---------+
| | | | | |
+----------------------------+--------+-----------------+---------------+---------+
| | From produced | 000't | 4,123 | 4,504 | (8.4) |
| | concentrate | | | | |
+---+------------------------+--------+-----------------+---------------+---------+
| | - Higher grade | 000't | 2,003 | 1,920 | 4.3 |
+---+------------------------+--------+-----------------+---------------+---------+
| | Average Fe content | % | 64.89 | 65.01 | (0.2) |
+---+------------------------+--------+-----------------+---------------+---------+
| | - Lower grade | 000't | 2,120 | 2,584 | (18.0) |
+---+------------------------+--------+-----------------+---------------+---------+
| | Average Fe content | % | 62.15 | 62.26 | (0.1) |
+---+------------------------+--------+-----------------+---------------+---------+
| | | | | | |
+---+------------------------+--------+-----------------+---------------+---------+
| | From purchased raw | 000't | 15 | 92 | (83.7) |
| | materials | | | | |
+---+------------------------+--------+-----------------+---------------+---------+
| | - Lower grade | 000't | 15 | 92 | (83.7) |
+---+------------------------+--------+-----------------+---------------+---------+
| | Average Fe content | % | 62.15 | 62.26 | (0.2) |
+---+------------------------+--------+-----------------+---------------+---------+
| | | | | |
+----------------------------+--------+-----------------+---------------+---------+
| Pellet sales volume | 000't | 4,194 | 4,517 | (7.2) |
+----------------------------+--------+-----------------+---------------+---------+
| | | | | |
+----------------------------+--------+-----------------+---------------+---------+
| Gravel production | 000't | 1,478 | 1,637 | (9.7) |
+---+------------------------+--------+-----------------+---------------+---------+
Existing Operations
The Group's operating asset, Ferrexpo Poltava Mining ("FPM"), continued to
improve its operational performance during the first six months of 2009,
responding well to the management strategy to minimise operating costs and to
produce at 100% of capacity. Pellet quality improvement was a particular focus
during the period.
Severe weather conditions in January and February caused wet concentrate
produced by the Group's competitors to freeze in the railcars that were
transporting it. This negatively affected the speed at which these railcars
could be unloaded, causing congestion and delays in the rail and port network in
Ukraine. As a result FPM had to reduce production in the first two months of the
year by 25% compared to the same two months in 2008. FPM also received a request
by local government to reduce its consumption of natural gas by 25% for
approximately two weeks in January, during the gas dispute between Russia and
Ukraine. This had no effect on FPM's already reduced production levels. The
Group successfully procured private sources of natural gas from within Ukraine
during the gas dispute which supplied approximately 62% of its requirement.
FPM produced at 100% of capacity from March to June 2009, but as a consequence
of the reduced production in January and February referred to above, overall
production numbers for the first half of 2009 were slightly lower than those in
the equivalent period in 2008. Ore extraction volumes were 4.6% lower at
13,694kt, and concentrate production was 8.3% lower at 4,991kt. Through
selective mining, FPM was able to increase the proportion of richer ore mined
(51% versus 48% in the equivalent period last year), which enabled FPM to
increase production of higher grade 65% Fe pellets by 4.3% to 2,003kt, thereby
maximising the production of a product with more robust demand. Higher quality
65% Fe pellets constituted 48.6% of total production from own produced
concentrate in the first half of 2009.
Total pellet production from produced concentrate decreased by 8.4% in the
period. The Group purchased some third party concentrate in May and produced
15kt of pellets from this, raising overall pellet production volume for the
period to 4,139kt, a decline of 9.9% compared to the first half of 2008. The
Group plans to continue to purchase third party concentrate during the remainder
of 2009 provided suitable margins can be realised, in order to maximise
production and reduce the effect of its fixed cost base.
Stripping volumes increased by 13.4% in the first half of 2009 to 11,986 cubic
metres. This high level of stripping was done in order to expose more of FPM's
richer ore to enable the production of larger amounts of higher quality 65% Fe
pellets. Some stripping associated with the project to expand the GPL mine was
also done during the period, with US$2.8 million of stripping costs capitalised.
FPM management continues to drive the Business Improvement Program ("BIP")
forward and has again achieved tangible efficiency savings from the operations.
The aim of the BIP is to introduce global best practice in efficiency and
productivity into the different areas of operation at FPM. BIP savings are
increasingly important in the current low price environment as a means of
preserving the Group's margins. In the first half of 2009 FPM was able to reduce
the consumption per tonne of pellets produced of both energy and raw material
inputs by between 1% and 3%.
Inflationary pressures on the Group's costs have eased to some extent. Ukrainian
CPI for the twelve months to 30 June 2009 was 17.6%, and Ukrainian PPI was -0.9%
over the same period. The Group's costs are principally denominated in Ukrainian
Hryvnia. The Hryvnia has remained broadly flat on average since the end of 2008,
which demonstrates the importance of increased operating efficiency as a result
of the BIP and associated cost savings in managing the Group's overall costs.
The Group's policy of maximising production to reduce the effect of its fixed
cost base has also yielded results, while increasing oil prices in the second
quarter have begun to put upward pressure on energy costs. Government regulated
tariffs increased by 6.5% for electricity, 47.6% for gas and remained stable for
railway tariffs over the period. Taking into account all of these factors, the
Group has been able to maintain its nominal cash costs of pellet production (?1)
at the same level as that in December 2008. C1 costs for the six months to 30
June 2009 were US$34.5/t, a decrease of 15% over that in the equivalent period
last year (US$40.9/t).
The Group has continued to actively manage its labour costs, introducing further
measures to reorganise its key skills and improve productivity and efficiency
during the first half of 2009, while avoiding forced redundancies. The number of
personnel on the FPM payroll increased slightly over the first six months of the
year, with 8,243 people employed at the end of 2008 compared to 8,304 as at 30
June 2009. This includes 51 additional employees hired for the development of
the Yeristovskoye deposit. Average salaries in June 2009 were 3% higher than
those in December 2008.
Marketing and Distribution
Marketing and distribution remains a key driver of the Group's business,
particularly in the current challenging economic climate. Following the collapse
of the world steel market in late 2008, demand for blast furnace pellets
remained low in the Group's Traditional markets (Eastern and Central Europe).
Customers in these regions remained unable to purchase the volumes of Ferrexpo
pellets for which they had contracted. The Group was able to leverage its
existing extensive range of relationships in China to sell significantly higher
volumes of pellets to Chinese steel mills on the seaborne spot market to
compensate for this demand weakness in Europe. The Group has six long term
framework contracts in China, and is an established seller there. The Group sold
54% of its sales by volume in China in the first half of 2009, as compared to
16% in the first half of the prior year. Total pellet sales in the first six
months of 2009 amounted to 4,194kt. Of the sales that did not go to China, 7.7%
went to Austria, 4.5% to Turkey, 13.6% to Slovakia, 4.2% to Serbia and 11.8%
were sold domestically in Ukraine. It is management's intention to revert to
selling 90% of the Group's production under long term framework agreements as
soon as economic conditions allow. The Group will also re-focus its marketing
efforts on the Traditional and Natural markets as soon as demand recovers in
these regions. The Group enjoys a logistics advantage and higher margins by
serving these markets.
A lack of visibility in the global iron ore market prevented the settlement of
the international Benchmark price for pellets, usually settled as of 1 April
each year. As a result, the industry and therefore the Group was significantly
exposed to spot prices, which were much lower than the spot and contract prices
for iron ore pellets prevailing for much of 2008. The Group was required to meet
provisional pricing arrangements with those of its contract customers who were
willing to purchase pellets during the period, and these prices reflected the
current state of supply and demand. From late 2008, the Group experienced
extreme competition from competing suppliers from the CIS region. These
suppliers tend to sell on a short term contract basis, and they aggressively
pursued sales during the period. Overall, the average achieved price realised by
the Group for the six months to 30 June 2009 was US$66.5/t on an FOB basis.
Spot market sales of iron ore pellets to China are made on a CFR or CIF basis,
which exposes the seller to shipping freight rates. Freight rates for panamax
ships from the Black Sea to China rose strongly during the period under review,
reaching as much as US$42/t in June. Spot prices for pellets landed in China
grew at a significantly lower rate. As a result of its increased spot sales, the
Group was subjected to margin pressure from rising freight rates and this was a
major contributing factor to lower realised FOB prices, particularly in the
second quarter. Management believes that these freight rates will normalise over
time as the panamax fleet returns to the Black Sea and idled ships are returned
to service. The Group will also reduce its exposure to the seaborne spot market
when feasible, as sales return to the long term sales portfolio composition. To
this end, in the second quarter the Group began supplying its major Ukrainian
contract customer again, as well as more volumes to certain European customers.
Vale, the world's largest iron ore producer, settled a price for iron ore
pellets in June with steel mills in Japan, South Korea and Europe. The
settlement called for a 48.3% reduction in the price of pellets on an FOB basis,
compared to the international Benchmark price prevailing during the last
contract year. In Europe, Vale has settled blast furnace pellet prices with one
major mill, also at a 48.3% reduction. Whilst this settlement has yet to be
accepted by Chinese steel mills and so does not yet constitute a true global
Benchmark, there is evidence from some of the Group's customers that this
settlement may prove acceptable to them. A 48.3% reduction would equate to an
FOB pellet price for the Group of just over US$70/t, although application of
such a benchmark applies predominantly to customers who consume seaborne iron
ores.
Iron ore price contraction has caused the suspension of as much as 100 million
tonnes of Chinese iron ore production, as local mines have become loss-making,
further fuelling Chinese demand for imported iron ore. While this increased
demand is positive for Ferrexpo's current marketing efforts, any material rise
in the price of iron ore may be dampened to some degree by this iron ore
capacity being brought back into service.
Progress continues in the Group's marketing and logistics department in
developing a profitable portfolio of customers despite the downturn in iron ore
demand. The Group has opened new markets in India and Hungary in 2009. FPM's
ability to supply small-lot 'just-in-time' deliveries of iron ore is increasing
the 'value-in-use' of the Group's pellets from the perspective of proximate
steel mills that are looking to manage inventory levels. This better serves the
Group's target customers' needs relative to their other long-haul pellet supply
options, and could lead to new customers and increased market share in the
months to come.
Logistics remains a key advantage for the Group, and long term positioning in
this regard is critical to our customer delivery performance. In particular, TIS
Ruda, the Group's joint venture ocean vessel shipping terminal in Yuzhny on the
Black Sea has proven invaluable during the current downturn, as it has
guaranteed the Group access to the seaborne market and minimised the effect of
congestion at the State port on sales. The Group shipped 1,332 kt through the
TIS Ruda terminal in the first six months of 2009, and also completed the
dredging of additional draft there. The Group continued its programme of railcar
purchases, adding 55 new railcars to its existing fleet of 605. These private
railcars incur a discounted tariff when used on the Ukrainian state rail
network, and demonstrate the Group's continuous efforts to reduce costs and
maintain product integrity through the complex delivery paths to customers.
Capital Expenditure and Growth Projects
The Group's major growth projects remain substantially on hold pending a
sustainable recovery in economic conditions. Capital expenditure has been
limited to some modest expenditure to preserve the investment to date and ensure
readiness for recommencing project activity. Total capital expenditure during
the first half of 2009 was US$43.2 million, a decrease of 67% over the
equivalent period in 2008 (US$131.2 million). Of this, US$12.3 million was
sustaining capital expenditure. $14.2 million was spent on the development of
the Yeristovskoye mine, and $16.7 million was spent on the project to develop
existing GPL mine. Approximately US$100 million was spent on each of these
projects in 2008, largely on mining equipment and, in the case of Yeristovskoye,
a Definitive Feasibility Study ("DFS"). In order to maintain the value of these
investments it was deemed prudent to undertake some modest stripping work. In
the case of Yeristovskoye, this entails operating two of the draglines purchased
in 2008 together with several CAT 789 trucks. The Group purchased and took
delivery of this equipment in 2008, and as a result preliminary capitalised
stripping can be done in a flexible and financially prudent manner. No further
large capital commitments will be undertaken until markets recover.
The Group is currently re-examining the capital cost estimates for its
Yeristovskoye project as well as the GPL quality upgrade projects. The original
estimates were performed at the peak of the economic cycle, and management is
confident these projects can be executed at a significantly lower capital cost.
Alternative methods of developing these projects are also being explored,
including the expansion of local procurement initiatives and the division of
some projects into smaller sub-projects. Updates on this process will be
released when appropriate.
FINANCIAL REVIEW
Summary of Financial Results
+--------------------------+---------------------+---------------------+------------+
| US$ 000 |6 months to 30 June |6 months to 30 June | % Change |
| | 2009 | 2008 | |
+--------------------------+---------------------+---------------------+------------+
| Revenue | 301,759 | 519,498 | (42) |
+--------------------------+---------------------+---------------------+------------+
| | | | |
+--------------------------+---------------------+---------------------+------------+
| EBITDA | 60,295 | 228,023 | (74) |
+--------------------------+---------------------+---------------------+------------+
| As % of revenue | 20% | 44% | |
+--------------------------+---------------------+---------------------+------------+
| | | | |
+--------------------------+---------------------+---------------------+------------+
| Profit before taxation | 37,792 | 201,350 | (81) |
+--------------------------+---------------------+---------------------+------------+
| | | | |
+--------------------------+---------------------+---------------------+------------+
| Income tax | 9,084 | 43,692 | (79) |
+--------------------------+---------------------+---------------------+------------+
| | | | |
+--------------------------+---------------------+---------------------+------------+
| Profit for the period | 28,708 | 157,658 | (82) |
+--------------------------+---------------------+---------------------+------------+
| | | | |
+--------------------------+---------------------+---------------------+------------+
| Underlying earnings | 27,848 | 138,355 | (80) |
+--------------------------+---------------------+---------------------+------------+
| | | | |
+--------------------------+---------------------+---------------------+------------+
| Underlying earnings per | 4.76 | 22.69 | (80) |
| share | | | |
+--------------------------+---------------------+---------------------+------------+
| | | | |
+--------------------------+---------------------+---------------------+------------+
| Earnings per share | 4.88 | 23.20 | (79) |
+--------------------------+---------------------+---------------------+------------+
The revenues of the Group decreased by 42% to US$301.8 million in the period
under review compared to the first half of 2008 (US$519.5 million). This was
largely due to weak average achieved pellet prices, particularly in the second
quarter of the year, as a result of lower demand from the Group's contract
customers and higher-than-usual sales to the seaborne spot market. Revenues were
also lower partly as a result of lower volumes in the first quarter driven by
lower production in January and February.
C1 Cost, defined as cash cost of production, decreased by 23% over the
equivalent period last year. Production costs were improved by a sharp fall in
the Ukrainian Hryvnia at the end of 2008 which impacted approximately 70% of the
Group's cash cost base. Ongoing efficiency improvements and lower prices for
fuel and some steel-based inputs also had a positive effect.
The table below sets out the breakdown of the Group's C1 Cost of Sales.
+-----------------------------+---------------+--------------+------------+------------+
| | 6 months to 30 June 2009 | 6 months to 30 June |
| | | 2008 |
+-----------------------------+------------------------------+-------------------------+
| | US$ 000 | % of total | US$ 000 |% of total |
+-----------------------------+---------------+--------------+------------+------------+
| Materials | 30,090 | 21 | 34,641 | 19 |
+-----------------------------+---------------+--------------+------------+------------+
| Electricity | 37,667 | 26 | 44,010 | 24 |
+-----------------------------+---------------+--------------+------------+------------+
| Personnel costs | 20,260 | 14 | 28,199 | 15 |
+-----------------------------+---------------+--------------+------------+------------+
| Spare parts and consumables | 21,053 | 15 | 26,216 | 14 |
+-----------------------------+---------------+--------------+------------+------------+
| Fuel | 11,289 | 8 | 22,568 | 12 |
+-----------------------------+---------------+--------------+------------+------------+
| Gas | 18,626 | 13 | 17,883 | 10 |
+-----------------------------+---------------+--------------+------------+------------+
| Royalties and levies | 2,004 | 1 | 3,739 | 2 |
+-----------------------------+---------------+--------------+------------+------------+
| Other | 1,433 | 1 | 7,073 | 4 |
+-----------------------------+---------------+--------------+------------+------------+
| C1 Cost Of Sales | 142,422 | 100% | 184,329 | 100% |
+-----------------------------+---------------+--------------+------------+------------+
| | | | | |
+-----------------------------+---------------+--------------+------------+------------+
| C1 Cost per tonne | 34.54 | - | 40.92 | - |
+-----------------------------+---------------+--------------+------------+------------+
Selling and Distribution costs increased by 13% to US$75.9 million in the first
half (H1 2008: US$67.1 million). This was as a result of an abnormal sales mix
by destination which increased seaborne freight by US$ 14.0million. In the first
six months of 2009 the Group significantly increased the proportion of its sales
made to China on the seaborne spot market. These sales were made on a CIF or CFR
basis, increasing the seaborne freight component. The Group realised a higher
absolute price for its pellets on a CFR basis which is reduced when expressed on
a DAF/FOB basis, the measure traditionally used. Absent the effect of these
freight costs, the Group's DAF/FOB distribution costs fell by 19% to US$12.1/t.
General and Administrative Expenses in the first half of 2009 fell by 31%
compared to those incurred in the first half of 2008, largely as a result of
lower non-production personnel costs and a reduction in the use of external
consultants.
EBITDA for the first six months of the year fell by 74% to US$60.3 million (H1
2008: US$228.0 million). The Group's EBITDA margin decreased from 44% in the
first half of 2008 to 20% in the current period, as a result of lower pellet
prices over the period and high freight rates between the Black Sea and China
primarily in the second quarter. This was compensated partly by lower costs of
production.
The Group's effective tax rate in the half year amounted to 24% as a result of
one off non tax deductible expenses in Ukraine (H1 2008: 22%).
These solid results were achieved in a difficult trading environment and have
enabled the Group to continue to operate effectively and to repay debt. The
Group's net debt as at 30 June 2009 was US$222.3 million, with cash on the
balance sheet of US$74.3 million. The Group has repaid US$36.6 million of its
principal debt facility in the first half of 2009, but has arranged a long-term
leasing arrangement for railway cars in Ukraine of US$20.0 million. The Group's
debt to equity ratio (Net Debt divided by Net Debt plus Equity) was 32% as at 30
June 2009 (32% as at 31 December 2008).
Dividend
The Group has been profitable in the first half albeit at a lower level than
last year. The Board believes that trading reached its low point in this period
and that the Group should be trading more profitably in the second half of the
year. The Board therefore has decided in the interests of maintaining a
consistent and sustainable dividend to defer the declaration of the interim
dividend until October when Ferrexpo's sales prices are likely to have aligned
with the emerging international benchmark settlements for iron ore pellets and
more normal trading conditions will apply.
INDEPENDENT REVIEW REPORT TO FERREXPO PLC
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 June
2009 which comprises consolidated income statement, statement of comprehensive
income, consolidated balance sheet, consolidated cash flow statement,
consolidated statement of changes in equity and the related notes 1 to 19. We
have read the other information contained in the half yearly financial report
and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the company in accordance with guidance contained
in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed
by the Independent Auditor of the Entity" issued by the Auditing Practices
Board. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our work, for this report,
or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the six months ended 30 June 2009 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
Ernst & Young LLP
London
4 August 2009
Statement of Directors' responsibilities
The Directors confirm that this condensed set of financial statements has been
prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by
the European Union and that the half-yearly report included a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8, namely:
* an indication of important events that have occurred during the first six months
of the financial year and their impact on this condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
* material related party transactions in the first six months of the year and any
material changes in the related party transactions described in the Ferrexpo plc
Annual Report 2008.
The Directors of Ferrexpo plc are listed in the Ferrexpo Annual Report 2008.
Consolidated income statement
+------------------------------------+-------+-------------+-------------+-----------+
| US$ 000 |Notes | 6 | 6 | Year |
| | | months | months | ended |
| | | ended | ended | 31.12.08 |
| | | 30.06.09 | 30.06.08 | (audited) |
| | | (unaudited) | (unaudited) | |
+------------------------------------+-------+-------------+-------------+-----------+
| Revenue | 4 | 301,759 | 519,498 | 1,116,854 |
+------------------------------------+-------+-------------+-------------+-----------+
| Cost of sales | 5 | (159,653) | (207,508) | (434,238) |
+------------------------------------+-------+-------------+-------------+-----------+
| Gross profit | | 142,106 | 311,990 | 682,616 |
+------------------------------------+-------+-------------+-------------+-----------+
| Selling and distribution expenses | 6 | (75,806) | (67,113) | (152,528) |
+------------------------------------+-------+-------------+-------------+-----------+
| General and administrative | 7 | (22,319) | (32,438) | (67,185) |
| expenses | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Other income | | 6,600 | 2,736 | 6,387 |
+------------------------------------+-------+-------------+-------------+-----------+
| Other expenses | | (5,280) | (5,916) | (38,040) |
+------------------------------------+-------+-------------+-------------+-----------+
| Operating foreign exchange | 8 | (817) | - | 29,309 |
| (loss)/gain | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Operating profit from continuing | | 44,484 | 209,259 | 460,559 |
| operations before adjusted items | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Write-offs and impairment losses | 9 | (1,870) | (94) | (27,326) |
+------------------------------------+-------+-------------+-------------+-----------+
| Share of gains of associates | | 664 | 1,420 | 1,003 |
+------------------------------------+-------+-------------+-------------+-----------+
| Negative goodwill | | - | 5,077 | 35,049 |
+------------------------------------+-------+-------------+-------------+-----------+
| Initial public offering costs | | (372) | (3,897) | (4,120) |
+------------------------------------+-------+-------------+-------------+-----------+
| Gain on disposal of | | - | 1,547 | 1,571 |
| available-for-sale investment | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Profit before tax and finance | | 42,906 | 213,312 | 466,736 |
+------------------------------------+-------+-------------+-------------+-----------+
| Finance income | | 1,601 | 1,214 | 2,467 |
+------------------------------------+-------+-------------+-------------+-----------+
| Finance expense | | (10,410) | (9,110) | (20,834) |
+------------------------------------+-------+-------------+-------------+-----------+
| Non-operating foreign exchange | 8 | 3,695 | (4,066) | (72,788) |
| gain/(loss) | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Profit before tax | | 37,792 | 201,350 | 375,581 |
+------------------------------------+-------+-------------+-------------+-----------+
| Tax | | (9,084) | (43,692) | (62,533) |
+------------------------------------+-------+-------------+-------------+-----------+
| Profit for the period | | 28,708 | 157,658 | 313,048 |
+------------------------------------+-------+-------------+-------------+-----------+
| Attributable to: | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Equity shareholders of Ferrexpo | | 28,529 | 141,449 | 292,436 |
| plc | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Minority interest | | 179 | 16,209 | 20,612 |
+------------------------------------+-------+-------------+-------------+-----------+
| | | 28,708 | 157,658 | 313,048 |
+------------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Earnings per share: | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Basic (US cents) | 10 | 4.88 | 23.20 | 48.60 |
+------------------------------------+-------+-------------+-------------+-----------+
| Diluted (US cents) | 10 | 4.87 | 23.14 | 48.46 |
+------------------------------------+-------+-------------+-------------+-----------+
Statement of comprehensive income
+------------------------------------------+-------------+-------------+-----------+
| US$ 000 | 6 months | 6 months | Year |
| | ended | ended | ended |
| | 30.06.09 | 30.06.08 | 31.12.08 |
| | (unaudited) | (unaudited) | (audited) |
+------------------------------------------+-------------+-------------+-----------+
| Profit for the period | 28,708 | 157,658 | 313,048 |
+------------------------------------------+-------------+-------------+-----------+
| | | | |
+------------------------------------------+-------------+-------------+-----------+
| Exchange differences on translation of | 4,449 | 21,499 | (292,074) |
| foreign operations | | | |
+------------------------------------------+-------------+-------------+-----------+
| | | | |
+------------------------------------------+-------------+-------------+-----------+
| Net loss on disposal of | - | (5,977) | (1,571) |
| available-for-sale financial assets | | | |
+------------------------------------------+-------------+-------------+-----------+
| Income tax | - | 1,040 | - |
+------------------------------------------+-------------+-------------+-----------+
| | - | (4,937) | (1,571) |
+------------------------------------------+-------------+-------------+-----------+
| | | | |
+------------------------------------------+-------------+-------------+-----------+
| Other comprehensive income for the | 4,449 | 16,562 | (293,645) |
| period, net of tax | | | |
+------------------------------------------+-------------+-------------+-----------+
| | | | |
+------------------------------------------+-------------+-------------+-----------+
| Total comprehensive income for the | 33,157 | 174,220 | 19,403 |
| period, net of tax | | | |
+------------------------------------------+-------------+-------------+-----------+
| | | | |
+------------------------------------------+-------------+-------------+-----------+
| Attributable to: | | | |
+------------------------------------------+-------------+-------------+-----------+
| Equity holders of the parent | 32,869 | 155,606 | 20,075 |
+------------------------------------------+-------------+-------------+-----------+
| Minority interests | 288 | 18,614 | (672) |
+------------------------------------------+-------------+-------------+-----------+
| | 33,157 | 174,220 | 19,403 |
+------------------------------------------+-------------+-------------+-----------+
Consolidated balance sheet
+------------------------------------+-------+-------------+-------------+-----------+
| US$ 000 | Notes | As at | As at | As at |
| | | 30.06.09 | 30.06.08 | 31.12.08 |
| | | (unaudited) | (unaudited) | (audited) |
+------------------------------------+-------+-------------+-------------+-----------+
| Assets | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Property, plant and equipment | 12 | 445,271 | 474,742 | 412,440 |
+------------------------------------+-------+-------------+-------------+-----------+
| Goodwill and other intangible | | 104,849 | 157,443 | 103,755 |
| assets | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Investments in associates | | 19,308 | 19,267 | 18,640 |
+------------------------------------+-------+-------------+-------------+-----------+
| Available-for-sale financial | | 2,579 | 35,962 | 4,435 |
| assets | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Other non-current assets | | 11,220 | 39,131 | 10,116 |
+------------------------------------+-------+-------------+-------------+-----------+
| Deferred tax asset | | 12,193 | 10,494 | 14,043 |
+------------------------------------+-------+-------------+-------------+-----------+
| Total non-current assets | | 595,420 | 737,039 | 563,429 |
+------------------------------------+-------+-------------+-------------+-----------+
| Inventories | | 60,176 | 75,234 | 61,270 |
+------------------------------------+-------+-------------+-------------+-----------+
| Trade and other receivables | | 44,117 | 78,447 | 58,157 |
+------------------------------------+-------+-------------+-------------+-----------+
| Prepayments and other current | | 15,991 | 21,543 | 19,587 |
| assets | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Income taxes recoverable and | | 10,037 | 15 | 5,835 |
| prepaid | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Other taxes recoverable and | | 56,415 | 45,855 | 57,285 |
| prepaid | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Available-for-sale financial | | 655 | 8,768 | 650 |
| assets | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Cash and cash equivalents | 13 | 74,303 | 62,600 | 87,822 |
+------------------------------------+-------+-------------+-------------+-----------+
| Total current assets | | 261,694 | 292,462 | 290,606 |
+------------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Total assets | | 857,114 | 1,029,501 | 854,035 |
+------------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Equity and liabilities | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Share capital | 14 | 121,628 | 121,628 | 121,628 |
+------------------------------------+-------+-------------+-------------+-----------+
| Share premium | | 185,112 | 183,387 | 185,112 |
+------------------------------------+-------+-------------+-------------+-----------+
| Other reserves | | (324,820) | 33,339 | (330,714) |
+------------------------------------+-------+-------------+-------------+-----------+
| Retained earnings | | 478,366 | 338,616 | 470,098 |
+------------------------------------+-------+-------------+-------------+-----------+
| Equity attributable to equity | | 460,286 | 676,970 | 446,124 |
| shareholders of the parent | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Minority interest | | 12,057 | 60,693 | 11,769 |
+------------------------------------+-------+-------------+-------------+-----------+
| Total equity | | 472,343 | 737,663 | 457,893 |
+------------------------------------+-------+-------------+-------------+-----------+
| Interest bearing loans and |15,16 | 189,959 | 111,386 | 231,373 |
| borrowings | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Trade and other payables | | 61 | 1,705 | 570 |
+------------------------------------+-------+-------------+-------------+-----------+
| Defined benefit pension liability | | 14,152 | 16,746 | 12,940 |
+------------------------------------+-------+-------------+-------------+-----------+
| Provision for site restoration | | 1,145 | 1,955 | 1,071 |
+------------------------------------+-------+-------------+-------------+-----------+
| Deferred tax liability | | 5,453 | 4,521 | 5,298 |
+------------------------------------+-------+-------------+-------------+-----------+
| Total non-current liabilities | | 210,770 | 136,313 | 251,252 |
+------------------------------------+-------+-------------+-------------+-----------+
| Interest bearing loans and |15,16 | 105,080 | 73,693 | 74,523 |
| borrowings | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Trade and other payables | | 39,359 | 42,849 | 35,033 |
+------------------------------------+-------+-------------+-------------+-----------+
| Accrued liabilities and deferred | | 10,684 | 15,496 | 14,470 |
| income | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Shares redemption liability | | - | 10,998 | - |
+------------------------------------+-------+-------------+-------------+-----------+
| Income taxes payable | | 8,505 | 11,073 | 14,439 |
+------------------------------------+-------+-------------+-------------+-----------+
| Other taxes payable | | 10,373 | 1,416 | 6,425 |
+------------------------------------+-------+-------------+-------------+-----------+
| Total current liabilities | | 174,001 | 155,525 | 144,890 |
+------------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Total liabilities | | 384,771 | 291,838 | 396,142 |
+------------------------------------+-------+-------------+-------------+-----------+
| | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Total equity and liabilities | | 857,114 | 1,029,501 | 854,035 |
+------------------------------------+-------+-------------+-------------+-----------+
The financial statements were approved by the Board of directors on 4 August
2009.
Consolidated cash flow statement
+------------------------------------+-------+-------------+-------------+-----------+
| US$ 000 | Notes | 6 months | 6 months | Year |
| | | ended | ended | ended |
| | | 30.06.09 | 30.06.08 | 31.12.08 |
| | | (unaudited) | (unaudited) | (audited) |
+------------------------------------+-------+-------------+-------------+-----------+
| Net cash flows from operating | 18 | 46,297 | 140,605 | 370,943 |
| activities | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Cash flows from investing | | | | |
| activities | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Purchase of property, plant and | | (43,215) | (131,154) | (276,264) |
| equipment | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Proceeds from sale of property, | | 403 | - | 2,016 |
| plant and equipment | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Purchase of intangible assets | | (298) | (545) | (1,597) |
+------------------------------------+-------+-------------+-------------+-----------+
| Purchases of available-for-sale | | - | - | (266) |
| securities | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Interest received | | 1,752 | 493 | 2,472 |
+------------------------------------+-------+-------------+-------------+-----------+
| Acquisition of minority interest | | - | - | (11,048) |
| in subsidiaries | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Loans provided to associates | | 4,000 | - | (4,000) |
+------------------------------------+-------+-------------+-------------+-----------+
| Net cash flows used in investing | | (37,358) | (131,206) | (288,687) |
| activities | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Cash flows from financing | | | | |
| activities | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Proceeds from borrowings and | 15 | 27,131 | - | 172,143 |
| finance | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Repayment of borrowings and | 15 | (37,219) | (22,049) | (69,412) |
| finance | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Dividends paid to equity | | (13,417) | (19,449) | (38,954) |
| shareholders of the parent | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Dividends paid to minority | | (231) | (232) | (1,186) |
| interest | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Proceeds from issue of share | | - | - | 2,123 |
| capital to minorities | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Share buy back | | - | - | (77,260) |
+------------------------------------+-------+-------------+-------------+-----------+
| Net cash flows used in financing | | (23,736) | (41,730) | (12,546) |
| activities | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Net increase/(decrease) in cash | | (14,797) | (32,331) | 69,710 |
| and cash equivalents | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Cash and cash equivalents at the | | 87,822 | 86,966 | 86,966 |
| beginning of the year | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
| Currency translation differences | | 1,278 | 7,965 | (68,854) |
+------------------------------------+-------+-------------+-------------+-----------+
| Cash and cash equivalents at the | 13 | 74,303 | 62,600 | 87,822 |
| end of the year | | | | |
+------------------------------------+-------+-------------+-------------+-----------+
Consolidated statement of changes in equity
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| | Attributable to equity shareholders of the parent |
+---------------+------------------------------------------------------------------------------------------------------------------------------+
| US$ | Issued | Share | Uniting |Treasury |Employee | Net |Translation |Retained | Total | Minority | Total |
| 000 |capital |premium | of | share | Benefit |unrealised | reserve |earnings | capital |interests | equity |
| | | |interest | reserve | Trust | gains | | | and | | |
| | | | reserve | | reserve | reserve | | | reserves | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| At 1 | 121,628 | 188,566 | 31,780 | - | (20,092) | 2,384 | 186 | 216,616 | 541,068 | 45,854 | 586,922 |
| January | | | | | | | | | | | |
| 2008 | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Profit | - | - | - | - | - | - | - | 141,449 | 141,449 | 16,209 | 157,658 |
| for | | | | | | | | | | | |
| the | | | | | | | | | | | |
| period | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Other | - | - | - | - | - | (4,937) | 19,094 | - | 14,157 | 2,405 | 16,562 |
| comprehensive | | | | | | | | | | | |
| income | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Total | - | - | - | - | - | (4,937) | 19,094 | 141,449 | 155,606 | 18,614 | 174,220 |
| comprehensive | | | | | | | | | | | |
| income for | | | | | | | | | | | |
| the period | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Write-off | - | (5,179) | - | - | - | - | - | - | (5,179) | - | (5,179) |
| of | | | | | | | | | | | |
| deferred | | | | | | | | | | | |
| tax asset | | | | | | | | | | | |
| on IPO | | | | | | | | | | | |
| costs | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Equity | - | - | - | - | - | - | - | (19,449) | (19,449) | - | (19,449) |
| dividends | | | | | | | | | | | |
| paid to | | | | | | | | | | | |
| shareholders | | | | | | | | | | | |
| of Ferrexpo | | | | | | | | | | | |
| plc | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Equity | - | - | - | - | - | - | - | - | - | (324) | (324) |
| dividends | | | | | | | | | | | |
| paid by | | | | | | | | | | | |
| subsidiary | | | | | | | | | | | |
| undertakings | | | | | | | | | | | |
| to minority | | | | | | | | | | | |
| shareholders | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Share | - | - | - | - | 4,924 | - | - | - | 4,924 | - | 4,924 |
| based | | | | | | | | | | | |
| payments | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Adjustments | - | - | - | - | - | - | - | - | - | (3,451) | (3,451) |
| relating to | | | | | | | | | | | |
| the | | | | | | | | | | | |
| increase in | | | | | | | | | | | |
| minority | | | | | | | | | | | |
| interest | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| At 30 | 121,628 | 183,387 | 31,780 | - | (15,168) | (2,553) | 19,280 | 338,616 | 676,970 | 60,693 | 737,663 |
| June | | | | | | | | | | | |
| 2008 | | | | | | | | | | | |
| (unaudited) | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Profit | - | - | - | - | - | - | - | 150,987 | 150,987 | 4,403 | 155,390 |
| for | | | | | | | | | | | |
| the | | | | | | | | | | | |
| period | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Other | - | - | - | - | - | 3,366 | (289,884) | - | (286,518) | (23,689) | (310,207) |
| comprehensive | | | | | | | | | | | |
| income | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Total | - | - | - | - | - | 3,366 | (289,884) | 150,987 | (135,531) | (19,286) | (154,817) |
| comprehensive | | | | | | | | | | | |
| income for | | | | | | | | | | | |
| the period | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Deferred | - | 1,725 | - | - | - | - | - | - | 1,725 | - | 1,725 |
| tax on | | | | | | | | | | | |
| transaction | | | | | | | | | | | |
| costs | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Tax | - | - | - | - | (317) | - | - | - | (317) | - | (317) |
| effect | | | | | | | | | | | |
| on | | | | | | | | | | | |
| employee | | | | | | | | | | | |
| benefits | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Equity | - | - | - | - | - | - | - | (19,505) | (19,505) | - | (19,505) |
| dividends | | | | | | | | | | | |
| paid to | | | | | | | | | | | |
| shareholders | | | | | | | | | | | |
| of Ferrexpo | | | | | | | | | | | |
| plc | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Share | - | - | - | - | 42 | - | - | - | 42 | - | 42 |
| based | | | | | | | | | | | |
| payments | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Participation | - | - | - | - | - | - | - | - | - | 1,960 | 1,960 |
| of minority | | | | | | | | | | | |
| shareholders | | | | | | | | | | | |
| in subsidiary | | | | | | | | | | | |
| share issue | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Adjustments | - | - | - | - | - | - | - | - | - | (31,598) | (31,598) |
| relating to | | | | | | | | | | | |
| the | | | | | | | | | | | |
| decrease in | | | | | | | | | | | |
| minority | | | | | | | | | | | |
| interest | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Share | - | - | - | (77,260) | - | - | - | - | (77,260) | - | (77,260) |
| buy | | | | | | | | | | | |
| back | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| At 31 | 121,628 | 185,112 | 31,780 | (77,260) | (15,443) | 813 | (270,604) | 470,098 | 446,124 | 11,769 | 457,893 |
| December | | | | | | | | | | | |
| 2008 | | | | | | | | | | | |
| (audited) | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Profit | - | - | - | - | - | - | - | 28,529 | 28,529 | 179 | 28,708 |
| for | | | | | | | | | | | |
| the | | | | | | | | | | | |
| period | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Other | - | - | - | - | - | - | 4,340 | - | 4,340 | 109 | 4,449 |
| comprehensive | | | | | | | | | | | |
| income | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Total | - | - | - | - | - | - | 4,340 | 28,529 | 32,869 | 288 | 33,157 |
| comprehensive | | | | | | | | | | | |
| income for | | | | | | | | | | | |
| the period | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Equity | - | - | - | - | - | - | - | (20,261) | (20,261) | - | (20,261) |
| dividends | | | | | | | | | | | |
| paid to | | | | | | | | | | | |
| shareholders | | | | | | | | | | | |
| of Ferrexpo | | | | | | | | | | | |
| plc | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| Share | - | - | - | - | 1,554 | - | - | - | 1,554 | - | 1,554 |
| based | | | | | | | | | | | |
| payments | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
| At 30 | 121,628 | 185,112 | 31,780 | (77,260) | (13,889) | 813 | (266,264) | 478,366 | 460,286 | 12,057 | 472,343 |
| June | | | | | | | | | | | |
| 2009 | | | | | | | | | | | |
| (unaudited) | | | | | | | | | | | |
+---------------+---------+---------+----------+----------+----------+------------+-------------+----------+-----------+-----------+-----------+
Notes to the Consolidated Financial Information
Note 1: Corporate information
Organisation and operation
Ferrexpo plc (the "Company") is incorporated in the United Kingdom with
registered office at 2 - 4 King Street, London, SW1Y 6QL, UK. Ferrexpo plc and
its subsidiaries (the "Group") operate a mine and processing plant near
Kremenchuk in Ukraine, an interest in a port in Odessa and a sales and marketing
company in Switzerland, and Kiev. The Group's operations are vertically
integrated from iron ore mining through to iron ore concentrate and pellet
production. The Group's mineral properties lie within the Kremenchuk Magnetic
Anomaly and are currently being exploited at the Gorishne-Plavninsky and
Lavrikovsky deposits. These deposits are being jointly mined as one mining
complex.
The Group's operations are largely conducted through Ferrexpo plc's principal
subsidiary, Ferrexpo Poltava GOK Corporation. The Group is comprised of Ferrexpo
plc and its consolidated subsidiaries as set out below:
+-----------------------+---------------+--------------------------+----------+----------+----------+
| | | | Equity interest owned |
+-----------------------+---------------+--------------------------+--------------------------------+
| Name | Country of | Principal activity | 30.06.09 | 30.06.08 | 31.12.08 |
| | incorporation | | % | % | % |
+-----------------------+---------------+--------------------------+----------+----------+----------+
| | | | | | |
+-----------------------+---------------+--------------------------+----------+----------+----------+
| Ferrexpo Poltava GOK | Ukraine | Iron ore mining | 97.1 | 87.8 | 97.1 |
| Corporation* | | | | | |
+-----------------------+---------------+--------------------------+----------+----------+----------+
| Ferrexpo AG** | Switzerland | Sale of iron ore | 100.0 | 100.0 | 100.0 |
| | | pellets and project | | | |
| | | development | | | |
+-----------------------+---------------+--------------------------+----------+----------+----------+
| DP Ferrotrans*** | Ukraine | | 97.1 | 87.8 | 97.1 |
| | | Trade, | | | |
| | | transportation | | | |
| | | services | | | |
+-----------------------+---------------+--------------------------+----------+----------+----------+
| United Energy Company | Ukraine | Holding company | 97.1 | 87.8 | 97.1 |
| LLC*** | | | | | |
+-----------------------+---------------+--------------------------+----------+----------+----------+
| | England | Finance | 100.0 | 100.0 | 100.0 |
| Ferrexpo UK Limited* | | | | | |
+-----------------------+---------------+--------------------------+----------+----------+----------+
| Ferrexpo Services | Ukraine | | 100.0 | 100.0 | 100.0 |
| Limited* | | Management services | | | |
| | | & procurement | | | |
+-----------------------+---------------+--------------------------+----------+----------+----------+
| Ferrexpo Hong Kong | China | Marketing services | 100.0 | 100.0 | 100.0 |
| Limited* | | | | | |
+-----------------------+---------------+--------------------------+----------+----------+----------+
| Ferrexpo Yeristova | Ukraine | Iron ore mining | 98.5 | - | 98.5 |
| GOK LLC*** | | | | | |
+-----------------------+---------------+--------------------------+----------+----------+----------+
* The Group's interest in these entities is held through Ferrexpo AG.
** Ferrexpo AG was the holding company of the Group until, as a result of the
pre-IPO restructuring, Ferrexpo plc became the holding company on 24 May 2007.
*** The Group's interest in these entities is held through Ferrexpo Poltava GOK
Corporation.
The Group also holds an interest of 48.5% (30 June 2008: 43.8%; 31 December
2008: 48.5%) in TIS Ruda, a Ukrainian port located on the Black Sea. As this is
an associate, it is accounted for using the equity method of accounting.
Note 2: Summary of significant accounting policies
Basis of preparation
The interim consolidated financial statements for the six months ended 30 June
2009 have been prepared in accordance with International Accounting Standard
("IAS") 34 Interim Financial Reporting. The interim consolidated financial
statements do not include all of the information and disclosures required in the
annual financial statements, and should be read in conjunction with the Group's
annual financial statements. Risks in relation to the facilities and
re-financing are contained below.
The interim consolidated financial statements do not constitute statutory
accounts as defined in section 435 of the Companies Act 2006. The financial
information for the full year is based on the statutory accounts for the
financial year ended 31 December 2008. A copy of the statutory accounts for that
year, which were prepared in accordance with International Financial Reporting
Standards ('IFRS') issued by the International Accounting Standard Board
('IASB'), as adopted by the European Union up to 31 December 2008, has been
delivered to the Register of Companies. The auditors' report under section 235
of the Companies Act 1985 in relation to those accounts was unqualified and did
not contain a statement under s237(2) or s237(3) of the Companies Act 1985.
Going Concern
At the period end, the Group has a major debt facility of $244,091,000 in place
which amortises over the period to 31 December 2010. The Group is of the view
that it will be able to generate sufficient cash in the absence of development
capital expenditure to fully repay the debt by the end of this period, in
compliance with the terms of the facility agreements. The Group is currently
engaged in seeking financing to allow it to develop its existing mining
operations.
Key risks associated with the financing facilities were included in the Business
Review section of the 2008 year end accounts and these risks still apply.
The Directors are therefore of the view that the Group is a going concern and
the accounts have been drawn up on this basis.
Changes in accounting policies
The accounting policies adopted in the preparation of the interim consolidated
financial statements are consistent with those followed in the preparation of
the Group's annual financial statements for the year ended 31 December 2008,
except for the following:
IFRS 2 Share-based Payment - Vesting Conditions and Cancellations
The Standard has been amended to clarify the definition of vesting conditions
and to prescribe the accounting treatment of an award that is effectively
cancelled because a non-vesting condition is not satisfied. The adoption of this
amendment did not have any impact on the financial position or performance of
the Group.
IFRS 8 Operating Segments
This standard requires disclosure of information about the Group's operating
segments and replaces the requirement to determine primary (business) and
secondary (geographical) reporting segments of the Group. Adoption of this
Standard did not have any effect on the financial position or performance of the
Group. The Group determined that it only has one operating segment under the new
standard. Additional description of the operating segment under IFRS 8 and the
segments under IAS 14 Segment Reporting are shown in Note 3.
IAS 1 Revised Presentation of Financial Statements
The revised Standard separates owner and non-owner changes in equity. The
statement of changes in equity includes only details of transactions with
owners, with non-owner changes in equity presented as a single line. In
addition, the Standard introduces the statement of comprehensive income: it
presents all items of recognised income and expense, either in one single
statement, or in two linked statements. The Group has elected to present two
statements which are contained on pages 2 and 5 to the financial statements.
IAS 23 Borrowing Costs (Revised)
The standard has been revised to require capitalisation of borrowing costs on
qualifying assets and the Group has amended its accounting policy accordingly.
In accordance with the transitional requirements of the Standard this has been
adopted as a prospective change. Therefore, borrowing costs have been
capitalised on qualifying assets with a commencement date on or after 1 January
2009. No changes have been made for borrowing costs incurred prior to this date
that have been expensed.
IAS 32 Financial Instruments: Presentation and IAS 1 Puttable Financial
Instruments and Obligations Arising on Liquidation
The standards have been amended to allow a limited scope exception for puttable
financial instruments to be classified as equity if they fulfil a number of
specified criteria. The adoption of these amendments did not have any impact on
the financial position or performance of the Group.
Improvements to IFRSs
In May 2008 the Board 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 amendments to the following standards below did not have any impact on the
accounting policies, financial position or performance of the Group:
* IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
* IFRS 7 Financial Instruments: Disclosures
* IAS 8 Accounting Policies, Change in Accounting Estimates and Error
* IAS 10 Events after the Reporting Period
* IAS 18 Revenue
* IAS 19 Employee Benefits
* IAS 20 Accounting for Government Grants and Disclosures of Government Assistance
* IAS 27 Consolidated and Separate Financial Statements
* IAS 28 Investment in Associates
* IAS 34 Interim Financial Reporting
* IAS 39 Financial Instruments: Recognition and Measurement
Seasonality
The Group's operations are not affected by seasonality.
Note 3: Segment information
The group is managed as single entity which produces, develops and markets its
principal product; iron ore pellets; for sale to the metallurgical industry. Per
the requirements of IFRS 8 Operating Segments, the Group presents its results in
a single segment which are disclosed in the income statement for the Group.
In the prior period, under the requirements of IAS 14 Segment Reporting, the
Group disclosed geographical segments split between Ukraine and Switzerland.
This is no longer required.
Note 4: Revenue
Revenue for the six months ended 30 June 2009 consisted of the following:
+-------------------------+----------+----------+-----------+
| US$ 000 | 6 | 6 | Year |
| | months | months | ended |
| | ended | ended | 31.12.08 |
| | 30.06.09 | 30.06.08 | |
+-------------------------+----------+----------+-----------+
| Revenue from sales of | | | |
| ore pellets: | | | |
+-------------------------+----------+----------+-----------+
| Export | 276,266 | 439,753 | 973,420 |
+-------------------------+----------+----------+-----------+
| Ukraine | 24,976 | 75,905 | 134,413 |
+-------------------------+----------+----------+-----------+
| | 301,242 | 515,658 | 1,107,833 |
+-------------------------+----------+----------+-----------+
| | | | |
+-------------------------+----------+----------+-----------+
| Revenue from services | 367 | 680 | 1,229 |
| provided | | | |
+-------------------------+----------+----------+-----------+
| Revenue from other | 150 | 3,160 | 7,792 |
| sales | | | |
+-------------------------+----------+----------+-----------+
| | 301,759 | 519,498 | 1,116,854 |
+-------------------------+----------+----------+-----------+
Export sales by geographical destination were as follows:
+-------------------------+----------+----------+----------+
| US$'000 | 6 | 6 | Year |
| | months | months | ended |
| | ended | ended | 31.12.08 |
| | 30.06.09 | 30.06.08 | |
+-------------------------+----------+----------+----------+
| Austria | 24,136 | 115,987 | 298,209 |
+-------------------------+----------+----------+----------+
| Serbia | 13,826 | 95,295 | 170,972 |
+-------------------------+----------+----------+----------+
| China | 173,057 | 83,827 | 173,761 |
+-------------------------+----------+----------+----------+
| Slovakia | 37,320 | 59,154 | 117,093 |
+-------------------------+----------+----------+----------+
| Czech Republic | 3,465 | 36,116 | 80,746 |
+-------------------------+----------+----------+----------+
| India | 11,535 | - | - |
+-------------------------+----------+----------+----------+
| Russia | - | 18,341 | 42,606 |
+-------------------------+----------+----------+----------+
| Poland | 27 | 11,526 | 31,708 |
+-------------------------+----------+----------+----------+
| Turkey | 12,263 | 9,833 | 30,649 |
+-------------------------+----------+----------+----------+
| Bulgaria | - | 9,674 | 12,189 |
+-------------------------+----------+----------+----------+
| Italy | 59 | - | 10,340 |
+-------------------------+----------+----------+----------+
| Other | 578 | - | 5,147 |
+-------------------------+----------+----------+----------+
| | 276,266 | 439,753 | 973,420 |
+-------------------------+----------+----------+----------+
Note 5: Cost of sales
Cost of sales for the six months ended 30 June 2009 consisted of the following:
+--------------------------------------+----------+----------+----------+
| US$ 000 | 6 | 6 | Year |
| | months | months | ended |
| | ended | ended | 31.12.08 |
| | 30.06.09 | 30.06.08 | |
+--------------------------------------+----------+----------+----------+
| Materials | 30,090 | 52,641 | 98,020 |
+--------------------------------------+----------+----------+----------+
| Purchased ore and concentrate | 629 | 8,144 | 47,491 |
+--------------------------------------+----------+----------+----------+
| Electricity | 37,667 | 43,717 | 92,021 |
+--------------------------------------+----------+----------+----------+
| Personnel costs | 20,260 | 29,640 | 68,781 |
+--------------------------------------+----------+----------+----------+
| Spare parts and consumables | 21,053 | 16,922 | 32,034 |
+--------------------------------------+----------+----------+----------+
| Depreciation and amortisation | 11,327 | 14,447 | 28,860 |
+--------------------------------------+----------+----------+----------+
| Fuel | 11,289 | 23,745 | 41,517 |
+--------------------------------------+----------+----------+----------+
| Gas | 18,626 | 18,021 | 34,106 |
+--------------------------------------+----------+----------+----------+
| Royalties and levies | 2,004 | 3,806 | 6,764 |
+--------------------------------------+----------+----------+----------+
| Stock movement | 3,656 | (5,017) | (19,596) |
+--------------------------------------+----------+----------+----------+
| Other | 3,052 | 1,442 | 4,240 |
+--------------------------------------+----------+----------+----------+
| | 159,653 | 207,508 | 434,238 |
+--------------------------------------+----------+----------+----------+
Cost of sales is reconciled to "C1" costs in the following manner:
+--------------------------------------+-----------+-----------+-----------+
| US$ 000 | 6 | 6 | Year |
| | months | months | ended |
| | ended | ended | 31.12.08 |
| | 30.06.09 | 30.06.08 | |
+--------------------------------------+-----------+-----------+-----------+
| Cost of sales | 159,653 | 207,508 | 434,238 |
+--------------------------------------+-----------+-----------+-----------+
| | | | |
+--------------------------------------+-----------+-----------+-----------+
| Depreciation and amortisation | (11,327) | (14,447) | (28,860) |
+--------------------------------------+-----------+-----------+-----------+
| Purchased ore and concentrate | (629) | (8,144) | (47,491) |
+--------------------------------------+-----------+-----------+-----------+
| Processing costs for purchased ore | (117) | - | (5,418) |
| and concentrate | | | |
+--------------------------------------+-----------+-----------+-----------+
| Production cost of gravel | (183) | (709) | (375) |
+--------------------------------------+-----------+-----------+-----------+
| Stock movement in the period | (3,656) | 5,017 | 19,596 |
+--------------------------------------+-----------+-----------+-----------+
| Pension service costs | (914) | (667) | (5,058) |
+--------------------------------------+-----------+-----------+-----------+
| Other | (405) | (4,229) | (2,214) |
+--------------------------------------+-----------+-----------+-----------+
| | | | |
+--------------------------------------+-----------+-----------+-----------+
| C1 cost | 142,422 | 184,329 | 364,418 |
+--------------------------------------+-----------+-----------+-----------+
| | | | |
+--------------------------------------+-----------+-----------+-----------+
| Own ore produced (tonnes) | 4,123,700 | 4,504,000 | 8,607,500 |
+--------------------------------------+-----------+-----------+-----------+
| C1 cash cost per tonne $ | 34.54 | 40.92 | 42.34 |
+--------------------------------------+-----------+-----------+-----------+
"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,
amortisation, 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 6: Selling and distribution expenses
Selling and distribution expenses for the six months ended 30 June 2009
consisted of the following:
+--------------------------------------------+----------+----------+----------+
| US$ 000 | 6 | 6 | Year |
| | months | months | ended |
| | ended | ended | 31.12.08 |
| | 30.06.09 | 30.06.08 | |
+--------------------------------------------+----------+----------+----------+
| Railway transportation | 30,590 | 53,467 | 95,477 |
+--------------------------------------------+----------+----------+----------+
| Other transportation | 39,717 | 8,281 | 43,697 |
+--------------------------------------------+----------+----------+----------+
| Agent fees | 416 | 972 | 1,656 |
+--------------------------------------------+----------+----------+----------+
| Custom duties | 422 | 750 | 1,678 |
+--------------------------------------------+----------+----------+----------+
| Advertising | 1,093 | 967 | 2,395 |
+--------------------------------------------+----------+----------+----------+
| Personnel cost | 511 | 672 | 1,448 |
+--------------------------------------------+----------+----------+----------+
| Depreciation | 764 | 422 | 1,406 |
+--------------------------------------------+----------+----------+----------+
| Other | 2,293 | 1,582 | 4,771 |
+--------------------------------------------+----------+----------+----------+
| | 75,806 | 67,113 | 152,528 |
+--------------------------------------------+----------+----------+----------+
Note 7: General and administrative expenses
General and administrative expenses for the six months ended 30 June 2009
consisted of the following:
+--------------------------------------------+----------+----------+----------+
| US$ 000 | 6 | 6 | Year |
| | months | months | ended |
| | ended | ended | 31.12.08 |
| | 30.06.09 | 30.06.08 | |
+--------------------------------------------+----------+----------+----------+
| Personnel costs | 11,593 | 16,263 | 38,900 |
+--------------------------------------------+----------+----------+----------+
| Buildings and maintenance | 1,102 | 1,327 | 3,092 |
+--------------------------------------------+----------+----------+----------+
| Taxes other than income tax and other | 1,898 | 2,141 | 4,185 |
| charges | | | |
+--------------------------------------------+----------+----------+----------+
| Consulting and other professional fees | 1,548 | 5,565 | 6,684 |
+--------------------------------------------+----------+----------+----------+
| Depreciation and amortisation | 1,600 | 1,408 | 3,137 |
+--------------------------------------------+----------+----------+----------+
| Communication | 218 | 228 | 826 |
+--------------------------------------------+----------+----------+----------+
| Vehicles maintenance and fuel | 362 | 566 | 1,096 |
+--------------------------------------------+----------+----------+----------+
| Repairs | 326 | 433 | 1,120 |
+--------------------------------------------+----------+----------+----------+
| Half year review fees | 195 | 363 | 363 |
+--------------------------------------------+----------+----------+----------+
| Audit fees | 480 | 295 | 985 |
+--------------------------------------------+----------+----------+----------+
| Non audit fees | 184 | 448 | 899 |
+--------------------------------------------+----------+----------+----------+
| Security | 744 | 641 | 1,641 |
+--------------------------------------------+----------+----------+----------+
| Research | 1 | 138 | 352 |
+--------------------------------------------+----------+----------+----------+
| Other | 2,068 | 2,622 | 3,905 |
+--------------------------------------------+----------+----------+----------+
| | 22,319 | 32,438 | 67,185 |
+--------------------------------------------+----------+----------+----------+
Note 8: Foreign exchange gains and losses
+--------------------------------------------+----------+----------+----------+
| US$ 000 | 6 | 6 | Year |
| | months | months | ended |
| | ended | ended | 31.12.08 |
| | 30.06.09 | 30.06.08 | |
+--------------------------------------------+----------+----------+----------+
| Operating foreign exchange (losses)/gains | (817) | - | 29,309 |
+--------------------------------------------+----------+----------+----------+
| Non-operating foreign exchange | 3,695 | (4,066) | (72,788) |
| gains/(losses) | | | |
+--------------------------------------------+----------+----------+----------+
| | 2,878 | (4,066) | (43,479) |
+--------------------------------------------+----------+----------+----------+
Operating foreign exchange gains and losses are those items that are directly
related to the production and sale of pellets (e.g. trade receivables, trade
payables on operating expenditure). Non-operating gains and losses are those
associated with the Group's financing and treasury activities.
Note 9: Write-offs and impairment losses
Impairment losses relate to adjustments made against the carrying value of
assets where this is higher than the recoverable amount. Write-offs and
impairment losses for the six months ended 30 June 2009 consisted of the
following:
+----------------------------------------+----------+----------+----------+
| US$ 000 | 6 | 6 | Year |
| | months | months | ended |
| | ended | ended | 31.12.08 |
| | 30.06.09 | 30.06.08 | |
+----------------------------------------+----------+----------+----------+
| Write-off of inventories | - | - | 941 |
+----------------------------------------+----------+----------+----------+
| (Write-up)/Write-off of property, | (31) | - | 21 |
| plant and equipment | | | |
+----------------------------------------+----------+----------+----------+
| Impairment of available-for-sale | 1,901 | 94 | 26,364 |
| financial assets | | | |
+----------------------------------------+----------+----------+----------+
| | 1,870 | 94 | 27,326 |
+----------------------------------------+----------+----------+----------+
Note 10: Earnings per share and dividends paid and proposed
Basic EPS is calculated by dividing the net profit for the period attributable
to ordinary equity shareholders of Ferrexpo plc by the weighted average number
of ordinary shares.
Diluted earnings per share 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.
+----------------------------------+----------+----------+----------+
| | 6 months | 6 months | Year |
| | ended | ended | ended |
| | 30.06.09 | 30.06.08 | 31.12.08 |
+----------------------------------+----------+----------+----------+
| Profit for the year attributable | | | |
| to equity shareholders: | | | |
+----------------------------------+----------+----------+----------+
| | | | |
+----------------------------------+----------+----------+----------+
| Basic earnings per share (US | 4.88 | 23.20 | 48.60 |
| cents) | | | |
+----------------------------------+----------+----------+----------+
| Diluted earnings per share (US | 4.87 | 23.14 | 48.46 |
| cents) | | | |
+----------------------------------+----------+----------+----------+
| | | | |
+----------------------------------+----------+----------+----------+
| Underlying earnings for the | | | |
| year: | | | |
+----------------------------------+----------+----------+----------+
| | | | |
+----------------------------------+----------+----------+----------+
| Basic earnings per share (US | 4.76 | 22.69 | 57.74 |
| cents) | | | |
+----------------------------------+----------+----------+----------+
| Diluted earnings per share (US | 4.75 | 22.63 | 57.58 |
| cents) | | | |
+----------------------------------+----------+----------+----------+
The calculation of the basic and diluted earnings per share is based on the
following data:
+------------------------------------+----------+----------+-----------+
| Thousands | 6 | 6 | Year |
| | months | months | ended |
| | ended | ended | 31.12.08 |
| | 30.06.09 | 30.06.08 | |
+------------------------------------+----------+----------+-----------+
| | | | |
+------------------------------------+----------+----------+-----------+
| Weighted average number of shares | | | |
+------------------------------------+----------+----------+-----------+
| Basic number of ordinary shares | 584,493 | 609,794 | 601,697 |
| outstanding | | | |
+------------------------------------+----------+----------+-----------+
| Effect of dilutive potential | 1,520 | 1,492 | 1,717 |
| ordinary shares | | | |
+------------------------------------+----------+----------+-----------+
| Diluted number of ordinary shares | 586,013 | 611,286 | 603,414 |
| outstanding | | | |
+------------------------------------+----------+----------+-----------+
The basic number of ordinary shares is calculated by reducing the total number
or ordinary shares in issue by the shares held in treasury.
'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 before minority
interests have been deducted and excludes adjusted items. The calculation of
underlying earnings per share is based on the following earnings data:
+--------------------------------+-------+----------+----------+----------+
| US$ 000 |Notes | 6 | 6 | Year |
| | | months | months | ended |
| | | ended | ended | 31.12.08 |
| | | 30.06.09 | 30.06.08 | |
+--------------------------------+-------+----------+----------+----------+
| Profit attributable to equity | | 28,529 | 141,449 | 292,436 |
| holders | | | | |
+--------------------------------+-------+----------+----------+----------+
| | | | | |
+--------------------------------+-------+----------+----------+----------+
| Write offs/impairments | 9 | 1,870 | 94 | 27,326 |
+--------------------------------+-------+----------+----------+----------+
| IPO costs | | 372 | 3,897 | 4,120 |
+--------------------------------+-------+----------+----------+----------+
| Negative goodwill generated on | | - | (5,077) | (35,049) |
| rights issue | | | | |
+--------------------------------+-------+----------+----------+----------+
| Gain on disposal of | | - | (1,547) | (1,571) |
| available-for-sale investment | | | | |
+--------------------------------+-------+----------+----------+----------+
| Non-operating foreign exchange | 8 | (3,695) | (438) | 72,788 |
| losses | | | | |
+--------------------------------+-------+----------+----------+----------+
| Tax on adjusted items | | 772 | (23) | (12,619) |
+--------------------------------+-------+----------+----------+----------+
| | | | | |
+--------------------------------+-------+----------+----------+----------+
| Underlying earnings | | 27,848 | 138,355 | 347,431 |
+--------------------------------+-------+----------+----------+----------+
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 | 6 | 6 | Year |
| | months | months | ended |
| | ended | ended | 31.12.08 |
| | 30.06.09 | 30.06.08 | |
+-------------------------------------------+----------+----------+----------+
| Paid | | | |
+-------------------------------------------+----------+----------+----------+
| Final dividend for 2008: 3.3 US cents per | 13,417 | - | - |
| ordinary share1 | | | |
+-------------------------------------------+----------+----------+----------+
| Interim dividend for 2008: 3.2 US cents | - | 19,505 | - |
| per ordinary share | | | |
+-------------------------------------------+----------+----------+----------+
| Final dividend for 2007: 3.2 US cents per | - | - | 19,449 |
| ordinary share | | | |
+-------------------------------------------+----------+----------+----------+
1 The final dividend for 31 December 2008 was $20,261,000, of which $6,844,000
remains unpaid.
Note 11: EBITDA
The Group calculates EBITDA as profit from continuing operations before tax and
finance plus depreciation and amortisation (included in cost of sales, general
and administrative expenses and selling and distribution costs) and
non-recurring cash items included in other income, non-recurring cash items
included in other expenses plus the net gain/(loss) from disposal of
subsidiaries and associates. The Group presents EBITDA because it believes that
EBITDA is a useful measure for evaluating its ability to generate cash and its
operating performance.
+--------------------------------+-------+----------+----------+----------+
| US$'000 |Notes | 6 | 6 | Year |
| | | months | months | ended |
| | | ended | ended | 31.12.08 |
| | | 30.06.09 | 30.06.08 | |
+--------------------------------+-------+----------+----------+----------+
| Profit before tax and finance | | 42,906 | 213,312 | 466,736 |
+--------------------------------+-------+----------+----------+----------+
| | | | | |
+--------------------------------+-------+----------+----------+----------+
| Write-offs and impairment | 9 | 1,870 | 94 | 27,326 |
| losses | | | | |
+--------------------------------+-------+----------+----------+----------+
| Gain on disposal of | | - | (1,547) | (1,571) |
| available-for-sale investment | | | | |
+--------------------------------+-------+----------+----------+----------+
| Initial public offering costs | | 372 | 3,897 | 4,120 |
+--------------------------------+-------+----------+----------+----------+
| Share based payments | | 1,182 | 1,027 | 1,495 |
+--------------------------------+-------+----------+----------+----------+
| Negative goodwill generated on | | - | (5,077) | (35,049) |
| rights issue | | | | |
+--------------------------------+-------+----------+----------+----------+
| Severance payments | | - | - | 6,764 |
+--------------------------------+-------+----------+----------+----------+
| Depreciation and amortisation | | 13,965 | 16,317 | 34,125 |
+--------------------------------+-------+----------+----------+----------+
| EBITDA | | 60,295 | 228,023 | 503,946 |
+--------------------------------+-------+----------+----------+----------+
Note 12: Property, plant and equipment
During the six months ended 30 June 2009, the Group acquired property, plant and
equipment with a cost of $44,695,000 (30 June 2008: $118,524,000; 31 December
2008: $285,023,000) and disposed of property, plant and equipment with a cost of
$2,107,000 (30 June 2008: $1,035,000; 31 December 2008: $3,926,000).
Note 13: Cash and cash equivalents
As at 30 June 2009 the Group held cash and cash equivalents of $73,303,000 (30
June 2008: $62,600,000; 31 December 2008: $87,822,000).
Note 14: Share capital and reserves
The share capital of the Company consists of 613,967,956 ordinary shares of
GBP0.10 each, giving a nominal value of $121,628,000 which is unchanged since
the Group's Initial Public Offering in June 2007. This balance includes
25,343,814 shares which are held in treasury, resulting from a share buyback
that was undertaken in September 2008.
Note 15: Interest bearing loans and borrowings
During the period ended 30 June 2009, $36,364,000 was repaid on the $335,000,000
bank debt facility (6 months to 30 June 2008: $18,182,000; 12 months to 31
December 2008: $54,545,000).
At the period end none of the facility was unutilised (30 June 2008:
$135,000,000; 31 December 2008: $nil).
The term loan and revolving credit facilities are guaranteed and secured.
In January 2009, Ferrexpo Poltava GOK Corporation concluded a sale and financial
leaseback transaction relating to rail cars with a facility amount of
$19,718,000. During the period ended 30 June 2009 $486,000 of the principal was
repaid.
Note 16: Net financial indebtedness
Net financial indebtedness of the Group is shown in the note below:
+----------------------------+-------+-----------+-----------+-----------+
| US$ 000 | Notes | 6 | 6 | Year |
| | | months | months | ended |
| | | ended | ended | 31.12.08 |
| | | 30.06.09 | 30.06.08 | |
+----------------------------+-------+-----------+-----------+-----------+
| | | | | |
+----------------------------+-------+-----------+-----------+-----------+
| Cash and cash equivalents | 13 | 74,303 | 62,600 | 87,822 |
+----------------------------+-------+-----------+-----------+-----------+
| | | | | |
+----------------------------+-------+-----------+-----------+-----------+
| Current borrowings | 15 | (105,080) | (73,693) | (74,523) |
+----------------------------+-------+-----------+-----------+-----------+
| Non-current borrowings | 15 | (189,959) | (111,386) | (231,373) |
+----------------------------+-------+-----------+-----------+-----------+
| | | | | |
+----------------------------+-------+-----------+-----------+-----------+
| Current equipment loans | | (1,467) | (2,067) | (1,446) |
+----------------------------+-------+-----------+-----------+-----------+
| Non-current equipment | | (61) | (1,705) | (570) |
| loans | | | | |
+----------------------------+-------+-----------+-----------+-----------+
| | | | | |
+----------------------------+-------+-----------+-----------+-----------+
| Net financial indebtedness | | (222,264) | (126,251) | (220,090) |
+----------------------------+-------+-----------+-----------+-----------+
Note 17: Related party disclosure
During the periods presented the Group entered into arm's length transactions
with entities under common control of the majority owner of the Group,
Kostyantin Zhevago and with other related parties. Management considers that the
Group has appropriate procedures in place to identify and properly disclose
transactions with the related parties.
The related party transactions undertaken by the Group during the periods
presented are summarised below:
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| | 6 months ended 30.06.09 | 6 months ended 30.06.08 | Year ended 31.12.08 |
+----------------+---------------------------------+---------------------------------+---------------------------------+
| US$ 000 |Entities |Associated | Other |Entities |Associated | Other |Entities |Associates | Other |
| | under | companies |related | under | companies |related | under | companies |related |
| | common | |parties | common | |parties | common | |parties |
| | control | | | control | | | control | | |
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Iron ore | 277 | - | 511 | 519 | - | 1,686 | 853 | - | 2,937 |
| pellet sales | | | | | | | | | |
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| | | | | | | | | | |
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Purchase of | 2,219 | - | 5,942 | 9,996 | - | 8,858 | 22,999 | - | 20,293 |
| materials | | | | | | | | | |
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Purchase of | 220 | - | 110 | 162 | - | 270 | 477 | - | 426 |
| services | | | | | | | | | |
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| General and | 1,343 | - | 5 | 1,212 | - | 34 | 2,642 | - | 128 |
| administration | | | | | | | | | |
| expenses | | | | | | | | | |
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Selling and | - | 6,680 | 3,433 | - | 1,736 | 5,347 | - | 3,482 | 11,332 |
| distribution | | | | | | | | | |
| expenses | | | | | | | | | |
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Other expenses | 37 | - | 10 | 6 | - | 6 | 43 | - | 247 |
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Total expenses | 3,819 | 6,680 | 9,500 | 11,376 | 1,736 | 14,515 | 26,161 | 3,482 | 32,426 |
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| | | | | | | | | | |
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Finance income | 891 | 197 | - | 141 | 165 | - | 239 | 394 | - |
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Finance costs | (347) | - | - | (378) | - | - | (761) | - | - |
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Net finance | 544 | 197 | - | 237 | 165 | - | (522) | 394 | - |
| income/(costs) | | | | | | | | | |
+----------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
Finance income and finance costs
The Group has transactional banking arrangements with Finance & Credit Bank in
Ukraine which is under the common control of the major shareholder of Ferrexpo
PLC. In the table above Finance income relates to interest on deposits, finance
costs relate to bank interest and charges.
Sale and purchases of property, plant, equipment and investments
The table below details the transactions of a capital nature which were
undertaken between group companies and entities under common control, Associated
Companies and other related parties during the periods presented.
+-------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| | 6 months ended 30.06.09 | 6 months ended 30.06.08 | Year ended 31.12.08 |
+-------------+---------------------------------+---------------------------------+---------------------------------+
| US$ 000 |Entities |Associated | Other |Entities |Associated | Other |Entities |Associated | Other |
| | under | companies |related | under | companies |related | under | companies |related |
| | common | |parties | common | |parties | common | |parties |
| | control | | | control | | | control | | |
+-------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Sale of | - | - | - | 1,849 | - | - | 1,849 | - | - |
| investments | | | | | | | | | |
| (i) | | | | | | | | | |
+-------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Purchase | - | - | - | - | - | - | 270 | - | - |
| of | | | | | | | | | |
| investments | | | | | | | | | |
| (iv) | | | | | | | | | |
+-------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Purchase | - | - | - | - | - | - | 58,249 | - | - |
| of Own | | | | | | | | | |
| Shares (v) | | | | | | | | | |
+-------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Purchase | - | - | - | 54 | - | - | 192 | - | 16 |
| of Trucks | | | | | | | | | |
| (ii) (vi) | | | | | | | | | |
+-------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Purchase | 2,200 | - | - | - | - | - | - | - | - |
| of Plant | | | | | | | | | |
| (vii) | | | | | | | | | |
+-------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
I. On 23 May 2008 the Group disposed of a 2.054% share holding in Vostock
Ruda, an available-for-sale investment, to entities under common control for a
consideration of $1,849,000 resulting in a gain on disposal of $1,571,000 (30
June 2009: $nil).
II. On 25 June 2008, the company acquired a truck from Auto Kraz an entity
under common control for $54,000.
III. Following initial stripping operations at Yeristovo, the company disposed
of surplus ballast material on the 30th June 2008 for $515,000. This was
recorded in revenue as income and is included in other sales in the first table
above.
IV. On 16 July 2008 PGOK and Ferrotrans (group subsidiaries) subscribed for
additional share capital for consideration of $244,000 and $26,000 respectively
in OJSC Stahanov, as part of the rights issue of that company. As at 31 December
2008 the market value of the shares purchased in 2008 was $231,000, the
difference was recognised in income statement as an impairment loss. As at 30
June 2009 the total market value of all the OJSC Stahanov shares held by the
Group amounted to $376,000 (December 2008 $435,000). The difference was
recognised in the income statement as an impairment loss.
V. On the 16 September 2008, Ferrexpo plc repurchased 19,398,814 of its own
Ordinary Shares from Kostyantin Zhevago a related party at the market price of
GBP1.673 per share for settlement on 19 September 2008. The gross consideration
paid amounted to $58,248,826.
VI. On the 28 November 2008 the Group purchased property, plant and equipment
(principally trucks and cranes) as the first instalment of an approved order of
$1,067,000 from the entity under common control, Auto Kraz, The consideration
for this part delivery was $138,000.
VII. On 31 March 2009, the company acquired a trial filter press from Progress
Plant Company, an entity under common control for $2,200,000.
Items IV to VII above represent transactions which are aggregated for the 12
month period to 30 June 2009 for the purposes of class tests under Chapter 11 of
the United Kingdom Listing Authority rules.
The outstanding investments/balances with related parties for the periods
presented are as follows:
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| | 6 months ended 30.06.09 | 6 months ended 30.06.08 | Year ended 31.12.08 |
+--------------------+---------------------------------+---------------------------------+---------------------------------+
| US$ 000 |Entities |Associated | Other |Entities |Associated | Other |Entities |Associated | Other |
| | under | companies |related | under | companies |related | under | companies |related |
| | common | |parties | common | |parties | common | |parties |
| | control | | | control | | | control | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Investments | 2,576 | - | - | 35,962 | - | 3 | - | - | - |
| available-for-sale | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Loans to | - | 5,000 | - | - | 9,000 | - | - | 9,000 | - |
| associates | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Total | 2,576 | 5,000 | - | 35,962 | 9,000 | 3 | - | 9,000 | - |
| non-current | | | | | | | | | |
| assets | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Investments | 655 | - | - | 8,768 | - | - | 880 | - | - |
| available-for-sale | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Trade and | 1,967 | 43 | 281 | 2,671 | 1,000 | 243 | 1,890 | - | 8 |
| other | | | | | | | | | |
| receivables | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Prepayments | 38 | - | 2 | 4 | 68 | 110 | 145 | 6,299 | 581 |
| and other | | | | | | | | | |
| current | | | | | | | | | |
| assets | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Short | - | - | - | - | - | - | 5,000 | - | - |
| term | | | | | | | | | |
| deposits | | | | | | | | | |
| with | | | | | | | | | |
| banks | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Cash and | 35,218 | - | - | 10,740 | - | - | 36,984 | - | - |
| cash | | | | | | | | | |
| equivalents | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Total | 37,878 | 43 | 283 | 22,183 | 1,068 | 353 | 44,899 | 6,299 | 589 |
| current | | | | | | | | | |
| assets | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Trade and | 335 | - | 1,548 | 388 | - | 740 | 659 | - | 1,250 |
| other | | | | | | | | | |
| payables | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Accrued | - | - | - | 367 | - | - | - | - | - |
| liabilities | | | | | | | | | |
| and | | | | | | | | | |
| deferred | | | | | | | | | |
| income | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
| Current | 335 | - | 1,548 | 755 | - | 740 | 659 | - | 1,250 |
| liabilities | | | | | | | | | |
+--------------------+----------+------------+---------+----------+------------+---------+----------+------------+---------+
As of 30 June 2009, trade and other receivables included outstanding amounts
related to the disposal of shares in Vostok Ruda of $1,223,000 (30 June 2008;
$1,849,000; 31 December 2008: $1,212,000).
As of 30 June 2009 cash and cash equivalents with Finance & Credit Bank were
$35,218,000 (30 June 2008: $10,740,000; 31 December 2008: $36,984,000).
Note 18: Reconciliation of profit before income tax to net cash flow from
operating activities
+---------------------------------------------+----------+----------+----------+
| US$ 000 | 6 months | 6 months | Year |
| | ended | ended | ended |
| | 30.06.09 | 30.06.08 | 31.12.08 |
+---------------------------------------------+----------+----------+----------+
| Profit before income tax | 37,792 | 201,350 | 375,581 |
+---------------------------------------------+----------+----------+----------+
| Adjustments for: | | | |
+---------------------------------------------+----------+----------+----------+
| Depreciation of property, plant and | 13,965 | 16,317 | 34,125 |
| equipment and amortisation of intangible | | | |
| assets | | | |
+---------------------------------------------+----------+----------+----------+
| Interest expense | 8,784 | 7,473 | 18,496 |
+---------------------------------------------+----------+----------+----------+
| Interest income | (1,601) | (1,214) | (2,467) |
+---------------------------------------------+----------+----------+----------+
| Share of gains of associates | (664) | (1,420) | (1,003) |
+---------------------------------------------+----------+----------+----------+
| Movement in allowance for doubtful | (3,646) | 121 | 19,095 |
| receivables | | | |
+---------------------------------------------+----------+----------+----------+
| Write-off/reversal of payables | - | - | (1,043) |
+---------------------------------------------+----------+----------+----------+
| (Gain)/loss on disposal of property, plant | (57) | 677 | 1,280 |
| and equipment | | | |
+---------------------------------------------+----------+----------+----------+
| Assets received free of charge | - | - | (325) |
+---------------------------------------------+----------+----------+----------+
| Write offs and impairment losses | 1,870 | 94 | 27,325 |
+---------------------------------------------+----------+----------+----------+
| Site restoration provision | 64 | 243 | 269 |
+---------------------------------------------+----------+----------+----------+
| Gains on disposal of investments available | - | (1,546) | (1,571) |
| for sale | | | |
+---------------------------------------------+----------+----------+----------+
| Employee benefits | 1,562 | 1,394 | 7,715 |
+---------------------------------------------+----------+----------+----------+
| IPO costs | 372 | 3,897 | 4,120 |
+---------------------------------------------+----------+----------+----------+
| Share based payments | 1,182 | 1,027 | 1,495 |
+---------------------------------------------+----------+----------+----------+
| Negative goodwill generated on rights issue | - | (5,077) | (35,049) |
+---------------------------------------------+----------+----------+----------+
| Operating foreign exchange loss/(gain) | 817 | 4,504 | (29,309) |
+---------------------------------------------+----------+----------+----------+
| Non-operating foreign exchange (gain)/loss | (3,695) | (438) | 72,788 |
+---------------------------------------------+----------+----------+----------+
| Operating cash flow before working capital | 56,745 | 227,402 | 491,522 |
| changes | | | |
+---------------------------------------------+----------+----------+----------+
| | | | |
+---------------------------------------------+----------+----------+----------+
| Changes in working capital: | | | |
| | | | |
+---------------------------------------------+----------+----------+----------+
| (Increase)/decrease in trade and other | 18,096 | (45,372) | (36,167) |
| receivables | | | |
+---------------------------------------------+----------+----------+----------+
| (Increase)/decrease in inventories | 1,094 | (18,689) | (5,070) |
+---------------------------------------------+----------+----------+----------+
| Increase/(decrease) in trade and other | (8,107) | 19,391 | 8,094 |
| accounts payable | | | |
+---------------------------------------------+----------+----------+----------+
| (Increase)/decrease in other taxes | 4,817 | 5,747 | (673) |
| recoverable | | | |
+---------------------------------------------+----------+----------+----------+
| Cash generated from operating activities | 72,645 | 188,479 | 457,706 |
+---------------------------------------------+----------+----------+----------+
| | | | |
+---------------------------------------------+----------+----------+----------+
| Interest paid | (8,784) | (7,487) | (15,443) |
+---------------------------------------------+----------+----------+----------+
| Income tax paid | (17,215) | (38,911) | (67,217) |
+---------------------------------------------+----------+----------+----------+
| Post-employment benefits paid | (349) | (1,476) | (4,103) |
+---------------------------------------------+----------+----------+----------+
| Net cash flows from operating activities | 46,297 | 140,605 | 370,943 |
+---------------------------------------------+----------+----------+----------+
Note 19: Commitments and contingencies
Commitments
+----------------------------+----------+----------+----------+
| US$ 000 | As at | As at | As at |
| | 30.06.09 | 30.06.08 | 31.12.08 |
+----------------------------+----------+----------+----------+
| Operating lease | 19,548 | 21,776 | 26,505 |
| commitments | | | |
+----------------------------+----------+----------+----------+
| Capital commitments on | 52,118 | 79,420 | 42,198 |
| purchase of property, | | | |
| plant and equipment | | | |
+----------------------------+----------+----------+----------+
| Guarantees provided | 335,000 | 316,818 | 335,000 |
+----------------------------+----------+----------+----------+
Legal
In the ordinary course of business, the Group is subject to legal actions and
complaints. Management believes that the ultimate liability, if any, arising
from such actions or complaints will not have a material adverse effect on the
financial condition or the results of future operations of the Group.
Tax and other regulatory compliance
Ukrainian legislation and regulations regarding taxation and custom regulations
continue to evolve. Legislation and regulations are not always clearly written
and are subject to varying interpretations and inconsistent enforcement by
local, regional and national authorities, and other Governmental bodies.
Instances of inconsistent interpretations are not unusual.
The uncertainty of application and the evolution of Ukrainian tax laws,
including those affecting cross border transactions, create a risk of additional
tax payments having to be made by the Group, which could have a material effect
on the Group's financial position and results of operations. The Group does not
believe that these risks are any more significant than those of similar
enterprises in Ukraine.
Note 20: Subsequent events
No material adjusting or non-adjusting events have occurred subsequent to the
period end.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GGGGRRDNGLZM
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