TIDMFXPO
RNS Number : 6213L
Ferrexpo PLC
03 August 2011
3 August 2011
FERREXPO plc
("Ferrexpo" or the "Group")
INTERIM RESULTS
Ferrexpo, the FTSE 250 iron ore pellet producer, today announces
its interim results for the six months ended 30 June 2011.
Highlights
Financial
Record first half financial performance
-- Revenue increased 63% to US$855 million (1H 2010: US$526
million)
-- EBITDA(1) increased by 86% to US$401million (1H 2010:US$215
million)
-- Diluted EPS increased 111% to 49.73 US cents (1H 2010: 23.57
US cents)
-- Dividend of 3.3 US cents per share (1H 2010: 3.3 US cents per
share)
Operational
Production at full capacity and an increase in product
quality
-- Production of 4.8 million tonnes of pellets (1H 2010: 4.9
million tonnes of pellets)
-- 4% increase in production of 65% Fe pellets to 2.2 million
tonnes
-- Total capex US$120 million (2010: US$42 million)
-- Growth projects progressing as planned
-- Continued addition to logistics capabilities:
-- Purchase of 112 rail cars
-- Integration of Helogistics
-- Loading of first capesize vessel
Management
Management team strengthened
-- Brian Maynard appointed as COO
-- Jason Keys appointed as CMO
Funding
Strong balance sheet
-- Net funds position of US$25 million at 30 June 2011 (1H 2010:
net debt US$257 million)
-- US$500 million Eurobond raised at 7.875% coupon
-- Well positioned to further develop growth projects
Outlook
Continuing strong market environment for iron ore
-- Limited supply response in medium term
-- FPM to continue to produce at full capacity
-- Projects on track and fully funded
-- The Board is reviewing total cost to double pellet output to
20 million tonnes per annum.
(1) The Group calculates EBITDA as profit from continuing operations before tax and finance, but excluding the effect of depreciation, amortisation, share based payments, non-recurring items, and net gains and losses from the disposal of investments and property, plant and equipment.
Michael Abrahams, Non-Executive Chairman, commented:
"Ferrexpo is pleased to report a very strong financial
performance for the six month period ended 30 June 2011. This was
underpinned by an excellent operational performance, with
production of iron ore pellets once again at full capacity and
costs effectively managed in an inflationary environment. This was
further supported by continued growth in demand for iron ore, in
particular pellets, during the period with global iron ore prices
remaining at high levels.
"Demand for iron ore is expected to remain strong in the medium
term while supply is proving slow to respond. Iron ore is a
cyclical market and Ferrexpo will retain its operational and
financial flexibility through its low cost base, well established
marketing strategy, incremental approach to developing its assets
and strong balance sheet. The Group will continue to invest in its
growth projects and manage its costs where possible to ensure a
strong financial performance in the second half of the year and
through the commodity cycle."
For further information, please contact:
Ferrexpo:
Ingrid McMahon +44 207 389 8304
Pelham Bell Pottinger
Charles Vivian +44 207 861 3126
James Macfarlane +44 207 861 3864
Notes to Editors:
Ferrexpo is a Swiss headquartered iron ore company with assets
in Ukraine. It is principally involved in the production and export
of high quality iron ore pellets, which are used in the manufacture
of steel. Ferrexpo's resource base is one of the largest iron ore
deposits in the world. Its current producing asset, FPM, produced
approximately 10 million tonnes of iron ore pellets in 2010 making
it the largest exporter of pellets in the CIS. The Company has a
diversified customer base supplying steel mills in Austria, Serbia,
Slovakia, Czech Republic, Germany and other European states, as
well as in China, India, Japan, and other Asian countries. Ferrexpo
is listed on the main market of the London Stock Exchange under the
ticker FXPO. For further information, please visit
www.ferrexpo.com
Chairman's and Chief Executive Officer's review
Introduction
Ferrexpo is pleased to report excellent six month results for
the period ended 30 June 2011. The demand for iron ore, in
particular pellets, continued to grow during the period with global
iron ore prices remaining at high levels. Production of iron ore
pellets was once again at full capacity and costs were managed in
an inflationary environment. Together these factors resulted in a
record six month EBITDA of US$401 million, an increase of 86%
compared to the first half of 2010.
Ferrexpo's sound operational and financial performance through
the economic cycle and strong balance sheet allowed it to place a
debut US$500 million Eurobond in April 2011 at a coupon of 7.875%.
This is the lowest coupon for a company operating in this region
since 2005. The funding together with the Group's strong cash
generation, underpins its US$647 million capital investment
programme as well as the next stage of Ferrexpo Yeristovo Mining's
(FYM) development.
In November 2010, the Group announced projects, which combined,
will ensure that it increases production output by one third to 12
million tonnes per annum of higher grade 65% Fe pellets. Ferrexpo
is well placed to develop the next phase of the expansion which
will double current output to 20 million tonnes of pellets per
annum. In the first six months of 2011, the Group made good
progress with these projects in line with plans. The projects are
reported on separately in the operating review.
Ferrexpo's low cost base, significant reserves with a focused
development programme, strong production history, and established
infrastructure to markets means that it is well placed to deliver
value to all stakeholders.
Summary of results
Higher prices increased revenues by 63% to US$855 million for
the six months ended 30 June 2011(1H 2010: US$526 million). The
Group's C1 cash cost of production increased by 27% to US$48 per
tonne compared to the average C1 cash cost for the first half 2010
of US$38 per tonne.
Costs were tightly managed, however in common with Ferrexpo's
peer group, costs of key commodities increased in line with world
market prices, in particular energy and steel. This accounted for
59% of the C1 cash cost increase. Local costs increased due to high
Ukrainian producer price inflation. Continued progress in the
business improvement programme improved efficiencies by 0.6% in
line with the Group's annual target of 1% to 2%, and production at
full capacity enabled maximum absorption of the fixed cost base.
The Ukrainian Hryvnia remained stable against the US Dollar during
the period.
Overall EBITDA rose by 86% to US$401 million (1H 2010: US$215
million). Group profit after tax increased by 111% to US$294
million (1H 2010: US$139 million).
Operating cash flow after interest and tax was US$324 million
for the period (1H 2010: US$67 million). Capital expenditure
amounted to US$120 million (1H 2010: US$42 million) with the
increase reflecting higher spend on growth projects. The early
stages of these projects, reflect low initial planned expenditure,
and together with the current pricing environment resulted in the
Group eliminating net borrowings leaving a net funds position of
US$25 million at 30 June 2011 (1H 2010: net debt of US$257
million).
At the period end, Ferrexpo held cash balances and available
facilities of US$945 million. It subsequently repaid its US$350
million pre export finance facility on 8 July 2011.
Marketing and Logistics
Industry demand for iron ore pellets remained strong throughout
the period under review. Steel blast furnace capacity utilisation
continued to recover from the global financial crisis, with Chinese
and German steel mills operating at particularly strong levels. The
Japanese economy was severely impacted by the March tsunami.
Despite the dislocation to the Japanese economy, blast furnace
operations only suffered minor disruptions. New steel capacity
continued to be installed in Asian markets, with the demand for
iron ore being met mainly by high cost marginal suppliers. In this
context, the new industry benchmark pricing systems reflected the
continued strong fundamentals and as a result the Group achieved
prices on average 12% higher than the fourth quarter of 2010.
Sales volumes during the period were in line with the first half
of 2010 at 4.7 million tonnes. In accordance with the Company's
strategy, the majority of sales continued to be under long term
framework agreements. A proportion of sales were allocated to the
spot market and to trial shipments for developing new long term
customer relationships, ahead of the planned increase in
production.
Ferrexpo will continue to focus on maximising prices relative to
its competitors based on "value in use" to the customer. The
Group's geographic proximity to key steel markets in Asia, the
Middle East and Europe represent an attractive supply alternative
to buyers in those regions. Ferrexpo's logistics strategy is to
manage and control as much of the delivery chain as possible to
provide reliable and cost effective supply to customers.
Further development of the Group's logistics capabilities has
continued. In the first half of 2011, 112 rail cars were purchased
bringing the total holding at 30 June 2011 to 1,045. Ferrexpo plans
to purchase additional rail cars over the next 18 months to ensure
self-sufficiency in rail car availability for pellet transportation
within Ukraine.
In order to provide more efficient access to Eastern and Western
European steel mills, Ferrexpo has acquired land in Austria to
develop a transhipment terminal for offloading pellets from river
barge to regional rail networks. This allows the Group to extend
its supply chain from the port of Ismail in Ukraine into
Europe.
As the Group expands its sales to Growth markets it is further
developing its ocean shipping capabilities. During the period,
Ferrexpo loaded a capesize vessel of a 167 thousand tonnes of
pellets for the first time. This shipment, which was destined for
China, was at a lower overall freight cost compared to the smaller
panamax vessels the Group currently uses.
Overall, Ferrexpo delivered 50% of its pellets on a CIF (cost
insurance and freight) or similar basis in the period compared to
18% in the first half of 2010.
Production
Ferrexpo Poltava Mining (FPM), the Group's current mining
operation, produced 4.4 million tonnes of pellets from own ore in
the first half of the year (1H 2010: 4.4 million tonnes).
Production of 65% Fe pellets from own ore increased 4% to 2.2
million tonnes, reflecting concerted efforts to increase pellet
quality and to maximise revenue and profitability.
FPM presently mines approximately 28 million tonnes of ore per
annum which produces 9 million tonnes of pellets with average iron
content of 63.5%. FPM pelletizing facilities have nameplate
capacity to produce 12 million tonnes of pellets per annum. To
utilise the spare capacity third party concentrate is used where
appropriate. During the period, FPM produced 391 thousand tonnes of
pellets from purchased third party concentrate (1H 2010: 445
thousand tonnes).
Costs
The global mining industry generally experienced cost inflation
in the first half of 2011 and Ferrexpo was no exception. The
average C1 cash cost of production was US$48 per tonne for the six
months ended 30 June 2011, an increase of US$10 per tonne compared
to the first half of 2010. The increase largely reflected commodity
cost inflation which accounted for 59% of the rise along with
Ukrainian PPI of 17%.
The Ukrainian Hryvnia has remained relatively stable against the
US dollar and did not experience an increase in value as with other
commodity linked currencies. Additionally, the Group continued to
improve efficiency through the business improvement programme where
twenty nine projects are currently underway. This resulted in
reduced fuel consumption of 6% and lower grinding media consumption
of 2% maintaining the Group firmly in the lower quartile of the
cost curve for global pellet producers supplying the seaborne
market.
Investing Activities
Ferrexpo holds exclusive licences to one of the largest iron ore
reserves in the world of approximately 20 billion tonnes with an
average iron grade of 30%. The reserves are situated in a single 50
kilometre long strike divided into 10 deposits. These deposits are
on the same ore body that is currently being exploited and are
adjacent to existing infrastructure. As a result, it is the Board's
view that the development of this resource is a low risk addition
of new iron ore capacity compared to greenfield iron ore projects,
offering superior potential returns.
In November 2010, Ferrexpo's Board authorised a capital
investment programme of US$380 million for FPM to increase its
pellet quality and to extend the life of the mine to 2038.
The Board also authorised US$267 million to achieve first ore at
the Yeristovo deposit, the next deposit being developed by the
Group.
The projects are progressing as planned and during the period
Ferrexpo's total capital expenditure amounted to US$120
million.
The Board is reviewing the total cost and scope of the
requirements to double pellet output equivalent to 20 million
tonnes per annum.
Dividend
The Board's strategy remains to pay a modest consistent dividend
throughout the economic cycle while retaining sufficient headroom
to develop its significant project pipeline. The Directors
therefore recommend an interim dividend in respect of profits
generated for the Group in the first half of 2011 of 3.3 US cents
per Ordinary Share (1H 2010: 3.3 US cents per Ordinary share).
Business Strategy
It remains the strategy of the Group to invest in its sizeable
reserve base to increase the output of iron ore units from its
existing reserves and resources, thereby delivering value to
shareholders.
Ferrexpo will invest in its infrastructure, production
facilities, joint ventures and logistics activities to reduce risk
of cost inflation and cost variability and to ensure highly
reliable supply to its tier one steel producing customers.
The Group is currently generating significant cash flows and
will apply this at the fastest practical pace to produce additional
returns for all shareholders utilizing an efficient financial
structure. Ferrexpo will develop its significant project pipeline
in a controlled and efficient manner taking account of the skills
available and uncertainties surrounding future demand.
People
Ferrexpo is very pleased to welcome Brian Maynard as Chief
Operating Officer and Jason Keys as Chief Marketing Officer to the
Group. Both Brian and Jason bring valuable experience to the
Company having worked at length in the international mining
industry. Brian has managed various large scale mining divisions
throughout his 30 year career at Vale Australia (Coal) and Vale
Inco (Canada Nickel) while Jason has held senior sales and
marketing roles within Rio Tinto and BHP Billiton, latterly as
Global Marketing Manager for BHP Billiton Iron Ore. On behalf of
the Board we would very much like to thank Yaroslavna Blonska for
acting as the Chief Marketing Offer in the interim period prior to
Jason's arrival.
The Board is grateful to all the management and staff for their
continued hard work during the period which has formed the basis
for another year of significant progress.
Corporate Governance
Since listing in 2007, Ferrexpo has complied fully with the
Combined Code on Corporate Governance, and it expects to be in
compliance with the new UK Corporate Governance Code this year. The
Board and the Board Committees are well balanced with a number of
experienced independent non-executive directors, and the respective
responsibilities of the Board and management team are clearly
defined. The Board remains strongly committed to maintaining the
highest standards of corporate governance throughout the Group.
Outlook
Demand for iron ore is expected to remain strong in the medium
term while supply is proving slow to respond. Iron ore is a
cyclical market and Ferrexpo will retain its operational and
financial flexibility through its low cost base, well established
marketing strategy, incremental approach to developing its assets
and strong balance sheet. The Group will continue to invest in its
growth projects and manage its costs where possible to ensure a
strong financial performance in the second half of the year and
through the commodity cycle.
Michael Abrahams CBE DL Kostyantin Zhevago
Chairman Chief Executive Officer
Operating Review
The Group currently has approximately 7 billion tonnes of JORC
classified resources and 14 billion tonnes of GKZ (Soviet
classified) resources.
Ferrexpo JORC resources:
As of 1 January 2011
Resources
-----------------------
Fe Fe
Proved & grade grade Fe grade
probable (total) Measured& (total) inferred (total)
(Mt) % indicated % (Mt) %
----------------------- --------- -------- ---------- -------- --------- --------
Gorishne-Plavninskoye
& Lavrikovskoye 870 30 2,170 30 1,449 31
Yeristovskoye 632 34 828 34 364 30
Belanovskoye - - 1,485 31 217 30
Galeschinskoye - - 268 55 58 55
Total 1,502 31 4,751 33 2,088 32
----------------------- --------- -------- ---------- -------- --------- --------
Note: this table reflects JORC resources only and excludes 14.2
billion tonnes of additional iron ore resources classified
according to the Soviet GKZ Code.
In 2010, Ferrexpo was the largest exporter of pellets in the CIS
and one of the top ten pellet producers in the global seaborne iron
ore market. This has continued in the first half of 2011.
Ferrexpo Poltava Mining (FPM)
The Group's current operating asset is FPM. The mine and
processing division, consisting of crushing, concentrating and
pelletising facilities, exploits the Gorishne-Plavninskoye and
Lavrikovskoye ("GPL") deposit. This is located immediately adjacent
to both rail and port facilities on the Dnieper River.
The FPM mine is open cut and approximately 340 metres deep and 6
kilometres long. The Mine Life Extension programme (see Growth
Projects below) will extend the life of the mine to 2038.
As FPM is already producing at full mining capacity, production
statistics for the period were in-line with the first half of 2010.
FPM mined approximately 14.2 million tonnes (1H 2010: 14.2 million
tonnes) of ore producing 5.6 million tonnes of concentrate (1H
2010: 5.5 million tonnes) and 4.4 million tonnes of 62% Fe and 65%
Fe pellets (1H 2010: 4.4 million tonnes).
FPM has spare processing capacity of up to 3.0 million tonnes of
pellets per annum. During the period, it produced 391 thousand
tonnes of pellets from purchased third party concentrate (1H 2010:
445 thousand tonnes). Ferrexpo purchases third party concentrate
subject to availability in order to utilize this surplus
pelletising capacity.
In total, the Group produced 4.8 million tonnes of pellets (1H
2010: 4.9 million tonnes) of which 2.35 million tonnes were 62% Fe
pellets (1H 2010: 2.5 million tonnes) and 2.45 million tonnes were
65% Fe pellets (1H 2010: 2.5 million tonnes).
The table below highlights FPM's production statistics in for
the six months ended 30 June 2011 and 2010.
Production
for Q2 2011
Production
in Tonnes 6 months 6 months
'000 Q2 2011 Q1 2011 Change Q2 2010 Change to to Change
============= ======== ======== ========
% % 30.6.2011 30.6.2010 %
============= ======== ======== ======= ======== ======= =======
Production
from own raw
materials
Iron Ore 7,182.0 7,016.2 2.4 6,989.7 2.8 14198.2 14202.6 (0.0)
Concentrate 2,865.4 2,709.3 5.8 2,814.7 1.8 5574.7 5509.6 1.2
Pellets
62% Fe 1,217.3 1,037.5 17.3 1,212.1 0.4 2254.8 2384.2 (5.4)
65% Fe 1,053.3 1,086.1 (3.0) 1,066.8 (1.3) 2139.4 2057.0 4.0
-------- -------- -------- ------- ---------- ---------- -------
Total
Pellets 2,270.5 2,123.6 6.9 2,278.9 (0.4) 4394.1 4441.2 (1.1)
Production/reprocessing from
purchased raw materials
Pellets
62% Fe 56.2 33.5 67.6 43.0 30.6 89.7 90.7 (1.2)
65% Fe 155.1 146.0 6.2 224.3 (30.8) 301.1 353.9 (14.9)
-------- -------- ------- -------- ------- ---------- ---------- -------
Total
Pellets 211.3 179.5 17.7 267.3 (21.0) 390.8 444.6 (12.1)
Total
Pellets
Produced 2,481.8 2,303.1 7.8 2,546.2 (2.5) 4784.9 4885.8 (2.1)
------------- -------- -------- ------- -------- ------- ---------- ---------- -------
62% Fe 1,273.4 1,071.0 18.9 1,255.1 1.5 2344.4 2474.9 (5.3)
65% Fe 1,208.4 1,232.1 (1.9) 1,291.1 (6.4) 2440.5 2410.9 1.2
Sustaining Capital Expenditure at FPM
FPM Capacity Project
This project is to debottleneck the FPM processing and
pelletising facilities to ensure it has capacity of 12 million
tonnes of pellet production per annum. This is a series of projects
which form part of FPM's sustaining capex budget. Expenditure is
expected to be US$20.8 million in 2011.
The project includes the upgrading and renovation of the
crushing, concentrating and pelletizing plant to ensure the
processing volume of 35 million tonnes of raw ore per annum.
During the period, design works for the crushing, concentrating
and pelletising plants were undertaken and largely completed. In
terms of site preparation part of the area in the processing plant
where lean ore is processed was disassembled and a new scavenger
circuit, which recovers iron from tailings, was configured.
Total sustaining capital expenditure for the period was US$56.6
million (1H 2010: US$11.6 million).
Development Capital Expenditure at FPM
Quality Upgrade Project
In November 2010, the Ferrexpo Board approved the FPM Quality
Upgrade Project to increase the proportion of 65% iron content
pellets to 100% of production from both the lean and rich ores
mined from the current pit. Ferrexpo currently produces two pellet
products with 62% and 65% iron content. The project plans to
increase the beneficiation capacity of the current lean ore process
through the re-design of two floatation circuits and the
installation of an additional circuit. The second stage of the
project involves the installation of new press filters which remove
water from the concentrate prior to it being passed to the
pelletising plant. The project is to be completed by the end of
2014.
Work planned for completion in 2011 is the detailed engineering
design of the three floatation sections. This is currently 55%
complete. Other related activities in 2011 are site preparation for
the floatation sections. Long-lead orders for the vertical mills
used in the floatation process as well as three press filters have
been placed and delivery is expected in mid-2012.
Mine Life Extension
The FPM open pit mine has been in operation for 40 years and
contains ore beyond the original planned pit limits and depths. The
Mine Life Extension project involves new mining works to access
additional iron rich ore by 2014. US$168 million has been approved
for expenditure over 8 years to extend the life of the mine to
2038. The new pit design provides increased ore output from the
mine peaking at 35 million tonnes per annum by 2014, compared to
the current output of 28 million tonnes per annum. This ore will be
processed into pellets at the existing FPM facilities.
The project scope includes procurement of necessary mining
equipment, stripping of waste material, and higher ore
production.
In the first half of 2011 approximately 7 million cubic meters
of overburden was removed in-line with the budget. Orders for key
equipment have been placed with a drilling rig and two excavators
to be delivered in the first quarter of 2012, while three
dump-trucks are to be delivered by the end of September 2011.
Total development capital expenditure at FPM for the period was
US$20.4 million (1H 2010: US$7.9 million).
Ferrexpo Yeristovo Mining (FYM)
Development Capital Expenditure
Mining
In November 2010, the Board authorised US$267 million to achieve
first ore from the Yeristovo deposit. Under the current plan, the
mine will initially deliver primary crushed ore to the FPM
processing facilities enabling FPM to fully utilise its 3 million
tonnes per annum of latent processing capacity. This is planned to
occur in 2013 and will increase the Group's pellet output, from own
ore, by one third to 12 million tonnes per annum.
Overburden is currently being stripped by five draglines and one
Bucyrus RH200 excavator, and transported by 16 Caterpillar 789C
haul trucks. During the first six months of 2011 over 7 million
cubic meters of pre-stripping was completed in-line with the
budget. Under the current mine development plan, approximately 23.5
million cubic meters of additional pre-stripping is required to
reach first ore.
Engineering design is well under way for a large majority of the
permanent mine infrastructure, with several contracts having been,
or about to be signed for the construction of service and support
facilities. Design of the 10 million tonne per annum concentrator
plant continues.
Equipment for the next phase of mining has been ordered
including five 220 tonne Caterpillar 793D haul trucks and one
Bucyrus RH340 30 cubic meter hydraulic face shovel. The new trucks
are expected to be operational in September 2011 and will
supplement the existing fleet, while the Bucyrus RH340 will be
delivered and placed into service by mid-2012 when hard rock mining
commences.
Capital expenditure for the period on FYM mining was US$30.8
million (1H 2010: US$21.3 million).
Processing Facilities
Ferrexpo intends to build further processing facilities for the
remaining FYM crude ore mining capacity, planned to be, in total,
approximately 28 million tonnes per annum. This should double the
Group's output to 20 million tonnes of pellets or concentrate
equivalent per annum. These stages are currently under final
technical review together with the detailed engineering design
prior to full Board approval.
Ferrexpo Belanovo Mining (FBM)
The Ferrexpo Belanovo deposit has total JORC resources of 1,702
million tonnes. Drilling works and site preparation activities were
undertaken during the period amounting to US$0.9 million. The Group
has ordered a Bucyrus RH340 hydraulic face shovel and five
Caterpillar 793D haul trucks for delivery in mid-2012 in order to
begin stripping works.
Health and Safety
The Board's Corporate Safety and Social Responsibility Committee
monitors the management of the Group's health, safety,
environmental and community programmes on a regular basis, in line
with industry wide best practice for mining companies. Safety is
fundamental to the success of Ferrexpo's future and is integral to
the culture of the Group. Ferrexpo is pleased to report that the
rate of injuries occurred per million hours worked has declined by
47.1% compared to the first half of 2010 to 1.1 per million
hours.
Business Improvement Programme (BIP)
In the high cost environment witnessed during the period, FPM
continued its programme to reduce costs through the BIP. The BIP
has reduced the C1 cash cost by US$5.7 per tonne since 2006,
underpinning the Group's position as one of the lowest cost pellet
producers in the world. Twenty nine BIP projects were undertaken
during the period in the mining, processing and servicing
departments which reduced costs by US$6.0 million on an annualised
basis. This was mainly achieved by increasing energy efficiency,
reducing consumption of production inputs such as grinding media,
and improving fleet utilisation.
Examples of projects undertaken include the redesign of the
piping in the processing area to allow gravity to pump water down
from the tailings dam instead of using electrical pumps. At the
crushing plant, FPM focused on increasing automation of the
crushing process to reduce the time taken before the ore enters the
concentration plant. While at the pit, there was more rigorous
scheduling of maintenance and repairs to allow increased
availability of the mining fleet.
Marketing
The international pricing mechanism for pellets in the six
months to 30 June 2011 was largely based on a price index system,
with a pellet premium added to the iron ore fines price. Major
pellet producers have been using the average quarterly price for
fines with a one month lag. There is, however, evidence that some
iron ore contracts in Asia are moving to monthly average
pricing.
During the period under review Ferrexpo continued to negotiate
with its customers with the view towards moving to an international
pricing mechanism.
Ferrexpo continues to target tier one steel customers who
themselves have quality customers. The Group sells throughout the
main steel producing centres of the world and concentrates on three
key market segments.
Growth Markets
'Growth Markets' are those which offer to add new and
significant tonnage to the Group. Ferrexpo currently has a number
of long-term contracts in place in China and Japan as part of its
strategy to build a sustainable customer portfolio in the region.
It has also agreed trial cargoes with several large regional
producers ahead of the increase in production volume. This
development strategy together with the new long term contact agreed
in Japan in the second half of 2010 as well as increased spot
sales, has seen volumes to this region grow to 36.0% of sales (1H
2010: 22.7%).
Traditional Markets
Ferrexpo's Traditional markets lie within Central and Eastern
Europe and supply steel plants that were designed to use FPM iron
ore pellets. FPM has been servicing some of these customers for
more than 20 years. The Group has a well-established logistics
infrastructure to these markets by both river barge and rail.
Traditional markets include Austria, Czech Republic, Slovakia,
Serbia and Hungary. 60.5% of Group sales were to these markets
during the period compared to 67% of sales in 2010. The reduction
is due to high levels of restocking in the comparator period
following the 2009 downturn.
Natural Markets
'Natural Markets' are regions where Ferrexpo has a competitive
advantage due to proximity, but where the Group has historically
had a low market share. This segment includes Western Europe,
Turkey and the Middle East. Ferrexpo's proximity across the Black
Sea to Turkey and the Middle East provides an advantage to both the
Group and iron ore buyers in the region.
Volumes shipped to these markets were 3.5% of sales (1H 2010:
10.3%) as the Group renegotiated a long term contract in Turkey.
Ferrexpo is building commercial and technical relationships in the
Middle East as a base for future sales.
Logistics
The Group's strategy is to manage the delivery chain to
customers where possible. Approximately half of pellet sales
volumes are transported by rail around 700 kilometres to the
Western Ukrainian border, for delivery to customers in Central and
Eastern Europe. The remaining pellets are transported by rail and
river barge around 550 kilometres to the Group's associate TIS-Ruda
port on the Black Sea for shipment to Natural and Growth Markets by
sea using both panamax and capesize vessels. Pellets are also
transported to the Port of Izmail from where they are barged to
customers in Central Europe.
Capital expenditure on logistics activities in the first half
amounted to US$11.5 million. This included the purchase of 112 rail
cars bringing the Company's total holding at 30 June 2011 to 1,045.
This enables Ferrexpo to transport approximately half of its pellet
production to the Ukrainian border using its own rail cars. It also
qualifies the Group for a rail tariff discount from the railway
authorities. The Company expects to purchase another 150 to 200
rail cars in the second half of the year.
In May 2011, Ferrexpo loaded its first capesize vessel of 167
thousand tonnes. 127 thousand tonnes of pellets were loaded at the
berth of the Group's TIS-Ruda port terminal while a further 40
thousand tonnes of pellets were topped off further out at sea using
two shuttle vessels. This is part of the Group's strategy to
significantly reduce its freight costs as it looks to increases its
sales to Natural and Growth markets ahead of the planned increase
in production.
The acquisition of Helogistics, one of the largest inland
waterway transportation companies operating on the Danube/Rhine
river corridor, was completed in January 2011 for US$38.0 million.
Helogistics enables the Group to further manage the supply chain
securing improved service levels to existing customers and new
access to European markets. To this extent, the Group has purchased
land in Austria which it plans to use for transhipment from barges
to regional railways in order to further access European steel
mills.
Helogistics operations have been integrated into the Group's
logistics operations. Ferrexpo ironore pellets shipped by the
subsidiary rose by 38.8% in the first half of 2011 to 579 thousand
tonnes compared to 417 thousand tonnes in the same period of last
year.
Financial Review
Summary of financial results
6 months 6 months to
US$ 000 to 30.6.2011 30.6.2010 Change
Revenue 854,864 525,833 62.6%
EBITDA 400,753 215,172 86.3%
EBITDA as % of revenue 46.9% 40.9% 14.5%
Profit before taxation 352,011 166,164 111.8%
Income tax (58,082) (27,458) 111.5%
Profit for the period 293,929 138,706 111.9%
Diluted earnings per share
(US cents) 49.73 23.57 111.3%
Final dividend per share
(US cents) 3.3 3.3 0.0%
---------------------------- -------------- ------------ -------
Revenue
Total revenue increased by 62.6% to US$854.9 million for the six
months ended 30 June 2011 (1H 2010: US$525.8 million).
Sales volumes were in-line with the comparable period at 4.7
million tonnes while prices largely moved in line with the
quarterly benchmark pricing system. Ferrexpo achieved a 50.0%
increase in its average DAF/FOB price compared to the first half of
2010, which increased revenues by US$254.3 million.
Sales made to the Group's two largest customers, which are in
Central and Eastern Europe, increased by 27.7% to US$399.1 million
(1H 2010: US$312.6 million) and during the period sales to the
Growth markets of China, Japan and India represented 35.6% of sales
compared to 22.7% of sales in the first half of 2010.
The Group acquired Helogistics in December 2010 which added
US$26.4 million of revenue from freight services and US$10.1
million from third party sales of bunker fuel and other.
Other revenue included sales of gravel and income from services,
together amounting to US$6.9 million (1H 2010: US$1.9 million).
Cost of sales
Total cost of sales for the six months ended 30 June 2011
increased 39.7% to US$302.1 million (1H 2010: US$216.3 million).
Cost of sales consists of the C1 cash cost of sales and other costs
including depreciation. These are reviewed below:
C1 cash cost
The C1 cash cost of production per tonne is defined as the cash
costs of production of own ore divided by production volume of own
ore. This excludes non-cash costs such as depreciation and one-off
items.
The C1 cash cost increased by 27.8% to US$48.2 per tonne
compared to US$37.8 per tonne in the first half of 2010, as a
result of local and commodity price inflation.
Overall energy related costs increased by 30.3% with diesel fuel
rising by 40.6%. Electricity tariffs rose by 26.5% in the first
half of 2011 compared to the prior year period and gas prices
increased by 27.5%. Higher steel prices, reflected in improved
revenues, resulted in a 21.6% increase in steel grinding media as
well as higher repair costs. These factors increased C1 costs by
US$6.1 per tonne.
Personnel costs are mainly denominated in local currency and
with Ukrainian inflation of 16.5% to 30 June 2011, these increased
the C1 cash cost by US$1.0 per tonne.
The cost increases were partially offset through the Business
Improvement Programme. Consumption of grinding media reduced by
2.4% compared to the first half of 2010 and lowered the C1 cash
cost by US$0.1 per tonne, while improved fleet utilisation improved
efficiencies by 5.8% and lowered the C1 cash cost by US$0.2 per
tonne.
The table below provides a breakdown of Ferrexpo's C1 cash
costs:
6 months to 30.6.2011 6 months to 30.6.2010
US$ 000 % of total US$ 000 % of total
-------------------------- ---------- ------------ ---------- ------------
Electricity 56,647 26.8% 44,589 26.6%
Gas 26,263 12.4% 20,014 11.9%
Fuel 21,190 10.0% 16,113 9.6%
Grinding media 19,817 9.4% 16,882 10.1%
Explosives 5,465 2.6% 3,847 2.3%
Other materials 18,204 8.6% 14,127 8.4%
Spare parts, maintenance
and consumables 34,730 16.4% 27,646 16.5%
Personnel costs 25,734 12.2% 21,467 12.8%
Royalties and levies 3,714 1.8% 3,231 1.9%
C1 Cost of Sales 211,766 167,916
-------------------------- ---------- ------------ ---------- ------------
C1 Cost per tonne 48.2 37.8
-------------------------- ---------- ------------ ---------- ------------
Non C1 Cost of Sales
Non C1 cost of sales amounted to US$90.3 million for the period
(1H 2010: US$48.4 million).
Helogistics' cost of sales amounted to US$21.3 million and
related to third party freight services and bunker fuel sales, both
of which were reflected in revenue.
Depreciation increased by 10.1% to US$13.6 million, reflecting
capital investments at FPM and FYM in 2010 and the first half of
2011.
The remainder of non C1 cost of sales related to the purchase of
concentrate for reprocessing into pellets.
Gross Margin
The Group's gross margin increased to 64.7% in the first half of
2011 compared to 58.9% in the comparable 2010 period. This
principally reflects the 50.0% increase in the average DAF/FOB
selling price offset by a 27.8% increase in the C1 cash cost per
tonne during the period.
Selling and distribution expenses
Selling and distribution expenses were US$146.2 million for the
first six months of the year compared to US$84.9 million in the
same period last year.
Selling and distribution costs to the Ukrainian border increased
by US$3.4 million to US$65.5 million in the period (1H 2010:
US$62.1 million), equating to US$13.8 per tonne (1H 2010: US$13.1
per tonne). These costs primarily include railway freight to the
Southern ports at Yuzhny and Ismail and to the Western Ukrainian
border as well as port charges.
Rail tariffs increased by approximately 9.1% during the period,
this was partially offset by a discount for volumes transported by
the Group's own rail cars. Currently up to half of the sales
volumes are railed using Ferrexpo's wagons receiving a 7.0%
discount for these volumes.
Freight costs included charges associated with the Helogistics
operations for the first time. This amounted to US$16.1 million and
was for freight services related to barging Ferrexpo's pellets,
which was also reflected in revenue.
Depreciation amounted to US$4.0 million (1H 2010: US$0.8
million) and related to amortisation of Helogistics river vessels
as well as to capital investment from the purchase of new rail
cars.
International freight related to the shipping cost of pellets to
customers in Asia (on a CIF(2) , CFR(3) basis) and to Serbia (on a
DES(4) basis). This increased in the first half of 2011 to US$53.3
million as a result of higher tonnage to Asia of 1.0 million
tonnes.
The following table highlights the selling and distribution
expenses for the periods indicated:
6 months 6 months
(US$ 000 unless otherwise stated) to 30.6.2011 to 30.6.2010
Railway transportation 42,692 42,702
Port charges 17,594 15,774
International freight 53,283 19,238
Helogistics' freight costs for Ferrexpo
pellets 16,053 -
-------------------------------------------- -------------- --------------
Other (commissions, insurances, personnel,
depreciation, advertising) 16,554 7,140
-------------------------------------------- -------------- --------------
Total selling and distribution expenses 146,176 84,854
-------------------------------------------- -------------- --------------
Total sales volume, kt 4,739 4,738
-------------------------------------------- -------------- --------------
(
2) CIF is defined as delivery including cost, insurance and freight
(3) CFR is defined as delivery including cost and freight
(4) DES is defined as delivered ex ship
General and administrative expenses
General and administrative expenses increased by 5.7% to US$25.5
million (1H 2010: US$24.1 million). This was primarily related to
increased costs at FPM due to local inflation, and a strengthening
in the Swiss Franc against the US dollar.
Other income and expense
Other income was US$0.7 million for the half year ended 30 June
2011 (1H 2010: US$0.5 million). The increase reflected higher
operating income from the lease of premises to third parties at
FPM.
Other expenses increased by US$0.3 million to US$2.4 million (1H
2010: US$2.1 million). The increase primarily reflected higher
charitable donations as part of the corporate social responsibility
program for the local community in the town of Komsomolsk, where
FPM is based.
EBITDA
EBITDA increased by 86.3% to US$400.8 million for the six months
ended 30 June 2011 compared to US$215.2 million for the same period
in 2010. This is the highest six month EBITDA achieved by the
Group. The increase was due to a 50.0% increase in the Group's
average DAF/FOB sales price. This was partially offset by higher
cost of sales while DAF/FOB distribution costs and other costs
increased by US$4.0 million compared to the prior year. The EBITDA
margin was 46.9% compared with 40.9% in the first half of 2010.
Finance income and expense
Finance income increased to US$2.9 million (1H 2010: US$0.7
million) due to higher average cash balances of US$563.8 million
(1H 2010: average cash balance US$27.9 million).
Finance expense increased to US$36.6 million (1H 2010: US$16.9
million) which reflected a US$9.2 million quarterly interest
accrual on the Group's US$500 million Eurobond, issued in April
2011 at a coupon of 7.875%. Finance expense also included a US$6.4
million charge for arrangement fees. The average gross debt for the
period was US$643.3 million (1H 2010: US$305.0 million).
Foreign exchange gains and losses
Operating foreign exchange gains and losses
Ferrexpo prepares and reports its financial statements in US
Dollars and operating foreign exchange gains and losses reflect the
revaluation of trade receivables and trade payables that are
denominated in a currency other than the Group's reporting currency
at the balance sheet date.
During the period, the Ukrainian Hryvnia remained stable against
the US Dollar at an average rate of UAH7.9579 (1H 2010: UAH7.9547).
As a result, there was no significant operating foreign exchange
movements, with a loss of US$0.6 million recorded (1H 2010: loss of
US$0.7 million).
Non-operating foreign exchange gains and losses
Non-operating foreign exchange gains or losses result from the
re-translation of financial liabilities, loans and other similar
items.
Non-operating foreign exchange gains for the period were US$5.4
million compared to US$0.8 million in the first half of 2010. The
gains were related to the translation of Euro denominated
Helogistics loans into US Dollars. The exchange rate between the US
Dollar and Euro changed during the period from 0.7456 to 0.6948. No
Euro denominated loans existed in the prior year.
Cash flows
Net cash from operating activities was US$324.2 million for the
period. This is an increase of 382% compared to the first half of
2010 (US$67.3 million).
Working capital increased by US$25.1 million as a result of
higher sales prices and inventories. The balance of VAT and other
tax receivables increased by US$4.7 million. FPM received regular
VAT refunds from the Ukrainian government from April 2011 relating
to VAT incurred in 2011 under the new automated repayment
system.
Total capital expenditure for the period was US$120.2 million
which compares to US$42.3 million in the first half of 2010.
US$56.6 million was for sustaining and modernising capital at FPM
(1H 2010: US$11.6 million). This included spend for the capacity
upgrade of the processing facilities ahead of the increase in
mining output to 12 million tonnes of pellets per annum. Total
development capital expenditure amounted to US$63.8 million (1H
2010: US$30.7 million). This consisted of US$20.4 million for the
mine life extension project and the quality upgrade project at FPM
and US$30.8 million for the FYM development project to reach first
ore. The Group spent US$11.5 million on logistics (1H 2010: nil)
which was primarily for the acquisition of 112 rail cars.
Ferrexpo paid US$38.0 million for the Helogistics acquisition
during the period.
The Group's closing cash balance increased by US$625.7 million
to US$945.1 million as of 30 June 2011 partly as a result of the
net financing inflow of US$477.9 million following the placement of
a US$500.0 million bond. The Company was ungeared at the end of the
period with a net funds position of US$25.4 million (1H 2010: net
debt of US$256.9 million).
Since the period end Ferrexpo has repaid its US$350 million pre
export finance facility. Following this repayment, total Group
facilities amounted to US$614.9 million of which US$50.0 million is
undrawn. The drawn facilities have an average maturity of 4.6
years.
Going Concern
The Group's business activities and its financial performance
are set out in the Chairman and CEO's review and the Operating
Review on pages 1 to 11. The financial position of the company, its
cash flows, liquidity position and borrowing facilities are
described in the Financial Review on pages 12 to 15. In addition,
note 38 of our 2010 Annual Report & Accounts include the
Group's objectives, policies and processes for managing its
capital; its financial risk management objectives and details of
its financial instruments; and its exposures to credit risk,
liquidity risk as well as currency risk and interest rate risk.
The Group's forecasts and projections, taking into account
possible changes in the iron ore market and general economic
environment, show that the Group generates sufficient operating
cash flows to comply with the amortisation schedule for the
existing major debt facility and to finance the anticipated
development projects. After making enquiries, the Directors have a
reasonable expectation that the Group has adequate financial
resources to continue in operational existence for the foreseeable
future. For this reason, the Directors continue to adopt the going
concern basis of accounting in preparing the financial statements
of the Group.
Interim consolidated income statement
6 months 6 months
ended ended Year ended
30.06.11 30.06.10 31.12.10
US$'000 Notes (unaudited) (unaudited) (audited)
--------------------------- ------ ------------- ------------- -----------
Revenue 4 854,864 525,833 1,294,900
Cost of sales 3/5 (302,115) (216,335) (481,857)
------
Gross profit 552,749 309,498 813,043
--------------------------- ------ ------------- ------------- -----------
Selling and distribution
expenses 6 (146,176) (84,854) (212,006)
General and administrative
expenses 7 (25,479) (24,106) (49,175)
Other income 735 510 4,515
Other expenses (2,358) (2,109) (5,938)
Operating foreign exchange
losses 8 (567) (718) (1,078)
------
Operating profit from
continuing operations
before adjusted items 378,904 198,221 549,361
--------------------------- ------ ------------- ------------- -----------
Under recovery of VAT
receivable 12 - (15,000) (10,936)
Write-offs and impairment
losses 9 (198) (2,124) (1,618)
Share of profit from
associates 1,700 1,069 4,155
Gain on bargain purchase - - 2,623
Initial public offering
costs - (55) (55)
Losses on disposal of
property, plant and
equipment (150) (627) (1,305)
Profit before tax and
finance 380,256 181,484 542,225
--------------------------- ------ ------------- ------------- -----------
Finance income 2,919 709 2,632
Finance expense (36,591) (16,864) (42,843)
Non-operating foreign
exchange gains/(losses) 8 5,427 835 (3,888)
------
Profit before tax 352,011 166,164 498,126
--------------------------- ------ ------------- ------------- -----------
Income tax expense (58,082) (27,458) (73,002)
------
Profit for the period/year 293,929 138,706 425,124
Attributable to:
Equity shareholders of
Ferrexpo plc 291,122 138,117 422,906
Non-controlling interests 2,807 589 2,218
--------------------------- ------ ------------- ------------- -----------
293,929 138,706 425,124
--------------------------- ------ ------------- ------------- -----------
Earnings per share:
Basic (US cents) 10 49.80 23.62 72.34
Diluted (US cents) 10 49.73 23.57 72.24
Interim consolidated statement of comprehensive income
Year
6 months 6 months ended
ended 30.06.11 ended 30.06.10 31.12.10
US$ 000 (unaudited) (unaudited) (audited)
----------------------------- ---------------- ---------------- -----------
Profit for the period/year 293,929 138,706 425,124
----------------------------- ---------------- ---------------- -----------
Exchange differences on
translating foreign
operations
Exchange differences arising
during the period/year (1,373) 5,652 533
Exchange differences
arising on hedging of
foreign operations (212) 1,288 110
Available-for-sale
investments
(Losses)/gains arising on
revaluation during the
period/year (794) 637 1,915
Income tax effect 120 (485) (492)
Other comprehensive income
for the period/year, net of
tax (2,259) 7,092 2,066
----------------------------- ---------------- ---------------- -----------
Total comprehensive income
for the period/year, net of
tax 291,670 145,798 427,190
----------------------------- ---------------- ---------------- -----------
Total comprehensive income
attributable to:
Equity shareholders of
Ferrexpo plc 288,905 145,066 424,923
Non-controlling interests 2,765 732 2,267
----------------------------- ---------------- ---------------- -----------
291,670 145,798 427,190
----------------------------- ---------------- ---------------- -----------
Interim consolidated statement of financial position
As at
As at 30.06.11 As at 30.06.10 31.12.10
US$'000 Notes (unaudited) (unaudited) (audited)
----------------------- ------ --------------- --------------- -----------
Assets
Property, plant and
equipment 11 754,520 478,439 647,137
Goodwill and other
intangible assets 102,658 101,395 102,715
Investments in
associates 20,623 20,209 21,132
Available-for-sale
financial assets 18 2,336 2,178 3,356
Other non-current
assets 25,490 10,603 24,767
Deferred tax assets 18,074 16,154 16,596
Total non-current
assets 923,701 628,978 815,703
----------------------- ------ --------------- --------------- -----------
Inventories 109,352 84,090 104,827
Trade and other
receivables 120,679 81,885 111,890
Prepayments and other
current assets 24,496 36,621 18,922
Income taxes
recoverable and
prepaid 294 185 35
Other taxes
recoverable and
prepaid 12 108,207 123,721 103,647
Cash and cash
equivalents 13 945,146 60,172 319,470
----------------------- ------ --------------- --------------- -----------
1,308,174 386,674 658,791
----------------------- ------ --------------- --------------- -----------
Assets classified as
held for sale 3,026 - 3,149
Total current assets 1,311,200 386,674 661,940
Total assets 2,234,901 1,015,652 1,477,643
----------------------- ------ --------------- --------------- -----------
Equity and liabilities
Share capital 14 121,628 121,628 121,628
Share premium 185,112 185,112 185,112
Other reserves (346,357) (340,053) (344,420)
Retained earnings 1,157,113 620,003 885,353
------
Equity attributable to
equity shareholders
of the parent 1,117,496 586,690 847,673
----------------------- ------ --------------- --------------- -----------
Non-controlling
interest 16,244 12,119 13,801
------
Total equity 1,133,740 598,809 861,474
----------------------- ------ --------------- --------------- -----------
Interest-bearing loans
and borrowings 3/15 531,855 199,238 401,290
Defined benefit
pension liability 22,096 16,307 17,819
Provision for site
restoration 2,803 1,361 2,746
Deferred tax liability 2,140 2,842 2,432
------
Total non-current
liabilities 558,894 219,748 424,287
----------------------- ------ --------------- --------------- -----------
Interest-bearing loans
and borrowings 3/15 387,901 117,837 22,563
Trade and other
payables 53,575 23,690 88,089
Accrued liabilities
and deferred income 23,654 13,036 25,496
Income taxes payable 64,817 34,341 41,811
Other taxes payable 12,320 8,191 13,923
------
Total current
liabilities 542,267 197,095 191,882
----------------------- ------ --------------- --------------- -----------
Total liabilities 1,101,161 416,843 616,169
----------------------- ------ --------------- --------------- -----------
Total equity and
liabilities 2,234,901 1,015,652 1,477,643
----------------------- ------ --------------- --------------- -----------
The financial statements were approved by the Board of directors
on 2 August 2011.
Kostyantin Zhevago Christopher Mawe
Chief Executive Officer Chief Financial Officer
Interim consolidated statement of cash flow
6 months
ended 6 months ended Year ended
30.06.11 30.06.10 31.12.10
US$ 000 Notes (unaudited) (unaudited) (audited)
--------------------- ------ -------------- --------------- --------------
Profit before tax 352,011 166,164 498,126
--------------------- ------ -------------- --------------- --------------
Adjustments for:
Depreciation of
property, plant and
equipment and
amortisation of
intangible assets 19,733 15,081 30,415
Interest expense 33,645 16,864 42,843
Under recovery of
VAT receivable 12 - 15,000 10,936
Interest income (2,919) (709) (2,632)
Share of income of
associates (1,700) (1,069) (4,155)
Movement in
allowance for
doubtful
receivables (2,681) (1,948) (3,685)
Loss on disposal of
property, plant and
equipment 150 627 1,305
Write-offs and
impairment losses 9 198 2,124 1,618
Site restoration
provision 58 93 1,478
Employee benefits 7,042 2,587 3,281
IPO costs - 55 55
Share based payments 416 801 1,366
Bargain purchase
from business
combination - - (2,623)
Operating foreign
exchange losses 8 567 718 1,078
Non-operating
foreign exchange
(gains)/losses 8 (5,427) (835) 3,888
--------------------- ------ -------------- --------------- --------------
Operating cash flow
before working
capital changes 401,093 215,553 583,295
--------------------- ------ -------------- --------------- --------------
Changes in working
capital:
(Increase)/decrease
in trade and other
receivables (15,553) (50,899) (74,020)
(Increase)/decrease
in inventories (4,526) (24,454) (42,938)
Increase/(decrease)
in trade and other
accounts payable 1,139 (3,292) 11,215
(Increase)/decrease
in VAT recoverable
and other taxes
recoverable and
payable (6,163) (57,140) (31,062)
Cash generated from
operating
activities 375,990 79,768 446,490
--------------------- ------ -------------- --------------- --------------
Interest paid (13,081) (12,540) (25,437)
Income tax (paid) /
credits (36,887) 1,780 (37,827)
Retirement benefits
paid (1,870) (1,706) (3,468)
--------------------- ------ -------------- --------------- --------------
Net cash flows from
operating
activities 324,152 67,302 379,758
--------------------- ------ -------------- --------------- --------------
Cash flows from
investing
activities
Purchase of
property, plant and
equipment (120,183) (42,323) (166,775)
Purchase of
intangible assets (394) (219) (633)
Interest received 1,038 435 1,270
Proceeds from loans
to associates 1,000 - 1,550
Cash payment for
acquisition made in
2010 (38,045) - -
Pre-acquisition
loans provided - (3,820) (10,881)
Acquisition of
subsidiaries, net
of cash acquired - - 582
--------------------- ------ -------------- --------------- --------------
Net cash flows used
in investing
activities (156,584) (45,927) (174,887)
--------------------- ------ -------------- --------------- --------------
Cash flows from
financing
activities
Proceeds from
borrowings and
finance 506,819 274,005 668,802
Repayment of
borrowings and
finance (16,657) (227,643) (505,359)
Arrangement fees
paid (12,223) - (21,074)
Dividends paid to
equity shareholders
of Ferrexpo plc (19,362) (19,289) (41,744)
Dividends from
associates - - 2,931
Dividends paid to
non-controlling
shareholders (322) (16) (47)
Net cash flows
from/(used) in
financing
activities 458,255 27,057 103,509
--------------------- ------ -------------- --------------- --------------
Net increase in cash
and cash
equivalents 625,823 48,432 308,380
Cash and cash
equivalents at the
beginning of the
period/year 319,470 11,991 11,991
Currency translation
differences (147) (251) (901)
--------------------- ------ -------------- --------------- --------------
Cash and cash
equivalents at the
end of the
period/year 13 945,146 60,172 319,470
--------------------- ------ -------------- --------------- --------------
Interim consolidated statement of changes in equity
For the financial year
2010 and the six months
ended 30 June 2011 Attributable to equity shareholders of the parent
--------------------------------------------------------------------------------------------------------------------------------------
Uniting Employee Net Total
of Treasury Benefit unreali-sed capital
Issued Share interest share Trust gains Trans-lation Retained and Non-controlling Total
US$ 000 capital premium reserve reserve reserve reserve reserve earnings reserves interests equity
At 1 January 2010 121,628 185,112 31,780 (77,260) (11,593) 1,114 (291,899) 501,175 460,057 11,387 471,444
-------------------------- -------- -------- --------- --------- --------- ------------ ------------- ---------- ---------- ---------------- ----------
Profit for the period - - - - - - - 422,906 422,906 2,218 425,124
Other comprehensive
income - - - - - 1,401 616 - 2,017 49 2,066
-------------------------- -------- -------- --------- --------- --------- ------------ ------------- ---------- ---------- ---------------- ----------
Total comprehensive
income for the period - - - - - 1,401 616 422,906 424,923 2,267 427,190
Equity dividends paid to
shareholders of Ferrexpo
plc - - - - - - - (38,581) (38,581) - (38,581)
Share based payments - - - - 1,421 - - - 1,421 - 1,421
Adjustments relating to
the increase in
non-controlling
interests - - - - - - - (147) (147) 147 -
-------------------------- -------- -------- --------- --------- --------- ------------ ------------- ---------- ---------- ---------------- ----------
At 31 December 2010
(audited) 121,628 185,112 31,780 (77,260) (10,172) 2,515 (291,283) 885,353 847,673 13,801 861,474
-------------------------- -------- -------- --------- --------- --------- ------------ ------------- ---------- ---------- ---------------- ----------
Profit for the period - - - - - - - 291,122 291,122 2,807 293,929
Other comprehensive
income - - - - - (708) (1,509) - (2,217) (42) (2,259)
-------------------------- -------- -------- --------- --------- --------- ------------ ------------- ---------- ---------- ---------------- ----------
Total comprehensive
income for the period - - - - - (708) (1,509) 291,122 288,905 2,765 291,670
Equity dividends paid to
shareholders of Ferrexpo
plc - - - - - - - (19,362) (19,362) (322) (19,684)
Share based payments - - - - 280 - - - 280 - 280
-------------------------- -------- -------- --------- --------- --------- ------------ ------------- ---------- ---------- ---------------- ----------
At 30 June 2011
(unaudited) 121,628 185,112 31,780 (77,260) (9,892) 1,807 (292,792) 1,157,113 1,117,496 16,244 1,133,740
-------------------------- -------- -------- --------- --------- --------- ------------ ------------- ---------- ---------- ---------------- ----------
For the six months ended
30 June 2010 Attributable to equity shareholders of the parent
--------------------------------------------------------------------------------------------------------------------------------------
Uniting Employee Net Total
of Treasury Benefit unrealised capital
Issued Share interest share Trust gains Trans-lation Retained and Non-controlling Total
US$ 000 capital premium reserve reserve reserve reserve reserve earnings reserves interests equity
-------------------------- -------- -------- --------- --------- --------- ------------ ------------- ---------- ---------- ---------------- ----------
At 1 January 2010 121,628 185,112 31,780 (77,260) (11,593) 1,114 (291,899) 501,175 460,057 11,387 471,444
-------------------------- -------- -------- --------- --------- --------- ------------ ------------- ---------- ---------- ---------------- ----------
Profit for the period - - - - - - - 138,117 138,117 589 138,706
Other comprehensive
income - - - - - 474 6,475 - 6,949 143 7,092
-------------------------- -------- -------- --------- --------- --------- ------------ ------------- ---------- ---------- ---------------- ----------
Total comprehensive
income for the period - - - - - 474 6,475 138,117 145,066 732 145,798
Equity dividends paid to
shareholders of Ferrexpo
plc - - - - - - - (19,289) (19,289) - (19,289)
Share based payments - - - - 856 - - - 856 - 856
-------------------------- -------- -------- --------- --------- --------- ------------ ------------- ---------- ---------- ---------------- ----------
At 30 June 2010
(unaudited) 121,628 185,112 31,780 (77,260) (10,737) 1,588 (285,424) 620,003 586,690 12,119 598,809
-------------------------- -------- -------- --------- --------- --------- ------------ ------------- ---------- ---------- ---------------- ----------
Notes to the interim condensed consolidated financial
statements
Note 1: Corporate information
Organisation and operation
Ferrexpo plc (the 'Company') is incorporated in the United
Kingdom 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, Dubai and Kiev. The Group also owns a logistics group
located in Austria which operates a fleet of vessels operating on
the Rhine and Danube waterways. The Group's operations are
vertically integrated from iron ore mining through to iron ore
concentrate and pellet production and subsequent logistics. The
Group's mineral properties lie within the 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 majority shareholder of the Group is Fevamotinico S.a.r.l.
('Fevamotinico'), a company owned by The Minco Trust, of which
Kostyantin Zhevago, the Group's Chief Executive Officer, is a
beneficiary. At the time this report was published, Fevamotinico
held 51.0% (30 June 2010: 51.0%; 31 December 2010: 51.0%) of
Ferrexpo plc's issued share capital.
The Group's operations are largely conducted through Ferrexpo
plc's principal subsidiary, OJSC Ferrexpo Poltava Mining, and
certain logistics for Western Europe are managed through the
Helogistics subsidiaries. The Group comprises of Ferrexpo plc and
its consolidated subsidiaries as set out below:
Equity interest owned
Country of Principal 30.06.11 30.06.10 31.12.10
Name incorporation activity % % %
-------------------- --------------- ---------------- --------- --------- ---------
OJSC Ferrexpo
Poltava Mining(1) Ukraine Iron ore mining 97.3 97.3 97.3
Sale of iron
Ferrexpo AG(2) Switzerland ore pellets 100.0 100.0 100.0
Trade,
transportation
DP Ferrotrans(2) Ukraine services 97.3 97.3 97.3
United Energy
Company LLC(3) Ukraine Holding company 97.3 97.3 97.3
Ferrexpo Finance
plc (formerly
Ferrexpo UK
Limited)(1) England Finance 100.0 100.0 100.0
Management
Ferrexpo Services services &
Limited(1) Ukraine procurement 100.0 100.0 100.0
Ferrexpo Hong Kong Marketing
Limited(1) China services 100.0 100.0 100.0
LLC Ferrexpo
Yeristovo GOK(4) Ukraine Iron ore mining 100.0 98.6 100.0
LLC Ferrexpo
Belanovo GOK(4) Ukraine Iron ore mining 100.0 98.6 100.0
Nova Logistics Service company
Limited(3) Ukraine (dormant) 51.0 51.0 51.0
Ferrexpo Middle Sale of iron
East FZE(6) U.A.E. ore pellets 100.0 - -
Ferrexpo Singapore Marketing
PTE Ltd(6) Singapore services 100.0 - -
Helogistics Holding
GmbH(5) Austria Holding company 100.0 - 100.0
EDDSG GmbH(5) Austria Barging company 100.0 - 100.0
DDSG Tankschiffahrt
GmbH(5) Austria Barging company 100.0 - 100.0
Helogistics
Transport GmbH(5) Austria Barging company 100.0 - 100.0
Mahart Duna Cargo
Kft.(5) Hungary Barging company 100.0 - 100.0
Pancar Kft.(5) Hungary Barging company 100.0 - 100.0
Ferrexpo Port Austria Port services 100.0 - -
Services GmbH(7)
-------------------- --------------- ---------------- --------- --------- ---------
( )
(1) The Group's interest in these entities is held through
Ferrexpo AG.
(2) 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.
(3) The Group's interest in these entities is held through OJSC
Ferrexpo Poltava Mining.
(4) The Group's interest in this entity is held through both
Ferrexpo AG and Ferrexpo Service Limited. The shares initially held
by OJSC Ferrexpo Poltava Mining have been transferred as of 31
August 2010 to Ferrexpo AG and Ferrexpo Services Ltd.
(5) The Group's interest in these entities is held through
Ferrexpo AG. The Helogistics Holding GmbH and its subsidiaries were
acquired in December 2010.
(6) Both subsidiaries were incorporated in March 2011. The
Group's interest in Ferrexpo Middle East FZE is held by Ferrexpo AG
whereas Ferrexpo Singapore PTE Ltd is a subsidiary of Ferrexpo
Middle East FZE.
(7) The subsidiary was incorporated in April 2011 and the
Group's interest is held through Helogistics Holding GmbH.
At 30 June 2011, the Group also holds through OJSC Ferrexpo
Poltava Mining an interest of 48.6% (30 June 2010: 48.6%; 31
December 2010: 48.6%) in TIS Ruda, a Ukrainian port located on the
Black Sea. As this is an associate, it is accounted for using the
equity method of accounting.
Note 2: Summary of significant accounting policies
Basis of preparation
The interim condensed consolidated financial statements for the
six months ended 30 June 2011 have been prepared in accordance with
International Accounting Standard ("IAS") 34 Interim Financial
Reporting. The interim condensed consolidated financial statements
do not include all of the information and disclosures required in
the annual financial statements, and should be read in conjunction
with the Group's annual financial statements as at 31 December
2010.
The interim condensed consolidated financial statements do not
constitute statutory accounts as defined in section 435 of the
Companies Act 2006. The financial information for the full year is
based on the statutory accounts for the financial year ended 31
December 2010. A copy of the statutory accounts for that year,
which were prepared in accordance with International Financial
Reporting Standards ('IFRS') issued by the International Accounting
Standard Board ('IASB'), as adopted by the European Union as they
apply to financial statements of the Group for the year ended 31
December 2010, has been delivered to the Register of Companies. The
auditors' report under section 495 of the Companies Act 2006 in
relation to those accounts was unqualified and did not contain a
statement under 498(2) or 498(3) of the Companies Act 2006.
Financing and going concern
At the period end, the Group's main debt facilities comprised a
US$500 million Eurobond which is due for repayment on the 7 April
2016 and a US$350 million loan to be amortised in equal instalments
over a 24 month period from March 2012 to February 2014. The Group
is of the view that it can generate sufficient cash flows to fully
repay the borrowings as they fall due fully in compliance with the
terms of the loan facility and Eurobond terms and conditions.
The Group faces several risks to its business and strategy,
which are included in the Financial Review section of the Annual
report and Accounts 2010.
The Directors are of the view that the Group is a going concern
and the interim consolidated financial statements have been drawn
up on this basis. Further information on the going concern
assessment of the Directors is given in the Financial Review of the
Annual Report and Accounts 2010.
Changes in accounting policies
The accounting policies and methods of computation adopted in
the preparation of the interim condensed consolidated financial
statements are the same as those followed in the preparation of the
Group's annual financial statements for the year ended 31 December
2010, except for the adoption of new standards and interpretations
as of 1 January 2011, noted below:
IAS 24 Related party disclosures
The revised standard was issued in November 2009 and became
effective for financial years beginning on or after 1 January 2011.
The changes of the revised standard were made to simplify the
disclosure requirements for government-related entities and clarify
the definition of a related party. The adoption of this revised
standard did not have an impact on the financial position or
performance of the Group.
IAS 32 Financial instruments: presentation
The amended standard was issued in October 2009 and became
effective for annual periods beginning on or after 1 February 2010.
The amendment to IAS 32 addresses the classification of rights
issues and will affect future right issues offered for a fixed
amount in a foreign currency. This amendment did not have an impact
on the financial position or performance of the Group.
IFRIC 14 Prepayment of a minimum funding requirement
The amendment to IFRIC 14 became effective for financial years
beginning on or after 1 January 2011. Theamendment provides
guidance on assessing the recoverable amount of net pension assets
and permits an entity to treat the prepayment of a minimum funding
requirement as asset. The application of this amendment did not
have impact on the financial statements of the Group.
IFRIC 19 Extinguishing financial liabilities with equity
instruments
The new interpretation became effective for annual periods
beginning on or after 1 July 2010 and addresses the accounting by
the entity that issues equity instruments in order to settle, in
full or in part, a financial liability. The adoption of this
interpretation did not have an effect on the financial statements
of the Group.
Improvements to IFRSs (issued May 2010)
In May 2010 the IASB issued its second 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 adoption of the following amendments
resulted in changes to accounting policies but did not have any
impact on the financial position or performance of the Group.
IAS 34 Interim financial reporting.
The amendment requires a description of changes in the business
or economic circumstances that affect the fair values of the
Group's financial instruments and additional disclosures for fair
values and changes in classification of financial assets. No such
changes or transfers occurred in the current or comparative
periods.
Other amendments resulting from improvements to the following
standards and interpretations did not have an impact on the
accounting policies, financial position or performance of the
Group:
>> IFRS 3 Business combinations
>> IFRS 7 Financial instruments: disclosures
>> IAS 1 Presentation of financial statements
>> IAS 27 Consolidated and separate financial
statements
>> IFRIC 13 Customer loyalty programmes
Seasonality
The Group's operations are not affected by seasonality.
Note 3: Segment information
The Group is managed as a single entity which produces, develops
and markets its principal product, iron ore pellets, for sale to
the metallurgical industry. While the revenue generated by the
Group is analysed, there are no separate measures of profit
reported to the Group's Chief Operating Decision-Maker (CODM). In
accordance with IFRS 8 Operating Segments, the Group presents its
results in a single segment which are disclosed in the income
statement for the Group.
The management monitors the operating result of the Group based
on a number of measures including EBITDA, 'C1' costs and the net
financial indebtedness.
EBITDA
The Group calculates EBITDA as profit from continuing operations
before tax and finance, but excluding the effect of depreciation,
amortisation, share based payments, non-recurring items, and net
gains and losses from the disposal of investments and property,
plant and equipment. The Group presents EBITDA because it believes
that EBITDA is a useful measure for evaluating its ability to
generate cash and its operating performance.
Year
6 months 6 months ended
ended 30.06.11 ended 30.06.10 31.12.10
US$ 000 Notes (unaudited) (unaudited) (audited)
--------------------- ------ ---------------- ---------------- -----------
Profit before tax
and finance 380,256 181,484 542,225
Write-down of VAT
receivable 12 - 15,000 10,936
Gain on bargain
purchase - - (2,623)
Write-offs and
impairment losses 9 198 2,124 1,618
IPO costs - 55 55
Share based payments 416 801 1,366
Losses on disposal
of PPE 150 627 1,305
Depreciation and
amortisation 19,733 15,081 30,415
--------------------- ------ ---------------- ---------------- -----------
EBITDA 400,753 215,172 585,297
--------------------- ------ ---------------- ---------------- -----------
'C1' costs
"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.
6 months 6 months Year ended
ended 30.06.11 ended 30.06.10 31.12.10
US$'000 (unaudited) (unaudited) (audited)
----------------------------- ---------------- ---------------- -----------
Cost of sales - pellet
production 280,822 216,335 481,857
Depreciation and
amortisation (13,628) (12,380) (24,662)
Purchased concentrate and
other items for resale (48,817) (39,615) (101,351)
Processing costs for
purchased ore and
concentrate (3,901) (4,426) (11,042)
Production cost of gravel (178) (28) (88)
Inventory movements 3,374 8,747 18,608
Pension service costs (2,630) (1,614) (2,049)
Other (3,276) 898 (2,754)
----------------------------- ---------------- ---------------- -----------
C1 cost 211,766 167,916 358,519
----------------------------- ---------------- ---------------- -----------
Own ore produced (tonnes) 4,394,000 4,441,200 9,033,000
----------------------------- ---------------- ---------------- -----------
C1 cash cost per tonne US$ 48.19 37.81 39.69
----------------------------- ---------------- ---------------- -----------
Net financial indebtedness
Net financial indebtedness as defined by the Group comprises
cash and cash equivalents, term deposits, interest bearing loans
and borrowings.
As at
As at 30.06.11 As at 30.06.10 31.12.10
US$ 000 Notes (unaudited) (unaudited) (audited)
----------------------- ------ --------------- --------------- -----------
Cash and cash
equivalents 13 945,146 60,172 319,470
Interest bearing loans
and borrowings -
current 15 (387,901) (117,837) (22,563)
Interest bearing loans
and borrowings -
non-current 15 (531,855) (199,238) (401,290)
----------------------- ------ --------------- --------------- -----------
Net funds
position/(financial
indebtedness) 25,390 (256,903) (104,384)
----------------------- ------ --------------- --------------- -----------
Note 4: Revenue
Revenue consisted of the following:
6 months 6 months
ended ended Year ended
30.06.11 30.06.10 31.12.10
US$ 000 (unaudited) (unaudited) (audited)
----------------------------------- ------------- ------------- -----------
Revenue from sales of ore pellets:
Export 811,114 523,752 1,288,665
Ukraine 279 203 453
----------------------------------- ------------- ------------- -----------
811,393 523,955 1,289,118
----------------------------------- ------------- ------------- -----------
Revenue from logistics and bunker
business 36,550 - -
Revenue from services provided 853 1,113 674
Revenue from other sales 6,068 765 5,108
----------------------------------- ------------- ------------- -----------
Total revenue 854,864 525,833 1,294,900
----------------------------------- ------------- ------------- -----------
Export sales by geographical destination were as follows:
6 months 6 months
ended ended Year ended
30.06.11 30.06.10 31.12.10
US$'000 (unaudited) (unaudited) (audited)
---------------------- ------------- ------------- -----------
China 240,327 102,583 320,572
Austria 232,205 166,991 405,511
Serbia 115,955 72,752 156,806
Czech Republic 61,226 45,391 99,235
Slovakia 50,891 72,868 143,478
India 37,653 - 14,153
Japan 33,304 - 45,318
Turkey 28,136 44,222 62,166
Hungary 9,125 4,589 16,575
Germany - 13,177 24,833
Other 2,292 1,179 18
---------------------- ------------- ------------- -----------
Total export revenue 811,114 523,752 1,288,665
---------------------- ------------- ------------- -----------
During the period ended 30 June 2011 sales made to three
customers accounted for approximately 53.8% of the sales revenue
(30 June 2010: 68.3%; 31 December 2010: 62.5%).
Sales made to two customers individually amounted to more than
10% of the total sales. These are disclosed below:
6 months 6 months
ended ended Year ended
30.06.11 30.06.10 31.12.10
US$'000 (unaudited) (unaudited) (audited)
------------ ------------- ------------- -----------
Customer A 232,205 166,991 405,511
Customer B 166,846 145,620 300,284
Note 5: Cost of sales
Cost of sales consisted of the following:
6 months 6 months
ended ended Year ended
30.06.11 30.06.10 31.12.10
US$ 000 (unaudited) (unaudited) (audited)
----------------------------------- ------------- ------------- -----------
Materials 37,094 31,279 67,661
Purchased concentrate and other
items for resale 48,817 39,615 101,351
Electricity 58,286 46,015 101,528
Personnel costs 28,887 23,530 47,930
Spare parts and consumables 9,013 8,891 16,616
Depreciation and amortisation 13,628 12,380 24,662
Fuel 21,321 16,030 31,299
Gas 27,989 21,964 48,236
Repairs and maintenance 28,291 19,808 45,230
Royalties and levies 5,093 3,210 8,489
Cost of sales from logistics
business 11,657 - -
Bunker fuel 9,636 - -
Stock movement (3,374) (8,747) (18,608)
Other 5,777 2,360 7,463
----------------------------------- ------------- ------------- -----------
Total cost of sales 302,115 216,335 481,857
----------------------------------- ------------- ------------- -----------
Year
6 months 6 months ended
ended 30.06.11 ended 30.06.10 31.12.10
US$ 000 (unaudited) (unaudited) (audited)
----------------------------- ---------------- ---------------- -----------
Cost of sales - pellet
production 280,822 216,335 481,857
Cost of sales - logistics
and bunker business 21,293 - -
----------------------------- ---------------- ---------------- -----------
Total cost of sales 302,115 216,335 481,857
----------------------------- ---------------- ---------------- -----------
Note 6: Selling and distribution expenses
Selling and distribution expenses consisted of the
following:
Year
6 months 6 months ended
ended 30.06.11 ended 30.06.10 31.12.10
US$ 000 (unaudited) (unaudited) (audited)
----------------------------- ---------------- ---------------- -----------
International freight for
pellets 53,283 19,238 74,885
Railway transportation 42,692 42,266 81,451
Port charges 17,594 15,774 32,339
Other pellet transportation
costs 5,245 4,037 11,892
Costs of logistics business 16,053 - -
Gravel delivery costs 1,321 - 1,816
Advertising 3,371 1,759 3,472
Depreciation 3,997 849 1,757
Other 2,620 931 4,394
----------------------------- ---------------- ---------------- -----------
Total selling and
distribution expenses 146,176 84,854 212,006
----------------------------- ---------------- ---------------- -----------
Note 7: General and administrative expenses
General and administrative expenses consisted of the
following:
6 months 6 months
ended ended Year ended
30.06.11 30.06.10 31.12.10
US$ 000 (unaudited) (unaudited) (audited)
---------------------------------- ------------- ------------- -----------
Personnel costs 14,881 11,573 26,362
Buildings and maintenance 1,081 1,381 2,475
Taxes other than income tax and
other charges 747 1,264 1,581
Professional fees 2,752 3,584 4,840
Depreciation and amortisation 2,024 1,847 3,867
Communication 545 275 899
Vehicles maintenance and fuel 751 466 1,222
Repairs 375 274 815
Half year review fees 184 184 184
Audit fees 550 506 910
Non-audit fees 253 806 1,395
Security 856 763 1,613
Other 480 1,183 3,012
---------------------------------- ------------- ------------- -----------
Total general and administrative
expenses 25,479 24,106 49,175
---------------------------------- ------------- ------------- -----------
Note 8: Foreign exchange gains and losses
6 months 6 months
ended ended Year ended
30.06.11 30.06.10 31.12.10
US$ 000 (unaudited) (unaudited) (audited)
----------------------------------- ------------- ------------- -----------
Operating foreign exchange losses (567) (718) (1,078)
Non-operating foreign exchange
gains / (losses) 5,427 835 (3,888)
----------------------------------- ------------- ------------- -----------
Total foreign exchange
gains/(losses) 4,860 117 (4,966)
----------------------------------- ------------- ------------- -----------
Operating foreign exchange gains and losses are those items that
are directly related to the production and sale of pellets (e.g.
trade receivables, trade payables on operating expenditure).
Non-operating gains and losses are those associated with the
Group's financing and treasury activities and with local income tax
payables.
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 2011 consisted of the following:
Year
6 months 6 months ended
ended 30.06.11 ended 30.06.10 31.12.10
US$ 000 (unaudited) (unaudited) (audited)
----------------------------- ---------------- ---------------- -----------
(Reversals)/write-off of
inventories - - (254)
(Reversal)/write-off of
property, plant and
equipment - - (251)
Impairment of
available-for-sale
financial assets 198 2,124 2,124
----------------------------- ---------------- ---------------- -----------
Total write-offs and
impairment losses 198 2,124 1,618
----------------------------- ---------------- ---------------- -----------
The impairment of the available-for-sale financial assets is
related to the investment in Vostok Ruda LLC and the one in the
equivalent comparative period to Atol LLC.
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 30.06.11 ended 30.06.10 31.12.10
(unaudited) (unaudited) (audited)
----------------------------- ---------------- ---------------- -----------
Profit for the period / year
attributable to equity
shareholders:
Basic earnings per share (US
cents) 49.80 23.62 72.34
Diluted earnings per share
(US cents) 49.73 23.57 72.24
Underlying earnings for the
period / year:
Basic earnings per share (US
cents) 49.04 26.50 72.98
Diluted earnings per share
(US cents) 48.97 26.44 72.91
----------------------------- ---------------- ---------------- -----------
The calculation of the basic and diluted earnings per share is
based on the following data:
6 months 6 months
ended ended Year ended
30.06.11 30.06.10 31.12.10
Thousands (unaudited) (unaudited) (audited)
----------------------------------- ------------- ------------- -----------
Weighted average number of shares
Basic number of ordinary shares
outstanding 584,742 584,812 584,568
Effect of dilutive potential
ordinary shares 667 1,201 854
----------------------------------- ------------- ------------- -----------
Diluted number of ordinary shares
outstanding 585,409 586,013 585,422
----------------------------------- ------------- ------------- -----------
The basic number of ordinary shares is calculated by subtracting
the shares held in treasury from the total number of ordinary
shares in issue.
'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 calculated before non-controlling interests have been
deducted and excludes adjusted items. The calculation of underlying
earnings per share is based on the following earnings data:
6 months 6 months Year ended
ended 30.06.11 ended 30.06.10 31.12.10
US$ 000 Notes (unaudited) (unaudited) (audited)
--------------------- ------ ---------------- ---------------- -----------
Profit attributable
to equity holders 291,122 138,117 422,906
Under recovery of
VAT receivable 12 - 15,000 -
Write-offs and
impairment losses 9 198 2,124 1,618
IPO costs - 55 55
Gain on bargain
purchase - - (2,623)
Losses on disposal
of PPE 150 627 1,305
Non-operating
foreign exchange
(gains) / losses 8 (5,427) (835) 3,888
Tax on adjusted
items 639 (124) (346)
--------------------- ------ ---------------- ---------------- -----------
Underlying earnings 286,682 154,964 426,803
--------------------- ------ ---------------- ---------------- -----------
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
6 months 6 months Year ended
ended 30.06.11 ended 30.06.10 31.12.10
US$ 000 (unaudited) (unaudited) (audited)
----------------------------- ---------------- ---------------- -----------
Proposed per ordinary share
Interim dividend for 2011:
3.3 US cents 19,301 - -
Interim dividend for 2010:
3.3 US cents - 19,289 -
Final dividend for 2010: 3.3
US cents - - 19,289
----------------------------- ---------------- ---------------- -----------
Total dividends proposed 19,301 19,289 19,289
----------------------------- ---------------- ---------------- -----------
Paid per ordinary share
Final dividend for 2010: 3.3
US cents 19,362 - -
Interim dividend for 2010:
3.3 US cents - - 19,292
Final dividend for 2009: 3.3
US cents - 19,289 19,289
----------------------------- ---------------- ---------------- -----------
Total dividends paid during
the period 19,362 19,289 38,581
----------------------------- ---------------- ---------------- -----------
Note 11: Property, plant and equipment
During the six months ended 30 June 2011, the Group acquired
property, plant and equipment with a cost of US$136,129 thousand
(30 June 2010: US$43,381 thousand; 31 December 2010: US$166,775
thousand) and disposed of property, plant and equipment with
original costs of US$8,461 thousand (30 June 2010: US$3,361
thousand; 31 December 2010: US$8,669 thousand).
Note 12: Other taxes recoverable and prepaid
As at
30.06.11 As at 30.06.10 As at 31.12.10
US$ 000 (unaudited) (unaudited) (audited)
----------------------------- ------------- --------------- ---------------
VAT receivable 107,671 123,448 101,683
Withholding tax - 255 -
Other taxes prepaid 536 18 1,964
----------------------------- ------------- --------------- ---------------
Total other taxes
recoverable and prepaid 108,207 123,721 103,647
----------------------------- ------------- --------------- ---------------
The VAT receivable results from VAT paid on domestic purchases
of goods and services and on the imports of equipment and services
into Ukraine to the extent that this cannot be offset on VAT paid
on the sale of goods and services.
Of the US$108,207 thousand outstanding as at 30 June 2011,
US$53,592 thousand relates to balances outstanding as at 31
December 2010. These balances are confirmed by the tax authorities
as repayable. It is, however, not yet clear when and on what terms
these amounts will be refunded although the amounts are expected to
be received, as in 2010, in full within the next year.
Note 13: Cash and cash equivalents
As at 30 June 2011 the Group held cash and cash equivalents of
US$945,146 thousand (30 June 2010: US$60,172 thousand; 31 December
2010: US$319,470 thousand).
The balance of cash and cash equivalents consists of restricted
cash of US$1,000 thousand (30 June 2010: US$ nil; 31 December 2010:
US$37,768 thousand). The restricted cash as of 31 December 2010 was
released subsequent to the year end, following payment of the net
proceeds in relations to the acquisition of Helogistics.
Note 14: Share capital and reserves
The share capital of Ferrexpo plc at 30 June 2011 was
613,967,956 (30 June 2010: 613,967,956; 31 December 2010:
613,967,956) ordinary shares at par value of GBP0.10 paid for cash,
resulting in share capital of US$121,628 thousand which is
unchanged since the Group's Initial Public Offering in June
2007.
This balance includes 25,343,814 shares (30 June 2010:
25,343,814 shares; 31 December 2010: 25,343,814 shares) which are
held in treasury, resulting from a share buyback that was
undertaken in September 2008 and 3,744,658 shares held in the
employee benefit trust reserve (30 June 2010: 4,019,759 shares; 31
December 2010: 4,019,759 shares).
Note 15: Interest bearing loans and borrowings
As at 30 June 2011 the Group has a syndicated US$350 million
pre-export finance facility in place and a US$500 million
Eurobond.
The pre-export finance facility was drawn in full on 7 October
2010 (30 June 2010: fully drawn; 31 December 2010: fully drawn,
each in respect of the pre-export finance facility then existing)
and is repayable in 24 instalments with the first instalment
falling due in March 2012 following a 18 month grace period. On 8
July 2011, the Group repaid this facility in full.
The major bank debt facility as at 30 June 2011 was guaranteed
and secured as follows:
- Ferrexpo AG assigned the rights to revenue from certain sales
contracts;
- OJSC Ferrexpo Poltava Mining assigned all of its rights of
certain export contracts for the pellets sales to Ferrexpo AG;
- the Group pledged a bank account of Ferrexpo AG into which all
proceeds from the sale of certain iron ore pellet contracts are
received; and
- Ferrexpo AG pledged all its rights under certain contracts for
the sale of iron ore pellets and its rights under certain related
credit support documents.
The US$500 million Eurobond was issued on 7 April 2011 and is
due for repayment on 7 April 2016. The bond has a 7.875% coupon and
interest is payable on a semi-annual basis.
As at 30 June 2011, the Group has other committed credit lines
amounting to US$50,000 thousand (30 June 2010: US$ nil; 31 December
2010: US$ 65,000 thousand). These are undrawn as of 30 June
2011.
Note 16: Related party disclosure
During the periods presented the Group entered into arm's length
transactions with entities under the common control of the majority
owner of the Group, Kostyantin Zhevago, with associated companies
and with other related parties. Management considers that the Group
has appropriate procedures in place to identify and properly
disclose transactions with the related parties.
Entities under common control are those under control of
Kostyantin Zhevago. Associated companies relate to TIS Ruda LLC, in
which the Group holds an interest of 48.6%. This is the only
associated company of the Group. Other related parties are
principally those entities controlled by Olexander Moroz. He was a
supervisory board member of OJSC Ferrexpo Poltava Mining until 14
May 2010 and transactions taking place up to 31 May 2011, being
within one year of his resignation from the supervisory board, are
considered to be transactions with a related party for the
financial year 2011.
Related party transactions entered into by the Group during the
periods presented are summarised in the following tables:
Revenue, expenses, finance income and finance expenses
6 months ended 6 months ended Year ended 31.12.10
30.06.11 (unaudited) 30.06.10 (unaudited) (audited)
------------------- ---------------------------------- ---------------------------------- ----------------------------------
Entities Entities Entities
under Other under Other under Other
common Asso-ciated related common Asso-ciated related common Asso-ciated related
US$ 000 control compa-nies parties control compa-nies parties control compa-nies parties
------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Other sales (a) 2,618 807 1,735 492 - 873 1,398 951 2,263
------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Total related
party
transactions with
revenue 2,618 807 1,735 492 - 873 1,398 951 2,263
------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Materials (b) 1,855 - 8,475 2,220 - 5,733 4,232 - 14,946
Purchased
concentrate and
other items for
resale( c) 17,452 - - 48,928 - - 104,367 - -
Spare parts and
consumables(
d) 1,967 - 256 1,154 - 166 2,794 - 278
Fuel( e) 3,798 - - - - - - - -
Diesel( e) 7,741 - - - - - 14,432 - -
------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Total related
parties
transactions
within cost of
sales 32,813 - 8,731 52,302 - 5,899 125,825 - 15,224
------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Selling and
distribution
expenses( f) - 6,039 8,909 - 5,301 6,274 - 8,362 18,496
General and
administration
expenses (g) 4,011 - 4 2,154 - 5 4,813 - 22
------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Total related
parties
transactions
within expenses 36,824 6,039 17,644 54,456 5,301 12,178 130,638 8,362 33,742
------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Finance income
(h) 584 9 - 254 52 - 964 96 -
Finance expenses
(h) (200) - - (275) - - (443) - -
------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Net finance
income/(expenses) 384 9 - (21) 52 - 521 96 -
------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
The Group entered into various related party transactions with
entities under common control. A description of the material
transactions, all of which were carried out on an arm's length
basis in the normal course of business for the members of the Group
(see note 1), are listed below:
(a ) Tolling fees of US$315 thousand paid by Vostok Ruda Ltd. to
OJSC Ferrexpo Poltava Mining for the production of pellets.(30 June
2010; US$ nil; 31 December 2010: US$ nil). Sales of power, steam
and water and other materials to Kislorod PCC for US$803 thousand
(30 June 2010: US$285 thousand; 31 December 2010: US$181
thousand).
(b) Purchases of compressed air and oxygen from Kislorod PCC for
US$1,855 thousand (30 June 2010: US$1,740 thousand; 31 December
2010: US$3,667 thousand).
(c) Purchases of concentrate and other items for resale from
Vostok Ruda Ltd. in the amount of US$9,994 thousand (30 June 2010:
US$6,129 thousand; 31 December 2010: US$11,700 thousand).
(c) Purchases of merchant concentrate from Vostok Ruda Ltd.
US$7,458 (30 June 2010: US$42,799 thousand; 31 December 2010:
US$92,667 thousand). Vostock Ruda Ltd. earned fees on the purchase
and resale for this concentrate amounting to US$6 thousand (30 June
2010: US$50 thousand; 31 December 2010: US$140 thousand). This
covered costs incurred procuring and delivering third party
merchant concentrate supplied.
(c) Handling commissions to SIA Wellmark Latvia amounting to
US$25 thousand (30 June 2010: US$ nil; 31 December 2010: US$69
thousand) for the purchase of goods.
(d) Purchases of spare parts from Komsomolsk Cogeneration
Company LLC in the amount of US$736 thousand (30 June 2010: US$
nil; 31 December 2010: US$ nil);
(d) Purchases of spare parts from OJSC Berdichev
Machine-Building Plant Progress of US$448 thousand (30 June 2010:
US$ 329 thousand; 31 December 2010: US$ nil thousand); and
(d) Purchases of spare parts from Valsa GTV of US$370 thousand
(30 June 2010: US$373 thousand; 31 December 2010: US$ 553
thousand).
(e) Purchases of fuel for US$3,798 thousand (30 June 2010: US$
nil; 31 December 2010: US$ nil) and gas of US$7,741 thousand (30
June 2010: US$ nil; 31 December 2010: US$14,432 thousand) from OJSC
Ukrzakordongeologia.
(g) Purchases from FC Vorskla for advertisement, marketing and
general public relation services for US$3,184 thousand (30 June
2010: US$1,663 thousand; 31 December 2010: US$3,313 thousand).
(h ) Transactional banking services received from Bank Finance & Credit (Bank F&C) Finance income and expenses relate to these transactional banking services. Further information is provided under transactional banking arrangements below.
The group entered into related party transactions with its
Associated Company TIS Ruda LLC, which were carried out on an arm's
length basis in the normal course of business for the members of
the Group (see note 1). These are described below:
(f ) Purchases of logistics services in the amount of US$6,039
thousand (30 June 2010; US$5,301 thousand; 31 December 2010:
US$8,362 thousand) relating to port operations including port
charges, handling costs, agent commissions and storage costs.
The group entered into various transactions with other related
parties. Descriptions of the material transactions are below:
(a) Sales of scrap metal to Ferolit amounting to US$1,201
thousand (30 June 2010; US$1,021 thousand; 31 December 2010:
US$2,193 thousand) and other sales of US$509 thousand (30 June
2010; US$13 thousand; 31 December 2010: US$30 thousand).
(b) Purchases of cast iron grinding bodies from Ferolit for
US$8,475 thousand (30 June 2010: US$5,733 thousand; 31 December
2010: US$14,946 thousand).
(f) Purchases of logistics management services from Slavutich
Ruda Ltd related to customs clearance services and the coordination
of rail transit. Total billings amounted to US$8,901 thousand (30
June 2010: US$ 6,251 thousand; 31 December 2010: US$18,294
thousand). Slavutich Ruda Ltd. earned commission income of US$405
thousand on these services (30 June 2010: US$378 thousand; 31
December 2010: US$755 thousand).
(g) Purchases of legal services from Kuoni Attorneys at Law Ltd.
amounting to US$4 thousand as of 30 June 2011 (30 June 2011: US$118
thousand; 31 December 2010: US$119 thousand). No services were
provided by Wolfram Kuoni directly. All services were provided on
an arm length basis by other members of Kuoni Attorneys at Law
Ltd.
Sale and purchases of property, plant, equipment and
investments
The table below details the transactions of a capital nature
which were undertaken between group companies and entities under
common control, associated companies and other related parties
during the periods presented.
6 months ended 6 months ended Year ended 31.12.10
30.06.11 (unaudited) 30.06.10 (unaudited) (audited)
----------- ---------------------------------- ---------------------------------- ----------------------------------
Entities Entities Entities
under Other under Other under Other
common Asso-ciated related common Asso-ciated related common Asso-ciated related
US$ 000 control compa-nies parties control compa-nies parties control compa-nies parties
----------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Purchase
of
property
plant and
equipment
(i) 11,239 - - - - - 22,459 - -
----------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
(i) During period ended 30 June 2011, the Group entered into the
following transactions with related parties that were not of a
revenue nature, but were in the normal course of business. As such
these transactions were subject to an independent confirmation that
the terms are fair and reasonable in accordance with the
requirements of the Listing Rules, and additionally in the case of
the transaction in respect of the purchase of 400 rail cars to
shareholder approval, which was obtained on 15 March 2011.
-- In June 2011, project management services in the amount of
US$105 thousand were procured from Vorskla Steel Ltd. in connection
with the construction of service facilities.
-- In May 2011, the Group entered into an agreement for the
purchase of equipment for the crushing and beneficiation plants
from CJSC Kiev Shipbuilding and Ship Repair Plant (KSRSSZ) in the
amount of US$493 thousand. Orders were also placed for three
press-filters for US$8,991 thousand from OJSC Berdichev
Machine-Building Plant Progress.
-- In April 2011, the Group entered into an agreement for
engineering services to be provided by OJSC DIOS in the amount of
US$1,650 thousand for the project of the crushing and concentrating
equipment.
-- The purchase of 400 rail cars, with an option to purchase an
additional 600 rail cars, was approved by the general meeting of
the shareholders on 15 March 2011. In March and April 2011, this
authority was used to purchase 112 rail cars from OJSC Stahanov
Rail Cars Plant amounting to US$7,950 thousand, leaving a balance
still to be purchased under this authority of 888 rail cars for up
to US$106,560 thousand.
Between August and December 2010, the Group purchased 300 rail
cars from Trading house Wagonplant LLC in the amount of US$17,500
thousand and conducted drilling programmes by OJSC Donbasgeology at
the Northern deposit of OJSC Ferrexpo Poltava Mining and at LLC
Ferrexpo Belanovo GOK amounting to US$4,959 thousand.
Balances with related parties
The outstanding balances, as a result of transactions with
related parties, for the periods presented are shown in the table
below:
As at 30.06.11 As at 30.06.10 As at 31.12.10
(unaudited) (unaudited) (audited)
-------------------- ---------------------------------- ---------------------------------- ----------------------------------
Entities Entities Entities
under Other under Other under Other
common Asso-ciated related common Asso-ciated related common Asso-ciated related
US$ 000 control compa-nies parties control compa-nies parties control compa-nies parties
-------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Investments
available-for-sale
(j) 2,336 - - 2,178 - - 3,353 - -
Prepayments for
property, plant
and equipment
(k) 605 - - 972 - - 182 - -
-------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Total non-current
assets 2,941 - - 3,150 - - 3,535 - -
-------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Loans (l) - - - - 2,550 - - 1,000 -
Trade and other
receivables (m) 2,160 2,205 9 2,138 - 9 514 203 15
Prepayments and
other current
assets (n) 2,042 - 15 157 805 50 95 27 1
Cash and cash
equivalents (o) 334,080 - - 15,860 - - 156,807 - -
-------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Total current
assets 338,282 2,205 23 18,155 3,355 59 157,416 1,230 16
-------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Trade and other
payables (p) 7,696 208 1,438 2,158 2 1,020 1,563 12 1,668
-------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Current liabilities 7,696 208 1,438 2,158 2 1,020 1,563 12 1,668
-------------------- --------- ------------ --------- --------- ------------ --------- --------- ------------ ---------
Entities under common control
(j) The balance of the investments available-for-sale comprised
of shareholdings in OJSC Stahanov Rail Cars Plant (3.14%) and
Vostok Ruda Ltd. (1.10%). The majority ownership of these companies
is indirectly held by Kostyantin Zhevago through other companies
under his control. OJSC Stahanov Rail Cars Plant is further listed
on the Ukrainian stock exchange. The changes of the values in the
table above are related to fair value adjustments recorded during
the respective reporting periods. The shareholdings for all
investments remained unchanged during the periods disclosed above.
The investment in LLC Atol was subject of an additional impairment
of US$2,124 thousand recorded as of 30 June 2010 resulting in a
full impairment of this investment. Further information is provided
in note 18 of the Interim Report 2011.
(k) Prepayments for drilling programmes in the amount of US$74
thousand have been made to OJSC Donbasgeology in period ended 30
June 2011 (30 June 2010: US$ nil; 31 December 2010: US$ nil).
Prepayments of US$372 thousand were made to DIOS (30 June 2010: US$
nil; 31 December 2010: US$ nil) for the design documentation for
the concentration sections and US$92 thousand to CJSC Kiev
Shipbuilding and Ship Repair Plant (KSRSSZ) for the purchase of
equipment.
(m) As of 30 June 2011 trade and other receivables included
outstanding amounts due from Vostok Ruda Ltd. of US$1,647k in
relation to the production of pellets under a tolling scheme and
from Kislorod PCC of US$289 thousand (30 June 2010: US$277
thousand; 31 December 2010: US$311 thousand) for the sale of power,
steam and water. The outstanding balances as of 30 June 2010
included US$1,169 thousand relating to the disposal of shares in
Vostock Ruda Ltd. to OJSC Berdichev Machine-Building Plant Progress
during the financial year 2008. The full amount was repaid in the
second half of the financial year 2010.
(n) Prepayments and other current assets relate to advance
payments of US$1,725 thousand (30 June 2010; US$ nil; 31 December
2010: US$ nil) made to OJSC Ukrzakordongeologia for the supplies of
fuel and gas. The advance payments are in the normal course as
requested by any third party suppliers of fuel and gas in the
Ukraine.
(o) As of 30 June 2011 cash and cash equivalents with Bank
F&C were US$334,080 thousand (30 June 2010: US$15,860 thousand;
31 December 2010: US$156,807 thousand). Further information is
provided under transactional banking arrangements below.
(p) Trade and other payables amounting to US$5,745 thousand as
of 30 June 2011 are due to SIA Wellmark Latvia for the purchase of
other items for resale. (30 June 2010: US$ nil; 31 December 2010:
US$ nil). US$613 thousand as of 30 June 2011 are related to
concentrate purchased from Vostok Ruda Ltd. (30 June 2010: US$1,545
thousand; 31 December 2010: US$1,013 thousand) and US$448 thousand
to compressed air and oxygen purchased from Kislorod PCC (30 June
2010: US$377 thousand; 31 December 2010: US$416 thousand).
Associated companies
(l) The remaining outstanding amount of the loans granted to TIS
Ruda LLC in 2007 and 2008 was fully repaid in March 2011.
(m ) Other receivables consist a declared dividend due from TIS
Ruda LLC in the amount of US$2,205 thousand (30 June 2010: US$ 781
thousand; 31 December 2010: US$ nil).
Other related parties
(p) Trade and other payables amounting to US$983 thousand as of
30 June 2011 are in respect of purchased material from Ferolit (30
June 2010: US$849 thousand; 31 December 2010: US$1,291 thousand)
and distribution services provided by Slavutich Ruda Ltd. of US$453
thousand (30 June 2010: US$132 thousand; 31 December 2010: US$373
thousand).
Transactional banking arrangements
The Group has transactional banking arrangements with Bank
Finance & Credit (Bank F&C) in Ukraine which is under
common control of the majority shareholder of Ferrexpo plc. Finance
income and finance costs are disclosed in the table above. The
Group entered into a multicurrency revolving loan facility
agreement in April 2007 with Bank F&C which expired on 16 April
2010 and has been extended to 16 April 2013 upon the same terms and
conditions except for two changes. The maximum facility limit has
been increased from UAH50,500 thousand to UAH80,000 thousand
(US$10,034 thousand at the exchange rate as of 30 June 2011) and
the interest rates increased for UAH advances from 16% to 18% per
annum. The total value of pledges for this loan facility is
US$11,266 thousand.
Note 17: Commitments and contingencies
Commitments
As at As at As at
30.06.11 30.06.10 31.12.10
US$ 000 (unaudited) (unaudited) (audited)
--------------------------------- ------------- ------------- -----------
Operating lease commitments 52,594 19,165 53,528
Capital commitments on purchase
of PPE 99,040 54,727 70,618
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 18: Other financial assets
Other financial assets are available-for-sale investments, which
are measured subsequent to initial recognition at fair value,
categorised into Levels 1 to 3 based on the degree to which the
fair value is observable.
There were no changes in fair value hierarchy during the period
ended 30 June 2011 and in the equivalent comparative period.
During the period ended 30 June 2011, a decrease of the fair
value of the available-for-sale investments of US$794 thousand was
recorded in other comprehensive income and US$198 thousand as an
impairment in the income statement. In the equivalent comparative
period, an impairment of US$2,124 thousand was recorded in the
income statement and an increase of the fair values of other
available-for-sale investments of US$637 thousand in other
comprehensive income.
Note 19: Events after the reporting period
On 8 July 2011, the Group made an early repayment of its
syndicated US$350 million pre-export finance facility, which cannot
be re-drawn. This facility would have been repayable in 24
instalments with the first instalment falling due in March 2012
following a 18 month grace period.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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