TIDMFXPO
RNS Number : 2969Z
Ferrexpo PLC
14 March 2012
14 March 2012
FERREXPO plc
("Ferrexpo" or the "Group")
2011 Full Year Results
A Year of Strong Financial and Operational Performance
Ferrexpo, the FTSE 250 iron ore pellet producer, today announces
its full year results for the 12 months ended 31 December 2011.
The Group made significant progress during the year, despite a
changeable financial and political environment globally. It
produced at full capacity, increased its pellet quality and
achieved record sales volumes and prices.
Ferrexpo's growth projects to increase production capacity by
one third to 12 million tonnes per annum and to improve the average
quality of its pellets gained momentum during the year, as total
investment more than doubled to US$378 million, representing 75% of
net operating cash flows.
Michael Abrahams, Non-Executive Chairman, said:
"It is Ferrexpo's strategy to develop its significant resource
base, one of the largest iron deposits in the world, and to improve
the quality of its product mix. Ferrexpo is well placed to
capitalise on the progress made in 2011. With its extensive reserve
base, low-cost structure, proximity to key markets and logistics
infrastructure, Ferrexpo is a key supplier to leading global steel
manufacturers.
"The Board believes that although there is likely to be
increased volatility in the world economy in the short term, the
Group is well placed to continue to deliver sustainable value
creation."
Highlights
Financial
Record financial performance
2011 2010 Change
Revenue (US$ million) 1,788 1,295 +38%
EBITDA(1) (US$ million) 801 585 +37%
Profit before Tax (US$ million) 691 498 +39%
Diluted EPS (US cents per share) 97.0 72.2 +34%
Final dividend (US cents per share) 3.3 3.3 -
Net cash flow from operating activities
(US$ million) 503 380 +32%
Capital investment (US$ million) 378 167 +127%
Net debt (US$ million) 80 104 -23%
(1) EBITDA - the Group calculates EBITDA as profit from
continuing operations before tax and finance plus depreciation and
amortisation and non-recurring exceptional items included in other
income and other expenses, and the net of gains and losses from
disposal of investments, property, plant and equipment.
Operational
Production
Consistent operational performance at full capacity
-- Production, from own ore, of 9.1 million tonnes of pellets
(2010: 9.0 million tonnes of pellets)
-- 5% increase in output of 65% Fe pellets to 4.3 million tonnes
-- Capital investment more than doubled to US$378 million (2010: US$167 million)
-- Growth projects progressing as planned, first ore from FYM end of 2012
Sales and Marketing
Record sales volume
-- Sales volumes of 9.9 million tonnes (2010: 9.7 million tonnes)
-- Commencement of index linked pricing - first step to ensure
Ferrexpo achieves prices in line with its international peer
group
-- Continued addition to logistics capabilities
-- 52% of sales delivered to customers through Ferrexpo's supply chain (2010:14%)
-- Ordered 712 rail cars, at year-end total holding was 1,045 (2010: 933)
-- Purchase of 143 barges providing delivery capability on the Danube River corridor
-- Loaded 9 capesize vessels reducing freight costs, for that tonnage, by US$7/ tonne
Funding
Strong balance sheet with low levels of liquidity
-- Net debt reduced to US$80 million at 31 December 2011 from
$104 million as of 31 December 2010
-- US$500 million Eurobond raised at 7.875% coupon
-- US$420 million credit facility secured
-- Minimal debt repayments in 2012 and 2013
-- Average debt maturity profile 4 years
-- Growth projects fully funded
For further information, please contact:
Ferrexpo:
Ingrid McMahon +44 207 389 8304
Emma Villiers +44 207 389 8306
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, currently
produces approximately 10 million tonnes of iron ore pellets per
year making it the largest exporter of pellets in the Commonwealth
of Independent States. 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'SSTATEMENT
Introduction
2011 was another year of significant development for Ferrexpo,
despite a volatile financial and political environment globally.
The Group delivered an excellent operational performance with
record production from own ore further increasing the quality of
its pellets. Sales volumes and average pricing reached historic
highs and net profit grew by 35%.
The Group's growth projects gained momentum as investment
increased to record levels at approximately 75% of operating cash
flows. This is part of Ferrexpo's strategy to upgrade and modernise
existing mining facilities and to access new ore so as to increase
pellet production output by one third from 2013 onwards and,
following further Board approvals, to 20 million tonnes. These
projects are proceeding on budget and schedule.
In 2011, Ferrexpo developed its resource base, expanded and
strengthened its customer mix, maintained a competitive cost of
production, improved the quality of its product and expanded its
logistics capabilities while ensuring sufficient financial
liquidity. This has positioned the Group favourably for the short
and medium-term, increasing value to all stakeholders - employees,
customers, its country of operation and shareholders.
Results and Dividend
Group revenue increased by 38% to US$1.8 billion for the 12
months ended 31 December 2011 (2010: US$1.3 billion) primarily
driven by higher sales prices. The Group's C1 cash cost(1) of
production increased by 28% to US$50.7 per tonne, compared to the
average C1 cash cost in 2010 of US$39.7 per tonne.
Prices of key inputs increased in line with world market prices
for commodities, in particular energy and steel. This accounted for
56% of the C1 cash cost increase. Local costs were higher due to
Ukrainian producer price inflation of 19%. Continued progress in
the Business Improvement Programme ('BIP') improved efficiencies,
and production at full capacity further enabled maximum absorption
of the fixed cost base. The Ukrainian Hryvnia remained stable
against the US Dollar during the period.
Overall EBITDA rose by 37% to US$801 million (2010: US$585
million). Group profit after tax increased to US$575 million (2010:
US$425 million).
Operating cash flow after interest and tax and before
acquisitions was US$503 million for the period (2010: US$380
million). Capital expenditure amounted to US$378 million (2010:
US$167 million) with the increase reflecting higher spend on growth
projects.
At the period end, Ferrexpo had net debt of US$80 million.
The Board's strategy remains to fund capital expenditure out of
operating cash flows and to pay a modest consistent dividend
throughout the economic cycle, while maintaining adequate liquidity
to develop the significant project pipeline. The Directors
therefore recommend a final dividend in respect of profits
generated for the Group in 2011 of 3.3 US cents per Ordinary Share
(2010 final dividend: 3.3 US cents per Ordinary Share) for payment
on 1 June 2012 to shareholders on the register at the close of
business on 4 May 2012. The dividend will be paid in UK Pounds
Sterling with an election to receive US Dollars.
(1) The C1 cash cost of production per tonne is defined as the
cash costs of production of iron pellets from own ore divided by
production volume of own ore, and excludes non-cash costs such as
depreciation, pension costs and inventory movements, costs of
purchased ore, concentrate and production cost of gravel.
Market Environment
In 2011 China's crude steel output grew 8.9% to 695.5 million
tonnes, an increase of 56 million tonnes. Global steel production
in 2011 grew 6.8% to a record 1.5 billion tonnes. Asia accounted
for 64.7% of the global production (source: World Steel
Association).
As a result of the growth in steel production, especially in
China, the average realised price for iron ore was an industry
record in 2011. This reflected a 35% fall in the China CFR index
price for 62% Fe fines in September 2011 from US$181 per tonne to a
low of US$117 per tonne in October before the price recovered
towards the year end.
A key factor in price realisation and contract performance
throughout the year was the continued evolution of the iron ore
price setting mechanism. In China, the period of duration for
calculating the average price was shortened, with many of the major
iron ore producers moving to monthly time periods. In most other
markets, the leading producers continued to follow a quarterly
pricing mechanism which moved to the average quarter of loading
following the fall in the spot price in September and October. Such
a move assisted contract performance; in contrast with the second
half of 2008, where contract prices did not immediately adjust to
the changing market conditions and subsequently resulted in
customers being reluctant to fulfil their contractual
commitments.
In this market environment Ferrexpo has continued as a price
follower but has made significant strides towards:
1. Establishing Index Linked Pricing:
During the year, Ferrexpo established index linked pricing using
the average for the quarter of loading as the preferred pricing
mechanism. This move was aligned with that of the major iron ore
suppliers who moved to a similar pricing methodology for the
October to December quarter. This is the first step towards
ensuring that Ferrexpo achieves prices in line with its
international peer group.
2. Capitalising on its Geographic Proximity to Major Steel
Markets:
Ferrexpo successfully loaded its first capesize ship in May,
allowing it to realise significant freight cost benefits as
compared to using smaller panamax vessels. By the end of 2011, nine
capesize ships had been loaded reducing freight costs, for that
volume, by approximately US$7 per tonne.
3. Strengthening its Customer Base:
It is the Group's strategy to expand sales to high quality
customers and to develop new customer relationships in Asia. Sales
volumes to Asia increased to 40% of total sales compared to 27% in
2010. The increased Asian sales included additional trial shipments
to target blue chip customers in the region. The Group intends to
maintain such geographic diversity in the sales portfolio.
As Ferrexpo increases its production and sales volumes and
targets growth regions, dependence on some traditional markets is
expected to decrease. Reliance on these markets was reduced to 44%
of total sales in 2011 from 55% of sales in 2010.
As a result of the above developments, the Company achieved
satisfactory pricing during the year under review. While market
prices have moderated so far in 2012, and are not expected to reach
the highs of 2008 or 2011, the Group still believes that they will
be above average historic levels. Meanwhile, Ferrexpo will continue
with its programme of developing its customer base and shipping
capabilities as well as increasing the quality of its pellets
supplied to global markets.
Production
In 2011, Ferrexpo Poltava Mining ('FPM'), the Group's current
mining operation, achieved one of its best production years in
history, once again operating at full capacity throughout the year.
The Division produced 9,063 thousand tonnes of pellets from own ore
compared to 9,033 thousand tonnes of pellets produced in 2010. Over
the last 10 years, production, from own ore, has doubled on a 100%
Fe equivalent basis.
Ferrexpo has made significant strides towards improving the
quality of its pellet output. 2011 was FPM's best performance on
record regarding the production of its Premium 65% Fe pellets, from
own ore, which increased 4.8% to 4,256 thousand tonnes.
The production of pellets from purchased third party concentrate
was the second highest in the Group's history, despite lower
availability in local markets. 747 thousand tonnes of pellets were
produced from purchased concentrate compared to 998 thousand tonnes
in 2010. Total pellet production, including pellets processed from
purchased concentrate, for 2011, was 9,810 thousand tonnes compared
to 10,031 thousand tonnes in 2010.
The current level of production from own ore represents full
mining capacity of approximately 30 million tonnes per year (30%
average iron content). This is expected to remain at this level
until first ore from the Ferrexpo Yeristovo Mining ('FYM') deposit
is achieved at the end of 2012 (see Capital Investments below).
Health and Safety
In accordance with the Group's clearly stated policy of
improving safety standards, Ferrexpo is pleased to report that
there were no fatalities at its mines in 2011 and that the
lost-time injury frequency rate ('LTIFR') FPM fell to 0.82 per
million man hours worked, the lowest rate in its history
(2010:1.43). FYM experienced no lost-time injuries during the year
which was a major accomplishment. Overall, the Group's total LTIFR
in 2011 was 0.77 compared to 1.46 in 2010.
The management of Ferrexpo fosters a culture of safety in the
organisation, linking safety performance to remuneration. The Group
has regular safety audits by Du Pont and is determined to follow
international best practice as well as to set the standard for
mining companies operating in the CIS.
Cost Environment
In common with all metals and mining producers, the cost
environment in 2011 was impacted by commodity price increases and
inflation in Ukraine. Specifically, the full year impact of higher
energy prices, following the oil price hike at the end of 2010, as
well as increased prices for steel grinding bodies, resulted in
higher operating costs overall for the Group. Ferrexpo's C1 cash
cost increased by 28% to US$50.7 per tonne.
Within this environment, Ferrexpo focused on limiting cost
inflation through production increases and BIP initiatives aimed at
reducing consumption norms. For the year BIP reduced the C1 cash
cost of production by 1.8%, in line with the Group's annual target
of 1% to 2%.
70% of total operating costs are in Ukrainian Hryvnia. In 2011,
the Hryvnia remained stable against the US Dollar compared to 2010
at approximately UAH8 per US Dollar.
Ferrexpo is well placed, in the lowest quartile of the global
pellet cost curve, to sustain its competitive position should iron
ore pricing decrease. In the meantime, it will invest up to 80% of
cash flows after operating activities in the expansion and
modernisation of the existing mine and processing facilities and in
new mining operations, starting with FYM. This investment should
further ensure that Ferrexpo at least maintains its position on the
pellet cost curve.
Capital Investments
Ferrexpo is currently investing substantial sums of money into
its mining complex to increase the quality and volume of its
production output, thereby underpinning future profit and earnings
growth. The approved investment programmes are on schedule and will
increase the Group's output by one third by the end of2013 and the
overall quality of its pellets to 65% Fe for all production.
In 2011, reflecting these programmes, the Group more than
doubled its capital expenditure investing US$378 million (2010:
US$167 million). This included investments of US$121 million for
improving the efficiency, reliability and output of the existing
mining complex, and US$49 million in respect of extending the life
of FPM's open pit and for initial engineering work for the upgrade
of the Group's pellet quality. The FYM operation received
investment of US$129 million as part of its programme to reach
first ore by the end of 2012.
These projects are progressing on time and to budget and are
discussed fully in the operating review.
After this first phase of investment, Ferrexpo intends to
increase further its production output by another 60% to 20 million
tonnes by 2016, following approval by the Board of a new
concentrating and pelletising facility.
Currently, the Group is finalising the engineering design for
the concentrator to ensure it complies with international best
practise and local design institute requirements. Ferrexpo
anticipates final approval of this project, in its entirety, during
2012.
Financial Management
Ferrexpo issued its debut Eurobond in 2011 for US$500 million.
The bond has a duration of five years and was issued at a yield of
7.875%. This is the lowest yield achieved by a company with
Ukrainian assets since 2005, reflecting the quality of Ferrexpo's
iron ore assets and operations.
The Group also refinanced its main bank debt facility during the
year. It replaced its previous facility of US$350 million with an
interest rate of LIBOR plus 550 basis points with a five-year
revolving US$420 million facility paying 225 basis points over
LIBOR on drawn amounts. The facility will begin amortising in 2014.
This is the lowest priced bank facility achieved by a corporate in
Ukraine and is at 10 basis points lower than the pre-crisis levels
achieved by Ferrexpo in 2006 and 2007.
The above treasury management has secured the Group's financial
position and provides the necessary financial flexibility for the
Group to develop its project pipeline.
The Group's net gearing (net debt to EBITDA) as of 31 December
2011 was 0.1 times. The long-term nature of Ferrexpo's financing
arrangements means the Group has minimal debt repayments of
approximately US$11 million per year in 2012 and 2013. As of 31
December 2011, the Group had total available debt facilities of
over US$1 billion, of which US$978 million was drawn. The Group's
cash position as of 31 December 2011 was US$890 million.
Ukraine
As a significant employer in the Poltava region of Ukraine and
the country's leading pellet exporter, Ferrexpo is committed to the
future development of the local area and the country.
Ukraine is a young democracy which has been subject to various
changes in government over the past 20 years. As is common with
developing economies there is a risk that the country may develop
in a manner that is adverse to general business practice. These
operating risks are commonly faced by all mining companies in
emerging markets, and the Board believes Ferrexpo has the expertise
to manage them.
As of 31 December 2011, it was estimated that the Ukrainian
government owed the industrial sector over UAH15 billion (US$2
billion) of overdue VAT repayments. Ferrexpo is not unique in being
affected by this situation and was due UAH1 billion (US$172
million) in VAT repayments at the end of the year, an increase of
US$71 million compared to 2010. Ferrexpo is working together with
the authorities to ensure the arrears return to normal levels.
In 2011, Ferrexpo spent approximately UAH102 million (US$12
million) on community projects. These included providing financial
support to over 4,000 vulnerable people, the provision of free
medical treatments and modernisation of the local hospital as well
as refurbishment of schools and sporting facilities.
Since the Group's IPO in 2007, Ferrexpo has invested over US$1
billion in its local asset benefitting the Ukrainian economy.
Ferrexpo believes it sets the standard for best practise within
Ukraine by raising operational standards, maintaining high levels
of transparency in all its business dealings and attracting new
investments through debt financing, thus demonstrating that Ukraine
is a sound country in which to invest.
Corporate Governance
The Board remains committed to maintaining the highest standards
of corporate governance throughout the Group in the conduct of its
business. Ferrexpo has fully complied, since listing in 2007, first
with the Combined Code on Corporate Governance, and since 2011 with
the UK Corporate Governance Code 2010. During the year, the Group
implemented the required procedures to ensure full compliance with
the UK Bribery Act which came into effect in July 2011.
The Board has eight members: a Non-Executive Chairman, four
independent Non-Executive Directors, one Non-Executive Director and
two Executive Directors. The Board believes that this is an
appropriate size and structure to manage the Group
successfully.
People
The Board would very much like to thank all the management and
staff for their continued hard work and dedication which has led to
another excellent year of progress at Ferrexpo.
During the second half of the year, Ferrexpo was pleased to
welcome Jason Keys as the new Group Marketing Officer. Jason has
already made a significant contribution towards the evolution of
new pricing terms agreed with customers. He joined Ferrexpo from
BHP Billiton where he was the Global Marketing Manager for iron ore
for five years. He has significant industry experience in both the
European and the Asian bulk commodity markets having also
previously worked for Rio Tinto. The Board would like to thank
Yaroslavna Blonska, the Group's Marketing Manager for the
Commonwealth of Independent States ('CIS') and Eastern Europe, for
acting as the Group Marketing Officer in the period prior to
Jason's arrival.
Strategy
It is Ferrexpo's strategy to develop its significant resource
base, one of the largest iron deposits in the world, and to improve
the quality of its product mix. In addition, the Group intends to
remain in the lowest quartile of the global pellet cost curve so as
to ensure consistent production at full capacity and thereby a good
financial performance through the commodities cycle. Ferrexpo will
look to expand its logistics capabilities and to open new markets
prior to the planned increase in production output. Finally, as
previously stated, the Group plans to fund capital expenditure out
of operating cash flows while maintaining adequate liquidity.
Outlook
Ferrexpo, with its substantial iron ore reserves, is well placed
to capitalise on the progress made in 2011. Its low-cost structure
and, proximity to its customer base together with its logistics
infrastructure makes it a key supplier to its customers. These
factors enable Ferrexpo to develop long-term supply relationships
to the major steel producers in Europe, the Middle East and
Asia.
The Board believes that although there is likely to be increased
volatility in the world economy in the short term, the Group is
well placed to continue to deliver sustainable value creation.
REVIEW OF OPERATIONS
Reserves and Resources
Ferrexpo's resource base consists of a magnetite ore of 30% iron
content, which is particularly well-suited for pelletising. The ore
body is a single 50 kilometre-long strike divided into ten adjacent
deposits. Five of these deposits are classified according to the
international JORC Code and as at 1 January 2012 represented
estimated resources of 6.8 billion tonnes. The other five deposits
representing an estimated 14.2 billion tonnes, are FSU
classified.
Table 1: JORC Reserves and Resources as of 1 January 2012
Proved
and Fe
grade Fe grade Fe grade
probable (total) (total) (total)
Measured
and indicated Inferred
Deposit (Mt) % (Mt) % (Mt) %
----------------------- ---------- --------- -------------- -------- -------- --------
Gorishne-Plavninskoye
and Lavrikovskoye 859 30 2,140 30 1,449 31
Yeristovskoye 632 34 828 34 364 30
Belanovskoye - - 1,485 31 217 30
Galeschinskoye - - 268 55 58 55
Total 1,491 32 4,721 32 2,088 31
----------------------- ---------- --------- -------------- -------- -------- --------
Note: Five further deposits are estimated to contain resources
of over 14.2 billion tonnes according to the FSU ('Former Soviet
Union') classification code. Ferrexpo is currently working together
with international consultants to convert these resources to the
universally accepted JORC standards. These deposits are
collectively known as the 'Northern Deposits' and are classified
under the names Manuilovskoye, Vasilievskoye, Kharchenkovskoye,
Zarudenskoye and Brovarkovskoe.
Ferrexpo mines and develops its reserves under the
well-established laws and codes governing mining in Ukraine. The
State Service for Geology and Use of Natural Resources of Ukraine
has granted Ferrexpo development licenses for the
Gorishne-Plavninskoye, Lavrikovskoye, Yeristovskoye, Belanovskoye
and Galeschinskoe deposits. Exploration licenses are held for the
remaining Northern Deposits. In general, a development license is
granted for a period of 20 years and an exploration license is
granted for ten years. Renewal is deemed automatic, subject to
adherence of stipulated requirements in terms of development of the
deposit and community obligations.
Production
In 2011, 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. Production continued at full capacity and a record
quantity of iron units was produced and shipped in the form of
pellets. On a Fe equivalent basis, the Group's output of iron units
has doubled in the last 10 years of production. In addition, the
average grade of its pellets has increased significantly by over 1%
to 63.5% Fe.
Review of Operations Ferrexpo Poltava Mine ('FPM')
Pellet production began at FPM in 1977 after construction of the
mine, processing facilities and local town of Komsomolsk under
Soviet Union ownership. The pit is open cut and approximately 330
metres deep and seven kilometres long. Some key milestones of
production output have recently been reached. In December 2010, the
processing facilities reached total production of 250 million
tonnes of pellets, while in 2011 the mining division extracted the
one billionth cubic metre of rock and ore since the start of mining
activities.
FPM once again increased the amount of iron ore mined per annum.
In 2011, it mined 29,637 thousand tonnes, 2.4% higher than 2010.
This is in line with Ferrexpo's strategy to expand the mining
capacity of the pit in conjunction with the Mine Life Extension
project (see Development Capital Investment at FPM below).
Stripping volumes increased in 2011 by 10.7% to 28,214 thousand
tonnes reflecting the age of the mine and required pre-stripping to
access new reserves as part of the mine life extension.
The FPM processing facilities have latent processing capacity of
approximately 3.0 million tonnes of pellets per annum as a result
of insufficient mined ore from the existing operations. During the
year, 747 thousand tonnes of pellets were produced from purchased
third party concentrate (2010: 998 thousand tonnes). The Group
purchases third party concentrate subject to availability in the
local market and will substitute this with own ore as the capacity
expansion and ore from FYM comes on line.
In total, the processing facilities produced 9,811 thousand
tonnes of pellets (2010: 10,031 thousand tonnes) of which 4,799
thousand tonnes were Premium 65% Fe pellets (2010: 4,879 thousand
tonnes) and 5,012 thousand tonnes were Basic 62% Fe pellets (2010:
5,152 thousand tonnes).
Table 2: Production Statistics
Change
-------------
(000t unless otherwise stated) 2011 2010 +/- %
--------------------------------- ------ ------ ----- ------
Iron ore mined 29,637 28,930 707 2.4
Average Fe content 30 30 - (0.1)
--------------------------------- ------ ------ ----- ------
Iron ore processed 29,535 29,097 438 1.5
--------------------------------- ------ ------ ----- ------
Concentrate produced ('WMS') 11,487 11,226 261 2.3
Average Fe content % 63 63 - (0.6)
--------------------------------- ------ ------ ----- ------
Floated concentrate 7,241 6,195 1,045 16.9
Higher grade 4,685 4,426 258 5.8
Average Fe content % 67 67 - (0.2)
--------------------------------- ------ ------ ----- ------
Purchased concentrate 864 1,142 (278) (24.4)
Average Fe content % 66 67 1 (0.7)
--------------------------------- ------ ------ ----- ------
Purchased iron ore - - - -
--------------------------------- ------ ------ ----- ------
Pellets produced from own ore 9,063 9,033 30 0.3
Higher grade 4,256 4,061 195 4.8
Average Fe content % 65 65 - (0.0)
Lower grade 4,807 4,972 (164) (3.3)
Average Fe content % 62 62 - 0.1
Pellets produced from purchased
concentrate and ore 747 998 (250) (25.1)
--------------------------------- ------ ------ ----- ------
Higher grade 543 818 (275) (33.6)
Average Fe content % 65 65 - (0.0)
Lower grade 205 180 24 13.5
Average Fe content % 62 62 - 0.1
--------------------------------- ------ ------ ----- ------
Total pellet production 9,811 10,031 (220) (2.2)
--------------------------------- ------ ------ ----- ------
Pellet sales volume 9,876 9,721 155 1.6
--------------------------------- ------ ------ ----- ------
Gravel output 2,855 2,905 (49) (1.7)
--------------------------------- ------ ------ ----- ------
Stripping volume 28,214 25,481 2,733 10.7
--------------------------------- ------ ------ ----- ------
Health and Safety
There were no fatalities at FPM in 2011, and lost-time injuries
reduced from 19 in 2010 to 11, reducing the LTIFR to 0.82 per
million man hours worked which is the lowest rate in FPM's history
(2010: 1.43 per million man hours worked). This reduced the
three-year moving average to a LTIFR of 1.12 compared to the prior
three average of 1.16 per million man hours worked.
The management of Ferrexpo strongly encourages a culture of
safety in the organisation linking safety performance to
remuneration. The Group has regular internal safety audits and
external audits by DuPont and is committed to following
international best practice and to set the standard for mining
companies operating in the CIS.
Business Improvement Programme ('BIP')
In 2011, FPM completed and implemented 34 projects as part of
the BIP. This reduced the C1 cash cost of production by UAH67.6
million or 1.8%, in line with its goal of 1% to 2% per annum. Of
these projects, 18 concerned transportation efficiencies in the
open pit, seven projects were focused on improving productivity in
the processing facilities and nine projects focused on reduced
downtime in the service departments. Table 3 shows the actual
resource savings achieved in 2011.
Table 3: Resource Savings under BIP
Resource Savings
-------------------------- -------
Power (million kWh) 21.4
Steam (Gcal) 6520.7
Grinding media (tonnes) 1257.2
Diesel fuel (tonnes) 278.0
Lining (tonnes) 60.3
-------------------------- -------
It is an essential part of the Group's strategy to reduce costs
in order to remain in the lowest cost quartile of global pellet
producers. This has been achieved through on-going efficiency
improvements and cost reductions over many years. Table 4 below
illustrates the effect of these projects. Since 2005, the year
before the start of the BIP, FPM has achieved savings of US$6.6 per
tonne C1 cash cost of production.
Table 4: Improvement in Consumption Norms
Norms - examples 2005 2011 Ch %
--------------------------------------------- ----- ----- ----
Electricity kWh/t 205.5 179.2 (15)
Gas m(3) /t 22.0 16.8 (31)
Grinding bodies kg/t 6.4 5.6 (15)
Labour productivity thousand tonnes/person 0.7 1.5 53
--------------------------------------------- ----- ----- ----
Examples of the BIP in 2011:
Decrease in consumption of steel grinding media in concentration
plant
Cost: no capital cost required.
Savings: 1,257 tonnes of steel grinding media, UAH8 million (at
current prices).
Description of project:
A programme was designed to monitor electrical consumption of
the motors on the ball mills in the concentration plant. Ball mills
contain steel grinding media which are used to grind the iron ore
into an optimum size for further processing. By studying the
pattern of power consumption, FPM could assess when grinding media
were being over or under loaded. As a result, FPM could optimise
the process for consistent loading of grinding media and reduce
overall power consumption.
Benefits:
1. More efficient energy management.
2. Reduction of grinding media required.
3. Consistent particle size achieved.
Reduction of power consumption at the tailings plant
Cost: UAH13 million.
Savings: 18 million kWh power; UAH11 million per annum.
Description of project:
Tailings, fine particles of waste which are a by-product of
pellet production, are stored in a tailings dam. During 2010 and
2011 FPM redesigned the piping from the dam to the processing plant
to allow water to flow by gravity, instead of via electrical pumps,
back to the processing area for reuse.
Benefits:
1. Lower electricity consumption.
2. Reduction in wear and tear of water pumps.
3. Recycling water.
Dispatch system in open pit
Cost: UAH28 million.
Description of project:
Trucks used in the pit to collect ore have been fitted with GPS
tracking systems. This allows for better scheduling of pick-ups
thereby improving overall mining efficiency. In 2011, the focus was
to set up the hardware for this dispatch platform. Now that this
has been achieved the system can be expanded to monitor other
performance criteria, such as the pressure and temperature of tyres
and engine performance, in trucks. The system can also be used in
the future to evaluate the performance of other equipment in the
pit such as drilling rigs.
Expected project outcomes:
1. Reduced downtime for trucks waiting-to-load.
2. Reduction of instances of 'zero mileage' for trucks.
3. Increase of mine fleet capacity by 7% after first year of operation.
The BIP is embedded in the Company's culture with targeted
outcomes linked to operational managers' performance evaluations.
The Group believes the programme is essential to ensure continued
improvement in the cost reduction of its mining and processing
activities.
Sustaining Capital Investment at FPM
During the period, the Group allocated US$121 million for the
modernisation and debottlenecking of FPM's production facilities
(2010: US$49 million).
Included in sustaining capital investments are projects to
upgrade FPM's facilities to allow processing capability of 35
million tonnes of crude ore per annum by the end of 2013. This will
ensure FPM can process additional ore from the FPM open pit and
first ore from FYM, increasing the Group's pellet output to 12
million tonnes per year. Activities during the year, focused on the
redesign and reinstallation of parts of the crushing plant, were
completed and commissioned in January 2012.
Sustaining capex investment also provides for the modernisation
of existing assets and systems to increase operating efficiencies
benefiting the cash cost of production.
Development Capital Investment at FPM
Quality Upgrade Project
Of the total pellets produced at FPM in 2011, 49% represented
Ferrexpo Premium pellets (65% Fe) while the remaining were Ferrexpo
Basic pellets (65% Fe). The Group's strategy is to increase the
quality so that all output is Premium pellets. To achieve this, the
Board approved a US$212 million investment programme in November
2011.
The FPM pit consists principally of two types of ore seams. The
Quality Upgrade Programme will enable the Division to upgrade
(beneficiate) leaner ore to a higher iron content through the
modification of the existing flotation circuit and the installation
of two additional circuits. The project also involves the upgrade
and replacement of filters to remove water from the concentrate
prior to it entering the pelletising plant. The project is
scheduled for completion by the end of 2014.
During the year, FPM completed the majority of the engineering
and design documentation and prepared the sites for the flotation
sections. Long-lead orders for the vertical mills, used in the
beneficiation process were placed, with delivery expected to start
in mid-2012.
Mine Life Extension
The FPM open pit mine has been in operation since 1977 and
contains ore beyond the original planned pit limits and depths. In
November 2010, US$168 million was approved for expenditure to
extend the life of the mine to 2038. This project involves
stripping and removal of overburden to access further iron rich ore
by 2014. The project began in 2011 and is scheduled for completion
by the end of 2018.
During the year, approximately 13 million cubic metres of
overburden was removed in line with the plan. Higher diesel prices
resulted in increased costs, however, the Company expects these
costs to moderate over the remaining life of the project. Orders
for a drilling rig and two excavators were placed and are expected
to be delivered in the first quarter of 2012, while three
dump-trucks were delivered in September 2011.
Total development capital investment at FPM in 2011 was US$49
million (2010: US$55 million).
Review of Operations Ferrexpo Yeristovo Mine ('FYM')
Development Capital Investment
Phase 1 - First Ore:
Capital investment at FYM during the period was US$129 million
(2010: US$43 million). This project is proceeding on time and on
budget (total cost US$267 million) with first ore expected at the
end of 2012.
Overall, 60% of the required pre-stripping has been completed.
In 2011, 16 million cubic metres of overburden was removed, with 15
million cubic metres of pre-stripping remaining. Currently, five
draglines, 16 CAT 789 haul trucks, five CAT 793 haul trucks and a
hydraulic excavator are in operation. A further excavator and five
additional CAT 793 trucks are expected to be in operation by 2Q
2012. Meanwhile, construction of permanent pit infrastructure is
well under way and the Division employed 677 permanent staff as of
31 December 2011.
Once first ore is achieved, Ferrexpo will be able to increase
its pellet output by one third to 12 million tonnes per annum using
the facilities at FPM.
Phase 2 - Construction of Concentrating Facilities:
Ferrexpo intends to increase its total production output by over
60% to 20 million tonnes by 2016. FYM plans to produce
approximately 28 million tonnes of crude ore output per annum. In
order to process this material, a new concentrator facility will
process the surplus ore to increase output from 12 million tonnes
per annum to 20 million tonnes per annum.
Currently, the Group is finalising the engineering design for
the concentrator to ensure it complies with international best
practise and local design institute requirements. Ferrexpo
anticipates final approval of the project, in its entirety, during
2012.
Although concentrate is saleable as a product in its own right,
Ferrexpo recognises the benefits of producing iron ore pellets,
which are of higher value to end customers. As a result, approval
of the concentrator will also initiate the third phase of the
project, subject to Board approval, which is to construct a 10
million tonnes per annum pelletiser to be established in the most
favourable location.
Health and Safety
Since the start of the project in 2008, FYM has had an excellent
safety record. There were no fatalities or lost time injuries in
2011.
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 in 2011 amounting to US$8 million. A Bucyrus RH340
hydraulic face shovel and five Caterpillar 793D haul trucks have
been ordered for delivery in mid-2012 in order to begin stripping
works. It is anticipated that in 2012, capital investment will be
in the region of US$50 million as part of the programme to reach
first ore at this deposit.
Marketing andLogistics
Marketing
Evolution of Iron Ore Pricing
In 2011, the majority of physical iron ore traded globally was
priced against the Platts iron ore index for 62% Fe fines on a CFR
North China basis. Producers and customers would then agree a
quotation period to calculate the average fines price and negotiate
a quality adjustment and a premium for lump or pellets. The
resulting price reflected value in use to the steel mill, taking
into account iron content as well as any impurities, and for pellet
producers, the pellet premium reflected the benefits to the steel
mill of using pellets compared with fines or lump.
Within this context, in 2011 Ferrexpo commenced index linked
pricing with a significant number of long-term customers using the
average of the quarter of loading as the preferred time period for
calculation of the price. Leading iron ore suppliers moved to a
similar pricing methodology in most markets during the October to
December quarter.
The Group, however, has a number of relationships mainly in
Eastern Europe, where long-term contracts exist and where Ferrexpo
conducted direct negotiations on a quarterly basis using
international pricing trends as a guide.
In 2011, approximately 76% of sales were conducted under
long-term volume framework agreements. The remaining sales were
made on a short-term or spot basis as new target customers were
introduced to the Ferrexpo product ahead of the considerable growth
in production in coming years. It is Ferrexpo's strategy to place
its products where it can consistently achieve the best market
prices.
During the period, the Group was able to further diversify its
customer base and, in the process, reduce its dependence on its two
largest customers. Sales to these customers reduced to 44% of total
sales volume from 55% in 2010. This trend is expected to continue
as Ferrexpo finalises additional long-term contracts in China,
Japan and Western Europe in 2012.
Logistics Infrastructure
Ferrexpo's mining operations are integrated with both port
facilities, on the adjacent Dnieper River, and with the Ukrainian
rail network. The Group transports most of its finished product by
rail to border dispatch points and, as of 31 December 2011, it
owned 1,045 rail cars (31 December 2010: 933 rail cars) which can
transport approximately two thirds of current Group output. The
remaining production is transported by state owned rail cars or by
barge. Ferrexpo aims to become self-sufficient in rail car
transportation and expects a further 600 rail cars to be delivered
in the first half of 2012. This ensures availability of rail cars
during peak times and provides a competitive advantage on railway
costs. Currently, a quarter of the Group's pellets are transported
via rail to the western Ukrainian border for customers in Central
and Western Europe. The remaining pellets are transported via rail
or barge to:
1. The Group's port terminal in Yuzhny on the Black Sea where
the product is shipped to seaborne markets around the world;
Ferrexpo has guaranteed capacity at its ocean port terminal of
five million tonnes per annum. In May 2011, in addition to loading
panamax vessels, this facility began loading standard capesize
vessels. The Group completed nine capesize shipments by the year
end, loading up to 130 thousand tonnes at the berth and topping up
the vessel with a further 40 to 50 thousand tonnes at the
anchorage. By moving into capesize shipments, Ferrexpo was able to
significantly reduce freight costs to Far East and Western European
markets resulting in increased free on board ('FOB') returns from
CFR sales. Further improvements in loading efficiency and cost are
expected in 2012 as new loading systems are embedded.
2. Or, the Group's barge loading facility at the Port of Ismail
where the product is shipped to customers along the Danube
River.
From the barge loading terminal at the mouth of the Danube
River, pellets are transported via Ferrexpo's barging subsidiary,
Helogistics, to customers in Eastern and Central Europe along the
Danube/Rhine River corridor. Since acquisition, Helogistics has
become an integral part of the supply chain to support key
customers in this region.
Overall in 2011, the proportion of sales controlled by Ferrexpo
along the supply chain to customers increased to 52% of sales from
14% in 2010. This was achieved through a combination of increased
use of the Group's barges, and increased CFR sales to Asia.
Logistics Capital Investment
In 2011, Ferrexpo invested US$58 million in its logistics
infrastructure (2010: US$18 million). This included US$41 million
for 112 rail wagons and part prepayment for delivery of 600 wagons
in 2012. The Group acquired land for trans-shipment from barge to
rail in Austria for US$4 million, which will allow it to access
markets in Northern Europe. In addition, Ferrexpo paid US$38
million for Helogisitcs in January 2011.
Markets
Ferrexpo sells its product to the key steel producing regions in
the world, focusing on three market segments:
Traditional Markets: these lie within Central and Eastern Europe
and include steel plants that were designed to use Ferrexpo
pellets. Ferrexpo has been supplying some of these customers for
more than 20 years. Ferrexpo has well-established logistics routes
and infrastructure to these markets by both river barge and rail.
These markets include Austria, Czech Republic, Hungary, Serbia and
Slovakia.
In 2011, approximately 53% of sales volumes went to these
markets compared with 66% in 2010. The reduction in volume is part
of the Group's strategy to develop Growth and Natural markets ahead
of the increase in production output in order to maximise returns
for this new tonnage.
Natural Markets: these include Turkey, the Middle East and
Western Europe, and are those markets where Ferrexpo has a
competitive advantage over more distant producers, but where market
share remains relatively low. In 2011 approximately 7% of sales
volumes went to these markets in line with 2010; and
Growth Markets: these are predominantly in Asia and have the
potential to deliver new and significant sales volumes to the
Group. In 2011, approximately 40% of sales volumes went to these
markets compared with 27% in 2010.
Financial Review
Table 5: Summary Financial Results
US$000 Year ended 31.12.11 Year ended 31.12.10 Change
---------------------------------------- ------------------- ------------------- ------
Revenue 1,788,012 1,294,900 38.1%
EBITDA 800,946 585,297 36.8%
As % of revenue 44.8% 45.2% -
Profit before taxation 690,900 498,126 38.7%
Income tax 115,964 73,002 58.9%
Profit for the period 574,936 425,124 35.2%
Diluted earnings per share (US cents) 97.0 72.2 34.3%
Final dividend per share (US cents) 3.3 3.3 -
---------------------------------------- ------------------- ------------------- ------
Revenue
Total revenue increased by 38.1% to US$1.8 billion for the year
ended 2011 compared to US$1.3 billion in 2010.
The average realised price achieved by the Group for its pellets
rose 28.4% during the period, which increased revenues by US$349.9
million. 40% of sales were on a CFR or similar basis adding US$44.7
million to revenue. Sales volumes reached a historic high at 9.9
million tonnes compared to 9.7 million tonnes in 2010 enhancing
growth in margins.
Reliance on the Company's two largest customers, in Central and
Eastern Europe, was reduced to 43.5% of pellet sales from 55.4% of
sales in 2010. Ahead of an increase in production volumes the Group
increased sales to customers in China, Japan, India and Germany
which accounted for 41.9% of sales volumes compared to 29.6% in
2010.
Other revenue, not related to pellet sales, amounted to US$88.1
million (2010: US$5.8 million). This included revenue from third
party services, such as bunker fuel sales, at the Group's barging
subsidiary Helogistics (acquired in December 2010) as well as sales
from gravel.
Cost of Sales
Total cost of sales for the year ended 31 December 2011
increased 34.8% to US$649.5 million (2010: US$481.9 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 iron pellets from own ore divided by
production volume of own ore, and excludes non-cash costs such as
depreciation, pension costs and inventory movements, costs of
purchased ore, concentrate and production cost of gravel.
The C1 cash cost increased by 27.7% to US$50.7 per tonne
compared to US$39.7 per tonne in 2010, principally as a result of
global commodity price inflation.
Of the US$11.0 per tonne increase in the C1 cash cost, commodity
related price inflation accounted for 55.5% of the increase
compared to 2010. In 2011, gas and electricity prices rose by 38.0%
and 21.8% respectively while the cost of diesel fuel was 40.6%
higher, reflecting a full year impact of the increased oil price at
the end of 2010. Higher steel prices resulted in a 14.6 % increase
in steel grinding media costs. In total, these factors added US$6.1
per tonne to the C1 cash cost.
Personnel, repair and maintenance and other material costs
increased the C1 cash cost by US$3.3 per tonne. These expenses are
principally denominated in local currency. On average Ukrainian
producer price inflation was approximately 19.0% in 2011(1) .
The Group produced at full capacity throughout the period which
helped to absorb the cost increases. In addition, the Business
Improvement Programme ('BIP') reduced the C1 cash cost by 1.8%,
generating savings of US$0.9 per tonne. Since the inception of the
BIP in 2006, cumulative productivity gains have achieved savings of
approximately US$6.6 per tonne of pellets produced, or US$56.1
million to the 31 December 2011.
Just over half of the C1 cash costs are denominated in Ukrainian
Hryvnia. The Hryvnia remained on average broadly stable in 2011
compared to 2010 at around UAH8.0 to the US Dollar.
(1) Average of January 2011 to December 2011 compared to average
January 2010 to December 2010
Table 6: C1 Cash Costs
Year ended 31.12.11 Year ended 31.12.10
--------------------- ---------------------
US$000 % of total US$000 % of total
------------------------------------------- -------- ----------- -------- -----------
Electricity 118,148 25.7% 97,251 27.1%
Gas 59,821 13.0% 43,073 12.0%
Fuel 47,064 10.2% 31,169 8.7%
Grinding media 40,921 8.9% 35,918 10.0%
Explosives 13,151 2.9% 8,148 2.4%
Other materials 38,662 8.4% 31,351 8.7%
Spare parts, maintenance and consumables 78,191 17.0% 58,940 16.4%
Personnel costs 55,810 12.1% 45,432 12.7%
Royalties and levies 7,746 1.8% 7,237 2.0%
------------------------------------------- -------- ----------- -------- -----------
C1 cost of sales 459,514 358,519
------------------------------------------- -------- ----------- -------- -----------
C1 cost per tonne 50.7 39.7
------------------------------------------- -------- ----------- -------- -----------
Non C1 Cost of Sales Relating to Pellet Production
Non C1 cost of sales amounted to US$190.0 million for the period
(2010: US$123.3 million).
Depreciation increased by 16.1% to US$28.6 million, reflecting
capital investments at FPM in 2011.
The remainder of non C1 cost of sales related to the purchase of
concentrate for reprocessing into pellets. The Group has nameplate
pelletising capacity of 12 million tonnes of pellet production per
year. Ferrexpo is currently able to mine ore sufficient to produce
around 9.0 million tonnes of pellets. To utilise the spare
pelletising and process capacity efficiently, third party
concentrate was purchased when available on the local market. The
Group will continue to purchase third party concentrate, provided
adequate margins can be achieved. During the year, 747.3 thousand
tonnes of pellet equivalent third party concentrate was acquired
(2010: 998.1 thousand tonnes) which generated a positive
contribution.
Gross Margin
The Group's gross margin increased to 63.6% in 2011 compared to
62.8% in 2010. This reflected higher sales prices and volumes,
which were partially offset by an increase in production costs.
Selling and Distribution Expenses
Selling and distribution expenses were US$318.0 million for the
year compared to US$212.0 million in 2010.
Selling and distribution costs to the Ukrainian border increased
by US$10.7 million to US$138.0 million in the period (2010:
US$127.3 million), equating to US$14.0 per tonne (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 on average by approximately 10.8% during
the year, this was partially offset by a discount for volumes
transported by the Group's own rail cars. Currently, two thirds of
the sales volumes are railed using Ferrexpo's wagons receiving a
6.5% discount for these volumes.
International freight costs amounted to US$152.7 million (2010:
US$74.9 million). These costs, which are also reflected as part of
revenue on associated CFR(1) sales, relate to the shipping of
pellets by ocean vessel to customers in Asia (on a CIF(5) or CFR
basis), and by barge to customers in Serbia (on a DAP(3) basis) and
Austria (through Helogistics). In 2011, Helogistics' operations
were included for the first time. The Group doubled shipments of
pellets to Asia to three million tonnes on a CFR or equivalent
basis principally through the loading of nine capesize vessels thus
increasing costs recognised.
Depreciation amounted to US$8.2 million (2010: US$1.8 million)
and related to amortisation of Helogistics river vessels as well as
to capital investment from the purchase of new rail cars.
(1) CFR is defined as delivery including cost and freight
(2) CIF is defined as delivery including cost, insurance and freight
(3) DAP is defined as delivered at place
Table 7: Selling and Distribution Expenses
(US$ million unless otherwise stated) Year ended 31.12.11 Year ended 31.12.10
------------------------------------------------------------------------ ------------------- -------------------
Railway transportation 89.2 81.5
Port charges 37.7 32.3
International freight 152.7 74.9
Other (commissions, insurances, personnel, depreciation, advertising) 38.4 23.3
------------------------------------------------------------------------ ------------------- -------------------
Total selling and distribution expenses 318.0 212.0
------------------------------------------------------------------------ ------------------- -------------------
Total sales volume (thousand tonne) 9,876 9,721
------------------------------------------------------------------------ ------------------- -------------------
Cost per tonne of pellets sold (including international freight) 32.2 21.8
------------------------------------------------------------------------ ------------------- -------------------
DAP/FOB distribution costs per tonne of pellets sold (US$) 14.0 13.1
------------------------------------------------------------------------ ------------------- -------------------
General and Administrative Expenses
General and administrative expenses were US$52.0 million (2010:
US$49.2 million). This was related to an increase in professional
fees, including legal services reflecting increased activities and
projects.
Other Income and Expense
Other income was US$6.9 million in 2011 (2010: US$4.5 million).
The increase reflected higher operating income from the lease of
premises to third parties at FPM.
Other expenses increased to US$17.1 million (2010: US$5.9
million). This reflected increased spending on support for the
local communities in the Poltava region, where FPM is based and is
a key part of the Group's strategy.
EBITDA
The Group calculates EBITDA as profit from continuing operations
before tax and finance plus depreciation and amortisation and
non-recurring exceptional items included in other income and other
expenses, and the net of gains and losses from disposal of
investments, property, plant and equipment.
EBITDA increased by 36.8% to US$800.9 million for the year
compared to US$585.3 million for in 2010. This is the highest
EBITDA achieved by the Group. The increase was mainly due to a
higher average delivery at frontier/free on board sales price
contributing US$323.4 million to EBITDA. This was partially offset
by increased production costs of US$100.5 million, driven by
domestic and commodity cost inflation, as discussed previously. The
EBITDA margin was in line with 2010 at 44.8% (2010: 45.2%).
Finance Income and Expense
Finance income was US$2.5 million (2010: US$1.3 million). During
the year, income from interest earned increased by US$1.1 million
to US$2.5 million. This was driven by higher average cash balances
in 2011 of US$604.8 million compared to US$165.7 million in 2010 as
well as longer-term deposits receiving more attractive interest
rates.
Finance expense increased to US$68.2 million (2010: US$41.6
million) which includedUS$28.8 million of interest cost on the
Group's US$500 million Eurobond, issued in April 2011 at a coupon
of 7.875%. Due to financial instability in the global banking
sector, particularly in Western Europe, Ferrexpo drew in full its
US$420 million revolving bank facility in October 2011. Interest on
this facility is 225 basis points above LIBOR on drawn amounts. The
average gross debt for the period was US$697.1 million (2010:
US$346.8 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 (2010: UAH7.9547). As
a result, there was no significant operating foreign exchange
movements, with a loss of US$1.4 million recorded (2010: loss of
US$1.1 million).
Non-operating Foreign Exchange Gains and Losses
Non-operating foreign exchange gains or losses result from the
retranslation of financial liabilities, loans and other similar
items.
Non-operating foreign exchange losses for the period were US$1.9
million compared to US$3.9 million in 2010. The losses were
primarily related to the revaluation of income tax payable in Swiss
Francs. The average exchange rate between the US Dollar and the
Swiss Franc was 0.88 in 2011 compared to 1.04 in 2010.
Cash Flows
Net cash flow from operating activities was US$502.7 million for
the period, an increase of 32.4% compared to 2010 (US$379.8
million).
Working capital increased by US$111.4 million reflecting higher
VAT and trade receivables. As a result of high capital expenditure
during the year, and a delay in respect of VAT repayments for May,
June and July 2011, VAT receivables increased by US$72.1 million
during the period. Higher average prices increased trade and other
receivables by US$17.4 million.
Total capital investment for the year was US$378.3 million,
which was more than double 2010's investment of US$167.4
million.
Sustaining and modernisation capital investment was US$128.0 for
the Group, of which US$121.3 million was invested at FPM (2010:
US$49.1 million). The remaining US$6.7 million was invested at
Helogistics.
In November 2010, the Board approved US$646.9 million for
development projects at FPM and FYM. In 2011, the Group spent
US$177.9 million in this regard (2010: development capex US$97.5
million). US$49.0 million was spent at FPM, while US$129.0 million
went towards achieving first ore at FYM. The expected spend for
2012 is fully funded while the Group's low level of gearing will
underpin future development spend for processing facilities at
FYM.
US$8.3 million was spent on the Belanovo deposit (FBM) during
the period (2010: US$2.4 million). This was for drilling works and
site preparation activities.
In terms of logistics, capital investment was US$57.8 million in
2011 (2010: US$17.7 million) which was primarily related to the
acquisition of rail cars.
In January 2011, Ferrexpo paid US$38.0 million for the
Helogistics acquisition which was agreed in December 2011, which
was disclosed in the 2010 financial statements.
The Group's closing cash balance increased by US$570.7 million
to US$890.1 million as of 31 December 2011 partly as a result of
the net financing inflow of US$521.3 million following the
placement of a US$500.0 million bond and the increase of the pre
export facility from US$350.0 million to US$420.0 million.
Ferrexpo's gross debt had an average maturity of 4.0 years at
the 31 December 2011. The Group has minimal debt repayments of
US$10.8 million and US$10.4 million in 2012 and 2013 respectively.
Net debt to EBITDA as of 31 December 2011 was 0.1 times.
Table 8: Summary of Group Liquidity and Debt
As of As of
US$ million 31.12.2011 31.12.2010
----------------------------------------- ----------- -----------
Cash and equivalents 890.1 319.5
Gross debt 970.3 423.9
Net debt (80.2) (104.4)
Total equity 1,393.1 861.5
Undrawn facilities 50.0 65.0
----------------------------------------- ----------- -----------
Total liquidity (facilities plus cash) 940.1 384.5
----------------------------------------- ----------- -----------
Statement of Directors' Responsibilities
Responsibility statement of the Directors in respect of the
Annual Report and Accounts
We confirm on behalf of the Board that to the best of our
knowledge:
(a) the financial statements give a true and fair view of the
assets, liabilities, financial position and profit of the Company
and the undertakings included in the consolidation taken as a
whole; and
(b) the management report (entitled 'Business Review') includes
a fair review of the development and performance of the business,
and the principal risks and uncertainties that they face.
For and on behalf of the Board
Michael Abrahams
Chairman
Christopher Mawe
Chief Financial Officer
Consolidated Income Statement
US$000 Notes Year ended 31.12.11 Year ended 31.12.10
-------------------------------------------------------------------- ----- ------------------- -------------------
Revenue 4 1,788,012 1,294,900
Cost of sales 5 (649,544) (481,857)
-------------------------------------------------------------------- ----- ------------------- -------------------
Gross profit 1,138,468 813,043
-------------------------------------------------------------------- ----- ------------------- -------------------
Selling and distribution expenses (317,951) (212,006)
General and administrative expenses (51,969) (49,175)
Other income 6,943 4,515
Other expenses (17,091) (5,938)
Operating foreign exchange losses (1,360) (1,078)
-------------------------------------------------------------------- ----- ------------------- -------------------
Operating profit from continuing operations before adjusted items 757,040 549,361
-------------------------------------------------------------------- ----- ------------------- -------------------
Under recovery of VAT receivable - (10,936)
Write-offs and impairment losses (478) (1,618)
Share of profit of associates 2,012 4,155
Gain on bargain purchase - 2,623
Initial public offering costs - (55)
Losses on disposal of property, plant and equipment (46) (1,305)
-------------------------------------------------------------------- ----- ------------------- -------------------
Profit before tax and finance from continuing operations 758,528 542,225
-------------------------------------------------------------------- ----- ------------------- -------------------
Finance income 6 2,511 1,357
Finance expense 6 (68,205) (41,568)
Non-operating foreign exchange losses (1,934) (3,888)
-------------------------------------------------------------------- ----- ------------------- -------------------
Profit before tax 690,900 498,126
-------------------------------------------------------------------- ----- ------------------- -------------------
Income tax expense 7 (115,964) (73,002)
-------------------------------------------------------------------- ----- ------------------- -------------------
Profit for the year from continuing operations 574,936 425,124
-------------------------------------------------------------------- ----- ------------------- -------------------
Attributable to:
Equity shareholders of Ferrexpo plc 567,822 422,906
Non-controlling interests 7,114 2,218
-------------------------------------------------------------------- ----- ------------------- -------------------
574,936 425,124
-------------------------------------------------------------------- ----- ------------------- -------------------
Earnings per share:
Basic (US cents) 8 97.09 72.34
Diluted (US cents) 8 96.97 72.24
Consolidated Statement of Comprehensive Income
US$000 Year ended 31.12.11 Year ended 31.12.10
---------------------------------------------------------------- ------------------- -------------------
Profit for the year 574,936 425,124
Exchange differences on translating foreign operations (3,024) 533
Income tax effect - -
Exchange differences arising on hedging of foreign operations (894) 110
Income tax effect 153 (27)
Net (losses)/gains on available-for-sale investments (1,868) 1,915
Income tax effect 437 (465)
---------------------------------------------------------------- ------------------- -------------------
Other comprehensive income for the year, net of tax (5,196) 2,066
---------------------------------------------------------------- ------------------- -------------------
Total comprehensive income for the year, net of tax 569,740 427,190
---------------------------------------------------------------- ------------------- -------------------
Total comprehensive income attributable to:
Equity shareholders of Ferrexpo plc 562,883 424,923
Non-controlling interests 6,857 2,267
---------------------------------------------------------------- ------------------- -------------------
569,740 427,190
---------------------------------------------------------------- ------------------- -------------------
Consolidated Statement of Financial Position
As at As at
US$000 Notes 31.12.11 31.12.10
------------------------------------------------------------- ----- --------- ----------
Assets
Property, plant and equipment 924,690 647,137
Goodwill and other intangible assets 103,240 102,317
Investments in associates 19,186 21,132
Available-for-sale financial assets 1,290 3,356
Other non-current assets 93,358 24,767
Deferred tax assets 23,426 13,495
------------------------------------------------------------- ----- --------- ----------
Total non-current assets 1,165,190 812,204
------------------------------------------------------------- ----- --------- ----------
Inventories 117,046 104,827
Trade and other receivables 128,905 111,890
Prepayments and other current assets 22,720 18,922
Income taxes recoverable and prepaid 384 35
Other taxes recoverable and prepaid 9 172,951 104,824
Cash and cash equivalents 890,154 319,470
------------------------------------------------------------- ----- --------- ----------
1,332,160 659,968
------------------------------------------------------------- ----- --------- ----------
Assets classified as held for sale 1,845 3,149
------------------------------------------------------------- ----- --------- ----------
Total current assets 1,334,005 663,117
------------------------------------------------------------- ----- --------- ----------
Total assets 2,499,195 1,475,3213
------------------------------------------------------------- ----- --------- ----------
Equity and liabilities
Issued capital 121,628 121,628
Share premium 185,112 185,112
Other reserves (348,603) (344,420)
Retained earnings 1,414,512 885,353
------------------------------------------------------------- ----- --------- ----------
Equity attributable to equity shareholders of Ferrexpo plc 1,372,649 847,673
------------------------------------------------------------- ----- --------- ----------
Non-controlling interests 20,480 13,801
------------------------------------------------------------- ----- --------- ----------
Total equity 1,393,129 861,474
------------------------------------------------------------- ----- --------- ----------
Interest bearing loans and borrowings 951,430 401,290
Defined benefit pension liability 13,329 17,819
Provision for site restoration 3,015 2,746
Deferred tax liabilities 2,232 2,432
------------------------------------------------------------- ----- --------- ----------
Total non-current liabilities 970,006 424,287
------------------------------------------------------------- ----- --------- ----------
Interest bearing loans and borrowings 18,948 22,563
Trade and other payables 42,648 88,089
Accrued liabilities and deferred income 29,713 23,174
Income taxes payable 36,674 41,811
Other taxes payable 8,077 13,923
------------------------------------------------------------- ----- --------- ----------
Total current liabilities 136,060 189,560
------------------------------------------------------------- ----- --------- ----------
Total liabilities 1,106,066 613,847
------------------------------------------------------------- ----- --------- ----------
Total equity and liabilities 2,499,195 1,475,321
------------------------------------------------------------- ----- --------- ----------
The financial statements were approved by the Board of Directors
on 13 March 2012.
Kostyantin Zhevago Christopher Mawe
Chief Executive Officer Chief Financial Officer
Consolidated Statement of Cash Flows
US$000 Notes Year ended 31.12.11 Year ended 31.12.10
--------------------------------------------------------------------- ----- ------------------- -------------------
Profit before tax 690,900 498,126
--------------------------------------------------------------------- ----- ------------------- -------------------
Adjustments for:
Depreciation of property, plant and equipment and amortisation of
intangible assets 41,003 30,415
Interest expense 6 62,321 42,843
Under recovery of VAT receivable - 10,936
Interest income 6 (2,511) (2,632)
Share of income of associates (2,012) (4,155)
Movement in allowance for doubtful receivables (2,406) (3,685)
Losses on disposal of property, plant and equipment 46 1,305
Write-offs and impairment losses 478 1,618
Site restoration provision 269 1,478
Employee benefits 1,069 3,281
IPO costs - 55
Share-based payments 891 1,366
Gain on bargain purchase from business combination - (2,623)
Operating foreign exchange (losses)/gains 1,360 1,078
Non-operating foreign exchange losses 1,934 3,888
--------------------------------------------------------------------- ----- ------------------- -------------------
Operating cash flow before working capital changes 793,342 583,295
--------------------------------------------------------------------- ----- ------------------- -------------------
Changes in working capital:
Increase in trade and other receivables (17,391) (74,020)
Increase in inventories (12,220) (42,938)
(Decrease)/increase in trade and other accounts payable (9,788) 11,215
Increase in VAT recoverable and other taxes prepaid(1) (72,051) (31,062)
--------------------------------------------------------------------- ----- ------------------- -------------------
Cash generated from operating activities 681,892 446,490
--------------------------------------------------------------------- ----- ------------------- -------------------
Interest paid (43,266) (25,437)
Income tax paid (132,176) (37,827)
Post-employment benefits paid (3,741) (3,468)
--------------------------------------------------------------------- ----- ------------------- -------------------
Net cash flows from operating activities 502,709 379,758
--------------------------------------------------------------------- ----- ------------------- -------------------
Cash flows from investing activities
Purchase of property, plant and equipment (378,302) (166,775)
Purchases of intangible assets (2,092) (633)
Interest received 2,067 1,270
Proceeds from loans to associates 1,000 1,550
Dividends from associates 2,207 2,931
Cash payment for acquisition made in 2010 (38,045) -
Pre-acquisition loans provided - (10,881)
Acquisition of subsidiaries, net of cash acquired (390) 582
--------------------------------------------------------------------- ----- ------------------- -------------------
Net cash flows used in investing activities (413,555) (171,956)
--------------------------------------------------------------------- ----- ------------------- -------------------
Cash flows from financing activities
Proceeds from borrowings and finance 952,269 668,802
Repayment of borrowings and finance (410,027) (505,359)
Arrangement fees paid (21,021) (21,074)
Dividends paid to equity shareholders of Ferrexpo plc (38,663) (41,744)
Dividends paid to non-controlling shareholders (880) (47)
--------------------------------------------------------------------- ----- ------------------- -------------------
Net cash flows from financing activities 481,678 100,578
--------------------------------------------------------------------- ----- ------------------- -------------------
Net increase in cash and cash equivalents 570,832 308,380
Cash and cash equivalents at the beginning of the year 319,471 11,991
Currency translation differences (149) (901)
--------------------------------------------------------------------- ----- ------------------- -------------------
Cash and cash equivalents at the end of the year(2) 890,154 319,470
--------------------------------------------------------------------- ----- ------------------- -------------------
1 The movement in the prior year includes effect of VAT
receivable amounting to US$72,318 thousand, which was recovered
through VAT bonds. See note 9 for further details
2 The prior year balance of cash and cash equivalents includes
restricted cash of US$37,768 thousand.
Consolidated Statement of Changes in Equity
Attributable to equity shareholders of Ferrexpo
plc
------- ------------------------------------------------------------------------------------ --------------- ---------
Uniting Employee Net Total
of Treasury benefit unrealised capital
Issued Share interest share trust gains Translation 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
decrease
in
non-controlling
interests(1) - - - - - - - (147) (147) 147 -
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- --------------- ---------
At
31
December
2010 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 - - - - - - - 567,822 567,822 7,114 574,936
Other
comprehensive
income - - - - - (1,431) (3,508) - (4,939) (257) (5,169)
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- --------------- ---------
Total
comprehensive
income
for
the
period - - - - - (1,431) (3,508) 567,822 562,883 6,857 569,740
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- --------------- ---------
Equity
dividends
paid
to
shareholders
of
Ferrexpo
plc - - - - - - - (38,663) (38,663) (322) (38,985)
Share-based
payments - - - - 756 - - - 756 - 756
Effect
from
acquisition
of
subsidiary - - - - - - - - - 144 144
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- --------------- ---------
At
31
December
2011 121,628 185,112 31,780 (77,260) (9,416) 1,084 (294,791) 1,414,512 1,372,649 20,480 1,393,129
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- --------------- ---------
1 Transfer of shareholdings in subsidiaries resulted in change
of non-controlling interests
Notes to the Consolidated Financial Statements
Note 1: General information
The financial information for the year ended 31 December 2011
does not constitute statutory accounts as defined in section 435 of
the Companies Act 2006. The audited statutory accounts for the year
ended 31 December 2010 have been delivered to the Registrar of
Companies and those for 2011 will be delivered following the
Company's annual general meeting convened for Thursday, 24 May
2012.
The auditor has reported on the statutory accounts for year
ended 31 December 2011. The auditor's report was unqualified.
Note 2: Summary of significant accounting policies
International Financial Reporting Interpretations Committee
(IFRIC)
Whilst the preliminary announcement has been prepared in
accordance with International Financial Reporting Standards
('IFRS') and International Financial Reporting Interpretation
Committee ("IFRIC") interpretations adopted for use by the European
Union and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS, this announcement does not itself
contain sufficient information to comply with IFRS. The Board
approved the full financial statements that comply with IFRS on
Tuesday, 13 March 2012. The financial statements have been prepared
under the historical cost convention as modified by the recording
of pension assets and liabilities and the revaluation of certain
financial instruments.
The accounting policies applied are consistent with those
adopted and disclosed in the Group's annual financial statements
for the year ended 31 December 2010 except for the following.
The Group has adopted the following new and amended IFRS and
IFRIC interpretations as of 1 January 2011.
International Financial Reporting Interpretations Committee
(IFRIC) Effective date
-- IAS 24 Related party disclosures 1 January 2011
-- IAS 32 Financial instruments: presentation 1 February
2010
-- IFRIC 14 Prepayment of minimum funding requirements 1 January 2011
-- IFRIC 19 Extinguishing financial liabilities with equity instruments 1 July 2010
None of the new and amended standards or interpretations
affected the reported results and financial positions.
Changes occurring as a result of improvements to IFRSs
-- IAS 1 Financial instruments
The amendment requires an analysis of components of other
comprehensive income either in the statement of changes in equity
or the notes to the financial statements. The Group decided to
disclose the analysis in the notes to the financial statements.
None of the following new or revised to be adopted for the
financial year 2011 affected the presentation and disclosures:
-- IFRS 3 Business combinations
-- IFRS 7 Financial instruments: disclosure
-- IAS 27Consolidated and separate financial statements
-- IFRIC 13 Customer loyalty programme
The Group amended its accounting policies where applicable
however the adoption of the above standards did not have an impact
upon the financial position or performance of the Group.
The Group has elected not to early adopt the following revised
and amended standards:
-- IAS 1 Financial statements presentation - presentation of
items of other comprehensive income
-- IAS 12 Income taxes - recovery of underlying assets
-- IAS 19 Employee benefits
-- IFRS 7 Financial instruments: disclosures - enhanced
derecognition disclosure requirements
-- IFRS 9 Financial instruments: classification and
measurement
-- IFRS 10 Consolidated financial statements
-- IFRS 11 Joint arrangements
-- IFRS 12Disclosure of involvement with other entities
-- IFRS 13 Fair value measurement
-- IFRIC 20Stripping costs in the production phase of a surface
mine
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 presents EBITDA because it believes that EBITDA is a
useful measure for evaluating its ability to generate cash and its
operating performance.
US$000 Year ended 31.12.11 Year ended 31.12.10
---------------------------------------------------- ------------------- -------------------
Profit before tax and finance 758,528 542,225
Under recovery of VAT receivable - 10,936
Write-offs and impairment losses 478 1,618
Losses on disposal of property, plant and equipment 46 1,305
Initial public offering costs - 55
Share-based payments 891 1,366
Gain on bargain purchase - (2,623)
Depreciation and amortisation 41,003 30,415
---------------------------------------------------- ------------------- -------------------
EBITDA 800,946 585,297
---------------------------------------------------- ------------------- -------------------
'C1' costs
'C1' costs represents the cash costs of production of iron
pellets from own ore divided by production volume of own ore, and
excludes non-cash costs such as depreciation, pension costs and
inventory movements, costs of purchased ore, concentrate and
production cost of gravel.
US$000 Year ended 31.12.11 Year ended 31.12.10
--------------------------------------------------- ------------------- -------------------
Cost of sales - pellets production 600,790 481,857
Depreciation and amortisation (28,639) (24,662)
Purchased concentrate and other items for resale (102,908) (101,351)
Processing costs for purchased concentrate (7,873) (11,042)
Production cost of gravel (572) (88)
Inventory movements 481 18,608
Pension service costs 5,334 (2,049)
Other (7,099) (2,754)
--------------------------------------------------- ------------------- -------------------
C1 cost 459,514 358,519
--------------------------------------------------- ------------------- -------------------
Own ore produced (tonnes) 9,063,398 9,033,000
--------------------------------------------------- ------------------- -------------------
C1 cash cost per tonne (US$) 50.70 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 and amounts payable for equipment.
US$000 Year ended 31.12.11 Year ended 31.12.10
----------------------------- ------------------- -------------------
Cash and cash equivalents 890,154 319,470
Current borrowings (18,948) (22,563)
Non-current borrowings (951,430) (401,290)
----------------------------- ------------------- -------------------
Net financial indebtedness (80,224) (104,384)
----------------------------- ------------------- -------------------
Disclosure of revenue and non-current assets
The Group does not generate significant revenues from external
customers attributable to the country of domicile. The information
on the revenues from external customers attributed to the
individual foreign countries is given in note 4.
The Group does not have any significant non-current assets that
are located in the country of domicile of the Group. The vast
majority of the non-current assets are located in Ukraine.
Note 4: Revenue
Revenue for the year ended 31 December 2011 consisted of the
following:
US$000 Year ended 31.12.11 Year ended 31.12.10
-------------------------------------------------------------- ------------------- -------------------
Revenue from sales of iron ore pellets and concentrate:
Export 1,699,154 1,288,665
Ukraine 742 453
-------------------------------------------------------------- ------------------- -------------------
Total revenue from sale of iron ore pellets and concentrate 1,699,896 1,289,118
-------------------------------------------------------------- ------------------- -------------------
Revenue from logistics and bunker business 73,276 -
Revenue from services provided 4,092 674
Revenue from other sales 10,748 5,108
-------------------------------------------------------------- ------------------- -------------------
Total revenue 1,788,012 1,294,900
-------------------------------------------------------------- ------------------- -------------------
Export sales of iron ore pellets and concentrate by geographical
destination were as follows:
US$000 Year ended 31.12.11 Year ended 31.12.10
----------------- ------------------- -------------------
China 569,924 320,572
Austria 453,586 405,511
Serbia 158,687 156,806
Slovakia 121,041 143,478
Czech Republic 119,793 99,235
Japan 88,875 45,318
Turkey 83,722 62,166
India 47,119 14,153
Germany 28,898 24,833
Hungary 27,509 16,575
Other - 18
----------------- ------------------- -------------------
Total exports 1,699,154 1,288,665
----------------- ------------------- -------------------
During the year ended 31 December 2011 sales made to three
customers accounted for approximately 50.2% of the sales revenue
(2010: 62.5%).
Sales made to two customers individually amounted to more than
10% of the total sales. These are disclosed below:
US$000 Year ended 31.12.11 Year ended 31.12.10
------------- ------------------- -------------------
Customer A 453,586 405,511
Customer B 279,728 300,284
Note 5: Cost of sales
Cost of sales for the year ended 31 December 2011 consisted of
the following:
US$000 Year ended 31.12.11 Year ended 31.12.10
---------------------------------------- ------------------- -------------------
Materials 75,246 67,661
Purchased ore and concentrate 102,908 101,351
Electricity 121,364 101,528
Personnel costs 51,677 47,930
Spare parts and consumables 20,968 16,616
Depreciation and amortisation 28,639 24,662
Fuel 47,343 31,299
Gas 63,485 48,236
Repairs and maintenance 63,801 45,230
Royalties and levies 10,437 8,489
Cost of sales from logistics business 23,363 -
Bunker fuel 25,391 -
Inventory movements (481) (18,608)
Other 15,403 7,463
---------------------------------------- ------------------- -------------------
Total cost of sales 649,544 481,857
---------------------------------------- ------------------- -------------------
US$000 Year ended 31.12.11 Year ended 31.12.10
------------------------------------------------ ------------------- -------------------
Cost of sales - pellet production 600,790 481,857
Cost of sales - logistics and bunker business 48,754 -
------------------------------------------------ ------------------- -------------------
Total cost of sales 649,544 481,857
------------------------------------------------ ------------------- -------------------
Note 6: Finance income and expense
Finance income and expenses for the year ended 31 December 2011
consisted of the following:
US$000 Year ended 31.12.11 Year ended 31.12.10
----------------------------------------------------------------------- ------------------- -------------------
Finance income
Interest income 2,505 1,357
Other finance revenue 6 -
----------------------------------------------------------------------- ------------------- -------------------
Total finance income 2,511 1,357
----------------------------------------------------------------------- ------------------- -------------------
Finance expense
Interest expense on financial liabilities measured at amortised cost (46,376) (24,509)
Interest on defined benefit plans (5,765) (3,416)
Bank charges (14,885) (12,694)
Other finance costs (1,179) (949)
----------------------------------------------------------------------- ------------------- -------------------
Total finance expenses (68,205) (41,568)
----------------------------------------------------------------------- ------------------- -------------------
Net finance expense (65,694) (40,211)
----------------------------------------------------------------------- ------------------- -------------------
Bank charges include arrangement fees charged in relation to the
Group's major bank debt facility.
Note 7: Income tax expense
The income tax expense for the year ended 31 December 2011
consisted of the following:
US$000 Year ended 31.12.11 Year ended 31.12.10
---------------------------------------------------- ------------------- -------------------
Current income tax
Current income tax charge 125,689 73,700
Amounts under provided in previous years 150 270
---------------------------------------------------- ------------------- -------------------
Total current income tax 125,839 73,970
---------------------------------------------------- ------------------- -------------------
Deferred income tax
Origination and reversal of temporary differences (10,788) (4,494)
Effect from changes in tax laws and rates 913 3,526
---------------------------------------------------- ------------------- -------------------
Total deferred income tax (9,875) (968)
---------------------------------------------------- ------------------- -------------------
Total income tax expense 115,964 73,002
---------------------------------------------------- ------------------- -------------------
Other comprehensive income contained taxes on the following
items charged or credited to it for the year ended 31 December
2011:
US$000 Year ended 31.12.11 Year ended 31.12.10
---------------------------------------------------------------- ------------------- -------------------
Exchange differences arising on hedging of foreign operations (153) 27
Net losses on available-for-sale investments (437) 465
---------------------------------------------------------------- ------------------- -------------------
Total income taxes charged to other comprehensive income (590) 492
---------------------------------------------------------------- ------------------- -------------------
The effective income tax rate differs from the corporate income
tax rates. The weighted average statutory rate was 15.3% for 2011
(2010: 13.1%). This is calculated as the average of the statutory
tax rates applicable in the countries in which the Group operates,
weighted by the profits/(losses) before tax of the subsidiaries in
the respective countries, as included in the consolidated financial
information. The effective tax rate is 16.8% (2010: 14.7%).
A reconciliation between the income tax charged in the
accompanying financial information and income before taxes
multiplied by the weighted average statutory tax rate for the year
ended 31 December 2011 is as follows:
US$000 Year ended 31.12.11 Year ended 31.12.10
--------------------------------------------------------------------------- ------------------- -------------------
Profit before tax 690,900 498,126
Notional tax computed at the weighted average statutory tax rate of 15.3%
(2010: 13.1%) 105,531 65,254
Derecognition of deferred tax asset (30) (902)
Effect from difference in local tax rates 722 3,526
Effect from utilisation of non-recognised deferred tax assets (781) (274)
Effect from capitalised tax loss carry forwards (63) (293)
Expenses not deductible for tax purposes 9,186 7,338
Tax exempted income (912) (623)
Non-recognition of deferred taxes on current year losses 2,284 555
Effect from change in permanent differences - (2,079)
Tax related to prior years 150 270
Other (123) 230
--------------------------------------------------------------------------- ------------------- -------------------
Total income tax expense 115,964 73,002
--------------------------------------------------------------------------- ------------------- -------------------
Note 8: Earnings per share and dividends paid and proposed
Basic earnings per share ('EPS') is calculated by dividing the
net profit for the year attributable to ordinary equity
shareholders of Ferrexpo plc by the weighted average number of
Ordinary Shares.
Year ended 31.12.11 Year ended 31.12.10
----------------------------------------------------------- ------------------- -------------------
Profit for the year attributable to equity shareholders:
Basic earnings per share (US cents) 97.09 72.34
Diluted earnings per share (US cents) 96.97 72.24
Underlying earnings for the year:
Basic earnings per share (US cents) 97.47 72.98
Diluted earnings per share (US cents) 97.35 72.91
----------------------------------------------------------- ------------------- -------------------
The calculation of the basic and diluted earnings per share is
based on the following data:
Thousand Year ended 31.12.11 Year ended 31.12.10
------------------------------------------------ ------------------- -------------------
Weighted average number of shares
Basic number of Ordinary Shares outstanding 584,811 584,568
Effect of dilutive potential Ordinary Shares 730 854
------------------------------------------------ ------------------- -------------------
Diluted number of Ordinary Shares outstanding 585,541 585,422
------------------------------------------------ ------------------- -------------------
The basic number of Ordinary Shares is calculated by reducing
the total number of Ordinary Shares in issue by the shares held in
treasury.
Diluted earnings per share is calculated by adjusting the
weighted average number of Ordinary Shares in issue on the
assumption of conversion of all potentially dilutive Ordinary
Shares. All share awards are potentially dilutive and have been
included in the calculation of diluted earnings per share.
'Underlying earnings' is an alternative earnings measure, which
the Directors believe provides a clearer picture of the underlying
financial performance of the Group's operations. Underlying
earnings is presented after non-controlling interests and excludes
adjusted items. The calculation of underlying earnings per share is
based on the following earnings data:
US$000 Year ended 31.12.11 Year ended 31.12.10
------------------------------------------------------ ------------------- -------------------
Profit attributable to equity holders 567,822 422,906
Write offs and impairment losses 478 1,618
IPO costs - 55
Gain on bargain purchase - (2,623)
Losses on disposal of property, plant and equipment 46 1,305
Non-operating foreign exchange losses 1,934 3,888
Tax on adjusted items (282) (346)
------------------------------------------------------ ------------------- -------------------
Underlying earnings 569,998 426,803
------------------------------------------------------ ------------------- -------------------
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 paid and proposed
US$000 Year ended 31.12.11
------------------------------------------------------------- -------------------
Dividends proposed
Final dividend for 2011: 3.3 US cents per Ordinary Share 19,301
------------------------------------------------------------- -------------------
Total dividends proposed 19,301
------------------------------------------------------------- -------------------
Dividends paid during the period
Interim dividend for 2011: 3.3 US cents per Ordinary Share 19,301
Final dividend for 2010: 3.3 US cents per Ordinary Share 19,362
------------------------------------------------------------- -------------------
Total dividends paid 38,663
------------------------------------------------------------- -------------------
US$000 Year ended 31.12.10
------------------------------------------------------------- -------------------
Dividends proposed
Final dividend for 2010: 3.3 US cents per Ordinary Share 19,289
------------------------------------------------------------- -------------------
Total dividends proposed 19,289
------------------------------------------------------------- -------------------
Dividends paid during the period
Interim dividend for 2010: 3.3 US cents per Ordinary Share 19,292
Final dividend for 2009: 3.3 US cents per Ordinary Share 19,289
------------------------------------------------------------- -------------------
Total dividends paid 38,581
------------------------------------------------------------- -------------------
Note 9: Taxes payable, recoverable and prepaid
As at 31 December 2011 taxes recoverable and prepaid
comprised:
As at As at
US$000 31.12.11 31.12.10
-------------------------------------- --------- ---------
VAT receivable 172,434 102,860
Other taxes prepaid 517 1,964
-------------------------------------- --------- ---------
Total taxes recoverable and prepaid 172,951 104,824
-------------------------------------- --------- ---------
A VAT receivable results from VAT paid on domestic purchases of
goods and services and on the import of equipment and services into
Ukraine, to the extent that this cannot be offset with VAT on
domestic sales.
During the financial year 2011, FPM received VAT refunds in
respect of 2010 and 2011 amounting to US$93,983 thousand.
Following tax audits during the year, VAT receivables of
US$26,033 thousand from May, June and July 2011 were disputed by
tax authorities. FPM has challenged these amounts in the court and
has won in the first instance in respect to May amounts. The June
and July amounts are currently subject to ongoing proceedings and a
positive result is expected shortly.
As a result of high capital expenditure during the year, and the
case noted above, the VAT receivable balance has increased by
US$70,751 thousand to US$172,434 thousand as of 31 December 2011.
Management expects this amount to be recovered within one year
through cash repayment, or for the amount outstanding to be offset
against corporate profit tax payable or through a combination of
the above options.
Note 10: Commitments, contingencies and legal disputes
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.
The Group is currently involved in a share dispute which
commenced in 2005 and which was disclosed and as relevant updated
in the Group's IPO and Eurobond prospectuses. Relevant information
and the current status of the dispute are stated below:
In 2005, a former shareholder of OJSC Ferrexpo Poltava Mining
("FPM") initiated legal proceedings against certain nominee
companies that were ultimately controlled by Kostyantin Zhevago in
order to seek the invalidation of the agreement related to the sale
of a 40.19% stake in FPM sold to these nominee companies in 2002.
The case was considered several times by different courts in
Ukraine. A final decision in the proceeding was taken by the
Supreme Commercial Court of Ukraine on 21 April 2010 in favour of
the claimant so that the agreements on the sale of the FPM shares
were recognized as invalid on the grounds of formal defects under
Ukrainian law. On 6 October 2011, the claimants filed a new court
claim in Ukraine with the intention to invalidate the decision of
the general shareholders meeting of FPM as taken place on 20
November 2002 and all subsequent shareholders meetings decisions in
order to obtain restitution to the shareholding position as existed
before the 20th November 2002 and to register the shares in their
names. On 22 November 2011, Ferrexpo AG filed a claim against the
claimants at the High Court in London seeking a confirmation of
ownership in FPM shares. The claim was launched in order to take an
active step outside the Ukraine to resolve this long-running
dispute.
The management of the Group, after having taken local legal
advice assesses the risk related to this share dispute to be remote
as the claim has no merits. Neither the final decision by the
Supreme Commercial Court of Ukraine nor the subsequent Ukrainian
claim entitles claimants with direct enforcement rights to the
shares of FPM currently owned by the Group through Ferrexpo AG. The
restitution of the status quo ante of the shareholding position as
sought by claimants is impossible under Ukrainian law for various
legal, technical and practical reasons.
It follows that except for related legal costs, no provision was
recorded for this dispute as of 31 December 2011.
Note 11: Events after the reporting period
No material adjusting or non-adjusting events have occurred
subsequent to the year-end other than the proposed dividend
disclosed in note 8.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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Ferrexpo (LSE:FXPO)
과거 데이터 주식 차트
부터 7월(7) 2023 으로 7월(7) 2024
