TIDMFXPO
RNS Number : 4132K
Ferrexpo PLC
21 August 2012
21 August 2012
FERREXPO plc ('Ferrexpo' or the 'Group')
Interim Results 2012
Ferrexpo, the FTSE 250 iron ore pellet producer, today announces
its results for the six months to 30 June 2012.
Michael Abrahams, Non-Executive Chairman, commented:
"Ferrexpo made a good start to 2012, in-line with the Group's
expectations against a backdrop of moderating iron ore prices.
Operationally, the Group continues to perform well, with production
from own ore 4% higher than 1H 2011. The Group continued its
planned investment in its modernisation and expansion programme in
the first half of 2012 and, with the expected additional output of
ore from Ferrexpo Yeristovo Mining, is on target to increase annual
production in 2014.
"During the period under review, the iron ore market has been
volatile with market prices for iron ore down 20%. Ferrexpo,
however, has continued to enjoy solid demand for its pellets with
the average pellet price for the period down by only 12%. Lower
pricing combined with higher raw material costs has reduced profits
from the record level of 2011.
The Group continues on track with its growth projects and is
well placed to benefit from its significant investment over the
past five years. While the market outlook has deteriorated recently
and remains variable, medium term iron ore pricing should remain
underpinned by growth in developing markets. In line with its
stated strategy, Ferrexpo will continue to exploit its substantial
reserves to create sustainable value for shareholders."
Highlights
Operational
Production
-- Production at Ferrexpo Poltava Mining at full capacity
representing:
- 4.7 million tonnes of pellets (1H 2011: 4.8 million tonnes)
- 2.1 million tonnes of 65% Fe pellets produced, in line with 1H 2011
-- First ore achieved at Ferrexpo Yeristovo Mining, commercial
mining due to start at the beginning of 2013
Marketing
-- 50% of Ferrexpo's products were delivered to customers by
logistics systems under its own control
-- Lower market prices partially mitigated through reduced
freight rates to seaborne markets and improved performance of own
transport infrastructure
-- As a result achieved iron ore prices outperformed the
international iron ore price index
Financial
-- Revenue of US$731 million (1H 2011 US$855 million), a
decrease of 15%
-- EBITDA of US$240 million (1H 2011: US$401 million), a
decrease of 40%
-- Diluted EPS decreased by 50% to 24.7 US cents (1H 2011: 49.7
US cents)
-- Dividend of 3.3 US cents maintained (1H 2011: 3.3 US
cents)
-- Group capital expenditure of US$222 million (1H 2011: US$121
million)
-- Strong balance sheet with cash balance of US$716 million as
at 30 June 2012 (US$890 million as at 31 December 2011)
-- Major debt facilities expire in 2016 with insignificant debt
repayments in 2012 and 2013
-- VAT repayments outstanding increased by US$50 million to
US$222 million compared to 31 December 2011
-- Net debt position of US$251 million as at 30 June 2012 (US$80
million as at 31 December 2011)
1H 2012 1H 2011 Change FY 2011
Revenue (US$ million) 731 855 -15% 1,788
EBITDA(1) (US$ million) 240 401 -40% 801
Profit before Tax (US$ million) 169 352 -52% 691
Diluted EPS (US cents per share) 24.7 49.7 -50% 96.9
Final dividend (US cents per share) 3.3 3.3 - 3.3
Net cash flow from operating activities (US$ million) 70 324 -78% 503
Capital investment (US$ million) 222 121 +84% 378
Net debt / (Net funds position) (US$ million) 251 (25) 80
For further information, please
contact:
Ferrexpo:
Chris Mawe +44 207 389 8311
Emma Villiers +44 207 389 8304
Pelham Bell Pottinger
Charles Vivian +44 207 861 3126
Lorna Spears +44 207 861 3883
Notes to Editors:
Ferrexpo is a Swiss headquartered iron ore company with assets
in Ukraine. It is principally involved in the production and export
of high quality iron ore pellets, which are used in the manufacture
of steel. Ferrexpo's resource base is one of the largest iron ore
deposits in the world. Its current producing asset, FPM, produced
approximately 10 million tonnes of iron ore pellets in 2011 making
it the largest exporter of pellets in the CIS. The Group 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
FERREXPO PLC - INTERIM RESULTS
SIX MONTHS TO 30 JUNE 2012
Introduction
Ferrexpo made a good start to 2012, in-line with the Group's
expectations against a backdrop of moderating iron ore prices.
Operationally, the Group continues to perform well, with production
from own ore 4% higher than 1H 2011. The Group continued its
planned investment in its modernisation and expansion programme in
the first half of 2012 and, with the expected additional output of
ore from Ferrexpo Yeristovo Mining ('FYM'), is on target to
increase annual production in 2014.
FYM is in its fourth year of investment and has reached first
ore in one area of the pit ahead of the start of commercial ore
mining by the beginning of 2013. During 2013, the mine will ramp up
output to five million tonnes of ore with an average Fe grade of
around 32.2%. Initially, the crude ore will be used to substitute
output from the Poltava mine in order to assess the ore's
production characteristics and also potentially to enhance pellet
production from the existing processing facilities.
Results and Dividend
Iron ore and other commodity prices have declined in 2012 in the
face of global market conditions, which are being driven by adverse
macro-economic factors. As a consequence, and against the
background of a 20% fall in the market price for iron ore in 1H
2012, the average selling price achieved by Ferrexpo for its iron
ore pellets decreased by 12%, owing partly to lower freight
costs.
In 1H 2012, Ferrexpo sold 4.5 million tonnes of pellets (1H
2011: 4.7 million tonnes), generating revenues of US$731 million.
This is 14% lower than the record revenues of US$855 million
achieved in 1H 2011 and reflects slightly lower 1H volumes and the
lower market prices for iron ore.
In 1H 2012, the Group's average C1 cash costs rose principally
as a result of higher Ukraine energy tariffs, oil costs and
domestic inflation. These increases continue to be driven by the
high price of key inputs which, due to stock holdings, do not yet
reflect the trend towards lower market prices. High Ukrainian
producer price inflation contrasts with low local CPI figures, and
the Ukrainian Hryvnia remained stable against a strengthening US
Dollar in the first half of the year. These factors contributed to
an increase in C1 cash costs to US$60.4 per tonne compared to
US$48.2 per tonne for 1H 2011 and an average annual cost of US$50.7
per tonne for 2011. The recent fall in oil prices is expected to
benefit the cost base in the second half of the year, as would any
Ukrainian Hryvnia devaluation against the US Dollar.
The combined factors of reduced selling prices and increased C1
cash costs led to lower EBITDA of US$240 million (1H 2011: US$401
million); Group profit after tax decreased by 50% to US$145.6
million (1H 2011: US$294 million). Operating cash flow after
interest and tax was US$70 million (1H 2011: US$324 million).
Capital expenditure amounted to US$222 million (1H 2011: US$121
million) (see Capital Investment below).
At the period end, Ferrexpo had gross debt and committed undrawn
facilities of US$1,038 million, with an average maturity of 3.5
years and cash balances of US$716 million.
The Group's policy is to pay a modest but consistent dividend
throughout the economic cycle and return capital to shareholders
when appropriate, while maintaining adequate liquidity to develop
its significant project pipeline. The key projects, and increased
working capital requirements resulting from an increase in the
overdue VAT balances, continue to absorb the cash from operations.
The Directors recommend an interim dividend of 3.3 US cents per
Ordinary Share for payment on 21 September 2012 to shareholders on
the register at the close of business on 31 August 2012. The
ex-dividend date will be 29 August 2012. The dividend will be paid
in UK Pounds Sterling, with an election to receive US Dollars.
Health and Safety
The Group continues to improve its safety standards. In the
first six months of the year, there were no fatalities and the
lost-time injury rate fell to 0.55 per million man hours from 1.1
in 1H 2011 (FY 2011: 0.77).
Principal Risks
Given the structure of the business with operating assets in
Ukraine, which is an emerging democracy, Ferrexpo considers that
its interests may suffer if the domestic situation develops in ways
that are unhelpful to business and discourage investment. This
risk, however, is one that is commonly faced by all mining
companies in emerging markets, and the Board believes that Ferrexpo
has the expertise to manage it satisfactorily.
The Group faces an on-going legal claim over a shareholding in
Ferrexpo Poltava Mining. The case has been running for more than
six years in Ukraine, and the Directors believe it still has some
way to run. The Board continues to receive legal advice that the
case against Ferrexpo has little legal merit under Ukrainian law
for legal, technical and practical reasons.
Market Environment
In 2011, iron ore prices reached near-record levels, driven by
strong growth in steel production (especially in China, which saw
an increase of 56 million tonnes of steel output) and by the
continued delay in new iron ore projects bringing volume to the
global market, before steel production fell back later in the year.
The iron ore CFR China index price ranged from US$193 per tonne to
US$117 per tonne in 2011.
In 1H 2012, iron ore prices recovered from the October 2011 low
point with the highest index price for China CFR fines in the first
six months reported to be US$151 per tonne and the lowest price
US$132 per tonne. Since 30 June 2012, the index price for iron ore
has fallen further and was US$118 per tonne at the end of July due
to continued negative economic sentiment in Europe and concerns
around decelerating Chinese steel production.
There are a number of iron ore expansion projects, including
Ferrexpo's own FYM, expected to deliver first ore over the next two
to three years. It is Ferrexpo's view that additional lower-cost
supply will compete with and gradually replace some of the
high-cost Chinese iron ore production. As a low-cost producer of
high-quality pellets, Ferrexpo is well positioned to meet this
challenge. It has logistical advantages over most other
international pellet producers and benefits from existing long-term
relationships with its customers.
So far this year there has been a tempering of growth in global
steel production, coupled with additional iron ore supply in the
market. Even so, Ferrexpo has enjoyed solid demand for pellets at
prices that are down only 12% as compared to a 20% fall in market
prices in the same period. Although these dynamics will tend
towards a moderation of iron ore prices for the remainder of the
year, the Group's opinion is that continued growth in developing
economies, delays in further new iron ore projects and the
relatively high cost of production in China should underpin
pricing.
Customers
Ferrexpo continues to develop its customer base to ensure that
it has a portfolio of contracts with world-class customers. In 1H
2012 it made further progress towards achieving its primary
marketing objectives, which are to:
> consolidate index-linked pricing to long-term customers, in
line with the leading iron ore producers;
> capitalise on its geographic proximity to major steel
markets by using its logistical advantages; and
> strengthen and diversify its customer base.
In the first half, around 50% of Ferrexpo's products were
delivered to customers by logistics systems under its own control,
and the Group was able to mitigate the effect of the reduced market
prices by achieving lower freight rates for seaborne markets and
improving the performance of its own transport infrastructure. As a
result it was able to enhance its realised prices compared to the
movement in the international iron ore price index.
Production
In 1H 2012 Ferrexpo produced 4.7 million tonnes of pellets, (1H
2011: 4.8 million tonnes), of which 4.6 million tonnes were
produced from own ore (1H 2011: 4.4 million tonnes). Of the output
from own ore, 2.1 million tonnes of pellets were 65% Fe, in line
with 1H 2011.
The Group's objective is to produce 100% of its pellet output
with a grade of 65% Fe by 2015, so as to maximise revenue and
profitability. The growth projects designed to achieve this are
progressing well and should be completed by the end of 2014.
Costs
The mining industry as a whole has faced rising costs as a
result of increasing commodity prices, high demand for labour and
other resources and strong local currencies, particularly those
traditionally linked to commodities. As previously reported, in 1Q
2012 average C1 cash costs increased to US$59.4 per tonne which was
17% higher than the average C1 cash cost of production in 2011.
This rate of increase moderated in the second quarter, as a result
of which the average C1 cash cost of production for 1H 2012 was
US$60.4 per tonne (1H 2011: US$48.2 per tonne). Of this increase,
44% can be attributed to energy costs.
The Ukrainian Hryvnia has remained stable against the US Dollar
during the period.
The Group continues to manage its cost base through its Business
Improvement Programme, which has been running for six years and has
achieved cumulative cost savings of US$6.8 per tonne since
implementation.
Capital Investment
The Kremenchug Magnetic Anomaly, across which Ferrexpo holds its
exclusive licences, is one of the largest iron ore reserves in the
world and comprises approximately 20 billion tonnes of resources
with an average iron content of 30%. These are contained in a
single 50-kilometre long strike divided into 10 deposits, of which
three are currently being exploited: Gorishne-Plavninskoye and
Lavrikovskoye ('FPM') and Yeristovskoye ('FYM'). Ferrexpo continues
to develop this large resource base to increase output, so as to
underpin future profit and earnings growth.
Ferrexpo has four major growth projects under way, all of which
are progressing well. These projects will expand production to 12
million tonnes per annum from early 2014. In 1H 2012 sustaining and
modernisation capital expenditure at FPM was US$57 million which
included US$7 million spent on the capacity upgrade project. A
further US$19 million was invested in the quality upgrade and US$21
million in the mine life extension. At FYM US$65 million was spent
on the development of the mine.
In addition, during the period the Group invested a further
US$33 million in logistics and infrastructure, mainly rail cars to
reduce cost and improve reliability of delivery to customers, and
US$27 million on developing other deposits. Each of the projects
and other capital investments are reviewed in detail in the Review
of Operations.
Financial Management
The Group has US$1,038 million of drawn and undrawn committed
debt facilities, including a US$500 million Eurobond maturing in
April 2016 and a five-year fully drawn US$420 million revolving
debt facility expiring in August 2016. The Group has minimal debt
repayments of around US$5 million for the remainder of 2012 and
US$10 million for 2013.
The Group has also secured financing under various import and
export credit guarantees, amounting to US$69 million, to fund the
major expansion projects. Of these, US$64 million has been
guaranteed by Export Import Bank of the United States and US$5
million by Hermes Kreditversicherungs-AG of Germany. There are
currently projects under way which are expected to incorporate
guarantees from other European and Asian credit agencies. Overall
the Group is well funded and the new export credit guaranteed debt
facilities have been obtained at favourable rates.
At 30 June 2012, US$966 million had been drawn down and US$72
million remained undrawn. The Group held US$716 million in cash,
compared with US$890 million at 31 December 2011. Of the Group's
cash, US$614 million was placed with various international
financial institutions with a minimum A credit rating, and US$102
million was held within Ukraine to fund immediate operational
needs.
Cash Flow
The Group continues to manage its liquidity, applying cash
generated from operations and from debt facilities to invest in
projects to expand production. During 1H 2012, before working
capital and expansionary capital expenditure, and after interest
payments (net operating cash flow), the Group generated US$70
million of cash flow. Total investment in projects amounted to
US$222 million.
As at 30 June 2012, total Ukrainian VAT owed to the Group
amounted to UAH1,850 million (US$231 million), including overdue
VAT of US$103 million. Total Ukrainian VAT owed increased by US$60
million compared to December 2011; against which a provision of
US$13 million has been made due to the late repayment and
associated cost of finance incurred by the Group. Overall VAT
contributed to an increase in net debt of US$171 million to US$251
million in the first half of 2012. The Group continues to work with
the relevant authorities to resolve this position.
Strategy
The Group's strategy is to continue to develop its large
resource base to increase output and underpin future profit and
earnings growth. In its 2011 Annual Report, the Group outlined its
priorities for achieving sustained growth and long-term shareholder
value and will continue to explore ways to enhance returns on
investment.
In the period under review Ferrexpo made good progress towards
achieving this, through investment in the existing Poltava mine and
in the Yeristovskoye deposit. The continuing fall in the accident
rate reflects management's progress as it continues to improve
safety across the Group.
Work to increase the quality of production output at the
existing operations continues. While external factors put costs
under pressure, Ferrexpo is committed to being in the lowest
quartile of the global pellet cost curve and to enhancing
efficiency through its Business Improvement Programme.
Customer service and reliability have been enhanced through the
acquisition of 600 rail cars in 1H 2012 as well as further
investment in the barge operations on the Danube. The port
operation at Yuzhny on the Black Sea is working well and Ferrexpo
will soon receive delivery of its own top-off vessel, which will
reduce costs and expedite loading of Capesize vessels at Yuzhny.
The Group is making good progress in developing its customer base,
and in 1H 2012 shipped three trial deliveries to potential new
customers in Natural and Growth markets.
Ferrexpo's low balance sheet gearing and cash mean that it has
sufficient resources to complete its growth projects, which will
ensure long-term value generation for shareholders.
Corporate Governance
The Board is fully compliant with the UK Corporate Governance
Code 2010 and remains committed to maintaining high standards of
governance throughout the Group.
People
Ferrexpo employs over 9,000 people, the vast majority working at
the Group's main operations in Ukraine. It also has logistics
operations, marketing and administrative offices around the world,
located close to its customer base. It is to the credit of
Ferrexpo's employees that they have maintained Ferrexpo's position
as a leading exporter of iron ore pellets through attention to
operational excellence and dedication to the task at hand, during
turbulent times. The Board would like to thank all of them for
their personal contribution to Ferrexpo's success.
Outlook
The Group continues on track with its growth projects and is
well placed to benefit from its significant investment over the
past five years. While the market outlook has deteriorated recently
and remains volatile, medium-term iron ore pricing should remain
underpinned by growth in developing markets. In line with its
stated strategy, Ferrexpo will continue to exploit its substantial
reserves to create sustainable value for shareholders.
Michael Abrahams CBE DL Kostyantin Zhevago
Chairman Chief Executive Officer
Review of Operations
Ferrexpo JORC resources:
As of 30 June 2012
Reserves Resources(1)
---------------------- --------------------- ---------------------------------------
Proved Measured FE Grade
& Probable FE Grade & Indicated (total) Inferred Total
(mt) % (mt) % (mt) %
---------------------- ----------- -------- ------------ -------- -------- -----
Gorishne-Plavninskoye
& Lavrikovskoye 844 30 2,125 30 1,449 31
---------------------- ----------- -------- ------------ -------- -------- -----
Yeristovskoye 632 34 828 34 364 30
---------------------- ----------- -------- ------------ -------- -------- -----
Belanovskoye - - 1,485 31 217 30
---------------------- ----------- -------- ------------ -------- -------- -----
Galeshchinskoye - - 268 55 58 55
---------------------- ----------- -------- ------------ -------- -------- -----
Total 1,476 32 4,706 32 2,088 31
---------------------- ----------- -------- ------------ -------- -------- -----
Note: Five further deposits are estimated to contain resources
of over 14.2bt according to the former Soviet Union ('FSU')
classification code. Ferrexpo is currently working together with
international consultants to convert these resources to the
universally accepted Australasian Joint Ore Reserves Committee
('JORC') standards. These deposits are collectively known as the
'Northern Deposits' and are classified under the names
Manuilovskoye, Vasilievskoye, Kharchenkovskoye, Zarudenskoye and
Brovarkovskoye.
(1) Resources include 1,476mt of reserves.
Ferrexpo Poltava Mining (FPM)
FPM (the Group's current operating asset) has been in operation
for more than 30 years, producing around 9.2 million tonnes of iron
ore pellets from own ore per annum, which is expected to grow to 12
million tonnes per annum once the Group's expansion plans are
completed in 2014. The mining and processing division, consisting
of crushing, concentrating and pelletising facilities, exploits the
Gorishne-Plavninskoye and Lavrikovskoye ('GPL') deposit. This is
located immediately adjacent to Ferrexpo's rail and port facilities
on the Dnieper River. The FPM mine is open cut. Following
completion of the mine life extension project, the mine is expected
to operate until around 2038.
FPM produced 4.6 million tonnes of pellets from own ore in the
first half of the year (1H 2011: 4.4 million tonnes), an increase
of 4%. Production of 65% Fe pellets from own ore remained constant
at 2.1 million tonnes.
The FPM mine is operating at full capacity, mining approximately
30 million tonnes of crude ore per annum. This is processed into
around 9.2 million tonnes of iron ore pellets, depending on ore
grade, with an average iron content of 63.5%. FPM's pelletising
facility has an installed production capacity of around 12 million
tonnes of pellets per annum. In order to use surplus pelletising
capacity the Group will purchase, depending on availability and
price, third party concentrate from which FPM produced 0.2 million
tonnes of pellets in 1H 2012 (1H 2011: 0.4 million tonnes).
The table below highlights FPM's production statistics.
6 months 6 months
Production in tonnes '000 to 30.06.12 to 30.06.11 Change
---------------------------------- ------------ ------------ -------
Iron ore mined 14,976.8 14,198.2 5.5%
---------------------------------- ------------ ------------ -------
Concentrate produced ('WMS') 5,739.9 5,574.7 3.0%
Pellets produced from own ore
Higher grade average Fe content
65% 2,133.6 2,139.4 -0.3%
Lower grade average Fe content
62% 2,429.3 2,254.8 7.7%
---------------------------------- ------------ ------------ -------
Total pellets 4,562.9 4,394.1 3.8%
---------------------------------- ------------ ------------ -------
Production/reprocessing from
purchased raw materials
Higher grade average Fe content
65% 55.8 301.1 -81.5%
Lower grade average Fe content
62% 106.2 89.7 18.5%
---------------------------------- ------------ ------------ -------
Total pellets 162.0 390.8 -58.5%
---------------------------------- ------------ ------------ -------
Higher grade average Fe content
65% 2,189.4 2,440.5 -10.3%
Lower grade average Fe content
62% 2,535.5 2,344.4 8.2%
---------------------------------- ------------ ------------ -------
Total pellet production 4,724.9 4,784.9 -1.3%
---------------------------------- ------------ ------------ -------
Pellet sales volume 4,485.8 4,739.0 -5.4%
---------------------------------- ------------ ------------ -------
Gravel output 1,462.0 1,376.0 6.3%
---------------------------------- ------------ ------------ -------
Stripping volume 13,645.0 13,830.0 -1.3%
---------------------------------- ------------ ------------ -------
FPM Business Improvement Programme ('BIP')
FPM is reducing costs through its BIP, which has created
cumulative savings of US$6.8 per tonne in cash costs since 2005,
principally by reducing the input of key raw materials and energy
per unit of pellets produced, but also by reducing indirect costs.
In 1H 2012, 38 projects were initiated, which will reduce costs by
US$5.8 million on an annualised basis, in line with Ferrexpo's goal
of 1%-2% cost savings per annum. Projects in progress include:
> modernising the pit dewatering system, which will reduce power consumption;
> improving the truck maintenance programme, which will increase the availability of the fleet;
> modernising the explosives power-driven process which will
reduce the consumption of explosives and improve the quality of
blasting operations; and
> replacing the gas burner units in the rotary kilns, which
will reduce power consumption and optimise the fuel burning
process.
FPM Capital Expenditure
Sustaining Capital Expenditure
Ferrexpo continues to invest in maintaining, modernising and
upgrading FPM's mining and processing facilities to increase
operating efficiency and reduce costs. In addition, there are a
number of projects under way to upgrade FPM's facilities so as to
establish a processing capability of 35 million tonnes of crude ore
per annum. Following the completion of this programme, FPM will be
able to process ore from the FYM mine to increase overall pellet
output to a targeted 12 million tonnes in 2014.
US$21 million has been spent to date on the upgrade of the
processing facilities, including US$7 million so far this year (1H
2011: US$7 million). The engineering work started in 2010 has to
date involved the modernisation of certain ore beneficiation
sections to increase processing output, reduce energy consumption
and significantly improve process control. This is a rolling
programme which will be extended to cover the majority of the iron
ore beneficiation sections by 2014 when it is planned that the
increased capacity will be achieved.
Other sustaining capital expenditure for 1H 2012 was US$50
million (1H 2011: US$56 million), which included new mining
equipment and replacement plant.
Development Capital Expenditure
Quality Upgrade Project
This project, which received Board approval at the end of 2010,
will increase the iron ore content of all Ferrexpo's pellets to 65%
Fe. The project involves the installation of vertical mills for
further fine grinding of the ore (to increase the overall iron ore
content in the Group's pellet output) as well as upgrades to the
beneficiation plant, including the installation of new flotation
cells thus recovering more iron ore and improving yield. The
vertical mills have been ordered along with the flotation tanks and
associated equipment. Eight out of the 10 vertical mills will be
delivered in September 2012 with the final two to be delivered in
2013.
The project is on schedule for commissioning by the end of 2014.
To date US$22 million has been spent on this project, including
US$19 million in 1H 2012 (1H 2011: US$1 million). Total outstanding
commitments at the half year end in respect of this project are
US$51 million.
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. The
mine life extension project involves new mining works to access
additional iron-rich ore by 2014 and to extend the mine life to
2038. The project began in 2011 and is scheduled to be completed by
the end of 2018. Expenditure to date is US$61 million, including
US$21 million in 1H 2012.
In 1H 2012 approximately 7 million cubic metres (1H 2011: 7
million cubic metres) of overburden were removed in line with
budget.
Ferrexpo Yeristovo Mining ('FYM')
Development Capital Expenditure
Phase 1 - Crude Ore
In 1H 2012, first ore at FYM was reached and 37 million cubic
metres of overburden was removed, some 87% of the total. Commercial
production is expected to start in 2013. Under the current plan,
the mine will initially deliver primary crushed ore to the FPM
processing facilities, enabling FPM to use its free processing
capacity and increase production to 12 million tonnes per annum in
2014.
New equipment due to arrive on site at FYM in 2012 include a CAT
grader, CAT 944 front end loader, the largest of its kind in
Ukraine, and FYM's first large blast drill. In May 2012 a new CAT
6060 shovel and five more CAT 793D haul trucks went into operation.
The shovel is the first and largest of its kind to be in operation
at the Ferrexpo sites and can excavate 15 million tonnes of
material per year. The works on the permanent mine infrastructure
are progressing to plan, with the truck wash building complete and
further buildings in the course of construction.
Capital expenditure for the period was US$65 million (1H 2011:
US$31 million).
Phase 2 - Concentrator Facility
FYM's development plans involve building a new concentrator
facility in order to process the additional crude ore from the FYM
mine which, once fully operational, is expected to produce
approximately 28 million tonnes of ore per annum. FYM is finalising
detailed engineering design for the concentrator, following
international best practice, in compliance with local design
institute requirements. The Board will consider the plans later in
the year.
Phase 3 - Pelletising Facility
In line with Ferrexpo's strategy and depending on market
conditions, the third phase of the project will be initiated to
construct a 10 million tonne per annum pelletiser. This will be
built in the most economically favourable location.
Ferrexpo Belanovo Mining ('FBM')
The Belanovskoye deposit has total JORC resources of 1,702
million tonnes. Drilling works and site preparation activities
continue. During the period the Group spent US$27 million (1H 2011:
US$1 million) for access and infrastructure. A new CAT RH340
hydraulic face shovel and five CAT 793D haul trucks have been
ordered and are scheduled for delivery in 2H 2012 in order to begin
stripping works. This equipment is similar to that used at FPM and
FYM.
Health and Safety
The Board's Corporate Safety and Social Responsibility Committee
monitors the management of the Group's health, safety,
environmental and community programmes on a regular basis, in line
with industry wide best practice for mining companies. Safety is
fundamental to Ferrexpo's success and integral to its culture.
Ferrexpo is pleased to report that the lost-time injury rate has
declined by 50% compared to the first half of 2011, to 0.55 per
million man hours worked.
Marketing
Iron Ore Pricing
Following the trend of other mature traded commodities and asset
classes, iron ore pricing is evolving as mechanisms are growing
more sophisticated. The first iron ore trading platforms are now
operational, backed by major Chinese steel makers and the major
iron ore producers.
In 1H 2012, Ferrexpo developed its markets, customer
relationships and pricing mechanisms moving its contract pricing
further towards index-linked and spot pricing. As a result of this,
in 1H 2012 only 40% of its sales volumes were priced under the old
quarterly negotiated fixed price contracts as compared to 74% in 1H
2011. The Group is working with its customers to move further
towards index-linked pricing in line with the international market,
but in the interim, periodic negotiations continue with contracts
that remain under the old pricing basis using international pricing
trends as a guide.
Market Segments
Ferrexpo has identified three core market segments:
Traditional(1) , Natural(2) and Growth(3) markets. As its
production capacity expands, the Group expects that sales to its
Traditional markets will remain constant at around five million
tonnes per annum. This is despite expectations of lower economic
growth and subdued steel output in these markets. In anticipation
of such limitations in Traditional markets, in 2011-2012, Ferrexpo
increased its sales volumes to Growth markets and substantially
reduced its exposure to the Serbian steel market. Volume sold on
spot basis has risen during the transition to increase
diversification and index pricing, however, this should return to
target levels with the signing of new long term contracts over the
next 12 months.
Ferrexpo's sales volumes to its Natural and Growth markets
remain robust, and it has secured two new long-term contracts in
China and Turkey. As production volumes increase, the Group expects
to see further growth in these markets.
As a result of this customer diversification, in 1H 2012, some
53% of sales volumes (1H 2011: 61%) were to Traditional, 7% to
Natural (1H 2011: 3%) and 40% to Growth (1H 2011: 36%) markets. (1)
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. (2) 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. (3) Growth markets: these are predominantly
in Asia and have the potential to deliver new and significant sales
volumes to the Group.
Logistics
Ferrexpo is located centrally in Ukraine on both rail and river
networks and continues to build its logistics infrastructure,
comprising rail cars, river barges and port facilities on the Black
Sea. This will enable it to deliver its products reliably
throughout the world. It is Ferrexpo's strategy to develop its
logistics capabilities where appropriate, either through ownership
of assets or through longer-term contracts with reliable
counterparties.
A review of the main logistics activities for 1H 2012 is
below:
Rail Transportation
Ferrexpo transports the vast majority of its products to the
Ukrainian border by rail, and has in recent years extended its own
fleet of rail cars with the aim of becoming self-sufficient at
times of high demand.
Ferrexpo currently owns 1,645 rail cars and has placed orders to
bring its total fleet to 1,933 units. Following shareholder
approval obtained at the 2012 Annual General Meeting, Ferrexpo has
an option to purchase up to a further 500 rail cars from its
historic supplier, an option which has not yet been exercised.
In 1H 2012 Ferrexpo transported a total of 3,107 thousand tonnes
of product to various destinations using own rail cars, including
126 thousand tonnes of third party concentrate and supplies for the
production process. The number of rail cars ultimately needed to
achieve self-sufficiency will depend on the level of peak monthly
shipments, the mix of destinations and the amount of other
materials transported (such as third party concentrate). Ferrexpo
aims to balance these requirements as it increases its rail fleet
in order to ensure an optimum balance between the size of the fleet
and transport capability and capital employed.
At present, a quarter of the Group's pellets are transported by
rail to the western Ukrainian border for customers in Central and
Western Europe. The remaining pellets are transported by rail or
barge to the Group's port terminal in Yuzhny on the Black Sea, from
where the product is shipped to overseas markets around the
world.
River Barging
Ferrexpo is able to deliver product to the port of Reni and
Izmail by barge along the River Dnieper which is adjacent to the
processing facility and in 1H 2012 shipped 150 thousand tonnes of
product in this way to the Ukrainian border. Following transhipment
these pellets can be transported via the Danube into Central and
Western Europe using its wholly-owned barging company. In 1H 2012
this subsidiary transported 477 thousand tonnes of pellets to
customers along the Danube either directly from Ukrainian river
ports or via Constanza in Romania. It operated profitably in the
first half of the year.
Logistics Capital Investment
In 1H 2012, Ferrexpo invested US$33 million in its logistics
infrastructure (1H 2011: US$12 million), of which US$25 million was
invested in its rail car fleet and US$2 million in its barging
operations.
Port Activities
Ferrexpo owns 49% of the TIS Ruda port at Yuzhny on the Black
Sea and has a guaranteed capacity at this ocean port terminal of
five million tonnes per annum. In 1H 2012, the Group loaded eight
Capesize vessels compared to nine for the full year 2011. It is
benefiting from the low freight rates achieved last year and
expects to see further freight cost reductions in the second half
of 2012.
Ferrexpo has invested US$6.3 million in the first half of the
year in a top-loading vessel, which is expected to come in to
operation in the fourth quarter. This will enable Ferrexpo to load
Capesize vessels using its own facilities further reducing shipping
costs.
In 1H 2012, the proportion of sales controlled by Ferrexpo along
the supply chain, including sales on CFR or similar basis and
pellets transported using its own barges on the Danube, was 50% of
sales (50% in 1H 2011).
Financial Review
Summary Financial Results
US$ million unless otherwise Six months Six months
stated to 30.06.12 to 30.06.11 Change
----------------------------- ------------ ------------ ------
Revenue 731.3 854.9 -15%
EBITDA(1) 240.3 400.8 -40%
As % of revenue 33% 47% -
Profit before taxation 169.3 352.0 -52%
Income tax -23.7 -58.1 -59%
Profit for the period 145.6 293.9 -50%
Diluted earnings per share
(US cents) 24.73 49.73 -50%
Final dividend per share
(US cents) 3.3 3.3 -
----------------------------- ------------ ------------ ------
(1) 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.
Revenue
Total revenue decreased by 15% to US$731.3 million for 1H 2012
(1H 2011: US$854.9 million) as a result of lower prices and
marginally lower sales volumes of 4.5 million tonnes compared to
4.7 million tonnes in 1H 2011.
The average realised price achieved by the Group for its pellets
fell by 12% during the period, reflecting the 20% decrease in
international prices offset partly by lower freight rates to
seaborne markets and improved performance of logistics
infrastructure.
Revenue from other sales amounted to US$45.7 million (1H 2011:
US$43.5 million). This included revenue from third party services,
such as bunker fuel sales, at the Group's barging operations
(acquired in December 2010) as well as sales of gravel.
Cost of Sales
Total cost of sales for 1H 2012 including purchased third party
concentrate increased 7% to US$323.3 million compared to the same
period last year (1H 2011: US$302.1 million). Cost of sales
includes the C1 cash cost of production from own ore which is
analysed in the table below.
Six months to Six months to
C1 Cash Costs 30.06.12 30.06.11
----------------------------- ----------------- -----------------
US$ million unless otherwise
stated % of total % of total
----------------------------- ----- ---------- ----- ----------
Electricity 70.2 25 56.6 27
Gas 39.2 14 26.3 12
Fuel 26.9 10 21.2 10
Grinding media 21.7 8 19.8 9
Explosives 8.2 3 5.5 3
Other materials 27.7 10 18.2 9
Spare parts, maintenance
and consumables 45.8 16 34.7 16
Personnel costs 31.9 12 25.7 12
Royalties and levies 4.4 2 3.8 2
----------------------------- ----- ---------- ----- ----------
C1 cost of sales 276.0 211.8
C1 cost per tonne 60.4 48.2
----------------------------- ----- ---------- ----- ----------
C1 costs increased by 25% to US$60.4 per tonne compared to the
same period in 2011, principally as a result of higher Ukraine
energy tariffs and domestic inflation. In the first half of 2012,
gas and electricity prices were 43% and 21% higher respectively
than in 1H 2011. The cost of diesel fuel was 9% higher.
Personnel, repair and maintenance, and costs of other materials
were affected by local CPI inflation. These expenses are
principally denominated in local currency. On average Ukrainian
producer price inflation was approximately 7% in 1H 2012(1) .
(1) Average of January to June 2012, compared with average
January to June 2011.
Over half the C1 cash costs are denominated in Ukrainian
Hryvnia, which remained broadly stable in the first half of 2012,
compared to 1H 2011, at around UAH8.0 to the US Dollar.
In 1Q 2012 average C1 cash costs increased to US$59.4 per tonne
which was 17% higher than the average C1 cash cost of production in
2011. This rate of increase moderated in the second quarter and it
is expected that the Group will benefit from the recent fall in oil
prices in the second half of the year, as would any Ukrainian
Hryvnia devaluation against the US Dollar.
Non C1 Cost of Sales
Other cost of sales amounted to US$47.5 million for the period
(1H 2011: US$90.3 million), the reduction resulting from lower
tonnages of purchased concentrate.
Gross Margin
As a result of the factors discussed above, the Group's gross
margin was 56% in 1H 2012, down from 65%.
Selling and Distribution Expenses
Selling and distribution expenses were US$155.0 million for the
first half compared to US$146.2 million in 1H 2011.
Selling and distribution costs to the Ukrainian border increased
by US$8.3 million to US$73.9 million in the period (1H 2011:
US$65.5 million), equating to US$16.5 per tonne (1H 2011: US$13.8
per tonne). These costs primarily include railway freight to the
southern ports at Yuzhny and Izmail and to the western Ukrainian
border as well as port charges.
Tariffs for the provision of rail cars increased on average by
35% as compared to 1H 2011, this was partially offset by a discount
for volumes transported using the Group's own rail cars which
amounted to US$3.9 million.
Beyond the Ukrainian border international freight costs to
Growth markets amounted to US$56.0 million (1H 2011: US$53.3
million). These costs relate to the shipping of pellets by ocean
vessel to customers in Asia (on a CIF(2) or CFR(3) basis), and by
barge to customers in Serbia (on a DAP(4) basis). During 1H 2012,
Ferrexpo loaded eight Capesize vessels compared to nine for the
full year 2011, benefiting from lower freight rates as compared to
Panamax vessels.
(2) CIF is defined as delivery including cost, insurance and
freight.
(3) CFR is defined as delivery including cost and freight.
(4) DAP is defined as delivery at place.
EBITDA
EBITDA decreased by 40% to US$240.3 million for the year
compared to US$400.7 million for 1H 2011. The decrease was mainly
due to a reduction in the DAP/FOB sales price along with increased
costs. The EBITDA margin was 33% (1H 2011: 47%).
Finance Income and Expense
Finance income was US$1.4 million (1H 2011: US$1.4 million).
Income from interest earned was US$1.4 million (1H 2011: US$1.1
million). This was due to higher average cash balances in 2012 of
US$803.0 million compared to US$632.3 million in 1H 2011.
Finance expenses increased to US$46.1 million (1H 2011: US$35.1
million) due to a provision of US$13.2 million recorded against the
outstanding Ukrainian VAT balance. This reflects the estimated time
value of money on the outstanding balance, which may not be
recovered within one year of the period end. The charges on the
Group's finance facilities decreased by US$2.2 million. The average
gross debt for the period was US$968.6 million (1H 2011: US$643.3
million).
Foreign Exchange Gains and Losses
During the period, the Ukrainian Hryvnia was broadly stable
against the US Dollar, recording an average rate of UAH7.988 (1H
2011: UAH7.958). As a result, minimal operating foreign exchange
losses of US$0.5 million were recorded (1H 2011: loss of US$0.6
million).
Non-operating foreign exchange gains for the period were US$0.3
million compared to a US$5.4 million gain in 1H 2011.
Income Tax Expense
Profit before tax was US$169.3 million for 1H 2012 compared with
US$352.0 million for 1H 2011. The effective income tax rate for the
period was 14% compared with 17% for the equivalent period in 2011.
The decrease in the tax rate in 1H 2012 resulted from a change in
the mix of profits arising in the various jurisdictions in which
the Group operates.
Summary of Group Liquidity and Debt
Six months Six months
US$ million to 30.06.12 to 30.06.11
---------------------------- ------------ ------------
Cash and cash equivalents 715.9 945.1
Gross debt 966.4 919.8
(Net debt)/Net funds
position (250.5) 25.3
Total equity 1,519.1 1,133.7
Undrawn facilities 72.0 50.0
Total liquidity (facilities
plus cash) 787.9 995.1
---------------------------- ------------ ------------
The Group is securely financed, with gross debt and committed
undrawn facilities of US$1,038.4 million, representing 68% of
shareholders' equity. Of this amount US$500 million is a five-year
Eurobond maturing in 2016 and US$420 million is represented by a
revolving pre-export finance facility, available for 60 months
including a straight line amortisation over the final 24 months.
The maturity date is 31 August 2016.
Tied financing has become an increasingly important part of the
funding structure of the Group, and Ferrexpo is working together
with Export Credit Agencies around the world to fund its
development projects. These facilities are typically at competitive
rates and of long tenor. This allows the funding which is already
in place to be preserved adding financial flexibility. As at 30
June 2012, a total of US$82.5 million had been raised under these
government-backed schemes with more in progress. This has proved a
successful way to raise finance while preserving Group headroom,
and will continue to be used by the Group in future.
As at 30 June 2012, gross facilities of US$1,038.4 million
included US$966.4 million that had been drawn and cash in hand
amounting to US$715.9 million. The net debt of the Group was
US$250.5 million.
Cash Flows
Net cash flow from operating activities was US$63.1 million (1H
2011: US$324.2 million)
Working capital increased by US$69.7 million, reflecting a
higher VAT receivable balance in Ukraine. Total capital investment
for 1H 2012 was US$222.0 million compared to US$120.6 million for
1H 2011.
Sustaining and modernisation capital investment was US$59.6
million (1H 2011: US$59.9 million) for the Group, of which US$57.4
million was invested at FPM (1H 2011: US$56.6 million). The
remaining was US$2.1 million invested in the Group's barge fleet. A
further US$39.7 million (1H 2011: US$20.4 million) was invested in
FPM's development projects and capital expenditure at FYM was
US$65.1 million (1H 2011: US$31.0 million).
In 1H 2012 US$26.6 million was spent on the Belanovoskoye and
other deposits (H1 2011: US$1.2 million). This was for new mining
equipment, drilling works and site preparation activities.
Capital investment in logistics was US$31.0 million in 1H 2012
(1H 2011: US$8.1 million), which was primarily related to the
acquisition of rail cars.
VAT
In 1H 2012, the amount of VAT, net of provision, owed to the
Group increased by US$49.8 million mainly due to a delay in
repayment by the Ukraine tax authorities of outstanding amounts
from 2010, 2011 and 2012. As a result, although the majority of
this VAT is immediately due, it is expected that a large proportion
will only be recovered after a significant delay. Therefore, in
accordance with accounting standards, a provision of US$13.2
million has been made to reflect the financing costs associated
with recovery after one year. Costs associated with late recovery
within the year have not been provided for. Overall, it is
estimated that US$79.8 million of the Ukrainian VAT owed, net of
this provision, will remain outstanding more than one year after
the reporting date. Management expects the full gross balance in
local currency to be recovered in due course. Full details on
Ukrainian VAT receivable are disclosed in note 12 to the
accounts.
Directors' Responsibility Statement
The Interim Report complies with the Disclosure and Transparency
Rules ('DTR') of the United Kingdom's Financial Services Authority
in respect of the requirement to produce a half-yearly financial
report. The Interim Report is the responsibility of, and has been
approved by, the Directors.
We confirm that to the best of our knowledge:
> the condensed set of financial statements has been prepared in accordance with IAS 34;
> the Interim Management Report includes a fair review of the
important events during the first six months and description of the
principal risks and uncertainties for the remaining six months of
the year, as required by DTR4.2.7R; and
> the Interim Management Report includes a fair review of
disclosure of related party transactions and changes therein, as
required by DTR 4.2.8R.
The Directors are also responsible for the maintenance and
integrity of the Ferrexpo plc website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
For and on behalf of the Board
Michael Abrahams CBE DL
Chairman
Chris Mawe
Chief Financial Officer
Interim Consolidated Income Statement
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 Notes (unaudited) (unaudited) (audited)
------------------------------------------------------------------ ----- ----------- ----------- ---------
Revenue 4 731,255 854,864 1,788,012
Cost of sales 3/5 (323,277) (302,115) (649,544)
------------------------------------------------------------------ ----- ----------- ----------- ---------
Gross profit 407,978 552,749 1,138,468
------------------------------------------------------------------ ----- ----------- ----------- ---------
Selling and distribution expenses 6 (154,967) (146,176) (317,951)
General and administrative expenses 7 (29,301) (25,479) (51,969)
Other income 5,231 735 6,943
Other expenses (13,551) (2,358) (17,091)
Operating foreign exchange losses 8 (465) (567) (1,360)
------------------------------------------------------------------ ----- ----------- ----------- ---------
Operating profit from continuing operations before adjusted items 214,925 378,904 757,040
------------------------------------------------------------------ ----- ----------- ----------- ---------
Write-offs and impairment losses 9 (518) (198) (478)
Share of profit from associates 424 1,700 2,012
Losses on disposal of property, plant and equipment (1,166) (150) (46)
------------------------------------------------------------------ ----- ----------- ----------- ---------
Profit before tax and finance 213,665 380,256 758,528
------------------------------------------------------------------ ----- ----------- ----------- ---------
Finance income 1,465 1,401 2,511
Finance expense (46,089) (35,073) (68,205)
Non-operating foreign exchange gains/(losses) 8 306 5,427 (1,934)
------------------------------------------------------------------ ----- ----------- ----------- ---------
Profit before tax 169,347 352,011 690,900
------------------------------------------------------------------ ----- ----------- ----------- ---------
Income tax expense (23,709) (58,082) (115,964)
------------------------------------------------------------------ ----- ----------- ----------- ---------
Profit for the period/year 145,638 293,929 574,936
------------------------------------------------------------------ ----- ----------- ----------- ---------
Attributable to:
Equity shareholders of Ferrexpo plc 144,808 291,122 567,822
Non-controlling interests 830 2,807 7,114
------------------------------------------------------------------ ----- ----------- ----------- ---------
145,638 293,929 574,936
------------------------------------------------------------------ ----- ----------- ----------- ---------
Earnings per share:
Basic (US cents) 10 24.76 49.80 97.09
Diluted (US cents) 10 24.73 49.73 96.67
------------------------------------------------------------------ ----- ----------- ----------- ---------
Interim Consolidated Statement of Comprehensive Income
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
----------------------------------------------------------- ----------- ----------- ---------
Profit for the period/year 145,638 293,929 574,936
Exchange differences on translating foreign operations (404) (1,373) (3,024)
Income tax effect - - -
Exchange differences on hedging of foreign operations (406) (212) (894)
Income tax effect 61 35 153
Net gains/(losses) on available-for-sale investments (120) (794) (1,868)
Income tax effect 25 85 437
----------------------------------------------------------- ----------- ----------- ---------
Other comprehensive income for the period/year, net of tax (844) (2,259) (5,196)
----------------------------------------------------------- ----------- ----------- ---------
Total comprehensive income for the period/year, net of tax 144,794 291,670 569,740
----------------------------------------------------------- ----------- ----------- ---------
Total comprehensive income attributable to:
Equity shareholders of Ferrexpo plc 143,983 288,905 562,883
Non-controlling interests 811 2,765 6,857
----------------------------------------------------------- ----------- ----------- ---------
144,794 291,670 569,740
----------------------------------------------------------- ----------- ----------- ---------
Interim Consolidated Statement of Financial Position
As at As at As at
30.06.12 30.06.11 31.12.11
US$000 Notes (unaudited) (unaudited) (audited)
--------------------------------------------------------- ----- ----------- ----------- ---------
Assets
Property, plant and equipment 11 1,125,854 754,520 924,690
Goodwill and other intangible assets 18 104,048 102,260 103,240
Investments in associates 19,609 20,623 19,186
Available-for-sale financial assets 17 759 2,336 1,290
Other non-current assets 83,468 25,490 93,358
Other taxes recoverable and prepaid 12 79,813 - -
Deferred tax assets 18 21,645 14,973 23,426
--------------------------------------------------------- ----- ----------- ----------- ---------
Total non-current assets 1,435,196 920,202 1,165,190
--------------------------------------------------------- ----- ----------- ----------- ---------
Inventories 145,384 109,352 117,046
Trade and other receivables 103,772 120,679 128,905
Prepayments and other current assets 18 30,511 25,673 22,720
Income taxes recoverable and prepaid 29,294 294 384
Other taxes recoverable and prepaid 12 142,960 108,207 172,951
Cash and cash equivalents 13 715,871 945,146 890,154
--------------------------------------------------------- ----- ----------- ----------- ---------
1,167,792 1,309,351 1,332,160
--------------------------------------------------------- ----- ----------- ----------- ---------
Assets classified as held for sale 1,663 3,026 1,845
--------------------------------------------------------- ----- ----------- ----------- ---------
Total current assets 1,169,455 1,312,377 1,334,005
--------------------------------------------------------- ----- ----------- ----------- ---------
Total assets 2,604,651 2,232,579 2,499,195
--------------------------------------------------------- ----- ----------- ----------- ---------
Equity and liabilities
Share capital 121,628 121,628 121,628
Share premium 185,112 185,112 185,112
Other reserves (348,556) (346,357) (348,603)
Retained earnings 1,539,980 1,157,113 1,414,512
--------------------------------------------------------- ----- ----------- ----------- ---------
Equity attributable to equity shareholders of the parent 1,498,164 1,117,496 1,372,649
--------------------------------------------------------- ----- ----------- ----------- ---------
Non-controlling interests 20,955 16,244 20,480
--------------------------------------------------------- ----- ----------- ----------- ---------
Total equity 1,519,119 1,133,740 1,393,129
--------------------------------------------------------- ----- ----------- ----------- ---------
Interest-bearing loans and borrowings 3/14 947,679 531,855 951,430
Defined benefit pension liability 17,714 22,096 13,329
Provision for site restoration 3,134 2,803 3,015
Deferred tax liability 1,221 2,140 2,232
--------------------------------------------------------- ----- ----------- ----------- ---------
Total non-current liabilities 969,748 558,894 970,006
--------------------------------------------------------- ----- ----------- ----------- ---------
Interest-bearing loans and borrowings 3/14 18,735 387,901 18,948
Trade and other payables 47,042 53,575 42,648
Accrued liabilities and deferred income 18 33,318 21,332 29,713
Income taxes payable 8,424 64,817 36,674
Other taxes payable 8,265 12,320 8,077
--------------------------------------------------------- ----- ----------- ----------- ---------
Total current liabilities 115,784 539,945 136,060
--------------------------------------------------------- ----- ----------- ----------- ---------
Total liabilities 1,085,532 1,098,839 1,106,066
--------------------------------------------------------- ----- ----------- ----------- ---------
Total equity and liabilities 2,604,651 2,232,579 2,499,195
--------------------------------------------------------- ----- ----------- ----------- ---------
The financial statements were approved by the Board of Directors
on 20 August 2012.
Interim Consolidated Statement of Cash Flows
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 Notes (unaudited) (unaudited) (audited)
-------------------------------------------------------------------------- ----- ----------- ----------- ---------
Profit before tax 169,347 352,011 690,900
Adjustments for:
Depreciation of property, plant and equipment and amortisation of
intangible assets 24,045 19,733 41,003
Interest expense 42,760 32,127 62,321
Interest income (1,465) (1,401) (2,511)
Share of income of associates (424) (1,700) (2,012)
Movement in allowance for doubtful receivables (651) (2,681) (2,406)
Loss on disposal of property, plant and equipment 1,166 150 46
Write-offs and impairment losses 9 518 198 478
Site restoration provision 117 58 269
Employee benefits 6,808 7,042 1,069
Share-based payments 872 416 891
Operating foreign exchange losses 8 465 567 1,360
Non-operating foreign exchange (gains)/losses 8 (306) (5,427) 1,934
-------------------------------------------------------------------------- ----- ----------- ----------- ---------
Operating cash flow before working capital changes 243,252 401,093 793,342
-------------------------------------------------------------------------- ----- ----------- ----------- ---------
Changes in working capital:
Decrease/(increase) in trade and other receivables 17,706 (15,553) (17,391)
Increase in inventories (28,337) (4,526) (12,220)
Increase/(decrease) in trade and other accounts payable 10,427 1,139 (9,788)
Increase in VAT recoverable and other taxes prepaid (62,859) (6,163) (72,051)
-------------------------------------------------------------------------- ----- ----------- ----------- ---------
Cash generated from operating activities 180,189 375,990 681,892
-------------------------------------------------------------------------- ----- ----------- ----------- ---------
Interest paid (27,095) (13,081) (43,266)
Income tax paid (81,140) (36,887) (132,176)
Post-employment benefits paid (2,224) (1,870) (3,741)
-------------------------------------------------------------------------- ----- ----------- ----------- ---------
Net cash flows from operating activities 69,730 324,152 502,709
-------------------------------------------------------------------------- ----- ----------- ----------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (220,823) (120,183) (378,302)
Purchase of intangible assets (1,207) (394) (2,092)
Proceeds from disposal of property, plant and equipment 408 - -
Interest received 1,589 1,038 2,067
Dividends from associates 1,749 - 2,207
Proceeds from loans to associates - 1,000 1,000
Acquisition of subsidiaries, net of cash acquired - - (390)
Cash payment for acquisition made in 2010 - (38,045) (38,045)
-------------------------------------------------------------------------- ----- ----------- ----------- ---------
Net cash flows used in investing activities (218,284) (156,584) (413,555)
-------------------------------------------------------------------------- ----- ----------- ----------- ---------
Cash flows from financing activities
Proceeds from borrowings and finance - 506,819 952,269
Repayment of borrowings and finance (5,433) (16,657) (410,027)
Arrangement fees paid - (12,223) (21,021)
Dividends paid to equity shareholders of Ferrexpo plc (19,340) (19,362) (38,663)
Dividends paid to non-controlling shareholders (634) (322) (880)
-------------------------------------------------------------------------- ----- ----------- ----------- ---------
Net cash flows from financing activities (25,407) 458,255 481,678
-------------------------------------------------------------------------- ----- ----------- ----------- ---------
Net (decrease)/increase in cash and cash equivalents (173,961) 625,823 570,832
Cash and cash equivalents at the beginning of the period/year 890,154 319,471 319,471
Currency translation differences (322) (148) (149)
-------------------------------------------------------------------------- ----- ----------- ----------- ---------
Cash and cash equivalents at the end of the period/year 13 715,871 945,146 890,154
-------------------------------------------------------------------------- ----- ----------- ----------- ---------
Interim Consolidated Statement of Changes in Equity
For the financial year 2011 and the six months ended 30 June
2012
Attributable to equity shareholders of
the parent
------------------------------------------------------------------------------------------------
Employee Net
Uniting
of Treasury benefit unrealised Non-
Total
Issued Share interest share trust gains Translation Retained capital controlling
Total
US$000 capital premium reserve reserve reserve reserve reserve earnings and reserves interests equity
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- ------------ ----------- ---------
At 1 January
2011 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) (5,196)
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- ------------ ----------- ---------
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
Adjustments
relating
to the
increase in
non-controlling
interests - - - - - - - - - 144 144
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- ------------ ----------- ---------
At 31 December
2011 (audited) 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
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- ------------ ----------- ---------
Profit for the
period - - - - - - - 144,808 144,808 830 145,638
Other
comprehensive
income - - - - - (95) (730) - (825) (19) (844)
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- ------------ ----------- ---------
Total
comprehensive
income for the
period - - - - - (95) (730) 144,808 143,983 811 144,794
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- ------------ ----------- ---------
Equity dividends
paid
to shareholders
of
Ferrexpo plc - - - - - - - (19,340) (19,340) (336) (19,676)
Share-based
payments - - - - 872 - - - 872 - 872
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- ------------ ----------- ---------
At 30 June 2012
(unaudited) 121,628 185,112 31,780 (77,260) (8,544) 989 (295,521) 1,539,980 1,498,164 20,955 1,519,119
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- ------------ ----------- ---------
For the six months ended 30 June 2011
Attributable to equity shareholders of
the parent
---------------------------------------------------------------------------------------------
Employee Net
Uniting
of Treasury benefit unrealised Total Non-
capital
Issued Share interest share trust gains Translation Retained and controlling
Total
US$000 capital premium reserve reserve reserve reserve reserve earnings reserves interests equity
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
At 1 January
2011 121,628 185,112 31,780 (77,260) (10,172) 2,515 (291,283) 885,353 847,673 13,801 861,474
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Profit for the
period - - - - - - - 291,122 291,122 2,807 293,929
Other
comprehensive
income - - - - - (708) (1,509) - (2,217) (42) (2,259)
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Total
comprehensive
income for the
period - - - - - (708) (1,509) 291,122 288,905 2,765 291,670
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Equity
dividends
paid
to
shareholders
of
Ferrexpo plc - - - - - - - (19,362) (19,362) (322) (19,684)
Share-based
payments - - - - 280 - - - 280 - 280
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
At 30 June
2011
(unaudited) 121,628 185,112 31,780 (77,260) (9,892) 1,807 (292,792) 1,157,113 1,117,496 16,244 1,133,740
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Notes to the Interim Condensed Consolidated Financial
Statements
Note 1: Corporate information
Organisation and operation
Ferrexpo plc (the 'Company') is incorporated in the United
Kingdom with registered office at 2-4 King Street, London, SW1Y
6QL, UK. Ferrexpo plc and its subsidiaries (the 'Group') operate a
mine and processing plant near Kremenchuk in Ukraine, an interest
in a port in Odessa and sales and marketing activities in
Switzerland, Dubai and Kiev. The Group also owns a logistic group
located in Austria which operates a fleet of vessels operating on
the Rhine and Danube waterways. The Group's operations are
vertically integrated from iron ore mining through to iron ore
concentrate and pellet production and subsequent logistics. The
Group's mineral properties lie within the Kremenchuk Magnetic
Anomaly and are currently being exploited at the
Gorishne-Plavninsky and Lavrikovsky deposits. These deposits are
being jointly mined as one mining complex.
The majority shareholder of the Group is Fevamotinico S.a.r.l.
('Fevamotinico'), a company ultimately owned by The Minco Trust, of
which Kostyantin Zhevago, the Group's Chief Executive Officer, is a
beneficiary. At the time this report was published, Fevamotinico
held 51.0% (30 June 2011: 51.0%; 31 December 2011: 51.0%) of
Ferrexpo plc's issued share capital. The Group's operations are
largely conducted through Ferrexpo plc's principal subsidiary, OJSC
Ferrexpo Poltava Mining and logistics for Western Europe are
managed through the Helogistics subsidiaries. The Group comprises
of Ferrexpo plc and its consolidated subsidiaries as set out
below:
Equity interest
owned at
----------------------------
Country of 30.06.12 30.06.11 31.12.11
Name incorporation Principal activity % % %
-------------------------------- ----------------- -------------------------- -------- -------- --------
OJSC Ferrexpo Poltava
Mining(1) Ukraine Iron ore mining 97.3 97.3 97.3
Ferrexpo AG(2) Switzerland Sale of iron ore pellets 100.0 100.0 100.0
Trade, transportation
DP Ferrotrans(2) Ukraine services 97.3 97.3 97.3
United Energy Company
LLC(3) Ukraine Holding company 97.3 97.3 97.3
Ferrexpo Finance plc(1) England Finance 100.0 100.0 100.0
Management services
Ferrexpo Services Limited(1) Ukraine & procurement 100.0 100.0 100.0
Ferrexpo Hong Kong Limited(1) China Marketing services 100.0 100.0 100.0
LLC Ferrexpo Yeristovo
GOK(4) Ukraine Iron ore mining 100.0 100.0 100.0
LLC Ferrexpo Belanovo
GOK(4) Ukraine Iron ore mining 100.0 100.0 100.0
Nova Logistics Limited(3) Ukraine Service company (dormant) 51.0 51.0 51.0
Ferrexpo Middle East FZE(6) U.A.E. Sale of iron ore pellets 100.0 100.0 100.0
Ferrexpo Singapore PTE
Ltd(6) Singapore Marketing services 100.0 100.0 100.0
Helogistics Holding GmbH(5) Austria Holding company 100.0 100.0 100.0
EDDSG GmbH(5) Austria Barging company 100.0 100.0 100.0
DDSG Tankschiffahrt GmbH(5) Austria Barging company 100.0 100.0 100.0
Helogistics Transport
GmbH(5) Austria Barging company 100.0 100.0 100.0
Mahart Duna Cargo Kft.(5) Hungary Barging company 100.0 100.0 100.0
Pancar Kft.(5) Hungary Barging company 100.0 100.0 100.0
Ferrexpo Port Services
GmbH(7) Austria Port Services 100.0 100.0 100.0
Helogistics Asset Leasing
Kft.(7) Hungary Asset holding company 100.0 - 100.0
Ferrexpo Shipping International
Limited(8) Marshall Islands Holding company 100.0 - 100.0
Iron Destiny Limited(8) Marshall Islands Shipping company 100.0 - 100.0
Transcanal SRL(9) Romania Port services 77.6 - 77.6
-------------------------------- ----------------- -------------------------- -------- -------- --------
1 The Group's interest in these entities is held through Ferrexpo AG.
2 Ferrexpo AG was the holding company of the Group until, as a
result of the pre-IPO restructuring, Ferrexpo plc became the
holding company on 24 May 2007.
3 The Group's interest in these entities is held through OJSC Ferrexpo Poltava Mining.
4 The Group's interest in this entity is held through both
Ferrexpo AG and Ferrexpo Service Limited.
5 The Group's interest in these entities is held through
Ferrexpo AG. The Helogistics Holding GmbH and its subsidiaries were
acquired in December 2010.
6 Both subsidiaries were incorporated in March 2011. The Group's
interest in Ferrexpo Middle East FZE is held by Ferrexpo AG whereas
Ferrexpo Singapore PTE Ltd is a subsidiary of Ferrexpo Middle East
FZE.
7 The subsidiaries were incorporated in April 2011 and December
2011. The Group's interest is held through Helogistics Holding
GmbH.
8 The subsidiaries were incorporated on 14 July 2011.
9 The company was acquired on 1 October 2011.
At 30 June 2012, the Group also holds through OJSC Ferrexpo
Poltava Mining an interest of 48.6% (30 June 2011: 48.6%; 31
December 2011: 48.6%) in TIS Ruda, a Ukrainian port located on the
Black Sea. As this is an associate, it is accounted for using the
equity method of accounting.
Note 2: Summary of significant accounting policies
Basis of preparation
The interim condensed consolidated financial statements for the
six months ended 30 June 2012 have been prepared in accordance with
International Accounting Standard ('IAS') 34 Interim Financial
Reporting. The interim condensed consolidated financial statements
do not include all of the information and disclosures required in
the annual financial statements, and should be read in conjunction
with the Group's annual financial statements as at 31 December
2011.
The interim condensed consolidated financial statements do not
constitute statutory accounts as defined in section 435 of the
Companies Act 2006. The financial information for the full year is
based on the statutory accounts for the financial year ended 31
December 2011. A copy of the statutory accounts for that year,
which were prepared in accordance with International Financial
Reporting Standards ('IFRS') issued by the International Accounting
Standard Board ('IASB'), as adopted by the European Union as they
apply to financial statements of the Group for the year ended 31
December 2011, has been delivered to the Register of Companies. The
auditors' report under section 495 of the Companies Act 2006 in
relation to those accounts was unqualified and did not contain a
statement under 498(2) or 498(3) of the Companies Act 2006.
Financing and going concern
At the period end, the Group's main debt facilities comprised a
US$500 million Eurobond which is due for repayment on 7 April 2016
and a US$420 million revolving pre-export finance facility
including a commitment amortisation over a 24 month period from
September 2014 to August 2016. The Group is of the view that it can
generate sufficient cash flows to fully repay the borrowings as
they fall due in compliance with the terms and conditions of the
loan facility and Eurobond terms and conditions.
The Group faces several risks to its business and strategy,
which are included in the Principle Risks section of the Annual
Report and Accounts 2011.
The Directors are of the view that the Group is a going concern
and the interim consolidated financial statements have been drawn
up on this basis.
Changes in accounting policies
The accounting policies and methods of computation adopted in
the preparation of the interim condensed consolidated financial
statements are the same as those followed in the preparation of the
Group's annual financial statements for the year ended 31 December
2011 except for the adoption of new amendments to IFRSs as of 1
January 2012, noted below:
IAS 12 Income taxes - recovery of underlying assets
The amendment to the standard was issued in December 2010 and
became effective for financial years beginning on or after 1
January 2012. The amendment provides an exception to the general
principle of measuring deferred taxes for investment properties
measured at fair value and introduces a rebuttable presumption that
the carrying amount of such assets will be recovered entirely
through sale. The adoption of this amended standard did not have an
impact on the financial position or performance of the Group.
IFRS 1 First-time adoption of IFRS - severe hyperinflation and
removal of fixed dates for first time adopters
The amendments were issued in December 2010 and became effective
for annual periods beginning on or after 1 July 2011. The
amendments to IFRS 1 provide guidance for entities emerging from
severe hyperinflation and replace the date of prospective
application of the derecognition of financial assets and
liabilities of '1 January 2004' with 'the date of transition to
IFRS'. Both amendments did not have an impact on the financial
position or performance of the Group.
IFRS 7 Financial instruments: disclosures - transfer of
financial assets
The amendment to IFRS became effective for financial years
beginning on or after 1 July 2011. The amendment requires the
disclosure of information that enables the users of the financial
statements to understand the relationship between transferred
financial assets that are not derecognised in their entirety and
the associated liabilities as well as, in the case of fully
derecognised financial assets in which the entity retains
continuing involvement, information to evaluate the nature of, and
associated risks with continuing involvement in the derecognised
financial assets. The application of this amendment did not have
impact on the financial statements of the Group.
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(1) because it believes that EBITDA is
a useful measure for evaluating its ability to generate cash and
its operating performance.
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 Notes (unaudited) (unaudited) (audited)
---------------------------------------------------- ----- ----------- ----------- ---------
Profit before tax and finance 213,665 380,256 758,528
Write-offs and impairment losses 9 518 198 478
Share-based payments 872 416 891
Losses on disposal of property, plant and equipment 1,166 150 46
Depreciation and amortisation 24,045 19,733 41,003
---------------------------------------------------- ----- ----------- ----------- ---------
EBITDA 240,266 400,753 800,946
---------------------------------------------------- ----- ----------- ----------- ---------
(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.
'C1' costs
'C1' costs represent the cash costs of production of iron ore
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 and concentrate and
production cost of gravel.
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
--------------------------------------------------- ----------- ----------- ---------
Cost of sales - pellet production 298,517 280,822 600,790
Depreciation and amortisation (17,208) (13,628) (28,639)
Purchased concentrate and other items for resale (13,156) (48,817) (102,908)
Processing costs for purchased ore and concentrate (1,683) (3,901) (7,873)
Production cost of gravel (384) (178) (572)
Inventory movements 18,458 3,374 481
Pension service costs (3,128) (2,630) 5,334
Other (5,597) (3,276) (7,099)
--------------------------------------------------- ----------- ----------- ---------
C1 cost 275,819 211,766 459,514
--------------------------------------------------- ----------- ----------- ---------
Own ore produced (tonnes) 4,563,000 4,394,000 9,063,398
C1 cash cost per tonne (US$) 60.4 48.2 50.7
--------------------------------------------------- ----------- ----------- ---------
Net financial indebtedness
Net financial indebtedness as defined by the Group comprises
cash and cash equivalents, term deposits, interest bearing loans
and borrowings.
As at As at As at
30.06.12 30.06.11 31.12.11
US$000 Notes (unaudited) (unaudited) (audited)
---------------------------------------------------- ----- ----------- ----------- ---------
Cash and cash equivalents 13 715,871 945,146 890,154
Interest bearing loans and borrowings - current 15 (18,735) (387,901) (18,948)
Interest bearing loans and borrowings - non-current 15 (947,679) (531,855) (951,430)
---------------------------------------------------- ----- ----------- ----------- ---------
Net (financial indebtedness)/net funds position (250,543) 25,390 (80,224)
---------------------------------------------------- ----- ----------- ----------- ---------
Note 4: Revenue
Revenue consisted of the following:
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
------------------------------------------- ----------- ----------- ---------
Revenue from sales of ore pellets:
Export 685,323 811,114 1,699,154
Ukraine 194 279 742
------------------------------------------- ----------- ----------- ---------
685,517 811,393 1,699,896
------------------------------------------- ----------- ----------- ---------
Revenue from logistics and bunker business 39,051 36,550 73,276
Revenue from services provided 1,747 853 4,092
Revenue from other sales 4,940 6,068 10,748
------------------------------------------- ----------- ----------- ---------
Total revenue 731,255 854,864 1,788,012
------------------------------------------- ----------- ----------- ---------
Export sales by geographical destination were as follows:
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
--------------------- ----------- ----------- ---------
China 262,609 240,327 569,924
Austria 196,743 232,205 453,586
Slovakia 69,118 50,891 121,041
Czech Republic 64,416 61,226 119,793
Turkey 36,170 28,136 83,722
Serbia 19,723 115,955 158,687
Japan 16,440 33,304 88,875
Germany 10,310 - 28,898
India 7,731 37,653 47,119
Hungary 2,063 9,125 27,509
Other - 2,292 -
--------------------- ----------- ----------- ---------
Total export revenue 685,323 811,114 1,699,154
--------------------- ----------- ----------- ---------
During the period ended 30 June 2012 sales made to three
customers accounted for approximately 48.2% of the revenues from
export sales of ore pellets (30 June 2011: 53.8%; 31 December 2011:
50.2%).
Sales made to two customers individually amounted to more than
10% of the revenues from export sales of ore pellets. These are
disclosed below:
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
----------- ----------- ----------- ---------
Customer A 196,743 232,205 453,586
Customer B 69,118 166,846 279,728
----------- ----------- ----------- ---------
Note 5: Cost of sales
Cost of sales consisted of the following:
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
------------------------------------------------- ----------- ----------- ---------
Materials 45,664 37,094 75,246
Purchased concentrate and other items for resale 13,156 48,817 102,908
Electricity 71,101 58,286 121,364
Personnel costs 35,637 28,887 51,677
Spare parts and consumables 12,364 9,013 20,968
Depreciation and amortisation 17,208 13,628 28,639
Gas 39,958 27,989 63,485
Fuel 27,044 21,321 47,343
Repairs and maintenance 34,714 28,291 63,801
Royalties and levies 6,272 5,093 10,437
Cost of sales from logistics business 12,345 11,657 23,363
Bunker fuel 12,415 9,636 25,391
Inventory movements (18,458) (3,374) (481)
Other 13,857 5,777 15,403
------------------------------------------------- ----------- ----------- ---------
Total cost of sales 323,277 302,115 649,544
------------------------------------------------- ----------- ----------- ---------
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
------------------------------------------------- ----------- ----------- ---------
Cost of sales - pellet production 298,517 280,822 600,790
Cost of sales - logistics and bunker business 24,760 21,293 48,754
------------------------------------------------- ----------- ----------- ---------
Total cost of sales 323,277 302,115 649,544
------------------------------------------------- ----------- ----------- ---------
Note 6: Selling and distribution expenses
Selling and distribution expenses consisted of the
following:
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
---------------------------------------- ----------- ----------- ---------
International freight for pellets 56,032 53,283 119,572
Railway transportation 47,896 42,692 89,185
Port charges 16,823 17,594 37,724
Other pellet transportation costs 8,447 5,245 13,453
Costs of logistics business 13,129 16,053 36,671
Gravel delivery costs 200 1,321 1,783
Advertising 4,918 3,371 6,911
Depreciation 4,279 3,997 8,231
Other 3,243 2,620 4,421
---------------------------------------- ----------- ----------- ---------
Total selling and distribution expenses 154,967 146,176 317,951
---------------------------------------- ----------- ----------- ---------
Note 7: General and administrative expenses
General and administrative expenses consisted of the
following:
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
---------------------------------------------- ----------- ----------- ---------
Personnel costs 15,056 14,881 26,912
Buildings and maintenance 1,278 1,081 2,182
Taxes other than income tax and other charges 734 747 1,480
Professional fees 3,633 2,752 7,799
Depreciation and amortisation 2,255 2,024 3,968
Communication 503 545 1,149
Vehicles maintenance and fuel 905 751 1,553
Repairs 619 375 1,365
Half year review fees 184 184 184
Audit fees 659 550 1,261
Non-audit fees 260 253 510
Security 1,114 856 1,859
Other 2,101 480 1,747
---------------------------------------------- ----------- ----------- ---------
Total general and administrative expenses 29,301 25,479 51,969
---------------------------------------------- ----------- ----------- ---------
Note 8: Foreign exchange gains and losses
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
---------------------------------------------- ----------- ----------- ---------
Operating foreign exchange losses (465) (567) (1,360)
Non-operating foreign exchange gains/(losses) 306 5,427 (1,934)
---------------------------------------------- ----------- ----------- ---------
Total foreign exchange gains/(losses) (159) 4,860 (3,294)
---------------------------------------------- ----------- ----------- ---------
Operating foreign exchange gains and losses are those items that
are directly related to the production and sale of pellets (e.g.
trade receivables, trade payables on operating expenditure).
Non-operating gains and losses are those associated with the
Group's financing and treasury activities and with local income tax
payables.
Note 9: Write-offs and impairment losses
Impairment losses relate to adjustments made against the
carrying value of assets where this is higher than the recoverable
amount. Write-offs and impairment losses for the six months ended
30 June 2012 consisted of the following:
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
-------------------------------------------------- ----------- ----------- ---------
Write-off of inventories - - 105
Write-off of property, plant and equipment 90 - 175
Impairment of available-for-sale financial assets 428 198 198
-------------------------------------------------- ----------- ----------- ---------
Total write-offs and impairment losses 518 198 478
-------------------------------------------------- ----------- ----------- ---------
The impairment of the available-for-sale financial assets is
related to the investment in Vostok Ruda LLC.
Note 10: Earnings per share and dividends paid and proposed
Basic EPS is calculated by dividing the net profit for the
period attributable to ordinary equity shareholders of Ferrexpo plc
by the weighted average number of Ordinary Shares.
Diluted earnings per share is calculated by adjusting the
weighted average number of Ordinary Shares in issue on the
assumption of conversion of all potentially dilutive Ordinary
Shares. All share awards are potentially dilutive and have been
included in the calculation of diluted earnings per share.
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
(unaudited) (unaudited) (audited)
----------------------------------------------------------------------------- ----------- ----------- ---------
Profit for the period/year attributable to equity shareholders:
Basic earnings per share (US cents) 24.76 49.80 97.09
Diluted earnings per share (US cents) 27.73 49.73 96.67
Underlying earnings for the period/year attributable to equity shareholders:
Basic earnings per share (US cents) 24.98 49.04 97.47
Diluted earnings per share (US cents) 24.95 48.97 97.35
----------------------------------------------------------------------------- ----------- ----------- ---------
The calculation of the basic and diluted earnings per share is
based on the following data:
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
Thousand (unaudited) (unaudited) (audited)
---------------------------------------------- ----------- ----------- ---------
Weighted average number of shares
Basic number of Ordinary Shares outstanding 585,001 584,742 584,811
Effect of dilutive potential Ordinary Shares 799 667 730
---------------------------------------------- ----------- ----------- ---------
Diluted number of Ordinary Shares outstanding 585,800 585,409 585,541
---------------------------------------------- ----------- ----------- ---------
The basic number of Ordinary Shares is calculated by subtracting
the shares held in treasury from the total number of Ordinary
Shares in issue.
'Underlying earnings' is an alternative earnings measure, which
the Directors believe provides a clearer picture of the underlying
financial performance of the Group's operations. Underlying
earnings is calculated before non-controlling interests have been
deducted and excludes adjusted items. The calculation of underlying
earnings per share is based on the following earnings data:
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 Notes (unaudited) (unaudited) (audited)
---------------------------------------------------- ----- ----------- ----------- ---------
Profit attributable to equity holders 144,808 291,122 567,822
Write-offs and impairment losses 9 518 198 478
Losses on disposal of property, plant and equipment 1,166 150 46
Non-operating foreign exchange (gains)/losses 8 (306) (5,427) 1,934
Tax on adjusted items (98) 639 (282)
---------------------------------------------------- ----- ----------- ----------- ---------
Underlying earnings 146,088 286,682 569,998
---------------------------------------------------- ----- ----------- ----------- ---------
Adjusted items are those items of financial performance that the
Group believes should be separately disclosed on the face of the
income statement to assist in the understanding of the underlying
financial performance achieved by the Group. Adjusted items that
relate to the operating performance of the Group include impairment
charges and reversals and other exceptional items. Non-operating
adjusted items include gains and losses on disposal of investments
and businesses and non-operating foreign exchange gains and
losses.
Dividends
6 months 6 months Year
ended ended ended
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
---------------------------------------- ----------- ----------- ---------
Proposed per Ordinary Share
Interim dividend for 2012: 3.3 US cents 19,309 - -
Interim dividend for 2011: 3.3 US cents - 19,301 -
Final dividend for 2011: 3.3 US cents - - 19,301
---------------------------------------- ----------- ----------- ---------
Total dividends proposed 19,309 19,301 19,301
---------------------------------------- ----------- ----------- ---------
Paid per Ordinary Share
Final dividend for 2011: 3.3 US cents 19,340 - -
Interim dividend for 2011: 3.3 US cents - - 19,301
Final dividend for 2010: 3.3 US cents - 19,362 19,362
---------------------------------------- ----------- ----------- ---------
Total dividends paid during the period 19,340 19,362 38,663
---------------------------------------- ----------- ----------- ---------
Note 11: Property, plant and equipment
During the six months ended 30 June 2012, the Group acquired
property, plant and equipment with a cost of US$228,665 thousand
(30 June 2011: US$136,129 thousand; 31 December 2011: US$334,666
thousand) and disposed of property, plant and equipment with
original costs of US$5,793 thousand (30 June 2011: US$8,461
thousand; 31 December 2011: US$5,796 thousand).
Note 12: Other taxes recoverable and prepaid
As at As at As at
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
-------------------------------------------------------- ----------- ----------- ---------
VAT receivable 142,378 107,671 172,434
Other taxes prepaid 582 536 517
-------------------------------------------------------- ----------- ----------- ---------
Total other taxes recoverable and prepaid - current 142.960 108,207 172,951
-------------------------------------------------------- ----------- ----------- ---------
VAT receivable 79,813 - -
-------------------------------------------------------- ----------- ----------- ---------
Total other taxes recoverable and prepaid - non-current 79,813 - -
-------------------------------------------------------- ----------- ----------- ---------
VAT receivable is as a result of VAT paid on domestic Ukrainian
purchases of goods capital equipment and services and on the import
of goods, capital equipment and services into Ukraine to the extent
that this cannot be offset on VAT paid on domestic sales. Ferrexpo
currently has limited domestic sales and exports the majority of
its products. As a result, VAT has to be recovered from the
Government tax authority and Ferrexpo is reliant on the normal
functioning of this system.
During the six month period ended 30 June 2012, FPM received VAT
refunds in respect of 2011 and 2012 amounting to US$39,585 thousand
and paid Ukrainian VAT amounting to US$104,260 thousand, including
US$19,764 thousand in respect of capital expenditure. As a result
the gross recoverable balance increased by US$59,783 thousand to
US$231,437 thousand (UAH1,850 million).
Management expects this amount to be fully recovered in local
currency. However, the exact timing of recovery and method of
settlement is subject to uncertainties, along with the prevailing
exchange rate to the US Dollar at the time of repayment. In the
past, VAT has been recovered in cash and by the issuance of
domestic local currency bonds. An alternative method of settlement
could be to offset amounts recoverable against current and future
corporate profit tax. A financial loss could result, for example
from the issuance of bonds which trade at a discount at the time of
issue; continued late repayment as a result of Government fiscal
constraints diminishing the present value of the receivable, or the
conversion to US Dollar of local currency received at a different
exchange rate to that recorded at the time of payment.
Management has considered these uncertainties including
potential continued International Monetary Fund support for the
Ukrainian national budget, domestic economic and budgetary
constraints, and current discussions with fiscal authorities in
making an estimate of the timing of recovery of the VAT due.
Although in the opinion of management, all VAT is due for repayment
within the next six months with the majority due immediately, it
has concluded that a large portion of the VAT is likely to be
repaid considerably beyond the settlement terms which will result
in additional funding costs for the Group. As a result, an
estimated provision of US$13,224 thousand has been made to reflect
this uncertainty and its effect is included in finance expense.
Based on current management estimates, US$138,400 thousand of VAT
will be recoverable within one year of the period end, with the
remainder, amounting to US$79,813 thousand, net of the associated
discount to reflect the time value of money, recoverable after more
than one year of the period end.
Note 13: Cash and cash equivalents
As at 30 June 2012 the Group held cash and cash equivalents of
US$715,871 thousand (30 June 2011: US$945,146 thousand; 31 December
2011: US$890,154 thousand).
Note 14: Interest bearing loans and borrowings
As at 30 June 2012 the Group has in place a syndicated US$420
million revolving pre-export finance facility and a US$500 million
Eurobond.
The revolving pre-export finance facility was drawn in full on 7
October 2011. This finance facility is available for 60 months
including a commitment amortisation over the final 24 months. The
maturity is 31 August 2016.
As at 30 June 2012 the major bank debt facility was guaranteed
and secured as follows:
-- Ferrexpo AG assigned the rights to revenue from certain sales
contracts;
-- OJSC Ferrexpo Poltava Mining assigned all of its rights of
certain export contracts for the pellets sales to Ferrexpo AG;
and
-- the Group pledged a bank account of Ferrexpo AG into which
all proceeds from the sale of certain iron ore pellet contracts are
received.
The unsecured US$500 million Eurobond was issued on 7 April 2011
and is due for repayment on 7 April 2016. The bond has a 7.875%
coupon and interest is payable on a semi-annual basis.
As at 30 June 2012, the Group has other committed credit lines
amounting to US$72,000 thousand (30 June 2011: US$50,000 thousand;
31 December 2011: US$50,000 thousand). These are undrawn at 30 June
2012.
Note 15: Related party disclosure
During the periods presented the Group entered into arm's length
transactions with entities under the common control of the majority
owner of the Group, Kostyantin Zhevago and with associated
companies and with other related parties. Management considers that
the Group has appropriate procedures in place to identify and
properly disclose transactions with the related parties.
Entities under common control are those under the control of
Kostyantin Zhevago. Associated companies refers to TIS Ruda LLC, in
which the Group holds an interest of 48.6%. This is the only
associated company of the Group. Other related parties are
principally those entities controlled by Anatoly Trefilov and
Olexander Moroz. Anatoly Trefilov is a member of the supervisory
board of OJSC Ferrexpo Poltava Mining from which Olexander Moroz
resigned as of 14 May 2010. All transactions taking place up to 31
May 2011, being within one year of his resignation from the
supervisory board, are considered to be transactions with a related
party and thus included in the disclosures made for the comparative
period.
Related party transactions entered into by the Group during the
periods presented are summarised in the following tables:
Revenue, expenses, finance income and expenses
6 months ended 30.06.12 6 months ended 30.06.11 Year ended 31.12.11
(unaudited) (unaudited) (audited)
----------------------------- ----------------------------- -----------------------------
Entities Entities Entities
under Other under Other under Other
common Associated related common Associated related common Associated related
US$000 control companies parties control companies parties control companies parties
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Other sales(a) 939 - 50 2,618 - 1,735 6,718 - 1,783
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Total related party
transactions
within revenue 939 - 50 2,618 - 1,735 6,718 - 1,783
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Materials(b) 2,720 - - 1,855 - 8,475 4,638 - 8,475
Purchased concentrate and
other
items for resale(c) 11,370 - - 17,452 - - 24,891 - -
Spare parts and
consumables(d) 3,343 - 1,967 - 256 4,726 - 256
Fuel(e) 1,374 - - 3,798 - - 7,980 - -
Gas(e) - - - 7,741 - - 15,455 - -
Total related party
transactions
within cost of sales 18,807 - - 32,813 - 8,731 57,690 - 8,731
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Selling and distribution
expenses(f) - 10,059 4,834 - 5,232 8,909 - 16,674 13,470
General and
administration
expenses(g) 5,653 - 11 4,011 - 4 7,767 - 15
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Total related party
transactions
within expenses 24,460 10,059 4,845 36,824 5,232 17,644 65,457 16,674 22,216
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Finance income(h) 474 - - 584 9 - 899 9 -
Finance expenses(h) (1,137) - - (200) - - (411) - -
Net related party finance
income/
(expenses) (663) - - 384 9 - 488 9 -
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Entities under common control
The Group entered into various related party transactions with
entities under common control. A description of the material
transactions, all of which were carried out on an arm's length
basis in the normal course of business for the members of the Group
(see note 1), are listed below:
a Sales of power, steam and water and other materials to
Kislorod PCC for US$289 thousand (30 June 2011: US$803 thousand; 31
December 2011: US$2,128 thousand). Revenue of US$500 thousand was
received from Vorskla Steel Ltd. for the sale of sand (30 June
2011: US$18 thousand; 31 December 2011: US$548 thousand). Other
sales as of 31 December 2011 comprised tolling fees of US$2,622
thousand paid by Vostok Ruda Ltd. to OJSC Ferrexpo Poltava Mining
for the production of pellets. No pellets were produced under the
tolling scheme in the first six months of the financial year 2012
(30 June 2011: US$315 thousand).
b Purchases of compressed air and oxygen from Kislorod PCC for
US$2,348 thousand (30 June 2011: US$1,855 thousand; 31 December
2011: US$4,033 thousand).
c Purchases of concentrate and other items for resale from
Vostok Ruda Ltd. amounting to US$11,370 thousand (30 June 2011:
US$9,994 thousand; 31 December 2011: US$12,728 thousand).
c No purchases of merchant concentrate from Vostok Ruda Ltd. as
of 30 June 2012 were made (30 June 2011: US$7,458 thousand; 31
December 2011: US$7,458 thousand). Vostock Ruda Ltd. earned no fees
for the period to 30 June 2012. Fees on the purchase and resale for
concentrate amounting to US$6 thousand were received as of 30 June
2011 (31 December 2011: US$10 thousand). This covered costs
incurred in procuring and delivering third party merchant
concentrate supplied.
c Handling commissions to SIA Wellmark Latvia amounting to US$25
thousand as of 30 June 2011 for the purchase of goods. No handling
commissions were paid for the period to 30 June 2012 (31 December
2011: US$35 thousand).
d Purchases of spare parts from AutoKraZ Holding Co. in the
amount of US$2,316 thousand (30 June 2011: nil; 31 December 2011:
US$1,456 thousand);
d Purchases of spare parts from OJSC Berdichev Machine-Building
Plant Progress of US$249 thousand (30 June 2011: US$448 thousand;
31 December 2011: US$1,017 thousand);
d Purchases of spare parts from Valsa GTV of US$161 thousand (30
June 2011: US$370 thousand; 31 December 2011: US$541 thousand);
and
d Purchase of spare parts from Komsomolsk Cogeneration Company
LLC in the amount of US$736 thousand as of 31 December 2011. No
procurement from Komsomolsk Company LLC were made in the period to
30 June 2012 (30 June 2011: US$736 thousand).
e Purchases of fuel for US$1,374 thousand (30 June 2011:
US$3,798 thousand; 31 December 2011: US$7,980 thousand) from OJSC
Ukrzakordongeologia. No procurement of gas was made during the
first six months of the financial year 2012 from OJSC
Ukrzakordongeologia (30 June 2011: US$7,741 thousand; 31 December
2011: US$15,455 thousand).
g Purchases from FC Vorskla for advertisement, marketing and
general public relations services for the period to 30 June 2012 of
US$4,749 thousand (30 June 2011: US$3,184 thousand; 31 December
2011: US$6,536 thousand).
h Transactional banking services are provided to certain
subsidiaries of the Group by Bank Finance & Credit (Bank
F&C) Finance income and expenses relate to these transactional
banking services. Further information is provided under
transactional banking arrangements below.
Associated companies
The Group entered into related party transactions with its
Associated Company TIS Ruda LLC, which were carried out on an arm's
length basis in the normal course of business for the members of
the Group (see note 1). These are described below:
f Purchases of logistics services in the amount of US$11,003
thousand (30 June 2011: US$6,039 thousand; 31 December 2011:
US$16,674 thousand) relating to port operations, including port
charges, handling costs, agent commissions and storage costs.
Other related parties
The Group entered into various transactions with related parties
other than those under the control of the majority owner of the
Group. Descriptions of the material transactions are below:
a Sales of scrap metal to Ferrolit amounting to US$1,201
thousand and other sales of US$509 thousand as of 31 December 2011
and 30 June 2011. Ferolit is no longer a related party to the Group
due to the resignation of Olexander Moroz as supervisory board
member of OJSC Ferrexpo Poltava Mining in May 2010.
b Purchases of cast iron grinding bodies from Ferolit for
US$8,475 thousand as of 31 December 2011 and 30 June 2011. As noted
above, Ferolit is no longer a related party to the Group.
f Purchases of logistics management services from Slavutich Ruda
Ltd relating to customs clearance services and the coordination of
rail transit. Total billings amounted to US$4,692 thousand (30 June
2011: US$8,901 thousand; 31 December 2011: US$13,470 thousand).
Slavutich Ruda Ltd. earned commission income of US$436 thousand on
these services (30 June 2011: US$405 thousand; 31 December 2011:
US$809 thousand).
g Purchases of legal services from Kuoni Attorneys at Law Ltd.
amounting to US$11 thousand as of 30 June 2012 (30 June 2011: US$4
thousand; 31 December 2011: US$12 thousand). No services were
provided by Wolfram Kuoni directly. All services were provided on
an arm's length basis by other employees of Kuoni Attorneys at Law
Ltd.
Purchases of property, plant, equipment
6 months ended 30.06.12 6 months ended 30.06.11 Year ended 31.12.11
(unaudited) (unaudited) (audited)
----------------------------- ----------------------------- -----------------------------
Entities Entities Entities
under Other under Other under Other
common Associated related common Associated related common Associated related
US$000 control companies parties control companies parties control companies parties
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Purchases with
independent confirmation 778 - - 11,239 - - 14,655 - -
Purchases with
shareholder approval 27,689 - - 8,036 - - 13,167 - -
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Total purchase of
property, plant and
equipment(i) 28,467 - - 19,275 - - 27,822 - -
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
i During the first six months of the financial year 2012, the
Group entered into the following transactions with related parties
that were not of a revenue nature, but were in the normal course of
business. As such, these transactions were, in so far as they
exceeded the relevant aggregated threshold tests on a rolling
annual basis, subject to independent confirmation that the terms
are fair and reasonable in accordance with the requirements of the
UK Listing Rules.
-- In February 2012, the Group procured design documentation
from OJSC DIOS in the amount of US$21 thousand in relation to the
construction of roads and loading facilities.
-- In March 2012, project management services in the amount of
US$140 thousand were procured from Vorskla Steel Ltd. in connection
with the construction of service facilities and technical design
documentation amounting to US$618 thousand from OJSC DIOS related
to the update of the beneficiation plant.
In addition to the transaction above, the Group obtained on 24
May 2012 shareholder approval for an option to purchase up to 500
rail cars from OJSC Stahanov Rail Cars Plant between the date of
the approval and 31 December 2014. As of 30 June 2012, no rail cars
have been ordered under this authority.
During period ended 30 June 2011, the Group entered into the
following transactions with related parties that required
independent confirmation in accordance with the requirements of the
UK Listing Rules.
-- In June 2011, project management services in the amount of
US$140 thousand were procured from Vorskla Steel Ltd. in connection
with the construction of service facilities.
-- In May 2011, the Group entered into an agreement for the
purchase of equipment for the crushing and beneficiation plants
from CJSC Kiev Shipbuilding and Ship Repair Plant ('KSRSSZ') in the
amount of US$493 thousand. Orders were also placed for three
press-filters for US$8,991 thousand from OJSC Berdichev
Machine-Building Plant Progress.
-- In April 2011, the Group entered into an agreement for
engineering services to be provided by OJSC DIOS in the amount of
US$1,650 thousand for the upgrade of the crushing and concentrating
equipment.
The purchase of 400 rail cars, with an option to purchase an
additional 600 rail cars, was approved by the general meeting of
the shareholders on 15 March 2011. 712 rail cars were ordered under
the authority of this shareholder approval during the financial
year 2011 and 288 rail cars in 2012 bringing the total ordered to
1,000 units. As of 30 June 2012, 762 rail cars have been delivered
under these orders and the remainder are expected to be delivered
by the end of September 2012 bringing the total fleet of own rail
cars to 1,933 units; not including 200 dumper rail cars previously
used in the mine and related area and recently brought into
service. Purchased rail cars under this authority amounting to
US$27,689 thousand were put into operation during the period ended
30 June 2012 (30 June 2011: US$8,036 thousand; 31 December 2011:
US$13,167 thousand).
During the second half of the financial year 2011, the Group
entered into the following transactions with related parties that
required independent confirmation in accordance with the
requirements of the UK Listing Rules.
-- In December 2011, the Group purchased two dust filters from
OJSC Berdichev Machine-Building Plant Progress for the pellet
production plant amounting to US$438 thousand.
-- In November 2011, the Group entered into another agreement
with OJSC DIOS for the procurement of engineering design services
in the amount of US$739 thousand.
-- In September 2011, the Group purchased 12 dumper rail cars
from OJSC Stahanov Rail Cars Plant in the amount of US$1,756
thousand.
-- In August 2011, design services in relation to the conversion
of a vessel were provided by Zaliv Ship Design LLC in the amount of
US$483 thousand.
Balances with related parties
The outstanding balances, as a result of transactions with
related parties, for the periods presented are shown in the table
below:
6 months ended 30.06.12 6 months ended 30.06.11 Year ended 31.12.11
(unaudited) (unaudited) (audited)
----------------------------- ----------------------------- -----------------------------
Entities Entities Entities
under Other under Other under Other
common Associated related common Associated related common Associated related
US$000 control companies parties control companies parties control companies parties
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Investments
available-for-sale(j) 755 - - 2,336 - - 1,286 - -
Prepayments for property,
plant
and equipment(k) 13,987 - - 605 - - 29,080 - -
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Total non-current assets 14,742 - - 2,941 - - 30,366 - -
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Trade and other
receivables(l) 1,817 526 4 2,160 2,205 9 1,262 1,981 6
Prepayments and other
current assets(m) 400 - 819 2,042 - 15 414 - 279
Cash and cash
equivalents(n) 102,017 - - 334,080 - - 94,933 - -
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Total current assets 104,234 526 823 338,282 2,205 24 96,609 1,981 285
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Trade and other
payables(o) 7,745 759 125 7,696 208 1,438 2,151 549 515
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Current liabilities 7,745 759 125 7,696 208 1,438 2,151 549 515
------------------------- -------- ---------- ------- -------- ---------- ------- -------- ---------- -------
Entities under common control
j The balance of the investments available-for sale comprised
shareholdings in OJSC Stahanov Rail Cars Plant (3.14%) and Vostok
Ruda Ltd. (1.10%). The ultimate beneficial owner of these companies
is Kostyantin Zhevago. OJSC Stahanov Rail Cars Plant is further
listed on the Ukrainian stock exchange. The changes of the values
in the table above are related to fair value adjustments recorded
during the respective reporting periods. The shareholdings for all
investments remained unchanged during the periods disclosed above.
The investment in Vostok Ruda Ltd. was subject to an impairment of
US$430 thousand (30 June 2011: US$198 thousand recorded as of 30
June 2011.
k Prepayments outstanding of US$13,326 thousand in respect of
key components for rail cars purchased from OJSC Stahanov Rail Cars
Plant (30 June 2011: nil; 31 December 2011: US$28,705 thousand).
Prepayments of US$373 thousand were made to DIOS (30 June 2011:
US$372 thousand; 31 December 2011: US$302 thousand) for engineering
design services. The remaining prepayments for rail cars will be
offset on deliveries to be made by September 2012.
l As of 30 June 2012, trade and other receivables included
outstanding amounts due from Vorskla Steel Ltd. of US$1,401
thousand (30 June 2011: US$133 thousand; December 2011: US$828
thousand) in relation to other sales and US$356 thousand (30 June
2011: US$289 thousand; 31 December 2011: US$349 thousand) from
Kislorod PCC for the sale of power, steam and water.
m Prepayments and other current assets relate mainly to
prepayments of US$169 thousand made to OJSC Berdichev
Machine-Building Plant Progress for spare parts (30 June 2011:
US$102 thousand; 31 December 2011: US$194 thousand) and US$135
thousand to ASK Omega for insurance premiums. The balance for the
comparative period ended 30 June 2011 included advance payments of
US$1,725 thousand to OJSC Ukrzakordongeologia for fuel (31 December
2011: nil). Advance payments are in the normal course of business
as requested by any third party supplier in Ukraine.
n As of 30 June 2012, cash and cash equivalents with Bank
F&C were US$102,017 thousand (30 June 2011: US$334,080
thousand; 31 December 2011: US$94,933 thousand). Further
information is provided under Transactional banking arrangements
below.
o Trade and other payables amounting to US$532 thousand for
compressed air and oxygen purchased from Kislorod PCC (30 June
2011: US$448 thousand; 31 December 2011: US$535 thousand); US$1,072
thousand in relation to the purchase of rail cars from OJSC
Stahanov Rail Cars Plant (30 June 2011: nil; 31 December 2011:
nil); US$5,500 thousand to FC Vorskla for advertisement, marketing
and general public relations services (30 June 2011: nil; 31
December 2011: nil). The balance of trade and other payables as of
31 December 2011 comprised US$1,276 thousand due to Vostok Ruda
Ltd. and is related to purchased concentrate (30 June 2011: US$613
thousand).
Associated companies
l Other receivables of US$526 thousand as of 30 June 2012 relate
to the provision of rail cars to TIS Ruda LLC for the storage of
cargo at the port. The balance of US$2,205 thousand as of 30 June
2011 relates to dividend declared (31 December 2011: US$1,749
thousand). This dividend receivable as of 31 December 2011 was
collected in the first two months of the financial year 2012.
Other related parties
m Prepayments and other current assets relate to advance
payments of US$819 thousand to Slavutich Ruda Ltd. for distribution
services (30 June 2011: US$14 thousand; 31 December 2011: US$279
thousand). Advance payments are in the normal course of business
and are common for the provision of supplies in Ukraine.
o Trade and other payables amounting to US$125 thousand as of 30
June 2012 are in respect of distribution services provided by
Slavutich Ruda Ltd. (30 June 2011: US$453 thousand; 31 December
2011: US$515 thousand). US$983 thousand of the balance of trade and
other payables as of 30 June 2011 related to purchased material
from Ferrolit, which is no longer a related party.
Transactional banking arrangements
The Group has transactional banking arrangements with Bank
Finance & Credit ('Bank F&C') for its main day-to-day
banking needs in Ukraine in the normal course of business. Bank
F&C is under common control of the majority shareholder of
Ferrexpo plc. In respect of these arrangements, finance income and
finance costs as well as cash and cash equivalents at Bank F&C
are disclosed in the tables above. The Group has an undrawn
multicurrency revolving loan facility agreement with Bank F&C
which will expire on 16 April 2013. The maximum limit of this
undrawn facility is UAH80,000 thousand (US$10,009 thousand at the
exchange rate as of 30 June 2012) at an interest rate for Ukrainian
Hryvnia advances of 18% per annum. The total value of pledges for
this loan facility is US$9,579 thousand.
Bank F&C provides mortgages and loans to employees of the
Group for the acquisition, construction and renovation of
apartments in Ukraine. This is part of a social loyalty programme
started by the Group in December 2011 allowing certain employees of
the Group to borrow at preferential interest rates. OJSC Ferrexpo
Poltava Mining and LLC Ferrexpo Yeristovo GOK act as guarantors for
the bank's loans to the employees of the Group and have deposited
US$2,065 thousand at Bank F&C as security. The interest rate
margin earned by Bank F&C covers the costs of administrating
the mortgages and loans. Detailed information on the social loyalty
programme is provided in the Corporate Social Responsibility Review
section of the Annual Report and Accounts 2011.
Note 16: Commitments and contingencies
Commitments
As at As at As at
30.06.12 30.06.11 31.12.11
US$000 (unaudited) (unaudited) (audited)
--------------------------------------- ----------- ----------- ---------
Operating lease commitments 79,899 52,594 61,361
Capital commitments on purchase of PPE 145,692 99,040 137,029
--------------------------------------- ----------- ----------- ---------
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 2007 Annual Report and Accounts and IPO and Eurobond
prospectuses.
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.
The current status of the dispute is set out below:
A final decision in the proceedings 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
recognised 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 which took place on 20
November 2002 and all subsequent changes in FPM's charter capital
in order to obtain restitution to the shareholding position as
existed before 20 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 Ukraine to resolve this long-running dispute.
By a judgement dated 4 April 2012, the proceedings in the UK were
stayed while the case continues in Ukraine.
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 little legal merit. 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. While there exist certain risks surrounding the operation and
independence of Ukrainian courts, Ferrexpo has been advised that
the restitution of the status quo ante of the shareholding position
as sought by claimants does not have any basis under Ukrainian law
for various legal, technical and practical reasons. It follows that
no provision was recorded for this dispute as of 30 June 2012.
Tax and other regulatory compliance
Ukrainian legislation and regulations regarding taxation and
custom regulations continue to evolve. Legislation and regulations
are not always clearly written and are subject to varying
interpretations and inconsistent enforcement by local, regional and
national authorities, and other governmental bodies. Instances of
inconsistent interpretations are not unusual.
The uncertainty of application and the evolution of Ukrainian
tax laws, including those affecting cross border transactions,
create a risk of additional tax payments having to be made by the
Group, which could have a material effect on the Group's financial
position and results of operations. The Group does not believe that
these risks are any more significant than those of similar
enterprises in Ukraine.
Note 17: Other financial assets
Other financial assets are available-for-sale investments, which
are measured subsequent to initial recognition at fair value,
categorised into Levels 1 to 3 based on the degree to which the
fair value is observable.
There were no changes in fair value hierarchy during the period
ended 30 June 2012 and in the equivalent comparative period.
During the period ended 30 June 2012, a decrease of the fair
value of the available-for-sale investments of US$120 thousand was
recorded in other comprehensive income (30 June 2011: US$794
thousand; 31 December 2011: US$1,868 thousand). In the same period,
an impairment of US$428 thousand was recorded in the income
statement (30 June 2011: US$198 thousand; 31 December 2011: US$198
thousand).
Note 18: Business combination
Business combination in previous years
On 31 December 2010, the Group acquired Helogistics Holding GmbH
and its subsidiaries ('Helogistics') in order to develop the
Group's distribution and logistics capabilities. The initial
accounting for the acquisition of Helogistics as of 31 December
2010 (acquisition date) was only provisionally determined.
During the financial year 2011, the necessary valuations and
assessments have been received so that the accounting for this
acquisition has been finalised resulting in adjustments of the
provisionally determined fair values of certain assets acquired and
liabilities assumed. These adjustments did not have an effect on
the gain on bargain purchase of US$2,623 thousand initially
recognised as of 31 December 2010. Further details are provided in
the Annual Report and Accounts 2011. These adjustments have been
reflected in the statement of financial position of the comparative
period ended on 30 June 2011 and the income statement effect of
these is immaterial.
Note 19: Events after the reporting period
No material adjusting or non-adjusting events have occurred
subsequent to the period end.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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