RNS Number:0765E
Ferrexpo PLC
19 September 2007
19 September 2007
Interim Results for the Six Months ended 30 June 2007
Financial and Production Highlights
Six months ended Six months ended %
(US$ '000, unless stated) 30 June 2007 30 June 2006 Change
------------------------------------------------------------------------------------
Iron ore production (kt) 14,446 12,522 15%
Pellet production (kt) 4,653 3,923 19%
Of which 65% Fe content (kt) 1,778 1,563 14%
Revenue 327,915 236,217 39%
EBITDA 112,300 51,218 119%
Profit for the period 40,579 14,564 179%
Underlying earnings 67,408 16,501 309%
EPS (USc) 6.03 2.55 136%
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Performance Highlights
* Revenue increased by 39% to $327.9 million
* Profit for the period (after IPO costs) increased by 179% to $40.6 million
* Underlying earnings increased by 309% to $67.4 million
* Growth in pellet production volumes of 19% to 4.7mt
* Product quality improved, 14% increase in production of 65% pellets
* Flat nominal unit production costs, despite high Ukrainian inflation
* Successful flotation on the London Stock Exchange in June raising $202.1 million
* Entry into the FTSE 250 index on 12 September 2007
Michael Abrahams, Chairman of Ferrexpo plc commented:
"These strong results are a testament to the continuing operational improvements
at Ferrexpo. We believe the current positive market environment for our business
is set to continue, with the outlook for steel, iron ore and particularly
pellets remaining strong globally. These trends are likely to continue
throughout the second half of this year and beyond."
Mike Oppenheimer, CEO of Ferrexpo plc commented
"I am pleased to report an excellent set of inaugural results, made possible
through a combination of higher volumes, improved operational performance and
strong pricing. Our Business Improvement Programme has led to tight cost
control, and we expect it to continue to yield results across our operations. We
have already begun to deliver on our growth strategy, and we continue to look
for appropriate methods of maximising the value of our extensive undeveloped ore
deposits."
For further information, please contact:
Ferrexpo: +44 207 389 8304
Mike Oppenheimer
Dennis McShane
Gavin Mackay
Finsbury: +44 207 251 3801
Robin Walker
Alex Simmons
Notes to Editors:
Ferrexpo is a Swiss headquartered resources company with assets in Ukraine,
principally involved in the production and export of iron ore pellets, used in
producing steel. Current output is over 9 million tonnes, approximately 90% of
which is exported to steelmakers around the world. The Group is currently
undertaking a significant growth programme and listed on the main market of the
London Stock Exchange in June 2007 under the ticker FXPO. For further
information please visit www.ferrexpo.com.
Chairman's Statement
I am delighted to present Ferrexpo plc's first set of results following our
successful listing on the London Stock Exchange in June this year, when we
raised $202 million (#102 million) for the Group. Our listing as a UK plc and
subsequent inclusion in the FTSE 250 index mark the latest stage in the Group's
development, and we are now well-placed to build on our track record of
successful financial and operational performance.
We extend a warm welcome to all our new shareholders.
Results
The excellent operational performance and strong financial results over the last
six months demonstrate the strengths of our business. Significant growth in both
revenues and profits was achieved through increased volumes, improved operating
efficiency and a favourable global iron ore market. Our revenues for the first
six months were 39% ahead of the equivalent period last year at $327.9 million
($236.2 million). Pre-tax profit increased by 187% to $54.5 million ($19.0 million).
Group EBITDA for the period increased by 119% to $112.3 million ($51.2 million).
Market Environment
Global pricing for iron ore remains firm, driven by continuing demand for steel
from China and other industrialising nations. Seaborne benchmark prices
increased by 9.5% for fine and lump ores and 5.3% for blast furnace pellets from
early 2007. This price increase has had a knock-on effect on our pellet pricing
and resulted in a marked positive impact on our second quarter earnings, where
the average price per tonne achieved in the first six months of 2007 rose by 23%
as compared with the same period last year.
Operations
Ferrexpo remains the leading exporter of iron ore pellets from the Ukraine. The
volume of iron ore mined during the period rose to 14.4 million tonnes, an
increase of 15% over the same period in the prior year. Pellet production
reached 4.7 million tonnes, a 19% increase. Notably, our increase in production
was accompanied by an increase in the quality of our pellets, with the volume of
high-grade pellets (Fe content above 65%) produced reaching 1.8 million tonnes,
14% more than in the equivalent period in 2006.
In contrast to many businesses in the sector, we have kept our production costs
broadly flat in nominal terms. Given the fact that the official Producer Price
Inflation rate in Ukraine for the six months to 30 June 2007 was 11.0%, we have
achieved a material real reduction in costs compared with the equivalent period
last year.
These reductions, and the achieved rates of production growth, have resulted
directly from the implementation of a comprehensive Business Improvement
Programme at our major asset, the Ferrexpo Poltava mine, aimed at moving the
operations towards best practice in mining, processing and business processes.
This rate of cost improvement is unlikely to be sustained and whilst ongoing
improvements in efficiencies and productivity will be relentlessly pursued via
the Business Improvement Programme, we are facing increasing cost pressures on
key input prices and competition for skilled labour.
Marketing and distribution remain important to both our revenue and our
profitability, and we will continue to build on the Group's existing global
customer base to grow market share as well as develop the Group's logistical
capabilities to match its growing production. Progress has already been made on
this front.
Management of health, safety and the environment is a priority and our programme
of continuous improvement is delivering positive results.
Investing Activities
Operating cash flow for the Group has increased significantly to $83.3 million,
when compared to the same period last year. This strong cash flow along with the
proceeds of our listing gives us the financial capacity to begin investing in
our growth programme. We are using these funds to continue to execute our
strategy as set out at our IPO. During the first six months of 2007, the Group
invested $21.6 million in continuing to develop and upgrade our existing
operations.
The main emphasis of the Group's investment policy is the commencement of our
expansion project. The Board has conducted a preliminary review of this project,
and management preparations for the integrated expansion of the business are on
track, with $64.5 million having already been committed to this project. This
includes the $46 million recently committed for new draglines, representing the
first capital expenditure for the development of the Yeristovskoe deposit.
People
The first six months of 2007 have seen fundamental changes within the Group. The
Board would like to thank all the employees of Ferrexpo, who have responded to
the challenges presented by these changes with enthusiasm. On the operating
level, improvements to efficiency and productivity are increasingly evident, and
we continue to build capability in best practice mining.
Corporate Governance and Social Responsibility
As a newly-listed company on the London Stock Exchange, the Board is firmly
committed to delivering high standards of corporate governance. We aim to be
fully compliant with the Combined Code within the first year of listing. We
believe that the combination of a strong management team and experienced
independent Directors will provide the best opportunities for growth and
strategic direction for the Group.
We take Corporate Social Responsibility very seriously and believe that the
health and safety of our employees, respect for the environment and active
engagement with local communities are a vital part of our business in the long
term. We will continue to put in place measures to ensure our responsibilities
in this regard are fulfilled.
Strategy
The Board continues to refine and develop the strategy as set out at the IPO,
aiming to increase the efficiency and productivity of the current operations,
deliver on our project pipeline and extend our producing assets. However, the
great long-term opportunity for Ferrexpo, with one of the world's largest iron
ore resources, is to find the most appropriate method of maximising its value by
accelerating the commercialisation of our extensive undeveloped ore deposits.
The Board is considering several options to accelerate this commercialisation,
including the involvement of outside parties to provide funding and execution
capability.
Outlook
We are of the view that the positive market environment for our business is set
to continue. Our iron ore customers remain largely unaffected by the recent
volatility in the global credit and equity markets, with the result that the
outlook for iron ore and steel remains strong globally. Regionally, in our
traditional markets such as Central/Eastern Europe and Ukraine, and in our
growth markets, principally China and Turkey, the outlook for iron ore pellets
in particular continues to be good. We believe that these trends will continue
throughout the second half of this year and beyond.
The Board will continue to drive the growth of the Group to take advantage of
the unprecedented market environment for iron ore.
As set out in the Prospectus, the Directors intend to pursue a dividend policy
consistent with the Group's growth profile, reflecting the investment the Group
is making to drive future growth and the cash generated by the existing
operations, while maintaining a prudent level of dividend cover. The Group will
not pay an interim dividend in 2007, but the Directors intend to declare a final
dividend of not less than US$10 million for the year ending 31 December 2007.
Thereafter, an interim and final dividend of approximately equal proportions
will be paid.
OPERATING & FINANCIAL REVIEW
Highlights
* Revenue increased to $327.9 million, up 39% on the equivalent period in 2006
* Profit for the period (after IPO costs) increased to $40.6 million, up 179%
* Net financial indebtedness reduced by $143.4 million to $127.5 million
* Growth in pellet production volumes of 19% to 4.7mt
* Product quality improved, 14% increase in production of 65% pellets
* Flat nominal unit production costs, despite high Ukrainian inflation
* Operations commenced at our new port investment on the Black Sea - TIS Ruda
* Development of the Yeristovskoe deposit underway
* Studies underway for the upgrading of the current pit and for the development
of the Belanovskoe and Galeschinskoe deposits
OPERATING REVIEW
Key Statistics
UOM 6 months ended 6 months ended % Change
30 June 2007 30 June 2006
------------------------------------------------------------------------------
Iron ore mined 000't 14,446 12,522 15
Average Fe content % 29.80 29.64 1
Produced concentrate 000't 5,293 4,475 18
Average Fe content % 63.44 63.32 -
Purchased concentrate 000't 223 212 5
Average Fe content % 64.01 63.85 -
Total pellet production (BFP) 000't 4,653 3,923 19
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| from produced concentrate 000't 4,450 3,738 19|
| - Higher grade 000't 1,778 1,563 14|
| Average Fe content % 65.13 65.08 -|
| - Lower grade 000't 2,672 2,175 23|
| Average Fe content % 62.26 62.16 -|
| |
| from purchased concentrate 000't 203 185 10|
| - Lower grade 000't 203 185 10|
| Average Fe content % 62.26 62.16 -|
-------------------------------------------------------------------------------
Pellet sales volume 000't 4,511 4,055 11
Gravel production 000't 1,604 1,468 9
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The first six months of 2007 saw an increasingly positive market environment for
our products. This has provided the impetus for Ferrexpo Poltava Mining
("Ferrexpo Poltava") to focus strongly on growing production volumes over the
period. Since the beginning of the year Ferrexpo Poltava has mined 14,446kt of
iron ore with an average Fe content of 29.80%. This represents a 15% increase in
ore extraction compared to the same period last year. In addition, rich ore made
up a greater proportion of the overall volumes extracted (45% versus 42% in the
equivalent period last year). This greater volume together with higher quality
ore represents a considerable improvement in mining performance. Production of
iron ore concentrate reached 5,293kt, an increase of 18% over the equivalent
period last year. The quality of the concentrate was also higher than in the
first half of 2006, which enabled us to raise our production of higher-grade
pellets, achieving an average Fe content of 65.13%.
The volume of pellet production was 4,653kt, an improvement of 18.6% over the
first half of 2006, with pellet production from our produced concentrate
increasing by 19.2%. Historically, the Group has produced a small proportion of
iron ore pellets from purchased concentrate in order to optimise capacity
utilisation at our pelletising plant, albeit at a significantly lower margin
than can be achieved from pellets produced from from own ore concentrate. .
During the first half of 2007, the Group purchased 223kt of concentrate to
produce additional pellets. However, tightness of the concentrate market has
driven prices up to a level where it is now difficult for the Company to achieve
an appropriate margin on pellets produced from purchased concentrate. Management
has decided to scale back purchases of concentrate until market conditions
improve, with the result that the business may produce less of this lower margin
product in the second half of 2007.
As expected, the first half of 2007 saw a slightly lower volume from stripping
operations, due to a shift of mining operations towards the south-eastern part
of the pit, which has a lower stripping ratio.
We have continued to see positive results from our Business Improvement Program
("BIP"), which is being strongly driven by Ferrexpo Poltava management, assisted
by GPR Dehler, a consultant widely used in the mining industry to facilitate
these improvement initiatives. The aim of the BIP is to introduce global best
practice in efficiency and productivity into the different areas of operation at
Ferrexpo Poltava. As a consequence of the BIP, in the first half of 2007
Ferrexpo Poltava reduced the nominal cost per cubic metre of drilling and
blasting, as well as rock transportation by conveyors. For example, the
performance from the KRUPP crushing and conveying complex improved such that the
cost per tonne of crushing decreased by 69%, and a reorganisation of the in-pit
transport vehicle maintenance and repair process has led to more efficient usage
of these vehicles.
Ferrexpo Poltava was also able to control costs via a reduction in the rate of
consumption of energy and raw materials. Electricity consumption per tonne of
pellets produced, the largest single cost item, declined by 8.6 % during the
first six months of 2007 as against the equivalent period last year, with gas
consumption declining by 14.2%. There was also a 5.7% decline in the consumption
of steel grinding bodies. More efficient use of machinery was also a
contributing factor. As a result, in the first half of 2007 the nominal cash
cost of pellet production (C1) was 29.88 $/t, whereas in the first half of 2006
it was 29.83 $/t. Our costs are principally denominated in Ukrainian Hryvnia,
which is a managed currency currently maintained at approximately UAH5/$1. The
fact that our nominal costs remained flat over a period during which the
Ukrainian Producer Price Index (PPI) was 11.0% indicates a material real terms
reduction in costs relative to the equivalent period last year.
The average number of personnel on the Ferrexpo Poltava payroll was reduced from
10,690 in the first half of 2006 to 9,771 in the reported period as a result of
organisation redesign, and efficiency and productivity initiatives.
Marketing and distribution remain a key factor in the success of the Group's
business. We have continued to strengthen our position in our traditional
markets (Eastern and Central Europe and Ukraine). We are actively pursuing new
market positions to underpin our growth strategy and have now added supply into
Turkey and also Japan to our mix of growth markets, currently centered around
China. We continue to strive to move our overall sales book further towards
longer term contracts and to build strategic relationships with major customers.
Since the end of the period under review, one of our long-standing customer
relationships was cemented by the extension to 2015 of the long term supply
agreement with Voestalpine AG, in late July.
Distribution costs per ton of pellets sold have increased by 3% compared with
the equivalent period last year, from 10.12$/t to 10.43$/t. This resulted from
increases in railway tariffs and port charges imposed by the Ukrainian
authorities. The Group has begun to implement a series of measures to minimise
the effect of rising distribution costs. These include renegotiating freight
terms with customers, using transhipment ports with lower charges, using our own
barge port on the Dnieper River more intensively and investing in a new,
privately owned and operated port facility..
The decision by the Group to invest in the first privately owned bulk commodity
port in the former CIS at Yuzhny on the Black Sea was driven by a strategy of
managing distribution costs as well as providing port capacity to enable the
Group to grow exports to its growth markets. The TIS Ruda venture was
established in December 2006. The Group owns 49.9% of the equity, but has rights
to use 100% of its capacity. began operations in May 2007.The terminal has
state-of-the-art facilities for bulk cargo handling, and its capacity of 5mtpa
allows the Group to accelerate the loading of seaborne vessels, while reducing
its reliance on congested state ports.
During the first half of 2007 the Group's total capital expenditure was $53.4
million, an increase of 11% over the equivalent period in 2006. The major part
of this, $21.6 million, was invested in the mining complex as maintenance
capital and on projects to optimise the current pit performance. During the
reported period pre-stripping operations in the new pit at Yeristovskoe (which
borders on the northern part of the current pit) were started. $2.2 million was
spent over the period. Organisation of the pre-stripping operations and the
placement of orders for mining equipment are being carried out jointly with our
mining alliance partners, DTP Terassement S.A. (France). Preliminary engineering
assessments and a geological survey were undertaken at the Belanovskoe deposit
and technical activities continue on our northern deposits in line with out
licence commitments.
FINANCIAL REVIEW
Summary of Financial Results
US$ 000 6 months to 30 June 6 months to 30 June % Change
2007 2006
-----------------------------------------------------------------------------
Revenue 327,915 236,217 39
EBITDA 112,300 51,218 119
As % of revenue 34% 22%
Profit before taxation 54,484 18,973 187
Income tax 13,905 4,409 215
Profit for the period 40,579(1) 14,564 179
Underlying earnings 67,408 16,501 309
Underlying earnings per share 11.10 2.80 296
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Earnings per share 6.03 2.55(2) 136
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The Group achieved top line growth of 39% compared to the first six month of
2006, with revenue increasing by $91.7 million to $327.9 million. This strong
performance was principally due to strong pellet prices, together with growth in
both absolute sales volume and in high-grade pellet sales volume.
Firm cost control enabled the Group to increase EBITDA for the first six months
of the year by 119% to US$112.3 million. Of particular note is the improvement
to the Group's sales margin, which resulted in a rise in EBITDA margin from 22%
in the first half of 2006 to 34% in the current period, and also led to an
increase in underlying earnings by 309% to $67 million.
The Group did experience an increase of 32% in General and Administrative
Expenses, primarily as a result of the IPO and the additional costs associated
with becoming and maintaining a UK plc, and hiring and retaining quality
management. These costs commenced prior to the IPO and are likely to continue at
these levels, as the cost structure of the Group's administrative functions has
been fundamentally altered. IPO costs amounting to US$30.1 million were incurred
during the period under review.
The Group experienced a small increase in its effective tax rate in the first
half of 2007, which was a direct consequence of the considerable growth in
pellet sales to the Ukrainian market over this period. This is higher margin
business, and resulted in an increased amount of profit taxable at the 25%
corporate tax rate applied in Ukraine.
The Group's Ukrainian operations have continued to experience delays in
recovering VAT from the government on a timely basis during the period, which
represents an additional debt burden to the Group. Management are of the opinion
that the VAT refunds are fully recoverable - there are no legal grounds for the
non-payment of this receivable and are actively pursuing this issue with the
relevant government authorities.
In the beginning of 2007 the Group restructured its bank debt, extending the
maturity dates of its outstanding loans and decreasing its cost of debt. As part
of this restructuring, the Group raised a syndicated loan in an initial amount
of $275.0 million. This successful transaction was later increased to $335.0
million as a result of oversubscription.
These strong results together with a considerable increase in net cash flow from
operating activities and the proceeds of our recent IPO have enabled us to
strengthen our Balance Sheet. As a result, Net Financial Indebtedness ("NFI")
has decreased from $270.9 million (as of 30 June 2006) to $127.5 million (as of
30 June 2007).
The Group's balance sheet has strengthened, and our increased financial
stability is apparent in our debt to equity ratio (calculated as NFI divided by
NFI plus Equity) which was 0.21 as at 30 June 2007, as compared to 0.50 as at 30
June 2006.
--------------------------
(1) After IPO costs of $30 million
(2) Pro forma
Consolidated income statement
US$ 000 Notes 6 months 6 months Year
ended ended ended
30.06.07 30.06.06 31.12.06
--------------------------------------------------------------------------
Revenue 2,3 327,915 236,217 547,310
Cost of sales (160,287) (141,151) (296,720)
--------------------------------------------------------------------------
Gross profit 167,628 95,066 250,590
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Selling and distribution expenses (47,178) (41,033) (86,376)
General and administrative expenses (19,962) (15,135) (41,140)
Other income 1,680 1,084 2,583
Other expenses (3,203) (3,443) (5,078)
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Operating profit from continuing 98,965 36,539 120,579
operations before adjusted items
Write-offs and impairment losses 4 (1,101) (1,770) (2,205)
Share of losses of associates (118) - -
Net loss on disposal of subsidiary 5 - - (3,524)
Initial public offering costs (30,142) - -
--------------------------------------------------------------------------
Profit before tax and finance 67,604 34,769 114,850
--------------------------------------------------------------------------
Finance income 854 1,560 2,326
Finance expense (12,985) (15,738) (32,655)
Foreign exchange loss (989) (1,618) (3,784)
--------------------------------------------------------------------------
Profit before tax 54,484 18,973 80,737
--------------------------------------------------------------------------
UK tax (92) (89) (279)
--------------------------------------------------------------------------
Overseas tax (13,813) (4,320) (14,479)
--------------------------------------------------------------------------
Profit for the year 40,579 14,564 65,979
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Attributable to:
Equity shareholders of Ferrexpo plc 36,634 15,485 63,578
Minority interest 3,945 (921) 2,401
40,579 14,564 65,979
Earnings per share
Basic 7 6.03 2.55 10.47
Diluted 7 6.00 2.55 10.47
No dividends were paid or proposed in the periods presented.
Consolidated balance sheet
US$ 000 Notes As at As at As at
30.06.07 30.06.06 31.12.06
----------------------------------------------------------------------
Assets
Property, plant and equipment 8 322,769 313,345 301,343
Goodwill and other intangible assets 156,534 9,275 156,534
Investments in associates 16,832 - 16,950
Available-for-sale financial assets 36,040 34,628 34,641
Other non-current assets 3,699 17,496 916
----------------------------------------------------------------------
Total non-current assets 535,874 374,744 510,384
----------------------------------------------------------------------
Inventories 55,383 50,632 48,487
Trade and other receivables 49,951 31,096 58,284
Prepayments and other current assets 14 10,310 122,581 17,118
Income taxes recoverable and prepaid 118 3,814 1,424
Other taxes recoverable and prepaid 46,812 28,252 42,489
Available-for-sale financial assets 95 139 1,451
Short term deposits with banks 9 1,460 9,489 11,043
Cash and cash equivalents 10 71,904 7,735 16,236
----------------------------------------------------------------------
Total current assets 236,033 253,738 196,532
----------------------------------------------------------------------
----------------------------------------------------------------------
Total assets 771,907 628,482 706,916
----------------------------------------------------------------------
Equity and liabilities
Share capital 11 121,628 - -
Reserves 319,698 161,977 300,646
----------------------------------------------------------------------
Equity attributable to equity 441,326 161,977 300,646
shareholders of the parent
----------------------------------------------------------------------
Minority interest 39,840 109,321 36,146
----------------------------------------------------------------------
Total equity 481,166 271,298 336,792
----------------------------------------------------------------------
Interest-bearing loans and borrowings 13 178,667 86,450 204,732
Trade and other payables 4,994 11,085 10,484
Shares redemption liability 12 9,532 8,607 9,062
Defined benefit pension liability 15,136 14,272 14,501
Provision for site restoration 440 370 402
Deferred tax liability 2,613 6,058 2,535
----------------------------------------------------------------------
Total non-current liabilities 211,382 126,842 241,716
----------------------------------------------------------------------
Interest-bearing loans and borrowings 15,350 184,711 81,243
Trade and other payables 29,002 24,826 21,492
Liability to minority participants - 3,566 -
Accrued liabilities and deferred income 27,331 13,602 17,986
Income taxes payable 2,579 2,413 4,646
Other taxes payable 5,097 1,224 3,041
----------------------------------------------------------------------
Total current liabilities 79,359 230,342 128,408
----------------------------------------------------------------------
----------------------------------------------------------------------
Total liabilities 290,741 357,184 370,124
----------------------------------------------------------------------
----------------------------------------------------------------------
Total equity and liabilities 771,907 628,482 706,916
----------------------------------------------------------------------
Consolidated cash flow statement
$000 Notes 6 months 6 months Year
ended ended ended
30.06.07 30.06.06 31.12.06
-------------------------------------------------------------------------------------
Net cash flows from operating activities 15 83,324 4,039 68,300
Cash flows from investing activities
Purchase of property, plant and equipment (53,430) (37,253) (48,760)
Proceeds from sale of property, plant and equipment 14,870 290 374
Purchase of intangible assets - (10) (745)
Deposits lodged at banks 7,475 9,877 8,732
Purchases of available for sale securities - - (3,119)
Proceeds from sale of financial assets 139 - 2,408
Interest received 329 116 1,473
Dividends received - - 17
Acquisition of minority interest in subsidiaries - - (231,945)
Acquisition of associates - - (16,950)
Loans provided to related parties - - (16,674)
Loans provided to related parties (associates) (5,000) - -
Loans repaid by related parties - - 123,457
Proceeds from disposal of subsidiaries - - 4,338
-------------------------------------------------------------------------------------
Net cash flows used in investing activities (35,617) (26,980) (177,394)
-------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from borrowings and finance 175,244 201,432 565,593
Repayment of borrowings and finance (267,471) (160,015) (512,819)
Dividends paid to minority interest (465) (4) (245)
Distribution under 50/50 tax ruling (5,000) (10,210) (31,521)
Proceeds from issue of share capital in subsidiaries - 2,684 -
Proceeds from issue of share capital in Ferrexpo AG - - 109,329
Purchase of shares in previous parent (64,055) - -
Initial public offering proceeds 202,072 - -
Initial public offering costs (32,250) (6,199) (7,503)
--------------------------------------------------------------------------------------
Net cash flows from financing activities 7,797 27,688 122,834
--------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 55,504 4,747 13,740
Cash and cash equivalents at the beginning of the period 16,236 2,496 2,496
Currency translation differences 164 492 -
-------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period 10 71,904 7,735 16,236
Consolidated statement of changes in equity
Attributable to equity shareholders of the parent
Uniting of
Issued Share Treasury interest Revaluation Translation Retained Total Minority Total
$000 capital Premium shares reserve reserve reserve earnings reserves interests equity
------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 - - - 27,967 2,453 186 117,548 148,154 107,756 255,910
Profit for the period - - - - - - 15,485 15,485 (921) 14,564
Items recognised
directly in equity:
Distribution
under 50/50
tax ruling - - - - - - (1,662) (1,662) - (1,662)
Share capital
issue by
subsidiary
undertakings to
minority
shareholders - - - - - - - - 2,686 2,686
Equity dividends
paid by
subsidiary
undertakings
to minority
shareholders - - - - - - - - (200) (200)
------------------------------------------------------------------------------------------------------------------------
At 30 June 2006 - - - 27,967 2,453 186 131,371 161,977 109,321 271,298
------------------------------------------------------------------------------------------------------------------------
Profit for the period - - - - - - 48,093 48,093 3,322 51,415
Items recognised
directly in equity:
Distribution under
50/50 tax ruling
tax ruling - - - - - - (19,528) (19,528) - (19,528)
Acquisition of
minority interest
through capital
increase - - - - - - - - (75,359) (75,359)
Equity dividends
paid by subsidiary
undertakings to
minority
shareholders - - - - - - - - (363) (363)
Proceeds from
issue of share
capital in
Ferrexpo AG - - - 109,329 - - - 109,329 - 109,329
Reversal of
revaluation
relating to
previously
held interest
in Vostock
Ruda LLC, upon
acquisition
of a controlling
interest - - - - (2,453) - 3,228 775 (775) -
------------------------------------------------------------------------------------------------------------------------
At 31 December 2006 - - - 137,296 - 186 163,164 300,646 36,146 336,792
------------------------------------------------------------------------------------------------------------------------
Profit for the period - - - - - - 36,634 36,634 3,945 40,579
Items recognised
directly in equity:
Distribution under
50/50 tax ruling - - - - - - (4,835) (4,835) - (4,835)
Equity dividends
paid by subsidiary
undertakings to
minority
shareholders - - - - - - - - (251) (251)
Share issue in
parent company 121,628 215,275 - - - - - 336,903 - 336,903
Transaction costs
associated with
issue of shares - (34,388) - - - - - (34,388) - (34,388)
Uniting of
interest
elimination - - - (105,516) - - - (105,516) - (105,516)
Share buyback of
previous parent
of the Group - - - - - - (64,055) (64,055) - (64,055)
Treasury shares
issued to Employee
benefit Trust - - (29,216) - - - - (29,216) - (29,216)
Employee benefit
trust award - - 5,153 - - - - 5,153 - 5,153
------------------------------------------------------------------------------------------------------------------------
At 30 June 2007 121,628 180,887 (24,063) 31,780 - 186 130,908 441,326 39,840 481,166
------------------------------------------------------------------------------------------------------------------------
Notes to the Consolidated Financial Information
Note 1: Basis of preparation and summary of significant accounting policies
On 24 May 2007, Ferrexpo plc allotted and issued 533,043,489 ordinary shares in
the Company at a par value of #0.10 each (#53,304,349 (US$105,515,959)) to
Fevamotinico Sarl in exchange for 129,944,923 registered shares of CHF1 each in
the capital of Ferrexpo AG. Pursuant to such transaction, Ferrexpo plc became
the sole shareholder of Ferrexpo AG.
As this transaction involved the combination of businesses under common control,
the pooling of interests method of accounting has been applied in the
presentation of the consolidated financial statements for the year ended 31
December 2006 and periods ended 30 June 2007 and 30 June 2006, which present the
results of the Group as if the Ferrexpo plc had always been the parent company
of the Group. The last filed accounts of Ferrexpo plc qualified for exemption
from audit under section 249AA of the Companies Act 1985 as it was dormant
during the period. The last filed accounts of Ferrexpo AG (the previous
consolidated Group accounts) contained an unqualified audit opinion, and no
statements equivalent to s237(2) or s237(3) under the Companies Act 1985.
A historic share purchase and sale transaction in Ferrexpo Poltava GOK
Corporation shares, the amount of which following dilution now represents less
than 25% of the issued share capital of Ferrexpo Poltava GOK Corporation, is the
subject of an ongoing legal challenge that commenced in November 2005, and was
initially dismissed by the Ukrainian Supreme Court in April 2006, but has
recently been recommenced in a lower court. The plaintiff, a party to the
disputed transaction, initiated legal proceedings in the Ukrainian courts
seeking to invalidate the original share sale and purchase agreement. The
plaintiff claims that the agreement was not executed in accordance with
Ukrainian legislation. No remediation or damage has been claimed. In the event
of the claim succeeding and being upheld on appeal and the issued share capital
being transferred to the plaintiff, the Group will retain control of Ferrexpo
Poltava GOK Corporation. Neither the Company, nor the beneficial owner nor any
of the Group's subsidiary undertakings are involved in the legal proceedings.
Management, having taken appropriate legal advice, believe that the claim is
without merit and consider that there is a remote likelihood that the Group's
ownership of the related interest in Ferrexpo Poltava GOK Corporation will be
successfully challenged and that the Group will not suffer material financial
costs in connection with this matter.
On the 15 June 2007, the Company's ordinary shares were admitted to the Official
List of the Financial Services Authority and to trading on the London Stock
Exchange. The global offer comprised of 152,097,932 ordinary shares of #0.10
each at a price of #1.40, of which 72,527,361 new ordinary shares of #0.10 each
were issued by the Company (US$14,433,743) and 79,570,571 were ordinary shares
of #0.10 each sold by existing shareholders. Gross proceeds of #101,538,305
($202,072,397) were received by the Company following the issue of the new
ordinary shares.
The interim consolidated financial statements for the six months ended 30 June
2007 have been prepared in accordance with International Accounting Standard
(IAS) 34 Interim Financial Reporting. The interim financial statements have been
prepared on a historical cost basis, except for post-employment benefits
measured at fair value and available for sale financial instruments measured at
fair value in accordance with the requirements of IAS 39 "Financial instruments:
recognition and measurement". The consolidated historical financial information
is presented in US Dollars thousands and all values are rounded to the nearest
thousand except where otherwise indicated.
The interim condensed consolidated financial statements do not include all 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 2006 as presented in the listing Prospectus.
The financial information for the year ended 31 December 2006 does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985. This information was derived from the Group's annual financial statements
for the year ended 31 December 2006 presented in the listing prospectus, a copy
of which has been delivered to the London Stock Exchange.
The accounting policies applied are consistent with those adopted and disclosed
in the Group's annual financial statements for the year ended 31 December 2006,
except for the adoption of new Interpretations, noted below:
* IFRIC 9 Reassessment of Embedded Derivatives
The Group adopted IFRIC Interpretation 9 as of 1 January 2007, which states that
the date to assess the existence of an embedded derivative is the date that an
entity first becomes party to the contract, with reassessment only if there is a
change to the contract that significantly modifies the cashflow.
* IFRIC 10 Interim Financial Reporting and Impairment
The Group adopted IFRIC Interpretation 10 as of 1 January 2007, which requires
that an entity must not reverse an impairment loss recognised in a previous
interim period in respect of goodwill or an investment in either an equity
instrument or a financial asset carried at cost.
There is no material impact to the Group's financial statements resulting from
the adoption of these Interpretations.
Note 2: Segment information
A segment is a distinguishable component of the Group that is engaged either in
providing products or services (business segment), or in providing products or
services within a particular economic environment (geographical segment), which
is subject to risks and rewards that are different from those of other segments.
Segment information is presented in respect of the Group's business and
geographical segments.
Segment results, assets and liabilities include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis.
Primary reporting format - Business segments
The Group's activity is primarily the mining of iron ore and sale of iron ore
pellets thereof and for the purpose of the consolidated financial statements
only one business segment is therefore identified as a reportable segment.
Secondary reporting format - Geographical segments
The Group operated in two distinct geographical segments for the processing and
sale of iron ore for the three years ended 31 December 2006.
The Group's principal mining operations are based in Ukraine and its marketing
and management operations are based in Switzerland. The unallocated amounts
relate to non-operating assets and liabilities of the head office function,
which is based in Switzerland.
6 months ended 30.06.07
$000 Ukraine Switzerland Unallocated Total
-----------------------------------------------------------------------
Revenue
Sales 274,301 265,478 3,519 543,298
Inter-segment sales (211,864) - (3,519) (215,383)
------------------------------------------------------------------------
Sales to external customers 62,437 265,478 - 327,915
------------------------------------------------------------------------
Other segment information
Segment assets 604,461 525,583 517,945 1,647,989
Elimination (876,082)
------------
Total assets 771,907
------------
Segment liabilities 221,620 291,084 169,873 682,577
Elimination (391,836)
------------
Total liabilities 290,741
------------
Capital expenditure:
Property, plant and equipment 50,570 416 6 50,992
Depreciation and amortisation 14,037 125 62 14,224
6 months ended 30.06.06
$000 Ukraine Switzerland Unallocated Total
-----------------------------------------------------------------------
Sales 208,744 215,546 3,009 427,299
Inter-segment sales (188,073) - (3,009) (191,082)
------------------------------------------------------------------------
Sales to external customers 20,671 215,546 - 236,217
------------------------------------------------------------------------
Other segment information
Segment assets 764,969 151,804 129,666 1,046,439
Elimination (417,957)
------------
Total assets 628,482
------------
Segment liabilities 317,539 49,583 128,122 495,244
Elimination (138,059)
------------
Total liabilities 357,185
------------
Capital expenditure:
Property, plant and equipment 37,576 214 44 37,834
Depreciation and amortisation 16,159 78 60 16,297
Year ended 31.12.06
$000 Ukraine Switzerland Unallocated Total
-----------------------------------------------------------------------
Revenue
Sales 468,321 467,700 7,917 943,938
Inter-segment sales (388,711) - (7,917) (396,628)
------------------------------------------------------------------------
Sales to external customers 79,610 467,700 - 547,310
------------------------------------------------------------------------
Other segment information
Segment assets 611,058 391,616 62,048 1,064,722
Elimination (357,806)
------------
Total assets 706,916
------------
Segment liabilities 248,840 160,385 60,258 469,483
Elimination (99,359)
------------
Total liabilities 370,124
------------
Capital expenditure:
Property, plant and equipment 53,993 297 59 54,349
Intangible fixed assets 156,423 - - 156,423
Depreciation and amortisation 28,270 176 117 28,563
Elimination balances represent intercompany transactions.
Note 3: Revenue
Revenue consisted of the following:
6 months 6 months Year
ended ended ended
30.06.07 30.06.06 31.12.06
$000 $000 $000
-------------------------------------------------------------
Revenue from sales of ore pellets:
Export 265,454 215,470 467,099
Ukraine 59,527 16,531 73,089
-------------------------------------------------------------
324,981 232,001 540,188
-------------------------------------------------------------
Revenue from sales of services 150 2,520 3,158
Revenue from other sales 2,784 1,696 3,964
-------------------------------------------------------------
327,915 236,217 547,310
-------------------------------------------------------------
Export sales by geographical destination were as follows:
6 months 6 months Year
ended ended ended
30.06.07 30.06.06 31.12.06
$000 $000 $000
-------------------------------------------------
Austria 84,037 67,148 140,286
China 45,185 37,131 83,258
Slovakia 30,254 25,931 54,143
Serbia 48,163 24,126 64,015
Czech Republic 22,676 21,226 52,775
Bulgaria 13,368 10,791 15,587
Poland 5,466 8,340 15,571
Romania 7,038 7,815 23,838
Germany - 4,183 4,183
Turkey 5,849 8,779 12,302
Italy 3,418 - -
Other - - 1,141
-------------------------------------------------
265,454 215,470 467,099
-------------------------------------------------
Note 4: 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 comprise:
$000 6 months 6 months Year
ended ended ended
30.06.07 30.06.06 31.12.06
--------------------------------------------------------------------
Write-off of inventories 112 37 341
Write-off of property, plant and equipment 693 1,543 1,543
Other impairment / (reversal) 296 190 321
--------------------------------------------------------------------
1,101 1,770 2,205
--------------------------------------------------------------------
Note 5: Net loss on disposal of subsidiary
Loss on disposal of subsidiary consisted of the following:
$000 6 months 6 months Year
ended ended ended
30.06.07 30.06.06 31.12.06
----------------------------------------------------------------
Loss on disposal of subsidiary - - 3,524
In 2006 the Group sold a 90.6% interest in its subsidiary Vostock Ruda to
entities under common control for consideration of $9,474,000, resulting in a
loss on disposal of $3,524,000. Of the total consideration, $4,338,000 was
received during the year ended 31 December 2006 and $5,136,000 remains unpaid at
the period ending 30 June 2007 and is included in current assets within other
receivables.
Note 6: EBITDA
The Group calculates EBITDA as profit from continuing operations before tax and
finance less foreign exchange (loss)/gain plus depreciation and amortisation
(included in cost of sales, administrative expenses and selling and distribution
costs) and non-recurring cash items included in other income, non-recurring cash
items included in other costs plust the net gain/(loss) from disposal of
subsidiaries and associates. The Group presents EBITDA because it believes that
EBITDA is a useful measure for evaluation its ability to generate cash and its
operating performance.
US$ 000 Notes 6 months 6 months Year
ended ended ended
30.06.07 30.06.06 31.12.06
-------------------------------------------------------------------------
Profit before tax and finance 67,604 34,769 114,850
Foreign exchange loss (989) (1,618) (3,784)
Write-offs and impairment losses 4 1,101 1,770 2,205
Net loss on disposal of subsidiary 5 - - 3,524
Initial public offering costs 30,142 - -
Depreciation and amortisation 2 14,442 16,297 28,563
--------------------------
EBITDA 112,300 51,218 145,358
--------------------------
Note 7: Earnings per share and dividends paid and proposed
The earnings per share ("EPS") calculation has assumed that the number of
ordinary shares issued pursuant to the share exchange agreements in relation to
the acquisition of Ferrexpo AG by Ferrexpo plc have been in issue throughout
2004 and 2005 which is consistent with the pooling of interests method used to
account for combinations of businesses under common control. The directors
believe that this measure of EPS provides a more meaningful comparison with the
Group's ongoing business than using the statutory EPS which would only reflect
shares issued based on the actual date of issue.
Basic EPS is calculated by dividing the net profit for the year attributable to
ordinary equity shareholders of Ferrexpo AG by the number of ordinary shares as
defined above.
6 months 6 months Year
ended ended ended
30.06.07 30.06.06 31.12.06
---------------------------------------------------------------------------------------
Profit for the period attributable to equity shareholders:
Basic earnings per share (US cents) 6.03 2.55 10.47
Diluted earnings per share (US cents) 6.00 2.55 10.47
Underlying earnings for the period:
Basic earnings per share (US cents) 11.10 2.80 10.92
Diluted earnings per share (US cents) 11.05 2.80 10.92
The calculation of the basic and diluted earnings per share is based on the following data:
Thousands 6 months 6 months Year
ended ended ended
30.06.07 30.06.06 31.12.06
--------------------------------------------------------------------------------------
Number of shares
Basic number of ordinary shares outstanding 607,471 607,471 607,471
Effect of dilutive potential ordinary shares 2,716 - -
----------------------------------
Diluted number of ordinary shares outstanding 610,187 607,471 607,471
----------------------------------
The number of ordinary shares in issue excludes the shares held by the Appleby
employee benefit trust. Diluted earnings per share is calculated by adjusting
the number of ordinary shares in issue on the assumption of conversion of all
potentially dilutive ordinary shares. All share awards are potentially dilutive
and have been included in the calculation of diluted earnings per share.
'Underlying earnings' is an alternative earnings measure, which the directors
believe provides a clearer picture of the underlying financial performance of
the Group's operations. Underlying earnings is presented after minority
interests and excludes adjusted items. The calculation of underlying earnings
per share is based on the following earnings data:
$000 6 months 6 months Year
ended ended ended
30.06.07 30.06.06 31.12.06
-------------------------------------------------------------------
Profit attributable to Equity holders 36,634 15,485 63,578
Write offs/impairments 1,101 1,770 2,205
Loss on disposals - - 3,524
IPO costs 30,142 - -
Tax on adjusting items (275) (442) (1,432)
Minority interests (155) (250) (1,213)
Tax on Minority interests (39) (62) (303)
-------------------------------
Underlying earnings 67,408 16,501 66,359
-------------------------------
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
adjusting items include profits and losses on disposal of investments and
businesses.
Dividends paid and proposed
$000 6 months 6 months Year
ended ended ended
30.06.07 30.06.06 31.12.06
---------------------------------------------------------------------
Dividends proposed
Dividend proposed by subsidiary to 251 200 563
minority interest 30 June 2007 $0.015
(30 June 2006: $0.005: 31 December 2006:
$0.01)
---------------------------------------------------------------------
Total 251 200 563
---------------------------------------------------------------------
Dividends paid during the period
Final dividend paid by parent company - - 108
proposed in 2004
Final dividend proposed in previous years 465 4 178
to minority interest
---------------------------------------------------------------------
Total 465 4 286
---------------------------------------------------------------------
Note 8: Property, plant and equipment
Acquisitions and Disposals
During the six months ended 30 June 2007, the Group acquired assets with a cost
of $50,992,000 (30 June 2006: $37,834,000; 31 December 2006: $54,349,000), not
including property and equipment acquired through business combination.
Assets with a net book value of $15,014,000 were disposed of by the Group during
the six months ended 30 June 2007, (30 June 2006: $77,000; 31 December 2006:
$301,000), resulting in a gain/(loss) of $140,000 (30 June 2006: $197,000; 31
December 2006: $(601,000)).
Note 9: Short term deposits with banks
Interest bearing term deposits with a maturity term of less than one year
comprised:
$000 Currency As at As at As at
30.06.07 30.06.06 31.12.06
------------------------------------------------------------------------
Short term deposits held with UAH 10 2,777 2,777
related parties (refer to note 14)
Short term deposits held with USD 1,450 5,089 5,164
related parties (refer to note 14)
Ukrainian bank - - 1,070
Interest accrued with related - 1,623 2,032
parties (refer to note 14)
------------------------------------------------------------------------
1,460 9,489 11,043
------------------------------------------------------------------------
The related party balances are with a bank which is an entity under common
control.
Note 10: Cash and cash equivalents
$000 As at As at As at
30.06.07 30.06.06 31.12.06
-------------------------------------------------------------
Cash and cash equivalents at bank 67,846 4,906 14,718
Cash and cash equivalents held 4,015 2,816 1,515
with related parties
(refer to note 14)
Petty Cash 43 13 3
-----------------------------
71,904 7,735 16,236
-----------------------------
The related party balances are with a bank which is an entity under common
control.
Note 11: Share capital
$000
----------------------------------------------------
Balance at 31 December 2006 and 30 June 2006 -
----------------------------------------------------
Issue of new shares on 21 May 2007 99
Issue of new shares on 24 May 2007 105,516
Initial public offering on 15 June 2007 14,434
Issue of new shares on 25 June 2007 1,579
Balance at 30 June 2007 121,628
----------------------------------------------------
The authorised and fully paid share capital of Ferrexpo plc at 30 June 2007 was
613,917,956 ordinary shares at a par value of #0.10 paid for in cash, resulting
in share capital of $121,627,585 per the balance sheet.
At 30 June 2006 and 31 December 2006 the authorised and fully paid share was 2
ordinary shares at a par value of #1 paid for in cash, resulting in share
capital of $4.
On 21 May 2007 Ferrexpo plc allotted and issued 49,998 ordinary shares in the
Company at par value of #1 each (US$98,620). Following such the allotment,
Ferrexpo plc's total issued and authorised share capital was subdivided into
500,000 ordinary shares of #0.10 each. The Company's authorised share capital
was subsequently increased to #60,050,000 divided into 600,500,000 shares of
#0.10 shares each.
On 24 May 2007, Ferrexpo plc allotted and issued 533,043,489 ordinary shares in
the Company at a par value of #0.10 each (US$105,515,959) to Fevamotinico Sarl
in exchange for 129,944,923 registered shares of CHF1 each in the capital of
Ferrexpo AG. Pursuant to such transaction, Ferrexpo plc became the sole
shareholder of Ferrexpo AG.
On the 15 June 2007, the Company's ordinary shares were admitted to the Official
List of the Financial Services Authority and to trading on the London Stock
Exchange. The global offer comprised 152,097,932 ordinary shares of #0.10 each
at a price of #1.40, of which 72,527,361 new ordinary shares of #0.10 each were
issued by the Company (US$14,433,743) and 79,570,571 were ordinary shares of
#0.10 each sold by existing shareholders. Gross proceeds of #101,538,305 ($
202,072,000) were received by the Company following the issue of the new
ordinary shares.
On the 25 June 2007 Ferrexpo plc allotted and issued 7,897,016 ordinary shares
of #0.10 in the Company (US$1,579,263) fully paid at a premium of #1.75 to the
Appleby Trust (the employee benefit trust) in exchange for 2,000,000 shares of
CHF 1 in the capital of Ferrexpo AG, representing the treasury shares held by
Ferrexpo AG, setting up a treasury share reserve.
Note 12: Shares redemption liability
In October 2003, JSC Poltava GOK sold 15 per cent of its shares to DCM Decometal
International Trading GmbH ("DCM") subject to a deferred obligation to
repurchase these shares at a fixed price of US$11.0 million. The share
redemption liability represents the present value in respect of this contractual
obligation. The movement in the shares redemption liability comprised:
$000
-------------------------------------------
Balance as at 31 December 2005 8,182
-------------------------------------------
Interest expense 425
-------------------------------------------
Balance as at 30 June 2006 8,607
-------------------------------------------
Interest expense 455
-------------------------------------------
Balance as at 31 December 2006 9,062
-------------------------------------------
Interest expense 470
-------------------------------------------
Balance as at 30 June 2007 9,532
-------------------------------------------
Note 13: Interest bearing loans and borrowings
Borrowing and repayment of debt
During the period ended 30 June 2007 the amount of $35,000,000 was repaid on the
major bank debt facility, a $275,000,000 pre-export finance facility. At the
period end the amount not utilised was $145,000,000. During the period
$53,000,000 million was repaid on a number of the financing relationships with
Ukrainian banks (including $7,200,000 with Finance and Credit Bank, a related
party).
Debt Refinancing
No debt was refinanced or renegotiated in the period ended 30 June 2007.
Effective from 11 July 2007 the pre-export finance facility was renegotiated
with a new limit of $335,000,000 agreed with the syndication of banks providing
the finance.
Note 14: Related party disclosure
In the rapidly developing business environment of Ukraine, the Group's entities
have frequently used nominees and other forms of intermediary companies in
transactions. In 2006, the Group entered into transactions with companies acting
on behalf of the beneficial owner of the Group which are disclosed below as
transactions with entities under common control of the beneficial owner,
Kostyantyn Zhevago. These transactions are effected in this way to transfer and
reallocate economic resources between companies of the Group or outside of the
Group.
Management considers that the Group has appropriate procedures in place to
identify and properly disclose transactions with the related parties and has
disclosed all of the relationships identified and which it deemed to be
significant. The significant related party transactions undertaken by the Group
are disclosed below in the following tables below.
Period ended 30 June 2007
$000 Revenue Revenue Purchase of Purchases Purchased Purchased
from from investments of services property,
sales other materials, plant and
of ore sales gas and equipment
pellets electricity
--------------------------------------------------------------------------------------------------------
Entities under common control - 32 - 113 872 179
Other 46 1,562 3,083 7,207 2,580 61
--------------------------------------------------------------------------------------------------------
Total 46 1,594 3,083 7,320 3,452 240
--------------------------------------------------------------------------------------------------------
$000 Finance Finance Bank Bank Loans Other
costs income loans loans provided activities
received repaid
----------------------------------------------------------------------------------------------
Entities under common control 109 303 1,700 10,900 5,000 (501)
Other 471 - - - - (1,575)
-----------------------------------------------------------------------------------------------
Total 580 303 1,700 10,900 5,000 (2,076)
-----------------------------------------------------------------------------------------------
$000 Cash and Trade and Promissory Accounts
cash other notes payable
equivalents receivables issued and other
creditors
-------------------------------------------------------------------------------
Entities under common control 4,015 10,859 218 (874)
Other - 1,123 - (1,597)
-------------------------------------------------------------------------------
Total 4,015 11,982 218 (2,471)
-------------------------------------------------------------------------------
Period ended 30 June 2006
$000 Revenue Revenue Sale of Purchases Purchased Purchased
from from property, of services property,
sales other plant and materials, plant and
of ore sales equipment gas and equipment
pellets electricity
------------------------------------------------------------------------------------------------
Entities under common control 373 2,748 261 4,468 1,016 1,300
Other - 2,237 - 4,356 1,439 85
------------------------------------------------------------------------------------------------
Total 373 4,985 261 8,824 2,455 1,385
------------------------------------------------------------------------------------------------
$000 Finance Finance Bank Bank Prepayments Other
costs income loans loans made activities
received repaid
----------------------------------------------------------------------------------------------
Entities under common control 1,131 474 39,502 37,133 2,600 (228)
Other 447 1 - - - 25
----------------------------------------------------------------------------------------------
Total 1,578 475 39,502 37,133 2,600 (203)
----------------------------------------------------------------------------------------------
$000 Cash and Term Trade and Advances Interest Promissory Promissory Accounts
cash deposit other provided bearing notes notes payable
equivalents receivable loans and issued repaid
other
borrowings
----------------------------------------------------------------------------------------------------------------------
Entities under common control 2,816 9,489 819 106,783 16,440 2,307 792 4,798
Other - - 406 - - 2,453 71 732
----------------------------------------------------------------------------------------------------------------------
Total 2,816 9,489 1,225 106,783 16,440 2,453 863 5,530
----------------------------------------------------------------------------------------------------------------------
During 2005 advances of $106,783,000 were made to entities under common (shown
within prepayments and other current assets on the balance sheet). These
advances were not secured with any collateral. As of 30 June 2006 they were
carried at the nominal amount paid. In September 2006, these advances were
repaid to the Group.
Year ended 31 December 2006
$000 Revenue Revenue Sale of Purchases Purchased Purchased
from from property, of services property,
sales other plant and materials, plant and
of ore sales equipment gas and equipment
pellets electricity
-----------------------------------------------------------------------------------------------------
Entities under common control 2,825 407 280 5,002 1,821 1,481
Other - 1,885 - 11,198 3,059 -
----------------------------------------------------------------------------------------------------
Total 2,825 2,292 280 16,200 4,880 1,481
----------------------------------------------------------------------------------------------------
$000 Finance Finance Bank Bank Loans
costs income loans loans provided/
received repaid (re-paid)
--------------------------------------------------------------------------------
Entities under common control 1,996 1,303 224,421 216,607 (118,984)
Other - 2 - - -
---------------------------------------------------------------------------------
Total 1,996 1,305 224,421 206,607 (118,984)
---------------------------------------------------------------------------------
$000 Cash and Term Trade and Interest Trade
cash deposit other bearing and
equivalents receivables loans and other
other accounts
borrowings payable
-----------------------------------------------------------------------------------------
Entities under common control 1,515 9,973 25,732 7,200 1,855
Other - - 1,538 - 630
-----------------------------------------------------------------------------------------
Total 1,515 9,973 27,270 7,200 2,485
-----------------------------------------------------------------------------------------
Business combinations
During the year ended 31 December 2006 the Group acquired a further 25.6% of the
voting rights in Ferrexpo Poltava GOK Corporation for a consideration of
$238,986,000 from entities under common control.
In 2006, the Group acquired the minority interest of United Energy Company LLC
from an entity under common control for consideration of $3,609,000 increasing
the Group's interest in the net assets to 100%.
Disposal of control in Vostock Ruda
In 2006 the Group sold a 90.6% interest in its subsidiary Vostock Ruda to
entities under common control for consideration of $9,474,000, resulting in a
loss on disposal of $3,524,000. Of the total consideration, $4,338,000 was
received during the year and $5,136,000 remains unpaid at the period end and is
included in current assets within other receivables (as noted in the above
table). As part of the disposal of Vostock Ruda loans totalling $19,347,741 to
entities under common control were disposed of.
Distributions under 50/50 tax rulings
Prior to the listing in the period to 30 June 2007 the Group made a distribution
totalling $4,835,000 (30 June 2006: $1,662,000, 31 December 2006: $21,190,000)
under the 50/50 Swiss tax ruling to the ultimate beneficial owner. The ruling
allows for a qualifying company to distribute a percentage of its profits free
of tax. On listing the Group no longer qualifies for this tax treatment.
Share buy-back
During the period 30 June 2007, Ferrexpo AG entered into a share buy-back
arrangement within its then shareholder Collaton Limited under which Ferrexpo AG
repurchased 5,178,877 shares of 1 CHF each in exchange for cash in a number of
transactions which took place between 13 February and 18 May 2007. the total
consideration paid under the arrangement was $64,055,329.
Note 15: Reconciliation of profit before income tax to net cash flow from
operating activities
$000 6 months 6 months Year
ended ended ended
30.06.07 30.06.06 31.12.06
------------------------------------------------------------
Profit before income tax 54,484 18,973 80,737
Adjustments for:
Depreciation of property, plant 14,224 16,297 28,563
and equipment and amortisation of
intangible assets
Interest expense 9,980 13,332 27,425
Interest income (849) (1,301) (2,326)
Share of losses of associates 118
Dividend income - - (17)
Reversal of and allowance for - - 183
doubtful receivables
(Gain)/loss on disposal of (140) (197) 601
property, plant and equipment
Write offs and impairment losses 1,101 1,770 2,021
Losses on disposal of investments - - 31
available for sale
Losses from disposal of - - 3,524
subsidiaries and associates
Loss from settlements of 294 - -
financial instruments
Employee benefits 1,562 1,950 3,163
IPO costs 30,142 - -
Foreign exchange loss 34 174 645
------------------------------------------------------------
Operating cash flow before 110,950 50,998 144,550
working capital changes
------------------------------------------------------------
Changes in working capital
(Increase) / decrease in trade 16,110 (11,710) (38,658)
accounts receivable and other
receivables
(Increase) / decrease in (7,904) 7,818 9,237
inventories
Increase / (decrease) in trade (7,722) (20,858) (2,467)
and other accounts payable
------------------------------------------------------------
Cash generated from operating 111,434 26,248 112,662
activities
------------------------------------------------------------
Interest paid (9,743) (11,759) (28,119)
Income tax paid (17,439) (9,914) (14,562)
Post employment benefits paid (928) (536) (1,681)
------------------------------------------------------------
Net cash flows from operating 83,324 4,039 68,300
activities
------------------------------------------------------------
Note 16: Commitments and Contingencies
$000 As at As at As at
30.06.07 30.06.06 31.12.06
--------------------------------------------------
Capital commitments on 16,348 10,200 11,111
purchase of property
and equipment
Guarantees provided 275,000 140,155 12,185
Taxation
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 effecting
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 Groups with operations in
Ukraine. Management's assessment of these risks remains unchanged from that
disclosed at 31 December 2006.
Management is of the opinion that the Group has applied an appropriate
interpretation of relevant legislation, has complied with all regulations and
paid or accrued all taxes and withholdings as applicable. However, due to the
complexities of the local tax legislation where the Group operates it is
possible that the tax basis of certain transactions undertaken by the Group may
be challenged, which may mean that the Group incurs additional tax liabilities,
the quantum of which is not practical to determine.
Glossary:
Term Definition
BFP - blast furnace pellets
C1 costs - cash costs per ton of pellets, ex-works, excluding
administrative and distribution costs
CFR - delivery including cost and freight
CIF - delivery including cost, insurance and freight
DAF - delivered at frontier
EXW - ex-works
FOB - delivered free on board
IPO - Initial Public Offering
LSE - London Stock Exchange
WMS - wet magnetic separation
Underlying - an alternative earnings measure, which the directors believe
earnings provides a clearer picture of the underlying financial
performance of the Group's operations. Underlying earnings is
presented as profit attributable to equity shareholder before
adjusted items. 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
adjusting items include profits and losses of investments and
businesses as well as IPO costs.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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