RNS Number : 1629C
Ferrexpo PLC
28 August 2008
28 August 2008
Interim Results for the Six Months ended 30 June 2008
Financial highlights
* Revenue up by 58% to US$519.5m
* EBITDA for the period up by 101% to US$228.0m
* Profit for the period up by 288% to US$157.7m
* Underlying earnings up by 106% to US$138.8m
* Net cash from operating activities increased 70% to $141.8m
* Interim dividend of 3.2 US cents per share
Operating highlights
* Stable iron ore output and total pellet production
* 8% increase in production of high quality (65% Fe) pellets from Company's own ore
* Price increases of over 90% achieved from 1 April
* Efficiency improvements partially offsetting cost inflation
* Expansion of existing operations on schedule and within budget
* Procurement of own rail cars on schedule
* Definitive Feasibility Study for new Yeristovskoye mine near completion
* Definitive Feasibility Study for projects to upgrade product quality and optimise existing beneficiation plants near completion
* Actively seeking strategic partner for joint venture of major growth projects
Financial and production highlights
(US$ '000, unless stated) Six Months ended 30 Six Months ended 30 June % Change
June 2008 2007
Pellet production (kt) 4,504 4,450 +1%
Of which 65% Fe content (kt) 1,920 1,776 +8%
Revenue 519,498 327,915 +58%
EBITDA 228,023 113,289 +101%
Profit for the period 157,658 40,579 +288%
Underlying earnings 138,783 67,408 +106%
Underlying EPS (USc) 22.76 11.10 +105%
Mike Oppenheimer, CEO of Ferrexpo plc commented:
"We have delivered another strong set of results and we continue to make excellent progress with our growth projects. I am particularly
pleased with our strong operational response to the challenges presented by industry and regional cost pressures. Our logistics and
favourable location position us as the supplier of choice to some of the most important end markets in the world and we are pleased to have
achieved price settlements that reflect this. Looking forward, strong market outlook, tight cost control in the face of significant
inflationary pressures and aggressive management of our growth projects will remain the characteristics of our business. We will continue to
update the market on our plans to accelerate delivery of value from our strong reserve and resource base with our strategic partner
programme."
For further information, please contact:
Ferrexpo: +44 207 389 8304
Mike Oppenheimer, CEO
Chris Mawe, Finance
Director
Gavin Mackay, Head of
Investor Relations
Finsbury: +44 207 251 3801
Robin Walker
Alex Simmons
Notes to editors:
Ferrexpo plc is a Swiss headquartered resources company with assets in Ukraine, principally involved in the production and export of
iron ore pellets, used in producing steel. Current output is over 9 million tonnes, approximately 85% of which is exported to steelmakers
around the world. The Ferrexpo Group is currently undertaking a significant growth programme and became 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 pleased to present another set of excellent results for Ferrexpo plc. Throughout the first half of 2008, the Group has continued to
build on the track record of strong financial and operational delivery that it established in 2007.
Results
The Group's results over the past six months reflect the continuing strength of our business in the face of a challenging global
economic environment. Once again, the Group achieved significant growth in both revenues and profits as a result of very strong contract
pricing outcomes and the continuing positive impact of the Business Improvement Programme on operating efficiency. Revenues in the first
half of 2008 were $519.5 million, 58% above those achieved in the same period last year ($327.9 million). Despite substantial inflationary
pressures on the Group, its EBITDA for the period increased by 101% to $228.0 million ($113.3 million), and Group pre-tax profit increased
by 269% to $201.4 million ($54.5 million).
Market Environment
The global market for iron ore, and in particular iron ore pellets, remains strong, driven principally by demand for iron and steel from
industrialising nations such as China, and despite record benchmark iron ore price settlements in the first half of 2008. Seaborne benchmark
prices in Europe and Asia increased by between 65% and 96.5% for fine and lump ores, and a record premium paid for blast furnace pellets
resulted in an 86.7% benchmark increase for these pellets as of 1 April 2008. Importantly for Ferrexpo, demand for blast furnace pellets
continues to rise in our traditional markets as steel companies seek to improve performance and reduce emissions. The Group was able to
achieve a premium to the pellet benchmark, realising price increases of over 90% on average across all of its long-term supply contracts
compared with the twelve months to 31 March 2008. The new prices resulted in very strong earnings growth in the second quarter of the year,
and contributed to the 58% increase in the Group's average price per tonne achieved in the first six months of 2008, as compared with the same period last year.
Operations
At the time of our preliminary results in April, we announced that the Group had suffered two fatal accidents at its Poltava site at the
beginning of 2008, and regrettably we had another in July. To further reinforce Group's ongoing efforts to enhance its safety standards, Du
Pont Safety Resources were engaged early in the year to implement a cultural and behavioural change throughout Ferrexpo's operations, and
tangible progress has been made in this regard. The management of health, safety and the environment remains an absolute priority for the
Group.
This year, the Group's production operations have continued to perform well, and Ferrexpo remains the largest Ukrainian iron ore
exporter. Iron ore extraction was comparable with the same period last year and in line with our expectations following substantial
increases in production in prior periods. The volume of pellets produced from the Group's own raw materials increased by 1.2% to 4.50
million tonnes compared to the first six months of 2007 (4.45 million tonnes), and this was accompanied by a 8.0% increase in the volume of
higher quality 65% Fe pellets, to 1.92 million tonnes (1.78 million tonnes). The Group has all but ceased to produce iron ore pellets from
third party concentrate due to lack of availability of concentrate supply, which resulted in a marginal decline in overall pellet production
over the period. This has had negligible financial impact on the Group due to the increasingly low margin nature of this business.
The Group has faced significant cost pressures in the first six months of 2008. Inflation in Ukraine has risen substantially, with
Producer Price Inflation (PPI) reaching 29.4% by the end of the period. There were also substantial increases in the costs of cyclically
priced commodities, a theme common to most of the global mining industry. These increases were principally for steel grinding media and
energy including diesel fuel, which collectively account for 58% of the Group's C1 cash costs of production. The price of the Group's
grinding media increased by 48% in the first six months of 2008, and diesel by 31%, with natural gas and electricity increasing by 55% and
30% respectively. The Ukrainian Hryvnia has been permitted to appreciate to an average rate for the period of UAH5.017/$, which has also
increased the dollar costs of certain inputs in the period to June. However, our Business Improvement Programme continued to drive
efficiency and reduce the utilisation of cost inputs per tonne of production, thereby mitigating some of these inflationary pressures. Nonetheless, the Group's cash production costs rose by 37.0% compared with the
average production cost per tonne in the first half of 2007. This compares favourably against the Ukrainian Producer Price Inflation over
the period between 1 July 2007 and 30 June 2008 of 43.7%.
The Group will continue to pursue further improvements in efficiencies and productivity via the Business Improvement Programme and other
initiatives, but increasing cost pressures on key input prices are likely to remain a feature of our business for at least the remainder of
the year.
The Group's marketing department has delivered a very successful first six months of 2008, having secured record price settlements
during the period. Marketing and distribution remain critical to our business, and our focus is now firmly on ensuring that the Group's
extensive growth plans are matched by expanded logistical capabilities.
Investing Activities
The Group has a pipeline of significant growth projects, and our increasingly strong cash flow generation has given us the financial
capacity to accelerate our investment in this growth programme. The Group's operating cash flow in the first half of 2008 has increased by
70% to $141.8 million, when compared to the same period last year ($83.3 million). These funds are being used to execute our strategy to
accelerate the commercialisation of our vast iron ore resource. During the first half of 2008, the Group invested $51 million in the project
to expand and extend our existing operations, and $43 million for the development of the new Yeristovskoye mine.
The Group's investment policy remains focused on our organic growth projects. The project to expand and extend the existing mining
operation that was announced in November last year is proceeding on schedule and within budget. Development plans for the new mines to be
built on the Yeristovskoye and Belanovskoye deposits are well advanced and these remain the Group's major growth projects, with expected
total development costs of approximately $5 billion. The Yeristovskoye Definitive Feasibility Study and Belanovskoye Preliminary Feasibility
Assessment are expected to be completed in September, and the Board expects to review and, if appropriate, approve the capital commitment
for the entire Yeristovskoye project in October. By this time, the initial draglines and mining fleet purchased with the $103 million of
capital expenditure committed to the project last year will be on site and assembled in preparation for the commencement of stripping works.
The first two of these draglines are already on site in the early stages of assembly.
Significant progress has also been made on plans to upgrade existing pellet quality and to further enhance the efficiency and
productivity of our existing beneficiation plants. The definitive feasibility study for the various projects intended to achieve these
objectives will also be completed in September and will be reviewed by the Board in October.
Dividend
The Group is declaring an interim dividend of 3.2 US cents per share for the first six months of 2008 (H1 2007: nil), in line with the
policy of the Board to pay a dividend which reflects the cash flow of the business and the growth profile of the Group. The Board is
committed to maintaining a dividend which enables the Group to invest in the substantial growth projects within its portfolio. The full year
dividend will be split approximately equally between the interim and final dividend.
The Board is also considering further returns of capital or dividends in the coming months, in view of the high prices and significant
cash generation of the Group in the first half of the year. This is consistent with sound capital management, as cashflows have exceeded
both expectations and the funding requirements of the Group.
People
The Group has continued to evolve as a listed company in the first six months of 2008, and the Board would like to thank all the
employees of Ferrexpo, who continue to make this positive development possible. We continue to build our organisation, adding capability in
project execution and consolidating our strengths in best practice mining and marketing.
Corporate Governance and Social Responsibility
I am proud to say that the Group is delivering on its promise, and is substantially compliant with the Combined Code within the first
year of listing. Ferrexpo has a strong and experienced Board dedicated to the highest standards of corporate governance and capable of
providing continuing best practice management and strategic guidance to the company.
The Board has established a Corporate Social Responsibility Committee to fulfil its commitment to the ongoing health and safety of the
Group's employees, active engagement with local communities and environmental awareness. Corporate Social Responsibility remains the first
priority of the management of the Group.
Strategy
The Board remains committed to its strategy of maximising the value of the Group through the accelerated commercialisation of its
extensive undeveloped iron ore deposits, increasing the productivity of its existing operations, and improving product quality. Planning for
the new mines at Yeristovskoye and Belanovskoye is now at an advanced stage, and the Group is actively seeking the involvement of other
industry participants to form a joint venture to assist it in the development of these mines. The Board believes the formation of such a
joint venture to be the best strategy to accelerate the exploitation of these assets through access to additional funding capability,
project execution expertise and a significant reduction of the risks associated with project execution.
Outlook
Favourable iron ore market conditions are expected to continue for at least the next eighteen months and potentially far beyond, driven
by China and the developing countries of Asia and Europe. We believe the Group is extremely well positioned to benefit further from this
positive environment. Most importantly for Ferrexpo, very strong demand growth is forecast in the markets closest to our Poltava operations,
which will enable the Group to sell the majority of its expanded production to our traditional and natural customer base. Our unique
logistical advantages in supplying these customers will result in sustained high margins for growth.
The principal risks and uncertainties facing the Group over the next six months relate to costs, in particular those concerned with
energy, and Ukrainian inflation. Cost pressures on the Group are expected to remain significant for the rest of 2008, but given that the
prices for the Group's products have been set at record highs for the 2008/2009 contract year, we nonetheless expect the Group to achieve
very strong growth in revenues and profits in 2008. We will continue to drive the development of our growth projects to extract maximum
value from our extensive reserves and resource base.
Michael Abrahams CBE DL
Chairman
OPERATING & FINANCIAL REVIEW
Operating Highlights
* Average pellet prices increased by over 90% from 1 April
* Product quality improved, 8% increase in production of higher grade 65% Fe pellets
* 330 own rail cars delivered and operating with remaining 220 expected by year end
* Project to expand and extend existing operations proceeding on schedule and within budget
* Definitive Feasibility Study for new Yeristovskoye mine near completion
* First equipment for Yeristovskoye development delivered to site
* Preliminary Feasibility Study for new Belanovskoye mine near completion
* Actively seeking strategic partner for joint venture of major growth projects
Financial Highlights
* Revenue increased by 58% to $519.5 million (H1 2007: $327.9 million)
* EBITDA increased by 101%, to $228.0 million (H1 2007: $113.3 million)
* Profit after tax increased by 288%, to $157.7 million (H1 2007: $40.6 million)
* Net cash flow from operating activities $141.8 million (H1 2007: $83.3 million)
OPERATING REVIEW
Key Statistics
UOM 6 months ended 30 6 months ended 30 June 2007 % Change
June 2008
Iron ore mined 000't 14,361 14,446 (0.6)
Average Fe content % 30.06 29.80 0.9
Produced concentrate 000't 5,440 5,293 2.8
Average Fe content % 63.41 63.44 (0.1)
Purchased concentrate 000't 52 223 (76.7)
Average Fe content % 65.78 64.01 2.8
Purchased iron ore 000't 149 19 684
Average Fe content % 33.01 33.00 0.0
Total pellet production 000't 4,596 4,653 (1.2)
(BFP)
From produced 000't 4,504 4,450 1.2
concentrate
- Higher grade 000't 1,920 1,778 8.0
Average Fe content % 65.01 65.13 (0.2)
- Lower grade 000't 2,584 2,672 (3.3)
Average Fe content % 62.26 62.26 -
From purchased raw 000't 92 203 (54.7)
materials
- Lower grade 000't 92 203 (54.7)
Average Fe content % 62.26 62.26 -
Pellet sales volume 000't 4,517 4,511 0.1
Gravel production 000't 1,637 1,604 2.1
Existing Operations
Ferrexpo Poltava Mining ("FPM") continued to improve its operational performance during the first six months of 2008, focussing on
product quality improvement and accelerating stripping operations for the Gorishne-Plavninskoye Lavrikovskoye (GPL) Expansion Project. This
will in due course form the basis of future production increases from the Group's existing GPL mine. Ore extraction volumes were comparable
to the equivalent period in 2007, but through selective mining, FPM was able to increase the proportion of richer ore mined (48% versus 45%
in the equivalent period last year). The greater proportion of higher quality ore enabled FPM to increase the yield during the beneficiation
process, resulting in an increase in the production of iron ore concentrate to 5,440kt, a 3% increase over the equivalent period last year.
The quality of the concentrate produced in the first six months of 2008 was also improved, which enabled FPM to increase production of
higher grade 65% Fe pellets by 8% to 1,920kt, enabling further sales in the higher quality markets to be made.
Pellet production from produced concentrate increased by 1% in the period. A sharp decline in the availability of third party
concentrate at acceptable prices meant overall pellet production volume for the period was 4,596kt, a decline of 1% compared to the first
half of 2007. The Group has historically produced a small volume of pellets from purchased concentrate, but this activity has generated low
contributions to profitability.
Stripping volumes increased by 14% in the first half of 2008 to 10,550 cubic metres. This was to rectify low stripping in prior years
and place the pit in a position to yield higher production when the GPL Expansion Project is completed. Stripping costs of $6.2 million
associated with the project to expand the GPL mine were capitalised during the period.
The ongoing Business Improvement Program ("BIP") has continued to achieve tangible efficiency savings at FPM. The BIP continues to be
driven forward by FPM management. FPM is now approximately halfway through a four-year programme. The aim of the BIP is to introduce global
best practice in efficiency and productivity into the different areas of operation at FPM. Ongoing BIP initiatives in the first six months
of 2008 enabled FPM to reduce the consumption per tonne of pellets produced for both energy and raw materials. More efficient use of mining
vehicles and equipment has reduced the consumption of diesel fuel over the period by 2.6% per tonne of ore mined. Use of steel grinding
bodies has been similarly reduced by 1.4%, and FPM's largest single cost item, the consumption of electricity per tonne of pellets produced,
declined by 6.2%. Gas consumption also declined by 3.3%.
The increased operating efficiency and associated cost savings demonstrated by FPM in the first half of 2008 are material improvements
in the context of the inflationary cost environment and sector in which the Group is operating. Ukrainian Consumer Price Index inflation was
15.5% for the period, increasing unit labour costs. The official Ukrainian Producer Price Inflation ("PPI") was 29.4% over the same period.
Overall in the six months to 30 June 2008, the Group incurred a 36.6% increase in the price of diesel fuel and a 47.9% increase in the price
of grinding bodies and spare parts. Both diesel and steel price increases were in line with the cyclical trends in those commodities
experienced globally in the first half of the year. The price of electricity also increased by 29.8% and that of natural gas by 55.0%.
As a result of these trends, the Group's nominal cash costs of pellet production (*1) was $40.92/t for the six months to 30 June 2008,
an increase of 36.9% over that in the equivalent period last year ($29.88/t) and an increase of 28.72% over the C1 cost in FY 2007
($31.79/t). Placing these increases in context, Ukrainian CPI for the twelve months to 30 June 2008 was 29.3%, and Ukrainian PPI was 43.7%
over the same period.
The Group's costs are principally denominated in Ukrainian Hryvnia, which until 2008 was a currency managed in a mid range of UAH5.05/$.
Since the middle of May, the currency has been permitted to appreciate to an official rate for the period of UAH4.85/$. This has increased
the dollar costs of all inputs, which accounted for $1.82/t in June 2008 and $0.30/t in the six month period to 30 June 2008.
The Group continued to actively manage its labour costs, introducing further measures to reorganise its key skills and heighten
productivity and efficiency during the first half of 2008. The number of personnel on the FPM payroll decreased by 3.9% from 9,008 at the
end of 2007 to 8,655 as at 30 June 2008. Average salaries in June 2008 were 20.4% higher than those in December 2007.
Marketing and Distribution
Marketing and distribution skills and routes to market remain a major driver of the value of the Group's business. Demand for Ferrexpo
blast furnace pellets was at extremely high levels in the first half of 2008, consistent with continued strong global demand for iron and
steel products. Demand for the Group's products has continued to outstrip its ability to supply. Pellet sales in the first six months of the
year amounted to 4,517kt, with a similar segment mix to the equivalent period in 2007. This was driven by the fact that 81% of sales were to
the Group's highest margin Traditional Markets (Eastern and Central Europe). This trend is set to continue, with strong demand growth
forecast in the Group's Traditional and Natural Markets, enabling the Group to continue to sell the majority of its production to
higher-margin customers in these regions, while expanding its output.
Progress continues in the Group's marketing and logistics department in developing a profitable portfolio of customers in a range of
global markets to underpin our growth plans. Over the past two years the marketing strategy has focused on structuring a stable customer
base, culminating in approximately 90% of planned 2008 sales being made to long term framework contract customers. Deliveries to Turkey
commenced in the first half of the year under a new long term contract from TIS Ruda, the Group's joint venture ocean vessel shipping
terminal in Yuzhny on the Black Sea. This Turkish contract gives another customer in close proximity to FPM that enables smaller lot 'just
in time' delivery to be achieved. This better serves the Group's target customers' needs relative to their other long-haul pellet supply
options. A new long term contract also commenced to Russia during the period, marking the return to that market in the Group's sales
portfolio. Taking advantage of very high spot market prices, the Group also sold product on a spot basis whenever supply beyond contract requirements was available. Further evidence of the Group's efforts in
its Traditional Markets was the honour of receiving a 'Supplier of the Year - 2007' award from US Steel in the first quarter of the year.
Annual contract pricing for 2008/9 was largely completed in the first half of the year with the average price increase exceeding 90% as
compared to 2007/8 contracted prices. This result was well above global benchmark blast furnace pellet price outcomes, reflecting the
Group's continuing efforts to maximize value by focusing on value in use to customers based on quality, reliability and logistics service.
Heightened focus on logistics chain management continued in the first half of 2008 in response to significant increases to rail tariffs
imposed by the Ukrainian state railways during the period. Tariffs rose by 46%. This was the major contributing factor to the 41% increase
in distribution costs per tonne of pellets sold in the first six months of the year, to $14.77/t ($10.46/t). The Group took delivery of and
deployed a further 330 rail wagons in the first half. This initiative underscores the Group's commitment to mitigate such cost increases and
add further reliability into the supply chain to its customers. The Group plans to have 550 of its own rail cars in operation during the
second half of 2008, all of which incur a discounted tariff when used on the Ukrainian state rail network. The Group also increased
throughput in its joint venture TIS Ruda terminal, and commenced detailed assessments of further potential investments in logistics, which
will enhance the reliability of the Group with its core customers. Investments to upgrade inbound rail capacity to the TIS Ruda terminal and channel dredging were committed in the period under
review and will be undertaken in the second half of the year.
Capital Expenditure and Growth Projects
The Group's total capital expenditure during the first half of 2008 was $131.2 million, an increase of 145% over the equivalent period
in 2007. $19.5 million of this was invested in the GPL Expansion Project, and includes $6.2 million of capitalised stripping. The project is
proceeding according to schedule and remains within budget. A further $21 million was spent on mining equipment for the Yeristovskoye mine,
much of which has already arrived on site. The Definitive Feasibility Study for this project is expected to be completed in September, along
with the Preliminary Feasibility Study on Belanovskoye, the Group's other major growth project. Stripping at the Yeristovskoye deposit is
expected to commence in the fourth quarter of this year. Subject to Board approval, the final capital commitment for the project should
follow before the end of the year. Scoping studies continue at the Galeshina deposit, and technical activities continue on the Group's
northern deposits in line with its licence commitments.
In the fourth quarter the Board will also consider a series of upgrade projects for the GPL processing facilities. The most material of
these relate to the upgrade of the first concentrator line such that it will be able to produce higher quality (65% Fe) blast furnace
pellets from the Group's leaner ore, and an upgrade of the second concentrator line to enable the production of a low-silica Direct
Reduction pellet with an iron content of approximately 68%. These projects include an upgrade to concentrate mixing and filter systems in
the pellet plants. If both of these concentrator projects are approved and executed in parallel, the likely capital expenditure will be
approximately $350 million. Definitive Feasibility Studies for both of these projects will be completed in September.
Principal risks and uncertainties
The principal risks and uncertainties facing the Group's business for the remainder of the year relate to production costs. The Group
has experienced substantial increases to most of its cost inputs in the first half of the year, as stated elsewhere in this report, and
there is a risk that these increases may continue in the second half.
As a mining company, the Group is also subject to the ordinary risks associated with large-scale mining operations.
FINANCIAL REVIEW
Summary of Financial Results
US$ 000 6 months to 30 June 6 months to 30 June 2007 % Change
2008
Revenue 519,498 327,915 58.4
EBITDA 228,023 113,289 101.3
As % of revenue 44% 34%
Profit before taxation 201,350 54,484 269.6
Income tax 43,692 13,905 214.2
Profit for the period 157,658 40,579 288.5
Underlying earnings 138,783 67,408 105.9
Underlying earnings per share 22.76 11.10 105.0
Earnings per share 23.20 6.03 284.7
The Group increased its revenues by 58% to $519.5 million in the period under review compared to the first six months of 2007 ($327.9
million). This excellent performance was due to strong pellet prices, particularly in the second quarter of the year, when the Group was
successful in achieving an average price increase of over 90%. Growth in sales volume of higher grade 65% Fe pellets also contributed to
improved margins.
C1 Cost, defined as cash cost of production, increased by 36.9% over the first half of 2007. Production costs were impacted by domestic
Ukrainian inflation and increases in the costs of energy including diesel, steel and spare parts. These increases were partly mitigated by
ongoing efficiency improvements.
The table below sets out the breakdown of the Group's C1 Cost of Sales.
6 months to 30 June 2008 6 months to 30 June 2007
US$ 000 % of total US$ 000 % of total
Materials 34,641 19 30,921 23
Electricity 44,010 24 34,030 26
Personnel costs 28,199 15 21,099 16
Spare parts and consumables 26,216 14 18,317 14
Fuel 22,568 12 11,985 9
Gas 17,883 10 12,488 9
Royalties and levies 3,739 2 3,911 3
Other 7,073 4 - -
C1 Cost Of Sales 184,329 100% 132,751 100%
C1 Cost per tonne 40.92 - 29.88 -
Depreciation 16,317 - 11,298 -
Cost Of Sales 207,508 - 160,287 -
[1] Defined in Notes to Accounts
[2] After IPO costs of $30 million
[3] Defined in Notes to Accounts
Selling and Distribution costs increased by 42% to $67.1 million in the first half (H1 2007: $47.2 million), primarily as a result of
increases to rail tariffs in Ukraine imposed by the state railway authority. General and Administrative Expenses in the first half of 2008
increased, reflecting increases in costs as a result of the full 6 month period as a listed company compared to pre IPO operations in 2007.
The strong revenue growth was reflected in increased EBITDA for the first six months of the year. EBITDA rose by 101% to $228.0 million,
with the Group's EBITDA margin increasing from 34.5% in the first half of 2007 to 43.9% in the current period.
As price rises were effective from the first of April, the group enjoyed significantly enhanced margins in the second quarter. As a
result, the EBITDA margin of 22.4% in the first quarter of 2008 increased to 53.6% in the second quarter, demonstrating the effect of the
Group's improved sales contracts.
The Group experienced an increase in its effective tax rate in the first half of 2008 to 21.7% (FY 2007: 16.6%) due to increased
profitability in the Ukraine as a result of strong price rises.
The delays experienced historically by the Group's Ukrainian operations in recovering VAT from the government on a timely basis have
been resolved, and this additional working capital requirement was removed as at 30 June 2008.
These strong results together with a considerable increase in net cash flow from operating activities have enabled the Group to continue
to strengthen its Balance Sheet. The Group increased its net cash flows from operating activities to $141.8 million from $83.3 million in
the comparable prior period. The Group's debt to equity ratio (Net Debt divided by Net Debt plus Equity) was 14% as at 30 June 2008 (16% as
at 31st December 2007).
Dividend
The group is declaring an interim dividend of 3.2 US cents per share for the first six months of 2008 (H1 2007: nil). The interim
dividend will be paid in Pounds Sterling, but those shareholders who have in the past elected to receive dividends in US dollars will
continue to do so. Other shareholders wishing to receive dividends in US dollars should obtain a Currency Election Form from the Ferrexpo
website and return the completed form to the Company's registrars by 5 September 2008. The dividend is payable on 17 October 2008 to
shareholders on the register on 5 September 2008.
Independent Review Report to Ferrexpo plc
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six
months ended 30 June 2008 which comprises the Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,
Consolidated Statement of Changes in Equity, and the related notes 1 to 20. We have read the other information contained in the half yearly
financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the
condensed set of financial statements.
This report is made solely to the company in accordance with guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the
conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for
preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial
Services Authority.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European
Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial
report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United
Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
Ernst & Young LLP
1 More London Place
28 August 2008
Statement of Directors' Responsibilities
The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34, Interim Financial
Reporting, as adopted by the European Union and that the half-yearly report included a fair review of the information required by DTR 4.2.7
and DTR 4.2.8, namely:
* an indication of important events that have occurred during the first six months of the financial year and their impact on this
condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year;
and
* material related party transactions in the first six months of the year and any material changes in the related party transactions
described in the Ferrexpo plc Annual Report 2007.
The Directors of Ferrexpo plc are listed in the Ferrexpo Annual Report 2007.
Consolidated income statement
US$'000 Notes 6 months ended 6 months ended Year ended 31.12.07
30.06.08 30.06.07 (audited)
(unaudited) (unaudited)
Revenue 3, 4 519,498 327,915 698,216
Cost of sales 5 (207,508) (160,287) (335,936)
Gross profit 311,990 167,628 362,280
Selling and distribution 6 (67,113) (47,178) (100,614)
expenses
General and administrative 7 (32,438) (19,962) (44,308)
expenses
Other income 2,736 1,680 4,844
Other expenses (5,916) (3,203) (5,096)
Operating profit from 209,259 98,965 217,106
continuing operations before
adjusted items
Write-offs and impairment 8 (94) (1,101) (1,568)
losses
Share of gains / (losses) of 1,420 (118) 687
associates
Initial public offering costs (3,897) (30,142) (34,004)
Negative goodwill generated on 5,077 - -
rights issue
Gain on disposal of 1,547 - 4,714
available-for-sale investments
Profit before tax and finance 213,312 67,604 186,935
Finance income 1,214 854 3,242
Finance expense (9,110) (12,985) (25,950)
Foreign exchange loss (4,066) (989) (3,467)
Profit before tax 201,350 54,484 160,760
Tax (43,692) (13,905) (26,725)
Profit for the period 157,658 40,579 134,035
Attributable to:
Equity shareholders of 141,449 36,634 124,076
Ferrexpo plc
Minority interest 16,209 3,945 9,959
157,658 40,579 134,035
Earnings per share
Basic (US cents) 10 23.20 6.03 20.41
Diluted (US cents) 10 23.14 6.00 20.33
Consolidated balance sheet
US$'000 Notes As at 30.06.08 As at 30.06.07 As at 31.12.07
(unaudited) (unaudited) (audited)
Assets
Property, plant and equipment 11 474,742 322,769 364,545
Goodwill and other intangible 157,443 156,534 156,827
assets
Investments in associates 19,267 16,832 17,637
Available-for-sale financial 35,962 36,040 47,134
assets
Deferred tax asset 10,494 - 8,107
Other non-current assets 39,131 3,699 15,179
Total non-current assets 737,039 535,874 609,429
Inventories 75,234 55,383 56,545
Trade and other receivables 78,447 49,951 43,575
Prepayments and other current 21,543 10,310 10,773
assets
Income taxes recoverable and 15 118 5,350
prepaid
Other taxes recoverable and 45,855 46,812 52,362
prepaid
Available-for-sale financial 8,768 95 2,941
assets
Short term deposits with banks 12 - 1,460 -
Cash and cash equivalents 13 62,600 71,904 86,966
Total current assets 292,462 236,033 258,512
Total assets 1,029,501 771,907 867,941
Equity and liabilities
Share capital 14 121,628 121,628 121,628
Share premium 183,387 180,887 188,566
Other reserves 33,339 7,903 14,258
Retained earnings 338,616 130,908 216,616
Equity attributable to equity 676,970 441,326 541,068
shareholders of the parent
Minority interest 60,693 39,840 45,854
Total equity 737,663 481,166 586,922
Interest-bearing loans and 16 111,386 178,667 146,091
borrowings
Trade and other payables 1,705 4,994 2,583
Shares redemption liability 15 - 9,532 -
Defined benefit pension 16,746 15,136 16,169
liability
Provision for site restoration 1,955 440 1,746
Deferred tax liability 4,521 2,613 1,025
Total non-current liabilities 136,313 211,382 167,614
Interest-bearing loans and 16 73,693 15,350 54,537
borrowings
Trade and other payables 42,849 29,002 25,127
Accrued liabilities and 15,496 27,331 13,812
deferred income
Shares redemption liability 15 10,998 - 10,036
Income taxes payable 11,073 2,579 7,717
Other taxes payable 1,416 5,097 2,176
Total current liabilities 155,525 79,359 113,405
Total liabilities 291,838 290,741 281,019
Total equity and liabilities 1,029,501 771,907 867,941
Consolidated cash flow statement
US$'000 Notes 6 months ended 6 months ended Year ended 31.12.07
30.06.08 30.06.07 (audited)
(unaudited) (unaudited)
Net cash flows from operating 18 141,805 83,324 188,846
activities
Cash flows from investing
activities
Purchase of property, plant (131,200) (53,430) (104,352)
and equipment
Proceeds from sale of 46 14,870 1,896
property, plant and equipment
Purchase of intangible assets (545) - (435)
Deposits lodged at banks - 7,475 9,011
Purchases of available for - - (12,126)
sale securities
Proceeds from sale of 59 139 5,704
financial assets
Interest received 493 329 4,805
Loans provided to associates - (5,000) (5,000)
Net cash flows used in (131,147) (35,617) (100,497)
investing activities
Cash flows from financing
activities
Proceeds from borrowings and - 175,244 175,244
finance
Repayment of borrowings and (22,049) (267,749) (276,084)
finance
Dividends paid to equity (19,449) - -
shareholders of the parent
Dividends paid to minority (232) (465) (786)
interests
Distribution under 50/50 tax - (5,000) (5,000)
ruling
Proceeds from issue of share
capital in Ferrexpo plc:
Initial public offering - 202,072 202,072
proceeds
Non initial public offering - - 99
proceeds
Initial public offering costs - (32,250) (48,648)
Share buy back in previous - (64,055) (64,055)
parent
Net cash flows (used in)/from (41,730) 7,797 (17,158)
financing activities
Net increase/(decrease) in (31,072) 55,504 71,191
cash and cash equivalents
Cash and cash equivalents at 86,966 16,236 16,236
the beginning of the period
Currency translation 6,706 164 (461)
differences
Cash and cash equivalents at 13 62,600 71,904 86,966
the end of the period
Consolidated statement of changes in equity (unaudited)
Attributable to equity shareholders of the parent
$000 Issued capital Share Premium Uniting of interest Employee Benefit Net unrealised gains
Translation reserve Retained earnings Total reserves Minority interests Total equity
reserve Trust reserve reserve
At 1 January 2007 - - 137,296 - - 186
163,164 300,646 36,146 336,792
Profit for the period - - - - - -
36,634 36,634 3,945 40,579
Total income and expense for - - - - - -
36,634 36,634 3,945 40,579
the period recognised in
equity
Items recognised directly in
equity:
Distribution under 50/50 tax - - - - - -
(4,835) (4,835) - (4,835)
ruling
Equity dividends paid by - - - - - -
- - (251) (251)
subsidiary undertakings to
minority shareholders
Share issue in parent company 121,628 215,275 - - - -
- 336,903 - 336,903
Transaction costs associated - (34,388) - - - -
- (34,388) - (34,388)
with issue of shares
Uniting of interest - - (105,516) - - -
- (105,516) - (105,516)
elimination
Share buyback of previous - - - - - -
(64,055) (64,055) - (64,055)
parent of Group
Shares issued to Employee - - - (29,216) - -
- (29,216) - (29,216)
Benefit Trust
Share based payments - - - 5,153 - -
- 5,153 - 5,153
At 30 June 2007 121,628 180,887 31,780 (24,063) - 186
130,908 441,326 39,840 481,166
Deferred tax on transaction - 5,179 - - - -
- 5,179 - 5,179
costs
Revaluation of - - - - 2,384 -
- 2,384 - 2,384
available-for-sale assets
Profit for the period - - - - - -
87,442 87,442 6,014 93,456
Total income and expense for - 5,179 - - 2,384 -
87,442 95,005 6,014 101,019
the period recognised in
equity
Items recognised directly in
equity:
Distribution under 50/50 tax - - - - - -
(1,734) (1,734) - (1,734)
ruling
Transaction costs associated 2,500 - - - -
- 2,500 - 2,500
with issue of shares
Share-based payments - - - 3,971 - -
- 3,971 - 3,971
At 31 December 2007 121,628 188,566 31,780 (20,092) 2,384 186
216,616 541,068 45,854 586,922
Profit for the period - - - - - -
141,449 141,449 16,209 157,658
Realised gains on financial - - - - (1,530) -
- (1,530) - (1,530)
assets available for sale
Unrealised losses on financial - - - - (4,447) -
- (4,447) (618) (5,065)
assets available for sale
Deferred tax - - - - 1,040 -
- 1,040 144 1,184
Write-off of deferred tax - (5,179) - - - -
- (5,179) - (5,179)
asset on IPO costs
Foreign currency translation - - - - - 19,094
- 19,094 2,879 21,973
adjustments
Total income and expense for - (5,179) - - (4,937) 19,094
141,449 150,427 18,614 169,041
the period recognised in
equity
Items recognised directly in
equity:
Equity dividends paid to - - - - - -
(19,449) (19,449) - (19,449)
shareholders of Ferrexpo plc
Equity dividends paid by - - - - - -
- - (324) (324)
subsidiary undertakings to
minority shareholders
Share based payments - - - 4,924 - -
- 4,924 - 4,924
Adjustments relating to the - - - - - -
- - (3,451) (3,451)
increase in minority interest
-
At 30 June 2008 121,628 183,387 31,780 (15,168) (2,553) 19,280
338,616 676,970 60,693 737,663
Notes to the consolidated financial information
Note 1: Corporate information
Organisation and operation
Ferrexpo plc (the "Company") is incorporated in the United Kingdom with registered office at 2 - 4 King Street, London, SW1Y 6QL, UK.
Ferrexpo plc and its subsidiaries (the "Group") operate a mine and processing plant near Kremenchuk in Ukraine. The Group's operations are
vertically integrated from iron ore mining through to iron ore concentrate and pellet production. In addition, the Group owns a 49.9%
interest in TIS Ruda, a port on the Black Sea. The Group's mineral properties lie within the Kremenchuk Magnetic Anomaly and are currently
being exploited at the Gorishne-Plavninsky and Lavrikovsky deposits. These deposits are being jointly mined as one mining complex.
The Group's operations are largely conducted through Ferrexpo plc's principal subsidiary, Ferrexpo Poltava GOK Corporation. The Group is
comprised of Ferrexpo plc and its consolidated subsidiaries and associate as set out below:
Equity interest owned at
Name Country of Principal activity 30.06.08 30.06.07 31.12.07
incorporation % % %
Ferrexpo Poltava GOK Ukraine Iron ore mining 87.8 85.9 85.9
Corporation*
Ferrexpo AG** Switzerland Sale of iron ore pellets 100.0 100.0 100.0
DP Ferrotrans*** Ukraine Trade, transportation services 100.0 100.0 100.0
United Energy Company LLC*** Ukraine Holding company 100.0 100.0 100.0
Ferrexpo UK Limited* England Finance 100.0 100.0 100.0
Ferrexpo Services Limited* Ukraine Management services & procurement 100.0 100.0 100.0
Ferrexpo Yeristova GOK LLC Ukraine Iron ore mining 100.0 100.0 100.0
TIS Ruda **** Ukraine Port 49.9 49.9 49.9
* The Group's interest in these entities is held through Ferrexpo AG.
**Ferrexpo AG was the holding company of the Group until, as a result of the pre-IPO restructuring, Ferrexpo plc became the holding
company on 24 May 2007.
*** The Group's interest in these entities is held through Ferrexpo Poltava GOK Corporation.
**** Accounted for using the equity method of accounting.
Note 2: Summary of significant accounting policies
The interim consolidated financial statements for the six months ended 30 June 2008 have been prepared in accordance with International
Accounting Standard ("IAS") 34 Interim Financial Reporting. The interim consolidated financial statements do not include all of the
information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial
statements.
The interim consolidated financial statements do not constitute statutory accounts as defined in section 240 of the Companies Act 1985.
The financial information for the full year is based on the statutory accounts for the financial year ended 31 December 2007. A copy of the
statutory accounts for that year, which were prepared in accordance with International Financial Reporting Standards ('IFRS') issued by the
International Accounting Standard Board ('IASB'), as adopted by the European Union up to 31 December 2007, has been delivered to the
Register of Companies. The auditors' report under section 235 of the Companies Act 1985 in relation to those accounts was unqualified.
Changes in accounting policy
The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed
in the preparation of the Group's annual financial statements for the year ended 31 December 2007, except for the adoption of the following
IFRIC interpretation mandatory for annual periods beginning on or after 1 January 2008:
International Financial Reporting Interpretations Committee (IFRIC) Effective date
* IFRIC 14 (IAS 19) The limit on a defined benefit asset, minimum
funding requirements and their Interaction 1 January 2008
The adoption of this IFRIC interpretation did not affect the Group results from operations or financial positions.
Foreign currency translation
The following exchange rates have been applied:
Currency rates (US$1) Average HY 2008 30 June 2008 Average HY 2007 30 June 2007 Average FY 2007 31 Dec 2007
Ukrainian Hryvnia 5.017 4.8489 5.050 5.050 5.050 5.050
Note 3: Segmental information
A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in
providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that
are different from those of other segments.
The Group's activity is primarily the processing and sale of iron ore and only one business segment is therefore identified as a
reportable segment. As a result, we have not presented the segment information in respect of the Group's business segment.
Note 4: Revenue
Revenue for the six months ended 30 June 2008 consisted of the following:
US$'000 6 months ended 30.06.08 6 months ended 30.06.07 Year ended 31.12.07
Revenue from sales of ore
pellets:
Export 439,753 265,454 560,805
Ukraine 75,905 59,527 128,731
515,658 324,981 689,536
Revenue from sales of services 680 150 3,005
Revenue from other sales 3,160 2,784 5,675
519,498 327,915 698,216
Export sales by geographical destination were as follows:
US$'000 6 months ended 6 months ended 30.06.07 Year ended 31.12.07
30.06.08
Austria 115,987 84,037 160,324
Serbia 95,295 48,163 83,708
China 83,827 45,185 103,223
Slovakia 59,154 30,254 81,516
Czech Republic 36,116 22,676 55,617
Russia 18,341 - -
Turkey 11,526 5,849 9,777
Bulgaria 9,833 13,368 27,389
Poland 9,674 5,466 23,766
Romania - 7,038 7,038
Japan - - 5,029
Italy - 3,418 3,418
439,753 265,454 560,805
Note 5: Cost of sales
Cost of sales for the period ended 30 June 2008 consisted of the following:
US$'000 6 months ended 6 months ended Year ended 31.12.07
30.06.08 30.06.07
Materials 47,624 34,165 92,449
Purchased ore and concentrate 8,144 13,196 17,587
Electricity 43,717 35,313 74,621
Personnel costs 29,640 22,981 47,402
Spare parts and consumables 16,922 12,095 14,663
Depreciation and amortisation 14,447 11,603 25,635
Fuel 23,745 12,269 28,086
Gas 18,021 13,315 25,576
Royalties and levies 3,806 4,157 8,570
Other 1,442 1,193 1,347
207,508 160,287 335,936
Cost of sales is reconciled to "C1" costs in the following manner:
US$'000 6 months ended 6 months ended Year ended 31.12.07
30.06.08 30.06.07
Cost of sales 207,508 160,287 335,936
Depreciation and amortisation (13,898) (11,425) (25,635)
Purchased ore and concentrate (8,394) (14,151) (19,911)
Production cost of gravel (709) (1,240) (2,101)
Stock movement in the period 5,017 1,536 (6,284)
Pension current service cost (667) (927) (1,877)
Other (4,528) (1,114) (555)
C1 Cost 184,329 132,966 279,573
Own ore produced (tonnes) 4,504,000 4,450,000 8,793,000
C1 cash cost per tonne $ 40.92 29.88 31.79
"C1" costs represent the cash costs of production of own ore divided by production volume of own ore, and excludes non-cash costs such
as depreciation, pension costs and stock movement, and costs of purchased ore, concentrate and production cost of gravel.
Note 6: Selling and distribution expenses
Selling and distribution expenses for the period ended 30 June 2008 consisted of the following:
US$'000 6 months ended 6 months ended 30.06.07 Year ended 31.12.07
30.06.08
Personnel costs 496 533 827
Railway tariffs 43,518 26,192 59,387
Sea and river freight 16,545 17,227 33,119
Commission fees 962 818 2,025
Other distribution costs 4,202 1,530 2,865
Other marketing costs 968 600 1,816
Depreciation 422 278 575
67,113 47,178 100,614
Note 7: General and administrative expenses
General and administrative expenses for the period ended 30 June 2008 consisted of the following:
US$'000 6 months ended 6 months ended 30.06.07 Year ended 31.12.07
30.06.08
Personnel costs 16,059 9,886 19,621
Buildings and maintenance 1,920 1,406 2,361
Communication costs 436 190 700
Security 641 305 769
Consulting and other 6,968 1,549 8,464
professional fees
Taxes other than income tax 2,141 1,814 3,674
and other charges
Bank charges 335 195 339
Other 2,530 3,873 6,833
Depreciation 1,408 744 1,547
32,438 19,962 44,308
Note 8: 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 period comprise:
US$'000 6 months ended 6 months ended 30.06.07 Year ended 31.12.07
30.06.08
Write-off/(write-up) of - 112 (544)
inventories
Write-off of property, plant - 989 2,112
and equipment
Impairment of 94 - -
available-for-sale investments
94 1,101 1,568
Note 9: EBITDA
The Group calculates EBITDA as profit from continuing operations before tax and finance less foreign exchange gain/(loss) plus
depreciation and amortisation (included in cost of sales, administrative expenses and selling and distribution costs) and non-recurring cash
items included in other income, non-recurring cash items included in other costs plus the net gain/(loss) from disposal of subsidiaries and
associates. The Group presents EBITDA because it believes that EBITDA is a useful measure for evaluating its ability to generate cash and
its operating performance.
US$'000 6 months ended 6 months ended 30.06.07 Year ended 31.12.07
30.06.08
Profit before tax and finance 213,312 67,604 186,935
Write-offs and impairment 94 1,101 1,568
losses
Net gain on disposal of (1,547) - (4,714)
available-for-sale investment
Initial public offering costs 3,897 30,142 34,004
Share based payments 1,027 - -
Negative goodwill generated on (5,077) - -
rights issue
Depreciation and amortisation 16,317 14,442 28,264
EBITDA 228,023 113,289 246,057
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
number of ordinary shares. The number of shares was assumed to be constant throughout 2007, the year of the Group's Initial Public
Offering.
6 months ended 6 months ended Year ended 31.12.07
30.06.08 30.06.07
Profit for the period
attributable to equity
shareholders:
Basic earnings per share (US 23.20 6.03 20.41
cents)
Diluted earnings per share (US 23.14 6.00 20.33
cents)
Underlying earnings for the
period:
Basic earnings per share (US 22.76 11.10 24.93
cents)
Diluted earnings per share (US 22.70 11.05 24.84
cents)
The calculation of the basic and diluted earnings per share is based on the following data:
Thousands 6 months ended 6 months ended 30.06.07 Year ended 31.12.07
30.06.08
Number of shares
Basic number of ordinary 609,794 607,471 607,796
shares outstanding
Effect of dilutive potential 1,492 2,716 2,403
ordinary shares
Diluted number of ordinary 611,286 610,187 610,199
shares outstanding
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:
US$'000 Notes 6 months ended 6 months ended 30.06.07 Year ended 31.12.07
30.06.08
Profit attributable to equity 141,449 36,634 124,076
holders
Write offs/impairments 8 94 1,101 1,568
IPO costs 3,897 30,142 34,004
Negative goodwill generated on (5,077) - -
rights issue
Gain on sale of (1,547) - (4,714)
available-for-sale investment
Tax on adjusted items (23) (275) (3,217)
Minority interests (13) (155) (220)
Tax on minority interests 3 (39) 48
Underlying earnings 138,783 67,408 151,545
Adjusted items are those items of financial performance that the Group believes should be separately disclosed on the face of the income
statement to assist in the understanding of the underlying financial performance achieved by the Group. Adjusted items that relate to the
operating performance of the Group include impairment charges and reversals and other exceptional items. Non-operating adjusted items
include gains and losses on disposal of investments and businesses.
Dividends paid and proposed
US$'000 6 months ended 6 months ended 30.06.07 Year ended 31.12.07
30.06.08
Declared and paid
Final dividend for 2007: 3.2 19,449 - -
US cents per ordinary share
Total 19,449 - -
Note 11: Property, plant and equipment
During the six months ended 30 June 2008, the Group acquired property, plant and equipment with a cost of $118,524,000 (31 December
2007: $95,370,000; 30 June 2007: $50,992,000).
Note 12: Short term deposits with banks
At 30 June 2008 the Group held no interest bearing term deposits with a maturity term of less than one year (31 December 2007: $nil; 30
June 2007: $1,460,000).
Note 13: Cash and cash equivalents
The cash and cash equivalents of the Group at the end of the period comprised:
US$'000 As at 30.06.08 As at 30.06.07 As at 31.12.07
Cash at bank 62,599 71,861 86,963
Petty cash 1 43 3
62,600 71,904 86,966
Note 14: Share capital
The share capital of the Company consists of 613,967,956 ordinary shares of �0.10 each, giving a nominal value of $121,628,000 which is
unchanged since the Group's Initial Public Offering in June 2007.
Note 15: 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 $11.0 million. The share redemption liability represents the present
value in respect of this contractual obligation. The movement in the shares redemption liability comprised:
US$'000
Balance as at 1 January 2007 9,062
Interest expense 470
Balance as at 30 June 2007 9,532
Interest expense 504
Balance as at 31 December 2007 10,036
Interest expense 962
Balance as at 30 June 2008 10,998
Note 16: Interest bearing loans and borrowings
Borrowing and repayment of debt
During the period ended 30 June 2008 the amount of $18,182,000 was repaid on the major bank debt facility (31 December 2007 and 30 June
2007: $35,000,000), a $335,000,000 pre-export finance facility (31 December 2007: $335,000,000; 30 June 2007: $275,000,000). At the period
end $135,000,000 of the facility was unutilised (31 December 2007: $135,000,000; 30 June 2007: $145,000,000).
All other loan balances relate to Ferrexpo Poltava GOK Corporation.
Note 17: Related party disclosure
During the periods presented the Group entered into arm's length transactions with entities under common control of the majority owner
of the Group, Kostyantin Zhevago and with other related parties.
Management considers that the Group has appropriate procedures in place to identify and properly disclose transactions with the related
parties.
Excluding the associated company TIS Ruda, the related party transactions undertaken by the Group during the periods presented are
summarised below:
6 months ended 30.06.08 6 months ended 30.06.07 Year ended
31.12.07
US$'000 Entities under Other related Entities under Other related Entities under
common control Other
common control parties common control parties
related
parties
Iron ore pellet sales - - - 46 -
-
Other sales 519 1,686 32 1,562 3,013
4,336
Total revenue 519 1,686 32 1,608 3,013
4,336
Purchase of materials 9,996 8,858 113 7,207 18,417
13,731
Purchase of services 162 270 1,912 718 2,460
767
General and administration 1,212 34 - - 361
19
expenses
Selling and distribution - 5,347 - 822 1,801
1,797
Other expenses 6 6 - - 202
76
Total expenses 11,376 14,515 2,025 8,747 23,241
16,390
Finance income 141 - 303 - 415
212
Finance costs 378 - 109 - 141
-
Net finance costs/(income) 237 - (194) - (274)
(212)
Finance income and finance costs
The financing of the Group is principally undertaken with third party financial institutions outside of Ukraine. The Group also has
transactional banking arrangements with Finance & Credit Bank in Ukraine which is under common control.
Sale and purchases of property, plant and equipment and investments
6 months ended 30.06.08 6 months ended 30.06.07 Year ended
31.12.07
US$'000 Entities under Other related Entities under Other related Entities under
common Other
common control parties common control parties control
related
parties
Sale of investments (i) 1,849 - - - 5,613
-
Purchase of investments (ii) - - - - 11,994
-
Sale of property, plant and - - - - 690
-
equipment (iii)
Purchase of property, plant 77 - 179 61 5,450
61
and equipment (iv)
(i) In May 2008 the Group disposed of 2.054% of its share in Vostock Ruda, an available-for-sale investment, to entities under common
control for a consideration of $1,849,000 resulting in a gain on disposal of $16,000 (31 December 2007: The Group sold a 6.2% interest in
Vostock Ruda, for consideration of $5,613,000, resulting in a gain on disposal of $4,714,000; 30 June 2007: $nil).
(ii) During 2007 the Group acquired 9.91%, ex rights, of the share capital in OJSC Stahanov, a quoted rail car manufacturing business
located in the Luhansk region of Ukraine for consideration of $11,994,000 from an entity under common control. Following successful
completion of the capital reorganisation in May 2008, this holding was reduced to 3.3%.
(iii) During 2007 land and buildings not used by the Group were disposed to an entity under common control for $690,000.
(iv) During 2008 the Group purchased property, plant and equipment from entities under common control for a consideration of $77,000
(2007: $5,450,000 of which $4,965,000 was for the purchase of 110 railcars from OJSC Stahanov).
On 15 July 2008 the company subscribed for additional capital amounting to $270,000 in OJSC Stahanov as part of the rights issue of that
company.
The outstanding investments/balances with related parties for the periods presented are as follows:
As at 30.06.08 As at 30.06.07 As at
31.12.07
US$'000 Entities under Other related Entities under Other related Entities under
common Other
common control parties common control parties control
related
parties
Investments available for sale 35,962 3 35,884 97 47,023
97
Total non-current assets 35,962 3 35,884 97 47,023
97
Investments available for sale 8,768 - - - 2,839
-
Promissory notes issued - - 218 - 218
12
Trade and other receivables 2,671 243 10,859 1,123 793
581
Prepayments and other current 4 110 - - -
-
assets
Short term deposits with banks - - 1,460 - -
-
Cash and cash equivalents 10,740 - 4,015 - 8,727
-
Total current assets 22,183 353 16,552 1,123 12,577
593
Trade and other payables 388 740 874 1,597 2,185
1,099
Accrued liabilities and 367 - - - -
-
deferred income
Current liabilities 755 740 874 1,597 2,185
1,099
As of 30 June 2008 available for sale investments included $35,962,000 in LLC Atol (31 December 2007: $34,530,000), $7,737,000 in OJSC
Stahanov (31 December 2007: $12,493,000) and $1,031,000 in Vostock Ruda (31 December 2007: $2,839,000).
As of 30 June 2008 trade and other receivables included outstanding amounts relating to the disposal of Vostock Ruda of $1,925,000,
including exchange rate difference (31 December 2007: $nil).
As of 30 June 2008 Cash and cash equivalents with Finance & Credit Bank were $10,740,000 (31 December 2007: $8,727,000).
Note 18: Reconciliation of profit before income tax to net cash flow from operating activities
US$'000 6 months ended 6 months ended Year ended 31.12.07
30.06.08 30.06.07
Profit before income tax 201,350 54,484 160,760
Adjustments for:
Depreciation of property, 16,317 14,442 28,265
plant and equipment and
amortisation of intangible
assets
Interest expense 7,473 9,762 24,488
Interest income (1,214) (849) (3,242)
Share of (income)/losses of (1,420) 118 (687)
associates
Movement in allowance for 121 - 336
doubtful receivables
(Gain)/loss on disposal of 677 (140) -
property, plant and equipment
Write off and impairment 94 1,101 1,568
losses
Site restoration provision 243 - 1,269
(Gains)/ losses on disposal of (1,546) 294 (4,714)
investments available for sale
and other financial
instruments
Employee benefits 1,394 1,562 3,915
IPO costs 3,897 30,142 34,004
Share based payments 1,027 - -
Negative goodwill generated on (5,077) - -
rights issue
Foreign exchange (gain)/loss 4,066 34 3,467
Operating cash flow before 227,402 110,950 249,429
working capital changes
Changes in working capital
(Increase)/decrease in trade (45,372) 16,110 13,951
accounts receivable and other
receivables
(Increase)/decrease in (18,689) (7,904) (7,840)
inventories
Increase/(decrease) in trade 19,391 (7,722) 6,534
and other accounts payable
(Increase)/decrease in other 5,747 - (14,411)
taxes receivable
Cash generated from operating 188,479 111,434 247,663
activities
Interest paid (7,487) (9,743) (24,525)
Income tax paid (37,711) (17,439) (32,018)
Post employment benefits paid (1,476) (928) (2,274)
Net cash flows from operating 141,805 83,324 188,846
activities
Note 19: Commitments and contingencies
US$'000 As at 30.06.08 As at 30.06.07 As at 31.12.07
Operating lease commitments 21,776 13,863 13,744
Capital commitments on 79,420 16,348 60,904
purchase of property and
equipment
Guarantees provided 316,818 275,000 335,000
Legal
In the ordinary course of business, the Group is subject to legal actions and complaints. Management believes that the ultimate
liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition or the results
of future operations of the Group.
Tax and other regulatory compliance
Ukrainian legislation and regulations regarding taxation and custom regulations continue to evolve. Legislation and regulations are not
always clearly written and are subject to varying interpretations and inconsistent enforcement by local, regional and national authorities,
and other Governmental bodies. Instances of inconsistent interpretations are not unusual.
The uncertainty of application and the evolution of Ukrainian tax laws, including those 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 enterprises in Ukraine.
Note 20: Subsequent events
No material adjusting or non-adjusting events have occurred subsequent to the year-end that warrant disclosure in these financial
statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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