TIDMFXPO
RNS Number : 1121L
Ferrexpo PLC
07 August 2013
7 August 2013
FERREXPO plc
("Ferrexpo" or the "Group")
2013 Interim Results
Ferrexpo, the FTSE 250 iron ore pellet producer, today announces
its interim year results for the six months ended 30 June 2013.
Michael Abrahams, Non-Executive Chairman, said:
"Ferrexpo has performed well in the first half of the current
year and expects to increase production in the second half as its
new mine, Ferrexpo Yeristovo Mining (FYM) continues to ramp up.
Once the FYM mine reaches its initial planned capacity, anticipated
in the second half of the year, further operating efficiencies
should result. Ferrexpo's capital projects are also progressing
well and, whilst the iron ore price is likely to remain volatile,
the Group is in a good position to continue its investment
programme, as appropriate."
US$'000 unless otherwise 6 months 6 months % change Year ended(1)
stated ended 30.06.13 (1) ended 31.12.12
30.06.12
----------------------------------- ---------------- ----------- --------- --------------
Pellets produced from own
ore (thousand tonnes) 5,085 4,563 11% 9,409
----------------------------------- ---------------- ----------- --------- --------------
Total pellet production (thousand
tonnes) 5,246 4,725 11% 9,690
----------------------------------- ---------------- ----------- --------- --------------
Sales volumes (thousand tonnes) 5,324 4,486 19% 9,675
----------------------------------- ---------------- ----------- --------- --------------
Revenue 775 731 6% 1,424
----------------------------------- ---------------- ----------- --------- --------------
EBITDA(2) 244 242 1% 405
----------------------------------- ---------------- ----------- --------- --------------
Profit before tax 150 171 (12%) 266
----------------------------------- ---------------- ----------- --------- --------------
Diluted EPS (US cents per
share) 21.43 24.97 (14%) 37.08
----------------------------------- ---------------- ----------- --------- --------------
Net cash flow from operating
activities 83 70 19% 119
----------------------------------- ---------------- ----------- --------- --------------
Ukrainian Gross VAT outstanding 305 231 (32%) 302
----------------------------------- ---------------- ----------- --------- --------------
Capital investment 147 222 (34%) 429
----------------------------------- ---------------- ----------- --------- --------------
Net debt (566) (251) 126% (423)
----------------------------------- ---------------- ----------- --------- --------------
Net debt to LTM(3) EBITDA 1.4x 1.0x - 1.1x
----------------------------------- ---------------- ----------- --------- --------------
Net gearing 26% 14% - 21%
----------------------------------- ---------------- ----------- --------- --------------
(1) As a result of the retrospective adoption of the amendments
to IAS 19, the pension costs of the comparative periods ended 30
June 2012 and 31 December 2012 changed and had a positive effect of
US$2 million and US$4 million on the previously disclosed EBITDA
figures.
(2) EBITDA - the Group calculates EBITDA as profit from
continuing operations before tax and finance plus depreciation and
amortisation and non-recurring exceptional items included in other
income and other expenses, and the net of gains and losses from
disposal of investments, property, plant and equipment.
(3) Last twelve months.
-- Record pellet production of 5.3 million tonnes, 11% higher
than 1H 2012 driven by the ramp-up of production from the new
Ferrexpo Yeristovo Mine (FYM).
-- Three million tonnes of ore mined at FYM in 1H 2013,
producing 859 thousand tonnes of pellets. The development of FYM
increases the Group's mining flexibility and improves
efficiency.
-- Sales volumes grew by 19% to 5.3 million tonnes due to strong
pellet demand from all of the Group's markets. The Group's achieved
price was 6% lower than the first half of 2012 reflecting a 4%
decrease in market pricing and the timing of fixed price
settlements with Traditional customers.
-- Average freight costs, including transshipment, to the Far
East reduced by 33% compared to a drop of 11% in the C3 index
(Brazil to China). As a result of the above cost savings, the Group
is on track to achieve its goal of realising an average freight
cost to the Far East at or below C3. As the majority of ocean going
sales are now based on CFR pricing, these reduced freight costs
contribute to a higher net sales price for the Group.
-- The average C1 cash cost of production for pellets was
US$61.8 per tonne(1H 2012: US$60.4 per tonne) reflecting higher
costs associated with the ramp up of FYM in 1Q 2013 (1Q 2013:
US$63.9 per tonne). The increase was reversed in 2Q 2013 due to
increasing efficiency gains and better fixed cost absorption.
-- EBITDA of US$244 million was in line with 1H 2012 benefitting
from strong volume performance and continued cost controls which
were able to mitigate price volatility.
-- The Group stabilised its VAT recoverable position, with the
balance due from the Ukrainian Government remaining similar to 31
December 2012 at US$305 million. This was offset by an increase in
corporate profit tax prepayments amounting to US$65 million, or
half of the VAT repaid to Ferrexpo in the period (31 December 2012:
prepaid corporate profit tax US$25 million).
-- Balance sheet position remains strong. As of 30 June 2013,
the Group's net gearing was 26% and net debt was US$566 million (31
December 2012: US$423 million), which included cash on hand of
US$446 million (31 December 2012: US$597 million). Of the net debt,
US$370 million or 65% was represented by overdue VAT and prepaid
corporate profit tax. The Group is actively seeking ways to reduce
its VAT outstanding balance.
-- The Group is on track to complete its US$647 million
investment programme to increase the quantity and quality of its
pellets.
There will be an analyst and investor meeting at 09.00 (UK time)
today at Deutsche Bank, The Auditorium, 1 Great Winchester Street,
London EC2N 2DB. A live video webcast and slide presentation of
this event will be available on www.ferrexpo.com. It is recommended
that participants register at 08.45. The presentation will be
hosted by Michael Abrahams (Chairman), Kostyantin Zhevago (CEO) and
Chris Mawe (CFO).
For further information contact:
Ferrexpo:
Ingrid McMahon +44 207 389 8304
Pelham Bell Pottinger
Charles Vivian +44 207 861 3126
Lorna Spears +44 207 861 3883
Notes to Editors:
Ferrexpo is a Swiss headquartered iron ore company with assets
in Ukraine. It has been mining, processing and selling high quality
iron ore pellets to the global steel industry for over 35 years.
Ferrexpo's resource base is one of the largest iron ore deposits in
the world. In 2012, the subsidiary, Ferrexpo Poltava Mining (FPM),
produced 9.3 million tonnes of iron ore pellets, while first ore
was reached at the new Ferrexpo Yeristovo Mining (FYM) open pit.
Ferrexpo is a top 5 seaborne supplier of pellets and the largest
exporter of pellets in the CIS. The Group has a diversified
customer base supplying steel mills in Austria, Slovakia, Czech
Republic, Germany and other European states, as well as in Turkey,
China, India, Japan, Taiwan and South Korea. Ferrexpo is listed on
the main market of the London Stock Exchange under the ticker FXPO.
For further information, please visit www.ferrexpo.com
CHAIRMAN'S AND CHIEF EXECUTIVE OFFICER'S STATEMENT
ESTABLISHED CAPABILITIES AND EXPANDING OPERATIONS
For the six months ended 30 June 2013, Ferrexpo is pleased to
report a strong production and sales performance and EBITDA in line
with the first half of 2012 at US$244 million (1H 2012: US$242
million).
During the period, Ferrexpo commenced ramp up of its new mining
operations at Ferrexpo Yeristovo Mining ('FYM') increasing the
Group's total pellet output by 11% compared to the same period in
2012. Strong iron ore pellet demand from all of the Group's markets
enabled Ferrexpo to grow its sales volumes by 19%.
Market pricing during the period was volatile impacting the
Group's achieved price, which was 6% lower than the first half of
2012.
Overall, Group operating profit benefited from strong volume
performance and continued cost controls which were able to mitigate
the price volatility.
Ferrexpo is a top five global seaborne pellet supplier servicing
a premium customer base which largely produces sophisticated steel
products. Its proximity to the major steel producing regions and
its integrated infrastructure capability are enabling it to build a
first class reputation within the industry. The Group will continue
to invest prudently to enhance value to all stakeholders.
Results
Group revenue increased by 6% to US$775 million for the six
months ended 30 June 2013 (1H 2012: US$731 million) underpinned by
strong sales demand offsetting lower market pricing. In 1H 2013,
the Group's average received price fell by 6% compared to the first
half of 2012. Sales volumes increased by 19% to 5.3 million tonnes
(1H 2012: 4.5 million tonnes).
The Group's average C1 cash cost of production for pellets for
the six months to 2013 was US$61.8 per tonne (1H 2012: US$60.4 per
tonne; FY 2012: US$59.6 per tonne). The increase in the C1 cost
primarily reflected expenditures related to the ramp up of
production at FYM. The Ukrainian Hryvnia remained stable against
the US Dollar during the period.
Group profit after tax was US$126 million (1H 2012: US$147
million) reflecting higher depreciation costs following Ferrexpo
Poltava Mining's ('FPM') modernisation programme and the opening of
the FYM.
In the period to 30 June 2013, the Group stabilised its gross
VAT recoverable position, with the balance due from the Ukrainian
Government remaining similar to 2012 year end levels at US$305
million (31 December 2012: US$302 million). Prepayment of corporate
profit tax increased during the period by US$40 million to US$65
million. The prepayment of US$40 million represented approximately
half of the VAT repaid to Ferrexpo in the first six months of 2013
(31 December 2012: prepaid corporate profit tax amounted to US$25
million).
Ferrexpo is continuing to work constructively with Government
authorities for repayment of the outstanding and overdue VAT. This
amount, together with corporate profit tax prepayments, effectively
accounted for 65% of the Group's net debt at 30 June 2013 of US$566
million (31 December 2012: 77% of net debt of US$423 million).
As of 30 June 2013, a US$38 million discount (31 December 2012:
US$20 million) had been recorded to reflect the anticipated
financing cost incurred by the Group to recover the outstanding VAT
over a protracted period of time.
The Group's US$647 million capital investment programme to
increase the quality and quantity of its pellet output is ongoing,
supported by internally generated cash flows. During the period,
the Group spent US$147 million (1H 2012: US$222 million) on these
projects. As is common with brownfield developments, opportunities
have arisen for the refinement and optimisation of project plans.
These projects are still expected to be completed on time and to
budget.
At the period end, Ferrexpo had net debt of US$566 million (31
December 2012: US$423 million), which included cash on hand of
US$446 million (31 December 2012: US$597 million).
The Group's policy is to pay a modest but consistent dividend
throughout the economic cycle and return capital to shareholders
when appropriate, while maintaining adequate liquidity to support
the business and its growth plans. The Directors recommend an
interim dividend of 3.3 US cents per Ordinary Share (1H 2012: 3.3
US cents) for payment on 20 September 2013 to shareholders on the
register at the close of business on 16 August 2013. The
ex-dividend date will be 14 August 2013. The dividend will be paid
in UK Pounds Sterling, with an election to receive in US
Dollars.
Market Environment
The benchmark Platts 62% Fe CFR iron ore fines price index to
North China fell from an average of US$142 per tonne in the first
half of 2012 to US$118 per tonne in the second half of 2012. In the
first half of 2013, the volatility continued and the benchmark
price fell from a peak of US$160 per tonne in February to US$110
per tonne in May before recovering to US$130 per tonne at the end
of July. Overall the index was 4% lower in the first half of 2013
compared to the first half of 2012.
As a result of these market conditions, Ferrexpo's achieved
price in the first half of the year compared to the same period in
2012 decreased by 6% on average, reflecting the timing of price
settlements under the Group's contractual agreements, which
included 40% on a benchmark indexed price (1H 2012: 25%), 14% on a
spot basis (1H 2012: 35%), and 46% on a quarterly negotiated basis
(1H 2012: 40%).
Ferrexpo expects price volatility to remain due to increased
stocking cycles and sentiment driven reactions to global economic
news. The Group is and will continue to be cost competitive within
this environment.
Market demand for iron ore pellets was robust in the first half
of 2013 due to reduced availability of pellets from Brazil. Pellets
are also increasingly in demand by steel mills constrained by
emission targets, as pellets are the highest quality and most
environmentally friendly source of iron in a steel furnace. As a
pellet producer, Ferrexpo expects to benefit from these positive
market developments for the Group's products which were evident in
the first half of the year.
The premium achieved for pellets, compared to the equivalent
fines product, increased during the period relative to the second
half of 2012. In addition, customers were looking to secure a
reliable long-term supply of pellets. As a result, Ferrexpo
experienced strong demand year to date and expanded its volumes
under long-term contracts to key customers in Turkey and Western
Europe, and renewed a long-term contract in Japan.
Logistics remains a key focus and the Group continued to supply
a substantial proportion of its products in the period using its
own railway wagons.
The average freight cost, including transshipment, to the Far
East reduced 33% compared to a drop of 11% in the C3 index (Brazil
to China) over the same period in 2012. The lower costs resulted
from the increased usage of capesize vessels compared to panamax
vessels where 11 were loaded in 1H 2013 compared to 8 in 1H 2012.
In December 2012, the Group also commenced operation of its own
transshipmnet vessel, Iron Destiny, which reduced freight costs by
US$1.80 per tonne in the first six months of 2013. The freight
rates from the Black Sea Ports to China were also generally lower
compared to 2012.
As a result of the above cost savings, the Group is on track to
achieve its goal of realising an average freight cost to the Far
East at or below C3. As the majority of ocean going sales are now
based on CFR pricing, these reduced freight costs contribute to a
higher net sales price for the Group.
Ferrexpo is the closest significant pellet supplier in nautical
miles to Europe, the Middle East and Asia. It is focused on further
lowering its distribution costs and increasing its pellet quality
to make it the pellet supplier of choice to premium steel mills
around the world.
Production
Ferrexpo is pleased to report an increase of 11% in production
volumes for the first half of 2013 to 5.3 million tonnes (1H 2012:
4.7 million tonnes). This was driven by the ramp-up of production
from the new pit at Ferrexpo Yeristovo Mining ('FYM'), the first
new iron ore open pit mine in the Commonwealth of Independent
States ('CIS') since Ukraine gained its independence in 1991.
Importantly, the development of FYM serves to lower the
operational risk profile of the business and reduce its cost base
going forward, initially through increased fixed cost absorption
from higher volumes and then through improved processing
characteristics of the FYM ore as its staged ramp up advances. The
average iron content of the ore mined by FYM is 34% compared to 30%
at the deposits mined by FPM.
Of the 5.3 million tonnes of pellets produced in 1H 2013; 5.1
million tonnes were from the Group's own ore (1H 2012: 4.6 million
tonnes) while 0.2 million tonnes were produced from third party
concentrate (1H 2012: 0.2 million tonnes). Of the output from own
ore, 2.2 million tonnes of pellets contained 65% iron content (a
record for the Group), compared to 2.1 million tonnes in 1H 2012.
Please see table 3 in the 'Review of Operations' section of this
announcement (page 9) which details production output.
Throughout the period, Ferrexpo Poltava Mining (FPM) continued
with the modernisation programme of the existing mining and
processing facilities. In May 2013, FPM's processing facilities
produced 1 million tonnes of pellets, an encouraging sign and
validation of the plant's ultimate capacity. This level of
production is in line with the target of 1 million tonnes of output
per month by the end of 2013. For the remainder of the year, FPM
will continue to overhaul additional processing sections and focus
on increasing its production capacity in order to deliver a monthly
output of one million tonnes throughout 2014, including planned
maintenance downtime.
Health, Safety and Environment
In accordance with the Group's policy of continuously improving
safety standards, Ferrexpo is pleased to report that there have
been no fatalities at its mines in well over two years, and that
the lost-time injury frequency rate ('LTIFR') for the Group's
mining operations was 0.65 per million man hours for the period
under review (FY 2012: 0.66).
The management of Ferrexpo actively encourages and develops a
culture of safety in the organisation, linking safety performance
to remuneration. The Group is implementing a number of
recommendations from regular internal safety audits, and previous
external audits (Ukraine State Authority and DuPont), and is
determined to continue to pursue best international standards for
mining companies.
The environmental impact of Ferrexpo's mining and processing
operations remains an important consideration when addressing
operational improvements. The Group is committed to operating
responsibly and sustainably. There were no environmental incidents
to report in the first half of 2013.
Cost of Production
The Group's average C1 cash cost of production for pellets for
the six months to 2013 was US$61.8 per tonne (1H 2012: US$60.4 per
tonne; FY 2012: US$59.6 per tonne). The C1 cost increase was
principally as a result of higher costs associated with the ramp up
of mining and processing of the FYM ore in the first quarter of the
year, which was offset to a certain extent in the second quarter
due to efficiency gains and better fixed cost absorption on higher
production volumes.
Approximately 70% of the Group's total cost base is in Ukrainian
Hryvnia. Since the end of 2008, following a 60% devaluation against
the US dollar, the currency has been largely pegged at
approximately UAH8 to US$1.
Capital Investment
The Group is on track to complete its US$647 million investment
programme to increase the quantity of its pellet output by circa
one third to 12 million tonnes per annum in 2014, and to increase
the average quality of its pellets from 63% Fe to 65% Fe in
2015.
Further development of existing mining facilities requires that
the current production be maintained whilst optimisation and
modernisation programmes are completed. Implementation of
investment programmes in such a scenario, inevitably result in the
optimisation of project plans which present opportunities for
efficiency gains as well as improvements to plant designs. Both the
volume increase and quality upgrade projects remain on time and
within the original cost budget.
The Group holds licenses to explore and develop the largest iron
ore deposit in Europe. It remains dedicated to developing these
substantial reserves and thereby creating significant value for all
stakeholders. Ferrexpo aims to fund capital investment out of
operating cash flows and as such the pace of investment depends on
the market demand and the price for iron ore as well as the
economic and political environment in Ukraine. The Group will
continue to evaluate and if appropriate partake in Net Present
Value accretive opportunities; both within the Company and
externally, that de-risk and diversify its operations.
Ferrexpo remains committed to increasing its volume output to
beyond 12 million tonnes of pellets or iron ore equivalent, by
developing new processing capacity at FYM. This will be considered
later in the year by the Board and will be subject to market
conditions as well as the provision of adequate long-term funding
through both internally generated cash flows as well as
appropriately priced and structured debt.
Financial Management
Ferrexpo has maintained strict financial discipline over many
years. Key aspects of the Group's approach include funding capital
expenditures principally out of operating cash flows and where
appropriate fairly priced and structured debt, ensuring adequate
liquidity whilst retaining competitive credit metrics and cost of
financing.
Net gearing was 26% as of 30 June 2013 (21% as of 31 December
2012) and net debt to EBITDA for a trailing annual period was 1.4 x
as of 30 June 2013 (1.1 x as of 31 December 2012). As of 30 June
2013, the Group had net debt of US$566 million (31 December 2012:
US$423 million), which included cash on hand of US$446 million (31
December 2012: US$597 million). Of the net debt, US$370 million or
65% was represented by overdue VAT and prepaid corporate profit
tax. The Group is actively seeking ways to reduce its VAT
outstanding balance.
Of the US$647 million capital programme approved by the Board in
November 2011, approximately US$425 million has been invested as of
30 June 2013. As such, the Group's payments for capital goods
peaked in the first half of 2013 and should reduce in the remainder
of the year. Ferrexpo has a degree of flexibility regarding the
outstanding investments without affecting its production goals of
increasing volume output to 12 million tonnes of pellets per annum
and increasing the average quality of its pellet output to 65%
Fe.
Ferrexpo has minimal debt repayments of approximately US$19
million in 2013, of which US$9 million remains to be paid in the
second half, and US$89 million in 2014.
Ukraine
Ukraine is still at a comparatively early stage in its
development as an independent democracy, and has been subject to
various changes in government over the past 20 years. In June 2013,
the rating agency, Fitch, revised its outlook for Ukraine from
stable to negative citing an increasingly fragile external
financing position. Challenges of operating in such an environment
is a risk commonly faced by all mining companies in emerging
markets, and the Board believes Ferrexpo has the expertise and
local knowledge to manage them.
Court case
The Group faces an ongoing legal claim over a shareholding in
FPM. After having taken Ukrainian legal advice, the Board believes
that risks related to these court proceedings are remote. Due to
the nature of the country and its court system, however, a negative
outcome cannot be ruled out. The consequences of this are
highlighted in note 19 of the notes to the interim financial
statements. The case has been running for seven years and the Board
believe it still has a considerable way to go.
VAT
As of 30 June 2013, Ferrexpo was owed US$305 million of VAT by
the Ukrainian Government (31 December 2012: US$302 million). This
amount has been discounted by US$38 million to US$267 million in
order to reflect the cost of financing those VAT balances that are
expected to be recovered more than one year after the period in
which they arose. Prepaid corporate profit tax amounted to US$65
million as of 30 June 2013 (31 December 2012: US$25 million).
The Board notes that the VAT balance outstanding has stabilised
due to FPM receiving regular VAT refunds thus far in 2013 (in
exchange for the prepayment of corporate profit tax equal to half
of the total VAT received).
On 24 July 2013, Ukraine's President signed a law allowing the
Government to repay eligible budget arrears and VAT by issuing
Treasury Promissory Notes. The Board believes the issue of these is
still contingent upon the signing of a related law which Parliament
passed on 4 July 2013.
The ultimate issue of the notes along with the final terms and
conditions and the transferability and trading is still to be
determined and therefore uncertain. The Board continues to closely
monitor this. More detail regarding VAT and the associated discount
is disclosed in note 12 of the accounts.
CSR
In 1960, the town of Komsomolsk was established adjacent to the
Poltava mine to support its mining and processing operations. The
town has a total population of approximately 55,000 people and
Ferrexpo is the largest employer, employing approximately a quarter
of the working population. The Group has been a significant
investor in local community initiatives from the outset, investing
funds in the social infrastructure of Komsomolsk and the
surrounding area. These funds have been spent on medical
facilities, social services, education, religion, culture and
sporting activities, as well as on the maintenance of certain of
the city's social and cultural structures.
For the six months to 30 June 2013, Ferrexpo spent approximately
US$4 million on community projects as part of its ongoing social
programme (1H 2012: US$10 million). Due to Ferrexpo's presence as a
major local employer and its contributions to community
initiatives, unemployment in Komsomolsk is significantly below the
national average, and the average salary is significantly above the
national average.
Corporate Governance
The Board intends to remain fully compliant with the UK
Corporate Governance Code 2012 and remains committed to maintaining
high standards of governance throughout the Group.
People
The Board would like to take this opportunity to thank the
management team and all of Ferrexpo employees from those working at
the mines in Ukraine, to those in logistics and marketing located
around the world close to the Group's customers. It is to the
credit of the high standards of the management team that Ferrexpo
is able to position itself increasingly as a world class pellet
supplier.
Outlook
Ferrexpo has performed well in the first half of the current
year and expects to increase production in the second half as FYM
continues to ramp up. Once the FYM mine reaches its initial planned
capacity, anticipated in the second half of the year, further
operating efficiencies should result. Ferrexpo's capital projects
are also progressing well and, whilst the iron ore price is likely
to remain volatile, the Group is in a good position to continue its
investment programme, as appropriate.
REVIEW OF OPERATIONS
In total, as of 1 July 2013, Ferrexpo had estimated resources of
approximately 6.8 billion tonnes classified according to the
Australasian Joint Ore Reserves Committee ('JORC') code, and
further estimated resources of over 13.2 billion tonnes classified
according to the former Soviet Union method of classification (FSU
classification). Based on a combination of the JORC and FSU
classified resources, management believes the Group holds the
licences to the largest iron ore deposit in Europe.
Reserves and Resources
Table 1. JORC Reserve Statements as of 1 July 2013
Deposit Proved Fe total Fe magnetic % Probable Fe total Fe magnetic %
Mt % Mt %
----------------------- ------- --------- -------------- --------- --------- --------------
Gorishne-Plavninskoye 203 27 17 488 32 22
----------------------- ------- --------- -------------- --------- --------- --------------
Lavrikovskoye 38 30 22 95 32 23
----------------------- ------- --------- -------------- --------- --------- --------------
Yeristovskoye - - - 627 34 29
----------------------- ------- --------- -------------- --------- --------- --------------
Total 241 - - 1,210 - -
----------------------- ------- --------- -------------- --------- --------- --------------
Table 2. JORC Resource Statements as of 1 July 2013
Deposit Measured Fe total Fe mag Indicated Fe total Fe mag Inferred Fe total Fe mag
Mt % % Mt % % Mt % %
----------------------- --------- --------- ------- ---------- --------- ------- --------- --------- -------
Gorishne-Plavninskoye 285 29 20 1,025 31 23 1,275 31 23
----------------------- --------- --------- ------- ---------- --------- ------- --------- --------- -------
Lavrikovskoye 99 31 22 688 30 22 174 29 20
----------------------- --------- --------- ------- ---------- --------- ------- --------- --------- -------
Yeristovskoye 263 34 27 560 32 26 364 30 23
----------------------- --------- --------- ------- ---------- --------- ------- --------- --------- -------
Belanovskoye 336 31 24 1,149 31 23 217 30 21
----------------------- --------- --------- ------- ---------- --------- ------- --------- --------- -------
Galeschinskoye - - - 268 55 - 58 55 -
----------------------- --------- --------- ------- ---------- --------- ------- --------- --------- -------
Total 983 - - 3,690 - - 2,088 - -
----------------------- --------- --------- ------- ---------- --------- ------- --------- --------- -------
The Ferrexpo Group currently operates two open cut mines both
exploiting the Kremenchug Magnetic Anomaly located on the banks of
the Dnepr River in Ukraine, and a fully integrated processing and
pelletising facility. Ore is processed on-site into pellets before
being shipped via rail, barge and port, predominantly using wholly
owned or controlled assets. Ferrexpo markets 100% of its product
through a worldwide sales organisation. The current combined output
from the two mines stands at 35 million tonnes of ore, sufficient
to produce 12 million tonnes of pellets per year. The addition of
new processing facilities, planned for the future, will further
increase concentrate and pellet output.
Ferrexpo Poltava Mining ('FPM')
Overview
FPM consists of a mine, concentrating and pellet processing
facility that exploits the Gorishne-Plavninskoye and Lavrikovskoye
('GPL') deposits. As of 1 July 2013, the GPL deposits had iron ore
resources of 3.6 billion tonnes, of which approximately 824 million
tonnes were proved and probable reserves with an average iron
content of 30% under the JORC Code.
The mine is adjacent to rail and port facilities on the Dnepr
River and is approximately 6 kilometres long and over 350 metres
deep. FPM operates a traditional shovel and truck open pit mining
operation extracting approximately 30 million tonnes per annum of
crude ore on an uninterrupted basis for over 40 years.
FPM's production facilities crush, grind and concentrate ore
from both its own mine and currently the FYM mine before it is
fired to produce iron ore pellets in the FPM pelletising plant.
This plant contains four lines each with nameplate capability to
produce 3 million tonnes of pellets. FPM currently produces two
types of pellets for the Group, Ferrexpo Premium Pellets ('FPP')
which contain 65% iron content and Ferrexpo Basic Pellets ('FBP')
which contain 62% iron content.
FPM's own GPL mine is operating at full capacity of
approximately 30 million tonnes per year (30% average iron
content), which can be processed into approximately 9 million
tonnes of pellets per annum.
FPM intends to increase the amount of ore it mines on an annual
basis, however, it is currently sourcing additional ore from the
newly opened Yeristovo mine where 3 million tonnes of ore was mined
and processed in the first half of 2013, producing 859 thousand
tonnes of pellets.
Yeristovo ore provides FPM with the opportunity to optimise its
own mining programme, allowing FPM to maximise the grade, volume
and quality of output and, as necessary, stock ore for later
processing, while FPM's processing facilities are further improved
as part of its ongoing capital programme.
The addition of the Yeristovo mine has significantly improved
flexibility for the processing of higher grade concentrate. As FPM
upgrades its processing facilities this will allow the overall iron
content of its pellets to be increased with the objective that in
2015 all pellet output will have a grade of 65% Fe.
The table below highlights the Group's production statistics
during the period.
Table 3. Pellet Production 1H 2013 vs 1H 2012
Pellet production in tonnes 6 months 6 months
'000 ended 30.06.13 ended 30.06.12 Change
------------------------------------ ---------------- ---------------- -------
FPM pellets
Higher grade average Fe content
65% 2,006 2,134 (6%)
Lower grade average Fe content
62% 2,220 2,429 (9%)
------------------------------------ ---------------- ---------------- -------
Total 4,226 4,563 (7%)
------------------------------------ ---------------- ---------------- -------
FYM pellets
Higher grade average Fe content
65% 223 0 -
Lower grade average Fe content
62% 636 0 -
------------------------------------ ---------------- ---------------- -------
Total 859 0 -
------------------------------------ ---------------- ---------------- -------
Pellets from third party materials
Higher grade average Fe content
65% 95 56 71%
Lower grade average Fe content
62% 66 106 (38%)
------------------------------------ ---------------- ---------------- -------
Total 161 162 (1%)
------------------------------------ ---------------- ---------------- -------
Total Group pellet production
Higher grade average Fe content
65% 2,324 2,189 6%
Lower grade average Fe content
62% 2,922 2,536 15%
------------------------------------ ---------------- ---------------- -------
Total Group production 5,246 4,725 11%
------------------------------------ ---------------- ---------------- -------
Total Group sales 5,324 4,486 19%
------------------------------------ ---------------- ---------------- -------
FPM Business Improvement Programme ('BIP')
FPM has continued to reduce costs through its BIP, which has
achieved savings of UAH 33.4 million in the first half of 2013.
Energy costs comprise a significant amount of its total C1
production cost, with electricity and natural gas equating to
approximately 39%. Electricity consumption savings during the
period were 8.6 million kWh and gas consumption was reduced by
328,000 m(3) . Through the first half of 2013, there were 35
projects under way (in various stages) in the mining, processing
and servicing departments. The programme is targeting a continuous
reduction of costs of 1% to 2% on a yearly basis.
Sustaining Capital Investment
First half 2013 sustaining capex US$49 million (1H 2012: US$57
million).
Capacity Upgrade Project
As part of sustaining capital expenditure, FPM continues to
upgrade beneficiation sections and other key items of the
processing plant to ensure nameplate capacity of 12 million tonnes
of pellets in 2014. This will allow the plant to process ore from
the new FYM mine together with ore from the existing FPM pit. In
May 2013, 1 million tonnes of pellets were produced, confirming the
plant's technical capacity. FPM will now focus on increasing its
production capacity to deliver one million tonnes per month on a
regular basis.
Development Capital Investment
Mine Life Extension Project
First half 2013 capex US$12 million (1H 2012: US$21
million).
This project which will extend the life of FPM's mine to 2032
(30 million tonnes of production per annum) is progressing well
with over 59% of the targeted stripping complete as of 30 June
2013. The remaining stripping will be completed over the course of
the next five years as planned.
Quality Upgrade Project
First half 2013 capex US$14 million (1H 2012: US$19
million).
As of 30 June 2013, FPM's project to increase all pellet output
to 65% Fe, was approximately one third complete. This reflects good
progress with installation of two new floatation units and ten
vertimills all of which have been ordered and delivered and several
of which are onsite and in situ. The quality upgrade project will
allow for more efficient collection and processing of iron ore,
particularly of lower grade ore which is mined alongside the
current richer ore in the FPM mine, and sometimes partly discarded
in the form of tailings or stripping waste or, if substituted by
Yeristovo ore, stockpiled for later processing.
Further improvements may come with the addition of press
filtration which allows for lower moisture content in the
concentrate and capture of more iron from the suspension. This will
be decided when the exact characteristics of the finer ground
higher grade ore is known. The project is on schedule and budget
but as is common with brownfield expansions, the project plan has
developed whilst staying within its overall objective and cost
estimates.
Ferrexpo Yeristovo Mining ('FYM')
Overview
Ferrexpo has a licence to mine the Yeristovskoye iron ore
deposit at FYM, which is located approximately two kilometres north
of the FPM mine. The FYM deposit has estimated resources of 1.2
billion tonnes under the JORC Code, of which approximately 627
million tonnes were proved and probable reserves with an average
iron content of 34%. Assuming an iron ore production rate of 28
million tonnes per annum (broadly similar to FPM's current
production), it has the capacity to add approximately 23 years to
the Group's production profile or, with the addition of processing
and pelletizing facilities, to double the Groups annualised output
to 20 million tonnes.
Development Capital Investment
First ore at the Yeristovskoye deposit was reached in the second
half of 2012. In the first half of 2013, approximately 3 million
tonnes of ore was mined at FYM producing 859 thousand tonnes of
pellets. Higher levels of pellet production using FYM ore is
expected in the second half of 2013 as FYM's staged ramp up
advances. It is expected that FYM will initially mine up to 10
million tonnes per annum by 2014 followed by incremental increases
to 28 million tonnes per annum once new processing facilities have
been built to accommodate the additional ore.
The FYM mine is managed and operated independently from the
existing FPM mine, although its proximity to FPM allows for the
sharing of certain facilities and resources, particularly during
the early stages of operation, where the contribution of FYM ore
will enable FPM to reach full processing capacity of 12 million
tonnes per annum in 2014.
First half 2013 capex US$51 million (1H 2012: US$65
million).
Capital expenditure in the first half of the year relates to
capitalised stripping in order to extend the pit so as to allow
access in the future to ore that will be processed at FYM's own
processing facilities. There was also some spend associated with
completion of the remaining mine infrastructure.
FYM is developing additional processing and pelletising
facilities for the remaining ore mined at the FYM pit. These
processing facilities are expected to increase combined output of
both the FPM and FYM mines to around 20 million tonnes per annum of
pellets or concentrate equivalent. This project will add an
additional concentrating complex with 10 million tonnes of
capacity. In October 2012, the Board approved US$30 million to
begin the detailed engineering work for this development in 2013.
Subject to market conditions and final Board approval, anticipated
in the fourth quarter of 2013, concentrate production would be
targeted to commence in the second half of 2016 with full
production targeted by the end of 2017.
Ferrexpo Belanovo Mining ('FBM')
First half 2013 capex US$2 million (1H 2012: US$27 million).
The Belanovskoye deposit has total JORC resources of 1,702
million tonnes. Ferrexpo has started exploration on the Belanovo
site and is installing key infrastructure to allow phased
development. During the period, the Group spent US$2 million.
Northern Deposits
In April 2013, Ferrexpo successfully extended the exploration
licences for the Brovarskoye, Kharchenkovskoye, Manuilovskoye,
Vasilievskoye and Zarudenskoye deposits (the Northern Deposits)
until 2018.
Health and Safety
Safety is fundamental to Ferrexpo's success and integral to its
culture. Ferrexpo is pleased to report that there have been no
fatalities at its mines in well over two years, and that the
lost-time injury frequency rate ('LTIFR') for the Group's mining
operations was 0.65 per million man hours for the period under
review (FY 2012: 0.66).
CSR
The Board's Corporate Safety and Social Responsibility Committee
monitors the management of the Group's health, safety,
environmental and community programmes on a regular basis, based on
best practice for mining companies.
The environmental impact of Ferrexpo's mining and processing
operations remains an important consideration when addressing
operational improvements. The Group remains committed to operating
responsibly and sustainably. There were no environmental incidents
to report in the first half of 2013.
Ferrexpo's community engagement programmes are aimed at
enhancing and supporting medical facilities, social services and
education facilities, as well as cultural and sporting activities.
For the six months to 30 June 2013, Ferrexpo spent approximately
US$4 million on community projects as part of its ongoing social
programme (1H 2012: US$10 million).
Examples of the community initiatives in the town of Komsomolsk
during the period include the refurbishment of a nursery school
building which should significantly reduce heat loss in winter and
lower energy consumption and heating bills as well as the
replacement of the central heating system at a local secondary
school.
Sales
Ferrexpo exports essentially all of its production to markets
outside of Ukraine and receives all of its revenues in US Dollars.
The marketing strategy is centred on securing sales for a large
percentage of production under long-term contracts with customers
who produce high value added steel products. This is designed to
ensure stable and reliable off take through the economic cycle. For
the period ended 30 June 2013, sales to long-term customers
accounted for approximately 90% of our sales volumes from own ore,
in line with 1H 2012.
Ferrexpo services the key steel producing regions in the world
through three market segments:
-- Traditional markets: these lie within Central and Eastern
Europe and include steel plants that were initially designed to use
Ferrexpo pellets. Ferrexpo has well-established logistics routes
and infrastructure to service these steel mills by both river barge
and rail. The Group's products represent an attractive alternative
to Brazilian and Canadian suppliers due to the closer proximity
allowing for a continuous small-parcel delivery chain. Key
traditional customers are based in Austria, the Czech Republic, and
Slovakia.
-- Natural markets: these markets include Turkey, the Middle
East and Western Europe and provide the Group with a logistics cost
advantage compared to more distant producers. Ferrexpo has a
relatively low market share in these markets which offer sales
growth opportunities.
-- Growth markets: these markets are in Asia and have the
potential to deliver new and significant sales volumes to the
Group. Within this region Ferrexpo is focused not only on China and
India but also on building relationships with the premium steel
producers in South Korea, Taiwan and Japan. Ferrexpo concentrates
on reducing its freight costs to this region by delivering via
capesize vessels enabling it to remain competitive on a landed cost
basis.
During the period, demand for Ferrexpo's pellets was strong from
all market segments. Deliveries under long term contracts into
Traditional Markets were greater than contract commitments for most
of the period. Sales to Natural markets tripled compared to first
half 2012 levels. This was principally due to higher volume offtake
agreements with customers in Turkey and Germany. Sales to Growth
markets were decreased during the period to ensure service to high
quality traditional and natural market customers. With demand from
long term customers in Japan and China remaining robust, growth is
expected to return when output is increased. During the period
Ferrexpo initiated potential new long term contracts in key markets
ahead of the FYM mine expansion.
The following table shows the % of Group sales volume by market
segment.
Table 4. Sales Volume by Market Segment
6 months
ended 6 months
30.06.13 ended 30.06.12
---------- ----------------
Market
Traditional 48% 53%
Growth 33% 40%
Natural 19% 7%
Logistics
Ferrexpo operates its own logistics facilities, including rail
cars sufficient to transport the majority of its own product inside
Ukraine, barging capacity in Europe in excess of one million tonnes
per year, and a port with capacity of over five million tonnes per
year with the ability to efficiently load and deliver product using
capesize vessels.
In Natural and Growth markets, the Group has been steadily
reducing the cost of freight. Ferrexpo's 48.6% owned berth at Port
Yuzhny on the Black Sea has capacity of over 5 million tonnes per
annum, whilst additional capacity is available at this port if
required. Port Yuzhny was originally designed for vessels of a
carrying capacity of up to 100,000 tonnes, and historically vessels
were loaded in the range of 70,000 to 85,000 tonnes. Ferrexpo has
developed a cost effective capability to load standard capesize
vessels, typically around 172,000 to 176,000 tonnes, by use of a
dedicated transhipment vessel.
In the first half of 2013, Ferrexpo loaded 11 capesize vessels
compared to 8 in the first half of 2012 and it plans to load over
20 capesize vessels in 2013. Ferrexpo reduced its seaborne freight
cost in the period by approximately US$1.80 per tonne as its own
transhipment vessel, Iron Destiny, commenced operation. Iron
destiny has also delivered product directly to customer designated
ports and transshipment ports ensuring high utilisation levels of
this owned asset with consequential cost reductions.
Its average freight cost, including transhipment, to the Far
East reduced 33% compared to a drop of 11% for the freight cost
from Brazil (the largest region of pellet production) to China
(measured from the ports of Tubarao in Brazil to Qingdao in China,
known as the C3 index) over the same period last year. The Group's
goal is to realise an average freight cost to the Far East at or
below C3. As the majority of ocean going sales is increasingly
based on CFR pricing, this results in a higher net sales price for
the Group.
In the first half of 2013, Ferrexpo invested US$19 million in
the development of its logistics infrastructure (1H 2012: US$31
million). The majority of this spend concerned the payment for 267
rail cars which are to be delivered in the third quarter. As of 30
June 2013, the Group owned 1,933 rail cars. During the period under
review, it transported a large proportion of its pellet production
to Ukrainian border points using its own rail cars, reducing its
reliance on state rail cars and lowering transportation costs. The
remaining development capex related to completion costs for Iron
Destiny and a small investment in the barge fleet.
The Group's barging subsidiary transported 648 thousand tonnes
of pellets in the first half of the year (1H 2012: 695 thousand
tonnes). It currently operates 140 barges for transporting dry
cargo, such as pellets.
Pricing
Pellets are a premium iron ore product which can be directly
charged into the blast furnace and provide steelmakers with a
higher level of productivity. As a result iron ore pellets are
generally priced at a premium compared to iron ore fines or lump.
Ferrexpo's pellets are relatively low in alumina and phosphorus,
which is particularly important to flat steel manufacturers.
Pellets can generally be shipped consistently in cold climates as
the lower moisture content makes them easier to handle and less
prone to freezing.
Due to limited pellet supply in the first half of the year and
an increase in demand for pellets from the Middle East the pellet
premium has increased compared with the average achieved in
2012.
In the industry there are a number of pricing methodologies
being applied by industry participants depending on geography and
customer. The Group will follow international pricing trends
increasing the proportion of contracts priced on a formula or index
basis with relevant quality adjustments. Ferrexpo believes that its
geographic proximity to key steel customers represents an
attractive alternative to the major seaborne suppliers due to the
lower costs of transporting pellets over a shorter distance from
Ukraine.
In line with the industry, Ferrexpo's sales contracts are based
on various time periods. In the first half of 2013, 40% were based
on a benchmark indexed priced (1H 2012: 25%), 14% on a spot basis
(1H 2012: 35%), and 46% on a quarterly negotiated basis (1H 2012:
40%).
FINANCIAL REVIEW
Summary Financial Results
6 months 6 months
ended ended
30.06.13 30.06.12(1) Change
--------------------------- --------- ------------ -------
Revenue 774.7 731.3 5.9%
EBITDA(2) 244.0 241.9 0.9%
As % of revenue 32% 33%
Profit before taxation 150.0 171.1 (12.3%)
Income tax (24.0) (24.0) 0.2%
Profit for the period 126.0 147.2 (14.4%)
Diluted earnings per share
(US cents) 21.43 24.97 (14.2%)
Interim dividend per share
(US cents) 3.3 3.3 -
--------------------------- --------- ------------ -------
(1) As a result of the retrospective adoption of the amendments
to IAS 19, the pension cost for the period ended 30 June 2012 was
amended and had a positive effect of US$1.6 million on the
previously disclosed EBITDA figures.
(2) The Group calculates EBITDA as profit from continuing
operations before tax and finance plus depreciation and
amortisation and non-recurring exceptional items included in other
income and other expenses, and the net of gains and losses from
disposal of investments, property, plant and equipment.
Revenue
Total revenue increased by 5.9% to US$774.7 million for 1H 2013
(1H 2012: US$731.3 million) due to strong sales growth of 18.7% to
5.3 million tonnes (1H 2012: 4.5 million tonnes), which offset
lower pricing during the period.
The average realised price achieved by the Group for its pellets
was 6.3% lower compared to the first half of 2012, reflecting the
3.7% decrease in the Platts benchmark iron ore price index and the
timing of the applicable price reference period under some of the
Group's index linked and fixed quarterly negotiated price
contracts.
In the first half of 2013, 40% of sales volumes were based on a
benchmark indexed priced (1H 2012: 25%), 14% on a spot basis (1H
2012: 35%), and 46% on a quarterly negotiated basis (1H 2012:
40%).
The DAP FOB price achieved by Ferrexpo also benefited from lower
freight rates to seaborne markets along with an improved
performance from the Group's own logistics businesses contributing
positively to the Group's net sales price.
Revenue from other sales amounted to US$33.9 million (1H 2012:
US$45.7 million). This included revenue from external freight
services and bunker fuel sales at the Group's logistics
operation.
Cost of Sales
Total Group cost of sales for 1H 2013, including costs of sales
for the logistics and bunker business as well as the cost of
production of pellets from third party concentrate, was US$389.3
million (1H 2012: US$321.7 million).
Cost of sales related to pellet production from own ore was
US$375.6 million (1H 2012: US$296.9 million). Production from own
ore increased 11.4% to 5.1 million tonnes (1H 2012: 4.6
million).
Cost of sales for pellet production includes the C1 cash cost of
production which amounted to US$314.4 million (1H 2012: US$275.8
million). C1 costs represent the cash cost of production of pellets
from own ore, divided by production volume from own ore, and
excludes non cash costs such as depreciation.
C1 costs increased by 2.3% from US$60.4 per tonne in 1H 2012 to
US$61.8 per tonne. The increase reflects higher production costs
associated with the ramp up of production at Ferrexpo Yeristovo
Mining ('FYM') and a 6.3% increase in electricity tariffs. These
costs were partially offset by marginally lower oil prices and
lower unit consumption of electricity, gas, fuel, oil and
consumables reflecting higher production levels and continued
operating efficiency improvements.
Over half of the C1 cash costs are denominated in Ukrainian
Hryvnia, which remained stable in the first half of 2013, compared
to 1H 2012, at around UAH8.0 to the US Dollar.
Non C1 cost of sales related to pellet production amounted to
US$61.2 million for the period (1H 2012: US$21.1 million),
principally reflecting higher depreciation and amortisation of
US$19.1 million following FPM's modernisation programme and the
start of operations at the FYM mine. The total of the comparative
period ended 30 June 2012 included a positive effect from inventory
movements of US$18.5 million.
Gross Margin
As a result of the factors discussed above, the Group's gross
margin was 50% in 1H 2013 compared to 56% in the first half of
2012.
Selling and Distribution Expenses
Selling and distribution expenses were US$155.8 million for the
first half compared to US$155.0 million in 1H 2012.
Selling and distribution costs incurred in transporting product
to the Ukrainian border were US$74.3 million (1H 2012: US$73.9
million), equating to US$15.1 per tonne (1H 2012: US$16.5 per
tonne). These costs primarily include railway freight to the
southern ports at Yuzhny and Izmail and to the western Ukrainian
border as well as port charges. The costs per tonne benefited from
discounts received by the Group for using its own rail cars and
from the mix of sales to the various export points. Rail tariffs
increased by 0.7% compared to 1H 2012.
Beyond the Ukrainian border, international freight costs to
seaborne markets amounted to US$42.6 million (1H 2012: US$56.0
million) and the related tonnages shipped to Natural and Growth
markets increased by 31.3%. The lower costs resulted from the
increased usage of capesize vessels compared to panamax vessels
where 11 were loaded in 1H 2013 compared to 8 in 1H 2012. The
freight rates from the Black Sea Ports to China were also generally
lower compared to 2012 and efficiencies were gained from the
commencement of the Group's own transhipment vessel, Iron Destiny.
Ferrexpo's average freight cost, including transshipment, to the
Far East in the first half of the year compared to 1H 2012 reduced
33.0%.
EBITDA
EBITDA increased to US$243.9 million for the period compared to
US$241.9 million for 1H 2012. The increase was due to strong growth
in sales volumes offsetting higher costs from the ramp up of
production at FYM and lower achieved sales prices.
Finance Income and Expense
Net debt at the period end was US$566.3 million (31 December
2012: US$423.4 million). Average facilities available during the
period amounted to US$1,022.8 million (1H 2012: US$968.6 million)
reflecting increases in Export Credit Agency ('ECA') backed loans
and some minor movements in committed credit lines available to the
Group.
Finance income was US$1.1 million (1H 2012: US$1.5 million)
reflecting lower average cash balances. Income from interest earned
was US$1.0 million (1H 2012: US$1.4 million). The average cash
balance in 1H 2013 was US$491.4 million compared to US$808.2
million in 1H 2012.
Finance expense was US$48.5 million (1H 2012: US$46.1 million).
This included an US$18.0 million discount which reflected the
anticipated financing cost incurred by the Group to recover
outstanding VAT over a protracted period of time. The total
discount recorded as of 30 June 2013 was US$38 million (31 December
2012: US$20 million; 1H 2012: US$13.2 million).
Foreign Exchange Gains and Losses
A small operating foreign exchange gain of US$0.3 million was
recorded, which was the net effect of various changes in foreign
currencies compared to the US Dollar (1H 2012: loss of US$0.5
million). Non-operating foreign exchange gains for the period were
US$1.3 million compared to a US$0.5 million gain in 1H 2012. This
related mainly to the income received from the conversion of US
Dollars for settlement of liabilities denominated in Ukrainian
Hryvnia at an exchange rate higher than the one applicable upon
initial recognition.
Income Tax Expense
The income tax expense for the period was US$24.0 million in
line with 1H 2012. The tax expense reflects an expected weighted
average tax rate of 16.0% for the year ended 31 December 2013. This
takes into account the various jurisdictions in which the Group
operates, lower expected corporate profit tax rates in Ukraine (19%
for 2013 compared to 21% in 2012) and the mix of profits as well as
major non tax deductible items. The effective income tax rate for
the year ended 31 December 2012 was 17.8%.
Summary of Group Liquidity and Debt
6 months 6 months
ended ended
US$ million 30.06.13 30.06.12
--------------------------------- --------- ---------
Cash and cash equivalents 446.4 715.9
Gross debt 1,012.8 966.4
Net financial indebtness (566.3) (250.5)
Total equity 1,616.0 1,477.0
Undrawn facilities 25.3 72.0
Total liquidity (facilities plus
cash) 471.7 787.9
--------------------------------- --------- ---------
The Group has gross debt and committed undrawn facilities of
US$1,038.1 million, representing 64.2% of shareholders' equity. The
Group's net debt to EBITDA for a trailing annual period was 1.4 x
as of 30 June 2013 (1.1x as of 31 December 2012).
Ferrexpo has continued to develop its funding sources to closely
match the risk profile of the Group and its development programmes.
During the period it has increased ECA backed funding which
provides long tenor low interest rate debt for key equipment lines
and other equipment leasing programmes. The table below shows the
Group's mix of debt instruments.
As at As at
Source of debt (US$ million) 30.06.13 30.06.12
----------------------------- --------- ---------
Corporate bond (FXPO 16's) 500.0 500.0
Pre export finance facility 420.0 420.0
ECA funding 77.4 47.0
Equipment leasing 21.6 4.9
Accrued interest 9.8 9.5
IAS 39 adjustment (16.0) (15.0)
Reported gross debt 1,012.8 966.4
----------------------------- --------- ---------
Ferrexpo's US$500 million corporate bond is a five-year Eurobond
maturing in 2016 and the US$420 million pre-export finance loan is
a five-year revolving facility with a final maturity date of 31
August 2016 (straight line amortisation over 24 months prior to
final maturity). The average tenor of the Group's outstanding ECA
funding is 5.2 years. The average cost of the Group's debt was 5.2%
(1H 2012: 5.3%)
Cash Flows
Net cash flow from operating activities was US$83.2 million (1H
2012: US$69.7 million).
Working capital increased by US$66.7 million in 1H 2013,
principally reflecting an increase in trade receivables and other
inventories. Gross VAT receivables stabilised during the period
increasing by US$3.1 million compared to an increase of US$63.0
million in 1H 2012.
Total capital investment for 1H 2013 was US$146.8 million
compared to US$222.0 million for 1H 2012.
The Group invests part of its free cash flow and appropriate
debt facilities in both sustaining and modernisation capital
investment as well as in its growth projects. In the period,
sustaining capital expenditure was US$51.7 million (1H 2012:
US$59.6 million) for the Group, of which US$49.2 million was
invested at FPM (1H 2012: US$57.4 million). The remaining US$2.5
million was invested in the Group's barge fleet (1H 2012: US$2.1
million).
US$25.5 million (1H 2012: US$39.7 million) was invested in FPM's
development projects while growth capital expenditure at FYM was
US$50.7 million (1H 2012: US$65.1 million).
In 1H 2013 US$2.3 million was spent on the Belanovskoye and
other deposits (H1 2012: US$26.6 million).
Capital investment in logistics was US$19.0 million in 1H 2013
(1H 2012: US$31.0 million), which was primarily related to the
acquisition of rail cars.
The Group paid a dividend of US$58.2 million in the period (1H
2012: US$19.3 million) which included a US$19.4 million ordinary
payment and the payment of a US$38.8 million special dividend, both
including withholding taxes.
VAT
As of 30 June 2013, the gross amount of VAT owed to the Group
increased by US$3.1 million to US$307.9 million compared to
US$304.8 million as of 31 December 2012. After an appropriate
discount, the VAT balance recorded in the balance sheet stood at
$269.9 million compared to $284.8 million as of 31 December
2012.
Although the majority of the VAT outstanding balance is due
immediately, it is expected that a large proportion will only be
recovered after a significant delay. Therefore, in accordance with
accounting standards, a discount of US$38.0 million has been
recorded to reflect the financing costs associated with recovery
more than one year after the end of this reporting period.
In the first half of 2013, the Group received regular VAT
refunds in respect of Ferrexpo Poltava Mining from the Ukrainian
Government amounting to US$88.0 million. This was in exchange for
the payment of corporate profit tax which amounted to US$49.9
million, part of which is a prepayment in respect of future
periods. At the end of June, prepaid corporate profit tax amounted
to US$65.4 million (31 December 2012: prepaid corporate profit tax
US$24.9 million).
Management expects the full gross balance in local currency to
be recovered in due course. Full details on Ukrainian VAT
receivable are disclosed in note 12 to the accounts.
Going Concern
The Group's business activities and its financial performance
are set out in the Chairman's and CEO's Review and in the Review of
Operations on pages 4 to 21, The financial position of the Company,
its cash flows, liquidity position and borrowing facilities
together with its risk factors are described in the Financial
Review on pages 22 to 24. In addition, note [37] of our 2012 Annual
Report & Accounts include the Group's objectives, policies and
processes for managing its capital; its financial risk management
objectives and details of its financial instruments; and its
exposures to credit risk, liquidity risk as well as currency risk
and interest rate risk.
The Group's forecasts and projections, taking into account
possible changes in the iron ore market and general economic
environment, show that the Group generates sufficient operating
cash flows to comply with the amortisation schedule for the
existing major debt facility and to finance the anticipated
development projects.
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate financial resources to
continue in operational existence for the foreseeable future. For
this reason, the Directors continue to adopt the going concern
basis of accounting in preparing the financial statements of the
Group.
Directors' Responsibility Statement
The Interim Report complies with the Disclosure and Transparency
Rules ('DTR') of the United Kingdom's Financial Services Authority
in respect of the requirement to produce a half-yearly financial
report. The Interim Report is the responsibility of, and has been
approved by, the Directors.
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared in accordance with IAS 34;
-- the Interim Management Report includes a fair review of the
important events during the first six months and description of the
principal risks and uncertainties for the remaining six months of
the year, as required by DTR4.2.7R; and
-- the Interim Management Report includes a fair review of
disclosure of related party transactions and changes therein, as
required by DTR 4.2.8R.
The Directors are also responsible for the maintenance and
integrity of the Ferrexpo plc website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
For and on behalf of the Board
Michael Abrahams CBE DL
Chairman
Chris Mawe
Chief Financial Officer
Interim Consolidated Income Statement
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$'000 Notes (unaudited) (unaudited) (audited)
---------------------------------------------------- ----- ------------ ------------ ----------
Revenue 4 774,702 731,255 1,424,030
Cost of sales 2/3/5 (389,305) (321,656) (690,729)
---------------------------------------------------- ----- ------------ ------------ ----------
Gross profit 385,397 409,599 733,301
---------------------------------------------------- ----- ------------ ------------ ----------
Selling and distribution expenses 6 (155,823) (154,967) (311,964)
General and administrative expenses 7 (27,456) (29,301) (56,329)
Other income 2,451 5,231 11,347
Other expenses (9,966) (13,551) (30,161)
Operating foreign exchange gains/(losses) 8 339 (465) 653
---------------------------------------------------- ----- ------------ ------------ ----------
Operating profit from continuing operations
before adjusted items 194,942 216,545 346,847
---------------------------------------------------- ----- ------------ ------------ ----------
Write-offs and impairment losses 9 (50) (518) (836)
Share of profit from associates 2,007 424 2,772
Losses on disposal of property, plant and equipment (890) (1,166) (4,067)
---------------------------------------------------- ----- ------------ ------------ ----------
Profit before tax and finance 196,009 215,284 344,716
---------------------------------------------------- ----- ------------ ------------ ----------
Finance income 1,079 1,465 2,598
Finance expense 2 (48,458) (46,119) (88,203)
Non-operating foreign exchange gains 8 1,305 476 6,622
---------------------------------------------------- ----- ------------ ------------ ----------
Profit before tax 149,935 171,105 265,733
---------------------------------------------------- ----- ------------ ------------ ----------
Income tax expense (24,001) (23,954) (47,135)
---------------------------------------------------- ----- ------------ ------------ ----------
Profit for the period/year 125,934 147,151 218,598
---------------------------------------------------- ----- ------------ ------------ ----------
Attributable to:
Equity shareholders of Ferrexpo plc 125,622 146,280 217,277
Non-controlling interests 312 871 1,321
---------------------------------------------------- ----- ------------ ------------ ----------
125,934 147,151 218,598
---------------------------------------------------- ----- ------------ ------------ ----------
Earnings per share:
Basic (US cents) 2/10 21.46 25.01 37.14
Diluted (US cents) 2/10 21.43 24.97 37.08
---------------------------------------------------- ----- ------------ ------------ ----------
Interim Consolidated Statement of Comprehensive Income
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$ 000 (unaudited) (unaudited) (audited)
------------------------------------------------------- ------------ ------------ ----------
Profit for the period/year 125,934 147,151 218,598
Items that may subsequently be reclassifed to profit
or loss:
Exchange differences on translating foreign operations 167 (404) (566)
Income tax effect - - -
Exchange differences arising on hedging of foreign
operations - (406) (201)
Income tax effect - 61 32
Net losses on available-for-sale investments (150) (120) (326)
Income tax effect 28 25 62
------------------------------------------------------- ------------ ------------ ----------
Net other comprehensive income to be reclassifed
to profit or loss in subsequent periods 45 (844) (999)
------------------------------------------------------- ------------ ------------ ----------
Items that will not be reclassified subsequently
to profit or loss:
Actuarial gains/(losses) on defined benefit pension
liability 77 (186) 21,244
Income tax effect (9) 31 (3,404)
------------------------------------------------------- ------------ ------------ ----------
Net other comprehensive income not being reclassifed
to profit or loss in subsequent periods 68 (155) 17,840
------------------------------------------------------- ------------ ------------ ----------
Other comprehensive income for the period/year, net
of tax 113 (999) 16,841
------------------------------------------------------- ------------ ------------ ----------
Total comprehensive income for the period/year, net
of tax 126,047 146,152 235,439
------------------------------------------------------- ------------ ------------ ----------
Total comprehensive income attributable to:
Equity shareholders of Ferrexpo plc 125,740 145,300 233,502
Non-controlling interests 307 852 1,937
------------------------------------------------------- ------------ ------------ ----------
126,047 146,152 235,439
------------------------------------------------------- ------------ ------------ ----------
Interim Consolidated Statement of Financial Position
As at As at As at
30.06.13 30.06.12 31.12.12
US$'000 Notes (unaudited) (unaudited) (audited)
---------------------------------------------- ----- ------------ ------------ ----------
Assets
Property, plant and equipment 2/11 1,419,980 1,128,784 1,347,563
Goodwill and other intangible assets 119,353 104,048 112,171
Investments in associates 19,003 19,609 16,995
Available-for-sale financial assets 20 21,690 759 534
Inventories 13 20,244 - 12,362
Other non-current assets 53,106 83,468 41,810
Other taxes recoverable and prepaid 12 127,502 79,813 97,895
Deferred tax assets 2 37,318 29,634 33,220
---------------------------------------------- ----- ------------ ------------ ----------
Total non-current assets 1,818,196 1,446,115 1,662,550
---------------------------------------------- ----- ------------ ------------ ----------
Inventories 2/13 134,238 142,454 134,111
Trade and other receivables 152,800 103,772 116,553
Prepayments and other current assets 29,309 30,511 36,468
Income taxes recoverable and prepaid 65,402 29,294 24,869
Other taxes recoverable and prepaid 12 142,522 142,960 187,246
Cash and cash equivalents 14 446,430 715,871 596,560
---------------------------------------------- ----- ------------ ------------ ----------
970,701 1,164,862 1,095,807
---------------------------------------------- ----- ------------ ------------ ----------
Assets classified as held for sale 4,901 1,663 101
---------------------------------------------- ----- ------------ ------------ ----------
Total current assets 975,602 1,166,525 1,095,908
---------------------------------------------- ----- ------------ ------------ ----------
Total assets 2,793,798 2,612,640 2,758,458
---------------------------------------------- ----- ------------ ------------ ----------
Equity and liabilities
Share capital 15 121,628 121,628 121,628
Share premium 185,112 185,112 185,112
Other reserves 15 (347,406) (348,556) (348,056)
Retained earnings 2 1,635,783 1,498,959 1,568,077
---------------------------------------------- ----- ------------ ------------ ----------
Equity attributable to equity shareholders of
the parent 1,595,117 1,457,143 1,526,761
---------------------------------------------- ----- ------------ ------------ ----------
Non-controlling interest 20,944 19,868 20,637
---------------------------------------------- ----- ------------ ------------ ----------
Total equity 1,616,061 1,477,011 1,547,398
---------------------------------------------- ----- ------------ ------------ ----------
Interest-bearing loans and borrowings 3/16 986,258 947,679 993,139
Defined benefit pension liability 2/17 51,875 67,810 50,195
Provision for site restoration 2,501 3,134 2,368
Deferred tax liability 2,018 1,221 2,581
---------------------------------------------- ----- ------------ ------------ ----------
Total non-current liabilities 1,042,652 1,019,844 1,048,283
---------------------------------------------- ----- ------------ ------------ ----------
Interest-bearing loans and borrowings 3/16 26,496 18,735 26,846
Trade and other payables 38,387 47,042 62,609
Accrued liabilities and deferred income 39,689 33,318 51,285
Income taxes payable 19,278 8,425 13,672
Other taxes payable 11,235 8,265 8,365
---------------------------------------------- ----- ------------ ------------ ----------
Total current liabilities 135,085 115,785 162,777
---------------------------------------------- ----- ------------ ------------ ----------
Total liabilities 1,177,737 1,135,629 1,211,060
---------------------------------------------- ----- ------------ ------------ ----------
Total equity and liabilities 2,793,798 2,612,640 2,758,458
---------------------------------------------- ----- ------------ ------------ ----------
The financial statements were approved by the Board of Directors
on 6 August 2013.
Kostyantin Zhevago Christopher Mawe
Chief Executive Officer Chief Financial Officer
Interim Consolidated Statement of Cash Flows
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$'000 Notes (unaudited) (unaudited) (audited)
---------------------------------------------------- ----- ------------ ------------ ----------
Profit before tax 149,935 171,105 265,733
Adjustments for:
Depreciation of property, plant and equipment
and amortisation of intangible assets 46,349 24,045 54,169
Interest expense 2 45,705 42,791 81,308
Interest income (1,079) (1,465) (2,598)
Share of profit from associates (2,007) (424) (2,772)
Movement in allowance for doubtful receivables 174 (651) 721
Losses on disposal of property, plant and equipment 890 1,166 4,067
Write-offs and impairment losses 9 50 518 836
Site restoration provision charge 136 117 (650)
Employee benefits 2/17 4,313 5,189 12,616
Share-based payments 600 872 1,608
Operating foreign exchange gains 8 (339) 465 (653)
Non-operating foreign exchange gains 2/8 (1,305) (476) (6,621)
---------------------------------------------------- ----- ------------ ------------ ----------
Operating cash flow before working capital
changes 243,422 243,252 407,764
---------------------------------------------------- ----- ------------ ------------ ----------
Changes in working capital:
(Increase)/decrease in trade and other receivables (29,661) 17,706 (3,226)
Increase in inventories (2,485) (28,337) (33,638)
(Decrease)/increase in trade and other accounts
payable (34,427) 10,427 40,603
Increase in VAT recoverable and other taxes
recoverable and payable (14) (62,859) (131,903)
---------------------------------------------------- ----- ------------ ------------ ----------
Cash generated from operating activities 176,835 180,189 279,600
---------------------------------------------------- ----- ------------ ------------ ----------
Interest paid (27,906) (27,095) (55,610)
Income tax paid (63,427) (81,140) (99,771)
Post-employment benefits paid (2,303) (2,224) (5,641)
---------------------------------------------------- ----- ------------ ------------ ----------
Net cash flows from operating activities 83,199 69,730 118,578
---------------------------------------------------- ----- ------------ ------------ ----------
Cash flows from investing activities
Purchase of property, plant and equipment (138,651) (220,823) (419,357)
Proceeds from disposal of property, plant and
equipment 626 408 569
Purchase of intangible assets (8,082) (1,207) (9,911)
Purchase of available-for-sale investment (21,285) - -
Interest received 1,029 1,589 2,652
Dividends from associates - 1,749 6,710
---------------------------------------------------- ----- ------------ ------------ ----------
Net cash flows used in investing activities (166,363) (218,284) (419,337)
---------------------------------------------------- ----- ------------ ------------ ----------
Cash flows from financing activities
Proceeds from borrowings and finance - - 63,955
Repayment of borrowings and finance (9,607) (5,433) (13,186)
Arrangement fees paid - - (4,672)
Dividends paid to equity shareholders of Ferrexpo
plc (58,190) (19,340) (38,775)
Dividends paid to non-controlling shareholders - (634) (254)
---------------------------------------------------- ----- ------------ ------------ ----------
Net cash flows from/(used) in financing activities (67,797) (25,407) 7,068
---------------------------------------------------- ----- ------------ ------------ ----------
Net decrease in cash and cash equivalents (150,961) (173,961) (293,691)
Cash and cash equivalents at the beginning
of the period/year 596,560 890,154 890,154
Currency translation differences 831 (322) 97
---------------------------------------------------- ----- ------------ ------------ ----------
Cash and cash equivalents at the end of the
period/year 14 446,430 715,871 596,560
---------------------------------------------------- ----- ------------ ------------ ----------
Interim Consolidated Statement of Changes in Equity
For the financial year 2012 and the six months ended 30 June
2013
Attributable to equity shareholders of the parent
Uniting Employee Net Total
of Treasury benefit unrealised capital Non-
Issued Share interest share trust gains Translation Retained and controlling Total
US$ 000 capital premium reserve reserve reserve reserve reserve earnings reserves interests equity
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
At 1 January
2012 121,628 185,112 31,780 (77,260) (9,416) 1,084 (294,791) 1,414,512 1,372,649 20,480 1,393,129
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Application of
IAS 19 revised
- note 2 - - - - - - - (42,338) (42,338) (1,128) (43,466)
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
At 1 January
2012
- after
application
of IAS 19
revised 121,628 185,112 31,780 (77,260) (9,416) 1,084 (294,791) 1,372,174 1,330,311 19,352 1,349,663
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Profit for the
period - - - - - - - 217,277 217,277 1,321 218,598
Other
comprehensive
income - - - - - (264) (797) 17,286 16,225 616 16,841
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Total
comprehensive
income for the
period - - - - - (264) (797) 234,563 233,502 1,937 235,439
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Equity dividends
paid to
shareholders
of Ferrexpo plc - - - - - - - (38,660) (38,660) (331) (38,991)
Share-based
payments - - - - 1,608 - - - 1,608 - 1,608
Adjustments
relating
to the increase
in
non-controlling
interests - - - - - - - - - (321) (321)
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
At 31 December
2012 (audited) 121,628 185,112 31,780 (77,260) (7,808) 820 (295,588) 1,568,077 1,526,761 20,637 1,547,398
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Profit for the
period - - - - - - - 125,622 125,622 312 125,934
Other
comprehensive
income - - - - - (122) 172 68 118 (5) 113
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Total
comprehensive
income for the
period - - - - - (122) 172 125,690 125,740 307 126,047
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Equity dividends
paid to
shareholders
of Ferrexpo plc - - - - - - - 57,984 57,984 - 57,984
Share-based
payments 600 - - - 600 - 600
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
At 30 June 2013
(unaudited) 121,628 185,112 31,780 (77,260) (7,208) 698 (295,416) 1,635,783 1,595,117 20,944 1,616,061
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
For the six months ended 30 June 2012
Attributable to equity shareholders of the parent
Uniting Employee Net Total
of Treasury benefit unrealised capital Non-
Issued Share interest share trust gains Translation Retained and controlling Total
US$ 000 capital premium reserve reserve reserve reserve reserve earnings reserves interests equity
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
At 1 January
2012 121,628 185,112 31,780 (77,260) (9,416) 1,084 (294,791) 1,414,512 1,372,649 20,480 1,393,129
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Application of
IAS 19
revised
- note 2 - (42,338) (42,338) (1,128) (43,466)
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
At 1 January
2012
- after
application
of IAS 19
revised 121,628 185,112 31,780 (77,260) (9,416) 1,084 (294,791) 1,372,174 1,330,311 19,352 1,349,663
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Profit for the
period - - - - - - - 146,280 146,280 871 147,151
Other
comprehensive
income - - - - - (95) (730) (155) (980) (19) (999)
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Total
comprehensive
income for
the
period - - - - - (95) (730) 146,125 145,300 852 146,152
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Equity
dividends
paid to
shareholders
of Ferrexpo
plc - - - - - - - (19,340) (19,340) (336) (19,676)
Share-based
payments - - - - 872 - - - 872 - 872
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
At 30 June
2012
(unaudited) 121,628 185,112 31,780 (77,260) (8,544) 989 (295,521) 1,498,959 1,457,143 19,868 1,477,011
-------------- ------- ------- -------- -------- -------- ---------- ----------- --------- --------- ----------- ---------
Notes to the Interim Condensed
Consolidated Financial Statements
Note 1: Corporate information
Organisation and operation
Ferrexpo plc (the 'Company') is incorporated in the United
Kingdom with registered office at 2-4 King Street, London, SW1Y
6QL, UK. Ferrexpo plc and its subsidiaries (the 'Group') operate a
mine and processing plant near Kremenchug in Ukraine, an interest
in a port in Odessa and sales and marketing activities in
Switzerland, Dubai and Kiev. The Group also owns a logistics group
located in Austria which operates a fleet of vessels operating on
the Rhine and Danube waterways. The Group's operations are
vertically integrated from iron ore mining through to iron ore
concentrate and pellet production and subsequent logistics. The
Group's mineral properties lie within the Kremenchug Magnetic
Anomaly and are currently being exploited at the
Gorishne-Plavninskoye and Lavrikovskoye ('GPL') and Yeristovskoye
deposits.
The majority shareholder of the Group is Fevamotinico S.a.r.l.
('Fevamotinico'), a company ultimately owned by The Minco Trust, of
which Kostyantin Zhevago, the Group's Chief Executive Officer, is a
beneficiary. At the time this report was published, Fevamotinico
held 51.0% (30 June 2012: 51.0%; 31 December 2012: 51.0%) of
Ferrexpo plc's issued share capital. The Group's operations are
largely conducted through Ferrexpo plc's principal subsidiary, OJSC
Ferrexpo Poltava Mining. The Group comprises of Ferrexpo plc and
its consolidated subsidiaries as set out below:
Equity interest
owned
30.06.13 30.06.12 31.12.12
Name Country of incorporation Principal activity % % %
----------------------------- ------------------------- ------------------------------ -------- -------- --------
OJSC Ferrexpo Poltava Mining Ukraine Iron ore mining 97.3 97.3 97.3
Ferrexpo AG Switzerland Sale of iron ore pellets 100.0 100.0 100.0
DP Ferrotrans Ukraine Trade, transportation services 97.3 97.3 97.3
United Energy Company LLC Ukraine Holding company 97.3 97.3 97.3
Ferrexpo Finance plc England Finance 100.0 100.0 100.0
Management services &
Ferrexpo Services Limited Ukraine procurement 100.0 100.0 100.0
Ferrexpo Hong Kong Limited China Marketing services 100.0 100.0 100.0
LLC Ferrexpo Yeristovo GOK Ukraine Iron ore mining 100.0 100.0 100.0
LLC Ferrexpo Belanovo GOK Ukraine Iron ore mining 100.0 100.0 100.0
Nova Logistics Limited Ukraine Service company (dormant) 51.0 51.0 51.0
Ferrexpo Middle East FZE U.A.E. Sale of iron ore pellets 100.0 100.0 100.0
Ferrexpo Singapore PTE Ltd Singapore Marketing services 100.0 100.0 100.0
First-DDSG Logistics Holding
GmbH Austria Holding company 100.0 100.0 100.0
EDDSG GmbH Austria Barging company 100.0 100.0 100.0
DDSG Tankschiffahrt GmbH Austria Barging company 100.0 100.0 100.0
Helogistics Transport GmbH Austria Barging company 100.0 100.0 100.0
DDSG Mahart Kft. Hungary Barging company 100.0 100.0 100.0
Pancar Kft. Hungary Barging company 100.0 100.0 100.0
Ferrexpo Port Services GmbH Austria Port services 100.0 100.0 100.0
Ferrexpo Shipping
International Ltd. Marshall Islands Holding company 100.0 100.0 100.0
Iron Destiny Ltd. Marshall Islands Shipping company 100.0 100.0 100.0
Transcanal SRL Romania Port services 77.6 77.6 77.6
Helogistics Asset Leasing
Kft. Hungary Asset holding company 100.0 100.0 100.0
Universal Service Group
Ltd.(1) Ukraine Asset holding company 100.0 - 100.0
LLC DDSG Ukraine Holding(2) Ukraine Holding company 100.0 - -
LLC DDSG Invest(2) Ukraine Asset holding company 100.0 - -
LLC DDSG Ukraine Shipping
Management(2) Ukraine Barging company 100.0 - -
LLC DDSG Ukraine Shipping(2) Ukraine Asset holding company 100.0 - -
----------------------------- ------------------------- ------------------------------ -------- -------- --------
1 The entity was incorporated in December 2012.
2 The entities were incorporated in February and March 2013.
The Group's interests in the entities listed above are held
indirectly by the Company.
At 30 June 2013, the Group also holds through OJSC Ferrexpo
Poltava Mining an interest of 48.6% (30 June 2012: 48.6%; 31
December 2012: 48.6%) in TIS Ruda, a Ukrainian port located on the
Black Sea. As this is an associate, it is accounted for using the
equity method of accounting.
Note 2: Summary of significant accounting policies
Basis of preparation
The interim condensed consolidated financial statements for the
six months period ended 30 June 2013 have been prepared in
accordance with International Accounting Standard ('IAS') 34
Interim Financial Reporting. The interim condensed consolidated
financial statements do not include all of the information and
disclosures required in the annual financial statements, and should
be read in conjunction with the Group's annual financial statements
as at 31 December 2012.
The interim condensed consolidated financial statements do not
constitute statutory accounts as defined in section 435 of the
Companies Act 2006. The financial information for the full year is
based on the statutory accounts for the financial year ended 31
December 2012. A copy of the statutory accounts for that year,
which were prepared in accordance with International Financial
Reporting Standards ('IFRS') issued by the International Accounting
Standard Board ('IASB'), as adopted by the European Union as they
apply to financial statements of the Group for the year ended 31
December 2012, has been delivered to the Register of Companies. The
auditors' report under section 495 of the Companies Act 2006 in
relation to those accounts was unqualified and did not contain a
statement under 498(2) or 498(3) of the Companies Act 2006.
Financing and going concern
At the period end, the Group's main debt facilities comprised a
US$500 million Eurobond which is due for repayment on 7 April 2016
and a US$420 million revolving pre-export finance facility
including a commitment amortisation over a 24 month period from
September 2014 to August 2016. The Group is of the view that it can
generate sufficient cash flows to fully repay the borrowings as
they fall due in compliance with the terms and conditions of the
loan facility and Eurobond terms and conditions.
The Group faces several risks to its business and strategy,
which are included in the Risks section of the Annual Report &
Accounts 2012 and these risks should be considered in conjunction
with these financial statements.
The Directors are of the view that the Group is a going concern
and the interim consolidated financial statements have been drawn
up on this basis. Further information on the going concern
assessment of the Directors is given on page 18 of this report.
Changes in accounting policies
The accounting policies and methods of computation adopted in
the preparation of the interim condensed consolidated financial
statements are the same as those followed in the preparation of the
Group's annual financial statements for the year ended 31 December
2012 except for the adoption of new amendments and improvements to
IFRSs effective as of 1 January 2013, noted below:
Standards adopted affecting reported results, financial position
or disclosures
IFRS 13 Fair value measurement
The new standard became effective for financial years beginning
on or after 1 January 2013 and provides guidance on how to measure
fair value under IFRS and when fair value is required or permitted
and requires additional specific disclosures. The adoption of this
new standard did not have an impact on the financial position or
performance of the Group. The additional disclosures to be made in
the interim consolidated financial statements are provided in note
20.
IAS 1 Financial statement presentation - presentation of items
of other comprehensive income
The amended standard became effective for financial years
beginning on or after 1 July 2012. The amendment requires the
grouping of items in other comprehensive income based on whether
they will be potentially reclassifiable to profit or loss at a
future point of time or whether they will never be reclassified.
The amendment did affect the presentation of the consolidated
statement of comprehensive income only and did not have an impact
on the Group's financial position or performance.
IAS 16 Property, plant and equipment
The improvement clarifies that major spare parts and servicing
equipment that meet the definition of property, plant and equipment
are not inventory and became effective for financial years
beginning on or after 1 January 2013. The amendment affected
presentation only and did not have an impact on the Group's
financial position or performance. As a result of this improvement,
major spare parts and servicing equipment were reclassified from
inventory to property, plant and equipment and previously disclosed
balances changed by US$2,930 thousand and US$5,524 thousand at 30
June 2012 and 31 December 2012 respectively.
IAS 19 Employee benefits
The most fundamental change of the numerous amendments made to
IAS 19 is the removal of the so-called 'corridor-approach' require
the recognition of all actuarial gains and losses from the
re-measurement of the defined benefit obligation and the fair
values of the plan assets in other comprehensive income in the
current period. In addition, finance income from scheme assets is
now recognised as part of the interest on the net defined benefit
liability using the discount rate used to measure the defined
benefit obligation; unvested past service costs are now recognised
in profit or loss at the earlier of when the amendment occurs or
when the related restructuring or termination costs are recognised;
and scheme administration costs (other than costs of managing the
plan assets) are recognised in profit and loss as they are
incurred. The adoption of the amendments became effective for
financial years beginning on or after 1 January 2013 with the
following effect on the Group's financial position and performance
as well as presentation of the defined benefit pension
liability:
Defined
benefit
pension Equity
US$ 000 liability Tax effect effect
------------------------------------------------------- ---------- ---------- --------
Defined benefit pension liability as at 31 December
2011 (13,329) - -
Application of IAS 19 revised as at 31 December 2011 (51,669) 8,203 (43,466)
------------------------------------------------------- ---------- ---------- --------
Defined benefit pension liability as at 1 January 2012 (64,998) 8,203 (43,466)
------------------------------------------------------- ---------- ---------- --------
As a result of the retrospective adoption of the amendments to
IAS 19, the pension costs of the comparative periods ended 30 June
2012 and 31 December 2012 changed as follows. Further details in
respect of the defined benefit pension liability are provided in
note 17.
Defined
benefit
pension Equity
US$ 000 liability Tax effect effect
------------------------------------------------------------- ---------- ---------- --------
Defined benefit pension liability as at 30 June 2012 (17,714) - -
Application of IAS 19 revised as at 31 December 2011 (51,669) 8,203 (43,466)
Change of the pension costs recorded in financial year
2012:
- Personnel costs included in cost of sales 1,620 (227) 1,393
- Finance expense (31) 4 (27)
Unrecognised actuarial gains included in other comprehensive
income (186) 31 (155)
Foreign exchange translation adjustments 170 (24) 146
Change of non-controlling interest - - (41)
------------------------------------------------------------- ---------- ---------- --------
Defined benefit pension liability as at 1 July 2012/effect
on deferred tax assets and equity (67,810) 7,987 (42,150)
------------------------------------------------------------- ---------- ---------- --------
Defined
benefit
pension Equity
US$ 000 liability Tax effect effect
-------------------------------------------------------------- ---------- ---------- --------
Defined benefit pension liability as at 31 December
2012 (23,504) - -
Application of IAS 19 revised as at 31 December 2011 (51,669) 8,203 (43,466)
Change of the pension costs recorded in financial year
2012:
- Personnel costs included in cost of sales 3,847 (731) 3,116
- Finance expense (112) 21 (91)
Unrecognised actuarial gains included in other comprehensive
income 21,244 (3,404) 17,840
Foreign exchange translation adjustments (1) - (1)
Change of non-controlling interest - - (81)
-------------------------------------------------------------- ---------- ---------- --------
Defined benefit pension liability as at 1 January 2013/effect
on deferred tax assets and equity (50,195) 4,089 (22,683)
-------------------------------------------------------------- ---------- ---------- --------
The application of IAS 19 revised did not have a material impact
on the Group's interim consolidated statement of cash flows, the
basic and diluted earnings per share.
Standards and interpretations adopted with no effect on reported
results, financial position or disclosures
IFRS 1 First-time adoption of IFRS - government loans
The amendment requires first-time adopters to apply the
requirements of IAS 20 Accounting for government grants and
disclosure of government assistance prospectively to government
loans existing at the date of transition to IFRS. This amendment
became effective for financial years beginning on or after 1
January 2013. This amended standard is not relevant to the Group as
not a first-time adopter and did consequently not have an impact on
the financial position or performance of the Group.
IFRS 7 Financial instruments: disclosures - offsetting financial
assets and financial liabilities
The amendment requires disclosure of information about rights of
offset and related arrangements (e.g. collateral posting
requirements) for financial instruments under an enforceable master
netting agreement or similar agreement. The amendments became
effective for financial years beginning on or after 1 January 2013
with retrospective disclosure for all comparative periods. The
adoption of this amended standard did not have an impact on the
financial position or performance of the Group.
IFRIC 20 Stripping costs in the production phase of a surface
mine
The new interpretation covers the accounting for the necessary
removal of mine waste materials in order to gain access to the
mineral ore deposit during the production phase of a mine. The
interpretation provides guidance on the accounting and separation
of the costs of stripping activities resulting in the production of
inventory in the current period or improved access to further
mineral ore deposits that will be mined in future periods. The new
interpretation applies to annual periods beginning on or after 1
January 2013. The adoption of this new interpretation did not have
an impact on the financial position or performance of the
Group.
Seasonality
The Group's operations are not affected by seasonality.
Note 3: Segment information
The Group is managed as a single entity which produces, develops
and markets its principal product, iron ore pellets, for sale to
the metallurgical industry. While the revenue generated by the
Group is analysed, there are no separate measures of profit
reported to the Group's Chief Operating Decision-Maker ('CODM'). In
accordance with IFRS 8 Operating Segments, the Group presents its
results in a single segment which are disclosed in the income
statement for the Group. The management monitors the operating
result of the Group based on a number of measures including EBITDA,
C1 costs and the net financial indebtedness.
EBITDA
The Group calculates EBITDA as profit from continuing operations
before tax and finance plus depreciation and amortisation and
non-recurring exceptional items included in other income and other
expenses, share-based payment expenses and the net of gains and
losses from disposal of investments and property, plant and
equipment. The Group presents EBITDA because it believes that
EBITDA is a useful measure for evaluating its ability to generate
cash and its operating performance.
6 months 6 months
ended ended
Year
30.06.13 30.06.12 ended
31.12.12
US$ 000 Notes (unaudited) (unaudited) (audited)
--------------------------------- ----- ------------ ------------ -----------
Profit before tax and finance 196,009 215,284 344,716
Write-offs and impairment losses 9 50 518 836
Share-based payments 600 872 1,608
Losses on disposal of PPE 890 1,166 4,067
Depreciation and amortisation 46,349 24,045 54,169
--------------------------------- ----- ------------ ------------ -----------
EBITDA 2 243,898 241,885 405,396
--------------------------------- ----- ------------ ------------ -----------
As a result of the retrospective adoption of the amendments to
IAS 19, the pension costs of the comparative periods ended 30 June
2012 and 31 December 2012 changed and had a positive effect of
US$1,620 thousand and US$3,847 thousand on the previously disclosed
EBITDA figures.
C1 costs
C1 costs represent the cash costs of production of iron ore
pellets from own ore divided by production volume of own ore, and
excludes non-cash costs such as depreciation, pension costs and
inventory movements, costs of purchased ore and concentrate and
production cost of gravel.
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$'000 (unaudited) (unaudited) (audited)
--------------------------------------------------- ------------ ------------ ----------
Cost of sales - pellet production 375,610 296,896 638,807
Depreciation and amortisation (36,348) (17,208) (39,290)
Purchased concentrate and other items for resale (15,767) (13,156) (29,254)
Processing costs for purchased ore and concentrate (1,075) (1,683) (3,293)
Production cost of gravel (288) (384) (612)
Inventory movements (1,055) 18,458 9,029
Pension service costs (1,329) (1,507) (3,713)
Other (5,370) (5,597) (10,526)
--------------------------------------------------- ------------ ------------ ----------
C1 cost 314,378 275,819 561,148
--------------------------------------------------- ------------ ------------ ----------
Own ore produced (tonnes) 5,084,898 4,563,000 9,408,662
C1 cash cost per tonne US$ 61.8 60.4 59.6
--------------------------------------------------- ------------ ------------ ----------
Net financial indebtedness
Net financial indebtedness as defined by the Group comprises
cash and cash equivalents, term deposits, interest bearing loans
and borrowings.
As at As at As at
30.06.13 30.06.12 31.12.12
US$ 000 Notes (unaudited) (unaudited) (audited)
---------------------------------------------------- ----- ------------ ------------ ----------
Cash and cash equivalents 14 446,430 715,871 596,560
Interest bearing loans and borrowings - current 16 (26,496) (18,735) (26,846)
Interest bearing loans and borrowings - non-current 16 (986,258) (947,679) (993,139)
---------------------------------------------------- ----- ------------ ------------ ----------
Net financial indebtedness (566,324) (250,543) (423,425)
---------------------------------------------------- ----- ------------ ------------ ----------
Note 4: Revenue
Revenue for the six months period ended 30 June 2013 consisted
of the following:
6 months 6 months Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$ 000 (unaudited) (unaudited) (audited)
------------------------------------------- ------------ ------------ ----------
Revenue from sales of ore pellets:
Export 740,775 685,323 1,329,728
Ukraine - 194 331
------------------------------------------- ------------ ------------ ----------
740,775 685,517 1,330,059
------------------------------------------- ------------ ------------ ----------
Revenue from logistics and bunker business 29,728 39,051 81,845
Revenue from services provided 335 1,747 3,202
Revenue from other sales 3,864 4,940 8,924
------------------------------------------- ------------ ------------ ----------
Total revenue 774,702 731,255 1,424,030
------------------------------------------- ------------ ------------ ----------
Export sales of iron ore pellets and concentrate by geographical
destination were as follows:
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$'000 (unaudited) (unaudited) (audited)
--------------------- ------------ ------------ ----------
China 222,978 262,609 529,664
Austria 175,224 196,743 339,725
Turkey 110,988 36,170 73,180
Slovakia 78,662 69,118 141,765
Czech Republic 67,919 64,416 112,623
Japan 35,565 16,440 33,389
Germany 32,505 10,310 40,486
Serbia 16,934 19,723 19,723
India - 7,731 23,068
Russia - - 8,875
Romania - - 5,167
Hungary - 2,063 2,063
--------------------- ------------ ------------ ----------
Total export revenue 740,775 685,323 1,329,728
--------------------- ------------ ------------ ----------
During the period ended 30 June 2013 sales made to three
customers accounted for approximately 49.3% of the revenues from
export sales of ore pellets (30 June 2012: 48.2%; 31 December 2012:
44.7%).
Sales made to customers individually amounted to more than 10%
of total sales are disclosed below:
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$'000 (unaudited) (unaudited) (audited)
----------- ------------ ------------ ----------
Customer A 175,224 196,743 339,725
Customer B 110,988 n/a n/a
Customer C 78,662 69,118 141,765
----------- ------------ ------------ ----------
Note 5: Cost of sales
Cost of sales for the six months period ended 30 June 2013
consisted of the following:
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$ 000 (unaudited) (unaudited) (audited)
------------------------------------------------- ------------ ------------ ----------
Materials 54,806 45,664 89,296
Purchased concentrate and other items for resale 15,767 13,156 29,254
Electricity 78,542 71,101 141,939
Personnel costs 35,766 34,017 69,092
Spare parts and consumables 9,222 12,364 26,563
Depreciation and amortisation 36,348 17,208 39,290
Fuel 40,185 27,044 56,038
Gas 41,859 39,958 79,082
Repairs and maintenance 34,416 34,714 78,022
Royalties and levies 9,597 6,272 12,375
Cost of sales from logistics business 4,481 12,345 22,342
Bunker fuel 9,214 12,415 29,580
Inventory movements 1,055 (18,458) (9,028)
Other 18,047 13,856 26,884
------------------------------------------------- ------------ ------------ ----------
Total cost of sales 389,305 321,656 690,729
------------------------------------------------- ------------ ------------ ----------
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$ 000 (unaudited) (unaudited) (audited)
---------------------------------------------- ------------ ------------ ----------
Cost of sales - pellet production 375,610 296,896 638,807
Cost of sales - logistics and bunker business 13,695 24,760 51,922
---------------------------------------------- ------------ ------------ ----------
Total cost of sales 389,305 321,656 690,729
---------------------------------------------- ------------ ------------ ----------
Note 6: Selling and distribution expenses
Selling and distribution expenses for the six months period
ended 30 June 2013 consisted of the following:
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$ 000 (unaudited) (unaudited) (audited)
---------------------------------------- ------------ ------------ ----------
International freight for pellets 42,578 56,032 113,538
Railway transportation 52,070 47,896 93,442
Port charges 14,819 16,823 31,891
Other pellet transportation costs 13,223 8,447 18,611
Costs of logistics business 16,288 13,129 27,495
Gravel delivery costs 149 200 516
Advertising 5,897 4,918 9,643
Depreciation 6,927 4,279 9,805
Other 3,872 3,243 7,023
---------------------------------------- ------------ ------------ ----------
Total selling and distribution expenses 155,823 154,967 311,964
---------------------------------------- ------------ ------------ ----------
Note 7: General and administrative expenses
General and administrative expenses for the six months period
ended 30 June 2013 consisted of the following:
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$ 000 (unaudited) (unaudited) (audited)
---------------------------------------------- ------------ ------------ ----------
Personnel costs 15,066 15,056 30,569
Buildings and maintenance 1,416 1,278 2,597
Taxes other than income tax and other charges 750 734 1,465
Professional fees 1,994 3,633 4,699
Depreciation and amortisation 1,612 2,255 4,636
Communication 516 503 1,144
Vehicles maintenance and fuel 1,097 905 2,033
Repairs 487 619 1,542
Audit fees 781 659 1,589
Non-audit fees 762 260 473
Security 1,254 1,114 2,296
Other 1,721 2,101 3,286
---------------------------------------------- ------------ ------------ ----------
Total general and administrative expenses 27,456 29,301 56,329
---------------------------------------------- ------------ ------------ ----------
Note 8: Foreign exchange gains and losses
Foreign exchange gains and losses for the six months period
ended 30 June 2013 consisted of the following:
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$ 000 (unaudited) (unaudited) (audited)
------------------------------------------ ------------ ------------ ----------
Operating foreign exchange gains/(losses) 339 (465) 653
Non-operating foreign exchange gains 1,305 476 6,621
------------------------------------------ ------------ ------------ ----------
Total foreign exchange gains 1,644 11 7,274
------------------------------------------ ------------ ------------ ----------
Operating foreign exchange gains and losses are those items that
are directly related to the production and sale of pellets (e.g.
trade receivables, trade payables on operating expenditure).
Non-operating gains and losses are those associated with the
Group's financing and treasury activities and with local income tax
payables.
Note 9: Write-offs and impairment losses
Impairment losses relate to adjustments made against the
carrying value of assets where this is higher than the recoverable
amount.
Write-offs and impairment losses for the six months period ended
30 June 2013 consisted of the following:
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$ 000 (unaudited) (unaudited) (audited)
-------------------------------------------------- ------------ ------------ ----------
Write-off of inventories - - 215
Write-off of property, plant and equipment 50 90 191
Impairment of available-for-sale financial assets - 430 430
-------------------------------------------------- ------------ ------------ ----------
Total write-offs and impairment losses 50 520 836
-------------------------------------------------- ------------ ------------ ----------
The impairment of the available-for-sale financial assets is
related to the investment in Vostok Ruda LLC.
Note 10: Earnings per share and dividends paid and proposed
Basic EPS is calculated by dividing the net profit for the
period attributable to ordinary equity shareholders of Ferrexpo plc
by the weighted average number of Ordinary Shares.
Diluted earnings per share is calculated by adjusting the
weighted average number of Ordinary Shares in issue on the
assumption of conversion of all potentially dilutive Ordinary
Shares. All share awards are potentially dilutive and have been
considered in the calculation of diluted earnings per share.
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
(unaudited) (unaudited) (audited)
-------------------------------------------------- ------------ ------------ ----------
Profit for the period/year attributable to equity
shareholders:
Basic earnings per share (US cents) 21.46 25.01 37.14
Diluted earnings per share (US cents) 21.43 24.97 37.08
Underlying earnings for the period/year:
Basic earnings per share (US cents) 21.49 25.22 36.99
Diluted earnings per share (US cents) 21.46 25.19 36.93
-------------------------------------------------- ------------ ------------ ----------
The calculation of the basic and diluted earnings per share is
based on the following data:
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
Thousands (unaudited) (unaudited) (audited)
---------------------------------------------- ------------ ------------ ----------
Weighted average number of shares
Basic number of Ordinary Shares outstanding 585,239 585,001 585,060
Effect of dilutive potential Ordinary Shares 989 799 973
---------------------------------------------- ------------ ------------ ----------
Diluted number of Ordinary Shares outstanding 586,228 585,800 586,033
---------------------------------------------- ------------ ------------ ----------
The basic number of Ordinary Shares is calculated by subtracting
the shares held in treasury from the total number of Ordinary
Shares in issue.
'Underlying earnings' is an alternative earnings measure, which
the Directors believe provides a clearer picture of the underlying
financial performance of the Group's operations. Underlying
earnings exclude adjusted items and is calculated after
non-controlling interests have been deducted from these items. The
calculation of underlying earnings per share is based on the
following earnings data:
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$ 000 Notes (unaudited) (unaudited) (audited)
-------------------------------------- ----- ------------ ------------ ----------
Profit attributable to equity holders 125,622 146,280 217,277
Write-offs and impairment losses 9 50 518 836
Losses on disposal of PPE 890 1,166 4,067
Non-operating foreign exchange gains 8 (1,305) (476) (6,621)
Tax on adjusted items 525 (98) 879
-------------------------------------- ----- ------------ ------------ ----------
Underlying earnings 125,782 147,390 216,438
-------------------------------------- ----- ------------ ------------ ----------
Adjusted items are those items of financial performance that the
Group believes should be separately disclosed on the face of the
income statement to assist in the understanding of the underlying
financial performance achieved by the Group. Adjusted items that
relate to the operating performance of the Group include impairment
charges and reversals and other exceptional items. Non-operating
adjusted items include gains and losses on disposal of investments
and businesses and non-operating foreign exchange gains and
losses.
Dividends
6 months 6 months
Year
ended ended ended
30.06.13 30.06.12 31.12.12
US$ 000 (unaudited) (unaudited) (audited)
---------------------------------------- ------------ ------------ ----------
Dividend proposed
Interim dividend for 2013: 3.3 US cents 19,317 - -
Final dividend for 2012: 3.3 US cents - - 19,309
Special dividend for 2012: 6.6 US cents - - 38,618
Interim dividend for 2012: 3.3 US cents - 19,309 -
---------------------------------------- ------------ ------------ ----------
Total dividends proposed 19,317 19,309 57,927
---------------------------------------- ------------ ------------ ----------
Paid per Ordinary Share
Final dividend for 2012: 3.3 US cents 19,440 - -
Special dividend for 2012: 6.6 US cents 38,750 - -
Interim dividend for 2012: 3.3 US cents - - 19,312
Final dividend for 2011: 3.3 US cents - 19,340 19,340
---------------------------------------- ------------ ------------ ----------
Total dividends paid during the period 58,190 19,340 38,652
---------------------------------------- ------------ ------------ ----------
Note 11: Property, plant and equipment
During the six months period ended 30 June 2013, the Group
acquired property, plant and equipment with a cost of US$136,309
thousand (30 June 2012: US$228,665 thousand; 31 December 2012:
US$496,728 thousand) and disposed of property, plant and equipment
with original costs of US$6,168 thousand (30 June 2012: US$5,793
thousand; 31 December 2012: US$14,903 thousand).
Property, plant and equipment includes capitalised borrowing
costs on qualifying assets of US$5,254 thousand (30 June 2012: nil;
31 December 2012: US$1,508 thousand).
See note 2 in respect of the effects from the application of the
improvement to IAS 16 Property, plant and equipment.
Note 12: Other taxes recoverable and prepaid
As at 30 June 2013 taxes recoverable and prepaid comprised:
As at As at As at
30.06.13 30.06.12 31.12.12
US$ 000 (unaudited) (unaudited) (audited)
-------------------------------------------------------- ------------ ------------ ----------
VAT receivable 142,376 142,378 186,900
Other taxes prepaid 146 582 346
-------------------------------------------------------- ------------ ------------ ----------
Total other taxes recoverable and prepaid - current 142,522 142,960 187,246
-------------------------------------------------------- ------------ ------------ ----------
VAT receivable 127,502 79,813 97,895
-------------------------------------------------------- ------------ ------------ ----------
Total other taxes recoverable and prepaid - non-current 127,502 79,813 97,895
-------------------------------------------------------- ------------ ------------ ----------
A VAT receivable is as a result of VAT paid on domestic
Ukrainian purchases of goods, capital equipment and services and on
the import of goods, capital equipment and services into Ukraine to
the extent that this cannot be offset on VAT paid on domestic
sales. Ferrexpo currently has limited domestic sales and exports
the majority of its products. As a result, VAT has to be recovered
from the Government tax authority and Ferrexpo is reliant on the
normal functioning of this system.
During the six months period ended 30 June 2013, FPM received
VAT refunds in respect of 2012 and 2013 amounting to US$88,012
thousand and paid Ukrainian VAT amounting to US$97,240 thousand,
including US$24,130 thousand in respect of capital expenditure.
This was reduced by VAT incurred on domestic product sales of
US$5,783 thousand. As a result the gross recoverable balance
increased by US$3,445 thousand to US$304,981 thousand (UAH2,437
million).
Management expects this amount to be fully recovered in local
currency. However, the exact timing of recovery and method of
settlement is subject to uncertainties, along with the prevailing
exchange rate to the US Dollar at the time of repayment. In the
past, VAT has been recovered in cash and by the issuance of
domestic local currency bonds. An alternative method of settlement
could be to offset amounts recoverable against current and future
corporate profit tax. A financial loss could result, for example
from the issuance of bonds or promissory notes which trade at a
discount at the time of issue or are not tradable; continued late
repayment as a result of Government fiscal constraints diminishing
the present value of the receivable, or the conversion to US Dollar
of local currency received at a different exchange rate to that
recorded at the time of payment.
Management has considered these uncertainties including
potential continued International Monetary Fund support for the
Ukrainian national budget, domestic economic and budgetary
constraints, and current discussions with fiscal authorities in
making an estimate of the timing of recovery of the VAT due.
Management concluded that a large portion of the VAT is likely to
be repaid considerably beyond the settlement terms which will
result in additional funding costs for the Group. As a result, an
estimated discount of US$38,000 thousand has been recorded as of 30
June 2013 (30 June 2012: US$13,224 thousand; 31 December 2012:
US$20,000 thousand) to reflect this uncertainty and its effect is
included in finance expense. The discount was calculated on the
basis that VAT refunds will continue to be limited to an amount
which is double monthly corporation tax payments, which has been
the Group's recent experience at OJSC Ferrexpo Poltava Mining.
Based on current management estimates, US$142,376 thousand of the
total VAT is expected to be recovered within one year of the period
end, with the remainder, amounting to US$127,502 thousand, net of
the associated discount to reflect the time value of money,
recoverable after more than one year of the period end.
Further information on the Ukrainian VAT situation is provided
in the Chairman's and Chief Executive Officer's statement on page
6.
Note 13: Inventories
Inventories are held at the lower of cost or net realisable
value. As at 30 June 2013 ore stockpiles amounting to US$20,244
thousand (30 June 2012: nil; 31 December 2012: US$12,362 thousand)
were classified as non-current as this ore is not planned to be
processed within one year.
Note 14: Cash and cash equivalents
As at 30 June 2013 the Group held cash and cash equivalents of
US$446,430 thousand (30 June 2012: US$715,871 thousand; 31 December
2012: US$596,560 thousand).
Note 15: Share capital and reserves
The share capital of Ferrexpo plc at 30 June 2013 was
613,967,956 (30 June 2012: 613,967,956; 31 December 2012:
613,967,956) Ordinary Shares at par value of GBP0.10 paid for cash,
resulting in share capital of US$121,628 thousand which is
unchanged since the Group's Initial Public Offering in June
2007.
This balance includes 25,343,814 shares (30 June 2012:
25,343,814 shares; 31 December 2012: 25,343,814 shares) which are
held in treasury, resulting from a share buyback that was
undertaken in September 2008, and 3,275,435 shares held in the
employee benefit trust reserve (30 June 2012: 3,504,523 shares; 31
December 2012: 3,504,523 shares).
As at 30 June 2013 other reserves attributable to equity
shareholders of Ferrexpo plc comprised:
For the financial year 2012 and the six months ended 30 June
2013
Uniting Employee
of Treasury benefit Net unrealised Total
interest share trust gains Translation other
US$ 000 reserve reserve reserve reserve reserve reserves
----------------------------------------- --------- -------- -------- -------------- ----------- ---------
At 1 January 2012 31,780 (77,260) (9,416) 1,084 (294,791) (348,603)
Foreign currency translation differences - - - - (829) (829)
Loss on available-for-sale investments - - - (326) - (326)
Tax effect - - - 62 32 94
----------------------------------------- --------- -------- -------- -------------- ----------- ---------
Total comprehensive income for the
period - - - (264) (797) (1,061)
Share-based payments - - 1,608 - - 1,608
----------------------------------------- --------- -------- -------- -------------- ----------- ---------
At 31 December 2012 (audited) 31,780 (77,260) (7,808) 820 (295,588) (348,056)
----------------------------------------- --------- -------- -------- -------------- ----------- ---------
Foreign currency translation differences - - - - 172 172
Loss on available-for-sale investments - - - (150) - (150)
Tax effect - - - 28 - 28
----------------------------------------- --------- -------- -------- -------------- ----------- ---------
Total comprehensive income for the
period - - - (122) 172 50
Share-based payments - - 600 - - 600
----------------------------------------- --------- -------- -------- -------------- ----------- ---------
At 30 June 2013 (unaudited) 31,780 (77,260) (7,208) 698 (295,416) (347,406)
----------------------------------------- --------- -------- -------- -------------- ----------- ---------
For the six months ended 30 June 2012
Employee
Uniting Treasury benefit Net unrealised Total
of interest share trust gains Translation other
US$ 000 reserve reserve reserve reserve reserve reserves
----------------------------------------- ------------ -------- -------- -------------- ----------- ---------
At 1 January 2012 31,780 (77,260) (9,416) 1,084 (294,791) (348,603)
Foreign currency translation differences - - - - (791) (791)
Gain on available-for-sale investments - - - (120) - (120)
Tax effect - - - 25 61 86
----------------------------------------- ------------ -------- -------- -------------- ----------- ---------
Total comprehensive income for the
period - - - (95) (730) (825)
Share-based payments - - 872 - - 872
----------------------------------------- ------------ -------- -------- -------------- ----------- ---------
At 30 June 2012 (unaudited) 31,780 (77,260) (8,544) 989 (295,521) (348,556)
----------------------------------------- ------------ -------- -------- -------------- ----------- ---------
Note 16: Interest bearing loans and borrowings
This note provides information about the contractual terms of
the Group's interest bearing loans and borrowings which are
measured at amortised cost and denominated in US Dollar.
As at As at
30.06.13 30.06.12 As at
US$000 Notes (unaudited) (unaudited) 31.12.12
---------------------------------------------------- ----- ------------ ------------ ---------
Current
Other bank loans - secured 12,880 7,819 13,321
Obligations under finance leases 3,866 1,401 3,729
Interest accrued 9,750 9,515 9,796
---------------------------------------------------- ----- ------------ ------------ ---------
Total current interest bearing loans and borrowings 3 26,496 18,735 26,846
---------------------------------------------------- ----- ------------ ------------ ---------
Non-current
Eurobond issued 492,563 490,325 491,438
Syndicated bank loans - secured 420,000 420,000 420,000
Other bank loans - secured 55,965 33,852 62,232
Obligations under finance leases 17,730 3,502 19,469
---------------------------------------------------- ----- ------------ ------------ ---------
Total non-current interest bearing loans and
borrowings 3 986,258 947,679 993,139
---------------------------------------------------- ----- ------------ ------------ ---------
Total interest bearing loans and borrowings 1,012,754 966,414 1,019,985
---------------------------------------------------- ----- ------------ ------------ ---------
The revolving pre-export finance facility was drawn in full on 7
October 2011. This finance facility is available for 60 months
including a commitment amortisation over the final 24 months. The
maturity is 31 August 2016.
As at 30 June 2013 the major bank debt facility was guaranteed
and secured as follows:
-- Ferrexpo AG and Ferrexpo Middle East FZE assigned the rights
to revenue from certain sales contracts;
-- OJSC Ferrexpo Poltava Mining assigned all of its rights of
certain export contracts for the pellets sales to Ferrexpo AG and
Ferrexpo Middle East FZE; and
-- the Group pledged bank accounts of Ferrexpo AG and Ferrexpo
Middle East FZE into which all proceeds from the sale of certain
iron ore pellet contracts are received.
The unsecured US$500 million Eurobond was issued on 7 April 2011
and is due for repayment on 7 April 2016. The bond has a 7.875%
coupon and interest is payable on a semi-annual basis.
As at 30 June 2013 the Group has other committed credit lines
amounting to US$25,300 thousand (30 June 2012: US$72,000 thousand;
31 December 2012: nil).
Note 17: Defined benefit pension liability
As at 30 June 2013 the defined benefit pension liability after
the effects from IAS 19 revised comprised:
As at As at As at
30.06.13 30.06.12 31.12.12
US$ 000 (unaudited) (unaudited) (audited)
-------------------------------------------------- ------------ ------------ ----------
Present value of funded obligations 4,175 3,702 4,050
Plan assets at fair value (2,675) (2,163) (2,473)
Present value of unfunded obligations 50,375 66,271 48,618
-------------------------------------------------- ------------ ------------ ----------
Closing balance defined benefit pension liability 51,875 67,810 50,195
-------------------------------------------------- ------------ ------------ ----------
The total benefit expenses for the six months period ended 30
June 2013 consisted of the following:
As at As at As at
30.06.13 30.06.12 31.12.12
(unaudited) (unaudited) (audited)
------------------------------------------------ ------------ ------------ ----------
Total service costs 1,558 1,821 4,826
Total net interest 2,753 3,360 6,763
Termination benefits - - 1,022
Total administration expenses and other effects 2 8 5
------------------------------------------------ ------------ ------------ ----------
Total benefit expenses 4,313 5,189 12,616
------------------------------------------------ ------------ ------------ ----------
Thereof personnel expense 1,560 1,829 5,854
Thereof financial expense 2,753 3,360 6,762
------------------------------------------------ ------------ ------------ ----------
The effects from the implementation of IAS 19 revised are shown
in note 2.
Note 18: Related party disclosure
During the periods presented the Group entered into arm's length
transactions with entities under the common control of the majority
owner of the Group, Kostyantin Zhevago and with associated
companies and with other related parties. Management considers that
the Group has appropriate procedures in place to identify and
properly disclose transactions with the related parties.
Entities under common control are those under the control of
Kostyantin Zhevago. Associated companies refer to TIS Ruda LLC, in
which the Group holds an interest of 48.6%. This is the only
associated company of the Group. Other related parties are
principally those entities controlled by Anatoly Trefilov who is a
member of the supervisory board of OJSC Ferrexpo Poltava Mining.
Related party transactions entered into by the Group during the
periods presented are summarised in the following tables:
Revenue, expenses, finance income and finance expenses
6 months ended 30.06.13 6 months ended 30.06.12 Year ended 31.12.12
(unaudited) (unaudited) (audited)
Entities Entities Entities
under Other under Other under Other
common Associated related common Associated related common Associated related
US$ 000 control companies parties control companies parties control companies parties
------------------ -------- ------------ -------- -------- ----------- -------- -------- ----------- --------
Other sales(a) 310 - 182 939 - 50 1,198 - 88
------------------ -------- ------------ -------- -------- ----------- -------- -------- ----------- --------
Total related
party
transactions with
revenue 310 - 182 939 - 50 1,198 - 88
------------------ -------- ------------ -------- -------- ----------- -------- -------- ----------- --------
Materials(b) 6,389 - 18 2,720 - - 5,984 - 24
Purchased
concentrate
and other items
for
resale(c) 5,329 - - 11,370 - - 21,948 - -
Spare parts and
consumables(d) 1,396 - - 3,343 - - 7,859 - -
Fuel(e) - - - 1,374 - - 1,373 - -
Gas(e) 15,810 - - - - - 9,646 - -
------------------ -------- ------------ -------- -------- ----------- -------- -------- ----------- --------
Total related
parties
transactions
within
cost of sales 28,924 - 18 18,807 - - 46,810 - 24
------------------ -------- ------------ -------- -------- ----------- -------- -------- ----------- --------
Selling and
distribution
expenses(f) 5,438 11,507 3,514 4,749 10,059 4,834 9,377 20,493 8,367
General and
administration
expenses(g) 1,135 - 8 904 - 11 1,644 - 72
------------------ -------- ------------ -------- -------- ----------- -------- -------- ----------- --------
Total related
parties
transactions
within
expenses 35,497 11,507 3,540 24,460 10,059 4,845 57,831 20,493 8,463
------------------ -------- ------------ -------- -------- ----------- -------- -------- ----------- --------
Finance income(h) 625 - - 474 - - 917 - -
Finance
expenses(h) (156) - - (173) - - (733) - -
------------------ -------- ------------ -------- -------- ----------- -------- -------- ----------- --------
Net finance
income/(expenses) 469 - - (301) - - 184 - -
------------------ -------- ------------ -------- -------- ----------- -------- -------- ----------- --------
Entities under common control
The Group entered into various related party transactions with
entities under common control. A description of the material
transactions, all of which were carried out on an arm's length
basis in the normal course of business for the members of the Group
(see note 1), are listed below:
a Sales of power, steam and water and other materials to
Kislorod PCC for US$184 thousand (30 June 2012: US$289 thousand; 31
December 2012: US$480 thousand). Revenue of US$25 thousand was
received from Vorskla Steel Ltd. for the sale of sand and other
materials (30 June 2012: US$500 thousand; 31 December 2012: US$507
thousand).
b Purchases of compressed air and oxygen from Kislorod PCC for
US$2,529 thousand (30 June 2012: US$2,348 thousand; 31 December
2012: US$4,933 thousand); and
b Purchases of cast iron balls from AutoKraZ Holding Co. for
US$3,254 thousand (30 June 2012: US$2,316 thousand; 31 December
2012: US$5,255 thousand).
c Purchases of concentrate and other items for resale from
Vostok Ruda Ltd. amounting to US$5,329 thousand (30 June 2012:
US$11,370 thousand; 31 December 2012: US$21,948 thousand).
d Purchases of spare parts from CJSC Kiev Shipbuilding and Ship
Repair Plant ('KSRSSZ') in the amount of US$328 thousand (30 June
2012: nil; 31 December 2012: US$805 thousand);
d Purchases of spare parts from OJSC Berdichev Machine-Building
Plant Progress of US$22 thousand (30 June 2012: US$249 thousand; 31
December 2012: US$595 thousand); and
d Purchases of spare parts from Valsa GTV of US$698 thousand (30
June 2012: US$161 thousand; 31 December 2012: US$736 thousand).
e Procurement of gas for US$15,810 thousand (30 June 2012: nil;
31 December 2012: US$9,646 thousand) during the six months of the
financial year 2013 from OJSC Ukrzakordongeologia. No procurement
of fuel from OJSC Ukrzakordongeologia during this reporting period
(30 June 2012: nil; 31 December 2012: US$1,373 thousand).
f Purchases of advertisement, marketing and general public
relations services from FC Vorskla for the period to 30 June 2013
of US$5,400 thousand (30 June 2012: US$4,749 thousand; 31 December
2012: US$9,301 thousand).
g Insurance premiums of US$363 thousand (30 June 2012: US$349
thousand; 31 December 2012: US$686 thousand) paid to ASK Omega for
workmen's insurance and other insurances.
g Fees of US$373 thousand (30 June 2012: US$56 thousand; 31
December 2012: US$113 thousand) paid to F&C Lex and Legal
Partners for legal services.
g Fees of US$228 thousand (30 June 2012: US$65 thousand; 31
December 2012: US$448 thousand) paid to Bank Finance & Credit
(Bank F&C) for bank services.
h Transactional banking services are provided to certain
subsidiaries of the Group by Bank Finance & Credit (Bank
F&C) Finance income and expenses relate to these transactional
banking services. Further information is provided under
transactional banking arrangements on page 40.
Associated companies
The Group entered into related party transactions with its
associated company TIS Ruda LLC, which were carried out on an arm's
length basis in the normal course of business for the members of
the Group (see note 1). These are described below:
f Purchases of logistics services in the amount of US$11,507
thousand (30 June 2012: US$10,059 thousand; 31 December 2012:
US$20,493 thousand) relating to port operations, including port
charges, handling costs, agent commissions and storage costs.
Other related parties
The Group entered into various transactions with other related
parties. Descriptions of the material transactions are below:
f Purchases of logistics management services from Slavutich Ruda
Ltd. relating to customs clearance services and the coordination of
rail transit. Total billings amounted to US$3,514 thousand (30 June
2012: US$4,834 thousand; 31 December 2012: US$8,367 thousand).
Slavutich Ruda Ltd. earned commission income of US$492 thousand on
these services (30 June 2012: US$436 thousand; 31 December 2012:
US$906 thousand).
g Purchases of legal services from Kuoni Attorneys at Law Ltd.
amounting to US$12 thousand (30 June 2012: US$11 thousand; 31
December 2012: US$72 thousand).
Sale and purchases of property, plant, equipment and
investments
The table below details the transactions of a capital nature
which were undertaken between group companies and entities under
common control, associated companies and other related parties
during the periods presented.
6 months ended 30.06.13 6 months ended 30.06.12 Year ended 31.12.12
(unaudited) (unaudited) (audited)
Entities Entities Entities
under Other under Other under Other
common Associated related common Associated related common Associated related
US$ 000 control companies parties control companies parties control companies parties
-------------------- -------- ---------- -------- -------- ----------- -------- -------- ----------- --------
Purchases with
independent
confirmation - - - 778 - - 2,659 - -
Purchases with
shareholder
approval - - - 27,689 - - 55,026 - -
Other purchases 2,428 - - - - - 1,044 - -
-------------------- -------- ---------- -------- -------- ----------- -------- -------- ----------- --------
Total purchases of
property,
plant and
equipment(i) 2,428 - - 28,467 - - 58,729 - -
-------------------- -------- ---------- -------- -------- ----------- -------- -------- ----------- --------
Entities under common control
i Effective 1 October 2012, the UK Listing Rules have been
amended to require only independent fair and reasonable
confirmation for transactions that are not in the ordinary course
of business, irrespective of the nature of the transaction.
-- During the first six months of the financial year 2013, the
Group entered in various transactions with related parties
totalling to US$2,428 thousand. These transactions were in the
ordinary course of business and on an arm's length basis and did
not require independent fair and reasonable confirmation as a
result of the amended UK Listing Rules becoming effective on 1
October 2012.
During the financial year 2012, the Group entered into the
following transactions with related parties:
-- During the period from October to December 2012, The Group
entered in various transactions with related parties totalling to
US$653 thousand. These transactions were in the ordinary course of
business and on an arm's length basis and did not require
independent fair and reasonable confirmation as result of the
amended UK Listing Rules becoming effective on 1 October 2012.
-- In September 2012, the Group procured metal works from OJSC
Berdichev Machine-Building Plant Progress in the amount of US$1,019
thousand in connection with the construction of the flotation
equipment. An independent confirmation in accordance with the
requirements of the UK Listing Rules was obtained.
-- In July and August 2012, the Group entered in various smaller
transactions with related parties totalling US$391 thousand. No
independent fair and reasonable confirmations were required as
these transactions did not exceed the relevant aggregated threshold
set by the UK Listing Rules at the point of time of the
transactions.
-- In July 2012, the Group procured design documentation
services in the amount of US$194 thousand from OJSC DIOS in
relation to replacement of mixers at the pellet plant complex and
the construction of a dust aspiration system. Deslimer equipment in
the amount of US$668 thousand was procured from CJSC Kiev
Shipbuilding and Ship Repair Plant ('KSRSSZ') and OJSC Berdichev
Machine-Building Plant Progress for a beneficiation plant. An
independent confirmation in accordance with the requirements of the
UK Listing Rules was obtained.
-- In March 2012, project management services in the amount of
US$140 thousand were procured from Vorskla Steel Ltd. in connection
with the construction of service facilities and technical design
documentation amounting to US$618 thousand from OJSC DIOS related
to the update of the beneficiation plant. An independent
confirmation in accordance with the requirements of the UK Listing
Rules was obtained.
-- In February 2012, the Group procured design documentation
from OJSC DIOS in the amount of US$21 thousand in relation to the
construction of roads and loading facilities. An independent
confirmation in accordance with the requirements of the UK Listing
Rules was obtained.
In addition to the transactions above, the Group obtained on 24
May 2012 shareholder approval for an option to purchase up to 500
rail cars from PJSC Stakhanov Railcar Company between the date of
the approval and 31 December 2014. In February 2013, the Group
exercised the right under this option to order 267 rail cars. These
rail cars are expected to be delivered until September 2013.
The purchase of 400 rail cars, with an option to purchase an
additional 600 rail cars, was approved by the general meeting of
the shareholders on 15 March 2011. 712 rail cars were ordered under
the authority of this shareholder approval during the financial
year 2011 and 288 rail cars in 2012 bringing the total ordered to
1,000 units. As of 31 December 2012, all rail cars have been
delivered under these orders bringing the total fleet of own rail
cars to 1,933 units; not including 200 dumper rail cars previously
used in the mine and related area and recently brought into
service. All purchased rail cars under this authority amounting to
US$55,026 thousand were put into operation during the financial
year 2012 (30 June 2012: US$27,689 thousand).
Balances with related parties
The outstanding balances, as a result of transactions with
related parties, for the periods presented are shown in the table
below:
6 months ended 30.06.13 6 months ended 30.06.12 Year ended 31.12.12
(unaudited) (unaudited) (audited)
Entities Entities Entities
under Other under Other under Other
common Associated related common Associated related common Associated related
US$ 000 control companies parties control companies parties control companies parties
---------------------- -------- ---------- -------- -------- ----------- -------- -------- ----------- --------
Investments
available-for-sale(j) 405 - - 755 - - 534 - -
Prepayments for
property,
plant and
equipment(k) 13,658 - - 13,987 - - 625 - -
---------------------- -------- ---------- -------- -------- ----------- -------- -------- ----------- --------
Total non-current
assets 14,063 - - 14,742 - - 1,159 - -
---------------------- -------- ---------- -------- -------- ----------- -------- -------- ----------- --------
Trade and other
receivables(l) 931 - 64 1,817 526 4 823 - 3
Prepayments and other
current assets(m) 746 2,278 170 400 - 819 162 1,302 18
Cash and cash
equivalents(n) 92,739 - - 102,017 - - 141,424 - -
---------------------- -------- ---------- -------- -------- ----------- -------- -------- ----------- --------
Total current assets 94,416 2,278 234 104,234 526 823 142,409 1,302 21
---------------------- -------- ---------- -------- -------- ----------- -------- -------- ----------- --------
Trade and other
payables(o) 2,997 - 302 7,745 759 125 1,694 - 122
---------------------- -------- ---------- -------- -------- ----------- -------- -------- ----------- --------
Current liabilities 2,997 - 302 7,745 759 125 1,694 - 122
---------------------- -------- ---------- -------- -------- ----------- -------- -------- ----------- --------
Entities under common control
j The balance of the investments available-for-sale comprised
shareholdings in PJSC Stakhanov Railcar Company (1.1%) and Vostok
Ruda Ltd. (1.1%). The ultimate beneficial owner of these companies
is Kostyantin Zhevago. PJSC Stakhanov Railcar Company is further
listed on the Ukrainian stock exchange. The changes of the values
in the table above are related to fair value adjustments recorded
during the respective reporting periods. The shareholdings for all
investments remained unchanged during the periods disclosed above.
The investment in Vostok Ruda Ltd. was subject to an impairment of
US$430 thousand recorded as of the end of the comparative period
ended 30 June 2012. The balance of US$405 thousand as of 30 June
2013 related to the investment in PJSC Stakhanov Railcar Company
(30 June 2012: US$755 thousand; 31 December 2012: US$534
thousand).
k The balance as of 30 June 2013 includes prepayments of
US$13,256 thousand made in relation to rail cars purchased from
PJSC Stakhanov Railcar Company (30 June 2012: US$13,326 thousand;
31 December 2012: nil). The prepayments made as of 30 June 2012
were offset with deliveries obtained in 2012 whereas those made as
of 30 June 2013 are in relation to 267 rail cars ordered in 2013
and expected to be delivered until September 2013. Prepayments of
US$113 thousand were made to DIOS (30 June 2012: US$373 thousand;
31 December 2012: US$153 thousand) for engineering design services.
Further prepayments of US$72 thousand (30 June 2012: US$125
thousand; 31 December 2012: US$289 thousand) to OJSC Berdichev
Machine-Building Plant Progress in connection with the procurement
of equipment and US$153 thousand (30 June 2012: US$41 thousand; 31
December 2012: US$41 thousand) to OJSC Donbasgeologia for drilling
programmes to be conducted.
l As of 30 June 2013, trade and other receivables included
outstanding amounts of US$335 thousand due from Vorskla Steel Ltd.
(30 June 2012: US$1,401 thousand; December 2012: US$277 thousand)
in relation to other sales and US$469 thousand (30 June 2012:
US$356 thousand; 31 December 2012: US$461 thousand) from Kislorod
PCC for the sale of power, steam and water.
m Prepayments and other current assets relate mainly to
prepayments of US$398 thousand made to OJSC Ukrzakordongeologia for
fuel and gas (30 June 2012: nil; 31 December 2012: nil) and US$202
thousand for spare parts from CJSC Kiev Shipbuilding and Ship
Repair Plant ('KSRSSZ') (30 June 2012: US$40 thousand; 31 December
2012: US$38 thousand) and US$42 thousand to ASK Omega for insurance
premiums (30 June 2012: US$135 thousand; 31 December 2012: US$91
thousand).
n As of 30 June 2013, cash and cash equivalents with Bank
F&C were US$92,739 thousand (30 June 2012: US$102,017 thousand;
31 December 2012: US$141,424 thousand). Further information is
provided under Transactional banking arrangements below.
o Trade and other payables amounting to US$592 thousand for
compressed air and oxygen purchased from Kislorod PCC (30 June
2012: US$532 thousand; 31 December 2012: US$599 thousand) and
US$2,075 thousand for advertisement, marketing and general public
relations services from FC Vorskla (30 June 2012: US$5,500
thousand; 31 December 2012: nil). The balance as of end of the
comparative period ended 30 June 2012 included an amount payable to
PJSC Stakhanov Railcar Company of US$1,072 thousand. The balance as
of 31 December 2012 included US$642 thousand for procurement of gas
from OJSC Ukrzakordongeologia.
Associated companies
l Trade and other receivables as of the end of the comparative
period ended 30 June 2012 in the amount of US$526 thousand are in
relation to the provision of rail cars to TIS Ruda LLC for the
storage of cargo at the port. No such receivable balances as of 30
June 2013 and 31 December 2012.
m Prepayments and other current assets relate to prepayments of
US$2,278 thousand (30 June 2012: nil; 31 December 2012: US$1,302
thousand) made TIS Ruda LLC for transhipment services.
o Trade and other payables amounting to US$759 thousand as of
the end of the comparative period ended 30 June 2012 for logistics
services purchased from TIS Ruda LLC.
Other related parties
m Prepayments and other current assets US$170 thousand as 30
June 2013 relate to advance payments of to Slavutich Ruda Ltd. for
distribution services (30 June 2012: US$819 thousand; 31 December
2012: US$18 thousand).
o Trade and other payables amounting to US$302 thousand as of 30
June 2013 are in respect of distribution services provided by
Slavutich Ruda Ltd. (30 June 2012: US$125 thousand; 31 December
2012: US$99 thousand).
Transactional banking arrangements
The Group has transactional banking arrangements with Bank
Finance & Credit ('Bank F&C') in Ukraine which is under
common control of the majority shareholder of Ferrexpo plc. Finance
income and expenses are disclosed in the table on page 37.
The Group had an uncommitted multicurrency revolving loan
facility agreement with Bank F&C which expired on 16 April
2013. The maximum limit of this facility amounted to UAH80 million
(30 June 2012: US$10,009 thousand; 31 December 2012: US$10,009
thousand) and the terms and conditions of the facility were subject
of an independent fair and reasonable confirmation at its inception
and renewal dates. The loan facility has remained undrawn for the
entire period of time since its inception.
On 26 April 2013, the Group entered into a new uncommitted
multicurrency revolving loan facility agreement and a documentary
credit facility agreement with Bank F&C which will expire on 26
April 2016. The aggregate maximum limit of these facilities amounts
to UAH80 million (30 June 2013: US$10,009 thousand) and, as
required under Ukrainian legislation, fixed assets are pledged. The
total value of pledges under the terms of the loan facility
agreements is US$9,066 thousand as of the date of the signing of
the agreements. The terms and conditions of the facilities were the
subject of an independent fair and reasonable confirmation.
As at As at As at
30.06.13 30.06.12 31.12.12
US$ 000 (unaudited) (unaudited) (audited)
-------------------------------------- ------------ ------------ ----------
Loan facilities 10,009 10,009 10,009
Amount drawn - - -
Letter of credit facility outstanding 1,869 6,614 7,179
Bank guarantee facility outstanding - - 1,081
-------------------------------------- ------------ ------------ ----------
Bank F&C provides mortgages and loans to employees of the
Group for the acquisition, construction and renovation of
apartments in Ukraine. This is part of a social loyalty programme
started by the Group in December 2011 allowing certain employees of
the Group to borrow at preferential interest rates. OJSC Ferrexpo
Poltava Mining and LLC Ferrexpo Yeristovo GOK act as guarantors for
the bank's loans to the employees of the Group and have deposited
US$2,580 thousand at Bank F&C as security (30 June 2012:
US$2,065 thousand; 31 December 2012: US$2,085 thousand). The
interest rate margin earned by Bank F&C covers the costs of
administrating the mortgages and loans. Detailed information on the
social loyalty programme is provided in the Corporate Social
Responsibility Review section of the Annual Report and Accounts
2012.
Note 19: Commitments and contingencies
Commitments
As at As at As at
30.06.13 30.06.12 31.12.12
US$ 000 (unaudited) (unaudited) (audited)
--------------------------------------- ------------ ------------ ----------
Operating lease commitments 81,058 79,899 82,802
Capital commitments on purchase of PPE 121,027 145,692 162,665
--------------------------------------- ------------ ------------ ----------
Legal
In the ordinary course of business, the Group is subject to
legal actions and complaints. Management believes that the ultimate
liability, if any, arising from such actions or complaints will not
have a material adverse effect on the financial condition or the
results of future operations of the Group.
The Group is currently involved in a share dispute which
commenced in 2005 and which was disclosed and, as appropriate,
updated in the Group's 2007 IPO prospectus and subsequent interim
and annual report and accounts as well as in its Eurobond
prospectuses.
In 2005, a former shareholder (the claimant) in OJSC Ferrexpo
Poltava Mining ('FPM') brought proceedings, in the Ukrainian
courts, seeking to invalidate the share sale and purchase
agreements pursuant to which a 40.19% stake in FPM was sold to
nominee companies that were previously, ultimately controlled by
Kostyantin Zhevago, amongst other parties. This 40.19% stake has
subsequently been diluted to 14% following share issues by FPM.
Following various court rulings in favour of the defendant and
the claimant, on 10 April 2010 the High Commercial Court of Ukraine
granted the cassation complaint of the former shareholder and
invalidated the respective share sale and purchase agreements
without ruling on any consequences of such invalidity.
On 6 October 2011, the former shareholder filed a new claim in
Ukraine alleging that as a result of the invalidity of the share
sale and purchase agreements with respect to the 40.19% stake in
FPM, their rights were infringed by the capital increases approved
at FPM's general shareholder meeting on 20 November 2002 and all
other general meetings relating to changes to FPM's charter
capital. Accordingly, the claimants asked that the court invalidate
the decisions taken at FPM's general shareholder meetings and to
restore their status as 40.19% shareholders of FPM as of 20
November 2002 and to cancel all share issues that took place after
20 November 2002.
On 22 November 2011, Ferrexpo AG ('FAG') filed a claim against
the claimants at the High Court of Justice in London seeking a
confirmation of ownership in FPM shares. The claim was launched in
order to take an active step outside Ukraine to resolve the
long-running dispute. By a judgement dated 3 April 2012, the
proceedings in the UK were stayed while the case continues in
Ukraine.
The case is currently being heard at the Kiev City Commercial
Court and as of the date of the publication of these interim
financial statements for the period ended 30 June 2013, there has
been no decision on merits passed by the Kiev Commercial Court. On
26 March 2013 the Kiev Commercial Court issued an injunction to
suspend trading of FPM shares during the court case.
After having taken Ukrainian legal advice, the management of the
Group believes that risks related to these court proceedings are
remote. Neither the final decision by the High Commercial Court of
Ukraine nor any subsequent claims entitles claimants to direct
enforcement rights to the shares of FPM in the form claimed by the
claimants. In addition, the restitution of the status quo ante of
the shareholding position as sought by claimants is not completely
in line with Ukrainian law for various legal, technical and
practical reasons. It follows that no provision was recorded for
this dispute as of 30 June 2013. At the same time, in light of the
risks surrounding the operation and independence of Ukrainian
courts, including the risks associated with the Ukrainian legal
system in general, the claimants may ultimately prevail in this
dispute and the Group's ownership of the relevant interest in FPM
may be successfully challenged in the future, which could have a
material adverse effect on Ferrexpo's business, results of
operations, financial condition and prospects.
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 also not unusual. The uncertainty
of application and the evolution of Ukrainian tax laws 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. This includes also a new
transfer pricing law which, if implemented in the proposed form,
would significantly increase the power of the tax authorities. The
Group does not believe that these risks are any more significant
than those of similar enterprises in Ukraine.
We are disputing several tax claims by domestic Ukrainian tax
authorities following inspections for the fiscal years 2011 and
2012 and continue to dispute in the court system amounts resulting
from audits in relation to 2009 and 2010. Corporate profit tax
claims are, among other things, claims related to the deductibility
of expenses for tax purposes, adjustments in respect of prices
charged on the export of products and payments of additional
environmental and other taxes and duties. The aggregate amount
claimed by the Ukrainian tax authorities relating to these matters,
together with applicable fines and penalties, is approximately
US$16,962 thousand as of 30 June 2013. As we believe the tax
authorities claims are unlikely to be enforced no provision has
been made for these claims, although there is no guarantee the tax
authorities' challenges will not succeed.
Recoverable VAT amounting to US$99,048 thousand outstanding at
30 June 2013 is in the process of being considered by the Ukrainian
court system in several different cases. As the VAT is fully
recoverable under the relevant Ukrainian legislation, the Group
expects to ultimately receive positive court decisions for these
ongoing court proceedings. Consequently, the VAT is recorded at its
full amount in the financial statements, net of an estimated
discount to reflect the time value of money as disclosed in note
12.
Note 20: Financial instruments
As a result of the adoption of IFRS 13 Fair value measurement,
disclosures about the carrying amounts and fair values of the
Group's financial instruments are required in accordance with IAS
34 paragraph 16A (j). Such information is provided by the Group for
the first time in its interim consolidated financial
statements.
Fair values
Set out below are the carrying amounts and fair values of the
Group's financial instruments that are carried in the interim
consolidated statement of financial position:
As at 30.06.13
(unaudited)
Carrying Fair
US$ 000 amount value
-------------------------------------- --------- -------
Financial assets
Cash and cash equivalents 446,430 446,430
Trade and other receivables 152,800 152,800
Available-for-sale investments 21,690 21,690
Other financial assets 1,068 1,068
-------------------------------------- --------- -------
Total financial assets 621,988 621,988
-------------------------------------- --------- -------
Financial liabilities
Trade and other payables 38,387 38,387
Accrued liabilities 39,678 39,678
Interest bearing loans and borrowings 1,012,754 880,504
-------------------------------------- --------- -------
Total financial liabilities 1,090,819 958,569
-------------------------------------- --------- -------
The fair values of cash and cash equivalents, trade and other
receivables and payables are approximately equal to their carrying
amounts due to their short maturity.
The fair values of interest bearing loans and borrowings are
determined using current market rates.
The following table provides an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which
the fair value is observable.
Level 1: fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2: fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
Level 3: fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
As at 30.06.13 (unaudited)
Level Level Level
US$ 000 1 2 3 Total
------------------------------- ------ ------ ------- -------
Financial assets
Available-for-sale investments 405 - 21,285 21,690
------------------------------- ------ ------ ------- -------
Total financial assets 405 - 21,285 21,690
------------------------------- ------ ------ ------- -------
There were no transfers between the different levels during the
reporting period.
A decrease of the fair value of the investments in Level 1
amounting to US$150 thousand was recorded in other comprehensive
income as of 30 June 2013 (30 June 2012: loss of US$120 thousand;
31 December 2012: loss of US$326 thousand).
The addition in Level 3 is in relation to an investment in an
overseas company amounting to US$21,285 thousand made in March 2013
and the transaction price does reflect the fair value as of 30 June
2013.
Reconciliation of recurring fair value measurements categorised
within Level 3 of the fair value hierarchy is shown in the table
below:
As at
30.06.13
(unaudited)
-------------------------------- ------------
Opening balance -
Purchases 21,285
Total gains or losses:
- in profit or loss -
- in other comprehensive income -
Transfer out of Level 3 -
-------------------------------- ------------
Closing balance 21,285
-------------------------------- ------------
Note 21: Events after the reporting period
No material adjusting or non-adjusting events have occurred
subsequent to the period end.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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