TIDMFXPO
RNS Number : 0686C
Ferrexpo PLC
12 March 2014
12 March 2014
FERREXPO plc
("Ferrexpo" or the "Group")
2013 Full Year Results
Ferrexpo, the FTSE 250 iron ore pellet producer, today announces
its full year results for the year ended 31 December 2013.
Michael Abrahams, Non-Executive Chairman, said:
"We would like to express our profound sadness for the loss of
life as a result of the recent political turmoil in Ukraine, and
extend our deepest sympathies to the families, communities and
colleagues who have been affected.
We are hopeful of a satisfactory political outcome reflecting
democratic principles.
At the time of writing, there have been no disruptions to
Ferrexpo's operations in Ukraine.
In 2013, Ferrexpo was the fastest growing supplier by volume of
pellets to the global steel industry and a top five seaborne
producer. Total pellet production increased by 12% to 10.8 million
tonnes, compared to an average industry decline during the year of
over 5%. The Group also increased the quality of its pellet output,
with a 20% increase of higher grade 65% Fe pellets. Ferrexpo
achieved an average increase in its realised price of 4% and
progressively reduced its cost of production quarter on quarter
following the ramp up of mining operations at Ferrexpo Yeristovo
Mining (FYM), and thus stabilised production costs year on year.
Group production costs progressively reduced quarter on quarter.
Overall, EBITDA increased by 25% to US$506 million (2012: US$405
million).
In 2014, the Group is well positioned to reduce costs through
increased production volumes, as well as a more appropriately
valued local currency. Since the balance sheet date, the Ukrainian
Hryvnia has devalued by 16%. This will reduce those operating costs
of the Group which are denominated in local currency, although, it
will lower the carrying value of assets and liabilities which are
also denominated in local currency.
Ferrexpo expects to benefit from growing demand for higher
quality iron ore feedstock in 2014. The trend for premium iron ore
is expected to be driven by greater environmental requirements for
steel mills to reduce their harmful emissions as well as a
necessity to compensate for the growth in lower grade iron ore
fines that is becoming increasingly prevalent.
The Company is pleased to announce a final ordinary dividend of
US3.3 cents per share and a special dividend of US6.6 cents per
share reflecting the progress it has made in 2013."
2013 Financial Highlights:
US$ million (unless otherwise Year ended Year ended % change
stated) 31.12.13 31.12.12
----------------------------------- ----------- ----------- ---------
Total pellet production (kt) 10,813 9,690 12%
----------------------------------- ----------- ----------- ---------
Sales volumes (kt) 10,689 9,675 11%
----------------------------------- ----------- ----------- ---------
Revenue 1,581 1,424 11%
----------------------------------- ----------- ----------- ---------
EBITDA 506 405 25%
----------------------------------- ----------- ----------- ---------
Profit before tax 305 266 15%
----------------------------------- ----------- ----------- ---------
Diluted EPS (US cents per share) 44.69 37.08 21%
----------------------------------- ----------- ----------- ---------
Final ordinary dividend (US cents
per share) 3.3 3.3 -
----------------------------------- ----------- ----------- ---------
Special dividend (US cents per
share) 6.6 6.6 -
----------------------------------- ----------- ----------- ---------
Net cash flow from operating
activities 233 119 96%
----------------------------------- ----------- ----------- ---------
Ukrainian Gross VAT outstanding 318 302 5%
----------------------------------- ----------- ----------- ---------
Capital investment 278 429 (35%)
----------------------------------- ----------- ----------- ---------
Net debt (639) (423) 51%
----------------------------------- ----------- ----------- ---------
Net debt to EBITDA 1.3x 1.1x -
----------------------------------- ----------- ----------- ---------
-- Record pellet production of 10.8 million tonnes, 12% higher
than 2012 driven by the ramp-up of production from the new Ferrexpo
Yeristovo Mine (FYM). Two million tonnes of pellets were produced
from FYM ore. The development of FYM and continued investment in
the processing facilities at FPM has reduced the risk profile of
the Group. Ferrexpo now has access to a new open pit mine which has
on average higher grade ore and lower mining costs and productive
capacity ramping up to 12 million tonnes per year.
-- Sales volumes grew by 11% to 10.7 million tonnes due to
strong pellet demand from all of the Group's markets. The Group's
achieved price was 4% higher than 2012. As of 1 January 2014, all
of the Group's long-term sales contracts will be based on a
benchmark indexed formula. In the fourth quarter of 2013, Ferrexpo
delivered 3.1 million tonnes of pellets to its global customer base
via rail, barge or ship. This was a record and in line with the
Group's target of annualised production of 12 million tonnes.
-- The Group's average C1 cash cost of production for the period
was US$59.8 per tonne (2012: US$59.6 per tonne) whilst the UAH
remained stable at around 8.0 to the US dollar. The mining and
processing of FYM ore had a positive impact on the Group's overall
production cost throughout the year following the ramp up of its
production in the first quarter of 2013, where Group costs peaked
at US$63.9 per tonne. The processing complex at Ferrexpo Poltava
Mining (FPM) performed strongly in 2013 as it processed more ore
and increased pellet output leading to a higher level of fixed cost
absorptions.
-- EBITDA increased by 25% or over US$100 million to US$506
million in 2013 compared to US $405 million in 2012. The increase
was due to strong growth in sales volumes and higher market
pricing.
-- The gross Ukrainian VAT receivable balance as at 31 December
2013 was US$318 million (2012: US$302 million).An additional
provision of US$40 million (2012: US$20 million) has been taken,
bringing the total to US$60 million. In January 2014, the Group
received a VAT repayment for December 2013 for Ferrexpo Poltava
Mining (FPM) and for FYM related to 2012. As of 31 January 2014,
the gross VAT outstanding balance was US$291 million. No VAT refund
was received in February, however, it is hoped that a resolution to
this long standing problem in Ukraine will be found in 2014.
-- Balance sheet position remains strong. Net debt to EBITDA was
1.3x as of 31 December 2013 (31 December 2012: 1.1x). Net debt at
year end was US$639 million (31 December 2012: US$423 million) of
which approximately 63% had been used to finance outstanding VAT
receivables and pre-paid corporate profit tax. Total liquidity
(including undrawn facilities and cash) was US$671 million as of 31
December 2013 compared to US$597 million at 31 December 2012.
-- Final ordinary dividend maintained at US3.3 cents per share
due to iron ore pricing uncertainty and the VAT situation, which is
yet to be fully resolved.
-- Special divided of US6.6 cents declared. This reflects the
progress the business has made in 2013 with productive capacity
increasing by 30% compared to 2008 and pellet output growth of 12%
compared to 2012.
-- 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 09.30 (UK time)
today at The London Stock Exchange, 10 Paternoster Square, London,
EC4M 7LS. A live video webcast and slide presentation of this event
will be available on www.ferrexpo.com. It is recommended that
participants register at 09.15. 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
Maitland:
Peter Ogden +44 207 379 5151
Liz Morley +44 207 379 5151
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. The Group is the 5(th) largest supplier of pellets to
the global steel industry and the largest exporter of pellets from
the CIS. In 2013, it produced 10.8 million tonnes of pellets, a 12%
increase compared to 2012. Ferrexpo has a diversified customer base
supplying steel mills in Austria, Slovakia, the Czech Republic,
Germany and other European states, as well as in 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
A REVIEW OF 2013
In 2013, Ferrexpo was the fastest growing supplier by volume of
pellets to the global steel industry and a top five seaborne
producer. Total pellet production increased by 12% to 10.8 million
tonnes, compared to an average industry decline during the year of
over 5%. The Group also increased the quality of its pellet output,
with a 20% increase of higher grade 65% Fe pellets.
Ferrexpo Yeristovo Mining (FYM), Ferrexpo's new open pit mine,
provided 20% of the Group's ore in 2013 while the Group's
beneficiating and pelletising plant was able to increase output
while simultaneously continuing a major capital refurbishment
programme to modernise its facilities.
The Group improved its logistics infrastructure during the year
which contributed to a 20% reduction in freight costs per tonne to
Asian markets. It also agreed three long-term contracts with
leading steel mills in Asia.
As a result, Ferrexpo has further reduced its risk profile in
2013 and continued to build on its reputation as a reliable
supplier of high grade iron ore to the global steel market.
Results
- Group revenue increased by 11% to US$1.6 billion
- EBITDA rose by 25% to US$506 million
- Financial discipline maintained, net debt to EBITDA 1.3x
Group revenue increased by 11% to US$1.6 billion for the 12
months ended 31 December 2013 (2012: US$1.4 billion) primarily
driven by record sales volumes of 10.7 million tonnes (2012: 9.7
million tonnes) and a 4% increase in industry benchmark prices to
US$135 per tonne (2012 average benchmark CFR China 62% fines price:
US$130 per tonne).
The Group's average C1 cash cost of production for the period
was US$59.8 per tonne in line with 2012 (2012: US$59.6 per tonne).
The mining and processing of FYM ore has had a positive impact on
the Group's overall production cost throughout the year following
the ramp up of its production in the first quarter of 2013, where
Group costs peaked at US$63.9 per tonne. Total production volumes
increased 12% to 10.8 million tonnes of pellets in 2013 (2012: 9.7
million tonnes) leading to higher fixed cost absorptions. In
addition, there were cost benefits related to the high grade ore at
FYM as well as lower mining costs at the new open pit.
In terms of logistics costs, rail tariff cost inflation was
partially mitigated by savings from using the Group's own rail
cars, while Ferrexpo reduced its cost of freight per tonne to the
Far East by 20% compared to 2012.
Overall EBITDA rose by 25% to US$506 million (2012: US$405
million) driven by strong growth in sales volumes and higher market
pricing.
The Group tax rate in 2013 was 14% compared to 18% in 2012. The
decline principally reflects the reduction in the statutory tax
rate in Ukraine.
Group profit after tax increased to US$264 million compared to
US$219 million in 2012.
Ukrainian VAT incurred at FPM was recovered on a timely basis in
2013, however balances from 2012 and prior years as well as from
FYM and amounts in dispute in the court system remained unpaid. As
of 31 December 2013, Ferrexpo was owed US$318 million (2012: US$302
million) of VAT by the Ukrainian government. The Group has recorded
a total provision in respect of the overdue and disputed VAT
amounts of US$60 million (2012: US$20 million). At the current time
it is unclear how VAT will be repaid and the provision in part
reflects the likely discount to face value of any financial
instrument which may be issued and converted to cash. In January
2014, the Group received a VAT repayment relating to December 2013
for Ferrexpo Poltava Mining (FPM) and for FYM related to 2012. As
of 31 January 2014, the gross VAT outstanding balance was US$291
million, this compares to an expected VAT balance, reflecting
normal business activity, of between US$50 million and around
US$100 million depending on the level of capital investment in any
period.
Net cash flow from operating activities was US$233 million, a
96% increase compared to 2012 (2012: US$119 million).
Working capital increases were principally due to the
stockpiling of the lower grade ore at FPM as priority was given
during the year to processing the higher grade ore from FYM in
order to focus on pellet quality. The lean ore at FPM will be
processed in 2015 following completion of the quality upgrade
project. This stockpiling together with an increase in pre-paid
corporate profit tax (see page 11 for further explanation) were the
main drivers behind a working capital outflow of US$103
million.
During the year the Group spent US$278 million on capital
investment in its existing and new mines as well as on logistics
infrastructure (2012: US$429 million). The reduction compared to
2012 reflects the near completion of the Group's approved capex
programme to improve the quality and quantity of its pellet output
to 65% Fe and 12 million tonnes respectively.
Savings on capital investments have also been made, particularly
in sustaining capital where projects have been optimised. The Group
closed the year with US$103 million of capital commitments,
compared to US$163 million as at 31 December 2012.
Ferrexpo has continued to maintain its financial discipline with
net debt to EBITDA of 1.3 times (2012: 1.1 times). At the period
end, Ferrexpo had net debt of US$639 million (2012: US$423 million)
and cash combined with undrawn committed facilities with a maturity
in excess of 1 year of US$671 million.
Dividend
Ordinary dividend
The Group has invested significantly over the past six years and
has maintained its dividend since IPO at 6.6 cents per share split
equally between interim and final payments. Ferrexpo is continuing
to invest prudently in its operations to ensure sustained volume
increases and earnings growth over the coming years. However,
taking into consideration the volatility of iron ore pricing the
Board feels it is appropriate to maintain the ordinary dividend at
its current level during the continued investment in the business.
As such, the Board recommends a final dividend in respect of
profits generated by the Group in 2013 of US3.3 cents per ordinary
share (2012 final ordinary dividend: US3.3 cents per ordinary
share) for payment on 30 May 2014 to shareholders on the register
at the close of business on 2 May 2014. The dividend will be paid
in UK Pounds Sterling with an election to receive US Dollars.
Special dividend
In recognition of the good results for 2013, and the success in
growing output by 30% since IPO and 12% compared to 2012, the Board
is pleased to announce a special dividend of US6.6 cents per
ordinary share for payment on 28 March 2014 to shareholders on the
register at the close of business on 21 March 2014. The payment
will be made in UK Pounds Sterling with an option to receive US
Dollars.
Market environment
The World Steel Association reported that global crude steel
production grew 3.5% in 2013 compared to 2012 to 1.6 billion
tonnes. Of this, 779 million tonnes were produced in China
representing 7.5% growth in Chinese steel production. This growth
in steel production supported iron ore demand and prices with
seaborne exports increasing by approximately 11% to 1.3 billion
tonnes. The average benchmark price for iron ore (62% Fe CFR fines
to China) increased by 4% to US$135 per tonne compared to an
average price in 2012 of US$130 per tonne.
Demand for iron ore pellets was strong in 2013 with pellet
premiums increasing from approximately US$15 per tonne in the
Chinese spot market (the largest buyer of iron ore including
pellets) at the beginning of the year to over US$30 per tonne by
year end.
The improvement in pellet premiums was largely due to a
reduction in supply from the market's principal pellet producers
following low pellet premiums in 2012 as well as increasing demand
for pellets in the Middle East.
Direct reduction steel making in the Middle East requires high
quality iron ore which reduces the availability of pellets for
traditional blast furnaces in the rest of the world.
Management believe that the marginal cost to produce pellets
from pellet feed is approximately US$30 per tonne based on the
position of the larger suppliers of pellets on the global
pelletising cost curve. Ferrexpo's position at the low end of the
curve highlights that it is well placed to benefit from growing
demand for a high quality product.
Marketing & logistics
- Pellet sales increased 11% in 2013
- 20% reduction in seaborne freight costs per tonne to Asia
In 2013, Ferrexpo sold 10.7 million tonnes of iron ore pellets
compared to 9.7 million tonnes in 2012, an 11% increase.
During the year Ferrexpo reduced its cost of freight to the Far
East by 20% per tonne primarily due to increased utilisation of
capesize vessels and the commencement of its own transshipment
facilities. The Group continued to build its brand awareness in
these regions with the signing of new long-term contracts including
its first long-term contract with one of China's largest steel
producers as well as renewal of two existing contracts with long
established steel mills. In 2013, sales volumes to Japan increased
four-fold while volumes sold to Turkey doubled and sales to Germany
increased by over 85% compared to 2012.
Breakdown of sales volume by market
2013 2012
------------ ---- ----
Traditional 47% 49%
Natural 18% 9%
Growth 35% 42%
------------ ---- ----
The reduction in sales to Growth markets reflects the Group's
decision to focus on building market share in Natural markets and
as well as current constraints regarding the Group's production
output. As Ferrexpo increases its output it anticipates increasing
sales to Growth markets.
43% of Ferrexpo's contracted sales volume in 2013 was based on
the Platts benchmark index(1) compared to 29% in 2012.
(1) Platts benchmark index for 62% Fe iron ore fines CFR to
China. As is industry standard, this price is then adjusted for
quality and a pellet premium (typically negotiated on a quarterly
basis).
Sales volumes priced on a quarterly negotiation, based on the
underlying market conditions, were reduced to 40% in 2013 compared
to 47% in 2012. As of 1 January 2014, this type of pricing was
eliminated and it is intended that all of the Group's long-term
sales contracts will be based on a benchmark indexed formula(1)
.
In 2013, 17% of sales volume was priced on a spot basis compared
to 24% in 2012.
Overall, 83% of Ferrexpo's sales were made to long-term
customers (2012: 75%) on contracts with tenures typically running
from two to ten years.
Sales volume by contract type
2013 2012
--------------------- ---- ----
Index 43% 29%
Quarterly negotiated 40% 47%
Spot 17% 24%
--------------------- ---- ----
In 2013, Ferrexpo loaded 22 capesize vessels carrying an average
of 170 thousand tonnes of pellets (2012: 17 capesize vessels).
Ferrexpo has implemented improvements to its logistics
infrastructure during the year which has resulted in sustainable
cost reductions to its seaborne freight rate. This included cost
savings from the commissioning of the Group's own transshipment
vessel as well as contributing to an improvement in load rates
through-out the year. Other enhancements included improved vessel
scheduling and more competitive freight rates as the Company looked
to attract additional ship owners to the region.
The 20% reduction of the Group's freight rate per tonne to Asian
markets was a vital step in establishing the Group's reputation as
a competitive global supplier of pellets.
As of 31 December 2013, the Group owned 2,200 rail cars (2012:
1,933 rail cars) and has ordered an additional 300 units to be
delivered in 2014, so as to maintain maximum independence and
reduce reliance on state rail cars as production volumes continue
to increase. It is the Group's aim to be broadly self-sufficient in
rail cars which will necessitate further purchases above the orders
already placed. The Group shipped 6.7 million tonnes of pellets
through its own shipping terminal as well as a neighbouring
terminal at the port of Yuzhny in 2013. Ferrexpo believes it
currently has seaborne shipping capacity of seven million tonnes
per annum. Original capacity of five million tonnes has been
enhanced through improved vessel scheduling and more consistent
rail deliveries. Finally, Ferrexpo delivered 1.5 million tonnes of
pellets by barge to steel mills in Central Europe via the Danube
River (2012: 1.4 million tonnes).
Overall in the fourth quarter of 2013, Ferrexpo delivered 3.1
million tonnes of pellets to its global customer base via rail,
barge or ship. This was a record and in line with the Group's
target of annualised production of 12 million tonnes.
Health and safety
The management of Ferrexpo fosters and continually develops a
culture of safety in the organisation, linking safety performance
to remuneration.
Most regrettably there was a contractor fatality in 2013 at the
Group's operations.
The lost-time injury frequency rate ('LTIFR') at FPM continued
to fall in 2013 to 0.67 per million man hours worked (2012: 0.74).
At FYM one lost-time injury was reported during the year (2012:
nil). Overall, Ferrexpo's total LTIFR in Ukraine for 2013 was 0.64
compared to 0.66 in 2012.
Ferrexpo is pleased to announce that in 2013, FPM was awarded
second place in the category 'Cultural Evolution in Safety or
Sustainability' by DuPont at its annual Safety and Sustainability
Awards. The award evaluated companies from 17 countries. DuPont
believe the award reflects FPM's determination to continue to
improve is safety record in line with industry best practice.
Production
- Pellet production increased 12% to 10.8mt
- 20% of production from the new FYM mine
In 2013, Ferrexpo's pellet production increased by 12% to 10.8
million tonnes. This was a record for the Group and ensured
Ferrexpo was the fastest growing global pellet exporter by volume
for the year. The production growth was underpinned by the ramp up
of production at the Group's second mine FYM. In 2013, 6.6 million
tonnes of crude ore from FYM was delivered to FPM for beneficiating
and pelletising. As a result, two million tonnes of pellets were
produced from FYM ore or 20% of Group production. The FYM mine will
continue to ramp up production enabling the Group to reach its
target of producing 12 million tonnes of pellets on an annualised
basis in 2014.
In 2013, Ferrexpo produced 5 million tonnes of premium grade
pellets (Ferrexpo Premium Pellets). This was a record for the Group
and represented growth of 20% compared to 2012.
During the year FPM continued to complete a major modernisation
and refurbishment programme of its production facilities whilst
increasing the volume of output. As result of the modernisation of
3 of the 15 grinding sections in 2013 FPM was able to process more
ore and thus produce more concentrate for pelletising. Six out of
the 15 grinding sections have now been refurbished with a further
three expected to be completed in 2014. This should allow the Group
to reach its target of producing 12 million tonnes of annualised
production in 2014.
Production Statistics
Change
(000t unless otherwise stated) 2013 2012 +/- %
-------------------------------------------- ------ ------ ----- ------
Iron ore processed from FPM &FYM 30,599 29,803 796 2.7
-------------------------------------------- ------ ------ ----- ------
Average Fe content 32.3% 30.7% 1.59 5.2
-------------------------------------------- ------ ------ ----- ------
Concentrate produced ('WMS') 13,195 11,830 1,365 11.5
Weighted average Fe content % 62.8% 62.2% 0.540 0.9
-------------------------------------------- ------ ------ ----- ------
Pellets produced from FPM & FYM 10,466 9,409 1,057 11.2
-------------------------------------------- ------ ------ ----- ------
Higher grade 4,725 4,118 607 14.7
Average Fe content % 64.9% 64.9% 0.09 0.1
Lower grade 5,741 5,291 450 8.5
Average Fe content % 62.2% 62.1% 0.04 0.1
-------------------------------------------- ------ ------ ----- ------
Purchased concentrate 401 325 76 23.4
Average Fe content % 65.9% 65.4% 0.56 0.9
-------------------------------------------- ------ ------ ----- ------
Pellets produced from purchased concentrate 347 281 66 23.5
-------------------------------------------- ------ ------ ----- ------
Higher grade 263 56 207 370
-------------------------------------------- ------ ------ ----- ------
Average Fe content % 65.0% 65.0% - -
-------------------------------------------- ------ ------ ----- ------
Lower grade 84 225 (141) (62.7)
-------------------------------------------- ------ ------ ----- ------
Average Fe content % 62.0% 62.0% - -
-------------------------------------------- ------ ------ ----- ------
Total pellet production 10,813 9,690 1,123 11.6
-------------------------------------------- ------ ------ ----- ------
Pellet sales volume 10,689 9,675 1,014 10.5
-------------------------------------------- ------ ------ ----- ------
Gravel output 2,281 2,822 (541) (19.2)
-------------------------------------------- ------ ------ ----- ------
Total Group stripping volume (bcm) 49,208 50,033 (825) (1.6)
-------------------------------------------- ------ ------ ----- ------
Production Costs
For the year ended 31 December 2013, the C1 cash cost of
production of pellets from own ore was US$59.8 per tonne in line
with the cost in 2012.
During the year, the Ukrainian Hryvnia remained stable. Just
over half of C1 cash costs are denominated in local currency. Cost
inflation was principally driven by a 7% increase in electricity
tariffs.
Following the ramp up of production at FYM in the first quarter,
the C1 cost declined throughout the year with the average cost for
the year in line with 2012 and 7% below the first quarter.
1Q 2013 2Q 2013 3Q3 2013 Q4 2013 2013 FY 2012 FY
--------------------------- ------- ------- -------- ------- ------- -------
C1 cash cost of production 63.9 59.8 58.2 57.6 59.8 59.6
--------------------------- ------- ------- -------- ------- ------- -------
The mining and processing of FYM ore has had a positive impact
on the Group's overall production volumes and unit cost through
increased volume efficiencies, lower mining costs and the addition
of higher grade ore. The ore mined at FYM has magnetic properties
that allow for easier separation of the iron from other elements
compared to the lower grade ore which forms part of the seam mined
at the FPM pit. To increase output and minimise overall cost, FPM
focused on processing the higher grade portion of its ore together
with the ore from FYM. The lower grade ore from FPM has been
stockpiled to be processed once the quality upgrade project is
complete. This has enabled better recovery and higher profitability
to be earned whilst optimising FYM's mining plan and ore
recovery.
Ferrexpo's strategy is to continually improve efficiency and
reduce costs so as to remain competitive on the global cost curve.
During the year, improved efficiencies were achieved through higher
output and the Business Improvement Programme ('BIP') which has a
target to reduce the C1 cost of production by 1% to 2% per annum on
a constant output basis. The BIP programme has resulted in an
overall reduction in the C1 cost of US$8.6 per tonne since its
inception in 2006.
Ferrexpo's average cost of transportation of its pellets to
Ukrainian border points was US $14.4 per tonne in line with 2012.
Rail tariff cost increases of 5% were largely offset by savings
gained from using the Group's own rail cars which qualify for a
discount from the State rail authority. Ferrexpo sells its pellets
mainly on a CFR basis and its realised pricing depends on freight
costs. Importantly, during the year Ferrexpo reduced its cost of
freight to China by 20% per tonne achieving its goal of being at
least in line with the cost of freight for capesize vessels from
Brazil to China.
Overall on the global cost curve for iron ore, management
believe that Ferrexpo is positioned in the middle after adjusting
for different iron ore products on a like for like basis, including
any benefits or discounts a producer may receive relative to the
62% Fines CFR China price. At current cost levels, Ferrexpo
estimates that approximately 1 billion tonnes of supply would need
to be eliminated due to iron ore price declines before Ferrexpo's
operations would be loss making.
In 2014, Ferrexpo is aiming to reduce its costs through
increased production and further efficiencies from processing FYM
ore.
Capital investments
- 35% reduction in capital investment in 2013
- Projects on track to increase pellet volume and quality
In 2013, capital investment amounted to US$278 million (2012
capex: US$429 million). The reduction in spend largely reflects the
near completion of the Group's US$647 million programme, approved
in November 2010, to primarily increase the quality of its pellet
output to an average of 65% Fe and to open the Group's second mine
providing ore to increase pellet production to 12 million tonnes.
These projects, as well as the Mine Life Extension project to
extend FPM's mine life to 2038, are progressing to plan and
budget.
A summary of the Group's major capital projects can be found
below.
Sustaining capex and capacity upgrade project
During the period, the Group spent US$81 million on
modernisation and reducing bottlenecks at FPM's production
facilities (2012: US$108 million).
Included in sustaining capital investments are projects to
upgrade FPM's beneficiating and pelletizing facilities to allow
processing capability of 12 million tonnes of pellets per year.
Activities during the period, focused on the redesign and
refurbishment of the three grinding sections. These were completed
and commissioned through the year, while maintaining day to day
operations and increasing production levels above those in 2012. As
a result of the upgrade of the FPM beneficiation plant, concentrate
production increased by more than 11% during the year.
Future activities will involve the modernisation of additional
grinding sections of the existing beneficiation plants, as well as
the replacement of medium/fine crushing sections and a major
rebuild of one kiln in the pelletizing plant.
Sustaining capital investment also provides for the
modernisation of existing assets and systems to increase operating
efficiencies benefiting the cash cost of production. As the
capacity upgrade project is nearing completion, management believe
that sustaining capex at FPM for 2014 and future years is expected
to reduce.
Quality upgrade project
In order to improve the quality of the pellet product, the
overall iron content of the concentrate requires upgrading. The
primary method to achieve this is through vertimill fine grinding
technology and flotation. This will allow for the production of
concentrate with an average 67% iron content (compared to the
current average iron content of 65%) and will ensure all pellets
contain 65% iron content.
During 2013, a floatation cell with all related equipment was
installed and will be commissioned in 2014. This was constructed
along with part of the second floatation plant and the associated
upgrade of the tailing facilities.
In addition the following engineering work was carried out in
relation to the quality upgrade project aimed at further enhancing
returns.
- Engineering design for the modernisation of the existing
flotation and installation of associated vertimills
- Pre-feasibility study for the construction of a new filter
plant at the pelletizing plant which will accommodate the filtering
of the higher grade concentrate to increase yields
In 2013, US$47 million was spent on the above activities (2012:
US$35 million), mainly relating to the construction of the
additional floatation and fine grinding unit.
FYM capital project
In 2013, FYM spent US$100 million on pit and associated
infrastructure development (2012: US$146 million). During the year,
FYM delivered 6.6 million tonnes of ore to the FPM processing
plants. In terms of infrastructure development, the construction
field office, tyre repair centre, and the canteen were commissioned
along with the potable water and sewage handling facilities. The
welding bay, equipment service centre, administration and repair
centres are expected to be completed in the first half of 2014.
As the Group's current processing capacity of crude ore at FPM
will be limited to 35 million tonnes per annum, during the year FYM
finalised the design for a 10mtpa concentrating facility in order
to process mined ore from the FYM pit that is not delivered to FPM
for further processing (crude ore volumes from FPM's pit is
approximately 30 million tonnes per annum while FYM will be able to
mine 28 million tonnes per annum at full capacity). Studies are
also underway to evaluate concentrate transportation and
pelletizing options.
Investment opportunities
In 2013, Ferrexpo announced it had acquired a stake in Ferrous
Resources ('Ferrous'), a producing iron ore company operating in
the iron ore quadrangle of the Minas Gerais region of Brazil, a
major iron ore producing region in the world. Total consideration
for the stake was US$82 million.
For the year ended 31 December 2013, Ferrous produced over 5.1
million tonnes of 62% iron ore fines compared to 3.2 million tonnes
in 2012. Ferrous has a 4 billion tonne JORC compliant reserve and
resource base, and the company is targeting to expand output to 17
million tonnes per annum by 2017. Ferrexpo currently owns 15.5% of
the company.
Financial management
Ferrexpo's financial position as of 31 December 2013, reflected
its strategy of maintaining prudent balance sheet metrics and
ensuring sufficient liquidity given that it operates in a volatile
commodity market and is a single country operation.
Net debt to EBITDA was 1.3x at year end compared to 1.1x for the
same period in 2012. Net debt at year end was US$639 million (31
December 2012: US$423 million), of which approximately 63% has been
used to finance outstanding gross VAT balances of US$318 million as
well as prepaid corporate profit tax of US$88 million in Ukraine.
During 2013, Ferrexpo secured a new revolving credit facility of
US$350 million. The facility has a forward start date of no later
than 1 September 2014 and carries a cost of 325bps above US Libor.
This facility can be used to extend the tenor of the Group's
existing US$420 million bank facility which commences its two year
amortization period in September 2014 maturing on 31 August 2016.
Together with the Group's cash balance as of 31 December 2013, cash
and available undrawn facilities totaled US$671 million (1).
(1) As of 31 December 2013, US$280 million of the new US$350
million pre-export finance facility was available. Once repayment
of the in-situ pre-export finance facility commences in 2014 the
remaining US$70 million will become available.
Ukraine
Ukraine is experiencing financial difficulties due to low growth
and high public spending. As a result, it has a high current
account deficit while foreign reserves were reported at
approximately US$16 billion as of 28 February 2014. To date in
2014, the Hryvnia has devalued by 16%. These economic problems are
not expected to be resolved in a short time frame and with external
debt markets difficult to access for the country, Ukraine is
expected to be reliant on external financial aid. In the coming
year this could include aid directly from individual sovereign
states or the European Union as well as from the IMF.
The Group's facilities are located in central Ukraine in the
Poltava region 200 miles south of Kyiv. At the time of writing,
Ferrexpo's operations remain unaffected by the unfolding events of
recent weeks. Production and logistics to the western border of the
country and to the Group's port in Odessa on Ukraine's south coast
operate normally. Ferrexpo, however, continues to monitor the
situation closely.
The Group's priority continues to be to maintain production and
supply its first class customer base with high quality premium iron
ore product as it has done throughout its 40 year production
history. It has and will continue to follow its strategy which will
grow production and reduce risk in its operations.
VAT
In 2013, the Group received 11 monthly VAT refunds which took
the outstanding VAT balance as of 31 December 2013 to US$318
million (31 December 2012: US$302 million). In January 2014, the
Group received VAT repayments for December 2013 and January 2014.
As of 31 January 2014, the gross VAT outstanding balance was US$291
million. The Group did not receive a VAT refund in February.
Of the total VAT outstanding balance at the end of 2013, US$146
million related to 2012 and prior years, and US$102 million was in
dispute in the court system. As such the gross VAT amount as of 31
December 2013 of US$318 million has been adjusted by US$60 million
(2012: US$20 million) to US$258 million in order to reflect either
the likely discount if financial instruments are issued to settle
the outstanding balance or, alternatively, the time value of money
related to the cost of financing these balances.
The late repayment of VAT is, in the view of the Board, a result
of the Ukrainian government's current weak fiscal position. The
Board believes that there is a risk that continued fiscal weakness
could further impact the timely repayment of VAT. This would lead
to higher levels of working capital and increase the risk of a
financial loss when repayment occurs which would depend on the
eventual type of repayment and the prevailing exchange rate as
repayments will be made in local currency. Ferrexpo has received
VAT repayments consistently throughout 2013, however, balances from
2012 and earlier remain unpaid. Ferrexpo continues to have a
constructive dialogue with the Ukrainian authorities regarding the
repayment of overdue VAT and hopes that a resolution to this long
standing problem in Ukraine will be found in 2014.
Full details on Ukrainian VAT receivable are disclosed in notes
11 and 14 to the accounts.
Pre-paid corporate profit tax
As part of an agreement with the majority of industry players in
Ukraine the tax authorities have been remitting regular VAT refunds
in 2013 in exchange for the pre-payment of corporate profit tax in
respect of future periods. In 2013, Ferrexpo paid US$63 million in
this respect resulting in a year-end balance of US$88 million (2012
pre-paid corporate profit tax: US$25 million).
Full details on pre-paid corporate profit tax are disclosed in
note 11 to the accounts.
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 case has been running for seven
years and the Board believe it still has a considerable way to
go.
Full details on the court case are disclosed in note 14 to the
accounts.
Corporate governance
The Board of Ferrexpo remains committed to maintaining high
standards of governance and integrity throughout the Group. As a
set of individuals of different nationalities and backgrounds with
complementary skills and experience, the Board has worked together
effectively in guiding the notable progress the Company has made
since its IPO, and within the context of a volatile global economic
environment.
The UK Corporate Governance Code of 2012, highlights the need
for progressive refreshing of the Board and recommends that the
re-election of directors who have served more than six years be
reviewed. The Board has appointed external recruitment consultants
to search for suitable candidates who can provide diversity and
balance in terms of knowledge, experience and gender. The Board
will prioritise an orderly succession once new members have been
recruited.
Ferrexpo's principal shareholder and CEO, Kostyantin Zhevago,
holds 50.3% of the shares in the Company and his interests remain
fully aligned with all shareholders. Mr Zhevago is a long-term
investor focused on developing a high quality sustainable business.
He has unparalleled experience of operating in Ukraine which can be
a difficult and at times unstable environment. Mr Zhevago's
experience is of significant value to Ferrexpo and all its
shareholders.
The strategy of the Board, including Mr Zhevago, is to operate
to best international standards of governance, transparency and
fairness.
People
The Board would like to express its sincere appreciation to all
of Ferrexpo's employees for their continued hard work and
dedication which has led to another excellent year of progress at
the Company.
Brian Maynard, Chief Operating Officer, will be leaving Ferrexpo
in April 2014. Brian has contributed greatly to the Group during
his three years and Ferrexpo wishes him success in his future
endeavours.
Outlook
The Group has successfully opened its new mine, FYM, and it is
increasing its annualised production capacity to 12 million tonnes
of pellets which should reduce costs through higher volumes in
2014. Since the balance sheet date, the Ukrainian Hryvnia has
devalued by 16%. This will lower the operating costs which are
denominated in local currency, as expressed in US Dollars, and
reduce the carrying value of assets and liabilities which are also
denominated in Hryvnia.
In the first quarter of 2014 iron ore prices have been weak. It
is expected that prices will stabilise but remain volatile for the
remainder of the year. There is a growing demand for higher quality
iron ore feedstock. The trend for premium iron ore is expected to
be driven by greater environmental requirements for steel mills to
reduce their harmful emissions as well as a necessity to compensate
for the growth in lower grade iron ore fines that is becoming
increasingly prevalent. Ferrexpo believes it should benefit from
this trend.
Ferrexpo is committed to reducing its unit costs and developing
its substantial resource from own generated cash flows within the
discipline of prudent balance sheet management whilst providing
appropriate dividend returns to shareholders.
FINANCIAL REVIEW
Year ended Year ended(1)
US$ million (unless otherwise stated) 31.12.13 31.12.12 Change
-------------------------------------- ---------- ------------- -------
Revenue 1,581 1,424 11.0%
-------------------------------------- ---------- ------------- -------
EBITDA(2) 505.9 405.4 24.8%
-------------------------------------- ---------- ------------- -------
As % of revenue 32.0% 28.5%
-------------------------------------- ---------- ------------- -------
Profit before taxation 305.4 265.7 14.9%
-------------------------------------- ---------- ------------- -------
Income tax 41.6 47.1 (11.7%)
-------------------------------------- ---------- ------------- -------
Profit for the period 263.8 218.6 20.7%
-------------------------------------- ---------- ------------- -------
Diluted earnings per share (US cents) 44.69 37.08 20.5%
-------------------------------------- ---------- ------------- -------
Final dividend per share (US cents) 3.3 3.3 -
-------------------------------------- ---------- ------------- -------
Special dividend per share (US cents) 6.6 6.6 -
-------------------------------------- ---------- ------------- -------
(1) As a result of the retrospective application of the
amendments to IAS 19, the pension cost for the year ended 31
December 2012 was amended and had a positive effect of US$3.9
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, share-based payment expenses and the net
of gains and losses from disposal of investments, property, plant
and equipment. See note 3 on page 26.
Revenue
Total revenue increased by 11.1% to US$1.6 billion for the year
ended 2013 compared to US$1.4 billion in 2012. The increase was
driven by a 10.5% growth in sales volumes to 10.7 million tonnes
(2012: 9.7 million tonnes) as well as a 4% improvement in the
Group's received price in line with the industry benchmark price
which increased on average by US$5 per tonne (2013 CFR Platts 62%
fines China: US$135 per tonne vs. 2012 CFR Platts 62% fines China:
US$130 per tonne).
Other revenue, not related to pellet sales was broadly stable
year on year and amounted to US$86.5 million (2012: US$94.0
million). This included revenue from third party services, such as
bunker fuel sales and freight services at the Group's logistics
operations as well as sales of gravel.
Cost of Sales
Total cost of sales for the year ended 31 December 2013 was
US$773.2 million (2012: US$690.7 million). Cost of sales consists
of the C1 cash cost of sales, the cost of sales of the logistics
and bunker business, depreciation as well as the cost of production
from third party concentrate. Increases in the year related to
production growth along with an increase in depreciation following
the commencement of operations at the FYM mine.
C1 Cash Cost
The C1 cash cost of production per tonne is defined as the cash
costs of production of pellets from own ore divided by production
volume of own ore, and excludes non-cash costs such as
depreciation, pension costs and inventory movements, costs of
purchased ore, concentrate and production cost of gravel.
Overall, C1 costs in 2013 were in line with 2012 at US$59.8 per
tonne (2012: US$59.6 per tonne). This reflected increases in
electricity tariffs which increased to 9.2 US cents per KW hour
(2012: 8.6 US cents per KW hour) and royalties attached to FYM ore,
offset partly by slightly reduced costs in other categories
particularly oil and gas. The Hryvnia was stable during the year.
Against this backdrop, the C1 cost declined in each quarter of the
year following the ramp up of production at FYM in the first
quarter and the start of full commercial production from FYM ore in
Q3. The C1 cost in 4Q 2013 was 10% lower than the peak which was
reached in 1Q 2013. This is shown in the table below:
1Q 2013 2Q 2013 3Q 2013 Q4 2013 2013 FY 2012 FY
--------------------------- ------- ------- ------- ------- ------- -------
C1 cash cost of production 63.9 59.8 58.2 57.6 59.8 59.6
--------------------------- ------- ------- ------- ------- ------- -------
The mining and processing of FYM ore has had a positive impact
on the Group's overall production cost through increased volume
efficiencies, lower mining costs and the addition of higher grade
ore which combined with efficiency improvements at FPM resulting
from the BIP and capital investment programmes has resulted in
lower costs.
Gross Margin
The Group's gross margin was 51.1% in 2013 in line with 2012
(2012: 51.5%). This reflected higher sales volumes and prices with
the margin unchanged as a result of stable C1 costs and increased
depreciation due to projects being bought into production.
Selling and Distribution Expenses
Selling and distribution expenses were US$335.7 million in 2013
compared to US$312.0 million in 2012 driven by increased volumes
and higher market rates for capesize vessels offset by logistics
cost saving as a result of capital investments in ship loading
top-off facilities, the use of more capesize vessels and rail cars
compared to 2012.
DAP/FOB distribution costs incurred in delivering product to the
Ukrainian border were US$154.2 million (2012: US$140.4 million),
equating to US$14.4 per tonne in line with 2012. These costs
primarily include railway freight to the southern ports at Yuzhny,
Izmail and ocean freight to Constanta as well as port charges and
railway freight to the western Ukrainian border. Rail tariff cost
inflation was 4.6% in 2013 which was mitigated by lower costs
associated with using own rail cars which increased by 267 units to
2,200 units during the year.
International freight costs to seaborne markets, which are also
reflected as part of revenue on associated CFR sales, amounted to
US$114.4 million in line with 2012 (2012: US$113.5 million). This
reflected an increase in seaborne sales volumes offset by the
freight savings achieved by the Group during the year through
enhanced port capacity, increased use of capesize vessels and
improved scheduling.
The Group loaded 5.9 million tonnes of pellets at its port
facilities in 2013, an increase of 55% compared to 3.8 million
tonnes loaded in 2012. The introduction of Iron Destiny, the
Group's top-off vessel, helped improve throughput at the port and
reduced freight costs to Asia by US$2.30 per tonne in 2013.
Selling and Distribution Expenses
Year ended Year ended
US$ million 31.12.13 31.12.12
----------------------------------------------------------------------- ---------- ----------
International freight for pellets 114.4 113.5
Railway transportation 108.2 93.4
Port charges 31.1 31.9
Other pellet transportation costs (commissions, insurances, personnel) 13.1 18.6
Cost of logistics business 33.0 27.5
Advertising 12.2 9.6
Depreciation 14.1 9.8
Other 9.7 7.5
Total selling and distribution expenses 335.7 312.0
Total sales volume (thousand tonne) 10,689 9,675
Cost per tonne of pellets sold (incl international freight) 31.4 32.2
DAP/FOB distribution costs per tonne of pellets sold 14.4 14.5
----------------------------------------------------------------------- ---------- ----------
General and Administrative Expenses and Other Expenses
General and administrative expenses were US$5.1 per tonne sold
in 2013 compared to US$5.8 per tonne in 2012. The improvement
reflects higher sales volumes and lower costs of US$54.8 million
compared to 2012 (2012: US$56.3 million).
Other expenses were US$6.7 million below the prior year mainly
as a result of lower community support donations due to the timing
of project completions in the prior year.
EBITDA
EBITDA increased 24.8% or by US$100.5 million to US$505.9
million in 2013 compared to US$405.4 million in 2012. The increase
was due to strong growth in sales volumes, higher market pricing
and stable C1 costs.
Finance Income and Expense
Finance income was US$2.4 million (2012: US$2.6 million)
reflecting lower average cash balances. The average cash balance in
2013 was US$435.6 million compared to US$743.4 million in 2012.
Net debt at 31 December 2013 was US$638.7 million (31 December
2012: US$423.4 million) while gross debt was US$1,029.2 million (31
December 2012: US$1,020.0 million).
Finance expense was US$66.0 million (2012: US$88.2 million). The
average cost of Group debt for the period was 5.15% compared to an
average of 5.24% in 2012.
In 2012, finance expense included a US$20.0 million discount to
reflect the time value of money on outstanding VAT balances in
Ukraine that were expected to be recovered after more than one
year. This discount has been increased by US$3.7 million in 2013,
with a further US$36.4 million reflected separately in the income
statement. Further information in respect of the VAT situation in
Ukraine is provided in the VAT section below and the note 11.
Income Tax Expense
The income tax expense in 2013 was US$41.6 million compared to
US$47.1 million in 2012.
The effective tax rate in 2013 was 13.6% (2012: 17.8%). This
reduction mainly reflects the lower tax rate in Ukraine which
reduced from 21% in 2012 to 19% in 2013.
Cash Flows
Working capital
Working capital increased by US$103.0 million in 2013, mainly
reflecting a US$88.5 million increase in inventories due to the
stockpiling of FPM ore which is expected to be processed in 2015
following the completion of the quality upgrade project. Other
working capital increased by US$14.5 million principally due to
higher trade receivables reflecting higher volumes and prices.
VAT
In 2013, the Group received 11 monthly VAT refunds for FPM and
first refunds for FYM, taking the outstanding VAT balance as of 31
December 2013 to US$318.2 million (31 December 2012: US$301.5
million). In January 2014, the Group received VAT repayments for
December 2013 and January 2014. As of 31 January 2014, the gross
VAT outstanding balance was US$291.4million. The Group did not
receive a VAT refund in February 2014.
The amount of VAT outstanding from 2012 and prior years is
US$145.7 million. Management believe that this will be recovered
within the next year, possibly through the issue of financial
instruments, as has been the practice in the past. There is no
fully reliable way to estimate the ultimate amount of
recoverability, however, it is believed that if financial
instruments were to be issued they would trade at a discount for
which an appropriate provision of US$36.4 million has been recorded
as of 31 December 2013 (disclosed separately in the income
statement).
The provision recorded in respect of the total outstanding VAT
balances amounts to US$60.1 million as of 31 December 2013 (2012:
US$20.0 million). This includes a discount of US$23.7 million to
reflect the time value of money on outstanding VAT balances in
Ukraine that are expected to be recovered after more than one year
and the provision of US$36.4 million (2012: nil).
Full details on the Ukrainian VAT receivable are disclosed in
note 11 to the accounts.
Pre-paid corporate profit tax
As part of an agreement with the majority of companies in
Ukraine the tax authorities have been remitting regular VAT refunds
in 2013 in exchange for the pre-payment of corporate profit tax in
respect of future periods. In 2013, Ferrexpo paid US$62.6 million
resulting in a US$87.5 million prepayment as of 31 December 2013
(2012 pre-paid corporate profit tax: US$24.9 million).
Net cash flow
Net cash flow from operating activities was US$232.9 million
representing a 96% increase over 2012 (2012: US$118.6 million).
This was principally due to higher EBITDA and regular VAT refunds
which compensated for the pre-payments of corporate profit tax.
Capital investment
Total capital investment for 2013 was US$277.8 million compared
to US$429.3 million for 2012. The reduction in spend largely
reflects the near completion of the Group's US$647 million
programme. This was approved in November 2010 to increase the
volume and quality of its pellet output to 12 million tonnes and
65% Fe respectively. The level of capital expenditure also reflects
savings on projects. Overall, capital commitments were US$103.0
million at the year end, in line with 2012.
In 2013, sustaining capital expenditure was US$86.7 million
(2012: US$113.5 million) for the Group, of which US$81.0 million
was invested at FPM (2012: US$108.4 million). This included US$19.8
million for the capacity upgrade project. The remaining US$5.7
million of sustaining capex in 2013 was principally invested in the
Group's barge fleet (2012: US$5.1 million).
Capital investment in FPM's development projects during the year
was US$61.9 million (2012: US$83.7 million) while development
expenditure at FYM was US$100.3 million (2012: US$146.3
million).
Acquisitions
In 2013, Ferrexpo acquired a stake in Ferrous Resources a
producing iron ore company operating in the iron ore quadrangle of
the Minas Gerais region of Brazil. Total consideration for the
stake was approximately US$82.4 million. Ferrexpo currently owns
15.5% of the company.
Dividends
The Group paid dividends, gross of applicable withholding taxes,
of US$77.9 million in 2013 (2012: US$38.7 million) which included a
US$39.1 million ordinary payment and a US$38.7 million special
dividend relating to 2012.
Group liquidity and debt
In 2013, Ferrexpo maintained a prudent financial metrics. As of
31 December 2013, net debt to EBITDA was 1.3x at year end compared
to 1.1x for the same period in 2012.
Summary of Group Liquidity and Debt
US$ million As of 31.12.13 As of 31.12.12
----------------------------------------------- -------------- --------------
Cash and equivalents 390.5 596.6
Gross debt (1,029.2) (1,020.0)
Net debt (638.7) (423.4)
Total equity 1,735.0 1,547.4
Undrawn facilities (1) 280.0 -
Total liquidity (undrawn facilities plus cash) 670.5 596.6
----------------------------------------------- -------------- --------------
(1) Ferrexpo secured a new pre-export finance (PXF) facility in
2013 for US$350 million maturing in 2018. This facility remains
undrawn and as of 31 December 2013, US$280 million of the US$350
million was available. Once repayment of Ferrexpo's US$420 million
PXF facility commences in 2014 the remaining US$70 million of the
US$350 million PXF will become available. Ferrexpo can use the new
facility to extend the maturity of its US$420 million PXF should it
wish.
Net debt at year end was US$638.7 million (31 December 2012:
US$423.4 million) of which approximately 63% had been used to
finance outstanding VAT receivables and pre-paid corporate profit
tax.
In 2013, Ferrexpo secured a new revolving credit facility of
US$350 million. The facility has a forward start date of no later
than 1 September 2014 with a four year tenor, including two years
of amortisation, and carries a cost of 325bps above US Libor. This
facility may be used to repay the Group's existing US$420 million
bank facility which commences its two year amortization period in
September 2014 maturing on 31 August 2016.
Consolidated Income Statement
Year ended Year ended
US$000 Notes 31.12.13 31.12.12
------------------------------------------------------------------ ----- ---------- ----------
Revenue 4 1,581,385 1,424,030
Cost of sales 2/5 (773,221) (690,729)
------------------------------------------------------------------ ----- ---------- ----------
Gross profit 808,164 733,301
------------------------------------------------------------------ ----- ---------- ----------
Selling and distribution expenses 6 (335,718) (311,964)
General and administrative expenses 7 (54,839) (56,329)
Other income 6,662 11,347
Other expenses (23,457) (30,161)
Operating foreign exchange gains 622 653
------------------------------------------------------------------ ----- ---------- ----------
Operating profit from continuing operations before adjusted items 401,434 346,847
------------------------------------------------------------------ ----- ---------- ----------
Write-down of VAT receivable 11 (36,421) -
Write-offs and impairment losses (854) (836)
Share of profit from associates 3,551 2,772
Losses on disposal of property, plant and equipment (8,492) (4,067)
------------------------------------------------------------------ ----- ---------- ----------
Profit before tax and finance from continuing operations 359,218 344,716
------------------------------------------------------------------ ----- ---------- ----------
Finance income 8 2,372 2,598
Finance expense 2/8 (65,953) (88,203)
Non-operating foreign exchange gains 2 9,755 6,622
------------------------------------------------------------------ ----- ---------- ----------
Profit before tax 305,392 265,733
------------------------------------------------------------------ ----- ---------- ----------
Income tax expense 9 (41,608) (47,135)
------------------------------------------------------------------ ----- ---------- ----------
Profit for the year from continuing operations 263,784 218,598
------------------------------------------------------------------ ----- ---------- ----------
Profit attributable to:
Equity shareholders of Ferrexpo plc 261,984 217,277
Non-controlling interests 1,800 1,321
------------------------------------------------------------------ ----- ---------- ----------
Profit for the year from continuing operations 263,784 218,598
------------------------------------------------------------------ ----- ---------- ----------
Earnings per share:
Basic (US cents) 10 44.76 37.14
Diluted (US cents) 10 44.69 37.08
------------------------------------------------------------------ ----- ---------- ----------
Consolidated Statement of Comprehensive Income
Year ended Year ended
US$000 31.12.13 31.12.12
---------------------------------------------------------------------------------------------- ---------- ----------
Profit for the period/year 263,784 218,598
Items that may subsequently be reclassified to profit or loss:
Exchange differences on translating foreign operations (437) (566)
Income tax effect - -
Exchange differences arising on hedging of foreign operations - (201)
Income tax effect - 32
Net losses on available-for-sale investments (138) (326)
Income tax effect 30 62
---------------------------------------------------------------------------------------------- ---------- ----------
Net other comprehensive income to be reclassified to profit or loss in subsequent periods (545) (999)
---------------------------------------------------------------------------------------------- ---------- ----------
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains on defined benefit pension liability 498 21,244
Income tax effect (58) (3,404)
---------------------------------------------------------------------------------------------- ---------- ----------
Net other comprehensive income not being reclassified to profit or loss in subsequent periods 440 17,840
---------------------------------------------------------------------------------------------- ---------- ----------
Other comprehensive income for the year, net of tax (105) 16,841
---------------------------------------------------------------------------------------------- ---------- ----------
Total comprehensive income for the year, net of tax 263,679 235,439
---------------------------------------------------------------------------------------------- ---------- ----------
Total comprehensive income attributable to:
Equity shareholders of Ferrexpo plc 261,888 233,502
Non-controlling interests 1,791 1,937
---------------------------------------------------------------------------------------------- ---------- ----------
263,679 235,439
---------------------------------------------------------------------------------------------- ---------- ----------
Consolidated Statement of Financial Position
As at As at
US$000 Notes 31.12.13 31.12.12
----------------------------------------------------------- ----- --------- ---------
Assets
Property, plant and equipment 2 1,533,819 1,347,563
Goodwill and other intangible assets 117,086 112,171
Investments in associates 20,546 16,995
Available-for-sale financial assets 82,778 534
Inventories 2 58,303 12,362
Other non-current assets 34,575 41,810
Income taxes recoverable and prepaid 11 54,242 -
Other taxes recoverable and prepaid 11 78,281 97,895
Deferred tax assets 2 37,612 33,220
----------------------------------------------------------- ----- --------- ---------
Total non-current assets 2,017,242 1,662,550
----------------------------------------------------------- ----- --------- ---------
Inventories 2 180,863 134,111
Trade and other receivables 102,498 116,553
Prepayments and other current assets 25,073 36,468
Income taxes recoverable and prepaid 11 33,233 24,869
Other taxes recoverable and prepaid 11 182,863 187,246
Cash and cash equivalents 390,491 596,560
----------------------------------------------------------- ----- --------- ---------
915,021 1,095,807
----------------------------------------------------------- ----- --------- ---------
Assets classified as held for sale 106 101
----------------------------------------------------------- ----- --------- ---------
Total current assets 915,127 1,095,908
----------------------------------------------------------- ----- --------- ---------
Total assets 2,932,369 2,758,458
----------------------------------------------------------- ----- --------- ---------
Equity and liabilities
Issued capital 121,628 121,628
Share premium 185,112 185,112
Other reserves (347,326) (348,056)
Retained earnings 2 1,753,200 1,568,077
----------------------------------------------------------- ----- --------- ---------
Equity attributable to equity shareholders of Ferrexpo plc 1,712,614 1,526,761
----------------------------------------------------------- ----- --------- ---------
Non-controlling interests 22,428 20,637
----------------------------------------------------------- ----- --------- ---------
Total equity 1,735,042 1,547,398
----------------------------------------------------------- ----- --------- ---------
Interest-bearing loans and borrowings 3/12 928,196 993,139
Defined benefit pension liability 2 53,154 50,195
Provision for site restoration 2,871 2,368
Deferred tax liabilities 2,031 2,581
----------------------------------------------------------- ----- --------- ---------
Total non-current liabilities 986,252 1,048,283
----------------------------------------------------------- ----- --------- ---------
Interest-bearing loans and borrowings 3/12 101,043 26,846
Trade and other payables 50,001 62,609
Accrued liabilities and deferred income 35,508 51,285
Income taxes payable 11 12,554 13,672
Other taxes payable 11 11,969 8,365
----------------------------------------------------------- ----- --------- ---------
Total current liabilities 211,075 162,777
----------------------------------------------------------- ----- --------- ---------
Total liabilities 1,197,327 1,211,060
----------------------------------------------------------- ----- --------- ---------
Total equity and liabilities 2,932,369 2,758,458
----------------------------------------------------------- ----- --------- ---------
The financial statements were approved by the Board of Directors
on 11 March 2014.
Kostyantin Zhevago Christopher Mawe
Chief Executive Officer Chief Financial Officer
Consolidated Statement of Cash Flows
Year ended Year ended
US$000 Notes 31.12.13 31.12.12
------------------------------------------------------------------------------------ ----- ---------- ----------
Profit before tax 305,392 265,733
Adjustments for:
Depreciation of property, plant and equipment and amortisation of intangible assets 99,645 54,169
Interest expense 2 60,466 81,308
Write-down of VAT receivable 11 36,421 -
Interest income 8 (2,372) (2,598)
Share of profit from associates (3,551) (2,772)
Movement in allowance for doubtful receivables 661 721
Loss on disposal of property, plant and equipment 8,492 4,067
Write-offs and impairment losses 854 836
Site restoration provision 503 (650)
Employee benefits 2 8,654 12,616
Share-based payments 1,266 1,608
Operating foreign exchange gains (622) (653)
Non-operating foreign exchange gains 2 (9,755) (6,621)
------------------------------------------------------------------------------------ ----- ---------- ----------
Operating cash flow before working capital changes 506,054 407,764
------------------------------------------------------------------------------------ ----- ---------- ----------
Changes in working capital:
Decrease/(increase) in trade and other receivables 27,485 (3,226)
Increase in inventories (88,482) (33,638)
(Decrease)/increase in trade and other accounts payable (29,489) 40,603
Increase in VAT recoverable and other taxes prepaid 11 (12,516) (131,903)
------------------------------------------------------------------------------------ ----- ---------- ----------
Cash generated from operating activities 403,052 279,600
------------------------------------------------------------------------------------ ----- ---------- ----------
Interest paid (57,037) (55,610)
Income tax paid 11 (108,321) (99,771)
Post-employment benefits paid (4,768) (5,641)
------------------------------------------------------------------------------------ ----- ---------- ----------
Net cash flows from operating activities 232,926 118,578
------------------------------------------------------------------------------------ ----- ---------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment (270,534) (419,357)
Proceeds from sale of property, plant and equipment 910 569
Purchases of intangible assets (7,268) (9,911)
Purchase of available-for-sale investment (82,382) -
Interest received 2,090 2,652
Dividends from associates - 6,710
------------------------------------------------------------------------------------ ----- ---------- ----------
Net cash flows used in investing activities (357,184) (419,337)
------------------------------------------------------------------------------------ ----- ---------- ----------
Cash flows from financing activities
Proceeds from borrowings and finance 26,279 63,955
Repayment of borrowings and finance (19,308) (13,186)
Arrangement fees paid (10,643) (4,672)
Dividends paid to equity shareholders of Ferrexpo plc (77,882) (38,775)
Dividends paid to non-controlling shareholders (1) (254)
------------------------------------------------------------------------------------ ----- ---------- ----------
Net cash flows from financing activities (81,555) 7,068
------------------------------------------------------------------------------------ ----- ---------- ----------
Net decrease in cash and cash equivalents (205,813) (293,691)
Cash and cash equivalents at the beginning of the year 596,560 890,154
Currency translation differences (256) 97
------------------------------------------------------------------------------------ ----- ---------- ----------
Cash and cash equivalents at the end of the year 390,491 596,560
------------------------------------------------------------------------------------ ----- ---------- ----------
Consolidated Statement of Changes in Equity
Attributable to equity shareholders of Ferrexpo plc
---------------------------------------------------------------------------------------
Uniting Employee Net
of Treasury benefit unrealised Total Non-
Issued Share interest share trust gains Translation Retained capital 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 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 - - - - - - - 261,984 261,984 1,800 263,784
Other
comprehensive
income - - - - - (108) (428) 440 (96) (9) (105)
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- ------------ ----------- ---------
Total
comprehensive
income for the
period - - - - - (108) (428) 262,424 261,888 1,791 263,679
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- ------------ ----------- ---------
Equity dividends
paid to
shareholders of
Ferrexpo plc - - - - - - - (77,301) (77,301) - (77,301)
Share-based
payments - - - - 1,266 - - - 1,266 - 1,266
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- ------------ ----------- ---------
At 31 December
2013 121,628 185,112 31,780 (77,260) (6,542) 712 (296,016) 1,753,200 1,712,614 22,428 1,735,042
---------------- ------- ------- -------- -------- -------- ---------- ----------- --------- ------------ ----------- ---------
Notes to the Consolidated Financial Statements
Note 1: General information
The financial information for the year ended 31 December 2013
does not constitute statutory accounts as defined in section 435 of
the Companies Act 2006. The audited statutory accounts for the year
ended 31 December 2012 have been delivered to the Registrar of
Companies and those for 2013 will be delivered following the
Company's annual general meeting convened for Thursday, 22 May
2014.
The auditor has reported on the statutory accounts for year
ended 31 December 2013. The auditor's report was unqualified.
Note 2: Summary of significant accounting policies
International Financial Reporting Interpretations Committee
(IFRIC)
Whilst the preliminary announcement has been prepared in
accordance with International Financial Reporting Standards
('IFRS') and International Financial Reporting Interpretation
Committee ("IFRIC") interpretations adopted for use by the European
Union and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS, this announcement does not itself
contain sufficient information to comply with IFRS. The Board
approved the full financial statements that comply with IFRS on
Tuesday, 11 March 2014. The financial statements have been prepared
under the historical cost convention as modified by the recording
of pension assets and liabilities and the revaluation of certain
financial instruments.
The accounting policies and methods of computation adopted in
the preparation of these consolidated financial statements are
consistent with those of the previous year, except for the adoption
of new and amended IFRS and IFRIC interpretations effective as of 1
January 2013.
The accounting policies and methods of computation adopted in
the preparation of the 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
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 for the comparative period ended 31 December 2012 changed
by US$5,524 thousand. The effect of this improvement as of 31
December 2013 is US$7,574 thousand without a material impact on the
Group's consolidated income statement and basic and diluted
earnings per share
IAS 19 Employee benefits
The most fundamental change of the numerous amendments made to
IAS 19 is to remove the so-called 'corridor-approach' and to
require the recognition of all actuarial gains and losses from the
remeasurement 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 amendments became effective for financial years
beginning on or after 1 January 2013 and the retrospective adoption
requires to change the opening statement of financial position of
the earliest comparative period presented. The tables below provide
the details of these effects:
US$000 Defined benefit pension liability Tax effect Equity 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/effect on deferred tax assets and equity (64,998) 8,203 (43,466)
-------------------------------------------------------- --------------------------------- ---------- -------------
As a result of the retrospective application of IAS 19 revised,
the total equity of the shareholders as of 31 December 2011
decreased from US$1,393,129 thousand to US$1,349,663 thousand.
As a result of the retrospective adoption of the amendments to
IAS 19, the defined benefit pension liability and costs of the
comparative period ended 31 December 2012 changed as follows:
US$000 Defined benefit pension liability Tax effect Equity 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 consolidated statement of cash flows, the basic and
diluted earnings per share of the comparative period ended 31
December 2012.
The effect of IAS 19 revised on the current year service costs
is US$3,236 thousand without a material impact on the Group's basic
and diluted earnings per share.
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 when fair value is required or permitted by
other standards and requires additional specific disclosures. Other
than the additional disclosure requirements, the adoption of this
new standard did not have an impact on the financial position or
performance of the Group.
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, as the Group
is not a first-time adopter and consequently did 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.
New standards and interpretations not yet adopted
The Group has elected not to early adopt the following revised
and amended standards:
IFRS 9 Financial instruments
The standard has been issued as the IASB completes each phase of
its project to replace IAS 39. The first elements of IFRS 9 were
issued in November 2009 and October 2010 to replace the parts of
IAS 39 that relate to the classification and measurement of
financial instruments. In November 2013 an amendment was issued to
address hedge accounting and to remove the previously determined
effective date of 1 January 2015. Instead, the IASB proposes to set
the effective date of IFRS 9 when it completes the impairment phase
of the project. The Group will assess IFRS 9's full impact and will
determine the date to adopt IFRS 9 once it is endorsed for use in
the EU.
IFRS 10 Consolidated financial statements
The new standard provides additional guidance to assist in the
determination of which entities are controlled and are required to
be consolidated. This standard replaces the portion of IAS 27
Consolidated and separate financial statements that addresses the
accounting for consolidated financial statements. The IASB
implementation date is for periods beginning on or after 1 January
2013 whereas the standard becomes mandatory in the EU only for
annual periods beginning on or after 1 January 2014. The Group does
not intend to take advantage of the possibility of an early
adoption. The impact on the accounting for the Group's associated
company TIS Ruda will be assessed.
IFRS 11 Joint arrangements
The new standard replaces IAS 31 Interests in joint ventures and
SIC 13 Jointly-controlled entities - non-monetary contributions by
venturers. The IASB implementation date is for periods beginning on
or after 1 January 2013 whereas the standard becomes mandatory in
the EU only for annual periods beginning on or after 1 January
2014. The standard defines contractually agreed sharing of control
of an arrangement and the accounting for joint operations and joint
ventures. The Group does not intend to take advantage of the
possibility of an early adoption and will review its arrangements
in place in order to evaluate the potential impact.
IFRS 12 Disclosure of involvement with other entities
The new standard covers the disclosures that were previously
required in consolidated financial statements under IAS 27
Consolidated and separate financial statements as well as those
included in IAS 31 Interests in joint ventures and IAS 28
Investments in associates. The IASB implementation date is for
periods beginning on or after 1 January 2013 whereas the standard
becomes mandatory in the EU only for annual periods beginning on or
after 1 January 2014. The Group does not intend to take advantage
of the possibility of an early adoption, but expects that a number
of additional disclosures will be required under the new
standard.
IAS 19 Employee benefits - defined benefit plans: employee
contributions
The amendment to the standard was issued in November 2013 and
becomes effective for financial years beginning on or after 1 July
2014. The amendment provides guidance in respect of the accounting
for employee contributions set out in the formal terms of a defined
benefit plan. The Group does not intend to take advantage of the
possibility of an early adoption and will review its arrangements
in place in order to evaluate the potential impact.
IAS 32 Financial instruments: presentation - offsetting
financial assets and financial liabilities
The amendments clarify existing application issues relating to
the offset of financial assets and financial liabilities
requirements. The amendments are not effective until annual periods
beginning on or after 1 January 2014 with retrospective
application. No material effects on the Group's financial position
and performance are expected from this amendment.
IAS 36 Impairment of assets - recoverable amount disclosures
The amendment to the standard was issued in May 2013 and becomes
effective for financial years beginning on or after 1 January 2014.
The amendment removes the requirement to disclose recoverable
amounts when there has been no impairment or reversal of
impairment. Further to that, the disclosure requirements have been
aligned with those under US GAAP for impaired assets. The Group
does not intend to take advantage of the possibility of an early
adoption and will review its arrangements in place in order to
evaluate the potential impact.
IFRIC 21 Levies
The new interpretation clarifies when to recognise a liability
for a levy imposed by governments (including government agencies
and similar bodies) in accordance with laws and regulations. The
new interpretation applies to annual periods beginning on or after
1 January 2014. The interpretation has not yet been endorsed by the
EU and the effective date is not yet known. The Group is currently
assessing the potential effect on the Group's accounting for
production and similar taxes. Income taxes in accordance with IAS
12, fines and other penalties and liabilities arising from trading
schemes are not covered by this interpretation.
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 monitored at a more detailed level, 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.
Management monitors the operating result of the Group based on a
number of measures including EBITDA, 'C1' costs and the net
financial indebtedness.
EBITDA
The Group presents EBITDA because it believes that EBITDA is a
useful measure for evaluating its ability to generate cash and its
operating performance.
Year ended Year ended
US$000 Notes 31.12.13 31.12.12
---------------------------------------------------- ----- ---------- ----------
Profit before tax and finance 359,218 344,716
Write-down of VAT receivable 11 36,421 -
Write-offs and impairment losses 854 836
Share-based payments 1,266 1,608
Losses on disposal of property, plant and equipment 8,492 4,067
Depreciation and amortisation 99,645 54,169
---------------------------------------------------- ----- ---------- ----------
EBITDA 505,896 405,396
---------------------------------------------------- ----- ---------- ----------
As a result of the retrospective adoption of the amendments to
IAS 19, the pension costs of the comparative period ended 31
December 2012 changed and had a positive effect of US$3,847
thousand on the previously disclosed EBITDA figures. See note 2 for
further details.
'C1' costs
'C1' costs represents the cash costs of production of iron
pellets from own ore divided by production volume of own ore, and
excludes non-cash costs such as depreciation, pension costs and
inventory movements, costs of purchased ore, concentrate and
production cost of gravel.
Year ended Year ended
US$000 31.12.13 31.12.12
------------------------------------------------- ---------- ----------
Cost of sales - pellet production 726,960 638,807
Depreciation and amortisation (78,690) (39,290)
Purchased concentrate and other items for resale (34,805) (29,254)
Inventory movements 25,476 9,029
Other non-C1 cost components (13,213) (18,144)
------------------------------------------------- ---------- ----------
C1 cost 625,728 561,148
------------------------------------------------- ---------- ----------
Own ore produced (tonnes) 10,465,606 9,408,662
C1 cash cost per tonne (US$) 59.8 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 and amounts payable for equipment.
Year ended Year ended
US$000 31.12.13 31.12.12
--------------------------- ---------- ----------
Cash and cash equivalents 390,491 596,560
Current borrowings (101,043) (26,846)
Non-current borrowings (928,196) (993,139)
--------------------------- ---------- ----------
Net financial indebtedness (638,748) (423,425)
--------------------------- ---------- ----------
Disclosure of revenue and non-current assets
The Group does not generate significant revenues from external
customers attributable to the Company's country of domicile. The
information on the revenues from external customers attributed to
the individual foreign countries is given in note 4.
The Group does not have any significant non-current assets that
are located in the country of domicile of the Company. The vast
majority of the non-current assets are located in Ukraine.
Note 4: Revenue
Revenue for the year ended 31 December 2013 consisted of the
following:
Year ended Year ended
US$000 31.12.13 31.12.12
------------------------------------------------------------ ---------- ----------
Revenue from sales of iron ore pellets and concentrate:
Export 1,494,899 1,329,728
Ukraine - 331
------------------------------------------------------------ ---------- ----------
Total revenue from sale of iron ore pellets and concentrate 1,494,899 1,330,059
------------------------------------------------------------ ---------- ----------
Revenue from logistics and bunker business 76,321 81,845
Revenue from services provided 1,155 3,202
Revenue from other sales 9,010 8,924
------------------------------------------------------------ ---------- ----------
Total revenue 1,581,385 1,424,030
------------------------------------------------------------ ---------- ----------
Export sales of iron ore pellets and concentrate by geographical
destination were as follows:
Year ended
US$000 31.12.13 Year ended 31.12.12
--------------- ---------- -------------------
China 435,471 529,664
Austria 381,675 339,725
Turkey 184,234 73,180
Japan 130,429 33,389
Slovakia 127,029 141,765
Czech Republic 123,600 112,623
Germany 80,814 40,486
Serbia 31,647 19,723
India - 23,068
Russia - 8,875
Romania - 5,167
Hungary - 2,063
--------------- ---------- -------------------
Total exports 1,494,899 1,329,728
--------------- ---------- -------------------
During the year ended 31 December 2013 sales made to three
customers accounted for 47.2% of the revenues from export sales of
ore pellets (2012: 44.7%).
Sales to customers that individually represented more than 10%
of total sales in either current or prior year are as follows:
US$000 Year ended 31.12.13 Year ended 31.12.12
----------- ------------------- -------------------
Customer A 381,675 339,725
Customer B 184,234 70,214
Customer C 127,029 141,765
----------- ------------------- -------------------
Note 5: Cost of sales
Cost of sales for the year ended 31 December 2013 consisted of
the following:
Year ended Year ended
US$000 31.12.13 31.12.12
------------------------------------------------- ---------- ----------
Materials 107,530 89,296
Purchased concentrate and other items for resale 34,805 29,254
Electricity 158,849 141,939
Personnel costs 66,194 69,092
Spare parts and consumables 15,921 26,563
Depreciation and amortisation 78,690 39,290
Fuel 74,653 56,038
Gas 82,028 79,082
Repairs and maintenance 72,299 78,022
Royalties and levies 23,162 12,375
Cost of sales from logistics business 16,531 22,342
Bunker fuel 29,731 29,580
Inventory movements (25,476) (9,028)
Other 38,304 26,884
------------------------------------------------- ---------- ----------
Total cost of sales 773,221 690,729
------------------------------------------------- ---------- ----------
US$000 Year ended 31.12.13 Year ended 31.12.12
---------------------------------------------- ------------------- -------------------
Cost of sales - pellet production 726,960 638,807
Cost of sales - logistics and bunker business 46,261 51,922
---------------------------------------------- ------------------- -------------------
Total cost of sales 773,221 690,729
---------------------------------------------- ------------------- -------------------
Note 6: Selling and distribution expenses
Selling and distribution expenses for the year ended 31 December
2013 consisted of the following:
US$000 Year ended 31.12.13 Year ended 31.12.12
---------------------------------------- ------------------- -------------------
International freight for pellets 114,366 113,538
Railway transportation 108,159 93,442
Port charges 31,084 31,891
Other pellet transportation costs 13,121 18,611
Costs of logistics business 32,991 27,495
Advertising 12,192 9,643
Depreciation 14,135 9,805
Other 9,670 7,539
======================================== =================== ===================
Total selling and distribution expenses 335,718 311,964
======================================== =================== ===================
Note 7: General and administrative expenses
General and administrative expenses for the year ended 31
December 2013 consisted of the following:
Year ended Year ended
----------------------------------------------
US$000 31.12.13 31.12.12
---------------------------------------------- ---------- ----------
Personnel costs 31,972 30,569
Buildings and maintenance 2,571 2,597
Taxes other than income tax and other charges 184 1,465
Professional fees 6,715 4,699
Depreciation and amortisation 4,022 4,636
Communication 1,328 1,144
Vehicle maintenance and fuel 1,584 2,033
Repairs 982 1,542
Audit and non-audit fees 2,506 2,062
Security 497 2,296
Other 2,478 3,286
---------------------------------------------- ---------- ----------
Total general and administrative expenses 54,839 56,329
---------------------------------------------- ---------- ----------
Auditor remuneration
Auditor remuneration paid in respect of the audit of the
financial statements of the Group and its subsidiary companies and
for the provision of other services not in connection with the
audit is disclosed below:
Year ended Year ended
---------------------------
US$000 31.12.13 31.12.12
--------------------------- ---------- ----------
Audit services
Ferrexpo plc Annual Report 1,252 823
Subsidiary entities 354 766
--------------------------- ---------- ----------
Total audit services 1,606 1,589
--------------------------- ---------- ----------
Non-audit services
Tax advisory 125 23
Assurance related services 708 203
Other services 67 247
--------------------------- ---------- ----------
Total non-audit services 900 473
--------------------------- ---------- ----------
Total auditor remuneration 2,506 2,062
--------------------------- ---------- ----------
Assurance related services include fees paid for services
provided in relation to raising of new debt for the Group.
Note 8: Finance income and expense
Finance income and expenses for the year ended 31 December 2013
consisted of the following:
Year ended
US$000 31.12.13 Year ended 31.12.12
--------------------------------------------------------------------- ---------- -------------------
Finance income
Interest income 2,062 2,454
Other finance revenue 310 144
--------------------------------------------------------------------- ---------- -------------------
Total finance income 2,372 2,598
--------------------------------------------------------------------- ---------- -------------------
Finance expense
Interest expense on financial liabilities measured at amortised cost (53,340) (54,749)
Effect from capitalised borrowing costs 8,966 1,508
Interest on defined benefit plans (5,487) (6,933)
Bank charges (10,976) (6,880)
Other finance costs (5,116) (21,149)
--------------------------------------------------------------------- ---------- -------------------
Total finance expenses (65,953) (88,203)
--------------------------------------------------------------------- ---------- -------------------
Net finance expense (63,581) (85,605)
--------------------------------------------------------------------- ---------- -------------------
Bank charges include arrangement fees charged in relation to the
Group's major bank debt facility.
Other finance costs include the effect from the increase of the
recorded discount of US$3,695 thousand (2012: US$20,000 thousand)
to reflect the time value of money on the outstanding VAT
receivable balances in Ukraine that are expected to be recovered
after more than one year of the period end. Further information is
provided in note 11.
Note 9: Income tax expense
The income tax expense for the year ended 31 December 2013
consisted of the following:
US$000 Year ended 31.12.13 Year ended 31.12.12
-------------------------------------------------- ------------------- -------------------
Current income tax
Current income tax charge 45,878 48,797
Amounts related to previous years 684 2,929
-------------------------------------------------- ------------------- -------------------
Total current income tax 46,562 51,726
-------------------------------------------------- ------------------- -------------------
Deferred income tax
Origination and reversal of temporary differences (7,266) (12,053)
Effect from changes in tax laws and rates 2,312 7,462
-------------------------------------------------- ------------------- -------------------
Total deferred income tax (4,954) (4,591)
-------------------------------------------------- ------------------- -------------------
Total income tax expense 41,608 47,135
-------------------------------------------------- ------------------- -------------------
Other comprehensive income contained taxes on the following
items charged or credited to it for the year ended 31 December
2013:
US$000 Year ended 31.12.13 Year ended 31.12.12
-------------------------------------------------------------- ------------------- -------------------
Exchange differences arising on hedging of foreign operations - 32
Net losses on available-for-sale investments 30 62
Remeasurement gains on defined pension liability (58) (3,404)
-------------------------------------------------------------- ------------------- -------------------
Total income taxes charged to other comprehensive income (28) (3,310)
-------------------------------------------------------------- ------------------- -------------------
The effective income tax rate differs from the corporate income
tax rates. The weighted average statutory rate was 8.3% for 2013
(2012: 9.3%). This is calculated as the average of the statutory
tax rates applicable in the countries in which the Group operates,
weighted by the profits/(losses) before tax of the subsidiaries in
the respective countries, as included in the consolidated financial
information. The effective tax rate is 13.6% (2012: 17.8%). The
decrease is a result of the reduction of the statutory tax rate in
Ukraine and the change in profit mix between the different local
jurisdictions.
A reconciliation between the income tax charged in the
accompanying financial information and income before taxes
multiplied by the weighted average statutory tax rate for the year
ended 31 December 2013 is as follows:
Year ended Year ended
US$000 31.12.13 31.12.12
-------------------------------------------------------------------------------------- ---------- ----------
Profit before tax 305,392 265,733
Notional tax computed at the weighted average statutory tax rate of 8.3% (2012: 9.3%) 25,329 24,770
Derecognition of deferred tax asset 101 264
Effect from changes in local tax rates 2,312 7,462
Effect from utilisation of non-recognised deferred tax assets 94 (318)
Expenses not deductible for tax purposes 8,485 8,818
Tax exempted income (1,396) (422)
Non-recognition of deferred taxes on current year losses 4,084 3,684
Tax related to prior years 2,011 2,929
Other 588 (52)
-------------------------------------------------------------------------------------- ---------- ----------
Total income tax expense 41,608 47,135
-------------------------------------------------------------------------------------- ---------- ----------
Note 10: Earnings per share and dividends paid and proposed
Basic earnings per share ('EPS') is calculated by dividing the
net profit for the year attributable to ordinary equity
shareholders of Ferrexpo plc by the weighted average number of
Ordinary Shares.
Year ended 31.12.13 Year ended 31.12.12
--------------------------------------------------------- ------------------- -------------------
Profit for the year attributable to equity shareholders:
Basic earnings per share (US cents) 44.76 37.14
Diluted earnings per share (US cents) 44.69 37.08
--------------------------------------------------------- ------------------- -------------------
The calculation of the basic and diluted earnings per share is
based on the following data:
Year ended Year ended
Thousand 31.12.13 31.12.12
---------------------------------------------- ---------- ----------
Weighted average number of shares
Basic number of Ordinary Shares outstanding 585,294 585,060
Effect of dilutive potential Ordinary Shares 926 973
---------------------------------------------- ---------- ----------
Diluted number of Ordinary Shares outstanding 586,220 586,033
---------------------------------------------- ---------- ----------
The basic number of Ordinary Shares is calculated by reducing
the total number of Ordinary Shares in issue by the weighted
average shares held in treasury and employee trust reserve.
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 are
considered in the calculation of diluted earnings per share.
Dividends paid and proposed
Year ended
US$000 31.12.13
----------------------------------------------------------- ----------
Dividends proposed
Final dividend for 2013: 3.3 US cents per Ordinary Share 19,317
Special dividend for 2013: 6.6 US cents per Ordinary Share 38,633
----------------------------------------------------------- ----------
Total dividends proposed 57,950
----------------------------------------------------------- ----------
Dividends paid during the period
Interim dividend for 2013: 3.3 US cents per Ordinary Share 19,692
Final dividend for 2012: 3.3 US cents per Ordinary Share 19,441
Special dividend for 2012: 6.6 US cents per Ordinary Share 38,749
----------------------------------------------------------- ----------
Total dividends paid 77,882
----------------------------------------------------------- ----------
Year ended
US$000 31.12.12
----------------------------------------------------------- ----------
Dividends proposed
Final dividend for 2012: 3.3 US cents per Ordinary Share 19,309
Special dividend for 2012: 6.6 US cents per Ordinary Share 38,618
----------------------------------------------------------- ----------
Total dividends proposed 57,927
----------------------------------------------------------- ----------
Dividends paid during the period
Interim dividend for 2012: 3.3 US cents per Ordinary Share 19,312
Final dividend for 2011: 3.3 US cents per Ordinary Share 19,340
----------------------------------------------------------- ----------
Total dividends paid 38,652
----------------------------------------------------------- ----------
Note 11: Taxes payable, recoverable and prepaid
The income tax receivable balance as of 31 December 2013 is
shown below:
As at As at
US$000 31.12.13 31.12.12
---------------------------- --------- ---------
Opening balance 11,197 (36,290)
Income statement charge (46,562) (51,727)
Tax paid 108,321 99,771
Reclassification 1,876 -
Foreign exchange adjustment 89 (557)
---------------------------- --------- ---------
Closing balance 74,921 11,197
---------------------------- --------- ---------
Split by:
As at As at
US$000 31.12.13 31.12.12
-------------------------------------------- --------- ---------
Income tax receivable balance - current 33,233 24,869
Income tax receivable balance - non-current 54,242 -
Income tax payable balance (12,554) (13,672)
-------------------------------------------- --------- ---------
Income tax receivable at the year end 74,921 11,197
-------------------------------------------- --------- ---------
As at 31 December 2013 taxes recoverable and prepaid
comprised:
As at As at
US$000 31.12.13 31.12.12
-------------------------------------------------- --------- ---------
VAT receivable 182,628 186,900
Other taxes prepaid 235 346
-------------------------------------------------- --------- ---------
Total taxes recoverable and prepaid - current 182,863 187,246
-------------------------------------------------- --------- ---------
VAT receivable 78,281 97,895
-------------------------------------------------- --------- ---------
Total taxes recoverable and prepaid - non-current 78,281 97,895
-------------------------------------------------- --------- ---------
The vast majority of the outstanding VAT receivable balance is
related to Ukraine and 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 in
Ukraine. 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 financial year 2013,
the Group received VAT refunds in respect of 2012 and 2013
amounting to US$170,967 thousand and paid Ukrainian VAT amounting
to US$219,024 thousand. This was reduced by VAT incurred on
domestic product sales of US$31,380 thousand. As a result, the
gross recoverable balance increased from US$301,536 thousand to
US$318,213 thousand (UAH2,543 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. Alternative methods of settlement
have been proposed, but not adopted, including offset of amounts
recoverable against current and future corporate profit tax. A
financial loss could result, for example, from the issuance of
bonds or treasury promissory notes which trade at a discount at the
time of issue; continued late repayment as a result of Government
fiscal constraints diminishing the present value of the receivable;
or the conversion to US Dollar of local currency received at a
different exchange rate to that recorded at the time of payment; or
adverse decision in the courts regarding VAT balances in dispute,
which management believe is fully recoverable. In October 2013, the
cabinet of ministers of Ukraine confirmed that outstanding VAT
liabilities incurred prior to 2013 will be settled with bonds or
treasury promissory notes instead of cash repayment. As of the date
of the publication of these accounts no such financial instruments
have been issued.
Management has assessed the considerable uncertainties regarding
the method of repayment of VAT and uncertainties relating to the
timing of recovery of the VAT due. Currently the Group has amounts
repayable in respect of 2013 under normal terms which is being
recovered fully and promptly in the normal course of its business.
During the financial year 2013 this was in exchange for a 50%
prepayment of corporation tax. As a result of this, the prepaid
balance of prepaid corporate profit tax increased from US$24,869
thousand to US$87,475 thousand as of 31 December 2013. It is the
management's view that this balance will be offset with future
profits.
At the end of the reporting period, the Group also has
US$101,977 thousand in the court system which management believes
will be fully recovered. The protracted procedures involved and the
complexity of the system will, however, result in a delay in
repayment and it is the best estimate of management that at the
current time it will take two years before all the court process
are completed and payment in full will be received. A discount of
US$23,695 thousand (2012: US$20,000 thousand) to reflect the time
value of money during this period has been made and this asset has
been disclosed net of provision as non-current.
The Group has US$145,685 thousand of VAT outstanding from the
financial year 2012 and earlier, which management believe will be
recovered in the next year through the issue of financial
instruments as has been the practice in the past. There is no fully
reliable way to estimate the ultimate financial recovery which can
ultimately be at par value, however it is the best estimate of
management, based on past practice, that the financial instruments
would if issued trade at a discount of 25% for which a provision of
US$36,421 thousand (2012: nil) has been made as of 31 December
2013.
The total provision recorded in respect of the outstanding VAT
receivable balances is US$60,116 thousand as of 31 December 2013
(2012: US$20,000 thousand).
As at 31 December 2013 other taxes payable comprised:
As at As at
US$000 31.12.13 31.12.12
-------------------- --------- ---------
Withholding tax 501 540
Environmental tax 3,225 496
Royalties 3,822 2,931
Source tax 116 10
VAT payable 1,734 1,697
Other taxes 2,571 2,691
-------------------- --------- ---------
Total taxes payable 11,969 8,365
-------------------- --------- ---------
Note 12: 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. All loans are in US Dollars. For more
information about the Group's exposure to interest rate, foreign
currency and liquidity risk.
US$000 As at 31.12.13 As at 31.12.12
-------------------------------------------------------- --------------- ---------------
Current
Syndicated bank loans - secured 70,000 -
Other bank loans - secured 16,775 13,321
Obligations under finance leases 4,523 3,729
Interest accrued 9,745 9,796
-------------------------------------------------------- --------------- ---------------
Total current interest-bearing loans and borrowings 101,043 26,846
-------------------------------------------------------- --------------- ---------------
Non-current
Eurobond issued 493,810 491,438
Syndicated bank loans - secured 350,000 420,000
Other bank loans - secured 66,129 62,232
Obligations under finance leases 18,257 19,469
-------------------------------------------------------- --------------- ---------------
Total non-current interest-bearing loans and borrowings 928,196 993,139
-------------------------------------------------------- --------------- ---------------
Total interest-bearing loans and borrowings 1,029,239 1,019,985
-------------------------------------------------------- --------------- ---------------
As at 31 December 2013 the Group has a syndicated US$420 million
revolving pre-export finance facility in place and a US$500 million
Eurobond.
The revolving pre-export finance facility was drawn in full on 7
October 2011. This finance facility is available for 60 months
including a commitment amortisation over the final 24 months. The
maturity is 31 August 2016.
As at 31 December 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.
On 2 September 2013 the Group secured an additional US$315
million revolving pre-export finance facility, which is undrawn as
of 31 December 2013. In November 2013, the facility was increased
to US$350 million. The new facility becomes effective when the
Group declares the effective date within one year after the signing
and matures four years after this date. As at 31 December 2013
US$280 million from this new facility would have been available for
draw down if the effective date had been declared. The Group has no
other committed credit lines as of 31 December 2013 (2012:
nil).
Note 13: 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, with associated companies
and with other related parties. Management considers that the Group
has appropriate procedures in place to identify, control and
properly disclose transactions with the related parties.
Entities under common control are those under the control of
Kostyantin Zhevago. Associated companies refers to TIS Ruda LLC, in
which the Group holds an interest of 48.6%. This is the only
associated company of the Group. Other related parties are
principally those entities controlled partially by Anatoly
Trefilov. Anatoly Trefilov 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 expenses
Year ended 31.12.13 Year ended 31.12.12
-------------------------------------------------- ---------------------------------------------
Entities Other
Entities under Associated Other related under Associated related
US$000 common control companies parties common control companies parties
------------------- ------------------ ---------- ------------------ --------------- ------------------ --------
Other sales(a) 647 - 491 1,198 - 88
------------------- ------------------ ---------- ------------------ --------------- ------------------ --------
Total related party
transactions
within revenue 647 - 491 1,198 - 88
------------------- ------------------ ---------- ------------------ --------------- ------------------ --------
Materials(b) 13,897 - 43 5,984 - 24
Purchased
concentrate and
other items for
resale(c) 7,053 - - 21,948 - -
Spare parts and
consumables(d) 2,838 - 2 7,859 - -
Fuel(e) - - - 1,373 - -
Gas(e) 33,581 - - 9,646 - -
------------------- ------------------ ---------- ------------------ --------------- ------------------ --------
Total related
party
transactions
within cost of
sales 57,369 - 45 46,810 - 24
------------------- ------------------ ---------- ------------------ --------------- ------------------ --------
Selling and
distribution
expenses(f) 11,183 22,582 8,335 9,377 20,493 8,367
General and
administration
expenses(g) 1,747 - 12 1,644 - 72
------------------- ------------------ ---------- ------------------ --------------- ------------------ --------
Total related party
transactions
within expenses 70,299 22,582 8,392 57,831 20,493 8,463
------------------- ------------------ ---------- ------------------ --------------- ------------------ --------
Finance income(h) 1,673 - - 917 - -
Finance expenses(h) (184) - - (733) - -
------------------- ------------------ ---------- ------------------ --------------- ------------------ --------
Net related party
finance
income/(expenses) 1,489 - - 184 - -
------------------- ------------------ ---------- ------------------ --------------- ------------------ --------
Entities under common control
The Group entered into various related party transactions with
entities under common control. A description of the most material
transactions which are in aggregate over US$200 thousand in the
current or comparative period is given below. All transactions were
carried out on an arm's length basis in the normal course of
business.
a Sales of power, steam and water and other materials to
Kislorod PCC for US$149 thousand (2012: US$234 thousand) and metal
scrap to AutoKraZ Holding Co. for US$127 thousand (2012: US$106
thousand). Income from premises lease to Kislorod PCC of US$238
thousand (2012: US$224 thousand) and US$58 thousand (2012: US$58
thousand) to Vorskla Steel Ltd. Revenue of US$3 thousand was
received from Vorskla Steel Ltd. for the sale of sand and other
materials (2012: US$448 thousand).
b Purchases of compressed air and oxygen and metal scrap from
Kislorod PCC for US$5,988 thousand (2012: US$5,506 thousand);
b Purchases of cast iron balls from AutoKraZ Holding Co. for
US$6,865 thousand (2012: US$5,255 thousand);
b Purchases of cast iron balls from OJSC Uzhgorodsky Turbogas
for US$711 thousand (2012: nil); and
b Purchases of ferromarganese from Raw and Refined Commodities
AG for US$354 thousand (2012: US$347 thousand).
c Purchases of concentrate and other items for resale from
Vostok Ruda Ltd. amounting to US$7,053 thousand (2012: US$21,948
thousand).
d Purchases of spare parts from CJSC Kiev Shipbuilding and Ship
Repair Plant ('KSRSSZ') in the amount of US$864 thousand (2012:
US$805 thousand);
d Purchases of spare parts from OJSC Berdichev Machine-Building
Plant Progress of US$45 thousand (2012: US$595 thousand); and
d Purchases of spare parts from Valsa GTV of US$1,226 thousand (2012: US$736 thousand).
e Procurement of gas for US$33,581 thousand (2012: US$9,646
thousand) from OJSC Ukrzakordongeologia. No procurement of fuel
from OJSC Ukrzakordongeologia during the financial year 2013 (2012:
US$1,373 thousand).
f Purchases of advertisement, marketing and general public
relations services from FC Vorskla of US$11,000 thousand (2012:
US$9,301 thousand).
g Insurance premiums of US$728 thousand (2012: US$686 thousand)
paid to ASK Omega for workmen's insurance and other insurances;
g Fees of US$373 thousand (2012: US$113 thousand) paid to
F&C Lex and Legal Partners for legal services. Both companies
were under the control of Kostyantin Zhevago until 30 June 2012.
All transactions taking place up to 30 June 2013, being one year
after the change of the control, are considered to be related party
transactions; and
g Fees of US$433 thousand (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 F&C. Finance income and
expenses relate to these transactional banking services. Further
information is provided under transactional banking arrangements on
page 38.
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. These are described below:
f Purchases of logistics services in the amount of US$22,582
thousand (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 related parties
other than those under the control of the majority owner of the
Group. Descriptions of the material transactions are below:
a Sales of material and services to Slavutich Ruda Ltd. for
US$491 thousand (2012: US$88 thousand).
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$8,335 thousand (2012:
US$8,367 thousand). Slavutich Ruda Ltd. earned commission income of
US$979 thousand on these services (2012: US$906 thousand).
g Purchases of legal services from Kuoni Attorneys at Law Ltd.
amounting to US$12 thousand (2012: US$72 thousand).
Purchases of property, plant and equipment
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.
Year ended 31.12.13 Year ended 31.12.12
------------------------------------------------- -------------------------------------------------
Entities under Associated Other related Entities under Associated Other related
US$000 common control companies parties common control companies parties
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Purchases with
independent
fair and
reasonable
confirmation - - - 2,659 - -
Purchases with
shareholder
approval 18,141 - - 55,026 - -
Other purchases 3,741 - - 1,044 - -
================ =============== =============== =============== =============== =============== ===============
Total purchase
of property,
plant and
equipment 21,882 - - 58,729 - -
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
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 financial year 2013, the Group entered into various
transactions with related parties totalling US$3,741 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. Individual transactions of a
capital nature which exceeded US$200 thousand are listed below:
-- In January 2013, the Group procured three railway platforms
in the amount of US$218 thousand from PJSC Stakhanov Railcar
Company.
-- In April 2013, the Group entered into a contract with OJSC
Berdichev Machine-Building Plant Progress and OJSC Uzhgorodsky
Turbogas for the production and supply of deslimers for a new
floatation section in the amount of US$585 thousand.
-- In June and September 2013, the Group procured metal works
from OJSC Berdichev Machine-Building Plant Progress in the amount
of US$1,297 thousand and US$1,054 thousand in connection with the
construction of a new crushing section.
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, amounting to US$18,141 thousand, were delivered and
taken into operation during the financial year 2013 and increased
the total fleet of rail cars from 1,933 units to 2,200 units as of
31 December 2013. In February 2014, the Group ordered another 300
rail cars from PJSC Stakhanov Railcar Company, of which 233 were
under this authority. These rail cars are expected to be delivered
between February and June 2014.
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
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. The transaction was subject to an independent fair and
reasonable confirmation.
-- In July and August 2012, the Group entered in various smaller
transactions with related parties totalling US$391 thousand. No
independent fair and reasonable confirmation was required as these
transactions did not exceed the relevant aggregated threshold 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. The
transactions were subject to an independent fair and reasonable
confirmation.
-- 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. The transaction was
subject to an independent fair and reasonable confirmation.
-- 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. The transaction was
subject to an independent fair and reasonable confirmation.
On 15 March 2011, the shareholders of the Group approved the
purchase of 400 rail cars, with an option to purchase an additional
600 rail cars, from PJSC Stakhanov Railcar Company. 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 bringing the total fleet of own rail cars
to 1,933 units. 788 rail cars amounting to US$55,026 thousand were
put into operation during the financial year 2012.
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:
Year ended 31.12.13 Year ended 31.12.12
============================================ ---------------------------------------------
Entities Entities
under common Associated Other related under common Associated Other related
US$000 control companies parties control companies parties
---------------------- ------------- -------------- ------------- ------------- -------------- --------------
Investments
available-for-sale(j) 396 - - 530 - -
Other non-current
assets(k) 7,438 - - 2,085 - -
Prepayments for
property, plant and
equipment(l) 1,548 - - 625 - -
---------------------- ------------- -------------- ------------- ------------- -------------- --------------
Total non-current
assets 9,382 - - 3,240 - -
---------------------- ------------- -------------- ------------- ------------- -------------- --------------
Trade and other
receivables(m) 1,150 - 31 823 - 3
Prepayments and other
current assets(n) 136 1,172 186 162 1,302 18
Cash and cash
equivalents(o) 143,005 - - 141,424 - -
---------------------- ------------- -------------- ------------- ------------- -------------- --------------
Total current assets 144,291 1,172 217 142,409 1,302 21
---------------------- ------------- -------------- ------------- ------------- -------------- --------------
Trade and other
payables(p) 3,099 - 275 1,694 - 122
---------------------- ------------- -------------- ------------- ------------- -------------- --------------
Current liabilities 3,099 - 275 1,694 - 122
---------------------- ------------- -------------- ------------- ------------- -------------- --------------
Entities under common control
A description of the most material balances which are over
US$200 thousand in the current or comparative period is given
below.
j The balance of the investments available-for sale comprised
shareholdings in PJSC Stakhanov Railcar Company (1.10%) and Vostok
Ruda Ltd. (1.10%). 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.
During the financial year 2012, the investment in Vostok Ruda Ltd.
was subject to an impairment of US$430 thousand.
k As of 31 December 2013, other non-current assets related to a
deposit of US$7,438 thousand with Bank F&C (2012: US$2,085
thousand) as security in respect of loans made to employees under
the Group's social loyalty programme. Further information is
provided under transactional banking arrangements below.
l As of 31 December 2013, prepayments of US$1,397 thousand were
made to OJSC Berdichev Machine-Building Plant Progress (2012:
US$289 thousand).
m As of 31 December 2013, trade and other receivables included
outstanding amounts due from Vorskla Steel Ltd. of US$387 thousand
(2012: US$277 thousand) in relation to other sales and US$540
thousand (2012: US$461 thousand) from Kislorod PCC for the sale of
power, steam and water.
o As of 31 December 2013, cash and cash equivalents with Bank
F&C were US$143,005 thousand (2012: US$141,424 thousand).
Further information is provided under transactional banking
arrangements below.
p Trade and other payables amounting to US$639 thousand for
compressed air and oxygen purchased from Kislorod PCC (2012: US$599
thousand) and US$1,690 thousand for the procurement of fuel and gas
from OJSC Ukrzakordongeologia (2012: US$642 thousand) and US$215
thousand (2012: nil) and US$258 thousand (2012: US$53 thousand) for
spare parts procured from AutoKraZ Holding Co. and OJSC Berdichev
Machine-Building Plant Progress.
Associated companies
n Prepayments and other current assets relate to prepayments of
US$1,172 thousand (2012: US$1,302 thousand) made to TIS Ruda LLC
for transshipment services.
Other related parties
p Trade and other payables amounting to US$275 thousand as of 31
December 2013 are in respect of distribution services provided by
Slavutich Ruda Ltd. (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 34.
The transactional banking services provided by Bank F&C
include also the conversion of US Dollar receipts into Ukrainian
Hryvnia for the settlement of liabilities incurred in local
currency.
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
(US$10,009 thousand at exchange rate as of 31 December 2012) 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 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 (US$10,009 thousand at the exchange rate as of 31
December 2013) 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$8,702 thousand as of 31 December
2013. The terms and conditions of both facilities were the subject
of an independent fair and reasonable confirmation.
Year ended Year ended
US$000 31.12.13 31.12.12
-------------------------------------- ---------- ----------
Loan facilities 10,009 10,009
Amount drawn - -
Letter of credit facility outstanding 153 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$7,438 thousand at Bank F&C as security for loans granted or
to be granted by Bank F&C to employees of the Group (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 Responsibility Review section of this Annual Report
and Accounts.
Cash and cash equivalent balances held with Bank F&C are in
the normal course of business and are held on call or from time to
time on overnight deposit. Interest is paid on balances held on
current accounts and overnight deposits. The interest rate received
by the Group was in line with relevant comparable market rates
throughout the year.
Note 14: Commitments, contingencies and legal disputes
US$000 As at 31.12.13 As at 31.12.12
----------------------------------------------------------------- -------------- --------------
Capital commitments on purchase of property, plant and equipment 102,958 162,665
----------------------------------------------------------------- -------------- --------------
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.
On 26 March 2013 the Kiev City Commercial Court issued an
injunction to suspend trading of FPM shares during the court
case.
The case is currently being heard at the Kiev City Commercial
Court and as of the date of the publication of these financial
statements for the year ended 31 December 2013, there has been no
decision on merits passed by the Kiev City Commercial Court.
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 31 December 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.
Tax and other regulatory compliance
Ukrainian legislation and regulations regarding taxation and
customs continue to evolve. Legislation and regulations are not
always clearly written and are subject to varying interpretations
and inconsistent enforcement by local, regional and national
authorities, and other Governmental bodies. Instances of
inconsistent interpretations are not unusual. The uncertainty of
application and the evolution of Ukrainian tax laws, including
those affecting cross-border transactions, create a risk of
additional tax payments having to be made by the Group, which could
have a material effect on the Group's financial position and
results of operations. This includes also a new transfer pricing
law which significantly increased 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 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
(2012: US$16,900 thousand). As we believe the tax authorities
claims are unlikely to be enforced no provision has been made for
these known claims, although there is no guarantee the tax
authorities' challenges will not succeed.
Recoverable VAT amounting to US$101,977 thousand (2012:
US$103,208 thousand) outstanding at 31 December 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 11. No
provision has been made for any related penalties and fines, which
would in the case of a final negative ruling become payable.
Note 15: Events after the reporting period
Since the balance sheet date, the Ukrainian Hryvnia has devalued
by 15.6% compared to the US Dollar; from 7.993 as of 31 December
2013 to 9.236 as of date of the publication of these accounts. The
Group has assets and liabilities denominated in this currency,
which when translated at the current prevailing rates would reduce
the net assets of the Group. A devaluation of 1% of the Ukrainian
Hryvnia reduces the Group's net assets by approximately US$24,000
thousand.
Subsequent to the year end, the Group proposed dividends as
disclosed in note 10. Other than disclosed above, no material
adjusting or non-adjusting events have occurred.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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