TIDMFXPO
RNS Number : 1444V
Ferrexpo PLC
05 August 2020
5 August 2020
Ferrexpo plc
("Ferrexpo", the "Group" or the "Company")
Ferrexpo delivers increased sales and production volumes,
resilient financial performance and strengthened balance sheet in
1H 2020, despite unprecedented global disruption.
Ferrexpo plc today announces its unaudited financial results for
the six months ended 30 June 2020.
Financial Highlights
-- Pellet production and sales volumes up 5% and 22% respectively
-- Revenues of US$776 million (1H 2019: US$787 million) reflecting lower pellet premiums
-- Underlying EBITDA A US$352 million (1H 2019: US$372 million)
-- EBITDA margin 45% (1H 2019: 47%)
-- Profit after tax of US$250 million (1H 2019: US$270 million)
-- Interim dividend declared of 6.6 US cents (1H 2019: 6.6 US
cents), in addition to an interim dividend of 6.6 US cents per
share declared in June 2020
-- Net debt A US$174 million (31 December 2019: US$282 million)
-- Net debt A to last twelve months' EBITDA ratio down to 0.31x,
compared to 0.48x at 31 December 2019
-- Capital investment US$96 million (1H 2019: US$114 million)
Steve Lucas, Non-Executive Chairman, said:
"I am pleased to report a positive set of results for the half
year, with strong cash generation, higher sales and production,
lower C1 costs and debt, and solid EBITDA of US$352 million, all in
the context of a pandemic that has disrupted the global economy.
That is a testament to our strong management team and the
commitment of our entire workforce.
The Company has approached the uncertainty of current global
events with caution, destocking throughout the period and has
reduced net debt to US$174 million and increased cash to US$169
million as at 30 June 2020. The operations are now benefiting from
the refurbishment work completed in 2019 and first half production
was the second highest since IPO in 2007. This positive operational
and financial performance has enabled the Group to declare an
interim dividend to shareholders in June, and in light of the
strong liquidity position the Group is pleased to declare today a
further interim dividend of 6.6 US cents per share. Ferrexpo has
continued its investment for growth in the first half year and aims
to double output from the Group's operations in Ukraine over the
medium term.
Whilst the ongoing global COVID-19 pandemic has affected demand
in most markets, Ferrexpo's operations continue to operate with
minimal disruption. The Group has adapted to a changing market
environment, and has sold increased volumes to China where demand
remains robust. As the market returns to more normal conditions in
2H 2020, we expect to see a recovery in steel demand outside China,
which should be constructive for pellet premiums."
Financial Summary:
6 months 6 months Year
ended 30.06.20 ended Change ended
US$ million (unless otherwise stated) 30.06.19 31.12.19
Total pellet production (kt) 5,598 5,353 5% 10,519
----------------- ---------- -------- ---------
Sales volumes (kt) 6,107 4,990 22% 10,312
----------------- ---------- -------- ---------
Avg PLATTS CFR 62% Fe iron ore fines price
(US$/t) 91.1 91.4 -0.3% 93.3
----------------- ---------- -------- ---------
Avg PLATTS CFR 65% Fe iron ore fines price
(US$/t) 105.9 105.1 +1% 102.8
----------------- ---------- -------- ---------
Revenue 776 787 -1% 1,507
----------------- ---------- -------- ---------
Average C1 cash cost A (US$/t) 40.9 46.0 -11% 47.8
----------------- ---------- -------- ---------
Underlying EBITDA A 352 372 -5% 586
----------------- ---------- -------- ---------
Underlying EBITDA margin A 45% 47% -2ppt 39%
----------------- ---------- -------- ---------
Profit after tax for the period 250 270 -8% 403
----------------- ---------- -------- ---------
Diluted EPS (US cents) 42.4 45.8 -7% 68.4
----------------- ---------- -------- ---------
Interim dividends per share declared (US
cents) 13.2 6.6 100% 13.2
----------------- ---------- -------- ---------
Net cash flow from operating activities 258 256 1% 473
----------------- ---------- -------- ---------
Capital investment A 96 114 -16% 247
----------------- ---------- -------- ---------
Closing net debt 174 282 -38% 281
----------------- ---------- -------- ---------
Closing cash 169 92 84% 131
----------------- ---------- -------- ---------
Net debt to last twelve months' EBITDA
A 0.31x 0.44x -30% 0.48x
----------------- ---------- -------- ---------
Health and Safety
-- No work related fatalities in 1H 2020 (FY 2019: none)
-- Group Lost Time Injury Frequency Rate remains below 1.0x,
with a ratio of 0.77x recorded for 1H 2020 (FY 2019: 0.58, 1H 2019:
0.45).
-- COVID-19 update: the Group's facilities continue to operate
with minimal impact on operations to date, and the Group continues
to closely monitor its workforce. The infection rate in the local
communities surrounding the Group's operations remains low.
Market Environment
-- Average iron ore price (65% Fe) remained above US$100 per tonne.
-- The global pellet market faced reduced demand in 1H 2020 due
to lower steel production in regions other than China, however,
this was partly mitigated by significantly lower pellet supply from
Brazil.
-- Average realised FOB price decreased 13% compared to record
prices seen during 1H 2019. This was primarily due to lower pellet
premiums. Realised prices were 7% above the level seen during 2H
2019.
-- C3 freight rate fell US$2 per tonne to US$13 per tonne as a
result of lower oil prices and a reduction in Brazilian iron ore
supply
Operational Highlights
-- 5% increase in pellet production compared to 1H 2019
-- 22% increase in sales volumes compared to 1H 2019
-- Increased spot sales to China in response to reduced pellet demand in traditional markets
-- C1 cash cost US$41 per tonne, down 11% compared to 1H 2019,
reflecting lower commodity prices and increased production.
-- Capital investment A US$96 million (1H 2019: US$114 million)
as pellet line refurbishment programme comes to a close and
investment in concentrator expansion is completed
-- Two trial cargoes of DR pellets sold in 1H 2020, totaling a combined 185kt
-- Plant capacity expected to increase to 12 million tonnes of pellets in 2021
Board of Directors and Corporate Governance
-- Appointment of Jim North as Acting CEO and as a Director of the Company
-- Non-executive Chairman Steve Lucas to retire ahead of Group's
next AGM once an orderly succession process has been put in
place
-- Process underway to appoint additional Independent Non-executive Directors
Environment, Social and Governance ("ESG")
-- Release of Company's Responsible Business Report on Company's
website, covering ESG activities in 2019
ALTERNATIVE PERFORMANCE MEASURES
Words with the symbol A are defined in the Alternative
Performance Measures section on pages 35 and 36.
Analyst conference call and webcast
Ferrexpo will host an analyst presentation today via audio
webcast which will start at 09:00 BST.
To join the webcast, and view the live presentation, please
follow this link https://edge.media-server.com/mmc/p/4xohmjag.
If you wish to join this conference call, please see following
dial in details and instructions:
1. 10 minutes prior to the start of the call, dial the
appropriate Participant Dial-In Number listed in the Conference
Dial-In Number section below.
2. Enter the Event Plus Passcode stated below and leave any
information requested after the tone. You will be joined
automatically to the conference.
Note: Due to regional restrictions some participants may receive
Operator assistance when joining this conference call and will not
be automatically connected .
Event Plus Passcode: 359 2014
Participant Standard International
Dial-In: +44 (0) 20 3009 5709
Participant UK Local Call
Dial-In Number: 0800 694 1461
For further information,
please contact:
Ferrexpo:
Rob Simmons +44 207 389 8305
Maitland:
James Isola +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 40 years. In
2019, the Group produced 10.5 million tonnes of pellets ranking it
as the 3(rd) largest exporter of pellets to the global steel
industry with a market share of approximately 8%. Ferrexpo has a
diversified customer base supplying premium steel mills in Austria,
Germany, Japan, South Korea, Taiwan, China, Slovakia, the Czech
Republic, Turkey, Vietnam and America. Ferrexpo has a premium
listing on the main market of the London Stock Exchange under the
ticker FXPO. For further information, please visit
www.ferrexpo.com
Introduction
Good progress continues to be made in safe working, with no work
related fatalities in 1H 2020 (1H 2019: none). The lost time injury
frequency rate ("LTIFR") remains below 1.0x (1H 2020: 0.77x, 1H
2019: 0.45x), representing a further improvement compared to the
Group's five-year average LTIFR of 1.01x.
The Group continues to operate with minimal impact from the
global COVID-19 pandemic, with measures put in place in March 2020
to protect our workforce and insulate the Group's ability to
continue production in the event of infections occurring locally at
any of our operations. Measures put in place in March include
administrative staff working from home, minimising contractor
operations and the downsizing of individual teams in operating
areas to allow for social distancing and the option to switch teams
should one team need to go into isolation. The Group continues to
monitor infection rates in all geographic locations in which it
operates, and has a mitigation plan in place that is specific for
each geographic location.
Pellet production rose 5% in 1H 2020 to 5.6 million tonnes,
representing the second highest production volume for the first
half since the Group listed in 2007, and the highest first half
volume produced since 2016. Despite rising production, Group
revenues fell 1% during the period due to lower realised prices,
which were the result of lower pellet premiums. For more
information, please see section titled Iron Ore Market Review (Iron
Ore Pricing). The Group continues to generate strong cash flows and
profit after tax in 1H 2020 was US$250 million, a decrease of 8% on
1H 2019 reflecting lower pellet premiums.
1H 2020 showed stable iron ore prices as demand in China
remained robust, with the Platts iron ore price (65% Fe) starting
the period at US$104 per tonne, and finishing the period US$10 per
tonne higher, with an average of US$106 per tonne. 99% of
Ferrexpo's pellets sold were pellets grading 65% Fe, or above (1H
2019: 96%).
For 50 years, Ferrexpo has produced iron ore pellets for the
global steel sector, as this form of iron ore allows for reduced
energy inputs, slag volumes and carbon dioxide emissions.
Independent research by CRU suggests that for each tonne of
Ferrexpo pellets utilised by steel mills instead of sinter, this
reduces the mill's carbon dioxide emissions by 40%. As a result of
the favourable characteristics of iron ore pellets over other forms
of iron ore such as sinter fines, pellets receive a premium. This
pellet premium averaged US$30 per tonne in 1H 2020, falling from
US$67 per tonne in 1H 2019 due to changing market dynamics in 2020
relating to the global COVID-19 pandemic. For more information,
please see section titled Financial Review.
The Group expects to begin commissioning its latest concentrator
expansion in 2H 2020, which will increase its run of mine ore
processing capacity by approximately 6 million tonnes per annum,
and enable the Company to fully utilise its existing installed
pelletiser capacity of 12 million tonnes per annum in 2021. For
more information, please see Capital Investment section.
The Group is committed to maintaining low net debt and paying
dividends to shareholders (see Dividends section). Capital
allocated to investment will be for incremental high IRR projects
with the goal of sustainably increasing output to approximately 20
million tonnes over the medium term.
Dividends
The Group has reduced gross debt to US$343 million and increased
cash to US$169 million. As a result of the strong cash flow and
resulting liquidity position, the Group is pleased to announce a
further interim dividend of 6.6 US cents per Ordinary Share payable
on 26 August 2020 to shareholders on the register at the close of
business on 14 August 2020. The ex-dividend date will be 13 August
2020. All dividends are paid in UK Pounds Sterling, with an
election to receive in US Dollars.
On 15 June 2020, the Directors declared an interim dividend of
6.6 US cents per Ordinary Share.
Board Membership and Corporate Governance
The Board of Ferrexpo remains committed to maintaining strong
levels of corporate governance practices and transparency
throughout the Group.
During the period, it was announced following the Company's
annual general meeting ("AGM") in May 2020 that Steve Lucas,
Chairman of the Board, has decided to retire as Chairman and resign
from the Board once an orderly succession process has been put in
place. In any event, it is envisaged that Steve will not stand for
re-election at the Company's next AGM.
Since the end of the period, it was announced on 6 July 2020,
that Chris Mawe, Chief Financial Officer ("CFO"), would vacate his
role as a Director of the Company. In addition, the Group announces
today that Chris Mawe is stepping down from his role as CFO, with
Roman Palyvoda assuming the role of Acting CFO until further
notice. As a result, the Board has begun a formal process to
identify and appoint a successor.
Jim North, Acting Chief Executive Officer ("Acting CEO"), joined
the Board on 6 July 2020. In compliance with the UK Corporate
Governance Code, at least half of the Board (excluding the
Chairman) are Independent Non-executive Directors.
As noted in the Company's 2019 Annual Report and Accounts, the
Nominations Committee is already seeking to make a further
appointment of a suitable Independent Non-executive Director to
strengthen the Board and relevant Board Committees. An additional
process to appoint a further new Independent Non-executive Director
and to appoint a new Chairman has commenced and is being led by the
Nominations Committee.
FPM Share Transfer Restriction
On 3 June 2020, the Group advised that the restriction placed on
the transfer of certain shares in Ferrexpo Poltava Mining ("FPM")
held by Ferrexpo AG Switzerland, the sole shareholder in FPM, had
been cancelled following an appeal by the Group. On 19 June 2020,
the Group advised that a new restriction had been placed on the
same shares in FPM that are held by Ferrexpo AG Switzerland. For
further information see Note 17 Commitments, contingencies and
legal disputes.
Iron Ore Market Review
Iron Ore Pricing
During 1H 2020, the iron ore price remained relatively stable,
despite uncertainty relating to the global COVID-19 pandemic, with
the Platts 65% Fe iron ore index rising during the period by 9% to
US$114 per tonne as of 30 June 2020, and averaging US$106 per tonne
throughout the half year period. This average is in line with the
average Platts iron ore price (65% Fe) seen 1H 2019, which averaged
US$105 per tonne. Contributing factors behind the relative
stability in the iron ore price in 1H 2020 included significant
iron ore supply disruptions out of Brazil which counter balanced a
reduction in steel production related to the ongoing global
COVID-19 pandemic and associated economic slowdown. High grade
premiums, defined as the difference between the 62% Fe Index and
the 65% Fe Index, and which represent the price paid for the
additional ferrum and lower impurities in high grade ores, averaged
US$15 per tonne in 1H 2020 (1H 2019: US$14 per tonne).
1H 2019 was notable for record high pellet premiums in addition
to strong iron ore prices following a major disruption to the
supply of Brazilian iron ore in early 2019. These record pellet
premiums tailed off in 2H 2019 as the market rebalanced and steel
demand weakened. During 1H 2020, pellet premiums continued to fall
gradually throughout the period. Lower freight rates, due to
reduced shipping from Brazil and falling global oil prices, offset
much of the fall in pellet premiums throughout1H 2020.
Freight
The C3 freight rate, which is principally used as a freight
reference in the pricing of the Group's sales contracts, was on
average US$13 per tonne in 1H 2020 (1H 2019: US$15 per tonne),
reflecting lower iron ore volumes out of Brazil and lower oil
prices during the period.
Iron Ore Supply
Based on quarterly data from Ferrexpo's peers, Brazilian iron
ore export volumes fell by more than 15% in 1H 2020 compared to 2H
2019 whilst Australian iron ore shipments from the Pilbara,
accounting for the majority of seaborne shipments into China,
exported similar iron ore volumes in 1H 2020 compared to 2H 2019.
However, compared to output from the Pilbara in 1H 2019, which was
affected by tropical cyclones, company data suggests that
production in 1H 2020 was up by approximately 3% year on year. The
supply disruption of Brazilian iron ore has helped support iron ore
prices despite reduced steel demand during the COVID-19
pandemic.
Published data by MySteel(1) shows that stockpiles of imported
iron ore at Chinese ports was c.108 million tonnes at the end of 1H
2020, compared to c.125 million tonnes of iron ore at the start of
the period, implying a drawdown of iron ore inventories during 1H
2020 of c.17 million tonnes. This inventory level is equivalent to
37 days of Chinese steel production(2) which is historically low
and has also served to support iron ore prices during 1H 2020.
Conversely, stocks of imported iron ore pellets at Chinese
ports, which are included in the total inventory figures, rose from
c.5 million tonnes at the start of 1H 2020 to c.9 million tonnes as
of the end of the period(3) , a significant increase and a record
level compared to previous periods. The higher iron ore pellet
inventories in China are attributable to increased pellet
production by exporters from Canada, Ukraine, Sweden and Russia in
1H 2020, whilst weaker demand for pellets from traditional markets
in Europe and Japan that has resulted in increased shipments to the
Chinese market. This has resulted in a decrease in the average
published Platts CFR China 62% Fe spot pellet premium assessment
from US$33 per tonne in 1H 2019 to US$27 per tonne in 1H 2020.
Iron Ore Pellet Supply
Global seaborne pellet supply was up by approximately 4.0
million tonnes in 1H 2020 compared to 1H 2019(4) , with this small
overall increase largely attributable to strong operational
performance and destocking by pellet exporters in Canada, Sweden,
Russia, Chile and Ukraine. However, these gains have been partially
counterbalanced by underperformance in Brazilian pellet supply. The
increases in output seen from producers during 1H 2020 are not
expected to continue into 2H 2020, however, with some producers
announcing plans to supply more concentrate and less pellets to the
market until pellet premiums recover, whilst supply constraints in
Brazil are expected to continue. As the global economy recovers
after the COVID-19 pandemic, the Group expects to see higher pellet
premiums toward the end of the calendar year.
Iron Ore Pellet Demand
According to the World Steel Association, global crude steel
production fell in 1H 2020 by 6% to 873 million tonnes. The year
started with the first two months ahead of the corresponding period
in 2019, however, each month since March 2020 has seen a 5-15% year
on year decline in output. China's steel output, which accounts for
approximately 60% of global steel production, achieved record
levels of production in May and June, having previously seen a
decrease in output in March. The EU and Japan, which account for 8%
and 5% of global steel production respectively, have seen steeper
declines in steel production in 2Q 2020, with both regions
reporting year on year steel output dipping by between 20% and 40%
in April, May and June.
Overall, the World Steel Association expects global steel
production to contract by 6% in 2020, followed by a 4% recovery to
1,717 million tonnes in 2021, as the global economy recovers from
the current COVID-19 crisis.
Regional changes in the global demand for steel are influencing
the regional demand for iron ore pellets and pellet premiums. With
steel production in China now returning to 2019 levels or above,
pellet demand from Chinese steel producers has increased, with
global pellet imports up more than 10.0 million tonnes in 1H 2020
to c.17.5 million tonnes. The Group expects that demand for pellets
in China will continue to increase over the longer term as
pollution controls are implemented across Chinese cities, and
Chinese steel mills transition from lower grade, higher impurity
sources of iron ore and toward higher grade feed stocks including
iron ore pellets.
In 2Q 2020, the World Steel Association reported that steel
production in both the EU and Japan was around 30% below the level
seen 12 months ago, with pellet demand decreasing by approximately
1.5 million tonnes in the EU in 1H 2020. A similar fall in pellet
demand has occurred in Far East Asia (excluding China) and South
East Asia combined. Looking ahead, increasing activity in the
automotive and construction sectors in the EU and Asia suggests
that steel demand is set to increase in 2H 2020. The Group
therefore expects that pellet demand from these regions will
gradually recover to normal levels over the course of 2H 2020.
In the longer term, the Group expects that tighter emissions
controls and regulation, particularly in the EU, will result in
additional demand for high grade, low impurity pellets in the
future. Independent research by CRU has demonstrated the advantage
of lower CO(2) emissions from using additional pellets in the blast
furnace burden instead of sinter fines, primarily the result of
steel producers not required to sinter material before it enters
the blast furnace. This research estimates that steel mills produce
approximately 40% less CO(2) for each tonne of pellet used in place
of sinter fines.
(1)
https://www.mysteel.net/article/channel/mysteel-surveys/inventories-and-stockpiles/breed/steel/steel-raw-materials/1.html
(2) Using CRU estimate of Chinese steel production in 2019 of
977 million tonnes.
(3) Source: MySteel
(4) Management estimate
Ferrexpo Pellet Supply
Despite recent weakness in pellet demand in markets other than
China and falling pellet premiums, the fundamental arguments for
steelmakers to use Ferrexpo's high grade, low impurity iron ore
pellets remain, with increasing demand for raw materials that
reduce energy input requirements, slag volumes and CO(2) emissions
in the steelmaking process while also improving the quality of the
final product. Increasing environmental awareness in China is of
particular significance due to this market consuming an additional
15-20% of the seaborne traded pellet volume in 1H 2020, suggesting
that if this demand is maintained, it will provide support to
pellet premiums as demand in Europe and the rest of Asia
returns.
The Group benefits from having a geographically diverse
portfolio of customers, with Ferrexpo's load port in Ukraine well
positioned to supply steel producers in Europe, North East Asia,
North America, Middle East and China. At current production
volumes, the Group is not constrained by logistics and can supply
the various markets as required. In 1H 2020, the Group redirected
sales towards China, as a result of increased pellet demand in
China and weakness in the European market. As a proportion of the
sales portfolio, China increased from 25% in 2019 to 66% in 1H
2020. The Group expects that this trend will reverse in 2H 2020,
with fewer spot sales and increasing sales under long term
contract, as demand in the EU and Japan returns. The Group has also
commenced production and trial shipments of direct reduction ("DR")
pellets in order to access new markets, with 185kt of DR pellets
sold in 1H 2020. DR pellets represent approximately a third of
global iron ore pellet demand, and therefore, this market
represents an opportunity to further diversify the Group's sales
portfolio adding high quality customers in new geographic
regions.
Financial Review
Despite the uncertainties in the global steel market caused by
the COVID-19 outbreak, the Group realised a strong performance in
1H 2020 driven by higher sales and production volumes, which
increased by 22% and 5% respectively, compared to 1H 2019. The
revenue and profit after tax was US$776 million and US$250 million
compared to US$787 million and US$270 million, respectively, in 1H
2019. Continued strong cash flow generation funded dividend
payments of US$58 million and capital investment of US$96 million
whilst reducing net debt by US$107 million to US$174 million (31
December 2019: US$281 million).
Revenue
Group revenue decreased by 1% to US$776 million in 1H 2020 (1H
2019: US$787 million) principally due to a lower realised average
FOB price in 1H 2020, which was partly offset by a significantly
higher pellets sales volume.
Sales volumes for the period increased by 22% to 6.1 million
tonnes (1H 2019: 5.0 million tonnes), increasing revenue by US$160
million. Lower realised prices during the period mainly reflected a
substantial decrease in premiums paid for iron ore pellets, whereas
iron ore fines price was in line with 1H 2019 due to continuing
supply issues from Brazil. The lower realised prices in 1H 2020
impacted the revenue by US$190 million.
Headline pricing 1H 2020 vs. 1H 2019
(US$ per tonne) 1H 2020 1H 2019 Change
Avg 62% Fe 91 91 -0.3%
--------- ------- ------
Avg 65% Fe Price 106 105 +1%
--------- ------- ------
Avg pellet premium (Platts
Atlantic BF PP) 30 67 -56%
--------- ------- ------
Avg pellet premium (Platts
China BF PP) 27 33 -20%
--------- ------- ------
Note: pellet premiums shown in the table above are paid above
the 62% Fe iron ore price.
Following the COVID-19 outbreak in the first quarter of 2020,
the Chinese economy recovered faster than many other regions and
steel production in China maintained relatively high levels for
most of the period compared to the rest of the world. This compared
to large steel production cuts for the most part of 2Q 2020 in
Europe and Japan. As a result, a significant volume of Ferrexpo's
seaborne iron ore pellets were redirected from Europe and North
East Asia to the Chinese market. This redirection increased the
volume of sales to the spot market compared to previous periods.
The supply of iron ore fines was affected by disruptions at
producers in Brazil supporting the fines prices whereas a lower
demand for iron pellets in traditional pellet markets put some
pressure on the pellet premiums.
For further information, see section titled Iron Ore Market
Review (Iron Ore Pricing) .
Lower freight rates during 1H 2020 , as the Baltic Dry C3 Index
averaged US$12.70 per tonne (1H 2019: US$14.70 per tonne),
positively impacted the Group's net revenue. For further
information, see section titled Iron Ore Market Review (Iron Ore
Pricing).
Costs
C1 Cost of Production (A)
The Group's average C1 cash cost of production A decreased to
US$40.9 per tonne in 1H 2020 compared with US$46.0 per tonne in 1H
2019. The Group's production costs benefited from lower energy
prices and continued cost control measures.
The Group's production costs benefited from lower energy prices,
mainly prices for diesel fuel and gas and electricity, which
account for approximately 33% of the total C1 cash costs. The
electricity prices benefited from the liberalisation of the
electricity market in Ukraine whereas prices for oil and gas were
affected by the drop in prices on the global market during the
first half of 2020. Lower electricity prices reduced C1 costs by
US$1.1 per tonne while lower diesel fuel and gas prices reduced the
C1 cost by US$1.8 per tonne and US$0.9 per tonne, respectively,
compared to 1H 2019.
It is expected that the Group's production costs in 2H 2020
remain subject to the Hryvnia exchange rate fluctuations, local
inflation commodity input prices.
The table below shows the composition Group's C1 cash cost per
tonne:
US$ per tonne % of C1 cost % of C1 cost
1H 2020 1H 2019
Electricity 23% 23%
-------------- --------------
Gas 4% 8%
-------------- --------------
Fuel 7% 10%
-------------- --------------
Materials 17% 16%
-------------- --------------
Spare parts 11% 8%
-------------- --------------
Personnel 12% 10%
-------------- --------------
Maintenance and repairs 8% 9%
-------------- --------------
Grinding media 8% 8%
-------------- --------------
Royalties 7% 6%
-------------- --------------
Explosives 2% 2%
-------------- --------------
Please note: figures in table above may not add up to 100% due
to rounding.
The Group's C1 cost represents the cash costs of production of
iron pellets from own ore (to the mine gate), divided by production
volume from own ore, and excludes non-cash costs such as
depreciation, pension costs and inventory movements, also the costs
of purchased ore, concentrate and gravel.
Selling and Distribution Costs
Total selling and distribution costs were US$162 million (1H
2019: US$132 million). The increase was driven by higher
international freight costs from CFR sales due to an increased
proportion of sales to China. The effect from higher sales volume
to China was partially offset by lower freight rates in 1H 2020
compared to 1H 2019. International freight costs totalled US$73
million compared to US$49 million in 1H 2019.
General, Administrative and Other Expenses
General and administrative and other expenses increased to US$50
million compared with US$45 million in 1H 2019. The increase in 1H
2020 is the net effect from higher research and developments and
personnel costs in Ukraine and lower audit and professional fees.
The total of audit and professional fees in the comparative period
was affected by additional costs incurred in respect of the
independent review into the Blooming Land Charity. For further
information see Note 17 Commitments, contingencies and legal
disputes.
Currency
Ferrexpo prepares its consolidated accounts in US Dollars. The
functional currency of the Ukrainian operations is the Hryvnia
("UAH") and approximately half of the Group's operating costs are
in local currency. In 1H 2020, the Hryvnia depreciated from
UAH23.686 per US Dollar on 1 January to UAH26.692 per US Dollar as
of 30 June 2020. For further information, see section titled Costs
(C1 Cost of Production) above. The total operating forex gains of
US$36 million in 1H 2020 predominantly resulted from the conversion
of US Dollar denominated assets in Ukraine, compared to a loss of
US$16 million in 1H 2019. The local currency depreciated in 1H 2020
compared to the US Dollar, whereas it appreciated in 1H 2019.
Ukrainian Hryvnia vs. US Dollar
Spot (30.07.2020) Opening rate Closing rate Average Average
01.01.2020 30.06.2020 1H 2020 1H 2019
UAH per US$ 27.691 23.686 26.692 25.979 26.932
----------------- -------------- -------------------- ---------------------- --------------------
Source: National Bank of Ukraine
Underlying EBITDA (A)
Underlying EBITDA (A) in 1H 2020 decreased 5% to US$352 million
compared to US$372 million in 1H 2019.
The decrease is primarily driven by the lower realised prices
due to lower pellet premiums in 1H 2020. This effect was partially
offset by a significant higher sales volume. The lower realised
prices in 1H 2020 impacted the revenue by US$190 million, which was
partially by the effect from the higher sales volume accounting for
US$160 million.
Interest
Interest expense declined 49% to US$8 million compared to US$15
million in 1H 2019 due to a lower outstanding debt balance. The
average cost of debt for the period ended 30 June 2020 was 5.6%
(average 1H 2019: 7.5%). The decrease was primarily due to the
repayment of US$173 million Eurobonds with a coupon of 10.375% in
April 2019.
Further details on finance expense are disclosed in Note 7 Net
finance expense of the accounts.
Tax
The income tax expense for 1H 2020 was US$44 million (1H 2019:
US$47 million) based on an expected weighted average tax rate for
the full year 2020 of 15.0%. The applied expected tax rate of 15.0%
is in line with the one applied for 1H 2019. The Group operates
across a number of jurisdictions and its effective tax rate is
subject to various factors outside of the Group's controls. This
includes the volatility in the global iron ore pellet market and
foreign exchange rate movements, primarily between the Ukrainian
Hryvnia and the US Dollar.
The effective tax rate of the financial year 2019 was 12.2%,
reflecting the appreciation of the Ukrainian Hryvnia against the US
Dollar, negatively affecting the profitability of the Group's local
subsidiaries .
Further details on taxation are disclosed in Note 8 Taxation and
Note 17 Commitments, contingencies and legal disputes of the
accounts in respect of ongoing court proceedings.
Profit for the Period
Profit for the period was US$250 million, compared with US$270
million in 1H 2019. The decrease is reflecting the net effect of
the lower underlying EBITDA.
Cash Flows
Net cash flow from operating activities was US$258 million (1H
2019: US$256 million). Working capital reflected a net outflow of
US$25 million, which is the net effect from higher trade
receivables and lower finished goods given the higher volume
shipped during the period and lower trade accounts payable.
During 1H 2020, dividend payments totalled US$58 million,
compared to US$78 million in 1H 2019. Further dividend payments of
US$97 million were declared for payment subsequent to the period
end in respect of a final dividend for 2019 of 3.3 US cents
following approval at the Group's AGM in May 2020. An interim
dividend for 2020 of 6.6 US cents was approved by the Board in June
2020, in addition to an interim dividend of 6.6 US cents approved
by the Board on 4 August 2020.
Capital Investment (A)
Capital expenditure (A) in 1H 2020 was US$96 million compared to
US$114 million in 1H 2019. During the period in 2020, US$13 million
was spent on stripping activities for future production growth,
US$12 million was invested in the concentrate expansion programme,
which is on track for completion by the end of 2020 and is expected
to increase pellet production by up to 1.5 million tonnes per annum
in 2021, and US$ 17 million was invested in the new press
filtration plant. The remaining US$54 million was used for
sustaining and other capital investment.
Debt
Ferrexpo continues to have a strong balance sheet with a low
level of debt. Net debt to EBITDA (A) for the last 12 months was
0.31x compared with 0.48x as of 31 December 2019 (0.44x as at 30
June 2019). The Group's gross debt reduced to US$343 million as of
30 June 2020, compared to US$412 million as of 31 December 2019,
whereas the available cash balance increased to US$169 million as
of 30 June 2020, compared to US$131 million as of 31 December 2019
resulting in a net debt balance of US$174 million as of 30 June
2020 (31 December 2019: US$281 million).
The Group has a US$400 million 2017 PXF facility, of which
US$333 million was fully drawn as of 30 June 2020. This facility
will amortise over twelve quarters and commenced in 1Q 2020.
Related Party Transactions
Related party transactions are disclosed in Note 19 Related
party disclosure to the accounts.
Operational Review
Health and Safety
In 1H 2020, there were no fatalities at the Group's operations
(FY 2019: none).
The Group's Lost Time Injury Frequency Rate ("LTIFR") in 1H 2020
was 0.77 per million man hours, which represents a continuation of
the progress made in safety in 2019, and below the Group's five
year trailing average full year LTIFR of 1.01x.
LTIFR 1H 2020 1H 2019 2019
- FPM 0.83 0.45 0.57
----------- ----------- --------
- FYM 0.82 - -
----------- ----------- --------
- FBM - - -
----------- ----------- --------
Ukraine 0.81 0.38 0.57
----------- ----------- --------
- Barging - 1.80 0.91
----------- ----------- --------
Group 0.77 0.45 0.58
----------- ----------- --------
The Company continues to monitor a number of leading and lagging
indicators of safety, and not just lost time injuries. Leading
indicators of safety includes training hours provided in safety
protocols, and safety audits, whilst lagging indicators include
injury rates and recording of near miss events. The Company is
pleased to report that total injuries fell by 31% in 1H 2020
compared to 2H 2020, and a similar level of decrease was also seen
in the number of near miss and significant incidents during the
period.
Pellet Production and Pellet Quality
The Company's facilities continue to operate with minimal impact
on operations to date, and the Company continues to closely monitor
its workforce. The infection rate in the local communities
surrounding the Company's operations remains low.
Total 1H 2020 pellet production increased 5% to 5.6 million
tonnes (1H 2019: 5.4 million tonnes), with this increase in
production attributable to good performance of both the
concentrator and pelletiser, with reduced downtime in both areas,
completion of the pelletiser refurbishment process in 4Q 2019,
which has resulted in higher productivity rates through the
pelletiser, and reduced volumes of FPP+ pellets. Following the
pelletiser refurbishment process at the end of 2019, the Group has
seen pelletiser availabilities increase by approximately five
percentage points to 86% in 1H 2020. During the period, Ferrexpo's
operations achieved a record monthly production level in its
history, with 1,066kt of pellets producing in April, surpassing the
previous record set in 2016.
Ferrexpo continues to focus on marketing high quality pellets,
which deliver the greatest realised prices and are purchased by
more resilient customers. In 1H 2020, 99% of pellets produced were
the Company's premium pellet type (65% Fe, "FPP"), or above, with
only 98kt of Ferrexpo Basic Pellets produced during the period (1H
2019: 96% FPP, or above). All of the Company's pellets that were
produced in 2019 and 1H 2020 were produced from the Company's own
ore.
As part of its ongoing programme to upgrade pellet quality, and
expand into new markets, the Group sold 185kt of Direct Reduction
("DR") pellets in 1H 2020 as trial shipments to new customers. DR
pellets are higher grade, lower impurity pellets that have a higher
pellet premium than blast furnace pellets. DR pellets represent
approximately a third of the global pellet export market and is a
new market for the Group to market its products into.
Pellet Production:
000' tonnes 1H 2020 1H 2019 Change
========= ========
%
========= ======== ======
Pellet production from
own ore 5,597.9 5,352.5 +4.6
- 62% Fe pellets 98.0 215.0 -54.4
- 65% Fe pellets 5,499.9 5,137.5 +7.1
------------------------ --------- -------- ------
The Group has made good progress in its expansion programme, and
intends to commence commissioning of its new concentrator capacity
in the second half of 2020. This additional processing capacity
will enable the Group to produce excess concentrate and fully
utilise the existing installed 12 million tonnes per annum capacity
of the pelletiser in 2021.
Capital Investment
A summary of current projects under execution in 1H 2020 is
shown in the table below:
Projects to reach Description Status Expected Total cost Spend Remaining
12MTPA completion 1H 2020 spend
New grinding section Process 6MTPA Commissioning 2H 2020 US$42M US$11.7M US$2.1M
of & ramp up
crushed ore (Ramp up)
into pellet
feed
-------------------- ---------------- ------------------- ----------- --------- ----------
Concentrate Decoupling Construction 1H 2021 US$38M US$5.4M US$7.5M
stockyard of concentrator & assembly
& pellet plant works underway
by providing
concentrate
storage capacity
-------------------- ---------------- ------------------- ----------- --------- ----------
Phase 2 expansion
-------------------- ---------------- ------------------- ----------- --------- ----------
Press filtration Replacement Construction Completed in US$115M US$16.9M US$75.6M
plant of disc filtration & assembly 3 phases, each
to reduce moisture works underway phase capable
in balling of processing
plant 9MTPA of
concentrate,
with final
phase to be
completed 2024
-------------------- ---------------- ------------------- ----------- --------- ----------
Medium- and 2 new tracts Construction 4Q 2021 US$36M US$1.1M US$3.8M
Fine-Crushing with average & assembly
('MFC-2') capacity of works underway
800t/h each
-------------------- ---------------- ------------------- ----------- --------- ----------
Logistics
-------------------- ---------------- ------------------- ----------- --------- ----------
Rail cars Continuation No new rail --- --- --- ---
of programme cars purchased
to replace in 1H 2020
state rail
cars.
-------------------- ---------------- ------------------- ----------- --------- ----------
Capital Investment for Future Growth
The Group's approved capital projects are in the table above.
Ferrexpo is on track to reach 12 million tonnes of pellet output by
2021. Ferrexpo is currently considering a series of projects which
will allow expansion of pellet capacity to 20 million tonnes per
annum. This includes further development of the Group's
beneficiating capacity, expansion of the Group's pelletising
capacity and debottlenecking of logistics infrastructure including
rail and port. A preliminary estimate of the required capital
investment per tonne is approximately US$150-US$200 per tonne of
incremental output.
Marketing
Ferrexpo's sales volumes for 1H 2020 increased by 22% to 6.1
million tonnes (1H 2019: 5.0 million tonnes).
Ferrexpo benefits from a diversified sales portfolio with
leading steel mills throughout the world, while its logistics
routes to customers provide a competitive advantage given Ukraine's
central geographical location. Ferrexpo's average shipping duration
to Asia is 33 days compared to its main pellet-producing
competitors in Brazil (39 days shipping time), Canada (54 days) and
Sweden (44 days).
The table below shows the breakdown of sales by key market
regions. Sales to China and South East Asia include sales to
Vietnam and Taiwan.
Sales Volume by Market Regions :
1H 2020 1H 2019 2019
Central Europe 21% 48% 36%
------- ------- ------
North East Asia 3% 21% 16%
------- ------- ------
Western Europe 4% 12% 13%
------- ------- ------
China and South East Asia 67% 12% 30%
------- ------- ------
Turkey, Middle East, North
Africa, India 2% 7% 5%
------- ------- ------
North America 3% - -
------- ------- ------
Total sales volume (thousand
tonnes) 6,107 4,990 10,312
------- ------- ------
Due the global COVID-19 pandemic, market conditions shifted in
1H 2020, with increased demand for iron ore pellets in China in 2Q
2020. Reduced steel production in the EU and other markets in Asia
resulted in increased sales to Chinese customers, with spot sales
into this market increasing to 54% in 1H 2020. The Company expects
to revert to a lower percentage of spot sales in 2H 2020 as global
steel production recovers and market conditions begin to
normalise.
For further information on iron ore prices and freight see
sections titled Iron Ore Market Review and Revenue.
Update on Risks
The Group considers that the principal risks facing the
business, as highlighted on pages 50 to 60 of the 2019 Annual
Report and Accounts published in April 2020, remain relevant. In
addition to the principal risks disclosed in the 2019 Annual Report
and Accounts, the unprecedented situation caused by the COVID-19
outbreak and resulting uncertainties in the global economy requires
additional consideration. An update on the Ferrexpo specific
COVID-19 situation as well as material developments of key risks
during the first half of 2020 is provided below.
Covid-19 outbreak update and considerations
Update on 1H 2020
The safety and wellbeing of our employees is paramount and the
Group took appropriate precautions to mitigate the risk of
infection from the COVID-19 virus at its mining and processing
operations in Ukraine, and also at its other jurisdictions where
employees are based. Ferrexpo has followed and will continue to
follow the advice from health authorities in its different
jurisdictions.
As of the date of approval of these interim condensed
consolidated financial statements, the Group's mining and
processing operation as well as its major distribution channels
have not been affected by the COVID-19 outbreak. Both production
and sales volumes exceeded the volumes achieved in the comparative
period ended 30 June 2019.
However, there has been an impact on the markets into which the
Group sells its products. The COVID-19 outbreak during the first
quarter caused a significant reduction in the demand of iron ore
from certain steel producers, particularly in Europe and Japan.
However, while there were significant steel production cuts for
most of the second quarter in these markets, China maintained high
levels of steel production for most of the period. As a result, a
significant volume of Ferrexpo's seaborne iron ore pellets were
redirected from Europe and North East Asia to the Chinese
market.
Whilst the iron ore fines price was in line with 1H 2019, there
was a steady decrease in the premiums paid for iron ore pellets
during the period due to lower demand for iron pellets in the
traditional pellet markets in Europe and Japan.
Consideration of significant judgements and material
uncertainties
As in the past, the key judgements for the Group's going concern
assessment are related to the expected prices for iron ore pellets
and their demand in the Group's key markets. The Group has
successfully navigated through the first months of the COVID-19
outbreak and remained highly cash generative. However, the Board
appreciates that the continued spread of COVID-19 in some countries
is likely to have a significant impact on the global economy and
its recovery.
Notwithstanding this, as of the date of the approval of these
interim condensed consolidated financial statements, the Board
considers the risk of material uncertainties that may cast
significant doubt upon the Group's ability to meet its debt
amortisation obligations and to continue as a going concern to be
low, but will continue to monitor future developments. This
conclusion is based on the Group's successful response to the first
months of the COVID-19 outbreak, its available balance of cash and
cash equivalents, its continued high cash generation during this
unprecedented period and the debt amortisation profile of its major
debt facility. Further, sufficient mitigating factors remain
available to the Group, such as working capital measures, the
timing of development capital expenditures and shareholder
distributions, to address any significant adverse changes.
Stress testing and going concern assessment
The Group operates in an industry with a history of price
volatility, and the risk in respect of price realisations is
addressed in the Group's going concern assessment. The Group's
current going concern assessment is based on its latest long-term
model, which was updated in June 2020. As in the past, various
sensitivity scenarios which considered lower realised prices,
higher production costs and lower production volumes have been
tested. In light of the heightened uncertainties in terms of
COVID-19, the Group performed additional reverse stress tests in
order to address the risk of a more serious demand disruption in
the Group's key markets and heightened risk of price
volatility.
In assessing the Group's going concern assumption and long-term
viability, the Group has considered the balance of cash and cash
equivalents available at the date of authorisation of the interim
condensed consolidated financial statements, its cash flow
projections for the period of the going concern assessment and the
available mitigating factors to react to possible adverse changes
in the global economy affecting its key markets.
Whilst the Group does currently not have any committed undrawn
bank debt facilities, the Board concluded that the Group has
sufficient liquidity to meet its present obligations and cover
working capital needs for the period to be covered by the going
concern assessment. Taking into account the Group's low gearing,
the risk of non-compliance with financial covenants is also
considered to be low. It is the Directors' view that the Group is
resilient to the current uncertainties caused by the COVID-19
outbreak and, as a result, the Group continues to adopt the going
concern basis of accounting for the preparation of these interim
condensed consolidated financial statements .
Outlook
At this time, it is extremely difficult to predict the
development of the COVID-19 pandemic and its impact on the global
economy, but it is to be expected that the associated uncertainties
will persist for a prolonged period. However, having successfully
navigated through the first months of the COVID-19 outbreak, the
Group expects to be able to rely on the experience gained and that
it will again be able to redirect its pellet sales in order to
benefit from favourable demand dynamics in the respective markets.
It is expected that the recovery of the steel markets in Europe and
Japan will be slower than in China and that the demand of the
Chinese steel producers will remain at the level as seen in the
first half of 2020. The Group's business model is considered to be
sustainable based on its competitive cost position on the iron ore
cost curve, which provides additional resilience to adverse changes
in the market.
At the time of the announcement of the 2019 results in March
2020, the Board deferred its decision to declare dividends in order
to preserve available cash during this unprecedented period of
uncertainty. However, following the continued strong cash
generation during the second quarter of 2020, the Group resumed its
dividend payments. Further dividend payments have been considered
in the Group's long-term model during the period covered by the
going concern assessment, although these, together with development
capital expenditures, are seen as available mitigating factors in
case of significant adverse changes in the different markets.
See also the Group's going concern statement on page 22.
Global Steel Demand and Realised Price
The Group's realised price is principally impacted by demand for
iron ore which is highly correlated to global demand for steel and
steel mill profitability. In 1H 2020, in light of the global
COVID-19 pandemic, steel profit margins across the globe fell to
the extent that steel producers began to close production
facilities and idle blast furnaces. This negatively affected short
term demand for iron ore, and introduces additional risk associated
with the timing of these facilities restarting.
The iron ore forward curve for 62% Fe iron ore fines is
currently in backwardation with delivery in December 2020 at $98
per tonne compared to spot on 31 July 2020 of approximately US$111
per tonne. The expected price fall is due to lower forecast steel
demand relating to the global COVID-19 pandemic. For further
information, see Iron Ore Market Review (Iron Ore Supply).
Lower iron ore fines prices will reduce the Group's realised
price and profitability.
Pellet Premiums
Historically, pellet premiums have been correlated to steel mill
profitability as they are the most productive source of iron in a
blast furnace and thus trade at a price premium to other types of
iron ores. When steel producer profitability is under pressure the
reduction in usage of higher cost raw materials could lead to lower
demand for iron ore pellets and or a fall in pellet premiums.
Lower pellet premiums will reduce the Group's realised price and
profitability.
Market Mix
In 1H 2020, pellet premiums in China averaged US$27 per tonne
compared with the average Platts Atlantic Blast Furnace pellet
premium of US$30 per tonne over the 62% Fe index. A temporary
change in sales mix with more volume sold under short-term spot
contracts and less under long-term contracts could have an impact
on the average realised price and the Group profitability.
Freight Rates
The Group's received price is subject to freight market
volatility with higher freight rates reducing the Group's realised
price returns. In 1H 2020, the Baltic Exchange C3 freight index(3)
decreased by US$2 per tonne to US$13 per tonne compared to 1H 2019.
Freight rates are largely influenced by the price of oil and demand
for seagoing vessels from bulk commodity producers. As of 31 July
2020, freight rates had risen 36% to US$18 per tonne compared to
the average for 1H 2020. An increase in freight rates will reduce
the Group's received price and its profitability.
Committee of Independent Directors' Review of FC Vorskla Cyprus
Limited
As disclosed in the 2019 Annual Report & Accounts, the Board
has been making enquiries in connection with the sponsorship
payments previously made to FC Vorskla Cyprus Limited following the
identification of a related party loan made by FC Vorskla Cyprus
Limited to Collaton Limited, a related party of the Group.
Sponsorship payments have in the past been made by Ferrexpo Middle
East FZE to two entities: FC Vorskla Cyprus Limited, a company
incorporated in the Republic of Cyprus, and FC "Vorskla" LLC, a
company incorporated in Ukraine (together, "FC Vorskla").
The Board's enquiries, which are being led by the Committee of
Independent Directors (the "CID"), are ongoing. Together with its
third party legal and forensic accountant advisers, the CID has
requested information from FC Vorskla and other third parties about
the use of the loan proceeds. The CID has received written
confirmations from FC "Vorskla" LLC, FC Vorskla Cyprus Limited and
Kostyantin Zhevago , a controlling shareholder of Ferrexpo plc who
also controls FC Vorskla, detailing the use of the funds in
connection with the renovation and construction of certain FC
Vorskla stadiums and training grounds in Ukraine. Additionally, the
CID has been informed that, on completion of the capital projects,
these assets will be subject to a sale and leaseback and the
proceeds will then be used to fully repay the loan made by FC
Vorskla Cyprus Limited to Collaton Limited.
Once its enquiries are complete, and/or the loan repaid,
Ferrexpo will update the market by way of public announcement as
appropriate. For further information see Note 19 Related party
disclosures.
3 Seaborne freight rates, such as C3, are published by the
Baltic Exchange and represent the cost for ocean transportation of
iron ore from the Brazilian port of Tubarão (where the largest
seaborne suppliers of pellets are based) to Qingdao, China (the
largest steel producing country in the world). As Ferrexpo sells to
international customers, the price it receives includes reference
to C3 or other global benchmarks.
Directors' Responsibility Statement
The Interim Report complies with the Disclosure and Transparency
Rules ("DTR") of the United Kingdom's Financial Conduct Authority
in respect of the requirement to produce a half-yearly financial
report. The preparation of the Interim Report for the six months
ended 30 June 2020 in accordance with applicable laws, regulations
and accounting standards is the responsibility of, and has been
approved by, the Directors.
We confirm that to the best of our knowledge:
-- the condensed set of consolidated financial statements has
been prepared in accordance with IAS 34 as adopted by the European
Union;
-- the Interim Management Report includes a fair review of the
important events that have occurred during the first six months of
the financial year and their impact on the condensed financial
statements, and description of the principal risks and
uncertainties for the remaining six months of the financial year,
as required by DTR4.2.7R; and
-- the Interim Management Report includes a fair review of
disclosures of material related party transactions that have
occurred in the first six months of the financial year and of
material changes in the related party transactions described in the
2019 Annual Report, as required by DTR 4.2.8R.
The Directors are also responsible for the maintenance and
integrity of the Ferrexpo plc website.
A list of current Directors is maintained on the Ferrexpo plc
website which can be found at www.ferrexpo.com.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
For and on behalf of the Board
Steve Lucas
Non-executive Chairman
Jim North
Acting Chief Executive Officer
4 August 2020
Independent Review Report to Ferrexpo Plc
Introduction
We have been engaged by Ferrexpo plc (the 'Company) to review
the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2020 which
comprises the Interim Consolidated Income Statement, the Interim
Consolidated Statement of Comprehensive Income, the Interim
Consolidated Statement of Financial Position, the Interim
Consolidated Statement of Cash Flows, the Interim Consolidated
Statement of Changes in Equity, and the related Notes 1 to 20. We
have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely for the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in Note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
MHA MacIntyre Hudson
Statutory Auditor
London
4 August 2020
Interim Consolidated Income Statement
Year-ended
6 months ended 30.06.20 6 months ended 30.06.19 31.12.19
US$000 Notes (unaudited) (unaudited) (audited)
Revenue 3/4 775,831 787,111 1,506,724
Operating expenses 5 (516,236) (443,517) (968,443)
Other operating income 2,019 1,956 5,614
Operating foreign exchange gains/(losses) 6 35,773 (16,002) (46,752)
--------------------------------------------- ------ ------------------------ ------------------------ -----------
Operating profit 297,387 329,548 497,143
--------------------------------------------- ------ ------------------------ ------------------------ -----------
Share of profit from associates 2,476 2,982 4,114
Profit before tax and finance 299,863 332,530 501,257
--------------------------------------------- ------ ------------------------ ------------------------ -----------
Net finance expense 7 (7,504) (14,379) (23,191)
Non-operating foreign exchange
gains/(losses) 6 1,635 (303) (18,491)
--------------------------------------------- ------ ------------------------ ------------------------ -----------
Profit before tax 293,994 317,848 459,575
--------------------------------------------- ------ ------------------------ ------------------------ -----------
Income tax expense 8 (44,086) (47,497) (56,282)
--------------------------------------------- ------ ------------------------ ------------------------ -----------
Profit for the period/year 249,908 270,351 403,293
--------------------------------------------- ------ ------------------------ ------------------------ -----------
Profit attributable to:
Equity shareholders of Ferrexpo plc 249,904 269,435 402,370
Non-controlling interests 4 916 923
--------------------------------------------- ------ ------------------------ ------------------------ -----------
Profit for the period/year 249,908 270,351 403,293
--------------------------------------------- ------ ------------------------ ------------------------ -----------
Earnings per share:
Basic (US cents) 9 42.6 45.9 68.6
Diluted (US cents) 9 42.4 45.8 68.4
--------------------------------------------- ------ ------------------------ ------------------------ -----------
Interim Consolidated Statement of Comprehensive Income
6 months ended Year ended
US$000 Notes 30.06.20 6 months ended 30.06.19 31.12.19
(unaudited) (unaudited) (audited)
Profit for the period/year 249,908 270,351 403,293
Items that may subsequently be reclassified to profit
or loss:
Exchange differences on translating foreign
operations 6 (213,632) 80,791 266,163
Income tax effect 10,977 (7,065) (20,487)
Net other comprehensive (loss)/income that may be
reclassified to profit or loss in subsequent
periods (202,655) 73,726 245,676
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement gains/(losses) on defined benefit
pension liability 71 (1,379) (6,898)
Income tax effect - 207 -
------------------------------------------------------ ------ --------------- ------------------------ -----------
Net other comprehensive income/(loss) not being
reclassified to profit or loss in subsequent
periods 71 (1,172) -
------------------------------------------------------ ------ --------------- ------------------------ -----------
Other comprehensive (loss)/income for the
period/year, net of tax (202,584) 72,554 238,778
------------------------------------------------------ ------ --------------- ------------------------ -----------
Total comprehensive income for the period/year, net
of tax 47,324 342,905 642,071
------------------------------------------------------ ------ --------------- ------------------------ -----------
Total comprehensive income attributable to:
Equity shareholders of Ferrexpo plc 47,315 340,544 639,722
Non-controlling interests 9 2,361 2,349
------------------------------------------------------ ------ --------------- ------------------------ -----------
47,324 342,905 642,071
------------------------------------------------------ ------ --------------- ------------------------ -----------
Interim Consolidated Statement of Financial Position
As at As at As at
US$000 Notes 30.06.20 31.12.19 30.06.19
(unaudited) (audited) (unaudited)
Assets
Property, plant and equipment 10 989,894 1,044,426 821,779
Right-of-use assets 11 7,893 10,976 8,066
Goodwill and other intangible assets 41,711 47,552 42,419
Investments in associates 6,462 8,064 6,167
Inventories 13 218,414 255,026 233,432
Other non-current assets 18,510 24,093 38,109
Deferred tax assets 34,268 38,608 30,121
------------------------------------------------------------ ------ ------------ ------------ ------------
Total non-current assets 1,317,152 1,428,745 1,180,093
------------------------------------------------------------ ------ ------------ ------------ ------------
Inventories 13 167,260 199,714 185,149
Trade and other receivables 108,970 99,864 127,205
Prepayments and other current assets 37,315 42,653 33,881
Income taxes recoverable and prepaid 8 174 184 70
Other taxes recoverable and prepaid 12 28,993 37,377 34,729
Cash and cash equivalents 3/14 169,226 131,020 91,937
Total current assets 511,938 510,812 472,971
------------------------------------------------------------ ------ ------------ ------------ ------------
Total assets 1,829,090 1,939,557 1,653,064
------------------------------------------------------------ ------ ------------ ------------ ------------
Equity and liabilities
Issued capital 18 121,628 121,628 121,628
Share premium 185,112 185,112 185,112
Other reserves 18 (1,967,069) (1,764,808) (1,936,915)
Retained earnings 2,982,672 2,810,622 2,721,736
------------------------------------------------------------ ------ ------------ ------------ ------------
Equity attributable to equity shareholders of Ferrexpo plc 1,322,343 1,352,554 1,091,561
------------------------------------------------------------ ------ ------------ ------------ ------------
Non-controlling interest 87 78 90
------------------------------------------------------------ ------ ------------ ------------ ------------
Total equity 1,322,430 1,352,632 1,091,651
------------------------------------------------------------ ------ ------------ ------------ ------------
Interest-bearing loans and borrowings 3/15 204,950 274,011 307,214
Defined benefit pension liability 31,492 33,628 24,149
Provision for site restoration 2,840 3,016 2,155
Deferred tax liabilities 102 140 650
------------------------------------------------------------ ------ ------------ ------------ ------------
Total non-current liabilities 239,384 310,795 334,168
------------------------------------------------------------ ------ ------------ ------------ ------------
Interest-bearing loans and borrowings 3/15 138,538 138,367 66,937
Trade and other payables 54,382 65,627 76,279
Accrued liabilities and contract liabilities 28,284 39,257 32,519
Income taxes payable 8 34,768 21,248 40,367
Other taxes payable 11,304 11,631 11,143
------------------------------------------------------------ ------ ------------ ------------ ------------
Total current liabilities 267,276 276,130 227,245
------------------------------------------------------------ ------ ------------ ------------ ------------
Total liabilities 506,660 586,925 561,413
------------------------------------------------------------ ------ ------------ ------------ ------------
Total equity and liabilities 1,829,090 1,939,557 1,653,064
------------------------------------------------------------ ------ ------------ ------------ ------------
The financial statements were approved by the Board of Directors
on 4 August 2020.
Steve Lucas Jim North
Chairman Acting Chief Executive Officer
Interim Consolidated Statement of Cash Flows
6 months ended 6 months ended Year ended
US$000 Notes 30.06.20 30.06.19 31.12.19
(unaudited) (unaudited) (audited)
Profit before tax 293,994 317,848 459,575
Adjustments for:
Depreciation of property, plant and equipment, right-of-use
assets and amortisation of intangible
assets 5 51,374 39,649 82,130
Finance expense 7 6,248 13,727 21,267
Finance income 7 (372) (901) (1,436)
Losses/(gains) on disposal of property, plant and equipment 5 877 (59) 417
Cash elements included in losses on disposal of property,
plant and equipment (211) (52) (153)
(Write-backs)/write-offs 5 (71) (337) 1,241
Share of profit from associates (2,476) (2,982) (4,114)
Movement in allowance for doubtful receivables 1,385 133 736
Movement in site restoration provision 167 99 437
Employee benefits 2,450 1,460 3,534
Share-based payments 399 514 1,022
Operating foreign exchange (gains)/losses 6 (35,773) 16,002 46,752
Non-operating foreign exchange (gains)/losses 6 (1,635) 303 18,491
Other adjustments (807) (3,134) (7,307)
--------------------------------------------------------------- ------ --------------- --------------- -----------
Operating cash flow before working capital changes 315,549 382,270 622,592
--------------------------------------------------------------- ------ --------------- --------------- -----------
Changes in working capital:
Increase in trade and other receivables (8,378) (44,963) (23,479)
Decrease/(increase) in inventories 18,270 (35,590) (37,152)
(Decrease)/increase in trade and other payables (incl. accrued
and contract liabilities) (38,947) (1,017) 19,590
Decrease in other taxes recoverable and payable (incl. VAT) 4,153 11,401 11,371
--------------------------------------------------------------- ------ --------------- --------------- -----------
Cash generated from operating activities 290,647 312,101 592,922
--------------------------------------------------------------- ------ --------------- --------------- -----------
Interest paid (12,949) (20,138) (33,932)
Income tax paid (18,758) (35,536) (83,730)
Post-employment benefits paid (968) (911) (1,884)
--------------------------------------------------------------- ------ --------------- --------------- -----------
Net cash flows from operating activities 257,972 255,516 473,376
--------------------------------------------------------------- ------ --------------- --------------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment and intangible
assets (95,989) (113,968) (247,478)
Proceeds from disposal of property, plant and equipment and
intangible assets 469 547 1,165
Interest received 289 859 1,344
Dividends from associates 1,987 1,612 3,519
Acquisition of non-controlling interests - - (2,189)
--------------------------------------------------------------- ------ --------------- ---------------
Net cash flows used in investing activities (93,244) (110,950) (243,639)
--------------------------------------------------------------- ------ --------------- --------------- -----------
Cash flows from financing activities
Proceeds from borrowings and finance 15 - 185,000 225,000
Repayment of borrowings and finance 15 (67,459) (219,848) (223,774)
Principal elements of lease payments 15 (1,111) (3,224) (5,118)
Arrangement fees paid - (131) (131)
Dividends paid to equity shareholders of Ferrexpo plc 9 (58,419) (77,763) (154,922)
--------------------------------------------------------------- ------ --------------- --------------- -----------
Net cash flows used in financing activities (126,989) (115,966) (158,945)
--------------------------------------------------------------- ------ --------------- --------------- -----------
Net increase in cash and cash equivalents 37,739 28,600 70,792
Cash and cash equivalents at the beginning of the period/year 131,020 62,996 62,996
Currency translation differences 467 341 (2,768)
--------------------------------------------------------------- ------ --------------- --------------- -----------
Cash and cash equivalents at the end of the period/year 14 169,226 91,937 131,020
--------------------------------------------------------------- ------ --------------- --------------- -----------
Interim Consolidated Statement of Changes in Equity
For the financial year
2019 and the six months
ended Attributable to equity shareholders
30 June 2020 of Ferrexpo plc
------------------------------------------------------------
Issued Other reserves Retained Total capital Non-controlling Total
US$000 capital Share premium (Note 18) Earnings and reserves interests equity
At 31 December
2018
(audited) 121,628 185,112 (2,010,080) 2,568,187 864,847 2,050 866,897
Profit for the
period - - - 402,370 402,370 923 403,293
Other
comprehensive
income/(loss) - - 244,250 (6,898) 237,352 1,426 238,778
--------------- --------- -------------- --------------- ---------- --------------- ---------------- ----------
Total
comprehensive
income for
the year - - 244,250 395,472 639,722 2,349 642,071
Equity
dividends to
the
shareholders
of Ferrexpo
plc (Note 9) - - - (155,087) (155,087) - (155,087)
Effect from
increase of
shareholding
in subsidiary - - - 2,050 2,050 (4,321) (2,271)
Share-based
payments - - 1,022 - 1,022 - 1,022
At 31 December
2019
(audited) 121,628 185,112 (1,764,808) 2,810,622 1,352,554 78 1,352,632
--------------- --------- -------------- --------------- ---------- --------------- ---------------- ----------
Profit for the
period - - - 249,904 249,904 4 249,908
Other
comprehensive
(loss)/income - - (202,660) 71 (202,589) 5 (202,584)
--------------- --------- -------------- --------------- ---------- --------------- ---------------- ----------
Total
comprehensive
(loss)/income
for the
period - - (202,660) 249,975 47,315 9 47,324
Equity
dividends
paid to
shareholders
of Ferrexpo
plc (Note 9) - - - (77,925) (77,925) - (77,925)
Share-based
payments - - 399 - 399 - 399
--------------- --------- -------------- --------------- ---------- --------------- ---------------- ----------
At 30 June
2020
(unaudited) 121,628 185,112 (1,967,069) 2,982,672 1,322,343 87 1,322,430
--------------- --------- -------------- --------------- ---------- --------------- ---------------- ----------
For the six
months ended Attributable to equity shareholders
30 June 2019 of Ferrexpo plc
------------------------------------------------------------
Issued Share Other reserves Retained Total capital Non-controlling Total
US$000 capital premium (Note 18) earnings and reserves interests equity
At 31 December
2018
(audited) 121,628 185,112 (2,010,080) 2,568,187 864,847 2,050 866,897
Profit for the
period - - - 269,435 269,435 916 270,351
Other
comprehensive
income/(loss) - - 72,651 (1,542) 71,109 1,445 72,554
--------------- --------- --------- --------------- --------------- --------------- ---------------- ----------
Total
comprehensive
income for
the period - - 72,651 267,893 340,544 2,361 342,905
Equity
dividends
paid to
shareholders
of Ferrexpo
plc (Note 9) - - - (116,394) (116,394) - (116,394)
Effect form
increase of
shareholding
subsidiary - - - 2,050 2,050 (4,321) (2,271)
Share-based
payments - - 514 - 514 - 514
--------------- --------- --------- --------------- --------------- --------------- ---------------- ----------
At 30 June
2019
(unaudited) 121,628 185,112 (1,936,915) 2,721,736 1,091,561 90 1,091,651
--------------- --------- --------- --------------- --------------- --------------- ---------------- ----------
Notes to the Interim Condensed Consolidated Financial
Statements
Note 1: Corporate information
Organisation and operation
Ferrexpo plc (the "Company") is incorporated in England, which
is considered to be the country of domicile, with its registered
office at 55 St James's Street, London, SW1A 1LA, UK. Ferrexpo plc
and its subsidiaries (the "Group") operate two mines and a
processing plant near Kremenchug in Ukraine, have an interest in a
port in Odessa and sales and marketing activities around the world
including offices in Switzerland, Dubai, Japan, China, Singapore
and Ukraine. The Group also owns logistics assets in Austria which
operates a fleet of vessels operating on the Rhine and Danube
waterways and an ocean going vessel which provides top off
services. The Group's operations are vertically integrated from
iron ore mining through to iron ore concentrate and pellet
production and subsequent logistics. The Group's mineral properties
lie within the Kremenchug Magnetic Anomaly and are currently being
extracted at the Gorishne-Plavninske-Lavrykivske ("GPL") and
Yerystivske deposits.
The majority shareholder of the Group is Fevamotinico S.a.r.l.
("Fevamotinico"), a company incorporated in Luxembourg.
Fevamotinico is ultimately wholly owned by The Minco Trust, of
which Kostyantin Zhevago, the Group's previous Chief Executive
Officer, is one of the beneficiaries. At the time this report was
published, Fevamotinico held 50.3% (31 December 2019: 50.3%; 30
June 2019: 50.3%) of Ferrexpo plc's issued share capital.
The Group's interests in its subsidiaries are held indirectly by
the Company, with the exception of Ferrexpo AG, which is directly
held. The Group's consolidated subsidiaries are disclosed in the
Additional Disclosures of the 2019 Annual Report &
Accounts.
At 30 June 2020, the Group also holds through PJSC Ferrexpo
Poltava Mining an interest of 49.9% (31 December 2019: 49.9%; 30
June 2019: 49.9%) in TIS Ruda LLC, a Ukrainian port located on the
Black Sea. As this is an associate, it is accounted for using the
equity method of accounting.
Note 2: Summary of significant accounting policies
Basis of preparation
The interim condensed consolidated financial statements for the
six months period ended 30 June 2020 have been prepared in
accordance with International Accounting Standard ('IAS') 34
Interim Financial Reporting. The interim condensed consolidated
financial statements do not include all of the information and
disclosures required in the annual financial statements and should
be read in conjunction with the Group's annual financial statements
for the year ended 31 December 2019 .
The interim condensed consolidated financial statements do not
constitute statutory accounts as defined in section 435 of the
Companies Act 2006. The financial information for the full year is
based on the statutory accounts for the financial year ended 31
December 2019. A copy of the statutory accounts for that year,
which were prepared in accordance with International Financial
Reporting Standards ('IFRSs') issued by the International
Accounting Standard Board ('IASB'), as adopted by the European
Union as they apply to financial statements of the Group for the
year ended 31 December 2019, have been delivered to the Registrar
of Companies. The auditors' report under section 495 of the
Companies Act 2006 in relation to those accounts was unqualified
and did not contain a statement under sections 498(2) or 498(3) of
the Companies Act 2006.
The comparative period ended 30 June 2019 included in the
interim condensed consolidated financial statements has not been
audited or reviewed by auditors pursuant to the Auditing Practices
Board guidance on Review of interim financial information and do
not include all of the information required for full annual
financial statements.
Going concern
The Group has assessed that, taking into account: i) its
available cash and cash equivalents available at the date of
authorisation of the interim condensed consolidated financial
statements; ii) its cash flow projections for the period of
management's going concern assessment; and iii) events and
conditions beyond the period of management's going concern
assessment, it has sufficient liquidity to meet its present
obligations and cover working capital needs for the aforementioned
period and will remain in compliance with its financial covenants
throughout this period. Therefore, the Group continues to adopt the
going concern basis of accounting for the preparation of this set
of financial statements. See the update on risks on page 12 in
respect of the Group's relevant COVID-19 related
considerations.
Accounting policies adopted
The accounting policies and methods of computation adopted in
the preparation of the interim condensed consolidated financial
statements are consistent with those followed in the preparation of
the Group's annual financial statements for the year ended 31
December 2019 except for the adoption of the new standards that
became effective as of 1 January 2020.
New standards, interpretations and amendments adopted without
impact on the Group's consolidated financial statements
-- Amendments to References to the Conceptual Framework in IFRS
standards introduce a new chapter on measurement, guidance on
reporting financial performance, improved definitions of an asset
and a liability and clarifications in areas such as the roles of
stewardship, prudence and measurement uncertainty in financial
reporting.
-- Amendments to IAS 1 and IAS 8: Definition of material
introduce a revised definition of material information. In the new
definition, reference is made to the concepts of obscured
information and reasonable expectation that the information is
going to influence the decisions that the primary users of general
purpose financial statements make on the basis of those financial
statements.
New standards, interpretations and amendments not yet
adopted
-- Amendments to IAS 1 Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current were issued
in January 2020 and are effective for the financial year beginning
on 1 January 2022 subject to EU endorsement. The amendments clarify
that the classification of liabilities as current or non-current
should be based on the rights, in existence at the end of the
reporting period, to defer settlement by at least twelve months and
not on expectations about whether an entity will exercise these
rights. Furthermore, the amendments clarify that settlement refers
to the transfer to the counterparty of cash, equity instruments,
other assets or services. The Group does not expect a material
impact on its consolidated financial statements from these
amendments.
The Group does not expect a material impact on its consolidated
financial statements from all other standards, interpretations and
amendments issued at the reporting date, but not yet to be adopted
for these financial statements.
Use of critical estimates and judgements
In the course of preparing financial statements, management has
to make estimates and judgements that can have a significant impact
on the Group's consolidated financial statements. The most critical
accounting estimates include the recoverability of capitalised lean
and weathered ore while significant judgements relate to taxation
in terms of the tax legislation in Ukraine and the use of payments
made in previous years to a related party for the legitimate
purposes.
The use of inaccurate assumptions in assessments made for any of
these estimates and judgements could result in a significant impact
on the Group's financial position and/or financial performance. The
detailed description of the critical estimates and judgements is
disclosed in the Group's 2019 Annual Report & Accounts.
Seasonality
The Group's operations are not affected by seasonality.
Note 3: Segment information
The Group is managed as a single segment, 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 Underlying EBITDA, gross profit and net
debt.
Underlying EBITDA and gross profit
The Group presents the Underlying EBITDA as it is a useful
measure for evaluating the Group's ability to generate cash and its
operating performance. The Group's full definition of Underlying
EBITDA is disclosed in the Glossary on page 37.
6 months ended Year ended
US$000 Notes 30.06.20 6 months ended 30.06.19 31.12.19
(unaudited) (unaudited) (audited)
Profit before tax and finance 299,863 332,530 501,257
Losses/(gains) on disposal of property, plant and
equipment 5 877 (59) 417
Share based payments 399 514 1,022
(Write-backs)/write-offs 5 (71) (337) 1,241
Depreciation and amortisation 5 51,374 39,649 82,130
------------------------------------------------------ ------ --------------- ------------------------ -----------
Underlying EBITDA 352,442 372,297 586,067
------------------------------------------------------ ------ --------------- ------------------------ -----------
6 months ended Year ended
US$000 Notes 30.06.20 6 months ended 30.06.19 31.12.19
(unaudited) (unaudited) (audited)
Revenue 4 775,831 787,111 1,506,724
Cost of sales 5 (304,974) (266,851) (581,743)
--------------- ------ --------------- ------------------------ -----------
Gross profit 470,857 520,260 924,981
--------------- ------ --------------- ------------------------ -----------
Net debt
Net debt as defined by the Group comprises cash and cash
equivalents less interest-bearing loans and borrowings.
US$000 Notes As at 30.06.20 As at 31.12.19 As at 30.06.19
(unaudited) (audited) (unaudited)
Cash and cash equivalents 14 169,226 131,020 91,937
Interest-bearing loans and borrowings - current 15 (138,538) (138,367) (66,937)
Interest-bearing loans and borrowings - non-current 15 (204,950) (274,011) (307,214)
----------------------------------------------------- ------ --------------- --------------- ---------------
Net debt (174,262) (281,358) (282,214)
----------------------------------------------------- ------ --------------- --------------- ---------------
The Group's balance of cash and cash equivalents increased by
US$38,206 thousand after debt repayments net of proceeds of
US$68,790 thousand during the period ended 30 June 2020 (31
December 2019: U S$4,374 thousand; 30 June 2019: US$38,326
thousand). Net debt is an Alternative Performance Measure ("APM").
Further information on the APMs used by the Group, including the
definitions, is provided on pages 35 and 36.
Note 4: Revenue
Revenue for the six months period ended 30 June 2020 consisted
of the following:
6 months ended Year ended
US$000 30.06.20 6 months ended 30.06.19 31.12.19
(unaudited) (unaudited) (audited)
Revenue from sales of iron ore pellets and concentrate 686,415 725,089 1,352,953
Freight revenue related to sales of iron ore pellets and
concentrate 64,139 30,933 94,617
------------------------------------------------------------ --------------- ------------------------ -----------
Total revenue from sale of iron ore pellets and concentrate 750,554 756,022 1,447,570
------------------------------------------------------------ --------------- ------------------------ -----------
Revenue from logistics and bunker business 22,513 29,807 54,168
Revenue from other sales and services provided 2,764 1,282 4,986
Total revenue 775,831 787,111 1,506,724
------------------------------------------------------------ --------------- ------------------------ -----------
Information on the commodity risk related to provisionally
priced sales are provided in Note 16 Financial instruments.
Total revenue from sales of iron ore pellets and concentrate by
geographical destination were as follows:
6 months ended Year ended
US$'000 30.06.20 6 months ended 30.06.19 31.12.19
(unaudited) (unaudited) (audited)
Central Europe 144,836 352,534 529,159
Western Europe 30,809 89,495 183,560
North East Asia 23,707 165,116 250,721
China and South East Asia 516,243 100,089 412,613
Turkey, Middle East and India 12,482 39,988 62,717
North America 22,477 - -
Others - 8,800 8,800
Total revenue from sale of iron ore pellets and concentrate 750,554 756,022 1,447,570
------------------------------------------------------------ --------------- ------------------------ -----------
The Group markets its products across various regions. The
disclosure of the segmentation reflects how the Group makes its
business decisions and monitors its sales. Information about the
composition of the regions is provided in the Glossary.
Note 5: Operating expenses
Operating expenses for the six months period ended 30 June 2020
consisted of the following:
6 months ended Year ended
US$000 Notes 30.06.20 6 months ended 30.06.19 31.12.19
(unaudited) (unaudited) (audited)
Cost of sales 304,974 266,851 581,743
Selling and distribution expenses 161,634 131,714 294,336
General and administrative expenses 30,499 32,553 66,036
Other operating expenses 19,129 12,399 26,328
Total operating expenses 516,236 443,517 968,443
---------------------------------------------- --------------- ------------------------ -----------
Operating expenses include:
Inventories recognised as an expense upon sale of goods 291,374 249,368 551,141
Employee costs (excl. logistics and bunker business) 53,832 46,771 101,770
Inventory movements 29,608 (14,550) (2,673)
Depreciation of property, plant and equipment and right-of-use assets 3 50,734 39,281 81,240
Amortisation of intangible assets 3 640 368 890
Royalties and levies 15,823 14,531 30,506
Costs of logistics and bunker business 19,245 26,817 49,587
Audit and non-audit services 919 2,521 3,229
Community support donations 2,506 3,120 5,893
(Write-backs)/write-offs (71) (337) 1,241
Losses/(gains) on disposal of property, plant and equipment 877 (59) 417
Audit and non-audit services for the comparative year ended 31
December 2019 include US$1,834 thousand relating to audit services
provided by the previous audit firm of the Group for the period
ended 31 December 2018 (30 June 2019: US$1,810 thousand).
Note 6: Foreign exchange losses and gains
Foreign exchange losses and gains for the six months period
ended 30 June 2020 consisted of the following:
6 months ended Year ended
US$000 30.06.20 6 months ended 30.06.19 31.12.19
(unaudited) (unaudited) (audited)
Operating foreign exchange gains/(losses)
Revaluation of trade receivables 35,906 (16,356) (47,229)
Revaluation of trade payables (92) 352 523
Others (41) 2 (46)
------------------------------------------------------ --------------- ------------------------ -----------
Total operating foreign exchange gains/(losses) 35,773 (16,002) (46,752)
------------------------------------------------------ --------------- ------------------------ -----------
Non-operating foreign exchange gains/(losses)
Revaluation of interest-bearing loans (110) 4,230 (1,240)
Conversion of cash and cash equivalents 675 (1,324) (4,255)
Others 1,070 (3,209) (12,996)
------------------------------------------------------ --------------- ------------------------ -----------
Total non-operating foreign exchange gains/(losses) 1,635 (303) (18,491)
------------------------------------------------------ --------------- ------------------------ -----------
Total foreign exchange gains/(losses) 37,408 (16,305) (65,243)
------------------------------------------------------ --------------- ------------------------ -----------
Operating foreign exchange gains and losses are those items that
are directly related to the production and sale of pellets (e.g.
trade receivables, trade payables on operating expenditure).
Non-operating gains and losses are those associated with the
Group's financing and treasury activities and with local income tax
payables.
The translation differences and foreign exchange gains and
losses are predominantly dependent on the fluctuation of the
exchange rate of the Ukrainian Hryvnia against the US Dollar. The
table below shows the closing and average rate of the most relevant
currencies of the Group compared to the US Dollar.
Average exchange rate Closing exchange rate
Against US$ 6 months ended 6 months ended Year ended As at As at As at
30.06.20 30.06.19 31.12.19 30.06.20 31.12.19 30.06.19
UAH 25.979 26.932 25.846 26.692 23.686 26.166
EUR 0.907 0.885 0.893 0.890 0.893 0.880
------------- --------------- --------------- ----------- ---------- ---------- ----------
Exchange differences arising on translation of non-USD
functional currency operations (mainly in Ukrainian Hryvnia) are
included in the translation reserve. See Note 18 Share capital and
reserves for further details.
Note 7: Net finance expense
Net finance expense for the period ended 30 June 2020 consisted
of the following:
6 months ended Year ended
US$000 30.06.20 6 months ended 30.06.19 31.12.19
(unaudited) (unaudited) (audited)
Finance expense
Interest expense on loans and borrowings (12,879) (18,629) (33,589)
Less capitalised borrowing costs 7,563 6,356 14,617
Interest on defined benefit plans (1,628) (1,299) (2,730)
Bank charges (413) (287) (710)
Interest expense on lease liabilities (310) (254) (630)
Other finance costs (209) (1,167) (1,585)
------------------------------------------- --------------- ------------------------ -----------
Total finance expense (7,876) (15,280) (24,627)
------------------------------------------- --------------- ------------------------ -----------
Finance income
I nterest income 335 873 1,379
Other finance income 37 28 57
------------------------------------------- --------------- ------------------------ -----------
Total finance income 372 901 1,436
------------------------------------------- --------------- ------------------------ -----------
Net finance expense (7,504) (14,379) (23,191)
------------------------------------------- --------------- ------------------------ -----------
Note 8: Taxation
The Group pays corporate profit tax in a number of jurisdictions
and its tax rate is influenced by the mix of profits primarily
between Ukraine, Switzerland, the United Kingdom and Dubai, as well
as the level of non-deductible expenses for tax purposes in each of
these jurisdictions. For the period ended 30 June 2020, the income
tax expense was based on an expected weighted average tax rate of
15% for the financial year 2020, compared to an effective tax rate
of 12.2% for the financial year 2019. The Group's future effective
tax rate could be impacted by legislative changes, changes in the
statutory tax rates in any of its key jurisdictions and unexpected
adverse outcome in relation to the ongoing court proceedings
mentioned below.
As disclosed in Note 17 Commitments, contingencies and legal
disputes, the Group is involved in an ongoing court proceeding in
respect of its cross-border transactions and an unexpected adverse
outcome would have an adverse impact on the Group's total income
tax expense and its effective tax rate.
Year ended
US$000 6 months ended 30.06.20 31.12.19 6 months ended 30.06.19
(unaudited) (audited) (unaudited)
Income tax receivable balance 174 184 70
Income tax payable balance (34,768) (21,248) (40,367)
-------------------------------- ------------------------ ----------- ------------------------
Net income tax payable (34,594) (21,064) (40,297)
-------------------------------- ------------------------ ----------- ------------------------
Note 9: Earnings per share and dividends paid and proposed
Basic EPS is calculated by dividing the net profit for the
period attributable to ordinary equity shareholders of Ferrexpo plc
by the weighted average number of Ordinary Shares.
Diluted earnings per share are calculated by adjusting the
weighted average number of Ordinary Shares in issue on the
assumption of conversion of all potentially dilutive Ordinary
Shares. All share awards are potentially dilutive and have been
considered in the calculation of diluted earnings per share.
Year ended 31.12.19
6 months ended 30.06.20 (unaudited) 6 months ended 30.06.19 (unaudited) (audited)
Earnings for
the
period/year
attributable
to equity
shareholders
- per share
in US cents
Basic 42.6 45.9 68.6
Diluted 42.4 45.8 68.4
Profit for
the year
attributable
to equity
shareholders
- US$000
Basic and diluted
earnings 249,904 269,435 402,370
Weighted
average
number of
shares -
thousands
Basic number of
ordinary shares
outstanding 587,294 586,508 586,715
Effect of dilutive
potential ordinary
shares 1,581 1,770 1,568
-------------------- ------------------------------------ ------------------------------------ --------------------
Diluted number of
ordinary shares
outstanding 588,875 588,278 588,283
-------------------- ------------------------------------ ------------------------------------ --------------------
The basic number of ordinary shares is calculated by subtracting
the weighted average of shares held in treasury and employee
benefit trust reserves from the total number of ordinary shares in
issue.
Dividends proposed and paid
Taking into account relevant thin capitalisation rules and
dividend-related covenants for the Group's major bank debt
facilities, the remaining available distributable reserves of
Ferrexpo plc after taking into account the proposed dividends in
the table below is US$46,257 thousand for the remainder of the
financial year 2020.
6 months ended Year ended
US$000 30.06.20 6 months ended 30.06.19 31.12.19
(unaudited) (unaudited) (audited)
Dividends proposed
Interim dividend for 2020: 6.6 US cents per Ordinary Share
(1) 38,788 - -
Interim dividend for 2020: 6.6 US cents per Ordinary Share
(2) 38,788 - -
Final dividend for 2019: 3.3 US cents per Ordinary Share
(3) 19,394 - -
Special interim dividend for 2019: 6.6 US cents per
Ordinary Share - - 38,736
Interim dividend for 2019: 6.6 US cents per Ordinary Share - 38,737 -
Total dividends proposed 96,970 38,737 38,736
------------------------------------------------------------ --------------- ------------------------ -----------
(1) Declared on 4 August 2020 and expected to be paid on 26 August 2020
(2) Declared on 15 June 2020 and paid on 3 July 2020
(3) Declared on 21 April 2020 and paid on 2 July 2020
6 months ended Year ended
US$000 30.06.20 6 months ended 30.06.19 31.12.19
(unaudited) (unaudited) (audited)
Dividends paid during the period
Final special dividend for 2019: 3.3 US cents per Ordinary
Share 19,458 - -
Special interim dividend for 2019: 6.6 US cents per
Ordinary Share 38,961 - -
Interim dividend for 2019: 6.6 US cents per Ordinary Share - - 38,621
Final dividend for 2018: 6.6 US cents per Ordinary Share - - 38,621
Final special dividend for 2018: 6.6 US cents per Ordinary
Share - 38,888 38,847
Special interim dividend for 2018: 6.6 US cents per
Ordinary Share - 38,875 38,833
Total dividends paid during the period 58,419 77,763 154,922
------------------------------------------------------------ --------------- ------------------------ -----------
Although accounts are published in US Dollars and dividends are
declared in US Dollars, the shares are denominated in UK Pounds
sterling and dividends are therefore paid in UK Pounds
Sterling.
Note 10: Property, plant and equipment
During the six months period ended 30 June 2020, the additions
to property, plant and equipment totalled US$109,766 thousand (30
June 2019: US$123,619 thousand; 31 December 2019: US$320,613
thousand) and the net book value of the disposals of property,
plant and equipment totalled US$1,023 thousand (30 June 2019:
US$1,187 thousand; 31 December 2019: US$5,231 thousand). The total
depreciation charge for the period was US$51,971 thousand (30 June
2019: US$40,116 thousand; 31 December 2019: US$91,944
thousand).
The carrying value of property, plant and equipment includes
capitalised borrowing costs on qualifying assets of US$46,399
thousand (31 December 2019: US$44,693 thousand; 30 June 2019:
US$33,053 thousand) .
Note 11: Leases
During the six months period ended 30 June 2020, the additions
to the right-of-use assets totalled US$85 thousand (30 June 2019:
US$2,114 thousand; 31 December 2019: US$7,222 thousand). The total
depreciation charge for the period was US$2,321 thousand (30 June
2019: US$1,795 thousand; 31 December 2019: US$5,265 thousand).
As at 30 June 2020, the carrying amount of the lease liabilities
consisted of the following:
US$000 As at 30.06.20 As at 31.12.19 As at 30.06.19
(unaudited) (audited) (unaudited)
Non-current 4,950 6,580 5,703
Current 3,694 3,540 2,276
-------------- --------------- --------------- ---------------
The total cash outflow for leases falling under the scope of
IFRS 16 Leases during the period ended 30 June 2020 was US$1,330
thousand (31 December 2019: US$5,600 thousand; 30 June 2019:
US$3,478 thousand). During the period ended 30 June 2020 US$156
thousand was recognised as an expense in the consolidated income
statement in respect of short-term leases with a corresponding
impact on the net cash flows from operating activities (31 December
2019: US$425 thousand; 30 June 2019: US$241 thousand). Furthermore,
interest expense on lease liabilities in the amount of US$310
thousand was recognised in the consolidated income statement during
the period ended 30 June 2020 (31 December 2019: US$630 thousand;
30 June 2019: US$254 thousand).
Note 12: Other taxes recoverable and prepaid
As at 30 June 2020, taxes recoverable and prepaid comprised:
US$000 As at 30.06.20 As at 31.12.19 As at 30.06.19
(unaudited) (audited) (unaudited)
VAT receivable 28,743 37,262 34,491
Other taxes prepaid 250 115 238
-------------------------------------------- --------------- --------------- ---------------
Total other taxes recoverable and prepaid 28,993 37,377 34,729
-------------------------------------------- --------------- --------------- ---------------
As at 30 June 2020, US$27,499 thousand of the VAT receivable
relates to the Group's Ukrainian business operations (31 December
2019: US$ 35,381 thousand; 30 June 2019: US$33,131 thousand) of
which US$34 thousand (31 December 2019: US$809 thousand; 30 June
2019: US$653 thousand) was overdue. Management is of the opinion
that the overdue balances will be recovered during the next 12
months in full.
The total VAT receivable balance shown in the table above is net
of an allowance of US$1,836 thousand (31 December 2019: US$ 2,090
thousand; 30 June 2019: US$914 thousand) to reflect the
uncertainties in terms of the timing of the recovery of VAT
receivable balances.
Note 13: Inventories
As at 30 June 2020, inventories comprised:
US$000 As at 30.06.20 As at 31.12.19 As at 30.06.19
(unaudited) (audited) (unaudited)
Lean and weathered ore 9,867 2,226 -
Raw materials and consumables 43,824 43,008 42,216
Spare parts 78,815 81,782 71,676
Finished ore pellets 27,212 59,010 64,680
Work in progress 5,038 11,393 3,105
Other 2,504 2,295 3,472
---------------------------------- --------------- --------------- ---------------
Total inventories - current 167,260 199,714 185,149
---------------------------------- --------------- --------------- ---------------
Lean and weathered ore 218,414 255,026 233,432
---------------------------------- --------------- --------------- ---------------
Total inventories - non-current 218,414 255,026 233,432
---------------------------------- --------------- --------------- ---------------
Total inventories 385,674 454,740 418,581
---------------------------------- --------------- --------------- ---------------
Inventories are held at the lower of cost or net realisable
value.
Inventories classified as non-current comprise lean and
weathered ore that are, based on the Group's current processing
plans, not planned to be processed within the next twelve months.
It is the Group's intention to start processing a portion of the
lean and weathered ore in the second half of the financial year
2020. It is however expected that it will take more than 12 months
to process the entire stockpile, depending on the Group's future
mining activities, processing capabilities and anticipated market
conditions.
Note 14: Cash and cash equivalents
As at 30 June 2020, cash and cash equivalents comprised:
US$000 Notes As at 30.06.20 As at 31.12.19 As at 30.06.19
(unaudited) (audited) (unaudited)
Cash at bank and on hand 169,226 131,020 91,937
--------------------------------- ------ --------------- --------------- ---------------
Total cash and cash equivalents 3 169,226 131,020 91,937
--------------------------------- ------ --------------- --------------- ---------------
The debt repayments net of proceeds during the period ended 30
June 2020 totalled US$68,790 thousand (31 December 2019: US$4,374
thousand; 30 June 2019: US$38,326 thousand) affecting the balance
of cash and cash equivalents. Further information on the Group's
gross debt is provided in Note 15 Interest-bearing loans and
borrowings.
The balance of cash and cash equivalents held in Ukraine amounts
to US$32,140 thousand as at 30 June 2020 (31 December 2019: US$
28,351 thousand; 30 June 2019: US$25,074 thousand).
Note 17 Commitments, contingencies and legal disputes provides
details on the Group's balance of restricted cash and deposits,
which has been fully provided for during the financial years 2015
and 2016 as not available to the Group.
Note 15: Interest-bearing loans and borrowings
This note provides information about the contractual terms of
the Group's interest-bearing loans and borrowings, which are
measured at amortised cost and denominated in US Dollars.
US$000 Notes As at 30.06.20 As at 31.12.19 As at 30.06.19
(unaudited) (audited) (unaudited)
Current
Syndicated bank loans - secured 133,333 133,333 60,000
Other bank loans - secured - - 3,167
Other bank loans - unsecured 1,511 1,494 1,494
Lease liabilities 3,694 3,540 2,276
Total current interest-bearing loans and borrowings 3 138,538 138,367 66,937
--------------------------------------------------------- ------ --------------- --------------- ---------------
Non-current
Syndicated bank loans - secured 200,000 266,667 300,000
Other bank loans - unsecured - 764 1,511
Lease liabilities 4,950 6,580 5,703
Total non-current interest-bearing loans and borrowings 3 204,950 274,011 307,214
--------------------------------------------------------- ------ --------------- --------------- ---------------
Total interest-bearing loans and borrowings 343,488 412,378 374,151
--------------------------------------------------------- ------ --------------- --------------- ---------------
At 30 June 2020 and 31 December 2019, the Group has a syndicated
revolving pre-export finance facility, which is fully drawn, with
outstanding amounts of US$333,333 thousand and US$400,000 thousand,
respectively. As the end of the comparative period ended 30 June
2019, US$360,000 thousand was drawn and US$40,000 thousand was
available to the Group. Following a one-year grace period, the
facility is amortised in 12 quarterly instalments, commencing on 7
February 2020 and the final repayment due on 6 November 2022.
The aforementioned bank debt facility was guaranteed and secured
as follows:
-- Ferrexpo AG and Ferrexpo Middle East FZE, which are also
joint borrowers, assigned the rights to revenue from certain sales
contracts;
-- PJSC Ferrexpo Poltava Mining assigned all of its rights of
certain export contracts for the sale of pellets to Ferrexpo AG and
Ferrexpo Middle East FZE; and
-- the Group pledged bank accounts of Ferrexpo AG and Ferrexpo
Middle East FZE into which sales proceeds from certain assigned
sales contracts are exclusively received.
For the revolving syndicated pre-export finance facility,
arrangement fees are presented in prepayments and current assets
and other non-current assets based on the maturity of the
underlying facility and are amortised on a straight-line basis over
the term of the facility.
The table below shows the movements in the interest-bearing
loans and borrowings:
6 months ended 6 months ended
US$000 30.06.20 Year ended 31.12.19 30.06.19
(unaudited) (audited) (unaudited)
Opening balance of interest-bearing loans and borrowings 412,378 401,858 401,858
Cash movements
Repayments of Eurobond issued - (173,181) (173,181)
Proceeds from syndicated bank loans - secured - 225,000 185,000
Repayments of syndicated bank loans - secured (66,667) (20,000) (20,000)
Repayments of other bank loans - secured - (9,560) (6,546)
Repayments of other bank loans - unsecured (793) (1,717) (805)
Principal and interest elements of lease payments (1,330) (5,600) (3,478)
Change of trade finance facilities, net - (19,316) (19,316)
Total cash movements (68,790) (4,374) (38,326)
---------------------------------------------------------- --------------- -------------------- ---------------
Non-cash movements
Amortisation of prepaid arrangement fees 20 1,462 1,195
First-time adoption IFRS 16 Leases - 7,701 7,701
Additions to lease liabilities 78 5,297 1,331
Others (incl. translation differences) (198) 434 392
---------------------------------------------------------- --------------- -------------------- ---------------
Total non-cash movements (100) 14,894 10,619
---------------------------------------------------------- --------------- -------------------- ---------------
Closing balance of interest-bearing loans and borrowings 343,488 412,378 374,151
---------------------------------------------------------- --------------- -------------------- ---------------
Further information on the Group's exposure to interest rate,
foreign currency and liquidity risk is provided in Note 27
Financial instruments of the 2019 Annual Report & Accounts.
Note 16: Financial instruments
Fair values
Set out below are the carrying amounts of the Group's financial
instruments that are carried in the interim consolidated statement
of financial position:
US$000 As at 30.06.20 As at 31.12.19 As at 30.06.19
(unaudited) (audited) (unaudited)
Financial assets
Cash and cash equivalents 169,226 131,020 91,937
Trade and other receivables 108,970 99,864 127,205
Other financial assets 583 402 450
----------------------------------------- --------------- --------------- ---------------
Total financial assets 278,779 231,286 219,592
----------------------------------------- --------------- --------------- ---------------
Financial liabilities
Trade and other payables 54,382 65,627 76,279
Accrued liabilities 22,316 29,209 27,956
Interest-bearing loans and borrowings 343,488 412,378 374,151
Total financial liabilities 420,186 507,214 478,386
----------------------------------------- --------------- --------------- ---------------
Interest-bearing loans and borrowings
The fair values of interest-bearing loans and borrowings are
based on the discounted cash flows using market interest rates. The
fair values of interest-bearing loans and borrowings totalled
US$340,115 thousand (31 December 2019: US$406,838 thousand; 30 June
2019: US$ 366,850 thousand).
Other financial assets and liabilities
The fair values of cash and cash equivalents, trade and other
receivables and payables, other financial assets and accrued
liabilities are approximately equal to their carrying amounts due
to their short maturity.
Commodity risk
Revenues related to provisionally priced sales are initially
recognised at the estimated fair value of the consideration
receivable based on the forward price at each reporting date for
the relevant period outlined in the different contracts. As a
consequence, the receivable balance may change in a future period
when final invoices can be issued based on final iron ore prices to
be applied according to the specific underlying contract terms. The
provisionally priced iron ore exposure as at 30 June 2020 was
1,215,000 tonnes (31 December 2019: 701,000 tonnes; 30 June 2019:
291,000 tonnes) and gave rise to a fair value gain relating to the
embedded provisional pricing mechanism of US$909 thousand as at 30
June 2020 (31 December 2019: US$4,905 thousand; 30 June 2019:
US$3,819 thousand). Final iron ore prices based on the relevant
index are normally known within 60 days after the reporting period.
The difference between the provisionally priced receivable balance
recognised as at 30 June 2020 and the receivable balance taking
into account known final and latest forward prices is US$12,391
thousand (31 December 2019: US$464 thousand; 30 June 2019:
US$(2,015) thousand) and would have increased the consolidated
result and the shareholders' equity by this amount.
Where pricing terms deviate from the index-based pricing model,
derivative commodity contracts may be used to swap the pricing
terms to the iron ore index price.
Finished goods are held at cost without revaluation to a spot
price for iron ore pellets at the end of the reporting period, as
long as the recoverable amount exceeds the cost basis.
Note 17: Commitments, contingencies and legal disputes
Commitments
Commitments as at 30 June 2020 consisted of the following:
US$000 As at 30.06.20 As at 31.12.19 As at 30.06.19
(unaudited) (audited) (unaudited)
Total commitments for the lease of mining land (out of the scope
of IFRS 16) 26,120 29,910 26,647
Total future minimum rental payments - - 2,275
Total future contingent rental payments (IFRS 16) 16,479 15,068 13,062
Total capital commitments on purchase of property, plant and
equipment 52,913 116,509 93,734
----------------------------------------------------------------- --------------- --------------- ---------------
Commitments for the lease of mining land
These commitments relate to the agreements for the use of mining
land, which fall out of the scope of IFRS 16 Leases.
Future minimum rental payments
These commitments relate to leases under the scope of IFRS 16 to
which the lessee is committed, but the leases did not commence.
Future commitments for contingent rental payments
These commitments include expected future cash flows for periods
after 12 months of the reporting period, which are dependent on
non-fixed rates related to the long-term portion of leases of land
not used for the direct extraction of ore and accounted for under
IFRS 16. The short-term portion of these leases is recognised as
lease liability in the statement of financial position. See Note 11
Leases for further details.
Contingencies
On 4 February 2019, the Group announced that it had commissioned
an independent review (the "Independent Review") into the Group's
relationship with Blooming Land and its sub-funds (the "Charity")
and the use of the total funds of US$110,000 thousand donated by
the Group to the Charity during the financial years 2013 to 2018.
The Independent Review Committee ("IRC") and its advisers have
undertaken a significant amount of work in connection with the
Independent Review between February and August 2019.
After careful consideration of the report received from its
advisers together with the work of the IRC itself, the IRC
announced on 30 August 2019 that it is satisfied that none of the
Group's Directors, management or employees have had any involvement
in any possible misappropriation of funds by the Charity. At the
same time, the IRC reaffirmed its conclusion that the Charity is
not a related party of the Group, Kostyantin Zhevago (the Group's
previous Chief Executive Officer and a controlling shareholder of
Ferrexpo plc) or its executive management, as defined under
applicable accounting standards or Chapter 11 of the UK Listing
Rules.
If any of the critical judgements outlined in Note 7 Operating
expenses and/or Note 34 Related party disclosures in the 2019
Annual Report and Accounts and/or the conclusions of the IRC are
incorrect, in whole or in part, including as a result of
information not currently known to the Group, or new information
becomes available, which enables the Group to form conclusions,
which were not or could not be reached by the IRC, liabilities
(including fines and penalties) may accrue to the Group. At the
current time, the existence, timing and quantum of potential future
liability, if any, including fines, penalties or damages, which
could be material or other consequences arising from the
Independent Review cannot be determined and measured reliably and,
as a consequence, no associated liabilities have been recognised in
relation to these matters in the consolidated statement of
financial position as of 30 June 2020.
As disclosed in Note 19 Related party disclosures, the Board,
acting through the Committee of Independent Directors (the "CID"),
has been making enquiries into a loan relationship between related
parties of the Group involving FC Vorskla Cyprus Limited. In the
event that any of the payments made by the Group to FC Vorskla
Cyprus Limited or the loan provided by FC Vorskla Cyprus Limited to
Collaton Limited have not been fully used for the benefit of the
football club, or there has been any non-compliance with legal,
regulatory or other requirements, liabilities (including fines and
penalties) may accrue to the Group. At the current time, the
existence, timing or quantum of potential future liabilities, if
any, cannot be determined and measured reliably and, as a
consequence, no associated liabilities have been recognised in
relation to these matters in the consolidated statement of
financial position as of 30 June 2020. See Note 19 Related party
disclosures for further information.
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.
Deposit Guarantee Fund and liquidator of Bank F&C
The Group's former transactional bank in Ukraine, Bank F&C
("BFC"), is still going through the liquidation process after
having been declared insolvent by the National Bank of Ukraine and
put under temporary administration on 18 September 2015. The Group,
through its major subsidiaries in Ukraine, is engaged in various
court proceedings with the aim to maximise its recovery in the
liquidation process of BFC as disclosed below.
Following the commencement of the liquidation process of BFC and
in accordance with the applicable local legislation, PJSC Ferrexpo
Poltava Mining ("FPM"), LLC Ferrexpo Yeristovo Mining ("FYM") and
LLC Ferrexpo Belanovo Mining ("FBM"), collectively referred to as
"Ukrainian subsidiaries", submitted on 21 January 2016 their claims
for cash and deposit balances held with BFC on the date of
introduction of temporary administration totalling UAH4,262 million
(US$159,673 thousand as of 30 June 2020).
On 22 April 2016, the liquidator of BFC issued certificates
recognising UAH540 million (US$20,231 thousand as of 30 June 2020)
of these claims and recognised these claims in the ninth rank. The
afore-mentioned Ukrainian subsidiaries are still involved in legal
proceedings in respect of the under-recognition of the claims
amounting to UAH3,722 million (US$139,443 thousand as of 30 June
2020) and the ranking of the claims in the liquidation process.
The court proceedings commenced in October 2016 and, following
various hearings during the financial year 2017, the relevant court
instance dismissed on 25 October 2017 FPM's claim in full. FPM
filed an appeal on 13 November 2017 and several hearings took place
following the filing of FPM's appeal without a ruling on the
parties' motions by the Kyiv Commercial Court of Appeal. During the
hearing on 18 July 2018, the court ruled in favour of FPM and the
counterparty subsequently filed its cassation appeal against this
decision. On 11 December 2018, the Supreme Court of Ukraine upheld
the cassation appeal and the case was directed for new
consideration to the Northern Commercial Court of Appeal. On 19
June 2019, the Northern Commercial Court of Appeal satisfied the
claim of FPM and the opposing party filed a cassation appeal. On 31
October 2019, the Supreme Court cancelled the decision of the
Northern Commercial Court of Appeal and directed the case to this
court instance for new consideration. A hearing by the Northern
Commercial Court of Appeal is scheduled to take place on 3
September 2020. FYM's claim on the same matter was dismissed by the
Kyiv Commercial Court on 6 February 2019 and FYM filed its appeal
against this decision on 28 February 2019. On 20 May 2019, the
Northern Commercial Court of Appeal dismissed the appellate claim
of FYM in full and FYM filed its cassation claim on 18 June 2019.
On 20 August 2019, the Supreme Court upheld the appeal of FYM and
directed the case to the court of first instance for new
consideration. A hearing by Kyiv Commercial Court is scheduled to
take place on 10 September 2020. In relation to the claims of FBM,
the Northern Commercial Court of Appeal dismissed FBM's appeal on
11 March 2019 and FBM filed its cassation appeal on 2 April 2019.
On 19 June 2019, the Supreme Court of Ukraine dismissed the
cassation appeal of FBM.
The outcomes of the aforementioned legal proceedings will not
have an adverse impact on the Group's financial result in future
periods as a full allowance was recorded for the claimed amounts
during the financial year 2015.
In relation to the aforementioned insolvency of BFC, an
investigating judge of the Pecherskyi District Court of Kyiv City
granted in November 2019 an order to arrest (freeze) certain assets
in connection with the investigation involving Kostyantin Zhevago
and BFC (the "Order"). The assets subject to the order include
50.3% of Ferrexpo AG's ("FAG") shareholding in FPM. FAG filed an
appeal against the order and the Kyiv Court of Appeal satisfied on
2 June 2020 this appeal and cancelled the arrest of FAG's share in
FPM.
On 17 June 2020, FPM received an official notification that an
investigating judge of the Pecherskyi District Court of Kyiv City
granted again an order to arrest 50.3% of FAG's shares in FPM. FAG
filed on 22 June 2020 an appeal against this order.
Based on legal advice received and the fact that the legal
situation of the second order is similar to the first one, the
Board of Ferrexpo expects that the appeal should be also
successful, as the order has no proper or reasonable basis under
Ukrainian law. This was affirmed by fact that the Kyiv Court of
Appeal satisfied already FAG's first appeal. As it was the case for
the first order, the second order does not affect ownership of the
shares in FPM, but prohibits their transfer, and has had no impact
on the operations of the Group. As the possibility of an outflow of
economic resources is considered to be remote, the order does not
constitute a contingent liability.
Taxation
Tax legislation in Ukraine
The Group prices its sales between its subsidiaries using
international benchmark prices for comparable products covering
product quality and applicable freight costs. The Group judges
these to be on terms, which comply with applicable legislation. In
August 2017, the State Fiscal Service of Ukraine ("SFS") commenced
a tax audit for the period from 1 September 2013 to 31 December
2015 at the Group's major subsidiary in Ukraine with a focus on
cross-border transactions in terms of its pellet sales to another
subsidiary of the Group. Following the completion of this audit,
the SFS issued its official tax audit report on 27 December 2018,
claiming a tax adjustment totalling UAH448 million (US$16,784
thousand as of 30 June 2020) and issued the formal claim on 12
March 2019. The Group's subsidiary initiated legal proceedings and
filed a claim to the first court instance in Poltava on 22 March
2019. The Poltava court of first court instance confirmed on 4
September 2019 the position of the Group's major subsidiary. The
SFS filed its appeal in November 2019 and the Second Administrative
Court of Appeal confirmed on 21 December 2019 the decision of the
first court instance and supported the position of the Group's
subsidiary in full. The SFS subsequently filed an application of
cassation to the Supreme Court of Ukraine and, as of the date of
approval of these interim condensed consolidated financial
statements, the date of the hearing is unknown.
On 18 February 2020, the SFS commenced two new tax audits for
cross-border transactions between the Group's major subsidiary in
Ukraine and two subsidiaries of the Group outside of Ukraine in
relation to the sale of iron ore products during the financial
years 2015 to 2017. The audits have been halted due to quarantine
procedures in place in Ukraine and it is currently unknown when the
audits will resume.
The Group considers that it has complied with applicable
legislation for all cross-border transactions undertaken and
continues to expect that it can successfully defend its methodology
applied to determine the prices between its subsidiaries.
Consequently, no provision has been recorded as at 30 June 2020,
neither for the years subject to the aforementioned court
proceedings nor for transactions and years subject to the newly
commenced audits by the SFS in Ukraine. As of the approval of these
interim condensed consolidated financial statements, no claim has
been made by the SFS in respect of the newly commenced audits.
As required under IFRIC 23 Uncertainty over income tax
treatments, the Group reviewed and reassessed its exposure in
respect of all uncertain tax positions, including the ongoing court
proceedings and the newly commenced audits of cross-border
transactions in Ukraine under the provisions of this
interpretation. Considering the two favourable court decisions and
further third party advice obtained for the year-end 2019, the
management of the Group concluded that it is still probable that
the Supreme Court of Ukraine will also rule in favour of the
Group's major subsidiary in Ukraine and that, if any new claims
should be made by the SFS, the Group will continue to successfully
defend its pricing methodology applied during these years. An
unexpected outcome of the ongoing court proceeding would have an
adverse impact on the Group's total income tax expense and
effective tax rate in a future period.
Detached from the cases mentioned above, FPM received on 23 June
2020 a court ruling, which grants access to information and
documents to the State Bureau of Investigators in Ukraine ("SBI")
in relation to the sale of iron ore products to two subsidiaries of
the Group outside of Ukraine during the years 2013 to 2019. The
court ruling relates to pre-trial investigations carried out by SBI
in relation to potential tax evasion by the Group in Ukraine. At
the time of the approval of these interim condensed consolidated
financial statements, there is very little information provided in
the court ruling in respect to the alleged offences. There is no
quantified claim made by the SBI and the ruling is primarily
seeking for disclosure of information in order to allow SBI to
determine whether there have potentially been any offences. The
Ukrainian subsidiaries are cooperating with the SBI and providing
the requested information as per the court ruling in order to
support these pre-trial investigations.
Note 18: Share capital and reserves
The share capital of Ferrexpo plc at 30 June 2020 was
613,967,956 (31 December 2019: 613,967,956; 30 June 2019:
613,967,956) Ordinary Shares at par value of GBP0.10 paid for cash,
resulting in share capital of US$121,628 thousand, which is
unchanged since the Group's Initial Public Offering in June 2007.
This balance includes 25,343,814 shares (31 December 2019:
25,343,814 shares; 30 June 2019: 25,343,814 shares), which are held
in treasury, resulting from a share buyback that was undertaken in
September 2008, and 924,899 shares held in the employee benefit
trust reserve (31 December 2019: 1,702,056 shares; 30 June 2019:
1,702,056 shares).
The translation reserve includes the effect from the exchange
differences arising on translation of non-US Dollar functional
currency operations (mainly in Ukrainian Hryvnia). The exchange
differences arising on translation of the Group's foreign
operations are initially recognised in the other comprehensive
income. See also the Interim Consolidated Statement of
Comprehensive Income on page 18 of these financial statements for
further details.
As at 30 June 2020 other reserves attributable to equity
shareholders of Ferrexpo plc comprised:
For the financial
year 2019 and the
6 months ended
30.06.20
Uniting of Treasury share Employee benefit Translation Total other
US$000 interest reserve reserve trust reserve reserve reserves
At 1 January 2019 31,780 (77,260) (3,848) (1,960,752) (2,010,080)
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Foreign currency
translation
differences - - - 264,737 264,737
Tax effect - - - (20,487) (20,487)
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Total
comprehensive
income for the
year - - - 244,250 244,250
Share based
payments - - 1,022 - 1,022
------------------- ------------------- ------------------- ------------------ ------------------- --------------
At 31 December
2019 (audited) 31,780 (77,260) (2,826) (1,716,502) (1,764,808)
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Foreign currency
translation
differences - - - (213,637) (213,637)
Tax effect - - - 10,977 10,977
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Total
comprehensive
income for the
period - - - (202,660) (202,660)
Share based
payments - - 399 - 399
------------------- ------------------- ------------------- ------------------ ------------------- --------------
At 30 June 2020
(unaudited) 31,780 (77,260) (2,427) (1,919,162) (1,967,069)
------------------- ------------------- ------------------- ------------------ ------------------- --------------
For the 6 months ended
30.06.19
Treasury Total
Uniting of interest share Employee benefit trust Translation other
US$000 reserve reserve reserve reserve reserves
At 1 January 2019 31,780 (77,260) (3,848) (1,960,752) (2,010,080)
------------------------- ------------------------- --------- ------------------------- ------------ ------------
Foreign currency
translation differences - - - 79,716 79,716
Tax effect - - - (7,065) (7,065)
------------------------- ------------------------- --------- ------------------------- ------------ ------------
Total comprehensive
income for the period - - - 72,651 72,651
Share based payments - - 514 - 514
------------------------- ------------------------- --------- ------------------------- ------------ ------------
At 30 June 2019
(unaudited) 31,780 (77,260) (3,334) (1,888,101) (1,936,915)
------------------------- ------------------------- --------- ------------------------- ------------ ------------
Note 19: Related party disclosures
During the periods presented, the Group entered into arm's
length transactions with entities under the common control of
Kostyantin Zhevago, a controlling shareholder of Ferrexpo plc, with
associated companies and with other related parties. Management
considers that the Group has appropriate procedures in place to
identify, control, properly disclose and obtain independent
confirmation, when relevant, for transactions with the related
parties.
Entities under common control are those under the control of
Kostyantin Zhevago. Associated companies refer to TIS Ruda LLC, in
which the Group holds an interest of 49.9% (31 December 2019:
49.9%; 30 June 2019; 49.9%). This is the only associated company of
the Group.
All related party transactions entered into by the Group during
the periods presented are summarised in the tables on the following
pages, except for those made to the Non-executive Directors and
Executive Directors of Ferrexpo plc.
The payments made to the Non-executive Directors and Executive
Directors in the comparative period ended 31 December 2019 are
disclosed in detail in the Remuneration Report included in the
Group's 2019 Annual Report & Accounts.
Revenue, expenses, finance income and finance expenses
6 months ended 30.06.20 (unaudited) 6 months ended 30.06.19 Year ended 31.12.19
(unaudited) (audited)
------------------------------------------ ------------------------------------------ ----------------------------------------
Entities Asso- Other related parties Entities Asso- Other related parties Entities Asso- Other related
under ciated under ciated under ciated parties
common compa- common compa- common compa-
US$000 control nies control nies control nies
Other sales (a) 151 - 3 448 - 10 1,152 - 14
---------------- --------- ------- ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Total related
party
transactions
within revenue 151 - 3 448 - 10 1,152 - 14
---------------- --------- ------- ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Materials (b) 3,216 - - 4,429 - - 7,894 - -
Spare parts and
consumables
(c) 1,236 - - 1,702 - - 4,537 - -
Other expenses
(d) 232 - - 10 - - 19 - -
Total related
party
transactions
within cost of
sales 4,684 - - 6,141 - - 12,450 - -
---------------- --------- ------- ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Selling and
distribution
expenses (e) 2,151 9,435 - 5,381 8,915 - 10,824 18,477 -
General and
administration
expenses (f) 909 - 195 623 - 199 1,650 - 393
Finance
expenses 12 - - 71 - - 19 - -
---------------- --------- ------- ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Total related
party
transactions
within
expenses 7,756 9,435 195 12,216 8,915 199 24,943 18,477 393
---------------- --------- ------- ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Other income
(g) 6 - - - - - 319 - -
---------------- --------- ------- ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Total related
party
transactions 7,913 9,435 198 12,664 8,915 209 26,414 18,477 407
---------------- --------- ------- ---------------------- --------- ------- ---------------------- --------- ------- --------------------
The Group entered into various related party transactions. A
description of the most material transactions, which are in
aggregate over US$200 thousand (on an expected annualised basis) in
the current or comparative periods is given below. All transactions
were carried out on an arm's length basis in the normal course of
business.
Entities under common control
a Sales of diesel to DVD Trans in the comparative periods ended
30 June 2019 and 31 December 2019 totalling US$198 thousand and
US$322 thousand, respectively. The company ceased to be a related
party in September 2018 and all transactions within one year from
cessation were still considered as related party transactions and
disclosed as such; and
a Sales of scrap metal to OJSC Uzhgorodsky Turbogas totalling
US$72 thousand (30 June 2019: US$131 thousand; 31 December 2019:
US$239 thousand).
b Purchases of compressed air, oxygen and metal scrap from
Kislorod PCC for US$1,098 thousand (30 June 2019: US$2,489
thousand; 31 December 2019: US$3,645 thousand); and
b Purchases of cast iron balls from OJSC Uzhgorodsky Turbogas
for US$2,118 thousand (30 June 2019: US$1,869 thousand; 31 December
2019: US$4,194 thousand).
c Purchases of spare parts from CJSC Kyiv Shipbuilding and Ship
Repair Plant ("KSRSSZ") in the amount of US$347 thousand (30 June
2019: US$387 thousand; 31 December 2019: US$963 thousand);
c Purchases of spare parts from OJSC Uzhgorodsky Turbogas in the
amount of US$280 thousand (30 June 2019: US$125 thousand; 31
December 2019: US$436 thousand);
c Purchases of spare parts from Valsa GTV of US$437 thousand (30
June 2019: US$231 thousand; 31 December 2019: US$1,165 thousand);
and
c Purchases of spare parts from OJSC Berdichev Machine-Building
Plant Progress of US$146 thousand (30 June 2019: US$936 thousand;
31 December 2019: US$1,931 thousand).
d Insurance premiums of US$232 thousand (30 June 2019: US$10
thousand; 31 December 2019: US$19 thousand) paid to ASK Omega for
insurance cover in respect of mining equipment and machinery.
e Purchases of advertisement, marketing and general public
relations services from FC Vorskla of US$2,152 thousand (30 June
2019: US$5,381 thousand; 31 December 2019: US$10,824 thousand). See
page 34 in respect of a loan relationship between FC Vorskla and
another related party.
f Insurance premiums of US$716 thousand (30 June 2019: US$435
thousand; 31 December 2019: US$1,156 thousand) paid to ASK Omega
for workmen's insurance and other insurances; and
f Purchase of marketing services from TV & Radio Company of
US$115 thousand (30 June 2019: US$92; 31 December 2019: US$296
thousand).
g Other income is related to payments of US$6 thousand received
from ASK Omega in respect of a claims made under insurance policies
in place (30 June 2019: US$1 thousand; 31 December 2019: US$319
thousand).
Associated companies
e Purchases of logistics services in the amount of US$9,435
thousand (30 June 2019: US$8,915 thousand; 31 December 2019:
US$18,477 thousand) relating to port operations, including port
charges, handling costs, agent commissions and storage costs.
Other related parties
f Legal and administrative services in the amount of US$187
thousand (30 June 2019: US$180 thousand; 31 December 2019: US$362
thousand) provided by Kuoni Attorneys at law Ltd., which is
controlled by a former member of the Board of Directors of Ferrexpo
plc who resigned in November 2016, but still acts as member of the
Board of Directors of one of the subsidiaries of the Group and
received Directors' fee of US$50 thousand (30 June 2019: US$50
thousand; 31 December 2019: US$100 thousand).
Purchases of property, plant, equipment and investments
The table below details the transactions of a capital nature,
which were undertaken between Group companies and entities under
common control, associated companies and other related parties
during the periods presented.
6 months ended 30.06.20 (unaudited) 6 months ended 30.06.19 Year ended 31.12.19 (audited)
(unaudited)
------------------------------------- --------------------------------- -------------------------------
Entities Asso-ciated Other Entities Asso- Other Entities Asso- Other
under compa-nies related under ciated related under ciated related
common parties common compa- parties common compa- parties
US$000 control control nies control nies
Purchases
in the
ordinary
course of
business 270 - - 3,087 - - 8,935 - -
----------- --------- ------------ ------------ --------- -------- ------------ --------- -------- ----------
Total
purchases
of
property,
plant and
equipment 270 - - 3,087 - - 8,935 - -
----------- --------- ------------ ------------ --------- -------- ------------ --------- -------- ----------
During the period ended 30 June 2020, the Group purchased
equipment and major spare parts in respect of its regular
sustaining capital expenditure programme and construction
supervision services in respect of the construction of the
concentrate stockyard from OJSC Berdichev Machine-Building Plant
Progress totalling US$195 thousand (30 June 2019: US$2,062
thousand; 31 December 2019: US$6,910 thousand). The Group also
procured equipment from CJSC Kyiv Shipbuilding and Ship Repair
Plant ("KSRSSZ") totalling US$62 thousand (31 December 2019: US$816
thousand; 30 June 2019: US$191 thousand) for several ongoing major
projects, including the construction of the concentrate stockyard,
the upgrade of beneficiation sections and the refurbishment of the
pellet loading area.
The Group further procured services relating to the top soil
removal and relocation of waste material and gravel in the amount
of US$586 thousand during the comparative period ended 30 June 2019
(31 December 2019: US$861 thousand) from DVD Trans. The company
ceased to be a related party in September 2018 and all transactions
with DVD Trans within one year from the cessation were still
considered as related party transactions and disclosed as such.
The FPM Charity Fund owns 75% of the Sport & Recreation
Centre ("SRC") in Horishni Plavni and made contributions totalling
US$56 thousand during the period ended 30 June 2020 (30 June 2019:
US$85 thousand; 31 December 2019: US$129 thousand) for the
construction and maintenance of the building, including costs
related to electricity, gas and water consumption. The remaining
stake of 25% is owned by JSC F&C Realty, which is under the
control of Kostyantin Zhevago.
Balances with related parties
The outstanding balances, as a result of transactions with
related parties, for the periods presented are shown in the table
below:
6 months ended 30.06.20 (unaudited) Year ended 31.12.19 (audited) 6 months ended 30.06.19
(unaudited)
------------------------------------- ------------------------------ --------------------------------
Entities Asso-ciated Other Entities Asso- Other Entities Asso- Other
under compa-nies related under ciated related under ciated related
common parties common compa- parties common compa- parties
US$000 control control nies control nies
Prepayments
for
property,
plant and
equipment
(f) 1,187 - - 1,093 - - 5,584 - -
------------- --------- ------------ ------------ --------- ------- ---------- --------- ------- ------------
Total
non-current
assets 1,187 - - 1,093 - - 5,584 - -
------------- --------- ------------ ------------ --------- ------- ---------- --------- ------- ------------
Trade and
other
receivables
(g) 70 3,322 1 104 2,472 2 157 4,056 2
Prepayments
and other
current
assets (h) 1,104 - - 1,662 - - 1,465 - -
Total
current
assets 1,174 3,322 1 1,766 2,472 2 1,622 4,056 2
------------- --------- ------------ ------------ --------- ------- ---------- --------- ------- ------------
Trade and
other
payables
(i) 594 662 - 1,001 898 - 480 1,006 7
Accrued and
contract
liabilities 83 - - - - 1 - - -
Current
liabilities 677 662 - 1,001 898 1 480 1,006 7
------------- --------- ------------ ------------ --------- ------- ---------- --------- ------- ------------
A description of the most material balances which are over
US$200 thousand in the current or comparative periods is given
below.
Entities under common control
f Prepayments for property, plant and equipment totalling
US$1,187 thousand (31 December 2019: US$1,052 thousand; 30 June
2019: US$5,264 thousand) were made to OJSC Berdichev
Machine-Building Plant Progress. Prepayments for property, plant
and equipment to CJSC Kyiv Shipbuilding and Ship Repair Plant
("KSRSSZ") as at the end of the comparative periods 31 December
2019 and 30 June 2019 totalled US$42 thousand and US$320 thousand,
respectively.
h Prepayments and other current assets totalling US$213 thousand
relate to prepayments made to FC Vorskla for advertisement,
marketing and general public relations services (31 December 2019:
US$921 thousand; 30 June 2019: US$858 thousand) and US$451 thousand
to ASK Omega for insurance premiums (31 December 2019: US$605
thousand; 30 June 2019: US$305 thousand).
i Trade and other payables included US$200 thousand (31 December
2019: US$246 thousand; 30 June 2019: US$236 thousand) related to
the purchase of compressed air, oxygen and metal scrap from
Kislorod PCC and US$282 thousand (31 December 2019: US$418
thousand; 30 June 2019: US$69 thousand) related to the purchase of
spare parts from OJSC Berdichev Machine-Building Plant
Progress.
Associated companies
g Trade and other receivables of US$3,322 thousand (31 December
2019: US$2,472 thousand; 30 June 2019: US$4,056 thousand) related
to dividend receivables from TIS Ruda LLC.
i Trade and other payables included US$662 thousand (31 December
2019: US$898 thousand; 30 June 2019: US$1,006 thousand) related to
purchases of logistics services from TIS Ruda LLC.
Loan relationship between related parties of the Group
As disclosed in the 2019 Annual Report & Accounts, the Board
has been making enquiries in connection with the sponsorship
payments the Group has previously made to FC Vorskla Cyprus Limited
following the identification of a related party loan made by FC
Vorskla Cyprus Limited to Collaton Limited, a related party of the
Group. FC Vorskla is considered to be a related party of the Group
as Kostyantin Zhevago, a controlling shareholder of Ferrexpo plc,
controls FC Vorskla and is its honorary president. The payments
made to FC Vorskla are considered to be in the ordinary course of
business.
Sponsorship payments have in the past been made by Ferrexpo
Middle East FZE to two entities: FC Vorskla Cyprus Limited, a
company incorporated in the Republic of Cyprus, and Football Club
"Vorskla" LLC, a company incorporated in Ukraine (together, "FC
Vorskla").
Based on unaudited management accounts of FC Vorskla Cyprus
Limited for the financial year 2019, the loan to Collaton Limited
was US$16,978 thousand as at 31 December 2019.
Following the identification of the loan provided by FC Vorskla
Cyprus Limited to Collaton Limited, the Board, acting through the
Committee of Independent Directors (the "CID") has been making
enquires in relation to the arrangement between FC Vorskla Cyprus
Limited and Collaton Limited, and has engaged third party advisers
to assess the situation. Based on the information received from FC
Vorskla, the Group understands that the loan to Collaton Limited
was made in connection with the construction and renovation of
certain sports facilities of FC Vorskla in Ukraine, including its
central stadium and training facilities in Poltava. In addition to
the above, the CID has received written confirmations from FC
Vorskla and Kostyantin Zhevago, which confirm the use of the loan
funds on the construction and renovation projects referenced above
and that the previous and future sponsorship payments to FC Vorskla
have been and will be used in their entirety for the legitimate
purposes of FC Vorskla in Ukraine.
Whilst the enquiries by the CID remain ongoing, the Group's
sponsorship payments to FC Vorskla Cyprus Limited remain suspended.
The Group's sponsorship payments to FC Vorskla LLC, based in
Ukraine, for advertisement, marketing and general public relation
services have continued during the period ended 30 June 2020 and
totalled US$1,506 thousand. Total payments of US$5,381 thousand and
US$10,824 thousand, both in aggregate for FC Vorskla Cyprus Limited
and FC Vorskla LLC, have been made in the comparative periods ended
30 June 2019 and 31 December 2019. See also Note 17 Commitments,
contingencies and legal disputes.
Note 20: Events after the reporting period
No material adjusting or non-adjusting items have occurred
subsequent to the period-end other than the proposed dividend
disclosed in Note 9 Earnings per share and dividends paid and
proposed.
Alternative Performance Measures ("APM")
When assessing and discussing the Group's reported financial
performance, financial position and cash flows, management may make
reference to Alternative Performance Measures ("APM") that are not
defined or specified under International Financial Reporting
Standards ("IFRSs").
APMs are not uniformly defined by all companies, including those
in the Group's industry. Accordingly, the APMs used by the Group
may not be comparable with similarly titled measures and
disclosures made by other companies. APMs should be considered in
addition to, and not as a substitute for or as superior to,
measures of financial performance, financial position or cash flows
reported in accordance with IFRSs.
Ferrexpo makes reference to the following APMs in the 2020 Half
Year Results.
C1 cash cost of production
Definition : Non-financial measure, which represents the cash
costs of production of iron pellets from own ore divided by
production volume of own production ore. Non-C1 cost components
include non-cash costs such as depreciation, inventory movements
and costs of purchased ore and concentrate. The Group presents the
C1 cash cost of production because it believes it is a useful
operational measure of its cost competitiveness compared to its
peer group.
US$000 As at 30.06.20 As at 30.06.19 As at 31.12.19
(unaudited) (unaudited) (audited)
C1 cash costs 228,755 246,402 502,887
Non-C1 cost components 62,619 2,966 48,254
------------------------------------ --------------- --------------- ---------------
Cost of sales - pellet production 291,374 249,368 551,141
------------------------------------ --------------- --------------- ---------------
Own ore produced (tonnes) 5,598,000 5,352,500 10,518,954
C1 cash cost per tonne (US$) 40.9 46.0 47.8
------------------------------------ --------------- --------------- ---------------
Underlying EBITDA
Definition : The Group calculates the underlying EBITDA as
profit before tax and finance plus depreciation and amortisation,
net gains and losses from disposal of investments and property,
plant and equipment, share-based payments and write-offs and
impairment losses. The underlying EBITDA is presented because it is
a useful measure for evaluating the Group's ability to generate
cash and its operating performance. See Note 3 Segment information
for further details.
Closest equivalent IFRSs measure : Profit before tax and
finance.
Rationale for adjustment : The Group presents the underlying
EBITDA as it is a useful measure for evaluating its ability to
generate cash and its operating performance. Also it aids
comparability across peer groups as it is a measurement that is
often used.
Reconciliation to closest IFRSs equivalent :
US$000 Notes As at 30.06.20 As at 30.06.19 As at 31.12.19
(unaudited) (unaudited) (audited)
Underlying EBITDA 352,442 372,297 586,067
(Losses)/gains on disposal of property, plant and
equipment 5 (877) 59 (417)
Share-based payments (399) (514) (1,022)
Write-backs/(write-offs) 5 71 337 (1,241)
Depreciation and amortisation 5 (51,374) (39,649) (82,130)
----------------------------------------------------------- ------ --------------- --------------- ---------------
Profit before tax and finance 299,863 332,530 501,257
----------------------------------------------------------- ------ --------------- --------------- ---------------
Diluted earnings per share
Definition : Earnings per share calculated using the diluted
number of Ordinary Shares outstanding.
Closest equivalent IFRSs measure: Diluted earnings per
share.
Rationale for adjustment : Excludes the impact of special items
that can mask underlying changes in performance.
Reconciliation to closest IFRSs equivalent :
Year ended 31.12.19
US$000 6 months ended 30.06.2020 (unaudited) 6 months ended 30.06.2019 (unaudited) (audited)
Earnings for
the
period/year
attributable
to equity
shareholders
- per share
in US cents
Basic 42.6 45.9 68.6
Diluted 42.4 45.8 68.4
-------------------- -------------------------------------- -------------------------------------- --------------------
Net debt to underlying EBITDA
Definition : Net debt divided by the underlying EBITDA (for the
last 12 months):
As at 30.06.20 As at 31.12.19 As at 30.06.19
(unaudited) (audited) (unaudited)
Net debt (US$000) (174,262) (281,358) (282,214)
Underlying EBITDA (US$000) for the last 12 months 566,212 586,067 641,327
---------------------------------------------------- --------------- --------------- ---------------
Net debt to underlying EBITDA 0.31x 0.48x 0.44x
---------------------------------------------------- --------------- --------------- ---------------
Rationale for adjustment : The ratio is a measurement of the
underlying EBITDA Group's leverage, calculated as a company's
interest-bearing liabilities minus cash or cash equivalents,
divided by its underlying EBITDA.
Reconciliation to net debt :
US$000 Notes As at 30.06.20 As at 31.12.19 As at 30.06.19
(unaudited) (audited) (unaudited)
Cash and cash equivalents 14 169,226 131,020 91,937
Interest-bearing loans and borrowings - current 15 (138,538) (138,367) (66,937)
Interest-bearing loans and borrowings - non-current 15 (204,950) (274,011) (307,214)
----------------------------------------------------- ------ --------------- --------------- ---------------
Net debt (174,262) (281,358) (282,214)
----------------------------------------------------- ------ --------------- --------------- ---------------
For a reconciliation of underlying EBITDA to profit before tax
and finance see page 35.
Capital investment
Definition: Capital expenditure for the purchase of property,
plant and equipment and intangible assets.
Closest equivalent IFRSs measure: Purchase of property, plant
and equipment and intangible assets (net cash flows used in
investing activities).
Rationale for adjustment : The Group presents the capital
investment as it is a useful measure for evaluating the degree of
capital invested in its business operations.
Reconciliation to closest IFRSs equivalent :
US$000 Notes As at 30.06.20 As at 31.12.19 As at 30.06.19
(unaudited) (audited) (unaudited)
Purchase of property, plant and equipment and intangible
assets
(net cash flows used in investing activities) 10 95,989 247,478 113,968
----------------------------------------------------------- ------ --------------- --------------- ---------------
Total liquidity
Definition : Sum of cash and cash equivalents and available
facilities.
Closest equivalent IFRSs measure: Cash and cash equivalents.
Rationale for adjustment: The Group presents total liquidity as
it is a useful measure for evaluating its ability to meet
short-term business requirements.
Reconciliation to closest IFRSs equivalent:
US$000 Notes As at 30.06.20 As at 31.12.19 As at 30.06.19
(unaudited) (audited) (unaudited)
Cash and cash equivalents 14 169,226 131,020 91,937
Available committed facilities - - 40,000
-------------------------------- ------ --------------- --------------- ---------------
Total liquidity 169,226 131,020 131,937
-------------------------------- ------ --------------- --------------- ---------------
Glossary
Act The Companies Act 2006
AGM The Annual General Meeting of the Company
Articles Articles of Association of the Company
Audit Committee The Audit Committee of the Company's Board
Bank F&C Bank Finance & Credit
Belanovo or Bilanivske An iron ore deposit located immediately to the north
of Yeristovo
Benchmark Price International seaborne traded iron ore pricing mechanism
understood to be offered to the market by major iron
ore producers under long-term contracts
Beneficiation Process A number of processes whereby the mineral is extracted
from the crude ore
BIP Business Improvement Programme, a programme of projects
to increase production output and efficiency at FPM
Blast furnace pellets Used in Basic Oxygen Furnace "BOF" steelmaking and
constitute about 70% of the traded pellet market
Board The Board of Directors of the Company
Bt Billion tonnes
C1 costs Represents the cash costs of production of iron pellets
from own ore, divided by production volume from 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
Capesize Capesize vessels are typically above 150,000 tonnes
deadweight. Ships in this class include oil tankers,
supertankers and bulk carriers transporting coal,
ore, and other commodity raw materials. Standard
capesize vessels are able to transit through the
Suez Canal
Capital Employed The aggregate of equity attributable to shareholders,
non-controlling interests and borrowings
Central Europe This segmentation for the Group's sales includes
Austria, Czech Republic, Hungary, Serbia and Slovakia
CFR Delivery including cost and freight
Charity Donations made to a charity called Blooming Land
which operates through three sub-funds
CHF Swiss Franc, the currency of Switzerland
China and South East This segmentation for the Group's sales includes
Asia China and Vietnam
CID Committee of Independent Directors
CIF Delivery including cost, insurance and freight
CIS The Commonwealth of Independent States
Code The UK Corporate Governance Code
CODM The Executive Committee is considered to be the Group's
Chief Operating Decision-Maker
Company Ferrexpo plc, a public company incorporated in England
and Wales with limited liability
Controlling Shareholder 50.3% of Ferrexpo plc shares are held by Fevamotinico
S.a.r.l., Fevamotinico is wholly owned by The Minco
Trust. The Minco Trust is a discretionary trust that
has three beneficiaries, consisting of Mr Zhevago
and two
other members of his family. Mr Zhevago is considered
a controlling shareholder of Ferrexpo plc
CPI Consumer Price Index
CRU The CRU Group provides market analysis and consulting
advice in the global mining industry
(see www.crugroup.com)
CSR Corporate Social Responsibility
DAP Delivery at place
DFS Detailed feasibility study
Directors The Directors of the Company
EBT Employee benefit trust
EPS Earnings per share
ERPMC Executive Related Party Matters Committee
Executive Committee The Executive Committee of management appointed by
the Company's Board
Executive Directors The Executive Directors of the Company
FBM LLC Ferrexpo Belanovo Mining, a company incorporated
under the laws of Ukraine
Fe Iron
Ferrexpo The Company and its subsidiaries
Ferrexpo AG Group Ferrexpo AG and its subsidiaries including FPM
Fevamotinico Fevamotinico S.a.r.l., a company incorporated with
limited liability in Luxembourg
FOB Delivered free on board, which means that the seller's
obligation to deliver has been fulfilled when the
goods have passed over the ship's rail at the named
port of shipment, and all future obligations in terms
of costs and risks of loss or damage transfer to
the buyer from that point onwards
FPM Ferrexpo Poltava Mining, also known as PJSC Ferrexpo
Poltava Mining, a company incorporated under the
laws of Ukraine
FRMC Finance and Risk Management Committee, a sub-committee
of the Executive Committee
FTSE 250 Financial Times Stock Exchange top 250 companies
FYM LLC Ferrexpo Yeristovo Mining, a company incorporated
under the laws of Ukraine
GPL Gorishne-Plavninske-Lavrykivske, the iron ore deposit
being mined by FPM
Group The Company and its subsidiaries
HSE Health, safety and environment
HSEC Committee The Health, Safety, Environment and Community Committee
of the Company's Board
IAS International Accounting Standards
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards, as adopted
by the EU
IPO Initial public offering
Iron ore concentrate Product of the beneficiation process with enriched
iron content
Iron ore pellets Balled and fired agglomerate of iron ore concentrate,
whose physical properties are well suited for transportation
to and reduction within a blast furnace
Iron ore sinter fines Fine iron ore screened to -6.3mm
IRR Internal Rate of Return
JORC Australasian Joint Ore Reserves Committee - the internationally
accepted code for ore classification
K22 GPL ore has been classified as either K22 or K23
quality, of which K22 ore is of higher quality (richer)
KPI Key Performance Indicator
Kt Thousand tonnes
LIBOR The London Inter Bank Offered Rate
LLC Limited Liability Company (in Ukraine)
LSE London Stock Exchange
LTI Lost time injury
LTIFR Lost-Time Injury Frequency Rate
LTIP Long-Term Incentive Plan
m3 Cubic metre
Mm Millimetre
Mt Million tonnes
Mtpa Million tonnes per annum
Nominations Committee The Nominations Committee of the Company's Board
Non-executive Directors Non-executive Directors of the Company
NOPAT Net operating profit after tax
North East Asia This segmentation for the Group's sales includes
Japan and Korea
OHSAS 18001 International safety standard 'Occupational Health
& Safety Management System Specification'
Ordinary Shares Ordinary Shares of 10 pence each in the Company
Ore A mineral or mineral aggregate containing precious
or useful minerals in such quantities, grade and
chemical combination as to make extraction economic
Panamax Modern panamax ships typically carry a weight of
between 65,000 to 90,000 tonnes of cargo and can
transit both Panama and Suez canals
PPE Personal protective equipment
PPI Ukrainian producer price index
Probable Reserves Those measured and/or indicated mineral resources
which are not yet 'proved', but of which detailed
technical and economic studies have demonstrated
that extraction can be justified at the time of determination
and under specific economic conditions
Proved Reserves Measured mineral resources of which detailed technical
and economic studies have demonstrated that extraction
can be justified at the time of determination and
under specific economic conditions
PXF Pre-export finance
Rail car Railway wagon used for the transport of iron ore
concentrate or pellets
Relationship Agreement The relationship agreement entered into among Fevamotinico
S.a.r.l., Kostyantin Zhevago, The Minco Trust and
the Company
Remuneration Committee The Remuneration Committee of the Company's Board
Reserves Those parts of mineral resources for which sufficient
information is available to enable detailed or conceptual
mine planning and for which such planning has been
undertaken. Reserves are classified as either proved
or probable
Resources Concentration or occurrence of material of intrinsic
economic interest in or on the earth's crust in such
form,
quality and quantity that there are reasonable prospects
for eventual economic extraction
Sinter A porous aggregate charged directly to the blast
furnace which is normally produced by firing fine
iron ore and/or iron ore concentrate, other binding
materials, and coke breeze as the heat source
Spot price The current price of a product for immediate delivery
Sterling/GBP Pound Sterling, the currency of the United Kingdom
STIP Short-Term Incentive Plan
Sub-funds Three funds that operate under the Blooming Land
charity
Tailings The waste material produced from ore after economically
recoverable metals or minerals have been extracted.
Changes in metal prices and improvements in technology
can sometimes make the tailings economic to process
at a later date
Tolling The process by which a customer supplies concentrate
to a smelter and the smelter invoices the customer
the smelting charge, and possibly a refining charge,
and then returns the metal to the customer
Ton A US short ton, equal to 0.9072 metric tonnes
Tonne or t Metric tonne
Treasury Shares A company's own issued shares that it has purchased
but not cancelled
TSF Tailings storage facility
TSR Total shareholder return. The total return earned
on a share over a period of time, measured as the
dividend per share plus capital gain, divided by
initial share price
UAH Ukrainian Hryvnia, the currency of Ukraine
Ukr SEPRO The quality certification system in Ukraine, regulated
by law to ensure conformity with safety and environmental
standards
Underlying EBITDA The Group calculates the Underlying EBITDA as profit
before tax and finance plus depreciation and amortisation,
net gains and losses from disposal of investments
and property, plant and equipment, share based payments
and write-offs and impairment losses
US$/t US Dollars per tonne
Value-in-use The implied value of a material to an end user relative
to other options, e.g. evaluating, in financial terms,
the productivity in the steel making process of a
particular quality of iron ore pellets versus the
productivity of alternative qualities of iron ore
pellets
VAT Value Added Tax
WAFV Weighted average fair value
Western Europe This segmentation for the Group's sales includes
Germany and Italy
WMS Wet magnetic separation
Yeristovo or Yerystivske The deposit being developed by FYM
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR UPUWWRUPUPGC
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August 05, 2020 02:05 ET (06:05 GMT)
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