FXPO Ferrexpo Plc

31 July 2024

Ferrexpo plc

("Ferrexpo", the "Group" or the "Company")

Interim Results for the six months ended 30 June 2024

Resilience drives an improved performance

Ferrexpo plc (LSE: FXPO), a premium iron ore pellet producer and exporter to the global steel industry, is pleased to report interim results for the six months ended 30 June 2024 ("the period" or "first half" or "first six months" or "1H 2024").

Commenting on the results, Lucio Genovese, Executive Chair, said:

"Ferrexpo continues to demonstrate resilience, retaining the entire workforce during a time of war, whilst increasing production and ensuring exports to our customers around the world. The significance of our operations has never been greater to our people, local communities and Ukraine.

From a corporate perspective, we are adapting to the complexities of a prolonged war. We have learnt how to operate a large-scale business more nimbly, embedding flexibility into our operations and working practices. This means that we are able to adapt to the constant challenges that confront us. With access to Ukrainian Black Sea ports returning during the period, we were able to respond quickly, bringing idled production capacity back on line and exporting to our customers via seaborne routes, thereby achieving our best production result since the start of Russia's full-scale invasion.

Revenues and EBITDA also improved in the first six months and underscore the extraordinary effort and commitment of our workforce. 8,000 people, across every business function, co-ordinating their skills and expertise, time and resources, to realise these tremendous results. The fact that we can achieve so much in such challenging conditions is testament to our resilience and perseverance today, and in the future.

During the period, we deployed cash to increase production and preserve the integrity of our assets. Nevertheless, despite adding volume and lowering our controllable unit costs, we must accept that we are operating in an environment where lower iron ore prices and significantly higher electricity prices put pressure on our margins. It is therefore pleasing to note that we were able to end the period with a modest increase in our net cash position.

For the remainder of the year, we will focus on optimising current production levels. We remain hopeful that domestic electricity supply will improve during the third quarter when power plants that were shut for maintenance come back on-line.

Since the start of the full-scale invasion, we have demonstrated our ability to operate flexibly and adapt to ever changing circumstances. I am confident that should we see an opportunity to benefit from changes in iron ore pellet prices, we will adjust our production accordingly."

Production and Financial Highlights

·    Total commercial production for the first six months of 2024 increased by 75% to 3.7 million tonnes, comprising 3.3 million tonnes of pellets and 0.4 million tonnes of commercial concentrate.

·    Total sales for the first six months of 2024 increased by 85% to 3.8 million tonnes, of which 1.8 million tonnes were exported through Ukrainian Black Sea ports.

·    Revenues increased by 64% to US$549 million due to increased sales volume, although prices were lower than in 1H 2023.

·    Profit after tax increased by 104% to US$55 million.

·    C1 Cash Cost of Production^A (C1 costs) increased to US$79 per tonne in the half year, due to higher energy costs, expanded mining activities, maintenance and repairs, partially offset by positive effects from a currency devaluation and cost saving initiatives.

·    Interim Underlying EBITDA increased by 24% to US$79 million, reflecting the net effects from higher sales volume and lower realised prices and higher production costs, principally driven by rising energy prices in Ukraine.

·    The Group ended the period with a US$112 million Net Cash^A position, comprising US$115 million of cash and cash equivalents, and minimal financial debt of US$4 million as of 30 June 2024 (Net Cash position^A as at 31 December 2023: US$108 million).

·    US$55 million of continued capital investment in sustaining and development capital expenditure projects in Ukraine.

Commenting on the financial results, Nikolay Kladiev, CFO, said:

"For the first six months of the year, our business demonstrated its resilience from a financial perspective. The strong rebound in production resulted in revenues increasing 64%. We achieved excellent progress managing our controllable costs on a unit basis, however costs did increase overall due to additional mining and maintenance activities, higher energy costs and towards the end of the period a big jump in electricity prices. In the context of a weakening iron ore price environment, we achieved a 24% increase in EBITDA to US$79 million for the period. After continued investment in our operations of US$55 million, our closing net cash position was maintained at US$112 million, four million higher than at the end of 2023.

Towards the end of the period, the authorities in Ukraine mandated that large enterprises including Ferrexpo to import 80% of their electricity needs from neighbouring European countries. This policy was established in response to Russian attacks on Ukrainian power generation and transmission infrastructure, estimated to have reduced domestic electricity supply capacity by 50%. It is noticeable that the reduction in available domestic energy has also been affected due to maintenance at several domestic nuclear power plants during this time of year. At the current time, we are sourcing electricity from our European neighbours, however, the costs are higher and indeed quite volatile. For the month of June, this added approximately US$11 a tonne to our C1 costs compared to the previous month, meaning, we expect this to have a greater impact for the remainder of the summer due to continued high prices, until domestic nuclear power comes back on line in the autumn."

Summary financial performance

Note: The Group amended its definition of the Underlying EBITDA. Further information is provided in the APM section

Health, safety and wellbeing

·    The safety and wellbeing of the Group's workforce is the highest priority, and the Group continues to take extensive measures to protect its workforce, their families and local communities.

·    During the first half, the Group reported an LTIFR of 0.48, materially below the historic five-year trailing average of 0.52. The Group is proud to report zero fatalities for the period, and for 46 months in total.

Market

·    Following strong increases in the final months of 2023, the benchmark 62% grade iron ore price fell during the first six months by 21%. Over the same period realised pellet premiums also decreased.

·    Access to Ukrainian Black Sea ports enabled the Group to export more volumes, including to customers in Far East for the first time since the start of the full-scale invasion. However, geopolitical disruption in the Middle East has added to higher freight rates and risk premia.

Operations

·    During the first half of the year, the Group variably operated two to three pelletiser lines depending on power availability and customer demand.

·    Iron ore pellet and concentrate production totalled 3,727 thousand tonnes in 1H 2024 comprising of 3,297 thousand tonnes of premium pellets, representing a 76% increase compared to the previous six months and a 68% increase compared to the same period in 2023, and 430 thousand tonnes of concentrate for sale.

·    Focus on higher-grade iron ore production continued during the first half, with all pellets and concentrates grading 65% iron ore content or above. Production and sales of FDP pellets also resumed.

·    Sales volumes totalled 3,849 thousand tonnes, comprised of pellets and commercial concentrate. This represents an 84% increase compared to the previous six months to December 2023 and an 85% increase compared to the first six months of 2023.

·    The Group's C1 Costs increased to US$78.8 per tonne in 1H 2024 due to higher electricity prices and resumed mining activities offset by a small devaluation of the UAH in 1H 2024 and the effects from the more beneficial fixed cost absorption due to higher production volume.

·    Continued capital investment in projects that can deliver short-term efficiencies and savings, notably the press filtration complex which is partly in operation, supporting improvements in the physical strength and chemical quality of higher-grade pellets.

·    The Group continues to receive adequate supplies of key consumables, with Ukraine's reduced industrial output resulting in lower overall demand.

Environment, social and governance

·    During the first half, the Company continued its humanitarian and CSR efforts, supporting a range of projects and initiatives including a focus on the support for veterans.

·    Even during a time of war, the Group has not lost sight of its ESG goals, publishing two significant projects: a 'Life Cycle assessment' for its FDP pellets and a 'Double Materiality assessment'.

·    Later in the year, the Group intends to release its annual 'Responsible Business Report' for 2024, which will be defined by the material topics identified in its the Double Materiality Assessment, and an updated Climate Change report, which will assess scenarios for the Group's carbon targets in light of the war in Ukraine.

Corporate governance

On 23 May, Ferrexpo Plc held its 2024 Annual General Meeting (AGM), at which the majority of the resolutions were passed. However, more than 50% of the independent shareholder votes were cast against the re-election of one of the Company's Independent Non-Executive Directors. Consequently, Ferrexpo Plc announced that the Board intends to consult and engage with shareholders to better understand the reasons behind these votes and put the matter to a second vote of all shareholders within 120 days of the AGM.

Principal legal issues and provision

The Group recorded as at 31 December 2024 a provision in the amount of UAH4,727 million (approximately US$124 million as at 31 December 2023) in respect of a contested sureties claim made against the Group's major subsidiary in Ukraine. As the legal proceedings in relation to this claim have not yet been concluded at the time of approval of these interim condensed consolidated financial statements, this provision is still recognised in full as at 30 June 2024 (US$117 million as at 30 June 2024). Additional information in respect on the potential impact of this ongoing legal case are provided in Note 2 Basis of preparation and Note 19 Commitments, contingencies and legal disputes to these interim condensed consolidated financial statements, as well as for other ongoing legal proceedings.

In terms of an application to open bankruptcy proceedings ("creditor protection proceedings") filed by a supplier and related party to the Group in February 2024 against the Group's major subsidiary in Ukraine for an amount of UAH4.6 million (US$0.1 million as at 30 June 2024), the Group's subsidiary settled this debt on 18 July 2024 and submitted all documents to the court for consideration to avoid the possible opening of such creditor protection proceedings. See Note 2 Basis of preparation and Note 19 Commitments, contingencies and legal disputes to these interim condensed consolidated financial statements for further details.

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About Ferrexpo:

About Ferrexpo: Ferrexpo is a Swiss headquartered iron ore company with assets in Ukraine and a listing in the equity shares commercial companies category on the London Stock Exchange (ticker FXPO) and a constituent of the FTSE All-Share index. The Group produces high grade iron ore pellets, which are a premium product for the global steel industry and enable reduced carbon emissions and increased productivity for steelmakers when converted into steel, compared to more commonly traded forms of iron ore. Ferrexpo's operations have been supplying the global steel industry for over 50 years. Before Russia's full-scale invasion of Ukraine in February 2022, the Group was the world's third largest exporter of pellets. The Group has a global customer base comprising of premium steel mills around the world. For further information, please visit www.ferrexpo.com.

Notes:

Please note that numbers may not add up due to rounding. Items including C1 cash cost of production, underlying EBITDA, net cash/(debt), capital investment and total liquidity are Alternative Performance Measures ("APM") that are not defined or specified under International Financial Reporting Standards ("IFRSs"). These are marked with "^A" and more information on these is detailed below in this report.

Introduction

The war in Ukraine continues to dominate Ferrexpo's workforce and activities. Today marks 888 days since the full-scale invasion of Ukraine.

The effects of the war on our business and our workforce cannot be understated. At the end of June 2024, 693 of our colleagues were serving in the Armed Forces of Ukraine. Tragically, as at the end of June 2024, 39 of our colleagues have been killed serving in the Armed Forces since the start of the full-scale invasion in February 2022. We honour the memory of each of them. As at the end of June 2024, 132 colleagues had been decommissioned from the Armed Forces, of whom 66 have returned to work with the remainder included in our in-house veteran rehabilitation programme.

It is important to recognise that our workforce is operating in extremely challenging conditions. Loved ones, friends and colleagues are serving in the Armed Forces, whilst they are living and working under a constant threat of attack. Missile and drone attacks and air raid alerts are a constant in the Poltava region. Working patterns are frequently interrupted because of the need to seek shelter, in addition to load shedding which limits effective working hours, all putting additional stress on members of our workforce.

As a business, we have shifted the focus of our support. At the start of the war, we supported the influx of internally displaced people fleeing from the south-eastern regions of Ukraine, with shelter, food and medicines. At present, we are focussed on supporting our colleagues that are serving in the Armed Forces and our returning veterans. We are also focused on supporting mental health and community-based initiatives that bolster morale as the war prolongs.

The health and safety of our workforce is paramount, as is the social contribution that we can offer in our communities, and to Ukraine as a whole. Sustaining employment in a safe manner for our 8,000 strong workforce means that they, and the communities that depend on them, can better weather the challenges of a prolonged war.

Since the full-scale invasion of Ukraine in February 2022, Ferrexpo has significantly changed the way it operates. The lack of access to Ukrainian Black Sea ports until the end of last year forced us to pivot our sales towards European customers via rail. Concurrently, the business was right-sized to operate at lower production levels due to logistics constraints. The business also had to adapt to constant new challenges, including conscription, establishing alternative procurement channels for important inputs and interruptions to energy supplies. Rising to the challenges has resulted in a business that is adaptive to change and flexible in how it can meet its customers' needs. It is in itself a demonstration of resilience that is testament to the hard work and determination of our people.

Establishment of a maritime corridor has allowed for the reopening of Ukraine's Black Sea ports and exports of Ukrainian products. Ferrexpo once again demonstrated its agility, by quickly restoring production and resuming seaborne sales via the corridor. During the first half of 2024, the Group successfully operated two or three out of four pelletising lines, and increased total production of pellets and concentrates to 3.7 million tonnes, an 83% increase compared to the previous six months and a 75% increase compared to same period last year.

Sales volumes totalled 3.8 million tonnes, comprised of pellets and commercial concentrates. This represents an 84% increase compared to the previous six months to December 2023 and an 85% increase compared to the first six months to June 2023. In total, 18 vessels were loaded with Ferrexpo cargoes from Ukrainian ports during the period under review. Of total sales, 80% were to European customers (seaborne, rail and barge) and for the first time since the start of the full-scale invasion of Ukraine, the balance to customers in Asia and MENA. The Group also produced and sold Direct Reduction pellets ("FDP") during the period.

The increase in sales volumes albeit at lower realised prices due to the iron ore index falling 21% over the period, resulted in revenue increasing to US$549 million for the period, a 73% increase compared to the previous six months and a 64% increase compared to the same period last year. Higher unit costs due to elevated seaborne freight rates, risk premiums and electricity prices resulted in costs increasing during the period, which is reflected in lower margins and an Underlying EBITDA, which totalled US$79 million.

For a detailed review of iron ore markets, please see the section 'Sales and Marketing Review' below and for the Group financials, please see the 'Financial Review' section.

Outlook

Currently, the outlook for the second half of 2024 is premised on sustaining the restored production levels achieved during the first half, provided that seaborne exports continue to be safe and viable in an environment where iron ore prices are subdued and costs under pressure. The Group continues to demonstrate resilience, as it manages the many challenges to keep producing, exporting and supporting its workforce and communities.

Shareholder returns

The Group has long maintained a policy of investing in the future growth of the business alongside providing shareholder returns and maintaining a prudent cash position. As disclosed in the 2023 Annual Report and Accounts, the Board of Directors decided not to proceed with the interim dividend of 3.3 US cents per ordinary share, which was announced on 18 January 2024 and due to be paid to shareholders on 23 February 2024, as a result of the unexpected court decision in the contested sureties claim against one of the Group's Ukrainian subsidiaries. The Board will continue to assess the Group's ability to provide shareholder returns in the form of dividends or share buy backs, however, due to the ongoing risks associated with operating in Ukraine at the present time, the Board of Directors have elected not to declare an interim dividend for 2024 at this time, also considering the ongoing legal disputes in Ukraine, which might affect the Group's ability to continue as a going concern as disclosed in Note 2 Basis of preparation and Note 19 Commitments, contingencies and legal disputes to these interim condensed consolidated financial statements.

Sales and Marketing Review

Iron ore supply, demand and prices

Following a strong rally in December 2023 on expectations of restocking in China, iron ore prices started 2024 at relatively high levels. Optimism, however, was not sustained as Chinese mills broke from the usual restocking patterns and adapted to operating with lower inventories. This resulted in prices subsequently falling throughout much of the first quarter of 2024.

Iron ore prices (US$/t)

The early part of the second quarter of 2024 saw some recovery as China moved into its seasonal peak construction period and margins on steel products saw some support. However, once again, the rally failed to sustain, this time largely attributed to strong iron ore exports from Australia and Brazil and a build-up of inventories at Chinese ports and on the water.

Global iron ore supply for the remainder of 2024 is forecast to be strong as Australia and Brazil increase production. From a demand perspective, the low-inventory model adopted by Chinese mills, and limited desire to chase productivity even in a low margin steel environment, means expectations are that iron ore prices will remain subdued.

Pellet premiums

Pellet premiums during the first half were affected by two distinct market dynamics. First, supply disruptions, notably from North Europe due to operational issues and ongoing war-related disruptions from Ukraine and Russia. These suppliers traditionally delivered to steel mills in the Atlantic markets, and therefore pellet supply was tight in these regions, resulting in firm premiums. In contrast, soft steel margins and a stable supply of iron ore pellets in Asia resulted in pellet premiums remaining low in these markets. This pattern is forecast to continue for the remainder of 2024.

Customer development

With access to Ukrainian Black Sea ports restored, the Group was able to expand its seaborne sales, particularly to customers in Asia.

During the period, the Group also restarted production and sales of its high-grade FDP pellets. Quality improvement projects implemented at site, such as the press filtration facility partly in operation and the coating facility have improved the pellet physical strength and chemical quality.

These efforts, along with increased support of the market development in the regions focusing on the direct reduction steelmaking route, have enabled Ferrexpo to secure a position as a suitable supplier for a steelmaking sector targeting the decrease of carbon emissions. During the first half, several Memorandum of Understandings ("MoU") were agreed upon to explore green steel initiatives with leading steel producers and equipment manufacturers around the world, including the announced MoU with Salzgitter.

Freight

The C3 freight rate (Capesize freight rate from Brazil to China), is used as a reference in the pricing of the Group's sales. C3 rates in 1H 2024 were relatively high at US$26 per tonne (2H 2023: US$23 per tonne and 1H 2023: US$20 per tonne), due to stronger than expected demand as a result of unseasonably dry weather.

Seaborne exports via Ukrainian Black Sea ports increased significantly due to the establishment of a temporary maritime export corridor. Encouragingly, more shipowners are showing interest in returning to the Black Sea, which could see future cost benefits for the Group's seaborne exports.

FINANCIAL REVIEW

Maintaining stable net cash despite war related restrictions, with continued capital investment.

Summary

With the reopening of Ukrainian Black Sea ports (please see Sales and Marketing Review for more detail), Group revenues increased by 64% to US$549 million mainly due to an 85% increase in sales volumes, though partially offset by a 15% fall in realised prices compared to the same period in 2023. The Group's C1 cash cost of production ("C1 costs") increased to US$78.8 per tonne in the first half of 2024, compared to US$71.3 per tonne in the same period in 2023. The positive effects from the higher production and the devaluation of the local currency were offset by higher prices for some input materials, mainly for electricity. The prices for electricity in Ukraine rose sharply in June 2024, mainly due to the attacks on power generation and transmission infrastructure requiring the import of up to 80% of total electricity consumption requirements from neighbouring countries.

As a result, the Group's Underlying EBITDA increased by 24% to US$79 million, largely due to the higher volume driven revenue generation. The net profit for the period was US$55 million, compared with US$27 million in the first half of 2023. The Group continued to make capital investments, totalling US$55 million during the first six months (1H 2023: US$58 million), comprising both sustaining and development projects.

Key performance indicators

Note: The Group amended its definition of the Underlying EBITDA. Further information is provided in the APM section

Revenue

Group revenue increased by 64% to US$549 million in the first half of 2024, compared to US$334 million in the same period in 2023, mainly due to the resumption of exports from Ukrainian Black Sea ports. It is important to note, that at the present time shipping costs from Ukrainian Black Sea ports are higher than before the full-scale invasion of Ukraine in February 2022. The sales volume was 85% higher at 3.8 million tonnes in the first half of 2024, compared to 2.1 million tonnes in the same period in 2023.

After a strong start to 2024, the iron ore index price in March averaged approximately 18% below the one in January. Index prices remained stable in April and recovered in May by approximately 8% before dropping in June again to the average index price in April. Despite this volatility in 1H 2024, the index prices averaged at a similar level as those in the first half of 2023. The positive effect from the higher sales volume was partially offset by the lower realised prices than in 2023. Whilst the average benchmark iron ore price (65% Fe) remained stable, the price decline is attributed to lower overall pellet premiums due to weaker demand for iron ore products, particularly in China. Furthermore, higher rates for international freight during the first half of 2024 had a negative impact on the Group's realised net back prices for sales under the International Commercial Terms Free on Board, compared to the same period in 2023.

Iron ore prices

Source: Platts

Since the beginning of the full-scale invasion, the Group's export routes have predominantly involved either the railing of products direct to European customers, or the railing of iron ore pellets to the Group's barging subsidiary on the River Danube for delivery to specific customers in Europe, or by barge to other non-Ukrainian Black Sea ports, for onward sale by ship. In January 2024, the Group resumed its shipping operations from Ukrainian Black Sea ports, which provided more capacity and flexibility than previously. This also had a positive effect on the Group's cash conversion cycle due to shorter logistics distances and times. Of the total sales volume during the first half of 2024, 1.8 million tonnes were shipped through Ukrainian Black Sea ports (1H 2023: nil) of a total of 2.1 million tonnes of seaborne sales (1H 2023: 0.49 million tonnes).

The Russian attacks on power generation and transmission facilities in Ukraine in the first half of 2024 resulted in country-wide power supply constraints, and there is a risk that the situation could worsen in the second half of 2024, potentially affecting the Group's production and sales volumes.

Cost of sales and C1 Cash Cost of production^A

The Group's cost of sales in the first half of 2024 totalled US$314 million, up 74% compared to US$182 million in the same period in 2023. This increase is mainly due to a 73% increase in production to 3.7 million tonnes, compared to 2.1 million tonnes in the comparative period in 2023. The Group's current production volume continues to align with the available logistics capacity. As a result, sales from Ukrainian Black Sea ports had a positive effect on the Group's sales and therefore production volumes.

In addition, the Group's production volume is also dependent on the constant power supply in Ukraine, which was affected in the first half of 2024 by Russian attacks on domestic power generation and transmission infrastructure. As a result of these attacks resulting in restrictions of power supply, prices rose by approximately 24% and 64% in May and June 2024, compared to the same months in 2023. On the other hand, the Group benefited from lower prices for natural gas and diesel fuel compared to the same period in 2023, although the effect from the lower prices for diesel fuel was offset by a higher consumption as a result of the ramp up of the mining operation to secure the access to the ore in future periods.

C1 costs during the first half of 2024 increased to US$78.8 per tonne, compared to US$71.3 per tonne in the same period in 2023. The positive effects from the higher production on the fixed cost absorption per tonne of iron ore pellets produced and the devaluation of the local currency were tempered by higher electricity prices. The higher production costs were also influenced by the increased mining activities, as well as repair and maintenance programme for the key equipment used in current operations.

The main C1 costs drivers are the prices for electricity, natural gas and diesel fuel in Ukraine, being outside of the Group's control, which collectively represented 45% of the Group's total C1 costs during the period, compared to 48% in the same period in 2023. Whilst the proportion of the electricity remained relatively stable despite higher prices, and natural gas benefited from the better fixed cost absorption due to the higher production volume, the proportion of diesel fuel increased marginally, despite lower prices, due to the higher consumption as mining activities ramped up.

The average electricity price in Ukraine increased in the first half of 2024 by 20% in US dollar terms, peaking at US$177 per megawatt-hour ("MWh") in June 2024, compared to an average of US$95 per MWh in the same period in 2023. The average Brent price for oil and the average price for natural gas, both in US dollar terms, were 4% higher and 23% lower in the first half of 2024 than in the same period in 2023. As a result of the significantly higher production and the ramp up of the Group's mining operations in the first half of 2024, the consumption of electricity, natural gas and diesel fuel increased by 34%, 72% and 95% respectively, compared to the same period in 2023.

Another important component of the Group's C1 costs that is outside of the Group's control is royalties, which accrue and are paid based on a tiered system. Based on this regime, royalties are calculated based on the benchmark index price for a medium-grade (62% Fe) iron ore fines price and computed based on the cost of different iron ore products. The rate depends on the benchmark index price for 62% Fe fines and is 3.5%, 5.0% or 10%. The royalty expense totalled US$20 million in the first half of 2024, compared to US$13 million in the same period in 2023, driven by the higher production volume.

The Group operating costs denominated in Ukrainian hryvnia ("UAH") account generally for approximately two thirds of the Group's C1 costs. However, it is expected that the necessary electricity imports will temporarily reduce this share of UAH denominated operating costs. Consequently, changes to the US dollar rate can have a significant impact on the Group's operating costs, including the C1 costs. The UAH depreciated in the first half of 2024 by 7%, from 37.982 to 40.537 to the US dollar as of 30 June 2024, resulting in a positive effect on the Group's C1 costs.

In line with previous years, the Group's C1 costs represent the cash cost of the production of iron pellets from own ore ('to the mine gate'), divided by production volume from own ore. This excludes non-cash costs such as depreciation, pension costs and inventory movements, as well as the costs of purchased ore, concentrate and gravel. The C1 cash cost of production (US dollars per tonne) is regarded as an Alternative Performance Measure ("APM").

The table below shows the breakdown and change in the composition of the Group's C1 costs, with energy-related costs (electricity, natural gas and sunflower husks and fuel (including diesel) accounting for the largest share at 45% of the total C1 costs, compared to 48% in the first half of 2023.

Breakdown of C1 cash cost of production

Selling and distribution costs

Total selling and distribution costs increased to US$148 million in the first half of 2024, compared to US$74 million in the same period in 2023. The seaborne logistics routes are generally the lowest cost and most efficient way for delivering the Group's products to its customers. The increase of the Group's selling and distribution costs mainly reflects the resumption of seaborne sales from Ukrainian Black Sea ports, supporting the sales volume of the Group in the first half of 2024.

As a result, the seaborne sales volume increased by 1.7 million tonnes to 2.1 million tonnes in the first half of 2024, compared to 0.4 million tonnes in the same period in 2023. In addition to the effect from the higher volume of seaborne sales, the Group's selling and distribution costs were also affected by inflated costs for shipments from the Ukrainian Black Sea ports, with actual freight costs exceeding freight index prices due to the increased risks for ship owners and insurance companies. The average C3 freight index during the first half of 2024 was approximately 32% higher than in the same period in 2023. During the comparative period in 2023, the Group's international freight costs were affected by the export of some of the Group's products through third country ports with services provided by alternative logistics providers and port operators at higher costs. Vessel charter rates for shipments from Ukrainian Black Sea ports remain relatively high, in addition to premiums for required war risk covers in the Ukrainian Black Sea area, but also in the Red Sea area for shipments to customers in MENA and Asia. The Group spent US$6 million for war risk covers during the first half of 2024 (1H 2023: nil).

The average of the relevant applicable rail tariffs during the first half of 2024 were 15% lower in US dollar terms than in the comparative period in 2023. Whereas the tariffs remained largely unchanged in the local currency, the rates in US dollar terms benefited from depreciation of the local currency during the first half of 2024, but also by the opening of the Ukrainian Black Sea ports, which led to shorter railway transport routes. The two positive effects were partially offset by temporarily reduced access to a portion of the Group's own rail wagons due to ongoing legal disputes, which required the substitution of third-party rolling stock at marginally higher costs.

General and administrative expenses

General and administrative expenses remained relatively stable at US$32 million. Continued positive effects from cost management and saving initiatives have been offset by higher legal costs relating to the Group's ongoing legal disputes. See Note 19 Commitments, contingencies and legal disputes to these interim condensed consolidated financial statements for further information on the ongoing legal challenges and disputes of the Group in Ukraine.

Other operating expenses

Other operating expenses were US$14 million in the first half of 2024, compared to US$15 million in the same period in 2023. The largest positions included in other operating expenses relate to the Group's charitable donations of US$4 million (1H 2023: US$2 million) and changes of the allowance for doubtful debts based on the expected credit loss model of US$4 million (1H 2023: US$3 million).

Currency

The Group prepares its consolidated financial statements in US dollars and the functional currency of the Group's operations in Ukraine is the Ukrainian hryvnia ("UAH"). In the past, approximately two thirds of the Group's operating costs were denominated in local currency and are subject to change of the Ukrainian hryvnia to the US dollar. It is however expected that the necessary electricity imports will temporarily reduce this share of UAH denominated operating costs.

The UAH depreciated from UAH37.982 per US dollar to UAH40.537 as at 30 June 2024 resulting in an average exchange rate of UAH39.009 in the first half of 2024, compared to UAH36.569 in the comparative period in 2023 (+7%), when the local currency was pegged to the US dollar by the National Bank of Ukraine ("NBU").

The Martial Law regime in Ukraine continued throughout the first half of 2024 and is currently extended until 11 August 2024. Despite the partial relaxation of Ukrainian hryvnia controls in May 2024 around the regulatory framework specific to foreign currency transactions, intercompany settlements and transfers offshore for international Groups, the NBU maintains tight capital controls in Ukraine. As a result, the current regulation continues to significantly limit the possibility to convert balances in Ukraine from local currency into US dollars, and the subsequent ability to transfer US dollars to the offshore accounts of the Group.

A devaluation of the local currency has generally a positive effect on the Group's production costs and results in foreign exchange gains on the US dollar denominated receivable balances of the Group's Ukrainian subsidiaries.

For further information, see sections titled C1 Cash Cost of production^A.

Ukrainian hryvnia to US dollar

Source: National Bank of Ukraine

Operating and non-operating foreign exchange gains/losses

The Group's total net foreign exchange gains, including operating and non-operating gains and losses, totalled US$30 million in 1H 2024, compared to net foreign exchange gains of US$3 million in the comparative period in 2023.

As the functional currency of the Ukrainian subsidiaries is the Ukrainian hryvnia, a depreciation of the Ukrainian hryvnia against the US dollar results in foreign exchange gains on the Group's Ukrainian subsidiaries' US dollar denominated receivable balances from the sale of pellets.

Underlying EBITDA

The Group's Underlying EBITDA was positively affected by the higher sales volumes in the first half of 2024, compared to the same period in 2023. As a result, the Underlying EBITDA increased by 24% to US$79 million (1H 2023: US$64 million). Historically and in agreement with the Group's definition of the Underlying EBITDA at that time, the Group's Underlying EBITDA included operating foreign exchange gains and losses, which could be material depending on the devaluation of the Ukrainian hryvnia compared to the US dollar.

During the period ended 30 June 2024, the Group amended its definition of the Underlying EBITDA by excluding the operating foreign exchange gains and losses. The Underlying EBITDA as at the end of the comparative period ended 30 June 2023 is not affected by the change of the definition.

For further information on the Group's performance in the first half of 2024, see section titled "Revenue" and "C1 Cash Cost of production^A". Further information on the change of the Group's definition of the Underlying EBITDA is provided in the Alternative Performance Measures ("APMs") section at the end of this report.

Net finance income/expenses

Offsetting finance income and finance expense of US$2 million during the first half of 2024, compared to a net finance expense of US$1 million in the comparative period in 2023. The Group's finance expenses decreased to US$2 million, compared to US$3 million in the comparative period in 2023. Most of the finance expense is related to the calculated interest on the Group's pension scheme, without any effects of cash outflows, and to bank charges. Except for lease liabilities, the Group does not have any outstanding interest-bearing loans and borrowings and, as a result, no interest expenses incurred on such finance facilities.

The finance income results from investments of available funds in deposits and remained stable at US$2 million.

Further details on finance expense are disclosed in Note 7 Net finance expense to these interim condensed consolidated financial statements.

Income tax

The income tax expense for the first half of 2024 increased to US$20 million, compared to US$8 million for the same period in 2023, because of a higher profit before tax. The profit before tax during the period ended 30 June 2024 benefited from the 85% increase in sales volume, which was partially offset by lower realised prices than in the same period in 2023. The expected weighted average tax rate computed for the full year 2024 based on the expected profit split is 23.7%, compared to the rate of 16% that was assumed for the first half of 2023. The increase of the expected tax rate for 2024 is mostly attributed to the 'BEPS Pillar Two' legislation that was implemented in Switzerland with effect from 1 January 2024, and the new corporate profit tax regime in the U.A.E. The effective tax rate for the first half of 2024 is 26.7%, compared to 23.8% for the same period in 2023. The effective tax rate of the Group is subject to effects from expenses not tax deductible in certain jurisdictions, mainly Ukraine, allowances on recognised deferred taxes in Ukraine and from the recognition or release of the provisions related to previous financial years. The effective tax rate of the financial year 2023, before the effect of the recognised provisions for legal disputes in Ukraine in the amount of US$131 million in the consolidated income statement, was 26.1%. This provision recognised as at 31 December 2023 is not tax-deductible in Ukraine and no deferred tax asset was recognised.

In the first half of 2024, the income tax paid by the Group totalled US$13 million, compared to US$7 million during the same period in 2023, of which US$10 million was paid in Ukraine.

The Group operates across a number of jurisdictions and its effective tax rate is subject to various factors outside of the Group's control. 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 Group's two main subsidiaries in Ukraine received in the second half of 2023 claims totalling UAH2,421 million (US$60 million as at 30 June 2024) in relation to cross-border transactions for iron ore products between the two Ukrainian subsidiaries of the Group and two subsidiaries of the Group outside of Ukraine during the financial years 2015 to 2017. Both subsidiaries filed the objections against the potential claims stated in the tax audit reports received and the Group will continue to defend its methodology applied to determine the prices between its subsidiaries in the Ukrainian courts. No specific provisions have been recorded as at 30 June 2024, neither for the claims received nor for any subsequent years, which might also be material.

Further details on taxation are disclosed in Note 8 Taxation to these interim condensed consolidated financial statements in respect of the application of tax legislation in the jurisdictions the Group operates and the critical judgements to be made by the management.

Items excluded from underlying earnings

There are no significant items excluded from the Group's underlying earnings as at 30 June 2024, whereas the earnings for the financial years 2023 and 2022 were subject to significant adjustments. The Group's Underlying EBITDA for the financial year 2023 was adjusted for the effect from the recognition of provisions for ongoing legal proceedings in Ukraine totalling US$128 million. Considering the magnitude of one specific claim in respect of contested sureties and the risks associated with the judicial system in Ukraine, a full provision in the amount of US$124 million was recorded as at 31 December 2023 for this claim. As the legal proceedings in relation to this claim have not yet been concluded at the time of approval of these interim condensed consolidated financial statements, this provision is still recognised in full as at 30 June 2024 with no effects on the Group's underlying earnings.

Furthermore, the Group's Underlying EBITDA for the financial year 2022 was adjusted for the effect from the recognition of an impairment loss of US$254 million because of the reduction in the carrying value of the Group's non-current operating assets in Ukraine due to the lower cash flow generation caused by the war. The impairment test performed as at 30 June 2024 did not result in an additional impairment loss or a partial or full reversal of the recorded impairment loss.

During the period ended 30 June 2024, the Group amended its definition of the Underlying EBITDA. As a result of this amendment, the operating foreign exchange gains and losses are no longer included in the Underlying EBITDA as it better reflects the Group's ability to generate cash and to evaluate its operating performance.

For more information, please see Note 10 Property, plant and equipment and Note 19 Commitments, contingencies and legal disputes to these interim condensed consolidated financial statements. Further information on the change of the Group's definition of the Underlying EBITDA is provided in in the Alternative Performance Measures ("APMs") section in this report.

Profit for the period

The Group's profit for the first half of 2024 increased to US$55 million, compared to US$27 million in the comparative period in 2023, primarily reflecting the higher sales volume, partially offset by lower realised prices. However, the result of the Group is still affected by the ongoing war in Ukraine, mainly due to higher costs for required logistic network and power supply restrictions because of recent Russian attacks on power generation and distribution facilities in Ukraine.

For further information, see sections titled "Revenue", "C1 Cash Cost of production^A" and "Underlying EBITDA" above.

Cash flows and net cash^A

Operating cash flow before changes in working capital increased by 22% to US$82 million in the first half of 2024, compared to US$67 million in the same period in 2023. The increase is driven by the 85% higher sales volume of 3.8 million tonnes, compared to 2.1 million tonnes in the same period in 2023. Working capital outflow of US$12 million to 30 June 2024, compared to an inflow of US$21 million in the same period in 2023. The outflow during the reporting period largely reflects the increase of the trade and other receivables and inventories whereas there is an offsetting effect from higher trade payables and the increase of the outstanding VAT balances. The working capital inflow during the comparative period in 2023 mainly benefited from the collection of outstanding VAT balances from the financial year 2022.

The net cash flow from operating activities in the first half of 2024 totalled US$56 million, compared to US$80 million in the same period in 2023. As mentioned above, the cash flow generation in the comparative period in 2023 benefited from the collection of outstanding VAT balances from the previous financial year. The Group continued to invest in its operations in Ukraine despite the challenging situation in the country, with capital investments in the amount of US$55 million in the first half of 2024, compared to US$58 million in the same period in 2023. As at the date of today's announcement, the Board has not proposed an interim dividend for the financial year 2024.

The Group maintained the balance of cash and cash equivalents at US$115 million as at 30 June 2024, compared to US$115 million as at the beginning of the year, with a total balance of US$6 million held in Ukraine (1H 2023: US$15 million). Following the adoption of Martial Law in Ukraine, the NBU has introduced significant currency and capital control restrictions in Ukraine, which were relaxed from May 2024 onwards, allowing certain foreign currency transactions within limits established by the NBU.

The Group continues to protect its net cash^A position and balancing operational and financial targets. As a result of this continued prudent approach, the Group managed to maintain its net cash^A position at US$112 million as at 30 June 2024, compared to US$108 million as at the beginning of the year, despite the difficult environment in which the Group has been operating since the beginning of the war. The Group does not have any committed debt facilities or uncommitted trade finance facilities as at 30 June 2024. The minor debt positions relate to finance lease arrangements, resulting in a gross debt balance of US$4 million as at 30 June 2024, compared to US$7 million as at 31 December 2023.

It is the Group's intention to maintain a robust balance sheet whilst continuing to invest, as the current cash flow generation allows.

For further information on the ongoing legal disputes in Ukraine see Note 19 Commitments, contingencies and legal disputes to these interim condensed consolidated financial statements.

Capital investment^A

Capital expenditure in the first half of 2024 totalled US$55 million compared to US$58 million in the same period in 2023. Of the total amount spent in the first half of 2024, sustaining and modernisation capital expenditure totalled US$19 million (1H 2023: US$27 million), covering the activities at all the Group's major business units, and investments in strategic development projects totalled US$36 million (1H 2023: US$31 million).

The level of the Group's current capital expenditures is also dependent on operational and logistics constraints because of the ongoing war in Ukraine. Taking also into account the Group's cash flow generation and the market outlook for the remainder of 2024, the Group reconsidered the level of its investments in sustaining capital expenditure projects, by reviewing and optimising the level and timing of its repair activities.

Considering the currently existing constraints in Ukraine, the Group reconsidered the timing of investments in its strategic development projects, particularly with projects that are expected to deliver returns over the medium to long term.

As such, investments made in major projects in the first half of 2024 include US$17 million spent on the enhancement of the Group's press filtration complex (1H 2023: US$7 million), which will help raise pelletising capacity in the near term once operations return to full capacity and further enhance quality of pellets produced. Furthermore, the Group continued to invest US$10 million in the concentrator and pelletiser projects (1H 2023: US$9 million) as part of the Wave 1 Expansion Programme and US$2 million spent on stripping activities for future production growth (1H 2023: US$17 million). Further expenditures of US$1 million relate to the development and exploration of the Belanovo deposit (1H 2023: US$2 million) and US$1 million in a hydrolysis plant (1H 2023: US$1 million) for the trial of hydrogen use as a fuel in the Group's pelletiser.

Related party transactions

The Group enters into arm's length transactions with entities under the common control of the Group's controlling shareholder and his associates. All these transactions are considered to be in the ordinary course of business.

During the first half of 2024, the Group made bail payments totalling US$1.3 million (1H 2023: US$0.5 million; FY 2023: US$15.0m) on behalf of a senior manager of one of the Group's subsidiaries in Ukraine in respect of various legal actions and ongoing court proceedings initiated by certain governmental bodies against the Group's subsidiaries and members of the senior management in Ukraine. See also below under Contingent liabilities and legal disputes for further details.

Further information on related party transactions is disclosed in Note 21 Related party disclosure to these interim condensed consolidated financial statements.

Contingent liabilities and legal disputes

The Group is exposed to risks associated with operating in a developing economy during a time of war and the current circumstances facing the Group's controlling shareholder. As a result, the Group is subject to various legal actions and ongoing court proceedings initiated by different government agencies in Ukraine. There is a risk that the independence of the judicial system and its immunity from economic and political influences in Ukraine is not upheld, consequently Ukrainian legislation might be inconsistently applied to resolve the same or similar disputes. As a result, the Group is exposed to a number of higher risk areas than those typically expected in a developed economy, which require a significant portion of critical judgements to be made by the management.

As previously announced, the Group's main Ukrainian subsidiary is subject to an ongoing legal dispute in Ukraine relating to contested sureties.  The Group has made an appeal to the Supreme Court of Ukraine in respect of such claim, and as at the date of approval of these interim condensed consolidated financial statements the date of the next hearing of the Supreme Court is unknown. In respect of the contested sureties claim, if the final Supreme Court ruling is not in favour of Ferrexpo Poltava Mining ("FPM") (or if the current suspension on enforcement action is otherwise lifted before a final decision of the Supreme Court),the claimant may take steps to appoint either a state or a private bailiff and request the commencement of the enforcement procedures, which could have a material negative impact on the Group's business activities and its ability to continue as a going concern, as the assets of FPM could be seized or subject to a forced sale.

In addition to the afore-mentioned claim, a supplier and related party to the Group filed by an application to open bankruptcy proceedings ("creditor protection proceedings") against the Group's major subsidiary in Ukraine for an amount of UAH4.6 million (US$0.1 million as at 30 June 2024). On 18 July 2024, the Group's subsidiary settled the outstanding debt to the supplier and submitted all documents to the court for consideration to avoid the possible opening of such creditor protection proceedings.

Considering the magnitude of the contested sureties claim and the risks associated with the judicial system in Ukraine, the Group recorded a full provision in the amount of UAH4,727 million (US$124 million as at 31 December 2023) for this claim as at the end of the financial year 2023. As the legal proceedings in relation to this claim have not yet been concluded at the time of approval of these interim condensed consolidated financial statements, this provision is still recognised in full as at 30 June 2024 (US$117 million as at the exchange rate as at 30 June 2024).

See Note 2 Basis of preparation and Note 19 Commitments, contingencies and legal disputes to these interim condensed consolidated financial statements.

Going concern

As at the date of the approval of these interim condensed consolidated financial statements, the war in Ukraine is still ongoing and continues to pose a significant threat to the Group's mining, processing and logistics operations within Ukraine. As a result, a material uncertainty remains as some of the uncertainties remain outside of the Group management's control, with the duration and the impact of the war still unable to be predicted at this point of time.

In addition to the war-related material uncertainty, the Group is also exposed to the risks associated with operating in a developing economy, which may or may not be exacerbated by the war and/or the current circumstances facing the Group's controlling shareholder. As a result, the Group is exposed to several risk areas that are heightened compared to those expected in a developed economy, such as an environment of political, fiscal and legal uncertainties, which represents another material uncertainty as at the approval of these interim condensed consolidated financial statements.

See Note 2 Basis of preparation to these interim condensed consolidated financial statements for further information.

Operational review

Health and safety

Despite the ongoing war in Ukraine, Ferrexpo continues to maintain its good safety record, with zero fatalities for the last 46 months. The Group recorded a 6-month lost time injury frequency rate ("LTIFR") of 0.48, higher than the average 0.32 for 2023 due to two lost time injuries at the Group's barging subsidiary First-DDSG Logistics Holding GmbH in June 2024.

Group and subsidiary six-month LTIFR

The Group has maintained a low incidence of safety incidents due to multi-year projects implementing a strong safety culture at its operations, including workforce engagement, safety training and regular monitoring of leading and lagging safety indicators. This comprehensive approach has resulted in a safety performance below the historic five year trailing average LTIFR of 0.52.

Pellet production and pellet quality

During the first six months of 2024, the Group has successfully operated three out of four pelletiser lines, on a one, two or three at a time basis. The Group announced its production for the first half of 2024 in its second quarter 2024 production report on 8 July 2024. Total commercial production for the period was 3,727,306 tonnes, comprising concentrate production of 429,865 tonnes and pellet production of 3,297,441 tonnes, of which FDP accounted for 162,645 tonnes.

The Group has continued to focus on high-grade production, with 100% of production in the period being with an iron ore content of 65% or above. Production of FDP pellets also restarted during the first six months of 2024, the first time since the full-scale invasion.

Iron ore production

Exploration projects

The Group has invested in licences for exploration-stage projects contiguous to the north of Ferrexpo's established operations, along strike from the main orebody. Due to the war, current efforts are desk-based, with the intention to resume field work and drilling in the future.

Capital investment during 1H 2024

While certain capital expenditure plans have been suspended to conserve cash, the Group continues to invest in programmes that can deliver shorter-term efficiency and productivity benefits. For example, in the first half of 2024, the Group installed and started the commissioning of the second stage of its modern press filtration technology at the Pellets Production Workshop at FPM. Manufactured by Metso Corporation, this technology lowers the moisture content in the iron ore concentrate before pellet beneficiation, thereby significantly improving the quality of iron ore pellets by strengthening finished products. The technology also helps to reduce the consumption of natural gas in the process furnace, where raw pellets are heated and dried until they solidify. By optimising gas consumption, the technology allows Ferrexpo to save costs and further reduce Scope 1 emissions.

New press filtration complex at FPM in operation

The level of the Group's current capital expenditures is also dependent on operational and logistics constraints because of the ongoing war in Ukraine. Taking also into account the Group's cash flow generation and the market outlook for the remainder of 2024, the Group reconsidered the level of its investments in sustaining capital expenditure projects, by reviewing and optimising the level and timing of its repair activities.

Considering the currently existing constraints in Ukraine, the Group reconsidered the timing of investments in its strategic development projects, particularly with projects that are expected to deliver returns over the medium to long term.

As such, investments made in major projects in the first half of 2024 include US$17 million spent on the enhancement of the Group's press filtration complex (1H 2023: US$7 million), which will help raise pelletising capacity in the near term once operations return to full capacity and further enhance quality of pellets produced. Furthermore, the Group continued to invest US$10 million in the concentrator and pelletiser projects (1H 2023: US$9 million) as part of the Wave 1 Expansion Programme due for previously entered commitments and US$2 million spent on stripping activities for future production growth (1H 2023: US$17 million). Further expenditures of US$1 million relate to the development and exploration of the Belanovo deposit (1H 2023: US$2 million) and US$1 million in a hydrolysis plant (1H 2023: US$1 million) for the trial of hydrogen use as a fuel in the Group's pelletiser.

Marketing

With the ability to export through Ukrainian Black Sea ports during the first half of 2024, the Group was able to produce more products for export to customers in Europe (in addition to the established rail and barge routes) and further afield to its customers in MENA and Asia.

The sales mix comprised of high grade commercial concentre and pellets, including FDP pellets.

Sales by region

Responsible business activities

Safety

The Group is pleased to report that there were no fatalities at its operations in 1H 2024, following up on 2023 being the third consecutive year that we have reported zero fatalities at our operations and the Group's operations continue to perform below the five-year trailing average for its lost time injury frequency rate.

Community support

Since the early stages of Russia's invasion of Ukraine in 2022, the Group has sought to utilise its position as a business in Ukraine to source and provide support throughout the communities where the Group operates. In response to the humanitarian crisis in Ukraine, the Group has established the dedicated Ferrexpo Humanitarian Fund, which combined with its regular CSR activities, have operated over 100 programmes and initiatives.

Pathway to low carbon production

Whilst the war is having many effects on the Group's operations, work continues to reduce greenhouse gas ("GHG") emissions and retain progress achieved in previous years. In April 2024, the Group announced as part of its Full Year Results for 2023 that it had achieved a 32% reduction in GHG emissions since its baseline year of 2019.

To build confidence around the reporting of sustainability topics, the Group completed an external assurance process on its 2023 reporting of GHG emission and safety disclosures.

Table 8: Greenhouse gas emissions

As shown in the table above, the Group has reduced its emissions on a unit basis in 1H 2024, while absolute Scope 1 and 2 emissions have risen with increased production volumes for the 1H 2024 period. This progress has been achieved through a combination of factors, which includes the following:

·    Clean power purchasing. In 1H 2024, the Group continued to purchase high levels of clean power, with 61% of electricity purchases coming from clean sources such as hydro and nuclear power (1H 2023: 73%). Power interruptions and sourcing alternative supply from neighbouring countries have changed the availability of the power source mix and it is not certain that the Group can continue to source as much clean power as it has in the past.

·    Mining activities. Ferrexpo continues to operate its mining activities at a reduced capacity compared to before the full-scale invasion, however, it has successfully managed to restore some production during the first six months of 2024. Consequently, the consumption of diesel increased 83% in 1H 2024 compared to 1H 2023, reflecting higher mining volumes.

·    Processing and beneficiation activities. In line with increased ore production, processing and beneficiation activities increased as up to three pelletiser lines were operated during the period. The increased throughput and product mix resulted in higher absolute emissions compared to previous periods, as a result of increased natural gas consumption at the pelletising plant for example, which increased 63% in 1H 2024 compared to 1H 2023. However, compared to pre-war times, Scope 1 emissions intensity remains lower at 54 kg CO₂e per tonne of production compared to 57kg in 2021 as the Group continues to optimise production to meet emissions targets.

The Group's Scope 3 emissions are dominated by the emissions generated by steelmakers in the conversion of iron ore to steel, with this activity representing 96% of Scope 3 emissions in 1H 2024 (1H 2023: 95%), and more than 85% of total emissions (Scopes 1, 2 and 3 combined). Ferrexpo's Scope 3 emissions footprint was 1.31 tonnes CO₂ per tonne of production in 1H 2024, which represents a figure lower than 2023 due to an increase in the quantity of FDP produced in the period that is used in the direct reduction steelmaking route, which produces lower levels of emissions in steelmaking compared to the traditional blast furnace steelmaking route.

As part of the steel value chain, the Group understands the importance of the shift in thinking towards green steel - the production of steel without GHG emissions. Whilst the projects outlined above will reduce the Group's carbon footprint on a per tonne basis for Scope 1 and 2 emissions, over 90% of the Group's overall carbon footprint per tonne relates to Scope 3 emissions, which predominantly relate to the conversion of iron ore to steel. In the short term, steelmakers are incentivised to use iron ore pellets as they offer blast furnace steelmakers the opportunity to lower their carbon emissions by 40% for every tonne of sinter fines substituted, but this is an existing benefit that will not materially affect the Group's Scope 3 emissions. Longer term, the Group is planning to lower its Scope 3 emissions by producing more FDP pellets, which are typically converted to steel using a combination of electricity and natural gas in the conversion process, and therefore have a materially lower carbon footprint.

Veterans

Since the full-scale invasion of Ukraine 132 members of Ferrexpo's workforce have been demobilised from the Armed Forces of Ukraine, of whom 66 have returned to work. Ferrexpo maintains contact with colleagues whilst serving, and after the formal decommissioning process, veterans are introduced to the 'Ferrexpo Veteran Support Programme'.

Initially, personal contact is made through the veteran's line manager. An appropriate period of paid leave for resettling is agreed. Previous experience suggests that getting back to work sooner rather than later can limit the risk of mental health issues. At this early-stage, advice and support are provided on any legal, administrative or financial issues. Medical examinations for both physical and mental health are undertaken, with secondary screening when needed.

Subsequently, Ferrexpo veterans will have the right to return to their previous roles, or to a new role if their physical or mental health or other circumstances does not allow this. The Group's support extends to ensuring veterans are well-integrated back into the workforce. Additionally, Ferrexpo provides opportunities for retraining and transitioning to new roles, as well as offering help with retraining and finding new employment suited to their new skills and health status.

In addition to immediate resettling support, Ferrexpo offers a comprehensive social and material support programme. This includes an annual bonus and retirement packages.

Ferrexpo has implemented a six-week training programme for managers and colleagues of veterans. This programme teaches the basics of interacting with individuals who have physiological disabilities and post-traumatic stress disorder (PTSD), ensuring a supportive work environment for returning veterans.

Women in the workplace

Ferrexpo was a pioneer in diversity and inclusion which is reflected today by the highest ratio of female employees in the Ukrainian metals and mining sector. At the end of June 2024 just over 31% of all employees are female and the average number of women in management positions is 22.4% (with a target of 25% by the end of 2030)

Ferrexpo is a signatory of the "Declaration for achieving gender equality and preventing domestic violence" initiated by the UN Population Fund, a member of the 'Progression Project' initiated by Biasless, 'Together with the After Tomorrow' NGO, UN Women Ukraine and the Women Empowerment Principles, initiated by the UN Global Compact and UN Women.

The flagship initiative to advance women in the workplace is Ferrexpo's 'Fe_munity School of Women's Leadership', an educational platform and programme completed by over 200 female leaders, aimed at obtaining the necessary knowledge and competences for the further professional growth of women. The platform was rolled-out at a national level, with over 50 Ukrainian women from different regions and business sectors joining the programme, and the first cohort of 50 young women and men completed the inaugural 'Fe_munity Teens' programme in June this year. This programme was developed and run by 'Fe_munity Alumni', who are now, also providing mentoring support following completion of the programme.

The Group also founded the 'Ferrexpo School of Inclusion' which has provided training for over 100 managers, covering the principles of inclusiveness, gender equality and non-discrimination, and gained knowledge that contributes to the support of ideas of tolerance, countering gender and other types of stereotypes. This project was expanded to the community level and 30 representatives of local council and education facilities have now also completed the training.

Other initiatives to advance women in the workplace include:

·    The appointment of a Gender Equality Ambassador.

·    Psychological training for female employees to remove mental barriers that hinder the development of female leadership.

·    Development and implementation of gender based KPIs.

·    A Group-wide D&I study of the level of inclusivity in the Group.

·    A Stem_Streamers quest was held for 100+ teenagers on the topic of gender equality and inclusiveness to break down gender stereotypes.

·    Introduction of DEI officer position.

·    An industry leading number of employees have taken the national 'HeForShe' pledge and joined the 'HeForShe' solidarity movement for gender equality.

·    Introducing paternity leave for men before being made a legislative requirement, including leave at the higher of either of a married employee couples' salary.

·    Ferrexpo was one of the first companies in the mining industry to join the global action "16 days against gender-based violence".

Today, women are represented at all levels across the business, including in what were previously 'typically male dominated' roles including surveyors, geologist, truck drivers and gas welders.

Ferrexpo's efforts in female diversity and inclusion have been recognised with awards such as the 'HR Pro Awards', and recognition as a top ten Ukrainian employer according to the Ukrainian Index of Corporate Equality.

Responsible Business Report 2024

Later in the year the Group will release its eighth annual Responsible Business Report.

Consideration of significant judgements and material uncertainties

In the course of preparing the interim condensed consolidated financial statements, the Group's management team has had to make estimates and judgements that have the potential to create a significant impact on the Group's interim consolidated financial statements. The most critical accounting estimates and judgements are disclosed in Note 2 Summary of significant accounting policies of these interim condensed consolidated financial statements. The critical estimates presented are predominantly related to the computation of the value in use of the Group's non-current operating assets as the Group's cash flows are still adversely affected by the war in Ukraine.

Critical judgements made predominantly relate to: (a) the basis of preparation of the Group's Interim Condensed Consolidated Financial Statements for 1H 2024 in respect of going concern assumptions made; (b) the application of tax legislation in the jurisdictions the Group operates; and (c) the assessment of matters in an environment of political, fiscal and legal uncertainties.

Going concern assessment and stress testing

The ongoing war in Ukraine continues to pose a threat to the Group's mining, processing and logistics operations within Ukraine. The Group is also exposed to the risks associated with operating in a developing economy such as an environment of political, fiscal and legal uncertainties, which may or may not be exacerbated by the war and/or the current circumstances facing the Group's controlling shareholder (see Ukraine country risk in the Update on Principal Risks section below). As a result, these factors therefore represent material uncertainties in terms of the Group's ability to continue as a going concern. As part of management's going concern assessment, the Group continuously adjusts its long-term model to reflect the latest developments in terms of currently possible sales and production volumes as well as expected realised prices taking into account the situation on the global iron ore markets and its productions costs. The latest base case of the long-term model shows that the Group has sufficient available liquidity to continue its operations at a reduced level for the entire period of the management's going concern assessment.

See Note 2 Summary of significant accounting policies to these interim condensed consolidated financial statements for further information on Group's going concern assessment and stress testing.

Update on principal risks

Principal Risks are those considered to have the greatest potential impact on the Ferrexpo business, assessed on the basis of impact and probability. The Group considers the Principal Risks facing the business, including risk associated with conflict, country risk, counterparty risk, the global demand for steel, changes in pricing methodology, iron ore prices, pellet premiums, seaborne freight rates, risks relating to producing our products, risks relating to the delivery of our products, health and safety, operating costs, information technology and cybersecurity, and climate change.

These principal risks detailed on pages 74 to 90 of the 2023 Annual Report and Accounts (published in April 2024), remain relevant. An update on material developments that relate to the Group's Principal Risks since their publication in April 2024 is provided below.

Update since publication of Annual Report and Accounts in April 2024

Conflict risk and outlook

The primary consideration for Ferrexpo's risk profile at the present time is Russia's invasion of Ukraine, and the impact that this is having, and will continue to have, on Ferrexpo's business in Ukraine.

Since the Group published its Principal Risks in April 2024, the Russian army has made small advances in the occupied territories of Ukraine. Ukraine has also continued to suffer airborne attacks on civilians and civilian, energy and transport infrastructure.

Ferrexpo's operations continue to operate, albeit with greater limitations on working hours due to air raid alerts and occasional disruption to power transmission. The previous blockade of Ukraine's Black Sea ports has been alleviated with the establishment of a 'maritime safe passage' which has allowed the Group to resume seaborne trade out of Ukraine's ports. As long as the level of risk is acceptable, the Group will continue to use this export route.

The conflict in Ukraine continues to represent a significant threat to Ferrexpo's operations in Ukraine, should the war continue in its current configuration, or even escalate further. The outlook for Ukraine at present remains inherently unpredictable in the short to medium term, with a range of military, financial and other factors all having a significant influence on the outcome for the people of Ukraine and businesses deriving their revenues from Ukraine. In the near term, it is expected that the conflict will continue to put increasing strain on the economy of Ukraine, in particular with regard to elevated electricity prices and railway tariffs.

For further information, please see the sections titled Sales and Marketing Review and Financial Review in this report in addition to the Going Concern Statement above.

Ukraine country risk

The Group's mining and processing operations are located in Ukraine, which is a country currently under invasion by Russia.

For more information, please see the section titled "Conflict Risk", as well as the Principal Risks section of the 2023 Annual Report and Accounts.

As a result of operating in a developing economy, the Group is subject to a number of elevated risks, such as the fiscal and political stability of Ukraine, independence of the judiciary, access to key inputs and capital, exposure to monopolies and other influential businesses (particularly those that are related parties to the government of Ukraine), in addition to a range of other factors.

The independence of the judiciary system in Ukraine has been frequently referenced in the Principal Risks section of the Group's 2023 Annual Report and Accounts, and this is a consideration that remains particularly relevant for the Group today. As described in Note 19 Commitments, contingencies and legal disputes in the 2024 interim condensed consolidated financial statements, the Group is currently subject to several legal proceedings in Ukraine that are similar in part to previously heard legal proceedings, and it cannot be guaranteed that the Ukrainian legal system will always provide a ruling in line with the laws of Ukraine or international law.

As a result, the Group is exposed to an unclear fiscal and legal system in Ukraine.

As referenced in the Group's 2023 Annual Report and Accounts, these matters relate to the Group's controlling shareholder, and there is a risk that assets owned or controlled (or alleged to be owned or controlled) by him may be subject to restrictions, in Ukraine or elsewhere, or that the Group is affected by and involved in legal proceedings relating to these matters, in Ukraine or elsewhere.

At the present time, the Group is subject to a number of legal claims and legislative actions in Ukraine that threaten how the business operates. Such claims and actions include attempts to freeze the shareholding of Ferrexpo AG in its operating subsidiaries, the inclusion of the subsidiary Ferrexpo Belanovo Mining into Ukrainian sanctions list and the cancellation of the mining licence for the Galeschynske deposit as a result, claims regarding iron ore royalty payments, an investigation into the alleged illegal extraction of minerals of national importance, in addition to contested surety claim from third party.

For further information on ongoing legal disputes, please see Note 19 Commitments, contingencies and legal disputes to these interim condensed consolidated financial statements.

Global steel demand and realised prices for iron ore pellets

Global steel prices have remained relatively rangebound in 2024, with European hot rolled coil prices ranging between EUR625 and EUR770 per tonne (Fastmarkets) and Asian prices remaining similarly rangebound too. Volatility around input costs, including coking coal and iron ore, has therefore resulted too in an overall uncertain margin environment. As a result, steel mills have been pivoting toward a higher proportion of lower-grade iron ore in their feedstock to control costs.

The Group expects that the longevity of the conflict in Ukraine will play a significant role in the inflationary price environment currently being seen throughout the commodity space. The war in Ukraine is resulting in numerous supply-side disruptions in commodity markets, either through sanctions imposed on Russia, or shifts in Russian supply away from western nations, and therefore it can be expected that elevated energy costs, and therefore global inflation, will persist for the foreseeable future whilst the conflict in Ukraine continues.

Pellet premiums

Historically, pellet premiums have been correlated to steel mill profitability as they are the most productive source of iron units 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 or a fall in pellet premiums, which in turn will lower profitability for the Group.

Market mix and freight

Logistical constraints seen since the start of the full-scale Russian invasion in 2022 that have limited the Group's ability to access the global iron ore markets have eased this year, as a result of the reopening of the Ukrainian Black Sea ports. However, seaborne freight costs remain high due to the perceived higher levels of risk associated with shipping through the export corridor and thus, pressuring the Group's profit margins via this channel.

Whilst the Group is now able to supply customers in MENA and Asia, the higher logistics and freight costs associated with accessing these markets may constrain the Group's ability to achieve the same profitability as it has done so in the past prior to the 2022 full-scale invasion of Ukraine.

Directors' responsibility statement

The Interim Report complies with the Disclosure Guidance 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 2024 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 contained in UK adopted IFRS;

·       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 2023 Annual Report and Accounts, as required by DTR4.2.8R.

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

Independent Review Report to Ferrexpo Plc

Conclusion

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six-months ended 30 June 2024 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 explanatory Notes 1 to 22.

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 2024 is not prepared, in all material respects, in accordance with International Accounting Standard ('IAS') 34 "Interim Financial Reporting", as adopted for use in the United Kingdom and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Basis for Conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued 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.

As disclosed in Note 2 Basis of preparation, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards adopted for use in the United Kingdom ("UK adopted IFRS"). The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard ('IAS') 34 "Interim Financial Reporting", as adopted for use in the United Kingdom.

Material Uncertainty Relating to Going Concern

We draw your attention to Note 2 Basis of preparation, which indicates that management has assessed the ongoing armed conflict in Ukraine to pose a threat to the Group's mining, processing and logistics operations within Ukraine and on the ability of the Group to continue as a going concern due to the unpredictable duration and severity of such events and circumstances, which are outside of the Group's control. This indicates that a material uncertainty exists that may cast significant doubt upon the Group's ability to continue as a going concern.

In addition, there is a further material uncertainty as disclosed in Note 2 Basis of preparation, due to the application of local legislation in Ukraine in respect of the outcome of the proceedings in which the Group is involved. The award in favour of the claimant by the Ukraine Court of Appeal in the contested sureties claim and the possible enforcement of such decision, has imposed potential increased demand on the Group's current and future cash resources, the timing of which is outside of Group management's control. Furthermore, the opening of the creditor protection proceedings might potentially affect Ferrexpo Poltava Mining's ability to continue as a going concern and, as a result, also the Group's. These circumstances indicate the existence of a material uncertainty that may cast significant doubt upon the Group and Company's ability to continue as a going concern.

Our opinion is not modified in respect of this matter.

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have failed to appropriately disclose all material uncertainties relating to going concern

This conclusion is based on the review procedures performed in accordance with ISRE 2410, however future events or conditions may cause the entity to continue as a going concern.

Emphasis of Matters

We draw your attention to Note 19 Commitments, contingencies and legal disputes, which describes the uncertainty in the application of local legislation in Ukraine in respect of the outcome of the proceedings in which the Group is involved.

We also draw your attention to Note 10 Property, plant and equipment and Note 19 Commitments, contingencies and legal disputes, which describes the uncertainty related to the estimate of the recoverable amount of the Group's Cash Generating Unit as a result of the ongoing war and ongoing legal proceedings in Ukraine.

Our opinion is not modified in respect of either of these matters.

Responsibilities of 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.

In preparing the half-yearly financial report, the Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor Responsibilities for the review of the financial information

In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statement in the half-yearly financial report. Our conclusion, including our conclusions relating to the material uncertainty relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our Report

This report is made solely to the Company in accordance with guidance contained in ISRE (UK) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our review work has been undertaken so that we might state to the company those matters we are required to state to them in a review report and for no other purposes.  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.

MHA, Statutory Auditor

London, United Kingdom

30 July 2024

MHA is the trading name of MacIntyre Hudson LLP, a limited liability partnership in England and Wales (registered number OC312313)

Interim Consolidated Statement of Comprehensive Income

Interim Consolidated Statement of Financial Position

The financial statements were approved by the Board of Directors and authorised for issue on 30 July 2024 and signed on behalf of the Board.

Lucio Genovese                                                                          Nikolay Kladiev

Executive Chair                                                                             Chief Financial Officer and Executive Director

Interim Consolidated Statement of Cash Flows

Interim Consolidated Statement of Changes in Equity