Company Announcements

2019 Half Year Results

Source: RNS
RNS Number : 6504H
Ferrexpo PLC
02 August 2019
 

 

2 August 2019

Ferrexpo plc

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

2019 Half Year Results

Ferrexpo plc today announces its unaudited financial results for the six months ended 30 June 20191.

 

Financial Highlights

·    Revenue up 28% to US$787 million due to higher iron ore fines prices and an increase in sales volumes

·    Underlying EBITDA A up 59% to US$372 million (1H 2018: US$234 million)

·    Profit after tax up 78% to US$270 million

·    Declared interim ordinary dividend up 100% to 6.6 US cents (1H 2018: 3.3 US cents)

·    Net debt A reduced to US$282 million (31 December 2018: US$339 million)

·    Capital investment doubled to US$114 million

 

Steve Lucas, Non-Executive Chairman, said:

"I am pleased to report half-year EBITDA of US$372 million, up almost 60% compared to 1H 2018, and a profit after tax of US$270 million, up 78% compared to 1H 2018. During the period we continued to benefit from strong pricing for our high-grade iron ore pellets, which helped deliver healthy cash flows. This enabled us to allocate capital to further reduce debt, increase organic investment in our assets to drive medium term growth and declare a record interim dividend to shareholders."

 

Ferrexpo has a diversified sales portfolio selling to world class steel mills under long term contracts using international benchmark pricing. Currently steel demand is muted in some regions reflecting increased raw material costs and weaker end-user demand. The Group, however, has the ability to deploy tonnage to other markets to offset any regional weakness. Overall pricing remains attractive compared to historic levels."

 

1H 2019 Financial Summary:

US$ million (unless otherwise stated)

6 months ended 30.06.19

6 months ended 30.06.18

Change

%

Year ended 31.12.18

Total pellet production (kt)

5,353

5,096

5%

10,607

Sales volumes (kt)

4,990

4,798

4%

10,227

Avg PLATTS CFR 62% Fe iron ore fines price (US$/t)

91.7

69.8

31%

71.3

Avg PLATTS CFR 65% Fe iron ore fines price (US$/t)

105.4

88.1

20%

90.4

Revenue

787

617

28%

1,274

Average C1 cash costA (per tonne)

46.0

41.6

11%

43.3

Underlying EBITDAA

372

234

59%

503

Underlying EBITDA marginA

47%

38%

9ppt

39%

Profit after tax for the period

270

152

78%

335

Diluted EPS (US cents)

45.8

25.8

78%

56.7

Ordinary interim dividend per share declared (US cents)

6.6

3.3

100%

23.1

Net cash flow from operating activities

256

156

64%

292

Capital investmentA

114

56

104%

135

Net debt2

282

369

-24%

339

Cash

92

82

12%

63

Net debt to last twelve months' EBITDAA

0.44x

0.74x

-41%

0.67x

1 These results have not been subject to a review as per the announcement of 3 July 2019

2 Note: net debt as of 30 June 2019 included a US$6 million effect from the first time application of IFRS16 Leases.

 

Market Environment

·    Significant increase in the iron ore fines price

·    Supply of pellets remained tight in 1H 2019

·    Average realised FOB price increased 28% compared to 1H 2018

 

Operational Highlights

·    5% increase in pellet production compared to 1H 2018

·    Proportion of high quality 65% Fe pellet to 96% of total output (1H 2018: 94%)

·    4% increase in sales volumes compared to 1H 2018

·    C1 cash cost US$46 per tonne up US$4.4 per tonne reflecting domestic inflation of 9% and a 5% appreciation of the local currency

·    Capital investmentA increased by US$58 million to US$114 million reflecting modernisation of processing facilities and near term organic growth opportunities to increase production by 1.5MT to 12MTPA

 

Corporate Governance

·    The Independent Review into the use of funds donated by Ferrexpo to the Blooming Land Charity remains ongoing, the Independent Review Committee is seeking to conclude its review as soon as possible

·    Appointment of Graeme Dacomb, a retired partner from Ernst & Young, as an independent non-executive director and as Chair of the Audit Committee

·    In July 2019, appointment of MHA MacIntyre Hudson, the UK member of Baker Tilly International, as the Company's new auditor. Baker Tilly International has significant audit capability in Ukraine having operated there since 1999

·    Further appointments to the Board of directors to be announced in due course

 

Health and Safety

·    No work related fatalities (FY 2018: one)

·    Group Lost Time Injury Frequency Rate 0.45 per million man hours (FY 2018:1.18, 1H 2018: 0.97)

 

 

Alternative Performance Measures

Words with the symbolA are defined in the Alternative Performance Measures section on pages 34 and 35.

There is an analyst and investor meeting at 09.00 BST today at the offices of JPMorgan at 60 Victoria Embankment, London EC4Y 0JP. A live video webcast and slide presentation of this event will be available on www.ferrexpo.com.  It is recommended that participants register before 08.45 BST. The presentation will be hosted by Steve Lucas (Chairman), Kostyantin Zhevago (CEO) and Chris Mawe (CFO).

Webcast link:  https://edge.media-server.com/mmc/p/srmiia5u

 

For further information contact:

Ferrexpo:


Ingrid McMahon

+44 207 389 8304



Maitland/AMO:


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 40 years. Ferrexpo's resource base is one of the largest iron ore deposits in the world. In 2018, the Group produced 10.6 million tonnes of pellets, a 2% increase compared to 2017, ranking it as the 3rd largest exporter of pellets to the global steel industry with a market share of approximately 8.5%. Ferrexpo has a diversified customer base supplying steel mills in Austria, Germany, Japan, South Korea, Taiwan, China, Slovakia, the Czech Republic, Turkey and Vietnam. 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

I am very pleased to report there were no work related fatalities at Ferrexpo in 1H 2019 (2018: one). We remain firmly focused on achieving zero fatalities or injuries.

 

The Group has continued to perform well in 1H 2019. Compared with 1H 2018 pellet production was up 5%, sales volumes increased 4%, revenue increased by 28%  while profit after tax increased by 78%. Strong cash flow generation funded capital investment of US$114 million and dividend payments of US$78 million whilst reducing net debt by US$57 million to US$282 million (31 December 2018: US$339 million).

 

1H 2019 was notable for the large increases in prices for all grades of iron ore. The Benchmark 62% Fe iron ore fines price increased by US$45 per tonne from 1 January 2019 to 30 June 2019. While the 65% Fe iron ore fines price increased by US$41 per tonne from US$88 per tonne as of 1 January 2019 to US$129 per tonne as of 30 June 2019.

 

During the period, the majority of seaborne iron ore pellet traded under long term contracts moved to a higher grade index as the basis for pricing. This move allowed Ferrexpo to directly capture the price premium currently contained in the 65% Fe price over the 62% Fe price, while pellet premiums were in line with 1H 2018. The average 65% Fe iron ore fines price was US$105 in 1H 2019 compared to an average 62% Fe fines price of US$70 per tonne in 1H 2018. In 2H 2019, Ferrexpo will continue to follow international benchmark pricing for its products. Currently steel demand is muted in some regions reflecting increased raw material costs and weaker end-user demand. The Group has the ability to deploy tonnage to other markets to offset any regional weakness.

 

Pellets are one of the most productive sources of iron in the steelmaking process while also reducing energy inputs, slag volumes and carbon emissions for a steel mill and helping to improve the quality of the final steel product. As such pellets receive a price premium over other types of iron ore.

 

The Group is making good progress towards the completion of its US$100 million investment to expand concentrate production. This will allow the Group to increase pellet production by approximately 1.5 million tonnes to 12 million tonnes per annum in 2021 compared to production of 10.6 million tonnes expected in 2019.

 

Ferrexpo is one of the few pellet producers globally with the capacity to increase production significantly on a brownfield basis within its existing infrastructure. The Group is undertaking engineering studies to expand its pelletising capacity from 12 million tonnes to over 20 million tonnes per annum.

 

The Group is committed to maintaining low net debt and paying dividends to shareholders (see Dividends). 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 Directors have declared an ordinary interim dividend of 6.6 US cents per Ordinary Share (1H 2018: 3.3 US cents per Ordinary Share) for payment on 3 September 2019 to shareholders on the register at the close of business on 16 August 2019.  The ex-dividend date will be 15 August 2019. The dividend will be paid in UK Pounds Sterling, with an election to receive in US Dollars.

 

Independent Review of Blooming Land Charity

As previously disclosed, the Company has established the Independent Review Committee ("IRC") to carry out an independent review into the use of funds donated by Ferrexpo to the Blooming Land Charity (the "Charity"). The work of the IRC and its advisers is being conducted in accordance with the terms of reference approved by the Board (as detailed in the Group's 2018 Annual Report and Accounts) and includes a forensic review conducted by BDO LLP, review of relevant documentation, interviews with Ferrexpo employees and directors, correspondence with the Charity and other third parties, and advice from legal counsel in the UK and Ukraine. Significant work has been undertaken by the IRC and its advisers and this remains ongoing. At present, there are no material changes to the Company's interim conclusions published in the 2018 Annual Report and Accounts. The IRC is seeking to conclude its review as soon as possible. 

 

Board Appointment

The Board of Ferrexpo remains committed to the highest levels of corporate governance and transparency.

 

During the period, the Group was pleased to announce the appointment of Graeme Dacomb as an independent non-executive director and as the Chair of the Audit Committee. Graeme was a partner at Ernst and Young for 26 years where, for his last twelve years, he was a lead partner in the extractive industry, responsible for coordinating the provision of a full suite of services to multinational mining and oil and gas clients including Xstrata, Fresnillo, and BP across a broad range of countries including emerging markets. In addition to audit services, he provided critical advice for his clients on corporate governance structures, risk management, acquisitions, disposals and financial systems and controls. From 2011 to 2018, Graeme was a member of the Financial Reporting Review Panel.

 

Ferrexpo's programme to recruit new Board members is ongoing. As part of the selection process a wide range of factors are taken into consideration including requirements for diversity, mining sector experience and emerging market knowledge.

 

Auditor Appointment

In July 2019, Ferrexpo announced that following the completion of an audit tender led by the Company's Audit Committee, MHA MacIntyre Hudson, the UK member of Baker Tilly International, was appointed as the Company's new auditor. Baker Tilly International operates one of the top ten audit networks in the world and, importantly, has significant audit capability in Ukraine having operated there since 1999.

 

Iron Ore Market Review

 

Iron Ore Pricing

During the period the majority of seaborne iron ore pellets traded under long term contracts were priced on a higher grade index. This was a change in precedent for the industry and allowed producers of 65% Fe pellets, such as Ferrexpo, to directly capture the price premium for its higher grade ore.

 

1H 2019 was notable for the large increase in iron ore pricing for all grades of ore especially when compared to a relatively stable period of pricing in 2018 (the 62% Fe iron ore fines price fell US$2 per tonne from 1 January 2018 to 31 December 2018 to US$73 per tonne). The benchmark 62% Fe iron ore fines price rose by US$45 per tonne from 1 January 2019 to 30 June 2019, a 62% increase, and traded above US$100 per tonne for the first time since 2014.

 

The 65% Fe iron ore fines price rose US$41 per tonne from US$88 per tonne as of 1 January 2019 to US$129 per tonne as of 30 June 2019. The relative decline in the price difference between 65% Fe ore and 62% Fe ore   reflected an adjustment to the product mix by steel mills in favour of lower grade product due to lower steel prices and lower demand outside China. 1H 2019 also saw the return of high grade iron ore concentrate supply from producers in Brazil and Canada which were offline in 1H 2018. This was offset by weather disruptions in Northern Brazil which provided support for the 65% Fe fines price.

 

The overall price received by Ferrexpo in 1H 2019 benefitted from the substantially higher iron ore fines price as well as a pellet premium in line with 1H 2018. 

 

Iron Ore Supply

The significant increase in the iron ore fines price in 1H 2019 was driven by severe supply disruptions from the major iron ore producing regions which account for over 80% of seaborne supply and a 10% increase in Chinese steel production in 1H 2019 compared with 1H 2018.  

 

In terms of supply side disruptions, all three regions shown in the table below were expecting higher year on year supply, however, due to the tragic tailings dam accident in Minas Gerais in January 2019 and significant weather disruptions in Northern Brazil and Australia (with iron ore shipments from Brazil and Australia in April and May dropping to their lowest since 2015) seaborne supply is now expected to fall in 2019 compared with 2018. The expected reduction in seaborne supply in 2019 is largely due to lower output from traditional sources. At current price levels, however, supply from non-traditional sources could re-enter the market.

 

Shipments of iron ore (MT)

1H 2019

1H 2018

% Change

2019 CRU FY forecast

2018 FY production

% Change

Minas Gerais, Brazil

85

95

-11%

164

199

-18%

Para, Brazil

78

85

-8%

190

191

-

Australia

410

422

-3%

817

845

-3%

 

In 1H 2019, Chinese port inventories reached a five-year low, however, in June seaborne supply recovered strongly as weather related issues in Australia and Brazil eased.

 

 

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$15 per tonne in 1H 2019 (1H 2018: US$17 per tonne). This reflected lower iron ore shipments from Australia and Brazil. The average C3 rate in July has increased to approximately US$24 per tonne, likely reflecting the recovery in iron ore shipments.

 

Iron Ore Pellet Supply

In 1H 2019, the supply of pellets to the global export market reduced due to major supply disruptions in Brazil with an estimated 11 million tonnes of pellet capacity closed. In the second half of the year, incremental increases in pellet output are expected from Brazil, Canada and the Middle East.

 

The restart of further seaborne supply from Brazil, which has been out of the market since 2016, remains uncertain in terms of timing and the volume to be produced, while the high capital intensity associated with developing greenfield pellet supply is unlikely to lead to any significant new capacity in coming years.

 

Demand Environment

According to the World Steel Association, 1H 2019 global crude steel production was up 5% to approximately 925 million tonnes (1H 2018: 881 million tonnes). Crude steel production in China was at high levels in 1H 2019, increasing approximately 10% vs. 1H 2018 to 492 million tonnes, due to lower than expected winter production restrictions, government stimulus and high expectations of strong steel demand for the rest of the year in order to offset trade war uncertainty.

 

The World Steel Association, however, forecasts global steel output to increase by approximately 1% in 2019 compared with 2018 to 1,735 million tonnes given an expected reduction in steel output due to contracting steel margins and an overall forecast decline in global GDP growth from 3.6% in 2018 to 3.3% in 2019 (source: IMF). Steel output in Europe has been impacted by higher raw material costs and lower industrial production especially in the automotive sector.

 

As in the past, Ferrexpo continues to expect underlying demand for pellet to be supported by requirements for iron ore of a higher grade and in a form that reduces energy inputs, slag volumes and air emissions in the steelmaking process while improving the quality of the final product. This is likely to be further supported by rising CO2 prices in Europe and the potential introduction in other markets. 

 

As a pellet exporter with established operations relatively close to major import markets, Ferrexpo stands to benefit from the strong long term expected pellet market dynamics.

 

In the short term, however, demand may be lower due to reduced steel mill profitability and utilisation rates. Ferrexpo sells its pellets under long term contracts to high quality steel mills throughout the world and can access all major markets, reducing reliance on any one region. Incumbent pellet producers' benefit from high barriers to entry, and the Group maintains a competitive cost of production relative to the majority of its peers.  

 

Financial Review

The Group has continued to perform well in 1H 2019. Compared with 1H 2018 pellet production is up 5%, sales volumes increased 4%, revenue increased by 28%  while profit after tax increased by 78%. Strong cash flow generation funded dividend payments of US$78 million and capital investment of US$114 million whilst reducing net debt by US$57 million to US$282 million (31 December 2018: US$339 million).

 

Revenue

Group revenue increased by 28% to US$787 million in 1H 2019 (1H 2018: US$617 million) principally due to a significant increase in Ferrexpo's realised FOB price and an increase in pellet sales volumes.

 

Higher realised prices during the period mainly reflected a substantial increase in the iron ore fines price.

 

Headline pricing 1H 2019 vs. 1H 2018

$ per tonne

1H 2019

1H 2018

Change

Avg 62% Fe

92

70

31%

Avg 65% Fe Price

105

88

20%

 

During the period the majority of seaborne iron ore pellets traded on a long term contract moved to a higher grade index as the basis for pricing. This further benefitted Ferrexpo's price realisations by capturing the quality premium inherent in 65% Fe ores. The average 65% Fe iron ore fines price was US$105 in 1H 2019 compared to an average 62% Fe fines price of US$70 per tonne in 1H 2018. The difference in price increased revenue by US$155 million.  Pellet premiums were in line with 1H 2018.

 

Lower freight rates during the period increased net revenue by approximately US$9 million. For further information see Iron Ore Pricing (Iron Ore Market Review). 

Sales volumes for the period increased 4% to 5.0 million tonnes (1H 2018: 4.8 million tonnes), increasing revenue by US$21 million. For further information see Operational Review - Marketing.

 

Costs

C1 Cost of Production

The Group's average C1 cash cost of productionA was US$46.0 per tonne in 1H 2019 compared with US$41.6 per tonne in 1H 2018.

Cost inflation moderated in 1H 2019 compared with US$45.0 per tonne in 2H 2018 (FY 2018: US$43.3 per tonne).

 

The increase in costs was primarily due to domestic cost inflation and a strong local currency against the US Dollar adding US$2.3 per tonne to the C1 cash cost compared to 1H 2018. Ukrainian inflation was 9% in 1H 2019 while the Hryvnia appreciated by 13% in real terms compared to the same period of 2018.  Over half of the Group's operating costs are in local currency and are impacted by the Hryvnia exchange rate and inflation.  For further information see Currency below.

 

Higher stripping activities to support product quality and in preparation for mining within the next two years increased the cash cost by US$1.4 per tonne while ongoing repair and maintenance in the processing plant and pelletiser increased the C1 cost by US$0.8 per tonne. Lower gas (-7% 1H 2019 vs. 1H 2018) and diesel fuel (-2% 1H 2019 vs. 1H 2018) prices were offset by higher biofuel and bentonite prices.

 

In 2H 2019, costs remain subject to local inflation, the Hryvnia exchange rate and commodity prices.

 

On 1 July 2019, the government of Ukraine announced the liberalisation of the electricity market. This aims to increase competition as per the liberalisation of the gas market in 2015.

 

The table below contains the split of the Group's C1 cash cost per tonne,  which remains broadly in line with the same period last year.

 

US$ per tonne

% of C1 cost

1H 2019

% of C1 cost

1H 2018

Electricity

23%

24%

Gas

8%

10%

Fuel

10%

10%

Materials

16%

14%

Spare parts

8%

9%

Personnel

10%

9%

Maintenance and repairs

9%

8%

Grinding media

8%

8%

Royalties

6%

6%

Explosives

2%

2%

 

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$132 million (1H 2018: US$122 million). This included an increase in rail tariffs of 15% from April 2019. International freight costs arising from CFR sales of US$49 million (1H 2018: US$45 million) are included in revenue and selling and distribution costs. The increase in international freight reflects higher sales volumes and an increased proportion of sales to North East Asia.

 

 

General, Administrative and Other Expenses

General and administrative and other expenses increased to US$45 million compared with US$42 million in 1H 2018. This reflected an increase in local personnel costs due to the appreciation of the local currency against the US Dollar and higher audit and professional fees as a result of the independent review into the Blooming Land Charity. For further information see Independent Review of Blooming Land Charity on page 4 and Notes 17 Commitments and contingencies and 19 Related party disclosure.

 

Currency

Ferrexpo prepares its accounts in US Dollars. The functional currency of the Ukrainian operations is the Hryvnia and approximately half of the Group's operating costs are in local currency. In 1H 2019, the Hryvnia appreciated from UAH27.688 per Dollar on 1 January to UAH26.166 per Dollar as of 30 June 2019 and resulted in an increase of the Group's productions costs. For further information see C1 Cost of Production above. The total operating forex loss resulting from the conversion of US$ denominated assets in Ukraine remained stable at US$16 million in 1H 2019 and 1H 2018.

 

Ukrainian Hryvnia vs. US Dollar

 

Spot (30.7.19)

Opening rate 1.1.19

Closing rate 30.6.19

Average 1H 2019

Average 1H 2018

UAH per US$

25.085

27.688

26.166

26.932

26.747

Source: National Bank of Ukraine

 

Underlying EBITDAA

Underlying EBITDAA in 1H 2019 increased 59% to US$372 million compared to US$234 million in 1H 2018.

 

This reflected a 28% increase in the Group's received pellet price of US$157 million compared to 1H 2018 and higher sales volumes of US$9 million. This was partially offset by an increase in costs of US$28 million.

 

Interest

Interest expense declined 38% to US$15 million compared to US$24 million in 1H 2018 due to a lower outstanding debt balance and final repayment of high cost Eurobonds in April 2019. The average cost of debt for the period ended 30 June 2019 was 7.5% (average 30 June 2018: 8.1%). The decrease was due to the repayment of US$173 million Eurobonds at 10.375%.

 

Further details on finance expense are disclosed in Note 7 Net finance expense of the accounts.

 

Tax

The income tax expense for 1H 2019 was US$47 million (1H 2018: US$27 million) based on an expected weighted average tax rate of 15% for the full year, in line with 1H 2018 and an effective full year tax rate of 14.5% in 2018.

 

Further details on taxation are disclosed in Note 8 Taxation and Note 17 Commitments and contingencies; Legal of the accounts.

 

Profit for the Period

Profit for the period increased 78% to US$270 million compared with US$152 million in 1H 2018 reflecting higher profit before tax and finance and lower interest expense.

 

Cash Flows

Net cash flow from operating activities was US$256 million (1H 2018: US$156 million). Working capital reflected a net outflow of US$70 million. This was principally due to an increase in pellet stocks and trade receivables given the higher price environment.

 

During 1H 2019, there was an outflow of US$78 million related to dividends paid in January 2019 and May 2019 (1H 2018: US$74 million). In July a further dividend of approximately US$39 million was paid following approval at the Group's AGM in May 2019.

 

Capital InvestmentA

Capital expenditureA in 1H 2019 was US$114 million compared to US$56 million in 1H 2018. During the period, US$19 million was spent on stripping activities for future production growth, US$14 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 1.5 million tonnes per annum in 2021. US$6 million was invested in new rail cars, the Group received 200 rail cars during the period and ordered an additional 400 cars which will be paid for and delivered in 2H 2019. The remaining US$67 million was used for sustaining and other capital investment.

 

Debt

Ferrexpo has a strong balance sheet with low levels of debt. Net debt to EBITDAA for the last 12 months was 0.44x compared with 0.67x as of 31 December 2018. In 1H 2019 gross debt reduced to US$374 million (31 December 2018: US$402 million) and net debt, as of 30 June 2019, was US$282 million reflecting a cash balance of US$92 million (31 December 2018 net debt: US$369 million). Net debt as of 30 June 2019 included an effect of US$6 million as a result of the first time application of IFRS16 Leases.

 

The Group has a US$400 million 2017 PXF facility, of which US$360 million was drawn as of 30 June 2019. This facility will amortise over twelve quarters commencing in 1Q 2020. The Group has other facilities of US$9 million which mostly relate to export credit agency funding and will amortise monthly over the next 18 months.

 

Related Party Transactions

Related party transactions are disclosed in Note 19 Related party disclosure to the accounts.

 

Operational Review

Health and Safety

In 1H 2019, there were no fatalities at the Group's operations (FY 2018: one fatality).

 

The Group's Lost Time Injury Frequency Rate ("LTIFR") in 1H 2019 at 0.45 per million man hours showed a significant improvement compared to 2018 as can be seen from the table below.

 

The number of accidents at the Group halved to five in 1H 2019 compared with 10 in 1H 2018. While Ferrexpo is pleased with these improvements it is determined to make further improvements with the belief that only zero harm is acceptable.

 

LTIFR

1H 2019

1H 2018

2018

- FPM

0.45

1.09

1.25

- FYM

0.00

0.00

0.66

- FBM

0.00

0.00

0.00

Ukraine

0.38

0.92

1.15

Barging

1.80

1.86

1.83

Group

0.45

0.97

1.18

 

Pellet Production

Total 1H 2019 pellet production increased 5% to 5.4 million tonnes (1H 2018: 5.1 million tonnes). Production during 1H 2018 was impacted by a planned 65 day pellet line refurbishment in 2Q 2018. The fourth and final pellet line refurbishment is scheduled to take place in 3Q 2019.  As such, the Group maintains its 2019 full year production guidance of 10.6 million tonnes in line with 2018.

In 1H 2019, the Group continued to focus on improving the quality of its output and increased the proportion of high grade 65% Fe pellets to 96% of total output (1H 2018: 94% of total output).  The table below summarises production in 1H 2019 and 1H 2018.

 

 

Pellet Production 1H 2019 and 1H 2018 ('000)

 

000' tonnes

YTD 2019

YTD 2018

Change

%

Pellet production from own ore

5,352.5

5,081.7

5.3

  - 62% Fe pellets

215.0

317.1

-32.2

  - 65% Fe pellets

5,137.5

4,764.6

7.8

 

 

 

 

Production from third party materials

0.0

14.5

-100% 

  - 62% Fe pellets

0.0

0.0

-100% 

  - 65% Fe pellets

0.0

14.5

-100% 

 

 

 

 

Total Pellets Produced

5,352.5

5,096.2

5.0

  - 62% Fe pellets

215.0

317.1

-32.2

  - 65% Fe pellets

5,137.5

4,779.1

7.5

 

Whilst current production levels are constrained by bottlenecks in the beneficiation plant the Group is making good progress towards de-bottlenecking and expanding the concentrator by 2020 which will allow for the production of 12 million tonnes of pellets per annum.

 

Capital Investment

A summary of current projects under execution in 1H 2019 is shown in the table below:

 

Project







Projects to reach 12MTPA

Description

Status

Expected completion

Total cost

Spend 1H 2019

Remaining spend

New grinding section

Process 6MTPA of crushed ore into pellet feed

Construction & assembly works underway

2020

US$35M

US$7M

US$8M

Concentrate stockyard

Decoupling of concentrator & pellet plant by providing concentrate storage capacity

Construction & assembly works underway

2019

US$24M

US$7M

US$7M

Phase 2 expansion







Press filtration plant

Replacement of disc filtration to reduce moisture in balling plant

First order for equipment placed in 1H 2019

Completed in 4 phases of 6MTPA

Final phase completed 2024

US$115M

US$8M

US$107M

Logistics







Rail cars

Continuation of programme to replace state rail cars. Number of rail cars as of 30 June 20189 2,451

 

200 new cars delivered in 1H 2019

400 rail cars ordered in 1H 2019 for delivery 2H 2019

-

US$6M

US$18M

 

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 2019 increased 4% to 5.0 million tonnes (1H 2018: 4.8 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 30 days compared to its main pellet-producing competitors in Brazil (40 days shipping time), Canada (55 days) and Norway (50 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:


6 months ended 30.06.19

6 months ended 30.06.18

12 months ended 31.12.18

Central Europe

48%

50%

47%

North East Asia

21%

16%

17%

Western Europe

12%

16%

16.5%

China and South East Asia

12%

12%

13%

Turkey, Middle East, North Africa, India

7%

6%

6%

North America

-

-

0.5%

Total sales volume  (thousand tonnes)

4,990

4,798

10,227

 

In 1H 2019, 10-15% of the Group's pricing referenced the average 65% Fe CFR China iron ore fines price for the prior quarter less one month. This has a lagging impact on the Group's received price. In 2H 2019, this is expected to reduce to 8% of Group volumes.

 

Overall long term customer performance in 1H 2019 was in line with contract agreements and no volumes were sold into the Chinese spot market. The Group has achieved a higher production rate in 1H 2019 and sells to top class steel mills under long term contract throughout the world. Weakness in one region, as is currently being experienced in Europe, can be compensated for by sales into other regions based on international pricing methodology.

 

For further information on iron ore prices and freight see Iron Ore Market Review and Revenue.

 

Update on Risks 

The Group considers that the risks facing the business, as highlighted on pages 38 to 47 of the 2018 Annual Report and Accounts published in April 2019, remain relevant.  An update is provided below on material developments of key risks during the first half of 2019.

 

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 2019, steel profit margins in Europe, China and North East Asia continued to fall from 3Q 2018 levels. To date, in 2019 steel mill margins have been under pressure due to higher raw material costs and weaker end-user demand.

 

The iron ore forward curve for 62% Fe iron ore fines is currently in backwardation with delivery in December 2019 at $100 per tonne compared to spot on 30 July 2019 of approximately US$121 per tonne (although this remains higher than the 1H 2019 average of US$92 per tonne and the average 2018 price of US$70 per tonne). The expected price fall is due to lower forecast steel demand and non-traditional supply re-entering the market mainly from Chinese domestic producers. For further information see Iron Ore Supply (Iron Ore Market Review).

 

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 2019, pellet premiums in China average US$33 per tonne compared with the average Atlantic pellet premium of US$67 per tonne for 62% Fe pellets. A change in sales mix away from the Atlantic pellet premium could have an impact on the average realised price and the Group profitability.

 

Freight Rates

Ferrexpo's received price is referenced to transparent freight indices such as the Baltic Exchange C3 freight price2, with higher freight rates reducing the Group's realised price. In 1H 2019, the C3 index decreased by US$2 per tonne to US$15 per tonne compared to 1H 2018.  Freight rates are largely influenced by the price of oil and demand for seagoing vessels from bulk commodity producers. As of 31 July, freight rates had risen 53% to US$23 per tonne compared to the average for 1H 2019. An increase in freight rates will reduce the Group's received price and its profitability.

 

2 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 Interim Report is the responsibility of, and has been approved by, the Directors.

We confirm that to the best of our knowledge:

·     the condensed set of consolidated financial statements has been prepared in accordance with IAS 34;

·     the Interim Management Report includes a fair review of the important events during the first six months and description of the principal risks and uncertainties for the remaining six months of the year, as required by DTR4.2.7R; and

·     the Interim Management Report includes a fair review of disclosure of related party transactions and changes therein, as required by DTR 4.2.8R.

 

The Directors are also responsible for the maintenance and integrity of the Ferrexpo plc website.

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

Chairman

 

Chris Mawe

Chief Financial Officer

1 August 2019

 

 

Interim Consolidated Income Statement

US$000

Notes

6 months ended 30.06.2019 (unaudited)

6 months ended 30.06.2018

(unaudited)

Year-ended

31.12.18

(audited)

Revenue

3/4

787,111

616,717

1,274,030

Operating expenses

5

(443,517)

(402,148)

(844,470)

Other operating income


1,956

1,454

3,314

Operating foreign exchange losses

6

(16,002)

(15,564)

(5,295)

Operating profit


329,548

200,459

427,579

Share of profit from associates


2,982

2,476

5,360

Profit before tax and finance


332,530

202,935

432,939

Net finance expense

7

(14,379)

(24,025)

(39,332)

Non-operating foreign exchange (losses)/gains

6

(303)

165

(1,585)

Profit before tax


317,848

179,075

392,022

Income tax expense

8

(47,497)

(26,861)

(56,801)

Profit for the period/year


270,351

152,214

335,221






Profit attributable to:





Equity shareholders of Ferrexpo plc


269,435

151,666

333,616

Non-controlling interests


916

548

1,605

Profit for the period/year


270,351

152,214

335,221






Earnings per share:





Basic (US cents)

9

45.9

25.9

56.9

Diluted (US cents)

9

45.8

25.8

56.7

 

Interim Consolidated Statement of Comprehensive Income

US$000

Notes

6 months ended

30.06.19

6 months ended 30.06.18

Year ended  31.12.18

 

 

(unaudited)

(unaudited)

(audited)

Profit for the period/year


270,351

152,214

335,221

Items that may subsequently be reclassified to profit or loss:





Exchange differences on translating foreign operations

6

80,791

79,443

12,178

Income tax effect


(7,065)

(9,991)

(2,007)

Net other comprehensive income that may be reclassified to profit or loss in subsequent periods


73,726

69,452

10,171

Items that will not be reclassified subsequently to profit or loss:





Remeasurement  (losses)/gains on defined benefit pension liability


(1,379)

143

875

Income tax effect


207

(18)

-

Net other comprehensive (loss)/income not being reclassified to profit or loss in subsequent periods


(1,172)

125

875

Other comprehensive income for the period/year, net of tax


72,554

69,577

11,046

Total comprehensive income for the period/year, net of tax


342,905

221,791

346,267






Total comprehensive income attributable to:





Equity shareholders of Ferrexpo plc


 340,544

220,822

 344,587

Non-controlling interests


2,361

969

 1,680



342,905

221,791

346,267






 

 Interim Consolidated Statement of Financial Position

US$000

Notes

As at

30.06.19

As at

31.12.18

As at

30.06.18

 

 

(unaudited)

 (audited)

(unaudited)

Assets





Property, plant and equipment

10

821,779

701,376

689,568

Right-of-use assets

11

8,066

-

-

Goodwill and other intangible assets


42,419

39,609

40,613

Investments in associates


6,167

7,037

4,386

Inventories

13

233,432

217,688

212,806

Other non-current assets


38,109

32,104

22,018

Income taxes recoverable and prepaid

8

-

-

5,846

Deferred tax assets


30,121

27,946 

35,756

Total non-current assets


1,180,093

1,025,760

1,010,993

Inventories

13

185,149

144,919

125,176

Trade and other receivables


127,205

85,695

80,529

Prepayments and other current assets


33,881

27,344

25,003

Income taxes recoverable and prepaid

8

70

61

11

Other taxes recoverable and prepaid

12

34,729

44,837

27,465

Cash and cash equivalents

3/14

91,937

62,996

82,250

Total current assets


472,971

365,852

340,434

Total assets


1,653,064

1,391,612

1,351,427






Equity and liabilities





Issued capital

18

121,628

121,628

121,628

Share premium


185,112

185,112

185,112

Other reserves

18

(1,936,915)

(2,010,080)

(1,951,422)

Retained earnings


2,721,736

2,568,187

2,404,848

Equity attributable to equity shareholders of Ferrexpo plc


1,091,561

864,847

760,166

Non-controlling interest


90

2,050

1,339

Total equity


1,091,651

866,897

761,505

Interest-bearing loans and borrowings

3/15

307,214

197,258

151,331

Defined benefit pension liability


24,149

21,444

22,449

Provision for site restoration


2,155

1,940

2,305

Deferred tax liabilities


650

352

372

Total non-current liabilities


334,168

220,994

176,457

Interest-bearing loans and borrowings

3/15

66,937

204,600

299,574

Trade and other payables


76,279

34,292

47,720

Accrued liabilities and contract liabilities


32,519

32,693

28,529

Income taxes payable

8

40,367

20,571

26,944

Other taxes payable


11,143

11,565

10,698

Total current liabilities


227,245

303,721

413,465

Total liabilities


561,413

524,715

589,922

Total equity and liabilities


1,653,064

1,391,612

1,351,427

The financial statements were approved by the Board of Directors on 1 August 2019.

Kostyantin Zhevago

Christopher Mawe

Chief Executive Officer

Chief Financial Officer

 

Interim Consolidated Statement of Cash Flows

US$000

Notes

6 months

 ended

30.06.19

6 months

 ended

30.06.18

Year ended  31.12.18



(unaudited)

(unaudited)

(audited)

Profit before tax


317,848

179,075

392,022

Adjustments for:





Depreciation of property, plant and equipment and amortisation of intangible assets

5

39,649

27,809

62,094

Finance expense

7

13,727

23,269

37,834

Finance income

7

(901)

(454)

(892)

Losses on disposal and liquidation of property, plant and equipment

5

(59)

2,969

5,701

Cash elements included in losses on disposal of property, plant and equipment


(52)

(73)

(372)

(Write-backs)/write-offs

5

(337)

1,489

Share of profit from associates


(2,982)

(2,476)

(5,360)

Movement in allowance for doubtful receivables


133

45

222

Movement in site restoration provision


99

84

(162)

Employee benefits


1,460

1,817

3,642

Share-based payments


514

411

674

Operating foreign exchange losses

6

16,002

15,564

5,295

Non-operating foreign exchange losses/(gains)

6

303

(165)

1,585

Other adjustments


(3,134)

(2,750)

(7,657)

Operating cash flow before working capital changes


382,270

245,125

496,115

Changes in working capital:





(Increase)/decrease in trade and other receivables


(44,963)

1,279

(12,785)

Increase in inventories


(35,590)

(45,339)

(87,999)

(Decrease)/increase in trade and other accounts payable


(1,017)

8,831

1,903

Decrease/(increase) in other taxes recoverable and payable (incl. VAT)


11,401

(65)

(17,530)

Cash generated from operating activities


312,101

209,831

379,704

Interest paid


(19,884)

(26,296)

(42,768)

Interest paid on lease liabilities

15

(254)

Income tax paid


(35,536)

(26,236)

(43,509)

Post-employment benefits paid


(911)

(879)

(1,702)

Net cash flows from operating activities1)


255,516

156,420

291,725

Cash flows from investing activities





Purchase of property, plant and equipment and intangible assets


(113,968)

(55,765)

(135,113)

Proceeds from disposal of property, plant and equipment and intangible assets


547

387

800

Interest received


859

449

827

Dividends from associates


1,612

1,693

4,137

Net cash flows used in investing activities


(110,950)

(53,236)

(129,349)

Cash flows from financing activities





Proceeds from borrowings and finance

15

185,000

210,866

214,317

Repayment of borrowings and finance

15

(219,848)

(254,390)

(308,817)

Principal elements of lease payments

15

(3,224)

Arrangement fees paid


(131)

(5,817)

Dividends paid to equity shareholders of Ferrexpo plc1)

9

(77,763)

(73,996)

(96,559)

Net cash flows used in financing activities


(115,966)

(117,520)

(196,876)

Net increase/(decrease) in cash and cash equivalents


28,600

(14,336)

(34,500)

Cash and cash equivalents at the beginning of the period/year


62,996

97,742

97,742

Currency translation differences


341

(1,156)

(246)

Cash and cash equivalents at the end of the period/year

14

91,937

82,250

62,996

1)  Dividend paid during the comparative period ended 30 June 2018 is net of withholding tax of US$3,187 thousand that is payable subsequent to the period end (30 June 2019: nil; 31 December 2018: nil). 

 

Interim Consolidated Statement of Changes in Equity

For the financial year 2018 and the six months ended

30 June 2019

Attributable to equity shareholders

of Ferrexpo plc


US$000

 

Issued

 capital

Share  premium

Other reserves

(Note 18)

Retained

 Earnings

Total capital and reserves

Non-controlling interests

Total

equity

At 31 December 2017 (audited)

121,628

185,112

(2,020,864)

2,329,591

615,467

370

615,837

Application of new IFRSs1)

-

-

-

989

989

-

989

At 1 January 2018 - after application of new IFRSs (audited)

121,628

185,112

(2,020,864)

2,330,580

616,456

370

616,826

Profit for the period

-

-

-

333,616

333,616

1,605

335,221

Other comprehensive income

-

-

10,110

861

10,971

75

11,046

Total comprehensive income for the year

-

-

10,110

334,477

 344,587

 1,680

 346,267

Equity dividends paid to shareholders of Ferrexpo plc (Note 9)

-

-

-

(96,870)

(96,870)

-

(96,870)

Share-based payments

-

-

674

-

674

-

674

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

-

-

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 from increase of shareholding in 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

 

 

 For the six months ended 30 June 2018


Attributable to equity shareholders

of Ferrexpo plc


US$000

 

Issued

 capital

Share

 premium

Other reserves (Note 18)

Retained earnings

Total capital and reserves

Non-controlling interests

Total

equity

At 31 December 2017 (audited)

121,628

185,112

(2,020,864)

2,329,591

615,467

370

615,837

Application of new IFRSs1)

-

-

-

989

989

-

989

At 1 January 2018 - after application of new IFRSs (audited)

121,628

185,112

(2,020,864)

2,330,580

616,456

370

616,826

Profit for the period

-

-

-

151,666

151,666

548

152,214

Other comprehensive income

-

-

69,031

125

69,156

421

69,577

Total comprehensive income for the period

-

-

69,031

151,791

220,822

969

221,791

Equity dividends paid to shareholders of Ferrexpo plc (Note 9)

-

-

-

(77,523)

(77,523)

-

(77,523)

Share-based payments

-

-

411

-

411

-

411

At 30 June 2018 (unaudited)

121,628

185,112

(1,951,422)

2,404,848

760,166

1,339

761,505

1)  A detailed description of the impact from the adoption of new accounting standards and interpretations as at the end of the comparative period 31 December 2018 is provided in Note 3 New accounting policies in the 2018 Annual Report & Accounts.

 

Notes to the Interim Condensed Consolidated Financial Statements

Note 1: Corporate information

Organisation and operation

Ferrexpo plc (the "Company") is incorporated in the United Kingdom, 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, 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 and operates on international sea routes. 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 and Lavrykivske ("GPL") and Yerystivske deposits.

The majority shareholder of the Group is Fevamotinico S.a.r.l. ("Fevamotinico"), a company incorporated in Luxembourg and ultimately owned by The Minco Trust, of which Kostyantin Zhevago, the Group's Chief Executive Officer, is a beneficiary. At the time this report was published, Fevamotinico held 50.3% (31 December 2018: 50.3%; 30 June 2018: 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 2018 Annual Report & Accounts.

At 30 June 2019, the Group also holds through PJSC Ferrexpo Poltava Mining an interest of 49.9% (31 December 2018: 49.5%; 30 June 2018: 49.4%) 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. The interest in the associate increased as a result of the increase of the Group's shareholding in PJSC Ferrexpo Poltava Mining from 99.1% to 100.0% in June 2019.

 

Note 2: Summary of significant accounting policies

Basis of preparation

The interim condensed consolidated financial statements for the six months period ended 30 June 2019 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 2018.

The interim condensed consolidated financial statements have 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.

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 2018. A copy of the statutory accounts for that year, which were prepared in accordance with International Financial Reporting Standards ('IFRS') issued by the International Accounting Standard Board ('IASB'), as adopted by the European Union as they apply to financial statements of the Group for the year ended 31 December 2018, have been delivered to the Register of Companies. The auditors' report under section 495 of the Companies Act 2006 in relation to those accounts was qualified and contained a statement under section 498(3) of the Companies Act 2006. The auditors' report did not contain a statement under section 498(2) of the Companies Act 2016.

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.

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 2018 except for the adoption of the new standards that became effective as of 1 January 2019.

New standards and interpretations adopted with an impact on the Group's consolidated financial statements

IFRS 16 Leases

The Group applied IFRS 16 Leases, as issued in January 2016, for the first time as of 1 January 2019. The standard replaces the previous leases standard, IAS 17 Leases, and related interpretations. IFRS 16 establishes the principles for the recognition, measurement, presentation and disclosure of leases for the customer ("lessee") and the supplier ("lessor") and eliminates the classification of leases as either operating or finance for the lessee as is required by IAS 17. Instead, it introduces a single lessee accounting model requiring a lessee to recognise assets and liabilities for all leases unless the underlying asset has a low value or the lease term is 12 months or less.

In accordance with the transition provisions set out in IFRS 16, the Group elected to apply the standard retrospectively, with the cumulative impact of the first-time adoption recognised at the date of initial application. On transition, the Group grandfathered its previous assessment of operating leases under IAS 17 and recognised for these lease contracts rights of use assets and corresponding lease liabilities on the consolidated statement of financial position with no impact on retained earnings. The lease liabilities were measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate at initial application which is the interest rate that the Group would have to pay to borrow over a similar term the funds necessary to obtain an asset of a similar value to the right of use asset in a similar economic environment. The corresponding right-of-use assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the consolidated statement of financial position as at the end of the comparative period ended 31 December 2018. The balance of lease liabilities and right-of-use assets relating to leases classified as finance leases as at the end the comparative period ended 31 December 2018 was carried forward to the date of initial application. The new requirements of the standard as to whether a contract contains a lease component or not were applied to the identification of new lease contracts signed subsequent to 1 January 2019.

On transition, the Group elected to apply the following practical expedients and exemptions, as permitted under the transition provisions set out in the standard:

·    application of a single discount rate to a portfolio of leases with similar characteristics;

·    recognition exemption for low value and short-term leases, which are therefore recognised in the consolidated income statement on a straight line basis;

·    account for each lease component and any associated non-lease components as a single lease component instead of separating the non-lease components from the lease ones.

Currently, the Group leases land, buildings and lease equipment. The vast majority of land leases are for land used for the extraction of ore and are not within the scope of IFRS 16 according to the scope exemptions set out in the standard. The new standard primarily resulted in the recognition of right-of-use assets and lease liabilities in respect of long-term rental contracts for several of the Group's office premises with rental periods of five to ten years, land not used for the direct extraction of ore as well as for lease equipment.

The following table provides a reconciliation between the balance of operating lease commitments as at 31 December 2018 and the lease liability recognised on 1 January 2019:

US$000

 

Balance as at 01.01.2019 (unaudited)

Operating lease commitments as at 31 December 2018


8,827

Recognition exemption for mining land


(331)

Land under permanent use 1)


971

Short-term leases recognition exemption


(348)

Total minimum lease payments


9,119

Less: amounts representing finance charges


(1,418)

Add: leases previously classified as finance leases


2,074

Lease liabilities recognised as at 1 January 2019


9,775

Thereof non-current portion


4,799

Thereof current portion


4,976

1) Leases of land refer to land not used for the direct extraction of ore in Ukraine, the Group's country of operations. These lease agreements with the Ukrainian government typically have a duration of up to 49 years requiring land lease payments in the form of rental taxes based on annually determined rates by the government. As a consequence, the lease liabilities relating to land not used for the direct extraction of ore (including leases under permanent terms) are recognised over a lease term of 12 months reflecting the period over which substantially fixed lease payments are expected. Beyond this period, payments are subject to non-market driven changes in either the normative value of land and/or in the rental tax rate and therefore cannot be considered in-substance fixed payments or as variable lease payments that depend on an index or a rate.

The lease liability is measured at the net present value of the remaining lease payments, discounted using the interest rate implicit in the lease or, when not available, the incremental borrowing rate computed for a group of leases with similar characteristics as regards to type of asset, lease term, contract currency and economic environment.

The right-of-use asset is recognised at the commencement date of the lease (when the asset is ready for use) and initially measured at cost. The cost includes the balance of the lease liability recognised, initial direct costs and lease payments made at or before the commencement date. In subsequent periods, the value of the right-of-use assets is adjusted for accumulated depreciation, impairment losses and any remeasurement of the lease liability. The right-of-use asset is depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

The following tables provide the details of the cumulative effects from the application of the new standard IFRS 16 Leases on the consolidated statement of financial position as of 1 January 2019 and the consolidated statement of financial position and the consolidated income statement as at 30 June 2019:

US$000

Notes

Balance as at 01.01.19

Effect from application of IFRS 16

Year ended  31.12.18

 

 

(unaudited)

(unaudited)

(audited)

Consolidated statement of financial position





Assets





Property, plant and equipment

10

699,495

(1,881)

701,376

Right-of-use assets

11

9,582

9,582

Liabilities





Interest bearing loans and borrowings - non-current


(4,799)

(4,799)

−  

Interest bearing loans and borrowings - current


(4,976)

(2,902)

(2,074)

 

 

 

Notes

As reported as at 30.06.19

Effect from application of IFRS 16

Balance without effect from new IFRSs

 

 

(unaudited)

(unaudited)

(unaudited)

Consolidated income statement





Operating expenses

5

(443,517)

(2)

(443,515)

Net finance expense

7

(14,379)

(254)

(14,125)

Consolidated statement of financial position





Assets





Property, plant and equipment

10

821,779

821,779

Right-of-use assets

11

8,066

8,066

Liabilities





Interest bearing loans and borrowings - non-current

15

(307,214)

(4,357)

(302,857)

Interest bearing loans and borrowings - current

15

(66,937)

(1,974)

(64,963)

 

The adoption of IFRS 16 Leases has not had any material impact on the Underlying EBITDA and on basic and diluted earnings per share.

The impact on the net cash flows from operating activities from payments for short-term and low value leases was US$241 thousand for the six months ended 30 June 2019.

New standards, interpretations and amendments adopted without impact on the Group's consolidated financial statements

·    Annual Improvements to IFRS Standards 2015-2017 Cycle contains amendments to IFRS 3 Business Combinations and IFRS 11 Joint arrangements, IAS 12 Income taxes and IAS 23 Borrowing costs.

·    Amendments to IAS 19 Plan amendment, curtailment or settlement provide guidance, in the case of plan amendment, curtailment or settlement, on the measurement of the current service cost and the net interest for the period after the re-measurement and clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling.

·    Amendments to IAS 28 Long-term interests in associates and joint ventures clarifies that other interests in associates and joint ventures, including long-term interests not accounted for using the equity method of accounting and that, in substance, form part of the net investment in those associates and joint ventures fall within the scope of IFRS 9.

·    IFRIC 23 Uncertainty over income tax treatments clarifies the accounting treatment for uncertainties in income taxes. The new interpretation is to be applied to the determination of taxable results, tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12 Income Taxes.

·    Amendments to IFRS 9 Financial instruments: Prepayment features with negative compensation clarifies the classification of particular pre-payable financial assets and the accounting for financial liabilities following a modification.

New standards, interpretations and amendments not yet adopted 

A detailed description of the expected impact from the adoption of new accounting standards and interpretations that are in issue, but are not yet effective is provided in Note 3 New accounting policies included in the 2018 Annual Report & Accounts and outlines the expected impact of the following amendments that will become effective in future periods.

·    Amendments to References to the Conceptual Framework in IFRS standards is effective for the financial year beginning on 1 January 2020 and introduces 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 is effective for the financial year beginning on 1 January 2020 and introduces 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.

Full disclosure of the final assessment of the impact of these amendments will be provided in the Annual Report & Accounts for the year ending 31 December 2019.

The Group does not expect an 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 and critical judgements relate to taxation in terms of the tax legislation in Ukraine.

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 are disclosed in the Group's 2018 Annual Report & Accounts.

Seasonality

The Group's operations are not affected by seasonality.

 

Note 3: Segment information

The Group is managed as a single entity, which produces, develops and markets its principal product, iron ore pellets, for sale to the metallurgical industry. While the revenue generated by the Group is 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 the 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 39.

US$000

Notes

6 months ended

30.06.19

6 months ended   30.06.18

Year ended  31.12.18

 

 

(unaudited)

(unaudited)

(audited)

Profit before tax and finance


332,530

202,935

432,939

(Gains)/Losses on disposal and liquidation of property, plant and equipment

5

(59)

2,995

5,701

Share based payments


514

411

674

(Write-backs)/Write-offs

5

(337)

-

1,489

Depreciation and amortisation

5

39,649

27,809

62,094

Underlying EBITDA


372,297

234,150

502,897

 

 

 US$000

Notes

6 months ended

30.06.19

6 months ended   30.06.18

Year ended  31.12.18

 

 

(unaudited)

(unaudited)

(audited)

Revenue

4

787,111

616,717

1,274,030

Cost of sales

5

(266,851)

(238,359)

(507,939)

Gross profit


520,260

378,358

766,091

 

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 30.06.19

As at 31.12.18

As at 30.06.18

 

 

(unaudited)

(audited)

(unaudited)

Cash and cash equivalents

14

91,937

62,996

82,250

Interest bearing loans and borrowings - current

15

(66,937)

(204,600)

(299,574)

Interest bearing loans and borrowings - non-current

15

(307,214)

(197,258)

(151,331)

Net debt


(282,214)

(338,862)

(368,655)

The Group's balance of cash and cash equivalents increased by US$28,941 thousand after net debt repayments of US$38,326 thousand during the period ended 30 June 2019 (31 December 2018: US$94,500 thousand; 30 June 2018: US$43,524 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 34 and 35.

 

Note 4: Revenue

Revenue for the six months period ended 30 June 2019 consisted of the following:

US$000

 

6 months ended

30.06.19

6 months ended   30.06.18

Year ended  31.12.18

 

 

(unaudited)

(unaudited)

(audited)

Revenue from sales of iron ore pellets and concentrate


725,089

544,206

1,146,734

Freight revenue related to sales of iron ore pellets and concentrate


30,933

32,567

74,929

Total revenue from sale of iron ore pellets and concentrate


756,022

576,773

1,221,663

Revenue from logistics and bunker business


29,807

38,424

48,778

Revenue from other sales and services provided


1,282

1,520

3,589

Total revenue


787,111

616,717

1,274,030

 

Total revenue from sales of iron ore pellets and concentrate by geographical destination were as follows:

US$'000

 

6 months ended

30.06.19

6 months ended   30.06.18

Year ended  31.12.18

 

 

(unaudited)

(unaudited)

(audited)

Central Europe


 352,530

280,552

565,820

Western Europe


   89,495

85,403

193,540

North East Asia


 165,116

103,251

221,985

China and South East Asia


 100,089

78,425

176,135

Turkey, Middle East and India


   39,988

29,142

64,183

Other


8,804

-

-

Total revenue from sale of iron ore pellets and concentrate


756,022

576,773

1,221,663

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 2019 consisted of the following:

US$000

Notes

6 months ended

30.06.19

6 months ended   30.06.18

Year ended  31.12.18

 

 

(unaudited)

(unaudited)

(audited)

Cost of sales


266,851

238,359

507,939

Selling and distribution expenses


131,714

121,915

260,422

General and administrative expenses


32,553

22,222

45,246

Other operating expenses


12,399

19,652

30,863

Total operating expenses


443,517

402,148

844,470

 

Operating expenses include:

Inventories recognised as an expense upon sale of goods


249,368

209,109

481,366

Employee costs


46,771

37,596

79,471

Inventory movements


(14,550)

(24,965)

(34,801)

Depreciation of property, plant and equipment and right-of-use assets 

3

39,281

27,484

61,377

Amortisation of intangible assets

3

368

325

717

Royalties and levies


14,531

14,140

29,742

Costs of logistics and bunker business


26,817

38,656

50,270

Audit and non-audit services


2,521

810

1,691

Community support donations


3,120

11,865

15,130

(Write-backs)/Write-offs


(337)

-

1,489

Losses on disposal and liquidation of property, plant and equipment


(59)

2,995

5,701

 

Audit and non-audit services for the period ended 30 June 2019 include US$1,810 thousand relating to audit services provided by the previous audit firm of the Group for the comparative period ended 31 December 2018.

 

Note 6: Foreign exchange losses and gains

Foreign exchange losses and gains for the six months period ended 30 June 2019 consisted of the following:

US$000

 

6 months ended

30.06.19

6 months ended   30.06.18

Year ended  31.12.18

 

 

(unaudited)

(unaudited)

(audited)

Operating foreign exchange losses





Revaluation of trade receivables


(16,356)

(15,967)

(4,922)

Revaluation of trade payables


352

363

(358)

Others


2

40

(15)

Total operating foreign exchange losses


(16,002)

(15,564)

(5,295)

Non-operating foreign exchange (losses)/gains





Revaluation of interest-bearing loans


4,230

1,789

95

Conversion of cash and cash equivalents


(1,324)

(838)

(801)

Others


(3,209)

(786)

(879)

Total non-operating foreign exchange (losses)/gains


(303)

165

(1,585)

Total foreign exchange losses


(16,305)

(15,399)

(6,880)

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 depended 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

30.06.19

6 months ended

30.06.18

Year ended

31.12.18

As at

30.06.19

As at

31.12.18

As at

30.06.18

UAH

26.932

26.747

27.200

26.166

27.688

26.189

EUR

0.885

0.826

0.847

0.880

0.874

0.864

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 2019 consisted of the following:

US$000

 

6 months ended

30.06.19

6 months ended   30.06.18

Year ended  31.12.18

 

 

(unaudited)

(unaudited)

(audited)

Finance expense





Interest expense on loans and borrowings


(18,629)

(24,029)

(43,468)

Less capitalised borrowing costs


6,356

2,252

8,125

Interest on defined benefit plans


(1,299)

(1,210)

(2,390)

Bank charges


(287)

(340)

(778)

Interest expense on lease liabilities


(254)

-

-

Other finance costs


(1,167)

(1,152)

(1,713)

Total finance expense


(15,280)

(24,479)

(40,224)

Finance income





Interest income


873

454

843

Other finance income


28

-

49

Total finance income


901

454

892

Net finance expense


(14,379)

(24,025)

(39,332)

 

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 2019, the income tax expense was based on an expected weighted average tax rate of 15.0% for the financial year 2019, compared to an effective tax of 14.5% for the financial year 2018.

During the financial years 2013, 2014 and 2015, current VAT receivable balances in Ukraine were mainly recovered in exchange for prepayments of corporate profit tax resulting in a remaining income tax receivable balance of US$5,846 thousand as at the end of the comparative period 30 June 2018 was classified as non-current due to the uncertainty in respect of the timing of the recovery. This prepaid balance was fully offset against income tax payable as at the end of the comparative period 31 December 2018.

US$000

 

6 months ended   30.06.19

Year ended  31.12.18

6 months ended   30.06.18

 

 

(unaudited)

(audited)

(unaudited)

Income tax receivable balance - current


70

61

11

Income tax receivable balance - non-current


-

-

5,846

Income tax payable balance


(40,367)

(20,571)

(26,944)

Net income tax payable


(40,297)

(20,510)

(21,087)

 

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.



6 months ended 30.06.19 (unaudited)

6 months ended 30.06.18 (unaudited)

Year ended 31.12.18

(audited)

Earnings for the period/year attributable to equity shareholders -  per share in US cents





Basic


45.9

25.88

56.9

Diluted


45.8

25.79

56.7






Profit for the year attributable to equity shareholders - US$000





Basic and diluted earnings


269,435

151,666

333,616






Weighted average number of shares - Thousands





Basic number of ordinary shares outstanding


586,508

585,940

586,117

Effect of dilutive potential ordinary shares


1,770

2,107

1,948

Diluted number of ordinary shares outstanding


588,278

588,047

588,065

The basic number of ordinary shares is calculated by subtracting the shares held in treasury from the total number of ordinary shares in issue.

 

Dividends proposed and paid

Prior to the dividend proposed below and taking into account relevant thin capitalisation rules and dividend-related covenants for the Group's major bank debt facilities, the total available distributable reserves of Ferrexpo plc is US$51,154 thousand as of 30 June 2019 (31 December 2018: US$167,611 thousand; 30 June 2018: US$86,114 thousand) for the remainder of the financial year 2019.

US$000

 

6 months ended

30.06.19

6 months ended   30.06.18

Year ended  31.12.18

 

 

(unaudited)

(unaudited)

(audited)

Dividends proposed





Interim dividend for 2019: 6.6 US cents per Ordinary Share


38,737

Final ordinary dividend for 2018: 6.6 US cents per Ordinary Share


38,695

Final special dividend for 2018: 6.6 US cents per Ordinary Share


38,695

Interim special dividend for 2018: 6.6 US cents per Ordinary Share


38,695

Interim dividend for 2018: 3.3 US cents per Ordinary Share


19,348

Total dividends proposed


38,737

19,348

116,085

 

 

US$000

 

6 months ended

30.06.19

6 months ended   30.06.18

Year ended  31.12.18

 

 

(unaudited)

(unaudited)

(audited)

Dividends paid during the period





Final special dividend for 2018: 6.6 US cents per Ordinary Share


38,888

Interim special dividend for 2018: 6.6 US cents per Ordinary Share


38,875

Interim dividend for 2018: 3.3 US cents per Ordinary Share


19,376

Final dividend for 2017: 3.3 US cents per Ordinary Share


18,929

18,929

Special dividend for 2017: 6.6 US cents per Ordinary Share


38,615

38,615

Special dividend for 2017: 3.3 US cents per Ordinary Share


19,639

19,639

Total dividends paid during the period


77,763

77,183

96,559

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.

The final ordinary dividend for 2018 proposed at the year-end 2018 totalling US$38,695 thousand was paid in July 2019.

The final dividend paid for 2017 included withholding tax of US$3,187 thousand that was payable subsequent to the period ended 30 June 2018.

 

Note 10: Property, plant and equipment

During the six months period ended 30 June 2019, the additions to property, plant and equipment totalled US$123,619 thousand (30 June 2018: US$62,396 thousand; 31 December 2018: US$147,461 thousand) and the net book value of the disposals of property, plant and equipment totalled US$1,187 thousand (30 June 2018: US$3,409 thousand; 31 December 2018: US$5,966 thousand). The total depreciation charge for the period was US$40,116 thousand (30 June 2018: US$30,192 thousand; 31 December 2018: US$66,378 thousand).

The carrying value of property, plant and equipment includes capitalised borrowing costs on qualifying assets of US$33,053 thousand (31 December 2018: US$25,499 thousand; 30 June 2018: US$21,178 thousand).

 

Note 11: Right-of-use assets

The right-of-use assets recognised as at 30 June 2019 and as at the date of first-time application comprised:

US$000

Notes

As at 30.06.19

As at 01.01.19

 

 

(unaudited)

(unaudited)

Land


986

1,907

Buildings


4,990

5,683

Plant and equipment


2,001

1,881

Vehicles


74

94

Fixtures and fittings


15

17

Total right-of-use assets

2

8,066

9,582

During the six months period ended 30 June 2019, the additions to right-of-use assets totalled US$2,114 thousand and the total depreciation charge for the period was US$1,795 thousand.

 

Note 12: Other taxes recoverable and prepaid

As at 30 June 2019, taxes recoverable and prepaid comprised:

US$000

 

As at 30.06.19

As at 31.12.18

As at 30.06.18

 

 

(unaudited)

 (audited)

(unaudited)

VAT receivable


34,491

44,730

27,205

Other taxes prepaid


238

107

260

Total other taxes recoverable and prepaid


34,729

44,837

27,465

As at 30 June 2019, US$33,131 thousand of the VAT receivable relates to the Group's Ukrainian business operations (31 December 2018: US$42,738 thousand; 30 June 2018: US$26,667 thousand) of which US$653 thousand (31 December 2018: US$13,328 thousand; 30 June 2018: US$726 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$914 thousand (31 December 2018: US$1,020 thousand; 30 June 2018: US$1,366 thousand) to reflect the uncertainties in terms of the recovery of VAT receivable balances related to one of the Ukrainian subsidiaries with its mine still being developed.

 

Note 13: Inventories

As at 30 June 2019, inventories comprised:

US$000

 

As at 30.06.19

As at 31.12.18

As at 30.06.18

 

 

(unaudited)

 (audited)

(unaudited)

Raw materials and consumables


42,216

39,083

31,701

Spare parts


71,676

56,873

53,882

Finished ore pellets


64,680

43,097

34,249

Work in progress


3,105

3,153

3,049

Other


3,472

2,713

2,295

Total inventories - current


185,149

144,919

125,176

Lean and weathered ore


233,432

217,688

212,806

Total inventories - non - current


233,432

217,688

212,806

Total inventories


418,581

362,607

337,982

Inventories are held at the lower of cost or net realisable value.

Inventories classified as non-current comprise lean and weathered ore stockpiles that are, based on the Group's current processing plans, not planned to be processed within the next year. It is the Group's intention to process this ore at a later point of time and it is expected that it will take more than one year to process this 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 2019, cash and cash equivalents comprised:

US$000

Notes

As at 30.06.19

As at 31.12.18

As at 30.06.18

 

 

(unaudited)

 (audited)

(unaudited)

Cash at bank and on hand


91,937

62,996

82,250

Total cash and cash equivalents

3

91,937

62,996

82,250

The debt repayments net of proceeds during the period ended 30 June 2019 totalled US$38,326 thousand (31 December 2018: US$94,500 thousand; 30 June 2018: US$43,524 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$25,074 thousand as at 30 June 2019 (31 December 2018: US$21,416 thousand; 30 June 2018: US$27,205 thousand).

Note 17 Commitments and contingencies provides details on the Group's balance of restricted cash and deposits which has been fully provided for as currently 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 30.06.19

As at 31.12.18

As at 30.06.18

 

 

(unaudited)

 (audited)

(unaudited)

Current





Eurobond issued


-  

172,454

171,165

Syndicated bank loans - secured


60,000

-

92,500

Other bank loans - secured


3,167

9,262

14,733

Other bank loans - unsecured


1,494

1,494

1,494

Lease liabilities


2,276

2,074

3,816

Trade finance facilities


-  

19,316

15,866

Total current interest bearing loans and borrowings

3

66,937

204,600

299,574

Non-current





Eurobond issued


-  

-

-

Syndicated bank loans - secured


300,000

195,000

146,250

Other bank loans - secured


-

-

1,773

Other bank loans - unsecured


1,511

2,258

3,005

Lease liabilities


5,703

-

303

Total non-current interest bearing loans and borrowings

3

307,214

197,258

151,331

Total interest bearing loans and borrowings

374,151

401,858

450,905

At 30 June 2019, the Group has a syndicated revolving US$400,000 thousand pre-export finance facility, of which US$40,000 thousand is available (31 December 2018: US$205,000 thousand; 30 June 2018: nil) and US$360,000 thousand is drawn by the Group (31 December 2018: US$195,000 thousand; 30 June 2018: US$195,000 thousand). The initial facility agreement for a total amount of US$195,000 thousand was signed on 16 November 2017 and fully drawn in March 2018. In August 2018, an amendment to the aforementioned facility agreement was signed, increasing the facility from US$195,000 thousand to US$400,000 thousand and extending the tenor by one year. The effective date of the increase and extension was 6 November 2018. Following a one-year grace period, the facility will be amortised in 12 quarterly instalments, with the first instalment due on 6 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 pellets sales to Ferrexpo AG and Ferrexpo Middle East FZE; and

·      the Group pledged bank accounts of Ferrexpo AG and Ferrexpo Middle East FZE into which sales proceeds from certain assigned sales contracts are exclusively received.

In addition to the major bank debt facility listed above, the Group had outstanding unsecured Notes at par value totalling US$173,181 thousand as at the end the comparative periods 31 December 2018 and 30 June 2018. The final payment was made on 7 April 2019. The Notes had a 10.375% interest coupon payable semi-annually. 

As at 30 June 2019, the Group has no open trade finance facilities (31 December 2018: US$19,316 thousand; 30 June 2018: US$15,866 thousand). Trade finance facilities are secured against receivables related to these specific trades.

The outstanding unsecured Notes were shown net of associated arrangement fees while for the revolving syndicated pre-export finance facility fees are presented in prepayments and current assets and other non-current assets based on the maturity of the underlying facility and are amortised over the term of the facility.

 

The table below shows the movements in the interest-bearing loans and borrowings:

US$000

 

Notes

6 months ended

30.06.19

Year ended   31.12.18

6 months ended  30.06.18

 

 

 

(unaudited)

(audited)

(unaudited)

Opening balance of interest bearing loans and borrowings



401,858

491,706

491,706

Cash movements






Repayments of Eurobond issued



(173,181)

(173,181)

(173,181)

Proceeds from syndicated bank loans - secured



 185,000

 195,000

195,000

Repayments of syndicated bank loans - secured



(20,000)

(112,500)

(68,750)

Repayments of other bank loans - secured



(6,546)

(17,189)

(9,803)

Repayments of other bank loans - unsecured



(805)

(1,512)

(820)

Repayments of lease liabilities



(3,478)

(3,753)

(1,985)

Change of trade finance facilities, net



(19,316)

 19,288

15,837

Total cash movements



(38,326)

(93,847)

(43,702)

Non-cash movements






Amortisation of fees



 1,195

 4,696

2,747

First-time adoption IFRS 16 Leases


2

 7,701

-

-

Additions to lease liabilities



 1,331

-

-

Others



 392

(697)

154

Total non-cash movements



 10,619

 3,999

2,901

Closing balance of interest bearing loans and borrowings



374,151

 401,858

450,905

Further information on the Group's exposure to interest rate, foreign currency and liquidity risk is provided in Note 26 Financial instruments of the 2018 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 30.06.19

As at 31.12.18

As at 30.06.18

 

 

 

(unaudited)

 (audited)

 (unaudited)

Financial assets






Cash and cash equivalents



91,937

62,996

82,250

Trade and other receivables



127,205

85,695

80,529

Other financial assets



450

456

847

Total financial assets



219,592

149,147

163,626

Financial liabilities






Trade and other payables



76,279

34,292

47,720

Accrued liabilities



27,956

26,458

22,524

Interest bearing loans and borrowings



374,151

401,858

450,905

Total financial liabilities



478,386

462,608

521,149

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$366,850 thousand (31 December 2018: US$401,089 thousand; 30 June 2018: US$456,702 thousand).

Other financial assets

The fair values of cash and cash equivalents, trade and other receivables and payables, restricted cash and deposits, other financial assets and accrued liabilities are approximately equal to their carrying amounts due to their short maturity.

 

Note 17: Commitments and contingencies

Commitments

US$000

 

As at 30.06.19

As at 31.12.18

As at 30.06.18

 

 

(unaudited)

 (audited)

 (unaudited)

Future minimum rental payments based on fixed rates


1,473

8,827

9,050

Future commitments for contingent rental payments dependent on non-fixed rates


40,826

36,428

38,627

Capital commitments on purchase of PPE


93,734

67,529

51,302

 

Future minimum rental payments primarily relate to the non-cancellable agreements for the use of mining land dependent on annually fixed rates and agreements for the use of office premises, which fall under the recognition exemption for short-term contracts set out in IFRS 16 Leases. Future commitments for contingent rental payments relate to leases of land not used for the direct extraction of ore and accounted for under IFRS 16 and include future cash flows dependent on non-fixed rates. The details on the first-time adoption of IFRS 16 Leases are provided in Note 2 Summary of significant accounting policies.

 

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"). The work of the IRC and its advisers is being conducted in accordance with the terms of reference approved by the Board (as detailed in the Group's 2018 Annual Report and Accounts) and has included a forensic review conducted by BDO LLP, review of relevant documentation, interviews with the Group's employees and directors, correspondence with the Charity and other third parties, and advice from legal counsel in the UK and Ukraine. Significant work has been undertaken by the IRC and its advisers since appointment and this remains ongoing. At present, there are no material changes to the Company's interim conclusions published in the 2018 Annual Report and Accounts. The IRC is seeking to conclude its review as soon as possible. 

 

The Group made contributions of US$9,500 thousand during the comparative period ended 30 June 2018 to the Charity. See Note 19 Related party disclosure for further information. The charitable donations were ceased in May 2018. The donations made by the Group to the Charity over the last 6 years up to May 2018 totalled US$110,000 thousand. Detailed information on the Group's Independent Review are provided in Note 33 Related party disclosures and Note 34 Events after the reporting period included in the Group's 2018 Annual Report & Accounts.

A number of critical judgements in terms of the nature of the Group's community support donations and the completeness of its related party disclosures have been made in the Group's consolidated financial statements for the year ended 31 December 2018 in connection with the Group's relationship with the Charity. The critical judgements made are disclosed in Note 7 Operating expenses and Note 33 Related party disclosures included in the Group's 2018 Annual Report & Accounts.

The Group may be exposed to the risk of civil, criminal or regulatory actions and liabilities, including fines and penalties, arising from the Group's relationship with the Charity, including (without limitation) in the following scenarios:

·    if any of the critical judgements in terms of the nature of the Group's community support donations and the completeness of its related party disclosures are incorrect, in whole or in part;

·    if funds donated to the Charity have been misapplied, including through misappropriation, with or without the knowledge or involvement of the Group's personnel and/or in circumstances where the Charity is considered to be performing services for or on behalf of the Group;

·    if the Group or any of its personnel have derived any direct or indirect benefit from the Charity; and

·    if the financial statements for the prior periods omitted related party or other disclosures that ought to have been made or the financial statements need to be restated.

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 2019.

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 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, FPM, LLC Ferrexpo Yeristovo Mining GOK ("FYM") and LLC Ferrexpo Belanovo Mining GOK ("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$163,883 thousand as of 30 June 2019).

On 22 April 2016, the liquidator of BFC issued certificates recognising UAH540 million (US$20,637 thousand as of 30 June 2019) of these claims and recognised these claims in the ninth rank. The afore-mentioned Ukrainian subsidiaries are currently involved in legal proceedings in respect of the under-recognition of the claims amounting to UAH3,722 million (US$142,246 thousand as of 30 June 2019) 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 opposing party 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 9 July 2019. 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. The next hearing is scheduled for 20 May 2019. 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.

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$17,154 thousand as of 30 June 2019) and issued the formal claim on 12 March 2019 after having considered the objections of the Group's  subsidiary  according to its earlier tax audit report. The Group's subsidiary initiated legal proceedings and filed a claim to the first court instance in Poltava on 22 March 2019. As of the date of the approval of these financial statements, the final hearing has not yet taken place and, as the Group considers that it has complied with applicable legislation for all cross-border transactions undertaken, the Group 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 2019. The SFS may commence new audits on other cross-border transactions within the Group or on other periods and the Group also expects to successfully defend its pricing methodology against any further claims should they arise. 

 

Note 18: Share capital and reserves

The share capital of Ferrexpo plc at 30 June 2019 was 613,967,956 (31 December 2018: 613,967,956; 30 June 2018: 613,967,956) Ordinary Shares at par value of £0.10 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 2018: 25,343,814 shares; 30 June 2018: 25,343,814 shares), which are held in treasury, resulting from a share buyback that was undertaken in September 2008, and 1,702,056 shares held in the employee benefit trust reserve (31 December 2018: 2,326,256 shares; 30 June 2018: 2,336,256 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 15 of these financial statements for further details.

As at 30 June 2019 other reserves attributable to equity shareholders of Ferrexpo plc comprised:

 

For the financial year 2018 and the 6 months ended 30.06.19






US$000

 

Uniting of interest reserve

Treasury share reserve

Employee Benefit Trust reserve

Translation reserve

Total other

reserves

At 1 January 2018

31,780

(77,260)

(4,522)

(1,970,862)

(2,020,864)

Foreign currency translation differences

-

-

-

12,117

12,117

Tax effect

-

-

-

(2,007)

(2,007)

Total comprehensive income for the year

-

-

-

10,110

10,110

Share based payments

-

-

674

-

674

At 31 December 2018 (audited)

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)

 

 

For the 6 months ended 30.06.18






US$000

 

Uniting of interest reserve

Treasury

Share

reserve

Employee Benefit Trust reserve

Translation

reserve

Total

other

reserves

At 1 January 2018

31,780

(77,260)

(4,522)

(1,970,862)

(2,020,864)

Foreign currency translation differences

-

-

-

79,022

79,022

Tax effect

-

-

-

(9,991)

(9,991)

Total comprehensive income for the period

-

-

-

69,031

69,031

Share based payments

-

-

411

-

411

At 30 June 2018 (unaudited)

31,780

(77,260)

(4,111)

(1,901,831)

(1,951,422)

 

Note 19: Related party disclosure

During the periods presented the Group entered into arm's length transactions with entities under the common control of the majority owner of the Group, Kostyantin Zhevago and with associated companies and with other related parties. Management considers that the Group has appropriate procedures in place to identify and properly disclose transactions with the related parties.

Entities under common control are those under the control of Kostyantin Zhevago. Associated companies refer to TIS Ruda LLC, in which the Group holds an interest of 49.9%. This is the only associated company of the Group. Other related parties are principally those entities controlled by Anatoly Trefilov who re-signed as member of the supervisory board of PJSC Ferrexpo Poltava Mining as of 19 April 2017. In accordance with the Listing Rules, all transactions with the entities controlled by Anatoly Trefilov within one year of his resignation from the supervisory board have been still considered as related party transactions and disclosed as such for the comparative periods ended 31 December 2018 and 30 June 2018. Effective 20 April 2018, the entities controlled by Anatoly Trefilov are no longer considered as related parties.

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 2018 are disclosed in detail in the Remuneration Report included in the Group's 2018 Annual Report & Accounts.

Revenue, expenses, finance income and finance expenses

 

6 months ended 30.06.19 (unaudited)

6 months ended 30.06.18

 (unaudited)

Year ended 31.12.18

 (audited)

US$000

 

Entities under common control

Asso-

ciated compa- nies

Other related parties

Entities   under common control

Asso-

ciated compa-

nies

Other related parties

Entities under common control

Asso-

 ciated compa-

 nies

Other  related parties

Other sales a

448

-

10

398

-

107

877

-

111

Total related party transactions within revenue

448

-

10

398

-

107

877

-

111

Materials b

4,439

-

-

4,252

-

3

8,429

-

3

Spare parts and consumables c

1,702

-

-

1,291

-

-

2,959

-

-

Total related party transactions within cost of sales

6,141

-

-

5,543

-

3

11,388

-

3

Selling and distribution expenses d

5,381

8,915

-

5,373

8,311

702

10,702

19,138

702

General and administration expenses e

623

-

199

344

-

212

788

-

529

Finance expenses

71

-

-

58

-

-

119

-

-

Total related party transactions within expenses

12,216

8,915

199

11,318

8,311

917

22,997

19,138

1,234

Total related party transactions

12,664

8,915

209

11,716

8,311

1,024

23,874

19,138

1,345

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 power, steam and water and other materials for US$56 thousand (30 June 2018: US$58 thousand; 31 December 2018: US$109 thousand) and income from premises leased to Kislorod PCC of US$58 thousand (30 June 2018: US$68 thousand; 31 December 2018: US$131 thousand), and

a   Sales of diesel to DVD Trans totalling US$198 thousand (30 June 2018: US$155 thousand; 31 December 2018: US$376 thousand).

a   Sales of scrap metal to OJSC Uzhgorodsky Turbogas totalling US$131 thousand (30 June 2018: US$111 thousand; 31 December 2018: US$250 thousand).

b   Purchases of compressed air, oxygen and metal scrap from Kislorod PCC for US$2,489 thousand (30 June 2018: US$2,199 thousand; 31 December 2018: US$4,536 thousand);

b   Purchases of cast iron balls from AutoKraZ Holding Co. for US$229 thousand in the comparative period ended 30 June 2018 and US$274 thousand in the comparative period ended 31 December 2018. No such purchases in the period ended 30 June 2019; and

b   Purchases of cast iron balls from OJSC Uzhgorodsky Turbogas for US1,869 thousand (30 June 2018: US$1,762 thousand; 31 December 2018: US$3,536 thousand).

c   Purchases of spare parts from CJSC Kyiv Shipbuilding and Ship Repair Plant ("KSRSSZ") in the amount of US$387 thousand (30 June 2018: US$549 thousand; 31 December 2018: US$1,201 thousand);

c   Purchases of spare parts from OJSC Uzhgorodsky Turbogas in the amount of US$125 thousand (30 June 2018: US$189 thousand; 31 December 2018: US$533 thousand);

c   Purchases of spare parts from Valsa GTV of US$231 thousand (30 June 2018: US$263 thousand; 31 December 2018: US$455 thousand); and

c   Purchases of spare parts from OJSC Berdichev Machine-Building Plant Progress of US$936 thousand (30 June 2018: US$274 thousand; 31 December 2018: US$724 thousand).

d   Purchases of advertisement, marketing and general public relations services from FC Vorskla of US$5,381 thousand (30 June 2018: US$5,373 thousand; 31 December 2018: US$10,702 thousand).

e   Insurance premiums of US$435 thousand (30 June 2018: US$240 thousand; 31 December 2018: US$535 thousand) paid to ASK Omega for workmen's insurance and other insurances.

 

Associated companies

d   Purchases of logistics services in the amount of US$8,915 thousand (30 June 2018: US$8,311 thousand; 31 December 2018: US$19,138 thousand) relating to port operations, including port charges, handling costs, agent commissions and storage costs.

 

Other related parties

d   Purchases of logistics management services from Slavutich Ruda Ltd. relating to customs clearance services and the coordination of rail transit totalling US$702 thousand in the comparative periods ended 30 June 2018 and 31 December 2018. Effective 20 April 2018, Slavutich Ruda Ltd. is no longer considered as a related party. Further information is provided on page 30.

e   Legal and administrative services in the amount of US$180 thousand (30 June 2018: US$186 thousand; 31 December 2018: US$375 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 2018: US$48 thousand; 31 December 2018: 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 30.06.19 (unaudited)

6 months ended 30.06.18 (unaudited)

Year ended 31.12.18 (audited)

US$000

 

Entities    under  common control

Asso-ciated compa-nies

Other related parties

Entities   under common control

Asso- ciated compa- nies

Other related parties

Entities under common control

Asso- ciated compa- nies

Other  related parties

Purchases in the ordinary course of business

3,087

-

-

688

-

-

4,678

-

-

Total purchases of property, plant and equipment

3,087

-

-

688

-

-

4,678

-

-

 

During the period ended 30 June 2019, the Group purchased equipment and major spare parts from OJSC Berdichev Machine-Building Plant Progress totalling US$2,062 thousand (30 June 2018: nil; 31 December 2018: US$2,821 thousand) in respect of the construction of the concentrate stockyard. The Group also purchased equipment and major spare parts from AutoKraZ Holding Co. in the amount of US$82 thousand (30 June 2018: nil; 31 December 2018: US$398 thousand) for cranes and lifters installed on truck chassis. As of the end of the comparative periods ended 30 June 2018 and 31 December 2018, the Group purchased rubber-lined steel cover sheets for the mills from Valsa GTV totalling US$212 thousand. No such procurements as of the end of the periods ended 30 June 2019.

 

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 (30 June 2018 US$472 thousand; 31 December 2018: US$1,165 thousand) from DVD Trans. The company ceased to be a related party in September 2018; in accordance with the Listing Rules, all transactions with DVD Trans within one year from the cessation are 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$85 thousand during the period ended 30 June 2019 (30 June 2018: US$43 thousand; 31 December 2018: US$199 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 30.06.19 (unaudited)

Year ended 31.12.18 (audited)

6 months ended 30.06.18 (unaudited)

US$000

 

Entities under common control

Asso-ciated compa-nies

Other related parties

Entities   under common control

Asso- ciated compa- nies

Other related parties

Entities under common control

Asso- ciated compa- nies

Other  related parties

Prepayments for property, plant and equipment f

5,584

-

-

6,121

-

-

4,893

-

-

Total non-current assets

5,584

-

-

6,121

-

-

4,893

-

-

Trade and other receivables g

157

4,056

2

214

1,302

1

218

3,957

-

Prepayments and other current assets h

1,465

-

-

1,181

-

-

1,411

-

-

Total current assets

1,622

4,056

2

1,395

1,302

1

1,629

3,957

-

Trade and other payables i

480

1,006

7

465

963

-

801

486

-

Current liabilities

480

1,006

7

465

963

-

801

486

-

 

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$5,264 thousand (31 December 2018: US$5,980 thousand; 30 June 2018: US$4,599 thousand) were made to OJSC Berdichev Machine-Building Plant Progress and US$320 thousand (31 December 2018: US$68 thousand; 30 June 2018: nil) to CJSC Kyiv Shipbuilding and Ship Repair Plant ("KSRSSZ"). The comparative period ended 30 June 2018 included prepayments for property, plant and equipment of US$293 thousand made to AutoKraZ Holding Co. No such prepayments were made to AutoKraZ Holding Co. as of the periods ended 30 June 2019 and 31 December 2018.

h     Prepayments and other current assets totalling US$858 thousand relate to prepayments made to FC Vorskla for advertisement, marketing and general public relations services (31 December 2018: US$858 thousand; 30 June 2018: US$953 thousand) and US$305 thousand to ASK Omega for insurance premiums (31 December 2018: US$124 thousand; 30 June 2018: US$106 thousand).

i      Trade and other payables included US$236 thousand (31 December 2018: US$213 thousand; 30 June 2018: US$246 thousand) related to the purchase of compressed air, oxygen and metal scrap from Kislorod PCC and US$24 thousand (31 December 2018: US$126 thousand; 30 June 2018: US$237 thousand) related to the purchase of cast iron balls from OJSC Uzhgorodsky Turbogas.

 

Associated companies

g     Trade and other receivables of US$4,056 thousand (31 December 2018: US$1,302 thousand; 30 June 2018: US$3,957 thousand) related to dividend receivables from TIS Ruda LLC.

i      Trade and other payables included US$1,006 thousand (31 December 2018: US$963 thousand; 30 June 2018: US$486 thousand) related to purchases of logistics services from TIS Ruda LLC.

 

Community support donations paid to Blooming Land and its three sub-funds (the "Charity")

In the comparative periods ended 30 June 2018 and 31 December 2018, the Group made donations of US$9,500 thousand to the Charity (2017: US$24,000 thousand). The Group's funding to Blooming Land during the financial years 2017 and 2018 was provided by one of the Group's operational subsidiaries in Ukraine, Ferrexpo Poltava Mining ("FPM"). Khimreaktiv LLC, a company controlled by Kostyantin Zhevago, the CEO and ultimate majority shareholder of the Group, also independently donated funds to the Charity.

In July 2018, the Group became aware that during the financial year 2017 temporary funding contributions totalling approximately US$16,300 thousand were advanced by Khimreaktiv LLC into one of the Charity's sub-funds. The Charity subsequently repaid Khimreaktiv LLC using monies received from the Group as part of its regular donations. These transactions between Khimreaktiv LLC and the sub-fund were considered related party transactions under IAS 24 Related party disclosures that ought previously to have been disclosed. The transactions between the sub-funds and Khimreaktiv LLC were not considered to be related party transactions of the Group under the UK Listing Rules.

The Charity is considered by the Group to operate independently of the Group's Chief Executive Officer and its executive management, and the Group's Chief Executive Officer and its executive management are not considered to control or exercise significant influence over the Charity. Accordingly, the Charity is not consolidated by the Group. There is no agreement or arrangement between the Group and Khimreaktiv LLC in relation to their contributions to the Charity.

As previously disclosed, the Company has established an Independent Review Committee (IRC) to carry out an independent review into the use of funds donated by the Group to the Blooming Land Charity (the Charity). The work of the IRC and its advisers is being conducted in accordance with the terms of reference approved by the Board (as detailed in the Group's 2018 Annual Report and Accounts) and includes a forensic review conducted by BDO LLP, review of relevant documentation, interviews with the Group's employees and directors, correspondence with the Charity and other third parties, and advice from legal counsel in the UK and Ukraine. Significant work has been undertaken by the IRC and its advisers since appointment and this remains ongoing. At present, there are no material changes to the Company's interim conclusions published in the 2018 Annual Report and Accounts. The IRC is seeking to conclude its review as soon as possible. 

 

Further details on the Independent Review into the Group's relationship with the Charity are provided in the Chairman's Statement, Principal Risks, Responsible Business, Corporate Governance Report, Independent Review Committee Report, and Audit Committee Report included in the Group's 2018 Annual Report & Accounts. See Note 17 Commitments and contingencies for further information.

 

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 ("IFRS").

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 IFRS.

Ferrexpo makes reference to the following APMs in the 2018 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 30.06.19

As at 30.06.18

As at 31.12.18



(unaudited)

 (unaudited)

 (audited)

C1 cash costs


246,402

211,458

454,560

Non-C1 cost components


2,957

1,156

26,800

Cost of sales - pellet production


249,359

212,614

481,360

Own ore produced (tonnes)


5,352,500

5,081,720

10,506,164

C1 cash cost per tonne (US$)


46.0

41.6

43.3

Underlying EBITDA

Definition: The Group calculates the underlying EBITDA as profit before tax and finance plus depreciation and amortisation and net gains and losses from disposal of investments and property, plant and equipment and share-based payments, 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 5 Operating expenses for further details.

Closest equivalent IFRS 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 IFRS equivalent:

US$000

Notes

As at 30.06.19

As at 30.06.18

As at 31.12.18



(unaudited)

 (unaudited)

 (audited)

Underlying EBITDA


372,297

234,150

502,897

Losses on disposal of property, plant and equipment

5

59

(2,995)

(5,701)

Share-based payments


(514)

(411)

(674)

Write-backs/(Write-offs)

5

337

-

(1,489)

Depreciation and amortisation

5

(39,649)

(27,809)

(62,094)

Profit before tax and finance


332,530

202,935

432,939

Diluted earnings per share

Definition: Earnings per share calculated using the diluted number of Ordinary Shares outstanding.

Closest equivalent IFRS measure: Diluted earnings per share.

Rationale for adjustment: Excludes the impact of special items that can mask underlying changes in performance.

Reconciliation to closest IFRS equivalent:

US$000


6 months ended 30.06.2019 (unaudited)

6 months ended 30.06.2018 (unaudited)

Year ended 31.12.18

(audited)

Earnings/(loss) for the year attributable to equity shareholders per share





 

Net debt to underlying EBITDA

Definition: Net debt divided by the underlying EBITDA (for the last 12 months):

US$000


As at 30.06.19

As at 31.12.18

As at 30.06.18



(unaudited)

 (audited)

 (unaudited)

Net debt (US$000)


(282,214)

(338,862)

(368,655)

Underlying EBITDA (US$000) for the last 12 months


641,327

502,897

497,917

Net debt to underlying EBITDA


0.44x

0.67x

0.74x

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 30.06.19

As at 31.12.18

As at 30.06.18



(unaudited)

 (audited)

 (unaudited)

Cash and cash equivalents

14

91,937

62,996

82,250

Interest-bearing loans and borrowings - current

15

(66,937)

(204,600)

(299,574)

Interest-bearing loans and borrowings - non-current

15

(307,214)

(197,258)

(151,331)

Net debt


(282,214)

(338,862)

(368,655)

For a reconciliation of underlying EBITDA to profit before tax and finance see page 34.

Capital investment

Definition: Capital expenditure for the purchase of property, plant and equipment and intangible assets.

Closest equivalent IFRS 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 IFRS equivalent:

US$000

Notes

As at 30.06.19

As at 31.12.18

As at 30.06.18



(unaudited)

 (audited)

 (unaudited)

Purchase of property, plant and equipment and intangible assets

(net cash flows used in investing activities)

10

113,968

135,113

55,765

Total liquidity

Definition: Sum of cash and cash equivalents and available facilities.

Closest equivalent IFRS 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 IFRS equivalent:

US$000

Notes

As at 30.06.19

As at 31.12.18

As at 30.06.18



(unaudited)

 (audited)

 (unaudited)

Cash and cash equivalents

14

91,937

62,996

82,250

Available facilities


40,000

205,000

-

Total liquidity


131,937

267,996

82,250

 

 

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

China and South East Asia

This segmentation for the Group's sales includes China and Vietnam

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

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

CSR Committee

The Corporate Safety and Social Responsibility Committee of the Board of the Company

DAP

Delivery at place

DFS

Detailed feasibility study

Directors

The Directors of the Company

EBT

Employee Benefit Trust

EPS

Earnings per share

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

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

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)

LTIFR

Lost-Time Injury Frequency Rate

LTIP

Long-Term Incentive Plan

m3

Cubic metre

Majority Shareholder

Fevamotinico S.a.r.l., The Minco Trust and Kostyantin Zhevago (together)

Mineral 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

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

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

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

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/£

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

 


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