TIDMFXPO
RNS Number : 9836H
Ferrexpo PLC
02 August 2023
2 August 2023
Ferrexpo plc
("Ferrexpo", the "Group" or the "Company")
Interim Results for the six months ended 30 June 2023
Resilient performance in challenging circumstances
Ferrexpo plc (LSE: FXPO), a premium iron ore pellet producer and
exporter to the global steel industry, with operations in central
Ukraine, and customers across Europe and Asia, is pleased to report
interim results for the six months ended 30 June 2023 ("the
interims" or "first half" or "1H 2023").
Commenting on the results, Lucio Genovese, Executive Chair,
said: "With the war approaching the middle of its second year,
Ukraine continues to demonstrate an incredible resilience. At
Ferrexpo, we have managed to increase production on the previous
period which has mitigated a lower iron ore pellet price
environment. Unfortunately, the war, coupled with the continued
closure of the Ukrainian ports mean volumes remain lower than
pre-war production levels. Whilst a renewed sense of optimism in
Ukraine is noticeable, the situation continues to be challenging.
We remain steadfast in our commitment to support our workforce and
communities in every way we can. Their safety and wellbeing is our
primary concern.
Our workforce is very different today. Tragically, we have lost
27 brave men who served in the armed services. There are many still
serving, and indeed many veterans that have returned to work. At
the start of the war, a large part of our workforce moved away;
but, at the same time, we have absorbed even more internally
displaced people fleeing the conflict on the eastern border,
providing them with accommodation, food and medical supplies, and
wherever possible, employment too.
Our operations have changed too, adapting to become more nimble
and responsive to different challenges as they develop. We are
currently running two out of four pelletiser lines, which generate
enough high-quality production to utilise the available logistics
capacity to continue supplying our European customers.
I believe that our business is the right size in the current
environment. We are able to respond to market conditions, remain
cash flow positive, with a strong cash balance and no financial
debt. As we enter an uncertain price environment for iron ore, we
will continue to focus on managing costs and defer longer-term
CAPEX projects where possible.
I am proud of our achievements during a time of war, which is
testament to the resilience of our workforce and competitiveness of
the operations. When the war ends, Ferrexpo will be ready to
invest, and we look forward to playing a significant part in the
reconstruction of Ukraine and continue our role as a supplier of
high-grade iron ore products to meet the ever growing need for
green steel production, in Europe in particular."
Financial Highlights
-- Revenues declined by 64% to US$334 million due to lower production and realised prices.
-- Profit after tax declined by 67% to US$27 million.
-- The C1 Costs(A) reduced to US$71 per tonne, due to lower
energy costs, local currency devaluation and cost saving
initiatives.
-- Underlying EBITDA(A) decreased by 87% to US$64 million,
reflecting higher costs, principally driven by lower production
volumes, rising global inflation and energy prices.
-- The Group remains in a Net Cash(A) position US$131 million,
comprising US$135 million of cash and cash equivalents, and minimal
financial debt as of 30 June 2023 (Net Cash(A) position as at 31
December 2022: US$106 million).
-- Capital investment of US$58 million, split between
maintenance and expansion as the Group continued to invest in
future growth.
* Words with the symbol " (A") are defined in the Alternative
Performance Measures section on pages 46 and 47.
Commenting on the financial results, Nikolay Kladiev, CFO, said:
"Improvements in sales volumes and prices helped lift revenues 7%
to $334million for the first half of 2023 compared to the last six
months of 2022, although admittedly lower than the first half of
2022 during which operations were running at full capacity until
the invasion of Ukraine and iron ore prices were correspondingly
higher.
During the first six months of 2023 we have worked hard to
manage our unit costs and it is an achievement that our C1 Costs
reduced 17% to US$71 per tonne compared to the same period last
year. This is in part due to a fall in energy costs, but also due
to efficiency measures which will continue to have a positive
effect and help counter other challenges in the coming months.
Nevertheless, with only one-to-two pelletiser lines operational out
of a total four, the business continues to carry large fixed costs,
notably the costs of a full workforce and the important and ongoing
funding for our communities and humanitarian support.
By focusing on high-grade, high-quality forms of iron ore, with
all production grading 65% Fe or above we achieved an Underlying
EBITDA of US$64 million for the period. This is a commendable
achievement, notably as we have continued to invest in the
business, with capital investment totalling US$58 million, over
half of which went into expansion projects. However, to maintain a
strong cash balance in an uncertain future pricing environment, we
will seek to defer longer-term expansionary CAPEX, as we right-size
our business in the event of a longer conflict."
Table 1: Summary of financial performance*
6 months 6 months 6 months FY year
ended ended ended ended
30.06.23 31.12.22 Change 30.06.22 Change 31.12.22
-------------------------------------- --------- --------- ------ --------- ------ ---------
Total pellet production (kt) 1,967 1,256 +57% 4,797 -59% 6,053
-------------------------------------- --------- --------- ------ --------- ------ ---------
Sales volumes (kt) 2,085 1,806 +15% 4,374 -52% 6,180
-------------------------------------- --------- --------- ------ --------- ------ ---------
Average Platts 62% Fe iron ore
fines price (US$/t) 118 101 +17% 140 -16% 120
-------------------------------------- --------- --------- ------ --------- ------ ---------
Revenue (US$m) 334 313 +7% 936 -64% 1,249
-------------------------------------- --------- --------- ------ --------- ------ ---------
Average C1 Cash Cost of production(A)
(US$/t) 71 75 -5% 85 -17% 83
-------------------------------------- --------- --------- ------ --------- ------ ---------
Underlying EBITDA(A) (US$m) 64 279 -77% 486 -87% 765
-------------------------------------- --------- --------- ------ --------- ------ ---------
Diluted EPS (US cents) 4.5 23.4 -81% 13.9 -67% 37.4
-------------------------------------- --------- --------- ------ --------- ------ ---------
Net cash flow from operating
activities 80 68 +18% 233 -66% 301
-------------------------------------- --------- --------- ------ --------- ------ ---------
Capital investment(A) (US$m) 58 59 -2% 102 -43% 161
-------------------------------------- --------- --------- ------ --------- ------ ---------
Closing Net Cash(A) (US$m) 131 106 +24% 172 -24% 106
-------------------------------------- --------- --------- ------ --------- ------ ---------
Closing cash and cash equivalents
(US$m) 135 113 +19% 177 -24% 113
--------- --------- ------ --------- ------ ---------
Humanitarian Fund
-- Established at start of war, the Ferrexpo Humanitarian Fund
provides comprehensive support for our workforce, including those
serving and returning from military service, local communities,
internally displaced people and the Ukrainian society at large, to
help ease the impact of the humanitarian crisis playing out across
the country.
-- Total approved funding for the Ferrexpo Humanitarian Fund of
US$19 million at the end of June 2023, deployed across 70 different
projects and initiatives, including:
-- Provision of shelter, food and medical supplies for individuals and families.
-- Partnering with regional authorities to respond to critical needs.
-- Donation of medical supplies, equipment and rescue vehicles.
-- Each individual project is reviewed and approved by the
Group's Health, Safety, Environment and Community ("HSEC")
Committee, a subcommittee of the Board of Directors ("Board"), and
the committee responsible for the Group's community support
activities and sustainability programme.
Health and Safety
-- The safety and wellbeing of the Group's workforce is the
highest priority, and the Group continues to take extensive
measures to protect its workforce, their families and local
communities.
-- During the first half the Group reported an LTIFR of 0.26
materially below the historic five-year trailing average of 0.69.
The Group is proud to report zero fatalities for the period.
-- The Group's facilities operate with zero-to-minimal impact on
operations as a result of Covid-19, and therefore based on current
statistics, the Group will cease reporting on Covid-19.
Operational Highlights
-- Despite the ongoing conflict in Ukraine, and associated
energy and logistics constraints during the first half of the year,
the Group successfully operated two pelletiser lines, the second of
which was recommissioned earlier in the year, ramping up to add
additional flexibility and capacity.
-- Pellet production of 1.967 million tonnes in 1H 2023,
representing a level 57% increase compared to the previous six
months and 59% decrease to the same period in 2022 due to the
conflict in Ukraine and associated logistics constraints, with the
Group matching production volumes with accessible pellet
demand.
-- Focus on higher-grade iron ore production continued during
the half year, all grading 65% Fe or above, and comprised entirely
of high-grade blast furnace pellets, preferred by European
customers.
-- Sales volumes totalled 2.085 million tonnes, comprised of
pellets and commercial concentrates. This represents a 15% increase
compared to the previous six months to December 2022 and a 52%
decrease compared to the first six months to June 2022, a period
which included full production capacity until Russia's invasion on
the 24 February 2022.
-- The Group's C1 Cash Cost of production(A) decreased to US$71
tonne 1H 2023 due to the local currency devaluation in 2H 2022,
lower prices for some input materials and the effects from further
cost saving initiatives.
-- The Group continues to receive adequate supplies of key
consumables, with Ukraine's reduced industrial output resulting in
lower overall demand for inputs such as electricity, diesel and
natural gas.
Market Environment
-- Iron ore prices fell during the 1H 2023 period by 5%, with a
mildly weakened 3Q outlook due to soft demand in Asia and an
increase in Brazilian and Australian supply.
-- C3 freight rates fell by 26% year-on-year to an average of
US$20 per tonne in 1H 2023 as a result of lower global energy
prices and lack of demand from Brazilian miners.
Board of Directors and Corporate Governance
-- On 1 August 2023, Fiona MacAulay stepped down as a member of the Audit Committee.
-- On 1 July 2023, Lucio Genovese transitioned from
Non-executive Chair to Executive Chair on an interim basis
following the resignation and departure of Jim North as Group CEO
on 30 June 2023.
-- On 25 May 2023, Jim North resigned as Executive Director of the Company.
-- On 25 May 2023, Ann-Christin Andersen resigned from the Board
as a Non-executive Director. Fellow Non-executive Director, Natalie
Polischuk assumed her former position as the Chair of the Health,
Safety, Environment and Community ("HSEC") Committee.
-- On 25 May 2023, Nikolay Kladiev, Group CFO, was appointed as
an Executive Director of the Company.
Environment, Social and Governance ("ESG")
-- In the coming months, the Company will release its eighth
annual Responsible Business Report for 2022, a comprehensive
overview of the Group's sustainability activities with its diverse
stakeholders. Highlights from the report will include:
-- The Company's commitment to Ukraine and how it has responded
to Russia's invasion of Ukraine.
-- A review of the Company's health, safety, environmental,
social and community activities and performance.
-- A detailed look into the Company's responsible and sustainable business practices.
-- Longer-term assessment how the Group plans to develop towards
a low emissions future and shift to a supplier to the green steel
value chain.
For further information please contact:
Ferrexpo:
+44 (0)20 7389
Nick Bias n.bias@ferrexpo.ch 8305
+44 (0)7733 177
831
Tavistock:
+44 (0)20 7920
Jos Simson ferrexpo@tavistock.co.uk 3150
+44 (0)7785 974
Emily Moss 264
Gareth Tredway
About Ferrexpo:
Ferrexpo is a Swiss headquartered iron ore company with assets
in Ukraine and a premium listing on the London Stock Exchange in
the FTSE 250 index (ticker FXPO). The Group produces high-grade
iron ore pellets, which are a premium product for the global steel
industry and enable reduced carbon emissions and increased
productivity for steelmakers when the Group's iron ore pellets are
converted into steel, compared to more commonly traded forms of
iron ore. Ferrexpo's operations have been supplying the global
steel industry for over 50 years. Before Russia's invasion of
Ukraine in February 2022, the Group was the world's third largest
exporter of pellets to the global steel industry. The Group has a
customer base comprising of premium steel mills around the world.
For further information, please visit www.ferrexpo.com .
Notes:
*Due to the ongoing war in Ukraine, and the multiple challenges
that this places on operations, it is not considered appropriate at
the current time to compare half yearly numbers to same period last
year, i.e. 1H 2023 to 1H 2022, because the circumstances in which
they are produced are different. Even withstanding seasonal
anomalies, it is believed that at the present time, investors and
other readers will have a better understanding of how the Company
is performing if the latest half yearly operations is compared to
the previous period (i.e.1H 2023 to 2H 2022). Hence, for this and
subsequent reporting periods, and until further notice, it has been
decided to present reports in this time format.
Introduction
Russia's ongoing war in Ukraine continues to cause profound
social and economic impacts. Nevertheless, due to the resilience of
Ferrexpo's workforce and those stakeholders that support us, the
business continues to operate, produce, market and sell its premium
products - even despite workforce, energy, and infrastructure
constraints. The business has become more nimble and adaptive to
change, the Group's operational and management teams consistently
demonstrate a resourcefulness, resolving issues as they emerge, and
continue to supply our customers.
In turn, this means that Ferrexpo can play an active and
supportive role during a time of war. Ferrexpo's response has been
comprehensive, to ensure the safety and wellbeing of employees,
their families, and communities, in mobilising resources to provide
humanitarian aid to refugees and supporting local and regional
authorities. Our approach has been rapid and innovative, allowing
us to adapt and scale-up our support as the crisis has
unravelled.
To date, the Group has committed to US$19 million of approved
funding through the Ferrexpo Humanitarian Fund. This has
facilitated the roll-out of 70 social impact projects and
initiatives, including the provision of shelter, food and medical
supplies for individuals, partnering with regional authorities to
respond to critical needs, and the donation of medical supplies,
equipment and rescue vehicles. A comprehensive list of social
impacts realised by the Ferrexpo Humanitarian Fund can be found in
the Responsible Business section of this report.
Safety remains a core Group-wide focus. Safety performance in 1H
2023 has not declined as a result of the conflict in Ukraine.
Indeed, the LTIFR (lost time injury rate) for the six months to
June 2023 was reported at 0.26, remaining materially below
Ferrexpo's historical five-year running average. Operations
continuing to remain fatality free in 2023 (2022: zero).
Following 16 years of consistent investment in the Group's
operations, Ferrexpo grew to be the world's third largest exporter
of premium iron ore pellets. However, production capacity for the
first six months continues to be lower than full capacity. Whereas
during the 2022-2023 winter, production was primarily hampered by
the availability of power, during the first half of 2023, logistics
constraints have limited sales, and therefore production has been
curtailed. Nevertheless a second pelletiser line was successfully
recommissioned in the first quarter, adding additional flexibility
and capacity towards the end of the first half. It should be noted
that it is not possible to operate two pelletiser lines at full
capacity as there is not enough logistics capacity to handle the
combined full production, however, two pelletiser lines do add the
possibility a marginal production increase, whilst reducing our
operating exposure to a single pelletiser line.
During 1H 2023, the Group achieved total commercial production,
including pellets and commercial concentrate of 2.1 million tonnes
and sales of 2.1 million tonnes, generating revenue of US$334
million (1H 2022: US$936 million). The Group realised an Underlying
EBITDA(A) of US$64 million (1H 2022: US$486 million). This
financial performance has been made possible through the Group's
continued focus on high-grade and quality forms of iron ore, with
100% of production grading 65% Fe or above in 1H 2023 (1H 2022:
100%).
For further details of the Group's financial performance, please
see the section titled "Financial Review".
Shareholder returns
The Group has long maintained a policy of investing for the
future growth of its business alongside providing shareholder
returns and maintaining a prudent cash position. The Board will
continue to assess the Group's ability to provide shareholder
returns in the form of dividends or share buy backs, however the
Board of Directors have elected not to announce an interim dividend
for 2023.
Board membership and executive management
On 1 August 2023, Fiona MacAulay stepped down as a member of the
Audit Committee.
On 1 July 2023, Lucio Genovese transitioned from Non-executive
Chair to Executive Chair on an interim basis following the
resignation and departure of Jim North as Group CEO in June. In May
2023, Mr North, Executive Director, resigned from the Board of
Directors, and Nikolay Kladiev, Group CFO, was appointed an
Executive Director of the Company.
Non-executive Director Ann-Christin Andersen left the Board in
May 2023 at the time of the AGM. Fellow Non-executive Director,
Natalie Polischuk assumed Ms Andersen's position as the Chair of
the Health, Safety, Environment and Community ("HSEC")
Committee.
At the AGM, more than 20% of votes cast against the re-election
of one of the Company Directors based on the outcome of the votes
of the independent shareholders. The Board has agreed to consult
and engage with shareholders to better understand the reasoning
behind this vote and will publish an update of its shareholder
engagement within six months of the AGM (26 November 2023).
Iron ore market review
Iron ore pricing
Iron ore prices in general fell during the first half of 2023,
with lower volatility reported overall. The fall in iron ore
pricing is attributed to the tightening of monetary policy,
declining levels of stimulus by central banks and the resulting
negative impact on steel demand, especially evidenced in China, the
world's largest steel producer. The decrease in volatility on the
other hand, has been largely attributed to a more normalised
trading of global commodities, after adjusting to the initial
supply uncertainty caused by the Russian invasion of Ukraine.
Pellet premiums, the price paid by steelmakers over prevailing
iron ore indices for the high-grade nature of iron ore pellets was
weaker in the first half of 2023. This was due to weak demand for
high-grade, direct-charge material in Asia caused by low steel
margins, together with a cautious steel market outlook in Europe,
which also coincided with increased supply pressure as India
relaxed its iron ore export tariffs and started increasing its iron
ore pellet exports.
The supply of iron ore is forecast to increase in the near term,
as Brazilian producers restore capacity, following the easing of
bad weather and other operational constraints due to tailings dam
restrictions being addressed. On the demand side, Chinese demand
will continue to play a significant role in pricing, because the
country accounts for approximately three quarters of global iron
ore trade ([1]) . Following the easing of pandemic restrictions at
the end of 2022, a sharp increase in Chinese demand was
anticipated, however, this has failed to emerge. Instead, new
patterns in Chinese demand have been observed, with steelmakers
transitioning to a low-inventory operating model to manage working
capital. This has further discounted upside risk in pricing that
the current low inventory levels in China now would have
traditionally indicated. Steel margins, often an indicator of the
outlook for iron ore fines pricing in the medium term, have
remained negative for hot rolled coil steel products in China ([2])
due to weakening end-user demand. Market commentators suggest that
this will eventually lead to more steelmakers curbing production,
thus further reducing demand for iron ore. These factors, combined
with an overall bearish macroeconomic backdrop, has led to
management's expectations that there will be downward pressure on
iron ore pricing in 2H 2023.
Nevertheless, the outlook of pellet premiums, which are
primarily governed by profitability of the European and Asian
(excluding China) steel sectors, is expected to see some upside in
the coming period, with a tightened supply into an end-user market
that is looking to reduce emissions and therefore source greater
quantities of iron ore pellets.
Freight
The C3 freight rate, which is principally used as a freight
reference in the pricing of the Group's sales contracts, averaged
US$20 per tonne in 1H 2023 (1H 2022: US$26 per tonne), representing
a 26% decrease. The same freight rate ended the half year period on
US$21 per tonne (as at 30 June 2023). Market commentators suggest
that the outlook for the physical and derivative market is weak for
the remainder of 2023 and therefore, the Group does not expect a
strong 3Q freight market.
The Group has been focusing efforts to deep sea port options for
its seaborne exports. During the first half of the year, the
logistics team concentrated on improving efficiencies and costs.
The Group has also taken further efforts to reduce inefficiency in
its supply chain by optimising to ensure maximum efficiency and
lower cost.
Iron ore supply
Global exports of iron ore increased by 4% in 1H 2023, due to
strong supply performance of 6% and 1% year-on-year increases from
Brazil and Australia respectively.
Iron ore consumption is forecast to increase 6% in the second
half of 2023 (relative to 1H 2023), due to an anticipated 8%
increase in Chinese demand and a 10% increase in the EU-27 region.
In China, with the easing of constraints around the scrap supply
chain, mills have been increasing the proportion of scrap charged
into their blast furnaces. However, given certain technical limits
of blast furnaces in China, the usage of scrap is at its upper
limits and further increases in scrap utilisation would be limited.
In addition, compressed steel profit margins could further
discourage mills from utilising scrap, opting for more
cost-effective input options, such as lower-grade iron ore.
One region that stood out is Southeast Asia with robust demand
growth, increasing 10% year-on-year.
Iron ore pellet supply
With half year data not available yet, estimates for global iron
ore pellet export volumes for the first five months of 2023 ("5M
2023") is approximately 44 million tonnes, 9 million tonnes lower
than the same period in 2022. The decrease in export volumes for 5M
2023 was mainly attributed to an approximate 7 million tonne
reduction in exports from Ukraine and Russia. Indian exports also
reduced by an estimated 1.5 million tonnes due to weaker Chinese
import demand.
Over the first five months, Brazilian pellet exports increased
by over 1.8 million tonnes, as operational issues were overcome.
Overall volumes from other major centres of pellet export supply,
notably Sweden and Canada, were reported in line with the same
period last year.
Commentators suggest that Brazilian pellet exports will continue
to grow in the near term. There are also expectations of increased
Indian exports too due to the removal of iron ore export tariffs
imposed in May 2022. However, with ongoing supply disruption from
Ukraine and Russia, overall global supply is anticipated to remain
balanced.
Iron ore pellet demand
The European and Asia ex-China markets (i.e. Japan, Korea and
Taiwan) are the primary blast furnace pellet export markets,
representing an estimated 84% of the total blast furnace pellet
export market ([3]) . However, during the first five months of
2023, it is estimated that China's share of the global blast
furnace pellet export market increased to approximately 20%, due to
a 1 million tonnes increase in iron ore pellet imports from India -
as Indian iron ore export tariffs implemented in May 2022 were
lifted.
The Middle East and North Africa ("MENA") region and North
America are the main regions that have historically bought the
majority of direct reduction pellets. Demand in these markets for
the first half of 2023 was largely balanced.
Global steel production
According to the World Steel Association, global steel
production fell 1.1% to 944 million tonnes in 1H 2023 ([4]) .The
major steel producing regions globally remained cautious and
refrained from increasing production due to an uncertain
macroeconomic environment. This was particularly evidenced in
Europe. Steel production in the EU-27 region fell 10.9%
year-on-year and a weaker 14.1% fall across non-EU-27 Europe.
Conversely, steel production in China saw some growth, with more
than 530 million tonnes of steel produced in 1H 2023, representing
a 1.3% increase year-on-year, attributed by commentators to an
early improvement in the economic outlook as economic prospects due
to the lifting of pandemic-related restrictions, however, this
sentiment did not reflect actual economic performance.
The World Steel Association expects that global steel demand
will see a rebound in growth, forecasting a 2.3% expansion in 2023
([5]) , following a decrease of 4.3% in 2022. The World Steel
Association cites China's reopening, Europe's increased energy
security policies due to the Russia's invasion of Ukraine, and more
efficient supply chains, as the main drivers of the expansion in
2023 steel demand.
Looking to the longer term, the Group maintains its expectations
that tighter emissions controls and government regulation,
particularly in the EU, will result in shift in demand favouring
high-grade, low impurity pellets. Independent research by CRU Group
has demonstrated the advantage of lower CO(2) emissions using
pellets in the blast furnace burden instead of sinter fines.
Pellets require less coking coal, and there is no need to sinter
material before it enters the blast furnace. CRU Group research
estimates that steel mills produce approximately 40% less CO(2) for
each tonne of Ferrexpo's high-grade iron ore pellets used in place
of sinter fines.
Financial review
The operational and logistical pressures the Group has faced
since the Russian invasion of Ukraine in February 2022 have
continued in 1H 2023 and the situation remains very challenging.
While the power supply stabilised later in 1H 2023, the Group still
does not have access to the Port of Pivdennyi on the Black Sea in
Ukraine. This has a negative impact on the Group's potential sales,
as not all of the volume can be delivered to customers in Europe
via railcars and barges on the Danube.
The result achieved by the Group in 1H 2023 reflects the Group's
sustaining resilience and has been achieved thanks to the workforce
in Ukraine, marketing teams in different geographies, and also
customers and suppliers who continue to support the Group. As a
result, the Group managed to maintain production in Ukraine and
shipments to its customers during this difficult time.
For the first six months to the end of June 2023, revenues fell
by 64%, mainly due to 52% lower sales volumes, and the effect of
24% lower realised prices for its iron ore pellets as result of
tightening market conditions in the global iron ore markets. The
Group's Underlying EBITDA(A) decreased by 87% largely due to the
same reasons. The Group's C1 Cash Cost of production(A) ("C1
Costs(A) ") decreased to US$71 per tonne in 1H 2023, compared to
US$85 per tonne in 1H 2022, due to local currency devaluation in 2H
2022, lower prices for some input materials and the effects from
further cost saving initiatives. Profit for the period was US$27
million, compared with US$82 million in 1H 2022, net of an
impairment loss of US$254 million.
Despite the ongoing war in Ukraine and the challenging operating
environment, the Group continued to make capital investments(A) ,
totalling US$58 million (1H 2022: US$102 million) for sustaining
capital investment and smaller growth projects expected to deliver
near-term value.
Revenue
The constrained availability of power during the first months of
2023 had an adverse effect on the Group's production volumes and
consequently sales volumes. Furthermore, lack of access to the Port
of Pivdennyi due to the war also had an adverse impact. Group
revenue declined by 64% to US$334 million in 1H 2023, compared to
US$936 million in 1H 2022. The significant decrease is mainly due
to 52% lower sales volumes and 24% lower realised prices.
Table 2: Headline pricing 1H 2023 compared to 1H 2022
US$ per tonne 1H 2023 1H 2022 Change
------------------------------------------- ------- ------- ------
Average Platts 62% Fe iron ore fines price 118 140 -15%
------------------------------------------- ------- ------- ------
Average Platts 65% Fe iron ore fines price 132 165 -20%
------------------------------------------- ------- ------- ------
Average high-grade premium (Platts) 14 25 -45%
------- ------- ------
Russia's invasion of Ukraine continues to have a significant
impact on the Group's operations and logistics network, which is
expected to continue for the remainder of the year. Consequently,
the Group's sales are currently being redirected to accessible
markets with productions volumes aligned accordingly.
The Group's sales mix for 1H 2023 is described in detail in the
section titled "Operational Review (Marketing)", with sales
predominantly to European customers, as during the 2022 financial
year. The Group's current sales mix reflects the logistics routes
currently available to the Group, which is affected by the
unavailability of the Black Sea ports in Ukraine, in particular the
Port of Pivdennyi, which was the Group's principal loading port for
its seaborne sales before the war began. The Group has historically
demonstrated a high degree of logistical flexibility in the past,
for example redirecting its sales to China during the global
Covid-19 pandemic in 2020 before returning to the original mix of
European and Asian customers as the pandemic ended in 2021. The
Group was able to benefit from this learning and in 1H 2023
successfully exported its products through an alternative Black Sea
port, albeit at higher logistics costs. Since the beginning of the
war, the Group's logistics solutions have predominantly involved
either the railing of products direct to European customers, or the
railing of material to the Group's barging subsidiary on the River
Danube for delivery to specific customers in Europe. Based on the
current situation in Ukraine and the experience gained since the
beginning of the war, the Group expects that it will only resume
exports from the Port of Pivdennyi when the war ends.
Freight rates in 2023 started on a downward trajectory, with
rates falling from the highs of December 2022 and averaging lower
for 1H 2023 compared to 1H 2022. This had a positive effect on the
Group's realised net back prices for sales under the International
Commercial Terms ("Incoterms") of FOB ("Free on Board"). However,
due to the unavailability of the Black Sea ports in Ukraine, the
Group's FOB sales of 389 thousand tonnes in 1H 2023 are
significantly lower than in 1H 2022 (1,306 thousand tonnes), when
the Port of Pivdennyi was still available until the Russian
invasion of Ukraine on 24 February 2022.
For more information on the freight and logistics, please see
the section titled "Selling and distribution costs".
Costs
Cost of sales and C1 Cash Cost of production(A)
Cost of sales in 1H 2023 totalled US$182 million, compared to
US$392 million in 1H 2022. The decrease is the net effect from the
lower production volume, which decreased from 4.8 million tonnes in
1H 2022 to 2.0 million tonnes, and the decrease of the Group's C1
Cash Cost of production(A) ("C1 Cost"). The Group's production
volume is currently aligned to the realisable sales to minimise the
working capital outflow due to the lack of logistics networks and
power availability as a result of the ongoing war.
The average C1 Cost reflects the Group's operating costs for the
production of iron ore pellets from its own ore, with a breakdown
of the different cost components shown in Table 3 below. In
addition to changes of prices for input material, which are outside
of the Group's control, the Group's C1 Cost(A) per tonne also
depends on the Group's production volumes. The C1 Cost(A) in 1H
2023 decreased to US$71 per tonne, compared to US$85 per tonne in
1H 2022. The lower C1 Cost reflects lower global energy costs, the
effects of the devaluation of the local currency in the second half
of 2022 and additional cost saving initiatives, which was partially
offset by the negative effects from the fixed cost absorption as
the Group operated its assets below nameplate capacity. The main C1
Cost(A) drivers are the price of electricity, natural gas and
diesel in Ukraine, which collectively represent 48% of the total
cost base as presented in Table 3. Following a sharp increase of
global energy prices during the 2022 financial year, the average
Brent price for oil in 1H 2023 decreased by 24% compared to 1H 2022
and the average price for natural gas by 52% in US dollar terms.
The average price for electricity in Ukraine increased in 1H 2023
by 4% in US dollar terms, peaking at US$101 per megawatt-hour
("MWh") in January 2023, compared to an average of US$90 per MWh in
1H 2022.
Royalties in Ukraine accrue and are paid based on a tiered
system, which came into effect in January 2022. Based on this
regime, royalties are calculated based on the benchmark
medium-grade (62% Fe) iron ore fines price in total, i.e. the
royalty rate applies to the full price of the iron ore sold and is
not staggered. The scale for the computation of the royalties is as
follows:
1. When the average monthly 62% Fe benchmark iron ore price is
less than or equal to US$100 per tonne, a royalty rate of 3.5%
applies to iron ore product sales.
2. When the average monthly 62% Fe benchmark iron ore price is
less than or equal to US$200 per tonne a royalty rate of 5% applies
to iron ore product sales.
3. When the average monthly 62% Fe benchmark iron ore price is
over US$200 per tonne a royalty rate of 10% applies to iron ore
product sales.
For the first six months of 2023, the average monthly iron ore
price remained between US$100 and US$200 a tonne and therefore the
Group royalties accrued at 5% for the period. As royalties are not
tiered, the rate will apply to the full price of the iron ore
product being sold.
The local currency in Ukraine, the Ukrainian hryvnia ("UAH"),
continued to account for approximately two thirds of the Group's C1
Costs(A) in 1H 2023. The Ukrainian hryvnia remained stable at
UAH36.569 to the US dollar in 1H 2023, whereas it depreciated by 7%
to a rate of UAH29.255 to the US dollar in 1H 2022. However, the
National Bank of Ukraine ("NBU") devalued the local currency from
UAH29.255 as of 30 June 2022 to UAH36.569 per US dollar on 21 July
2022.
For more information on the Ukrainian hryvnia, please see the
section titled "Currency".
Based on the current market environment, it is expected that
prices for the Group's main input materials will not materially
differ from the current levels during the remainder of 2023. Market
commentators however have suggested that there may be some
increases in electricity and natural gas prices during the second
half of the year, if global supply continues to be constrained and
the northern hemisphere winter arrives.
The war in Ukraine continues to have a significant impact on the
Group's C1 Costs and it is difficult to forecast movements in the
near term. This does not only apply to prices for input materials,
but also the availability of these key input materials, such as
gas, fuel and electricity.
Table 3: Breakdown of C1 Cash Cost of production(A)
1H 2023 1H 2022 Change
-------------------------------- ------- ------- ------
Electricity 31% 20% +11pp
-------------------------------- ------- ------- ------
Natural gas and sunflower husks 10% 19% -9pp
-------------------------------- ------- ------- ------
Fuel (including diesel) 7% 7% same
-------------------------------- ------- ------- ------
Materials 7% 6% +1pp
-------------------------------- ------- ------- ------
Personnel 12% 7% +5pp
-------------------------------- ------- ------- ------
Maintenance and repairs 14% 18% -4pp
-------------------------------- ------- ------- ------
Grinding media 7% 6% +1pp
-------------------------------- ------- ------- ------
Royalties 10% 16% -6pp
-------------------------------- ------- ------- ------
Explosives 2% 2% same
------- ------- ------
Note: figures in table above may not add up to 100% due to
rounding and other components. The Group's C1 Cash Cost of
production (A) 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, if any. Royalties in 1H
2022 are shown prior to a positive effect on the Group's royalties
as a result of the change of the legislation in Ukraine that became
effective earlier in 2022, but was not recognised as at 30 June
2022 due to uncertainties on the interpretation of the
legislation.
Selling and distribution costs
Selling and distribution costs in 1H 2023 totalled US$74 million
(1H 2022: US$147 million), mainly due to lower seaborne sales in 1H
2023 due to the closure of Ukraine's Black Sea ports in February
2022 and the higher alternative freight costs that ensued to access
to European customers.
The Group's previous seaborne logistics routes represented the
lowest cost and most efficient way for delivering the Group's
products its customers. As a result of the Russian invasion of
Ukraine, the Group had to adapt and establish new logistics
corridors and relationships with logistics providers and port
operators. These routes rely heavily on rail, where capacity is
restricted and demand is high from other businesses and industries,
and also barge, which combined are more expensive. The Group
continues to examine its logistics opportunities and has made
progress reducing transport time and increasing efficiencies where
it can.
The Ukrainian rail network has been under particular pressure to
handle goods otherwise exported via Ukraine's Black Sea ports.
Wagon journey time through Ukraine's western borders has improved
during the first half of the year, but is still significantly
longer than before the war. Furthermore, Ukrzaliznytsia, the
national rail operator continues to experience attacks on its
network. Rail tariffs increased in July 2022 by 70% for 20 types of
cargo, even when using the Group's own railcars. This increase has
however, been offset to some extent in US dollar terms due to the
devaluation of the local currency in July 2022. The net effect on
the Group's overall distribution costs was approximately an
additional US$11 per tonne in 1H 2023.
It is currently the Group's expectation that its previous
cost-efficient logistics operations will only resume again once the
war comes to an end and the Black Sea ports in Ukraine will be
available again.
General and administrative expenses
General and administrative expenses decreased by US$3 million to
US$32 million mainly due to the devaluation of the Ukrainian
hryvnia in July 2022, affecting also the local general
administrative expenses in US dollar terms in 1H 2023, and the
Group's cost saving initiatives in light of the lower operating
business activity in 1H 2023.
Other operating expenses
Other operating expenses decreased from US$283 million to US$15
million, predominantly due to a non-cash impairment loss of US$254
million recorded in the first half of 2022 on the Group's
non-current operating assets, including property, plant and
equipment, goodwill and intangible assets, and other non-current
assets. The recorded impairment loss as of 30 June 2022 resulted
from the Group's lower cash flow generation and higher discount
rate to be applied due to the war.
The impairment test was re-assessed again as at 30 June 2023
based on the Group's latest long-term model and did not result in
an additional impairment loss. The recorded impairment loss might
reverse partially or in full in future periods, once the situation
in Ukraine improves and the Group's production and sales volumes
are back to pre-war levels.
For further details, please see Note 10 Property, plant and
equipment of the accounts.
Currency
Ferrexpo prepares its consolidated accounts in US dollars. The
functional currency of the Group's Ukrainian operations is the
hryvnia ("UAH") and, as noted in the previous section,
approximately two thirds of the Group's operating costs are
incurred in local currency. The Ukrainian hryvnia has remained
unchanged at UAH36.569 per US dollar since 21 July 2022, when the
National Bank of Ukraine devalued the local currency from UAH29.255
to UAH36.569 per US dollar. Since then the Ukrainian government has
pegged the local currency to the US dollar to avoid another
significant devaluation as experienced in 2022.
As a result, the Group's total net foreign exchange gain
decreased to US$3 million in 1H 2023, compared to US$74 million in
the comparative period. Foreign exchange gains include operating
and non-operating foreign exchange effects and the former
predominantly results from the conversion of outstanding US dollar
denominated receivable balances in Ukraine. In agreement with the
Group's definition of the underlying EBITDA, the operating foreign
exchange effects are included in the underlying EBITDA. A
devaluation of the local currency has generally a positive effect
on the Group's production costs.
For further information, see section titled Costs (C1 Cash Cost
of production(A) ).
Table 4: Ukrainian hryvnia to US dollar
Opening Closing
Spot rate rate Average Average
Source: National Bank of Ukraine 31.07.23 01.01.23 30.06.23 1H 2023 1H 2022
--------------------------------- --------- --------- --------- -------- --------
UAH to US$ 36.569 36.569 36.569 36.569 28.902
--------- --------- --------- -------- --------
Underlying EBITDA(A)
Underlying EBITDA(A) in 1H 2023 decreased by 87% to US$64
million compared to US$486 million in 1H 2022, mainly due to lower
sales volumes and iron ore prices, partially offset by slightly
lower C1 Costs(A) . It is important to note that, the Underlying
EBITDA for the first six months of 2022 included operating foreign
exchange gains of US$85 million, compared to none in 1H 2023, as
the Ukrainian hryvnia remained unchanged.
For further information, see section titled "Currency".
Interest
The Group interest expense remained stable at US$3 million
compared to US$2 million in 1H 2022, due to the unchanged low
balance of outstanding debt.
Further details on finance expense are disclosed in Note 7 Net
finance expense of the accounts.
Tax
The income tax expense for the first half reduced to US$8
million, compared to US$74 million for the same period last year.
The decrease is due to 77% lower realised profit before tax during
the period ended 30 June 2023 and the release of a tax provision of
US$7 million related to the prior year. Whilst the expected
weighted average tax rate for the full year 2023 of 16.0% is
unchanged to 2022, the effective tax rate is 23.8% reflecting the
net effect from an allowance on recognised deferred taxes in
Ukraine and a release of the provision related to the financial
year 2022. The effective tax rate as of 30 June 2022 and 31
December 2022 was 47.3% and 35.0%, respectively, due a recorded
impairment loss of US$254 million on the Group's non-current
operating assets, which is not tax deductible in Ukraine.
The Group operates across a number of jurisdictions and its
effective tax rate is subject to various factors outside of the
Group's control. This includes the volatility in the global iron
ore pellet market and foreign exchange rate movements, primarily
between the Ukrainian hryvnia and the US dollar. The effective tax
rate is also influenced by special and one-off items that may not
be tax deductible, such as impairment losses in Ukraine.
Further details on taxation are disclosed in Note 8 Taxation of
the accounts in respect of the application of tax legislation in
the jurisdictions the Group operates and the critical judgements to
be made by the management.
Items excluded from Underlying earnings
Due to lower cash flow generation as a result of the war, the
carrying value of the Group's non-current operating assets exceeded
the computed value in use by US$254 million at the end of the
comparative period ended 30 June 2022 and therefore this amount was
recorded in the 1H 2022 results. This impairment loss was excluded
from the Group's Underlying earnings. Based on the latest long-term
model of the Group, no additional impairment loss was required as
of 30 June 2023 and therefore no such item is excluded from Group's
Underlying earnings as at the end of this reporting period.
However, the Group's cash flow generation continues to be affected
by logistics constraints and therefore production volumes and sales
are aligned to currently available logistics networks to minimise
working capital outflow. This was reflected in the Group's
long-term model, which was updated for the 1H 2023 impairment test
on the Group's non-current operating assets.
For more information, please see Note 10 Property, plant and
equipment and Note 12 Goodwill and intangible assets of the
accounts.
Profit for the period
Profit for the period was US$27 million, compared with US$82
million in 1H 2022, reflecting the net effect of the lower
Underlying EBITDA(A) and recognition of an impairment loss in the
1H 2022 results.
Cash flows
The net cash flow from operating activities in the first half
decreased to US$80 million compared to US$233 million in 1H 2022,
mainly due to lower sales volumes and prices as described
above.
There was a net working capital inflow of US$21 million in 1H
2023, compared to a net outflow of US$112 million in 1H 2022, which
was primarily a result of a decrease in inventories, increase in
trade receivables and decrease in overdue VAT refund during the
comparative period. As a result of the ongoing war in Ukraine and
the lack of logistics networks and capacity, the Group's production
volume is aligned to the realisable sales to minimise the working
capital outflow.
The Group continued to invest in its operations in Ukraine
despite the challenging situation in the country. Capital
investments totalled US$58 million in 1H 2023, compared to US$102
million in 1H 2022.
As at the date of today's announcement, the Group's Board has
not proposed an interim dividend for 2023. During the comparative
period ended 30 June 2022, a final dividend of 6.6. US cents for
the financial year 2021 was approved by the shareholders during the
Group's Annual General Meeting in June 2022. The dividend payments
totalled 19.8 US cents per Ordinary Share during the comparative
period ended 30 June 2022 and 26.4 US cents per share during the
financial year 2022, including the final dividend for the financial
year 2021, which was paid on 4 July 2022.
Capital investment(A)
Capital investment(A) in 1H 2023 totalled US$58 million,
compared to US$102 million in 1H 2022, including US$27 million of
sustaining and modernisation capital investment(A) and US$31
million of expansion capital investment(A) across the Group.
Given the operational and logistical constraints due to the
Russia's invasion of Ukraine in 2022, the Group has maintained its
levels of investment relating to sustaining capital investment(A)
and has sought to reduce activities relating to expansion capital
investment(A) , particularly with projects that are expected to
deliver returns over the medium to long term. As such, major
projects advanced in 1H 2023 included:
-- US$17 million on capitalised stripping activities to secure future production growth;
-- US$7 million expansion commitments including press filtration complex; and
-- US$2 million Belanovo sustainability.
Net cash
The Group continues to protect its Net Cash(A) position and
balancing operational and financial targets. This prudent approach,
saw the Group's Net Cash(A) position improve from US$106 million as
of 31 December 2022 to US$131 million as of 30 June 2023, helping
to maintain adequate liquidity buffers.
The Group does not have any committed debt facilities or
uncommitted trade finance facilities. The Group's minor debt
positions relate to finance lease arrangements. The Group's gross
debt balance as of 30 June 2023 was US$4 million, compared to US$7
million as at 31 December 2022.
It is the Group's intention to maintain robust balance sheet
metrics whilst continuing to invest, as the current cash flow
generation allows, in the next phase of the Group's organic growth
programme.
Related party transactions
Further information on related party transactions are disclosed
in Note 21 Related party disclosure to the accounts.
Operational review
Health and safety
Despite the ongoing conflict in Ukraine, Ferrexpo continues to
maintain its strong safety record, with zero fatalities in 1H 2023
(FY 2022: zero), and a lost time injury frequency rate ("LTIFR")
([6]) of 0.26 (FY 2022: 0.51). Ferrexpo records total injuries
(being lost time injuries plus those requiring first aid care) at
its operations in Ukraine and registered a total recordable injury
frequency rate in Ukraine of 0.14 (1H 2022: 0.71) for the six
months to June 2023. The relatively high LTIFR recorded at
First-DDSG reflects a single LTI occurring at a relatively smaller
operation.
Table 5: LTIFR (lost time injury frequency rate) by business
units and Group
2022
1H 2023 2H 2022 1H 2022
LTIFR (6M) (6M) (6M) (12M)
----------------------------------------- -------- ------- ------- -------
- FPM 0.18 0.19 0.66 0.49
----------------------------------------- -------- ------- ------- -------
- FYM - 0.73 0.48 0.58
----------------------------------------- -------- ------- ------- -------
- FBM - - 6.16 3.87
----------------------------------------- -------- ------- ------- -------
Ukraine 0.14 0.30 0.71 0.51
----------------------------------------- -------- ------- ------- -------
- First-DDSG (inland waterway logistics) 1.80 - - -
----------------------------------------- -------- ------- ------- -------
Group 0.26 0.28 0.67 0.51
-------- ------- ------- -------
The Group's achievement of consistently maintaining a low
incidence of safety incidents across the Group is due to multi-year
project implementing a strong safety culture at the Group's
operations, including workforce engagement and training on safety
topics and regular monitoring of leading and lagging indicators of
safety. Through this approach, Ferrexpo continues to operate below
its historic trailing average LTIFR of 0.69 ([7]) .
In addition to progress made in safety at its operations, in
July 2022 the Group has completed an external assurance process for
its safety and greenhouse gas emissions in 2021, with further
details of this process provided in the section titled "External
Assurance Process".
Impact of conflict in Ukraine
Following the outset of the war, the government of Ukraine has
proceeded to call up individuals to serve in the military in waves
of conscription, and as such, approximately 6% of the Group's
employee workforce are currently serving in the Ukrainian military.
The Group regrets to inform that it has been notified that 27
employees who served in the armed forces have lost their lives. The
Group is providing support to family members of individuals killed
in the fighting.
Pellet production and pellet quality
The Group continues to operate in Ukraine and deliver its
products to customers, despite the ongoing conflict in Ukraine. The
Group's operations are situated in central Ukraine and are
therefore not in areas directly affected by Russia's invasion, and
the major impact of the conflict has been on the Group's ability to
ship products, particularly in light of Russia's ongoing blockade
of Ukraine ports and access to the Black Sea. As a result of this,
from the outset of Russia's invasion on 24 February 2022 until the
end of the period (30 June 2023), the Group has been predominantly
restricted to exports into Europe via either rail or its inland
waterway business on the River Danube ("First-DDSG").
The Group announced its production for the first half of 2023 on
6 July 2023, with pellet production of 1.967 million tonnes,
representing a 57% increase compared to the previous six months.
The increase in production in 1H 2023 relates to better energy
supply. Throughout the period, the Group has operated with between
one and two of its four pelletiser lines, each of which is capable
of producing approximately 3.0-3.5 million tonnes of pellets a year
(depending on pellet types being produced). As of the end of July,
the Group is currently operating one pelletiser line, with
additional sales to draw down on existing stockpiles of the Group's
products.
Despite the ongoing war in Ukraine, the Group has continued its
focus on high-grade production, with 100% of production being
high-grade (2022: 100%).
As announced in the Group's full year results on 15 March 2023,
Ferrexpo has taken the decision to temporarily reduce activities
relating to growth projects that will deliver additional value over
the medium to long term, on the basis of preserving the Group's
cash balance and retaining management's focus on maintaining
production activities. Ferrexpo did continue investing a limited
amount in growth projects.
For more information on current progress made in relation to
expansion projects, please see the section titled "Capital
investment (A) ".
Table 6: Iron ore production in 1H 2023 and 2H 2022
(Thousand tonnes, unless stated otherwise) Fe Grade 1H 2023 2H 2022 Change
--------------------------------------------- -------- ------- ------- ------
Total commercial production (pellets and
commercial concentrate) 2,127 1,362 +59%
--------------------------------------------- -------- ------- ------- ------
Including: total pellet production 1,967 1,256 +57%
--------------------------------------------- -------- ------- ------- ------
Pellet production comprised of:
---------------------------------------------------------------------------------
Direct Reduction Pellets 67% - 263 -100%
--------------------------------------------- -------- ------- ------- ------
Ferrexpo Premium Pellets 65% 1,967 993 +98%
--------------------------------------------- -------- ------- ------- ------
Ferrexpo Basic Pellets 62% - - -
--------------------------------------------- -------- ------- ------- ------
Including: commercial concentrate production 67% 160 106 +51%
-------- ------- ------- ------
Exploration projects
The Group possesses a number of licences relating to
exploration-stage projects located to the north of Ferrexpo's
existing mining operations, which are along strike from the main
orebody. Given the current situation in Ukraine, the Group is
focused on desk-based work relating to existing drilling on these
licences, and it is expected that the Group will resume field work
when it is practical to do so.
Capital investment(A) during 1H 2023
A summary of capital investment(A) projects in 1H 2023 is shown
in the table below.
For further information on capital investment (A) made during
the period, please see the section titled "Financial Review
(Capital investment (A) )".
Table 7: Selected growth capital investment projects in 1H
2023
Total Total Remaining
cost spent spend
Project Description Status Activity US$m US$m US$m
----------------- ------------------------- ------------------ ------------------ ----- ------ ---------
Slowdown works
Wave 1 Expansion 3 MTPA of additional and fulfilling
(pelletiser) pellets hard commitments Reduced activity* 181.5 49.0 132.5
----------------- ------------------------- ------------------ ------------------ ----- ------ ---------
4.1 MTPA of additional Slowdown works
Wave 1 Expansion concentrate (for and fulfilling
(concentrator) delivery to pelletiser) hard commitments Reduced activity* 239.8 37.0 202.8
------------------------- ------------------ ------------------ ----- ------ ---------
* Owing to the conflict in Ukraine, the Group has paused
meaningful expenditures and activities related to the Wave 1
Expansion and will resume these investments following a cessation
of hostilities and/or risk to the Group. Please see section below
for more information.
Capital investment for future growth ("Wave 1 Expansion")
As announced in the Group's Annual Report and Accounts for 2022,
as a result of Russia's invasion of Ukraine in February 2022, the
Group has reduced its activities on the Wave 1 Expansion, which
represents the next major phase of growth for Ferrexpo. The Wave 1
Expansion is the combination of investment projects in mining,
beneficiation and pelletisation that we collectively provide three
million tonnes of additional pellet capacity. The Group is already
preparing plans for a return to its capital investment projects
when the war ends.
Marketing
Due to the war logistics constraints and capacity limit the
Group's sales. For the first half of 2023 Group's sales totalled
2,085,000 tonnes, comprised of pellets and commercial concentrates.
This represents a 15% increase compared to the previous six months
to December 2022 and a 52% decrease compared to the first six
months to June 2022, a period which included full production
capacity until Russia's invasion on the 24 February 2022. With no
access to Ukrainian Black Sea ports, the Group has redirected sales
by rail and barge to Central Eastern Europe and other Black Sea
ports.
Table 8: Sales volume by region
Market regions 1H 2023 2H 2022 Change 1H 2022 Change
---------------------------------------- ------- ------- ------ ------- ------
Europe, including Turkey (BF pellet) 100% 92% +8pp 79% +21pp
---------------------------------------- ------- ------- ------ ------- ------
North East Asia (BF pellet market) - - - 5% -5pp
---------------------------------------- ------- ------- ------ ------- ------
China and South East Asia (BF pellet - - - 16% -16pp
market)
---------------------------------------- ------- ------- ------ ------- ------
Middle East and North Africa (DR pellet
market) - 8% -8pp 2% -2pp
---------------------------------------- ------- ------- ------ ------- ------
North America (DR pellet market) - - - 2% -2pp
------- ------- ------ ------- ------
Responsible business activities
Safety
The Group is pleased to report that there were no fatalities at
its operations in 1H 2023, and the Group's operations continue to
perform materially below the five-year trailing average for its
lost time injury frequency rate.
For further information, please see the section titled
"Operational Review (Health and safety)".
Community support
Since the early stages of Russia's invasion of Ukraine in 2022,
the Group has sought to utilise its position as a business in
Ukraine to help source and direct aid to those that need it most,
throughout the country. In response to the humanitarian crisis in
Ukraine, the Group has established the dedicated Ferrexpo
Humanitarian Fund, which currently has approved funding of US$19
million. Through this fund, the Group has sought to respond to
humanitarian requests and meeting needs of humanitarian projects
through a rigorous review and approval process, and as of July
2022, over 70 individual memorandums have been approved by the
Health, Safety, Environment and Community ("HSEC") Committee.
The Group will continue to use its local knowledge and expertise
to support the people of Ukraine with humanitarian support for as
long as it is required.
From the end of February 2022, Ferrexpo deployed, and continues
to deploy, resources and funding to help tackle the effects of this
invasion. Our support has been fully comprehensive to encompass our
workers, communities, internally displaced people ("IDPs") and the
Ukrainian society at large, to help ease the impact of the
humanitarian crisis playing out across the country.
Provided below is the summary of the support Ferrexpo has
provided to date:
Ferrexpo's full-scale invasion response
-- Accommodation, food and medical supplies to support over 3,500 displaced Ukrainians
-- 4,000 free meals prepared per day from the Company's kitchens for IDPs and locals
-- Accommodation for over 2,000 IDPs
-- Modular housing units to accommodate 120 IDPs in other regions
-- Donation of 123 vehicles to Ukrainian armed forces
-- Donation of 47 vehicles to communities across Ukraine
-- Donation of eight armoured ambulances
Ongoing support for employees
-- Learning from Covid-19, the transfer of 40% of all employees to remote working sites
-- Continuous support for the families of more than 700
mobilised employees - approximately 7% of Ferrexpo workforce in
military service
-- Building bomb shelters and establishing an electronic alert
system for notifying individuals based on-site to air raids
-- Managing the evacuation of 300 employees and family members from war zones
-- Funding and operation of a 24/7 centre for over 100 children
of employees to ensure education and play in a safe environment
-- Free psychological support for employees, their families, and
IDPs that were accommodated in Horishni Plavni
-- Employee veteran support programme, to assist with social
adaptation and integration, including psychological and physical
rehabilitation
Impact of support provided to IDPs
-- Approximately 100 IDPs employed by Ferrexpo
-- Support for IDPs relocating to Horishni Plavni
-- Funding access to online learning platform for soft and hard skills training
-- Ferrexpo Technical Expertise Centre training to accelerate
obtaining new qualifications by IDPs for further employment
-- Funded medical and psychological support
Wider community projects
-- Donation of 22 generators to ensure power supply during missile attacks
-- Donation of vehicles and protective equipment for eight regional authorities
-- Donation of over 700 tonnes of food and water for de-occupied communities
-- 40 units of medical equipment and medicine for de-occupied communities
-- Fostering of 50 Ukrainian women in their career leadership
growth through launch of Ukrainian Female Leadership School
"Femunity.ua"
-- Launch of "Educational Hub Ferrexpo" social project to
develop the labour market, skills and counselling
-- Five grants for the "Progression Mentoring" platform (run by
UN Women Ukraine and NGO Biasless) to implement diversity projects
in their communities
-- Financial support for the 'Unbreakable Mom' project providing
post-war psychological support for Ukrainian women
-- Carried out a new series of training for 30 representatives
of local authorities within Ferrexpo Inclusion School
-- About 100 local teachers underwent three months' training on
stress resistance and the basics of psychological counselling to
learn emotional recovery techniques, and to identify and eliminate
panic attacks in students in time
Pathway to low carbon production
Whilst the war is having many effects on the Group's operations,
work continues to reduce greenhouse gas ("GHG") emissions and
retain progress achieved in previous years. In March 2023, the
Group announced as part of its Full Year Results for 2022 that it
had achieved a 31% reduction in GHG emissions since its baseline
year of 2019.
As referenced in the Group's Annual Report and Accounts for
2022, to further build confidence around the reporting of
sustainability topics, the Group has now completed an external
assurance process on its reporting of GHG emissions, as well as key
safety metrics. For more information on this process, please see
the section titled "External Assurance Process".
In terms of progress made by Ferrexpo in reducing its GHG
emissions footprint in 2023, the Group's Scope 1 and 2 emissions
are provided in the table below.
Table 9: Greenhouse gas emissions
1H 2023 1H 2022 Change
---------------------------------------------------- ------- ------- ------
Absolute emissions (tonnes CO(2) e)
---------------------------------------------------- ------- ------- ------
Scope 1 (direct emissions, principally diesel and
natural gas) 130 247 -47%
---------------------------------------------------- ------- ------- ------
Scope 2 (indicate emissions, reflecting electricity
consumption) 59 209 -72%
---------------------------------------------------- ------- ------- ------
Group total 188 456 -59%
---------------------------------------------------- ------- ------- ------
Unit emissions (kg CO(2) e per tonne of production)
---------------------------------------------------- ------- ------- ------
Scope 1 61 51 +19%
---------------------------------------------------- ------- ------- ------
Scope 2 28 43 -37%
---------------------------------------------------- ------- ------- ------
Group total 89 95 -6%
------- ------- ------
As shown in the table above, the Group has reduced its emissions
both on an absolute and unit basis in 1H 2023. This progress has
been achieved through a combination of factors, which includes the
following:
-- Clean power purchasing . In 1H 2023, the Group continued to
purchase high levels of clean power, with 73% of electricity
consumption coming from clean sources such as hydro and nuclear
power (1H 2022: 50%). The Group intends to maintain a high level of
clean power purchasing in 2H 2023.
-- Reduced mining activities . Ferrexpo continues to operate its
mining activities at a reduced capacity to preserve its balance
sheet strength during the Russian invasion of Ukraine, and has
therefore temporarily reduced these activities. Consumption of
diesel fell by 47% compared to 1H 2022, reflecting a lower rate of
pre-stripping activity in mining operations. The Group intends to
return to its previous level of waste movement once the conflict
risks associated with Russia's invasion of Ukraine have
subsided.
-- Reduced pelletising activities . With constraints along the
supply chain caused by the Russian invasion of Ukraine, the Group
has seen 1H 2023 pellet and commercial concentrate production
volumes fall by 56% compared to 1H 2022. As such, there has been a
corresponding 61% decrease in natural gas consumption for the same
period, considering that natural gas is used in the Group's
pelletising operations.
The Group's Scope 3 emissions are dominated by the emissions
generated by steelmakers in the conversion of iron ore to steel,
with this activity representing 95% of Scope 3 emissions in 1H 2023
(2022: 95%), and more than 85% of total emissions (Scopes 1, 2 and
3 combined). Ferrexpo's Scope 3 emissions footprint was 1.31 tonnes
CO(2) per tonne of production in 1H 2023, which represents a figure
higher than 2022 due to lower sales of direct reduction pellets
(which has a 49% lower emissions footprint - see page 10 of the
2022 Annual Report and Accounts for more information).
As part of the steel value chain, the Group understands the
importance of the shift in thinking towards green steel - the
production of steel without GHG emissions. Whilst the projects
outlined above will reduce the Group's carbon footprint on a per
tonne basis for Scope 1 and 2 emissions, over 90% of the Group's
overall carbon footprint per tonne relates to Scope 3 emissions,
which predominantly relate to the conversion of iron ore to steel.
In the short term, steelmakers are incentivised to use iron ore
pellets as they offer blast furnace steelmakers the opportunity to
lower their carbon emissions by 40% for every tonne of sinter fines
substituted, but this is an existing benefit that will not
materially affect the Group's Scope 3 emissions. Longer term, the
Group is planning to lower its Scope 3 emissions by producing more
DR pellets, which are typically converted to steel using a
combination of electricity and natural gas in the conversion
process, and therefore have a materially lower carbon
footprint.
External assurance process
As announced on 25 July 2022, the Group has completed an
external assurance process (ISAE 3000) on key sustainability
metrics in safety and greenhouse gas emissions for the data
presented in the 2022 Annual Report and Accounts.
For more information on the information reviewed as part of this
process, please see the Group's press release dated 25 July 2022
and associated Reporting Criteria document that is presented
alongside the 2022 Annual Report and Accounts at www.ferrexpo.com
.
Responsible Business Report 2022
In the coming months the Company will release its eighth annual
Responsible Business Report.
Consideration of significant judgements and material
uncertainties
In the course of preparing the financial statements, the Group's
management team has had to make estimates and judgements that have
the potential to create a significant impact on the Group's
consolidated financial statements. The most critical accounting
estimates and judgements are disclosed in Note 2, Summary of
significant accounting policies of the 2023 Interim Consolidated
Financial Statements. The critical estimates presented are
predominantly related to the computation of the value in use of the
Group's non-current operating assets as the Group's cash flows are
still adversely affected by the war in Ukraine.
Critical judgements made predominantly relate to: (a) the basis
of preparation of the Group's Interim Condensed Consolidated
Financial Statements for 1H 2023 in respect of going concern
assumptions made; (b) the application of tax legislation in the
jurisdictions the Group operates; and (c) the assessment of matters
in an environment of political, fiscal and legal uncertainties.
Going concern assessment and stress testing
The armed conflict in Ukraine is ongoing, and continues to pose
a threat to the Group's mining, processing and logistics operations
within Ukraine. This factor therefore represents a material
uncertainty in terms of the Group's ability to continue as a going
concern. As part of management's going concern assessment, the
Group continuously adjusts its long-term model to reflect the
latest developments in terms of currently possible sales and
production volumes as well as expected realised prices taking into
account the situation on the global iron ore markets and its
productions costs. The latest base case of the long-term model
shows that the Group has sufficient available liquidity to continue
its operations at a reduced level for the entire period of the
management's going concern assessment.
See Note 2 Summary of significant accounting policies for
further information on Group's going concern assessment and stress
testing.
Update on principal risks
Principal Risks are those considered to have the greatest
potential impact on the Ferrexpo business, assessed on the basis of
impact and probability. The Group considers that the Principal
Risks facing the business, as highlighted on pages 56 to 72 of the
2022 Annual Report and Accounts (published in March 2023), remain
relevant. An update on material developments that relate to the
Group's Principal Risks since their publication in March 2023 is
provided below.
Update since publication of Full Year Results announcement in
March 2023
Conflict risk and outlook
The primary consideration for Ferrexpo's risk profile at the
present time is Russia's invasion of Ukraine, and the impact that
this is having, and will continue to have, on Ferrexpo's business
in Ukraine.
Since the Group published its Principal Risks in March 2023,
there has been no material advancement by the Russian army in
Ukraine. In June 2023, the Ukrainian army started counteroffensive
actions to take back occupied south-eastern territory of Ukraine.
Military analysts note that the Ukrainian army now faces successive
lines of Russian defences that are, in some cases, 30 kilometres
deep and consisting of minefields, anti-tank obstacles, and
extensive networks of trenches and bunkers. The counteroffensive
actions may last a significant time and the Group will continue to
face lasting effects of the war.
Ferrexpo's operations continue to operate, albeit with
limitations based on the amount of iron ore products that the Group
can export due to the conflict in Ukraine - principally due to: (a)
Russia's blockade of Ukraine's Black Sea ports, or (b) damage and
destruction of the Ukrainian railway network due to the actions of
the Russian military, which is a factor that has increased in its
impact and significance recently.
The conflict in Ukraine continues to represent a significant
threat to Ferrexpo's operations in Ukraine, should the war continue
in its current configuration, or even escalate further. The outlook
for Ukraine at present remains inherently unpredictable in the
short to medium term, with a range of military, financial and other
factors all having a significant influence on the outcome for the
people of Ukraine and businesses deriving their revenues from
Ukraine. In the near term, it is expected that the conflict will
continue to put increasing strain on the economy of Ukraine, which
is reported to continue experiencing a budget deficit, and
therefore businesses in Ukraine are facing increasing costs of
doing business as the Ukrainian authorities seek to generate
additional revenue. Such an example is the 70% increase in railway
tariffs announced in June 2022 for all types of cargo, which has
added approximately US$7-9 per tonne to the Group's logistics costs
in 1H 2023.
For further information, please see the section titled "Iron Ore
Market Review" on pages 6 to 7 as well as the Going Concern
Statement above .
Ukraine country risk
The Group's mining and processing operations are located in
Ukraine, which is a country currently under invasion by Russia.
For more information, please see the section titled "Conflict
Risk", as well as the Principal Risks section of the 2022 Annual
Report and Accounts.
As a result of operating in a developing economy, the Group is
subject to a number of elevated risks, such as the fiscal and
political stability of Ukraine, independence of the judiciary,
access to key inputs and capital, exposure to monopolies and other
influential businesses (particularly those that are related parties
to the government of Ukraine), in addition to a range of other
factors. The independence of the judiciary in Ukraine has been
frequently referenced in the Principal Risks section of the Group's
Annual Report and Accounts, and this is a consideration that
remains particularly relevant for the Group today. As described in
Note 19 (Commitments, contingencies and legal disputes) in the 2023
Interim Consolidated Financial Statements, the Group is currently
subject to several legal proceedings in Ukraine, and it cannot be
guaranteed that the Ukrainian legal system will always provide a
ruling in line with the laws of Ukraine or international law.
The independence of the judicial system, and its immunity from
economic and political influences in Ukraine, remains questionable,
and the stability of existing legal frameworks may weaken further
with future political changes in Ukraine. As a result, the Group is
still exposed to an unclear fiscal and legal system in Ukraine
affecting the risks around the Group's tax position, including
risks relating to policies applied relating to transfer pricing,
the timely return of VAT refunds and the independence of the legal
system for any cases heard by the courts.
As referenced in the Group's 2022 Annual Report and Accounts,
there are outstanding matters in Ukraine relating to the Group's
controlling shareholder that remain unresolved, and there is a risk
that assets owned or controlled (or alleged to be owned or
controlled) by him may be subject to restrictions, in Ukraine or
elsewhere, or that the Group may be affected by or become involved
in legal proceedings relating to these matters, in Ukraine or
elsewhere.
As a consequence of events relating to the Group's controlling
shareholder the Group may experience adverse effects, such as
negative media attention for the Group, a reduced ability to
operate within Ukraine and/or overseas due to negative perceptions
of the Group, and a restricted operating environment for aspects of
the Group's business, such as closure (or suspension) of
relationships with stakeholder groups such as banking services. In
addition, restrictions imposed on the Group's controlling
shareholder (and/or negative perceptions of the Group's controlling
shareholder) may potentially adversely impact the Group within
Ukraine, with a restriction on the Group's ability to successfully
operate its business model.
The Group is subject to a number of actions by the government of
Ukraine that threaten to destabilise, or have the effect of
destabilising, the operating environment in which the Group
exists.
For further information on ongoing legal disputes, please see
Note 19 Commitments, contingencies and legal disputes of the
accounts.
Global steel demand and realised prices for iron ore pellets
As noted in the Market Review section, cost inflation is putting
significant pressure on the commodities industry in 2023. Prices
for hot rolled coil, which represents an indicator of steel pricing
in general, were largely flat in 2023, increasing by a marginal 1%
([8]) , whilst prices for energy have fallen since 2022 they still
remain relatively high. As a result, global steel margins have
contracted in 2023 ([9]) , pushing steel producers to begin to
prioritise lower-grade raw materials as inputs, instead of
higher-grade products that would raise the productivity of a blast
furnace.
The Group expects that the longevity of the conflict in Ukraine
will play a significant role in the inflationary price environment
currently being seen throughout the commodity space. The war in
Ukraine is resulting in numerous supply-side disruptions in
commodity markets, either through sanctions imposed on Russia, or
shifts in Russian supply away from western nations, and therefore
it can be expected that elevated energy costs, and therefore global
inflation, will persist for the foreseeable future whilst the
conflict in Ukraine continues.
Pellet premiums
Historically, pellet premiums have been correlated to steel mill
profitability as they are the most productive source of iron 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, which
in turn will lower profitability for the Group.
Market mix
The Group is currently predominantly constrained to supplying
European steel producers and is therefore closely linked to this
particular market at the present time, and for as long as the
Group's access to seaborne markets remains largely closed. Whilst
the Group is working towards a solution to resume access to
seaborne markets, these new logistics solutions will likely result
in increased costs when compared to the Group's previous logistics
pathways, and therefore reduced profitability for the Group.
Whilst the Group is closely linked to one region for steelmaking
(Europe), it also faces increased risk in its exposure to a
singular market in terms of the outlook for that market. Should the
European steel sector face greater uncertainty and/or production
cuts than other regions for steelmaking, such as China, the Group
may not be able to react and pivot its sales in a similar fashion
as it has done in the past, raising the risk profile of the
Group.
Freight rates
The Group's logistics costs, on a per tonne basis, have risen in
2023 as a result of the conflict in Ukraine and the disruption to
logistics networks that this has caused. As a result of alternative
logistics routes and rising journey costs and times, the Group
faces the possibility of reduced profitability as well as reduced
flexibility (whereas in previous years, the Group could adapt its
logistics network to potentially lower logistics costs).
Directors' responsibility statement
The Interim Report complies with the Disclosure and Transparency
Rules ("DTR") of the United Kingdom's Financial Conduct Authority
in respect of the requirement to produce a half-yearly financial
report. The preparation of the Interim Report for the six months
ended 30 June 2023 in accordance with applicable laws, regulations
and accounting standards is the responsibility of, and has been
approved by, the Directors.
We confirm that to the best of our knowledge:
-- the condensed set of consolidated financial statements has
been prepared in accordance with IAS 34 as contained in UK adopted
IFRS;
-- the Interim Management Report includes a fair review of the
important events that have occurred during the first six months of
the financial year and their impact on the condensed financial
statements, and description of the principal risks and
uncertainties for the remaining six months of the financial year,
as required by DTR4.2.7R; and
-- the Interim Management Report includes a fair review of
disclosures of material related party transactions that have
occurred in the first six months of the financial year and of
material changes in the related party transactions described in the
2022 Annual Report, as required by DTR 4.2.8R.
The Directors are also responsible for the maintenance and
integrity of the Ferrexpo plc website.
A list of current Directors is maintained on the Ferrexpo plc
website, which can be found at www.ferrexpo.com .
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
For and on behalf of the Board
Lucio Genovese Nikolay Kladiev
Executive Chair Chief Financial Officer and Executive Director
Independent Review Report to Ferrexpo Plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six-month period ended 30 June 2023 which comprises the Interim
Consolidated Income Statement, the Interim Consolidated Statement
of Comprehensive Income, the Interim Consolidated Statement of
Financial Position, the Interim Consolidated Statement of Cash
Flows, the Interim Consolidated Statement of Changes in Equity and
the related Notes 1 to 22.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2023 is not prepared, in all material respects, in accordance
with International Accounting Standard ('IAS') 34 "Interim
Financial Reporting", as adopted for use in the United Kingdom and
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued for use in the United Kingdom. A review of interim
financial information consists of making enquiries, primarily of
persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As disclosed in Note 2, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards adopted for use in the United Kingdom ("UK
adopted IFRS"). The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard ('IAS') 34
"Interim Financial Reporting", as adopted for use in the United
Kingdom.
Material Uncertainty Relating to Going Concern
We draw your attention to Note 2 Basis of preparation on pages
28 and 29, which indicates that management has assessed the ongoing
armed conflict in Ukraine to pose a threat to the Group's mining,
processing and logistics operations within Ukraine and on the
ability of the Group to continue as a going concern due to the
unpredictable duration and severity of such events and
circumstances, which are outside of the Group's control. This
indicates that a material uncertainty exists that may cast
significant doubt upon the Group's ability to continue as a going
concern. Our opinion is not modified in respect of these
matters.
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis of Conclusion
section of this report, nothing has come to our attention to
suggest that management have inappropriately adopted the going
concern basis of accounting.
Responsibilities of directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statement in the half-yearly financial report. Our
conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
This report is made solely to the Company in accordance with
guidance contained in ISRE (UK) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity"
issued by the Auditing Practices Board. Our review work has been
undertaken so that we might state to the company those matters we
are required to state to them in a review report and for no other
purposes. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company, for our
work, for this report, or for the conclusions we have formed.
MHA, Statutory Auditor
London, United Kingdom
1 August 2023
MHA is the trading name of MacIntyre Hudson LLP, a limited
liability partnership in England and Wales (registered number
OC312313)
Interim Consolidated Income Statement
US$000 Notes Year-ended
6 months ended 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Revenue 3/4 334,010 935,874 1,248,490
Operating expenses 5 (302,236) (857,075) (1,192,046)
Other operating income 1,877 5,563 9,233
Operating foreign exchange (losses)/gains 6 (42) 84,867 339,439
------------------------------------------- ------ ------------------------- ------------------------ ------------
Operating profit 33,609 169,229 405,116
------------------------------------------- ------ ------------------------- ------------------------ ------------
Share of (loss)/profit from associates (162) (195) 557
Profit before tax and finance 33,447 169,034 405,673
------------------------------------------- ------ ------------------------- ------------------------ ------------
Finance income 7 1,952 209 929
Finance expense 7 (2,593) (2,305) (4,446)
Non-operating foreign exchange
gains/(losses) 6 2,640 (11,236) (63,497)
------------------------------------------- ------ ------------------------- ------------------------ ------------
Profit before tax 35,446 155,702 338,659
------------------------------------------- ------ ------------------------- ------------------------ ------------
Income tax expense 8 (8,437) (73,629) (118,662)
------------------------------------------- ------ ------------------------- ------------------------ ------------
Profit for the period/year 27,009 82,073 219,997
------------------------------------------- ------ ------------------------- ------------------------ ------------
Profit attributable to:
Equity shareholders of Ferrexpo plc 27,002 82,070 219,995
Non-controlling interests 7 3 2
------------------------------------------- ------ ------------------------- ------------------------ ------------
Profit for the period/year 27,009 82,073 219,997
------------------------------------------- ------ ------------------------- ------------------------ ------------
Earnings per share:
Basic (US cents) 9 4.59 13.96 37.41
Diluted (US cents) 9 4.54 13.94 37.35
------------------------------------------- ------ ------------------------- ------------------------ ------------
Interim Consolidated Statement of Comprehensive Income
6 months ended Year ended
US$000 Notes 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Profit for the period/year 27,009 82,073 219,997
Items that may subsequently be reclassified to
profit or loss:
Exchange differences on translating foreign
operations 6 170 (184,076) (664,296)
Income tax effect - 4,106 13,036
Net other comprehensive income/(loss) that may
be reclassified to profit or loss in subsequent
periods 170 (179,970) (651,260)
Items that will not be reclassified subsequently
to profit or loss:
Remeasurement (losses)/gains on defined benefit
pension liability (68) 12,729 5,336
Net other comprehensive (loss)/income not being
reclassified to profit or loss in subsequent
periods (68) 12,729 5,336
------------------------------------------------- ------ -------------------- ------------------------ -----------
Other comprehensive income /(loss) for the
period/year, net of tax 102 (167,241) (645,924)
------------------------------------------------- ------ -------------------- ------------------------ -----------
Total comprehensive income /(loss) for the
period/year, net of tax 27,111 (85,168) (425,927)
------------------------------------------------- ------ -------------------- ------------------------ -----------
Total comprehensive income attributable to:
Equity shareholders of Ferrexpo plc 27,114 (85,152) (425,919)
Non-controlling interests (3) (16) (8)
------------------------------------------------- ------ -------------------- ------------------------ -----------
27,111 (85,168) (425,927)
------------------------------------------------- ------ -------------------- ------------------------ -----------
Interim Consolidated Statement of Financial Position
As at As at As at
US$000 Notes 30.06.23 31.12.22 30.06.22
(unaudited) (audited) (unaudited)
Assets
Property, plant and equipment 10 840,493 807,861 933,106
Right-of-use assets 11 3,838 6,342 4,997
Goodwill and other intangible assets 12 7,636 8,249 10,875
Investments in associates 5,005 5,167 5,495
Inventories 14 6,277 6,277 7,846
Other taxes recoverable and prepaid 13 - - 6,833
Other non-current assets 30,064 37,451 91,615
Deferred tax assets 8 14,168 14,471 27,285
------------------------------------------------------------ ------ ------------ ------------ ------------
Total non-current assets 907,481 885,818 1,088,052
------------------------------------------------------------ ------ ------------ ------------ ------------
Inventories 14 209,061 224,454 309,770
Trade and other receivables 45,387 24,699 104,897
Prepayments and other current assets 15 37,507 13,352 41,841
Income taxes recoverable and prepaid 8 1,739 4,674 456
Other taxes recoverable and prepaid 13 47,111 88,762 100,719
Cash and cash equivalents 3/16 134,903 112,945 176,766
------------
Total current assets 475,708 468,886 734,449
------------------------------------------------------------ ------ ------------ ------------ ------------
Total assets 1,383,189 1,354,704 1,822,501
------------------------------------------------------------ ------ ------------ ------------ ------------
Equity and liabilities
Issued capital 20 121,628 121,628 121,628
Share premium 185,112 185,112 185,112
Other reserves 20 (2,622,857) (2,636,891) (2,165,772)
Retained earnings 3,593,693 3,580,329 3,488,649
------------------------------------------------------------ ------ ------------ ------------ ------------
Equity attributable to equity shareholders of Ferrexpo plc 1,277,576 1,250,178 1,629,617
------------------------------------------------------------ ------ ------------ ------------ ------------
Non-controlling interest 64 67 59
------------------------------------------------------------ ------ ------------ ------------ ------------
Total equity 1,277,640 1,250,245 1,629,676
------------------------------------------------------------ ------ ------------ ------------ ------------
Interest-bearing loans and borrowings 3/17 950 1,354 1,754
Defined benefit pension liability 17,379 16,456 12,501
Provision for site restoration 4,675 4,284 3,849
Deferred tax liabilities 8 1,334 1,347 687
------------------------------------------------------------ ------ ------------ ------------ ------------
Total non-current liabilities 24,338 23,441 18,791
------------------------------------------------------------ ------ ------------ ------------ ------------
Interest-bearing loans and borrowings 3/17 3,012 5,194 3,360
Trade and other payables 33,803 30,509 72,469
Accrued and contract liabilities 15,730 19,593 21,476
Income taxes payable 8 18,792 20,564 41,332
Other taxes payable 9,874 5,158 35,397
------------------------------------------------------------ ------ ------------ ------------ ------------
Total current liabilities 81,211 81,018 174,034
------------------------------------------------------------ ------ ------------ ------------ ------------
Total liabilities 105,549 104,459 192,825
------------------------------------------------------------ ------ ------------ ------------ ------------
Total equity and liabilities 1,383,189 1,354,704 1,822,501
------------------------------------------------------------ ------ ------------ ------------ ------------
The financial statements were approved by the Board of Directors
and authorised for issue on 1 August 2023 and signed on behalf of
the Board.
Lucio Genovese Nikolay Kladiev
Executive Chair Chief Financial Officer and Executive
Director
Interim Consolidated Statement of Cash Flows
6 months ended 6 months ended Year ended
US$000 Notes 30.06.23 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Profit before tax 35,446 155,702 338,659
Adjustments for:
Depreciation of property, plant and equipment, right-of-use
assets and amortization of intangible
assets 5 29,561 61,283 96,977
Finance expense 7 1,134 960 1,675
Finance income 7 (1,952) (209) (929)
Losses on disposal and liquidation of property, plant and
equipment 5 96 1,128 1,665
(Write-backs)/write-offs and impairments 5 (180) 254,366 260,308
Share of loss/(profit) from associates 161 195 (557)
Movement in allowance for doubtful receivables 2,559 4,188 6,729
Movement in site restoration provision 392 240 1,578
Employee benefits 1,830 2,045 3,745
Share-based payments 719 310 490
Operating foreign exchange losses/(gains) 6 42 (84,867) (339,439)
Non-operating foreign exchange (gains)/losses 6 (2,640) 11,236 63,497
Operating cash flow before working capital changes 67,168 406,577 434,398
--------------------------------------------------------------- ------ --------------- --------------- -----------
Changes in working capital:
(Increase)/decrease in trade and other receivables (38,539) 102,499 210,267
Decrease/(increase) in inventories 15,588 (121,017) (90,385)
Decrease in trade and other payables (incl. accrued and
contract liabilities) (630) (49,201) (55,529)
Decrease/(increase) in other taxes recoverable and payable
(incl. VAT) 44,737 (44,587) (84,110)
--------------------------------------------------------------- ------ --------------- --------------- -----------
Cash from operating activities 88,324 294,271 414,641
--------------------------------------------------------------- ------ --------------- --------------- -----------
Interest paid (191) (591) (918)
Income tax paid (6,948) (59,544) (110,243)
Post-employment benefits paid (1,079) (1,171) (2,220)
--------------------------------------------------------------- ------ --------------- --------------- -----------
Net cash flows from operating activities 80,106 232,965 301,260
--------------------------------------------------------------- ------ --------------- --------------- -----------
Cash flows (used in)/from investing activities
Purchase of property, plant and equipment and intangible
assets (58,415) (102,008) (161,010)
Proceeds from disposal of property, plant and equipment and
intangible assets 69 83 103
Interest received 1,953 203 894
Dividends from associates - 711 711
Net cash flows used in investing activities (56,393) (101,011) (159,302)
--------------------------------------------------------------- ------ --------------- --------------- -----------
Cash flows (used in)/from financing activities
Repayment of borrowings and finance 17 - (42,146) (42,209)
Principal elements of lease payments 17 (2,703) (3,411) (5,786)
Dividends paid to equity shareholders of Ferrexpo plc 9 (449) (80,283) (155,095)
--------------------------------------------------------------- ------ --------------- --------------- -----------
Net cash flows (used in)/from financing activities (3,152) (125,840) (203,090)
--------------------------------------------------------------- ------ --------------- --------------- -----------
Net increase/(decrease) in cash and cash equivalents 20,561 6,114 (61,132)
Cash and cash equivalents at the beginning of the period/year 112,945 167,291 167,291
Currency translation differences 1,397 3,361 6,786
--------------------------------------------------------------- ------ --------------- --------------- -----------
Cash and cash equivalents at the end of the period/year 16 134,903 176,766 112,945
--------------------------------------------------------------- ------ --------------- --------------- -----------
Interim Consolidated Statement of Changes in Equity
For the financial year
2022 and the six months
ended Attributable to equity shareholders
30 June 2023 of Ferrexpo plc
-----------------------------------------------------------
Other
Issued reserves Retained Total capital Non-controlling Total
US$000 capital Share premium (Note 20) Earnings and reserves interests equity
At 31 December
2021
(audited) 121,628 185,112 (1,986,131) 3,510,793 1,831,402 75 1,831,477
Profit for the
year - - - 219,995 219,995 2 219,997
Other
comprehensive
(loss)/income - - (651,250) 5,336 (645,914) (10) (645,924)
--------------- --------- -------------- -------------- ----------- -------------- ---------------- -----------
Total
comprehensive
(loss)/income
for the year - - (651,250) 225,331 (425,919) (8) (425,927)
Equity
dividends to
the
shareholders
of Ferrexpo
plc (Note 9) - - - (155,795) (155,795) - (155,795)
Share-based
payments - - 490 - 490 - 490
At 31 December
2022
(audited) 121,628 185,112 (2,636,891) 3,580,329 1,250,178 67 1,250,245
--------------- --------- -------------- -------------- ----------- -------------- ---------------- -----------
Profit for the
period - - - 27,002 27,002 7 27,009
Other
comprehensive
income/(loss) - - 180 (68) 112 (10) 102
--------------- --------- -------------- -------------- ----------- -------------- ---------------- -----------
Total
comprehensive
income for
the period - - 180 26,934 27,114 (3) 27,111
Equity
dividends
paid to
shareholders
of Ferrexpo
plc (Note 9) - - - (435) (435) - (435)
Share-based
payments - - 719 - 719 - 719
Effect from
transfer of
treasury
shares (Note
20) - - 13,135 (13,135) - - -
--------------- --------- -------------- -------------- ----------- -------------- ---------------- -----------
At 30 June
2023
(unaudited) 121,628 185,112 (2,622,857) 3,593,693 1,277,576 64 1,277,640
--------------- --------- -------------- -------------- ----------- -------------- ---------------- -----------
For the six
months ended Attributable to equity shareholders
30 June 2022 of Ferrexpo plc
------------------------------------------------------------
Issued Share Other reserves Retained Total capital Non-controlling Total
US$000 capital premium (Note 20) earnings and reserves interests equity
At 31 December
2021
(audited) 121,628 185,112 (1,986,131) 3,510,793 1,831,402 75 1,831,477
Profit for the
period - - - 82,070 82,070 3 82,073
Other
comprehensive
(loss)/income - - (179,951) 12,729 (167,222) (19) (167,241)
--------------- --------- --------- --------------- --------------- --------------- ---------------- ----------
Total
comprehensive
(loss)/income
for the
period - - (179,951) 94,799 (85,152) (16) (85,168)
Equity
dividends
paid to
shareholders
of Ferrexpo
plc (Note 9) - - - (116,943) (116,943) - (116,943)
Share-based
payments - - 310 - 310 - 310
--------------- --------- --------- --------------- --------------- --------------- ---------------- ----------
At 30 June
2022
(unaudited) 121,628 185,112 (2,165,772) 3,488,649 1,629,617 59 1,629,676
--------------- --------- --------- --------------- --------------- --------------- ---------------- ----------
Notes to the Interim Condensed Consolidated Financial
Statements
Note 1: Corporate information
Organisation and operation
Ferrexpo plc (the "Company") is incorporated and registered in
England, which is considered to be the country of domicile, with
its registered office at 55 St James's Street, London, SW1A 1LA,
UK. The Company is listed on the London Stock Exchange and is a
member of the FTSE 250 Index. Ferrexpo plc and its subsidiaries
(the "Group") operate two mines and a processing plant near
Kremenchuk in Ukraine, have an interest in a port in Odessa and
sales and marketing activities around the world including offices
in Switzerland, Dubai, Japan, China, Singapore and Ukraine. The
Group also owns logistics assets in Austria, which operate a fleet
of vessels operating on the Rhine and Danube waterways and an
ocean-going vessel which provides top off services. The Group's
operations are vertically integrated from iron ore mining through
to iron ore concentrate and pellet production and subsequent
logistics. The Group's mineral properties lie within the Kremenchuk
Magnetic Anomaly and are currently being extracted at the
Gorishne-Plavninske-Lavrykivske ("GPL") and Yerystivske
deposits.
Despite the ongoing war in Ukraine, the Group has managed to
continue its operations, although on a significantly lower level.
The Group had to redesign its mining and processing plans during
the financial year 2022 in order to align them to available
logistics network for the sales to its customers in the different
markets. Further to that, the Group's production level was also
dependent on the available power supply following intensified
Russian attacks on the critical infrastructure in Ukraine in the
last quarter of the financial year 2022. Whilst the war is still
ongoing as at the date of the approval of these interim condensed
consolidated financial statements, the supply of power stabilised
in the second quarter of the financial year 2023, but the war
continues to pose a threat to the Group's mining, processing and
logistics operations within Ukraine. The non-availability of the
Ukraine's Black Sea ports does have a significant impact on the
Group's revenue and its ability to commit to sales volumes to
customers in other markets than Europe. See Note 2 Summary of
significant accounting policies, Note 4 Revenue and Note 10
Property, plant and equipment for further information.
The largest shareholder of the Group is Fevamotinico S.a.r.l.
("Fevamotinico"), a company incorporated in Luxembourg.
Fevamotinico is ultimately wholly owned by The Minco Trust, of
which Kostyantin Zhevago and two other members of his family are
the beneficiaries. At the time this report was published,
Fevamotinico held 49.5% (31 December 2022: 50.3%; 30 June 2022:
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 2022 Annual Report and Accounts.
At 30 June 2023, the Group also holds through PJSC Ferrexpo
Poltava Mining an interest of 49.9% (31 December 2022: 49.9%; 30
June 2022: 49.9%) in TIS Ruda LLC, a Ukrainian port located on the
Black Sea, which is accounted for as an associate, using the equity
method of accounting.
Note 2: Summary of significant accounting policies
Basis of preparation
The interim condensed consolidated financial statements for the
six-month period ended 30 June 2023 have been prepared in
accordance with International Accounting Standard ('IAS') 34
Interim Financial Reporting , as adopted for use in the United
Kingdom. 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 2022 .
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 2022. A copy of the statutory accounts for that year,
which were prepared in accordance with International Financial
Reporting Standards adopted for use in the United Kingdom ("UK
adopted IFRS") and with the Companies Act 2006, as applicable to
companies reporting under international accounting standards , have
been delivered to the Registrar of Companies. The auditors' report
under section 495 of the Companies Act 2006 in relation to those
accounts (i) was unqualified, (ii) included a reference to a matter
to which the auditors drew attention by way of emphasis without
qualifying their report, and (iii) did not contain a statement
under sections 498(2) or 498(3) of the Companies Act 2006.
These interim condensed consolidated financial statements have
been reviewed, not audited.
Going concern
As at the date of the approval of these interim condensed
consolidated financial statements, the war in Ukraine that
commenced with the Russian invasion into Ukraine on 24 February
2022 is still ongoing. Even though the Group managed to operate
throughout the six-month period ended 30 June 2023 and the
financial year 2022, albeit at a much lower capacity, the situation
in the country continues to pose a threat to the Group's mining,
processing and logistics operations and represents a material
uncertainty in terms of the Group's ability to continue as a going
concern.
The material uncertainty is predominantly related to the
provision and availability of logistics capacity required for the
delivery of the Group's products to customers in its key markets,
availability of Black Sea ports, and the level of supply of power
to the Group's operations in Ukraine, compounded by the risks to
the health, safety and wellbeing of the Group's workforce, the
Group's ability to operate its assets and the supply of key input
materials required for the production process, as outlined in more
detail in the Update on Principal Risks on pages 18 to 20 . These
risks currently have an adverse impact on the Group's cash
generation, which is reflected in the periods covered by the
Group's long-term model used for the going concern assessment. The
level of the Group's production remains dependent on Russian
attacks on critical infrastructure in Ukraine, which affects the
access to logistic routes and the level of supply of power. In
addition to the supply of power, the Group's operation continues to
be adversely affected by the fact that the Group's seaborne sales
through the Port of Pivdennyi are still suspended as Ukraine's
Black Sea ports are closed as a result of the Russian invasion.
Therefore, the Group currently operates between one and two of its
four pelletiser lines in order to align production volumes to meet
the volume of sales that are currently accessible to the Group and
also taking into account the available guaranteed supply of
power.
As at 30 June 2023, the Group had produced 1,967 thousand tonnes
of iron ore pellets, representing a decrease of 59% compared to the
comparative period ended 30 June 2022, and sold 2,085 thousand
tonnes of its products, compared to 4,373 thousand tonnes during
the comparative period.
Despite this unprecedented and challenging situation during the
six-month period ended 30 June 2023 and the financial year 2022,
the Group's net cash position has increased from US$106,397
thousand at the beginning of the year to US$130,941 thousand as of
30 June 2023, demonstrating that the Group continues to adjust its
business operation to the new environment in order to preserve the
available liquidity as much as possible. As at the date of the
approval of these interim condensed consolidated financial
statements, the Group is in a net cash position of approximately
US$115,000 thousand with an available cash balance of approximately
US$119,000 thousand. In addition to the available cash balance, the
Group has an outstanding trade receivable balance of approximately
US$44,700 thousand from its pellet and concentrate sales in July
2023, which are expected to be collected as cash in the next few
weeks. The Group's finished goods inventory is 592 thousand tonnes
as of 30 June 2023, of which 137 thousand tonnes are at different
loading locations on their way to the western and south-western
borders of Ukraine, compared to 555 thousand tonnes as of 31
December 2022, which is expected to reduce again over the next few
months based on currently forecasted sales and production volumes,
but also depends on the available logistics network.
As part of management's going concern assessment, the Group
continuously adjusts its long-term model in order to reflect the
latest developments in terms of possible production and sales
volumes as well as latest market prices and production costs, which
are adversely affected by lower production volumes. This long-term
model is also used for the impairment test of the Group's
non-current operating assets and further information on the key
assumptions used when preparing this model are provided in Note 10
Property, plant and equipment on pages 35 and 36.
The latest base case of the long-term model shows that the Group
has sufficient liquidity to continue its operations at a reduced
level for the entire period of the management's going concern
assessment, covering a period of 18 months from the date of the
approval of these interim condensed consolidated financial
statements taking into account the current uncertainties in respect
of the ongoing war in Ukraine, even after allowing for reasonably
possible or plausible adverse changes in respect of realised
prices, lower production and sales volumes as well as higher
production costs. This base case assumes a production and sales
volume of approximately 35% and 50% of the pre-war level for the
financial years 2023 and 2024, before an increase to approximately
75% in 2025 and an expected recovery to pre-war levels in 2026.
However, as mentioned above, the production and sales volumes are
heavily dependent on the logistics network available to the Group
as well as the level of supply of power. The sensitivities prepared
for reasonable adverse changes show tighter available liquidity
under some scenarios, but sufficient available liquidity to operate
as planned for the next 18 months.
The Group also prepared reverse stress tests for more severe
adverse changes, such as a combination of all reasonably possible
or plausible adverse changes in respect of realised prices and
production costs, which is unlikely to happen in combination as a
result of the natural hedge of iron ore prices and prices for key
input materials, as well as lower production and sales volumes, but
also for a further delay of the full recovery by another year. The
stress test for the most severe adverse changes shows that the
Group would have depleted all its liquidity in April 2024, without
making use of any available mitigating actions within its control,
such as further reductions of uncommitted development capital
expenditures and operating costs. The use of these mitigating
actions would allow the Group to be cash positive for almost 18
months after the approval of these interim condensed consolidated
financial statements.
The Group has assessed that, taking into account:
-- its available cash and cash equivalents;
-- its cash flow projections, adjusted for the effects caused by
the war in Ukraine, for the period of management's going concern
assessment covering a period of 18 months from the date of the
approval of these interim condensed consolidated financial
statements; and
-- the feasibility and effectiveness of all available mitigating
actions within the Group management's control for identified
uncertainties,
a material uncertainty still remains as some of the
uncertainties remain outside of the Group management's control,
with the duration and the impact of the war still unable to be
predicted at this point of time.
As at the date of the approval of these interim condensed
consolidated financial statements, the Group's operations, located
adjacent to the city of Horishni Plavni, have not been directly
targeted by Russian missile strikes, but this remains a risk.
Should the area surrounding the Group's operations become subject
to the armed conflict, there would be a significant risk posed to
the safety of the Group's workforce and the local community, as
well as a significant risk to key assets and the infrastructure
required for the Group to operate effectively. See the Update on
Principal Risks section on pages 18 to 20 for further
information.
Considering the current situation with the war in Ukraine, all
identified available mitigating actions addressing the
uncertainties caused by the war, as outlined on page 18, and the
results of the management's going concern assessment, the Group
continues to prepare its interim condensed consolidated financial
statements on a going concern basis. However, many of the
identified uncertainties are outside of the Group management's
control and are of unpredictable duration and severity, which may
cast significant doubt upon the Group's ability to continue as a
going concern.
In addition to the war-related uncertainties described above,
the Group is also exposed to the risks associated with operating in
a developing economy, which may or may not be exacerbated by the
war and/or the current circumstances facing the Group's controlling
shareholder (see Ukraine country risk on pages 18 to 20). As a
result, the Group is exposed to a number of risk areas that are
heightened compared to those expected in a developed economy, such
as an environment of political, fiscal and legal uncertainties.
Although the Group has operated successfully in difficult
circumstances in recent years, the war in Ukraine and other
circumstances facing the Group have led to an escalation of a
number of risks, including risks relating to the political
environment and the independence of the legal system, which could
have a material negative impact on the Group's business and
reputation. For more information on critical judgements made by the
management in preparing these interim condensed consolidated
financial statements, see also Note 19 Commitments, contingencies
and legal disputes. The critical judgements made are predominantly
in respect of a share dispute relating to Ferrexpo Poltava Mining,
an arrest ordered by a court in Ukraine on 50.3% of the Group's
shareholding in its major subsidiaries in Ukraine, investigations
into royalties paid and the use of waste material as well as
imposed currency control measures in Ukraine under the Martial
Law.
If the Group is unable to continue to realise assets and
discharge liabilities in the normal course of business, it would be
necessary to adjust the amounts in the statement of financial
position in the future to reflect these circumstances, which may
materially change the measurement and classification of certain
figures contained in these consolidated 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 2022 except for the adoption of the new standards,
interpretations and amendments to IFRSs that became effective as of
1 January 2023.
New standards, interpretations and amendments adopted without
impact on the Group's consolidated financial statements
-- Amendments to IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2: Disclosure of Accounting policies
require the disclosures of material accounting policies rather than
significant accounting policies.
-- Amendments to IAS 8 Accounting policies, Changes in
Accounting Estimates and Errors: Definition of Accounting Estimates
replace the definition of change in accounting estimates with the
definition of accounting estimates as monetary amounts subject to
measurement uncertainty following accounting policies
requirements.
-- Amendments to IAS 12 Income Taxes: Deferred Tax related to
Assets and Liabilities arising from a Single Transaction clarify
that the recognition exemption in paragraphs 15 and 24 of IAS 12
does not apply to transactions that, on initial recognition, give
rise to equal taxable and deductible temporary differences.
-- International Tax Reform - Pillar Two Model Rules (Amendments
to IAS 12) introduce disclosure requirements related to pillar two
income taxes.
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 interim condensed consolidated financial statements.
The most critical accounting estimates include
-- those required in terms of the computation of the value in
use of the Group's non-current assets as a result of the Russian
invasion into Ukraine in February 2022 (Note 10 Property, plant and
equipment, and Note 12 Goodwill and other intangible assets);
Critical judgements predominantly relate to
-- the basis of preparation of these interim condensed
consolidated financial statements in respect of the going concern
assumption (see above);
-- the application of tax legislation in the jurisdictions the
Group operates (Note 8 Taxation); and
-- the assessment of matters in an environment of political,
fiscal and legal uncertainties (Note 19 Commitments, contingencies
and legal disputes).
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 financial performance. There
are no significant changes to the afore-mentioned critical
estimates and judgements compared to 31 December 2022. Detailed
description of the critical estimates and judgements are disclosed
in the respective disclosure notes stated above.
Seasonality
The Group's operations are not affected by seasonality.
Note 3: Segment information
The Group is managed as a single segment, which produces,
develops and markets its principal product, iron ore pellets, for
sale to the metallurgical industry. While the revenue generated by
the Group is monitored at a more detailed level, there are no
separate measures of profit reported to the Group's Chief Operating
Decision-Maker ("CODM"). In accordance with IFRS 8 Operating
Segments, the Group presents its results in a single segment, which
are disclosed in the interim consolidated income statement for the
Group. Management monitors the operating result of the Group based
on a number of measures including Underlying EBITDA, gross profit
and net cash.
Underlying EBITDA and gross profit
The Group presents the Underlying EBITDA as it is a useful
measure for evaluating its ability to generate cash and its
operating performance. The Group's full definition of Underlying
EBITDA is disclosed in the Glossary on page 46 .
6 months ended Year ended
US$000 Notes 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Profit before tax and finance 33,447 169,034 405,673
Losses on disposal and liquidation of property, plant
and equipment 5 96 1,128 1,665
Write-(backs)/offs and impairments 5 (180) 254,366 490
Share based payments 719 310 260,308
Depreciation and amortisation 5 29,561 61,283 96,977
------------------------------------------------------ ------ --------------- ------------------------ -----------
Underlying EBITDA 63,643 486,121 765,113
------------------------------------------------------ ------ --------------- ------------------------ -----------
In agreement with the Group's definition of the underlying
EBITDA (see page 46 in the Glossary), the Group's underlying EBITDA
includes operating foreign exchange losses of US$ 42 thousand as of
30 June 2023 and gains of US$84,867 thousand as of 30 June 2022 and
US$339,439 thousand as of 31 December 2022. These foreign exchange
differences are predominantly dependent on the fluctuation of the
exchange rate of the Ukrainian hryvnia against the US dollar. See
Note 6 Foreign exchanges losses and gains for further
information.
6 months ended Year ended
US$000 Notes 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Revenue 4 334,010 935,874 1,248,490
Cost of sales 5 (182,364) (392,053) (582,445)
--------------- ------ --------------- ------------------------ -----------
Gross profit 151,646 543,821 666,045
--------------- ------ --------------- ------------------------ -----------
Net cash
Net cash as defined by the Group comprises cash and cash
equivalents less interest-bearing loans and borrowings.
US$000 Notes As at 30.06.23 As at 31.12.22 As at 30.06.22
(unaudited) (audited) (unaudited)
Cash and cash equivalents 16 134,903 112,945 176,766
Interest-bearing loans and borrowings - current 17 (3,012) (5,194) (3,360)
Interest-bearing loans and borrowings - non-current 17 (950) (1,354) (1,754)
----------------------------------------------------- ------ --------------- --------------- ---------------
Net cash 130,941 106,397 171,652
----------------------------------------------------- ------ --------------- --------------- ---------------
The underlying EBITDA and net cash are Alternative Performance
Measures ("APM"). Further information on the APMs used by the
Group, including the definitions, is provided on pages 46 and 47
.
Note 4: Revenue
Revenue for the six-month period ended 30 June 2023 consisted of
the following:
6 months ended Year ended
US$000 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Revenue from sales of iron ore pellets and concentrate 305,598 864,921 1,144,079
Freight revenue related to sales of iron ore pellets and
concentrate - 35,526 43,557
------------------------------------------------------------ --------------- ------------------------ -----------
Total revenue from sale of iron ore pellets and concentrate 305,598 900,447 1,187,636
------------------------------------------------------------ --------------- ------------------------ -----------
Revenue from logistics and bunker business 25,675 31,849 54,491
Revenue from other sales and services provided 2,737 3,578 6,363
Total revenue 334,010 935,874 1,248,490
------------------------------------------------------------ --------------- ------------------------ -----------
Information on the commodity risk related to provisionally
priced sales are provided in Note 18 Financial instruments.
Total revenue from sales of iron ore pellets and concentrate by
geographical destination were as follows:
6 months ended Year ended
US$'000 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Europe, including Turkey 305,907 687,384 944,859
North East Asia - 47,496 47,496
China & South East Asia (84) 164,665 164,397
Middle East & North Africa (225) - 29,982
North America - 902 902
Total revenue from sale of iron ore pellets and concentrate 305,598 900,447 1,187,636
------------------------------------------------------------ --------------- ------------------------ -----------
The Group markets its products across various regions and the
presentation of the sales segmentation data shown in the table
above reflects how the Group makes its business decisions and
monitors its sales. Information about the composition of the
regions is provided in the Glossary. During the six-month period
ended 30 June 2023 and the comparative year ended 31 December 2022,
the Group's sales of iron ore pellets and concentrate were
significantly impacted by the ongoing war in Ukraine. Since the
beginning of the war, the Group's seaborne sales through the port
of Pivdennyi have been suspended and these sales had to be diverted
to the market in Europe.
Note 5: Operating expenses
Operating expenses for the six-month period ended 30 June 2023
consisted of the following:
6 months ended Year ended
US$000 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Cost of sales 182,364 392,053 582,445
Selling and distribution expenses 73,667 147,212 236,085
General and administrative expenses 31,586 34,878 63,847
Other operating expenses 14,619 282,932 309,669
Total operating expenses 302,236 857,075 1,192,046
-------------------------------------- --------------- ------------------------ -----------
Total operating expenses include:
6 months ended Year ended
US$000 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Inventories recognised as an expense upon sale of
goods 167,033 371,364 540,010
Employee costs (excl. logistics and bunker
business) 38,564 54,516 92,144
Inventory movements 8,385 (84,472) (52,953)
Depreciation of property, plant and equipment and
right-of-use assets 3 29,181 60,246 95,127
Amortisation of intangible assets 3 380 1,037 1,851
Royalties 12,928 62,804 43,461
Costs of logistics and bunker business 27,587 28,172 55,916
Audit and non-audit services 1,267 1,264 2,055
Community support donations 1,672 10,705 14,536
Write-(backs)/offs and impairments (180) 254,366 260,308
Losses on disposal and liquidation of property,
plant and equipment 96 1,128 1,665
6 months ended Year ended
US$000 Notes 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
(Write-back)/write-off of inventories (196) (111) 269
Write-off of property, plant and equipment 16 - 5,562
Total (write-backs)/write-offs (180) (111) 5,831
---------------------------------------------------- ------ --------------- ------------------------ -----------
Impairment of property, plant and equipment 10 - 219,931 219,931
Impairment of goodwill and other intangible assets 12 - 29,103 29,103
Impairment of other non-current assets - 5,443 5,443
Total impairments - 254,477 254,477
---------------------------------------------------- ------ --------------- ------------------------ -----------
Total (write-backs)/write-offs and impairments (180) 254,366 260,308
---------------------------------------------------- ------ --------------- ------------------------ -----------
The impairment losses of property, plant and equipment, goodwill
and other intangible assets as well as of other non-current assets
were a result of the Russian invasion into Ukraine in February 2022
. See Note 10 Property, plant and equipment and Note 12 Goodwill
and other intangible assets for further information.
Note 6: Foreign exchange losses and gains
Foreign exchange losses and gains for the six-month period ended
30 June 2023 consisted of the following:
6 months ended Year ended
US$000 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Operating foreign exchange (losses)/gains
Conversion of trade receivables 1 84,975 340,189
Conversion of trade payables (19) (78) (623)
Others (24) (30) (127)
------------------------------------------------------ --------------- ------------------------ -----------
Total operating foreign exchange (losses)/gains (42) 84,867 339,439
------------------------------------------------------ --------------- ------------------------ -----------
Non-operating foreign exchange gains/(losses)
Conversion of interest-bearing loans 598 (15,367) (77,678)
Conversion of cash and cash equivalents 1,903 2,915 9,711
Others 139 1,216 4,470
------------------------------------------------------ --------------- ------------------------ -----------
Total non-operating foreign exchange gains/(losses) 2,640 (11,236) (63,497)
------------------------------------------------------ --------------- ------------------------ -----------
Total foreign exchange gains 2,598 73,631 275,942
------------------------------------------------------ --------------- ------------------------ -----------
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) whereas
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 were in the past predominantly dependent on the fluctuation
of the exchange rate of the Ukrainian hryvnia against the US dollar
and the outstanding US dollar denominated receivable balances in
Ukraine. A devaluation of the local currency has generally a
positive effect on the Group's production costs and results in
operating foreign exchange gains on the conversion of the Ukrainian
subsidiaries' trade receivables denominated in US dollar. The
effect arising on the translation of non-US dollar functional
currency operations, mainly in Ukrainian hryvnia, are included in
the translation reserve. See Note 20 Share capital and reserves for
further details.
The Ukrainian hryvnia remained unchanged at 36.568 to the US
dollar since 21 July 2022, when the National Bank of Ukraine
devalued the local currency from 29.255 to 36.568 (34%). As a
result of the pegged local currency during the first half of 2023,
the total of foreign exchange differences is significantly lower
than in the comparative period and mainly relates to other
currencies than the Ukrainian hryvnia.
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 Year
6 months ended ended ended As at As at As at
30.06.23 30.06.22 31.12.22 30.06.23 31.12.22 30.06.22
UAH 36.569 28.902 32.342 36.569 36.569 29.255
EUR 0.925 0.915 0.951 0.919 0.934 0.957
------------- --------------- ---------- ---------- ---------- ---------- ----------
Note 7: Net finance expense
Finance expense and income for the period ended 30 June 2023
consisted of the following:
6 months ended Year ended
US$000 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Finance expense
Interest expense on loans and borrowings (35) (355) (479)
Less capitalised borrowing costs - 355 479
Net interest on defined benefit plans (1,459) (1,345) (2,678)
Bank charges (701) (405) (871)
Interest expense on lease liabilities (55) (126) (233)
Other finance costs (343) (429) (664)
------------------------------------------- --------------- ------------------------ -----------
Total finance expense (2,593) (2,305) (4,446)
------------------------------------------- --------------- ------------------------ -----------
Finance income
I nterest income 1,952 209 888
Other finance income - - 41
------------------------------------------- --------------- ------------------------ -----------
Total finance income 1,952 209 929
------------------------------------------- --------------- ------------------------ -----------
Net finance expense (641) (2,096) (3,517)
------------------------------------------- --------------- ------------------------ -----------
The Group does not have any significant balances of interest
bearing loans and borrowings outstanding as at the end of each of
the reporting periods presented in these interim condensed
consolidated financial statements . See Note 17 Interest-bearing
loans and borrowings for further information.
Note 8: Taxation
The Group pays corporate profit tax in a number of
jurisdictions, Ukraine, Switzerland, the United Kingdom and Dubai,
and its effective tax rate is subject to various factors outside of
the Group's control. This includes the volatility in the global
iron pellet market and foreign exchange rates, primarily between
the Ukrainian hryvnia and the US dollar. For the period ended 30
June 2023, the income tax expense was recorded based on an expected
weighted average statutory income tax rate of 16% for the financial
year 2023 (30 June 2022: 16.0%) before any special items included
in the profit before tax for the period and income tax expense. The
expected tax rate for a financial year is computed based on the
expected taxable profits in the Group's major jurisdictions taken
from the latest forecast multiplied with the enacted statutory tax
rates in these jurisdictions.
The effective tax rate as of 30 June 2023 is 23.8% (30 June
2022: 47.3%; 31 December 2022: 35.0%) results from the net effects
of a release of a tax provision for a previous year of US$7,174
thousand, the recognition of an additional allowance of US$4,813
thousand on deferred tax assets recognised by the two of the
Group's subsidiaries in Ukraine and a withholding tax expense of
US$3,166 thousand incurred on intercompany dividend payments to be
included in income tax expense. The effective tax rates for the
periods ended 31 December 2022 and 30 June 2022 were affected by an
impairment loss of US$254,477 thousand on the Group's non-current
operating assets which is not tax deductible in Ukraine (see Note
10 Property, plant and equipment for further information) and due
to the fact that no deferred tax asset was recognised for the
resulting temporary differences. Further to that, the Group
recorded an allowance of US$10,749 thousand on deferred tax assets
as of 31 December 2022 that were recognised by the same two
subsidiaries in Ukraine. Without these special effects, the
effective tax rate would have been 13.3% (30 June 2022: 18.0%; 31
December 2022: 18.2%).
The income tax expense for the period ended 30 June 2023
consisted of the following:
6 months ended Year ended
US$000 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Current income tax
Current income tax charge 15,204 61,531 100,064
Amounts related to previous years (7,057) 7,999 6,389
----------------------------------------------------- --------------- ------------------------ -----------
Total current income tax 8,147 69,530 106,453
----------------------------------------------------- --------------- ------------------------ -----------
Deferred income tax
Origination and reversal of temporary differences 290 4,099 12,209
----------------------------------------------------- --------------- ------------------------ -----------
Total deferred income tax 290 4,099 12,209
----------------------------------------------------- --------------- ------------------------ -----------
Total income tax expense 8,437 73,629 118,662
----------------------------------------------------- --------------- ------------------------ -----------
The net income tax payable as at 30 June 2023 consisted of the
following:
Year ended
US$000 6 months ended 30.06.23 31.12.22 6 months ended 30.06.22
(unaudited) (audited) (unaudited)
Income tax receivable balance 1,739 4,674 456
Income tax payable balance (18,792) (20,564) (41,332)
-------------------------------- ------------------------ ----------- ------------------------
Net income tax payable (17,053) (15,890) (40,876)
-------------------------------- ------------------------ ----------- ------------------------
Critical judgements
The Group operates across a number of jurisdictions through its
value chain and 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
the jurisdictions in which the Group operates.
Two audits were initiated by the State Tax Service of Ukraine
("STS"), formerly known as SFS, on 18 February 2020 in relation to
the sale of iron ore products by the Group's major subsidiary in
Ukraine during the financial years 2015 to 2017. On 14 June 2021,
the STS commenced another tax audit for the financial years 2015 to
2017 for cross-border transactions of another Ukrainian subsidiary
with the same two subsidiaries of the Group outside of Ukraine.
These tax audits for cross-border transactions between the
Group's two major subsidiaries in Ukraine and two subsidiaries of
the Group outside of Ukraine are still ongoing. Based on
legislation in Ukraine, the results of these audits are to be
provided by the STS within 18 months after commencement. The period
for both audits has been interrupted first by the Covid-19 related
quarantine imposed between March 2020 and February 2021 and then on
24 February 2022 due to the declaration of Martial Law as a result
of the Russian invasion into Ukraine. The audits resumed again on
25 January 2023.
The deadlines to provide the reports for the audits that
commenced on 18 February 2020 have expired on 10 June 2023 whereas
the deadlines for the other audits are 15 November 2023. The
Group's subsidiary was informed by the tax office that the duration
of the audits with deadlines expiring on 10 June 2023 has been
extended by another three months. As of the date of the approval of
these interim condensed consolidated financial statements, the
audits are still ongoing and no claims have been received.
On 27 June 2022, the Supreme Court of Ukraine ruled partially in
favour of the State Fiscal Service of Ukraine ("SFS") in respect of
a claim made by the SFS in respect of a tax audit performed on
cross-border transactions for the period from 1 September 2013 to
31 December 2015 at the Group's major subsidiary in Ukraine,
despite two favourable verdicts received by the Group's subsidiary
from lower court instances. As a result of this court decision, an
amount of UAH234 million (US$7,999 thousand) became a legally
binding obligation and was paid in July 2022. The partially
negative verdict of the Supreme Court of Ukraine might have an
adverse impact on the tax audits described below as the STS might
use the court verdict as a precedent for the tax audits currently
ongoing. Despite the verdict received from the Supreme Court of
Ukraine, the Group still considers that it has complied with
applicable legislation for all cross-border transactions undertaken
and is of the opinion that the court did not appropriately consider
relevant technical grounds and the applicable legislation when
ruling on this case. In the case of new claims, the Group will
continue to defend its methodology applied to determine the prices
between its subsidiaries, but is aware that there is a risk that
the independence of the judicial system and its immunity from
economic and political influences in Ukraine is not upheld. As of
the approval of these interim condensed consolidated financial
statements, no claims have been made by the STS in respect of the
audits commenced in 2020 and 2021. As a consequence, no provision
has been recorded as at 30 June 2023 for transactions and years
subject to the audits commenced by the STS as it is impossible to
reasonably quantify the potential exposure.
Separate from the cases mentioned above, on 23 June 2020
Ferrexpo Poltava Mining ("FPM") received a court ruling, which
grants access to information and documents to the State Bureau of
Investigation in Ukraine ("SBI") in relation to the sale of iron
ore products to two subsidiaries of the Group outside of Ukraine
during the years 2013 to 2019. The Ukrainian subsidiaries
cooperated with the SBI and provided the requested information as
per the court ruling in order to support these pre-trial
investigations. As of the date of approval of these interim
condensed consolidated financial statements, there have been no
actions or any new requests received from the SBI.
As required by IFRIC 23 Uncertainty over income tax treatments,
the Group reviewed and reassessed its exposure in respect of all
uncertain tax positions, including the ongoing audits of
cross-border transactions in Ukraine under the provisions of this
interpretation. The Ukrainian legislation and regulations on
taxation are not always clearly written and are therefore subject
to varying interpretations and inconsistent enforcement by local,
regional and national tax authorities. In case of any claims made
by the STS and considering the uncertainties of the legal and tax
framework in Ukraine, the Group will defend its pricing methodology
applied during these years in the courts in Ukraine. An
unfavourable outcome of any future court proceedings would have an
adverse impact on the Group's total income tax expense and
effective tax rate in future periods. See also the Update on
Principal Risks section on pages 18 to 20 for further information
on the Ukraine country risk.
Except for the matters in Ukraine mentioned above, the Group is
not aware of any significant corporate profit tax related
challenges by local tax authorities in any jurisdictions in which
the Group operates. However, the application of international and
local tax legislation and regulations can be complex and requires
judgement to assess possible associated risks, particularly in
relation to the Group's cross-border operations and
transactions.
The net deferred income tax assets as at 30 June 2023 consisted
of the following:
Year ended
US$000 6 months ended 30.06.23 31.12.22 6 months ended 30.06.22
(unaudited) (audited) (unaudited)
Total deferred tax assets 14,168 14,471 27,285
Total deferred tax liabilities (1,334) (1,347) (687)
--------------------------------- ------------------------ ----------- ------------------------
Net deferred tax assets 12,834 13,124 26,598
--------------------------------- ------------------------ ----------- ------------------------
The net deferred tax asset balance of US$ 12,834 thousand
includes net deferred tax assets totalling US$14,089 thousand
related to temporary differences of the Group's two major
subsidiaries in Ukraine, with the remaining balance reflecting
deferred tax liabilities of subsidiaries outside of Ukraine. The
recoverability of these deferred tax assets depends on the level of
taxable profits realised by the two subsidiaries in future periods
and the duration of the unwind of the temporary differences.
Considering the material uncertainty in terms of the Group's going
concern, the relevant period for the recovery of the recognised net
balance of deferred tax assets has been aligned to the period of
the going concern assessment. As a result of continued
uncertainties in terms of the timing of the unwind of some of the
temporary differences during the period covered by the going
concern assessment, the net deferred tax assets balance is net of
an allowance of US$15,562 thousand, of which US$ 4,813 thousand was
booked as at 30 June 2023 (30 June 2022: nil; 31 December 2022:
US$10,749 thousand). The level of taxable profits in Ukraine
depends on many factors, such as the availale logistics network and
the level of supply of power in Ukraine, the volatility in the
global iron pellet market and foreign exchange rate changes, but
also on the implications of the ongoing war in Ukraine as a
whole.
Future developments
Following an agreement reached by the Finance Ministers from the
G7 in July 2021, backing the creation of a global minimum corporate
tax rate of at least 15.0%, over 140 countries and jurisdictions
have agreed to the OECD/G20 Inclusive Framework on BEPS, also
referred to as BEPS 2.0, including Ukraine, United Arab Emirates,
United Kingdom and Switzerland. It is the aim of the new framework
to ensure that large multinational enterprises pay a fair share of
tax wherever they operate and to set a global minimum tax rate. The
global implementation is in 2024 and key countries have progressed
well with the implementation of this framework, requiring also
changes to the countries constitutions. The Group currently
operates in two key jurisdictions with relevant statutory income
tax rates below 15.0%, but does not expect a significant increase
of its effective tax rate, before any special items, from the
introduction of BEPS 2.0. The Swiss electorate approved in June
2023 a comprehensive change to the Swiss corporate tax system,
resulting in an amendment to the Swiss constitution and the
introduction of the global minimum tax in Switzerland with effect
of 1 January 2024. The United Arab Emirates announced the
adjustment of the local tax legislation by 1 June 2023 resulting in
the application of a corporate profit tax rate of 9.0% to profits
for financial years beginning on or after this date.
Based on the current understanding of the anticipated changes to
the global tax landscape, the Group expects an increase of its
future effective tax rate once adjustments are made to relevant
local tax legislation. The Group's future effective tax rate is
expected to be in a range of 15.0% to 19.0%. As mentioned above,
this effective tax rate is also dependent on the volatility in the
global iron ore pellet market and on foreign exchange rate
movements, primarily between the Ukrainian hryvnia and the US
dollar, and any one-off events, such as impairment losses, which
might not be tax deductible in some jurisdictions.
Note 9: Earnings per share and dividends paid and proposed
Basic earnings per share ("EPS") are calculated by dividing the
net profit for the period attributable to ordinary equity
shareholders of Ferrexpo plc by the weighted average number of
Ordinary Shares.
Diluted earnings per share are calculated by adjusting the
weighted average number of Ordinary Shares in issue on the
assumption of conversion of all potentially dilutive Ordinary
Shares. All share awards are potentially dilutive and have been
considered in the calculation of diluted earnings per share.
Year ended 31.12.22
6 months ended 30.06.23 (unaudited) 6 months ended 30.06.22 (unaudited) (audited)
Earnings for
the
period/year
attributable
to equity
shareholders
- per share
in US cents
Basic 4.59 13.96 37.41
Diluted 4.54 13.94 37.35
Profit for
the
period/year
attributable
to equity
shareholders
- US$000
Basic and diluted
earnings 27,002 82,070 219,995
Weighted
average
number of
shares -
thousands
Basic number of
ordinary shares
outstanding 588,212 587,987 588,017
Effect of dilutive
potential
ordinary shares 6,706 773 931
------------------- ------------------------------------- ------------------------------------ --------------------
Diluted number of
ordinary shares
outstanding 594,918 588,760 588,948
------------------- ------------------------------------- ------------------------------------ --------------------
The increase of the effect of dilutive potential ordinary shares
is due to the transfer of treasury shares to the employee benefit
trust reserve. See Note 20 Share capital and reserves for
additional information.
The basic number of ordinary shares is calculated by subtracting
the weighted average of shares held in treasury and employee
benefit trust reserves from the total number of ordinary shares in
issue.
Dividends proposed and paid
Considering the continued unpredictable situation in Ukraine, no
interim dividends were proposed for the financial year 2023 as at
the date of the approval of these interim condensed consolidated
financial statements. Taking into account the provisions of the
Companies Act 2006 and relevant thin capitalisation rules, the
total available distributable reserves of Ferrexpo plc would be
approximately US$117,000 thousand for the remainder of the
financial year 2023.
Future distributable reserves at the Ferrexpo plc level are also
dependent on the payment of dividends by the subsidiaries to the
respective parent companies within the Group and certain
subsidiaries are currently restricted from paying dividends outside
of Ukraine as a result of Ukrainian currency control measures
imposed under the Martial Law. Impairment losses recorded as of 31
December 2022 in the stand-alone financial statements of certain
subsidiaries and the war-related uncertainties, as well as the
uncertainties related to the political environment and the
independence of the legal system and other circumstances facing the
Group (see Note 19 Commitments, contingencies and legal disputes)
could negatively impact Ferrexpo plc's ability to make dividend
payments in future periods.
6 months ended Year ended
US$000 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Dividends proposed
Final dividend for 2021: 6 .6 US cents per Ordinary Share
(1) - 38,811 -
Total dividends proposed - 38,811 -
------------------------------------------------------------ --------------- ------------------------ -----------
1) Declared on 15 June 2022 at the annual general meeting of the
shareholders and paid on 4 July 2022.
6 months ended Year ended
US$000 30.06.23 6 months ended 30.06.22 31.12.22
(unaudited) (unaudited) (audited)
Dividends paid during the period
Final dividend for 2021: 6.6 US cents per Ordinary Share - - 38,679
Interim dividend for 2022: 13.2 US cents per Ordinary
Share (1) - 40,766 76,899
Interim dividend for 2021: 6.6 US cents per Ordinary Share - 39,517 39,517
Total dividends paid during the period - 80,283 155,095
----------------------------------------------------------- --------------- ------------------------ -----------
1) Declared on 31 May 2022 and paid on 28 June 2022, net of
Swiss withholding tax paid in July 2022 and dividend withheld as at
30 June 2022.
Although accounts are published in US dollars and dividends are
declared in US dollars, the shares are denominated in UK Pounds
sterling and dividends are therefore paid in UK Pounds
sterling.
Note 10: Property, plant and equipment
During the six-month period ended 30 June 2023, the additions to
property, plant and equipment totalled US$64 , 740 thousand (30
June 2022: US$97,159 thousand; 31 December 2022: US$200,329
thousand) and the net book value of the disposals of property,
plant and equipment totalled US$ 978 thousand (30 June 2022:
US$17,179 thousand; 31 December 2022: US$22,799 thousand). The
total depreciation charge for the period was US$31,200 thousand (30
June 2022: US$60,035 thousand; 31 December 2022: US$94,162
thousand).
The carrying value of property, plant and equipment includes
capitalised borrowing costs on qualifying assets totalling
US$34,947 thousand (31 December 2022: US$35,694 thousand; 30 June
2022: US$53,147 thousand) . No borrowing costs are capitalised any
longer as the Group does not have any borrowing costs attributable
to qualifying assets.
Critical estimates
As at the date of the approval of these interim condensed
consolidated financial statements, the war in Ukraine is still
ongoing and continues to pose a threat to the Group's mining,
processing and logistics operations within Ukraine. Even though the
Group managed to operate throughout the financial year 2022 and the
six-month period ended 30 June 2023, although at a significantly
lower level, the ongoing war continues to have an adverse impact on
the Group's cash flow generation and it is expected that this will
continue to be the case until the war comes to an end. During the
six-month period ended 30 June 2023, the continued unavailability
of the Port of Pivdennyi in Ukraine had a significant adverse
impact on the Group's seaborne sales and consequently on its cash
flow generation.
The Group's impairment test is based on cash flow projections
over the remaining estimated lives of the GPL and the Yerystivske
deposits, which are expected to expire in 2058 and 2048,
respectively, according to the current approved mine plans. The
cash flow projection is based on a financial long-term model
approved by senior management and the estimated production volumes
do not take into account the effects of expected future mine life
extension programmes. A number of significant judgements and
estimates are used when preparing the financial long-term model of
the Group, which are, together with the key assumptions used,
reviewed by the Audit Committee with a specific consideration given
to the realistically plausible production volumes in light of the
current situation in the country, sales price and production cost
forecasts as well as the discount rate used to discount the cash
flows.
Based on the base case of the Group's updated long-term model
prepared for the 2023 interim accounts, no additional impairment
loss on the Group's single cash generating unit's operating
non-current assets, including property, plant and equipment as well
as other intangibles and other non-current assets, has to be
recorded as at 30 June 2023. As at the end of the comparative
period ended 30 June 2022, the Group recorded an impairment loss of
US$254,477, reflecting the difference between the computed value in
use of the Group's non-current operating assets and the carrying
value as at this date, of which US$219,931 thousand was allocated
to various asset categories within property, plant and equipment
and US$5,443 thousand to other non-current assets. See Note 12 for
information on the amounts allocated to goodwill and intangible
assets.
The impairment test as of 30 June 2023 was prepared based on a
long-term model updated in July 2023 and is predominantly dependent
on the forecasted cash flow generation and a nominal pre-tax
discount rate of 22.8%, (31 December 2022: 23.4%), which is still
significantly higher than the pre-war WACC of 13.8% as of 31
December 2021. The WACC used reflects the current situation in the
country as underlying macro-economic data used for the computation
is still adversely affected by the war in Ukraine resulting in a
significant higher country risk premium for Ukraine.
An average iron ore price of US$105 per tonne of 65% Fe fines
CFR North China was used in the assumptions for the cash flow
projection for the next five years. In determining the future
long-term selling price, the Group takes into account external and
internal analysis of the longer-term and shorter-term supply and
demand dynamics throughout the world and considers local supply and
demand balances affecting its major customers and the effects this
could have on the longer-term price. Whilst the supply of power was
more stable during the first six months of the financial year 2023,
the Group's production volume continues to be limited by the
currently available power supply in Ukraine. The production
capacity used for the cash flow projections is expected to be
approximately 35% and 50% of the pre-war level for the financial
years 2023 and 2024, before an increase to approximately 75% in
2025 and an expected recovery to pre-war levels in 2026. The
Group's current production volume is also aligned to the currently
available logistic network, which is still impacted by the closed
Black Sea ports in Ukraine. It is expected that currently available
logistic networks will be sufficient to transport the lower level
of produced pellets to the Group's international customers,
particularly in Europe for the time being.
The increase of the available production capacity assumed in the
past for the years covered by the long-term model has been
adversely affected by the Russian invasion into Ukraine as the work
on certain growth projects had to be slowed down or even halted due
to availability of equipment and workforce, but also to preserve
cash. There is no perpetual growth rate applied for the cash flow
projections beyond the last year covered by the Group's long-term
model.
Cost of production and shipping is considered taking into
account local inflationary pressures, major exchange rate
developments between the Ukrainian hryvnia and the US dollar, the
longer-term and shorter-term trends in energy supply and demand and
the effect on costs along with the expected movements in
steel-related commodity prices, which affect the cost of certain
production inputs. An average devaluation of the hryvnia of 8.1%
per year was assumed over the next 5 years in the Group's cash flow
projection.
The key assumptions in respect of production and sales volumes,
and of production costs, are largely dependent on the easing of
conflict risks facing the Group business, and therefore a wide
range of alternative outcomes are possible, reflecting a high level
of uncertainty.
The key assumptions used for the preparation of the Group's
long-term model are:
Key assumptions Basis
Proved and probable reserves and available logistics
Future sales and production capacity and power supply
Commodity prices Contract prices and longer-term price estimates
Capital expenditures Future sustaining capital expenditures
Cost of raw materials and other production/distribution
costs Expected future cost of production
Exchange rates Longer-term predictions of market exchange rates
Nominal pre-tax discount rate Cost of capital risk adjusted for the resource concerned
---------------------------------------------------------- ----------------------------------------------------------
The impairment losses recorded during the financial year 2022
will be re-assessed at the end of any future reporting periods. If
there are positive developments in the Group's future cash flow
generation and the relevant macro-economic data, the impairment
loss or a portion of it might reverse in future periods.
Conversely, an adverse change in the above key assumptions might
further reduce the value in use of the Group's operating
non-current assets.
A delay of the recovery of the production and sales volumes to a
pre-war level by another year, with all other assumptions remaining
unchanged, would reduce the value in use of the Group's non-current
operating assets by approximately another US$369,000 thousand. A
reduction of the realised price by US$5 per tonne for each year
until 2048 would increase the impairment loss by approximately
US$205,000 thousand and a decrease of the production and sales
volume by 10%, combined with an increase of the production costs by
5%, again for the entire period, would increase the impairment loss
by approximately US$289,000 thousand whereas every 1.0% increase of
the nominal pre-tax discount rate would increase the impairment
loss by US$50,000 thousand, with all other assumptions remaining
unchanged.
Note 11: Leases
During the six-month period ended 30 June 2023, the additions to
the right-of-use assets totalled US$ 55 thousand (30 June 2022:
US$733 thousand; 31 December 2022: US$5,034 thousand). The total
depreciation charge for the period was US$2,559 thousand (30 June
2022: US$3,211 thousand; 31 December 2022: US$5,436 thousand).
As at 30 June 2023, the carrying amount of the lease liabilities
consisted of the following:
US$000 As at 30.06.23 As at 31.12.22 As at 30.06.22
(unaudited) (audited) (unaudited)
Non-current 950 1,354 1,754
Current 3,012 5,194 3,360
-------------- --------------- --------------- ---------------
The total cash outflow for leases falling under the scope of
IFRS 16 Leases during the period ended 30 June 2023 was US$ 2,792
thousand (31 December 2022: US$$6,103 thousand; 30 June 2022:
US$2,955 thousand). During the period ended 30 June 2023 US$ 318
thousand was recognised as an expense in the interim consolidated
income statement in respect of short-term leases with a
corresponding impact on the net cash flows from operating
activities (31 December 2022: US$576 thousand; 30 June 2022: US$205
thousand). Furthermore, interest expense on lease liabilities in
the amount of US$ 55 thousand was recognised in the interim
consolidated income statement during the period ended 30 June 2023
(31 December 2022: US$233 thousand; 30 June 2022: US$126
thousand).
Lease related commitments for future contingent rental payments
were US$ 110,322 thousand during the period ended 30 June 2023 (31
December 2022: US$88,910 thousand; 30 June 2022: US$98,093
thousand). These commitments include future cash flows dependent on
non-fixed rates related to the long-term portion of leases of land
not used for the direct extraction of ore and accounted for under
IFRS 16 whereas the short-term portion is recognised as lease
liability in the interim consolidated statement of financial
position.
Note 12: Goodwill and other intangible assets
During the six-month period ended 30 June 2023, the additions to
the intangible assets totalled US$ 89 thousand (30 June 2022:
US$298 thousand; 31 December 2022: US$548 thousand) . The total
amortisation charge for the period was US$ 380 thousand (30 June
2022: US$1,037 thousand; 31 December 2022: US$1,851 thousand).
Critical estimates
Information on the critical estimates used for the Group's
impairment test performed as at 30 June 2023 are provided in Note
10 Property, plant and equipment.
The impairment test performed as at 30 June 2023 did not result
in an additional impairment loss compared to an impairment loss of
US$254,477 thousand recorded on the Group's operating non-current
assets as at 30 June 2022, of which US$27,340 thousand and US$1,763
thousand were allocated to goodwill and various asset categories
within intangible assets. The goodwill was fully impaired as of the
end of the comparative period ended 30 June 2022 and this
impairment loss will not reverse in a future period under the
relevant accounting standard.
Note 13: Other taxes recoverable and prepaid
As at 30 June 2023, taxes recoverable and prepaid comprised:
US$000 As at 30.06.23 As at 31.12.22 As at 30.06.22
(unaudited) (audited) (unaudited)
VAT receivable 41,961 79,064 100,419
Other taxes prepaid 5,150 9,698 300
---------------------------------------------------------- --------------- --------------- ---------------
Total other taxes recoverable and prepaid - current 47,111 88,762 100,719
---------------------------------------------------------- --------------- --------------- ---------------
VAT receivable - - 6,833
---------------------------------------------------------- --------------- --------------- ---------------
Total other taxes recoverable and prepaid - non-current - - 6,833
---------------------------------------------------------- --------------- --------------- ---------------
Total other taxes recoverable and prepaid 47,111 88,762 107,552
---------------------------------------------------------- --------------- --------------- ---------------
As at 30 June 2023, US$ 39,527 thousand of the VAT receivable
relates to the Group's Ukrainian business operations (31 December
2022: US$75,888 thousand; 30 June 2022: US$104,333 thousand).
The Group received regular VAT refunds during the first half of
the financial year 2023, including some balances being overdue as
of 31 December 2022, resulting in a lower outstanding balance as of
30 June 2023, compared to the balance as of the end of the
comparative periods. There is no material VAT receivable balance
overdue in Ukraine as at 30 June 2023 and the end of the
comparative period ended 30 June 2022. VAT balances in the amount
of US$ 47,149 thousand were overdue as at the end of the
comparative year ended 31 December 2022 and collected in full in
January 2023. The future refunds do however depend on the situation
in Ukraine and how the country is going to cope with the state
budget constraints as a result of the ongoing war.
The total VAT receivable balance in the table above is net of an
allowance of US$1,174 thousand (31 December 2022: US$499 thousand;
30 June 2022: US$1,086 thousand) to reflect the uncertainties in
terms of the timing of the recovery of VAT receivable balances.
Note 14: Inventories
As at 30 June 2023, inventories comprised:
US$000 As at 30.06.23 As at 31.12.22 As at 30.06.22
(unaudited) (audited) (unaudited)
Raw materials and consumables 48,369 51,437 72,769
Spare parts 94,057 91,334 94,662
Finished ore pellets 49,563 52,625 105,557
Work in progress 14,499 25,832 33,808
Other 2,573 3,226 2,974
---------------------------------- --------------- --------------- ---------------
Total inventories - current 209,061 224,454 309,770
---------------------------------- --------------- --------------- ---------------
Ore 6,277 6,277 7,846
---------------------------------- --------------- --------------- ---------------
Total inventories - non-current 6,277 6,277 7,846
---------------------------------- --------------- --------------- ---------------
Total inventories 215,338 230,731 317,616
---------------------------------- --------------- --------------- ---------------
Inventories are held at the lower of cost or net realisable
value.
Inventories classified as non-current comprised low-grade and
weathered ore that were, based on the Group's processing plans, not
planned to be processed within the next 12 months. The balance of
US$ 6,277 thousand as at 30 June 2023 is net of impairment losses
of US$231,111 thousand recorded as of 31 December 2021, as it could
not be reliably predicted when additional processing capabilities
will be available to specifically process the stockpiled low-grade
and weathered ore. The stockpiled low-grade ore is still considered
as an asset for the Group and some or all of the impairment losses
might reverse in the future, once changed facts and circumstances
can be considered in the net realisable value test of this asset.
The ongoing war in Ukraine makes it currently difficult to
accelerate the commenced engineering studies for the exploration of
possible options for new processing capabilities for the specific
purpose of processing low-grade ore, so that there are no changes
in facts and circumstances to be considered as at 30 June 2023.
During the comparative periods ended 31 December 2022 and 30
June 2022, low-grade ore totalling US$9,690 thousand and US$8,546
thousand, respectively, was extracted and directly recognised in
the consolidated income statement, included in the cost of sales.
No such ore was extracted during the period ended 30 June 2023,
also a result of the lower mining activity due to the ongoing war
and the reduced operating activity.
Note 15: Prepayments and other current assets
As at 30 June 2023, prepayments and other current assets
comprised prepayments to suppliers for goods and services in the
amount of US$21,352 thousand (31 December 2022: US$10,979 thousand;
30 June 2022: US$26,618 thousand) and prepaid expenses totalling
US$3,326 thousand (31 December 2022: US$2,312 thousand; 30 June
2022: US$2,270 thousand) as well as cash deposits in the amount of
US$13,026 thousand (31 December 2022: nil; 30 June 2022: US$13,026
thousand). These deposits relate to letters of credit that are
expected to be released only after three months from the date of
inception of the letters of credit whereas deposits related to
letters of credits with a maturity within three months are
classified as cash equivalents.
Prepayments at 30 June 2023 include US$692 thousand (31 December
2022: US$865 thousand; 30 June 2022: US$1,731 thousand) made to
related parties. The detailed related party disclosures are made in
Note 21 Related party disclosures.
Note 16: Cash and cash equivalents
As at 30 June 2023, cash and cash equivalents comprised:
US$000 Notes As at 30.06.23 As at 31.12.22 As at 30.06.22
(unaudited) (audited) (unaudited)
Cash at bank and on hand 134,903 112,945 176,766
Total cash and cash equivalents 3 134,903 112,945 176,766
--------------------------------- ------ --------------- --------------- ---------------
The debt repayments net of proceeds during the period ended 30
June 2023 totalled US$ 2,792 thousand (31 December 2022: US$48,249
thousand; 30 June 2022: US$45,726 thousand) affecting the balance
of cash and cash equivalents.
Further information on the Group's gross debt is provided in
Note 17 Interest-bearing loans and borrowings.
The balance of cash and cash equivalents held in Ukraine amounts
to US$14,503 thousand as at 30 June 2023 (31 December 2022:
US$45,229 thousand; 30 June 2022: US$12,747 thousand). Despite the
foreign exchange control measures imposed under Martial Law in
Ukraine (see Note 19 Commitments, contingencies and legal
disputes), this balance is fully available to the Group for its
operations in Ukraine and is therefore not considered to be
restricted.
Cash deposits for letters of credit available only after three
months from the date of inception totalling US$ 13,026 thousand (31
December 2022: nil; 30 June 2022: US$13,026 thousand) are
classified as other current assets. See also Note 15 Prepayments
and other current assets.
Note 17: 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 30.06.23 As at 31.12.22 As at 30.06.22
(unaudited) (audited) (unaudited)
Current
Lease liabilities 3,012 5,194 3,360
Total current interest-bearing loans and borrowings 3 3,012 5,194 3,360
--------------------------------------------------------- ------ --------------- --------------- ---------------
Non-current
Lease liabilities 950 1,354 1,754
Total non-current interest-bearing loans and borrowings 3 950 1,354 1,754
--------------------------------------------------------- ------ --------------- --------------- ---------------
Total interest-bearing loans and borrowings 3,962 6,548 5,114
--------------------------------------------------------- ------ --------------- --------------- ---------------
The table below shows the movements in the interest-bearing
loans and borrowings:
6 months ended 6 months ended
US$000 30.06.23 Year ended 31.12.22 30.06.22
(unaudited) (audited) (unaudited)
Opening balance of interest-bearing loans and borrowings 6,548 50,349 50,349
Cash movements
Principal and interest elements of lease payments (2,792) (6,103) (3,537)
Change of trade finance facilities, net - (42,146) (42,146)
Total cash movements (2,792) (48,249) (45,683)
---------------------------------------------------------- --------------- -------------------- ---------------
Non-cash movements
Additions to lease liabilities 55 5,340 1,099
Others (incl. translation differences) 151 (892) (651)
---------------------------------------------------------- --------------- -------------------- ---------------
Total non-cash movements 206 4,448 448
---------------------------------------------------------- --------------- -------------------- ---------------
Closing balance of interest-bearing loans and borrowings 3,962 6,548 5,114
---------------------------------------------------------- --------------- -------------------- ---------------
The outstanding amount of the Group's trade finance facilities
was fully repaid at the end of the comparative year ended 31
December 2022 and the Group has no uncommitted trade finance
facilities available as at 30 June 2023 and the end of the
comparative year ended 31 December 2022, primarily due to the
situation in Ukraine, compared to US$140,000 available as at the
end of the comparative period ended 30 June 2022.
The interest elements of lease payments are included in the cash
flows from operating activities and not in the cash flows used in
financing activities.
Further information on the Group's exposure to interest rate,
foreign currency and liquidity risk is provided in Note 27
Financial instruments of the 2022 Annual Report and Accounts.
Note 18: 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 30.06.23 As at 31.12.22 As at 30.06.22
(unaudited) (audited) (unaudited)
Financial assets
Cash and cash equivalents 134,903 112,945 176,766
Trade and other receivables 45,387 24,699 104,898
Other financial assets 18,302 5,443 18,284
----------------------------------------- --------------- --------------- ---------------
Total financial assets 198,592 143,087 299,948
----------------------------------------- --------------- --------------- ---------------
Financial liabilities
Trade and other payables 33,803 30,509 72,469
Accrued liabilities 13,946 17,099 19,259
Interest-bearing loans and borrowings 3,962 6,548 5,114
Total financial liabilities 51,711 54,156 96,842
----------------------------------------- --------------- --------------- ---------------
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 and
are approximately equal to their carrying amounts.
Other financial assets and liabilities
The fair values of cash and cash equivalents, trade and other
receivables and payables, other financial assets and accrued
liabilities are approximately equal to their carrying amounts due
to their short maturity.
Credit risk
The change of the balance of impairment losses on trade
receivables recognised in the interim consolidated income statement
as of 30 June 2023 and during the comparative periods ended 31
December 2022 and 30 June 2022 was not material and therefore not
disclosed separately in the interim consolidated income
statement.
Commodity risk
Revenues related to provisionally priced sales are initially
recognised at the estimated fair value of the consideration
receivable based on the forward price at each reporting date for
the relevant period outlined in the different contracts. As a
consequence, the receivable balance may change in a future period
when final invoices can be issued based on final iron ore prices to
be applied according to the specific underlying contract terms.
There were no provisionally priced sales as at 30 June 2023 and the
end of the comparative periods ended 31 December 2022 and 30 June
2022.
Where pricing terms deviate from the index-based pricing model,
derivative commodity contracts may be used to swap the pricing
terms to the iron ore index price.
Finished goods are held at cost without revaluation to a spot
price for iron ore pellets at the end of the reporting period, as
long as the recoverable amount exceeds the cost basis.
Note 19: Commitments, contingencies and legal disputes
Commitments
Commitments as at 30 June 2023 consisted of the following:
US$000 As at 30.06.23 As at 31.12.22 As at 30.06.22
(unaudited) (audited) (unaudited)
Total commitments for the lease of mining land (out of the scope
of IFRS 16) 41,280 50,963 45,791
Total capital commitments on purchase of property, plant and
equipment 140,754 134,842 166,992
Commitments for investment in a joint venture 6,064 6,064 6,064
----------------------------------------------------------------- --------------- --------------- ---------------
Commitments for the lease of mining land
These commitments relate to the agreements for the use of mining
land, which fall out of the scope of IFRS 16 Leases.
For further information on lease-related commitments see Note 11
Leases.
Legal
In the ordinary course of business, the Group is subject to
various legal actions and ongoing court proceedings. There is a
risk that the independence of the judicial system and its immunity
from economic and political influences in Ukraine is not upheld,
consequently Ukrainian legislation might be inconsistently applied
to resolve the same or similar disputes. See also the Principal
Risks section on pages 60 and 61 of the 2022 Annual Report and
Accounts for further information on the Ukraine country risk.
Critical judgements
The Group is exposed to the risks associated with operating in a
developing economy, which may or may not be exacerbated by the war
and/or the current circumstances facing the Group's controlling
shareholder (see Ukraine country risk on pages 60 and 61 of the
2022 Annual Report and Accounts). As a result, the Group is exposed
to a number of risk areas that are heightened compared to those
expected in a developed economy, such as an environment of
political, fiscal and legal uncertainties, which require a
significant portion of critical judgements to be made by the
management.
Share dispute
On 23 November 2020, the Kyiv Commercial Court opened court
proceedings in relation to an old shareholder litigation. In 2005,
a former shareholder in Ferrexpo Poltava Mining ("FPM") brought
proceedings in the Ukrainian courts seeking to invalidate the share
sale and purchase agreement pursuant to which a 40.19% stake in FPM
was sold to nominee companies that were previously ultimately
controlled by Kostyantin Zhevago, amongst other parties. After a
long period of litigations, all old claims were fully dismissed in
2015 by the Higher Commercial Court of Ukraine. In January 2021,
Ferrexpo AG ("FAG") received a claim from a former shareholder in
FPM to invalidate the share sale and purchase agreement concluded
in 2002.
In February 2021, FAG became aware that three new claims had
been filed by three other former shareholders in FPM. Taken
together, four claimants sought to invalidate the share sale and
purchase agreement concluded in 2002 pursuant to which a 40.19%
stake in FPM was sold, similar to the previous claims made back in
2005. The Kyiv Commercial Court ruled on 27 May 2021 in favour of
FAG and the opposing parties filed their appeals in June 2021. The
Northern Commercial Court of Appeal opened the appeal proceedings
and after several hearings the Group received in September 2022 a
judgement from the appeal court in respect of the aforementioned
claim, which stated that the share sale and purchase agreement
concluded in 2002 was invalid and ordered that 40.19% of the
current share capital in FPM should be transferred to the
claimants.
Following the identification of numerous errors in the
application of the Ukrainian law in the judgement of the Northern
Commercial Court of Appeal by the Group's legal advisors, FAG filed
a cassation appeal and requested the Supreme Court of Ukraine to
review the ruling made by the Northern Commercial Court of Appeal.
The hearing at the Supreme Court of Ukraine took place on 17
November 2022. After this first hearing and before the Supreme
Court of Ukraine concluded on the legal merits of the parties
involved in this dispute, the parties filed a motion requesting the
case be heard by the Grand Chamber of the Supreme Court. During the
court hearing held on 1 December 2022, the Supreme Court decided to
refer the case for consideration to the Grand Chamber of the
Supreme Court. The first hearing by the Grand Chamber of the
Supreme Court took place on 15 March 2023, but no decision was
taken by the judges. During the hearing on 19 April 2023, the
judges of the Grand Chamber of the Supreme Court ruled in favour of
the Group.
Following allegations of bribery against the Head of the Supreme
Court, which make reference to the ruling on 19 April 2023 and the
Group's controlling shareholder, and subsequent removal of the Head
of the Supreme Court, investigations by National Anti-Corropution
Bureau of Ukraine ("NABU") authorities into the conduct of the
former Head of the Supreme Court and against a lawyer who allegedly
acted as the intermediary in the alleged bribery are currently
underway. There are media reports that some investigative actions
are also being carried out against some other judges who were
involved in this litigation case. If the Ukrainian Anti-Corruption
Court concludes that a judge received a bribe for the favourable
decision in this case, and such verdict of the Anti-Corruption
Court remains valid after potential appeal, then the claimants may
apply to the Supreme Court to review the court decision on 40.19%
of the share capital of FPM due to exceptional circumstances. As of
the date of the approval of these interim condensed consolidated
financial statements , no allegations have been made against the
Group in connection with the alleged bribery and it is currently
not possible to anticipate future developments in this case with
any certainty.
If the case were to be reviewed by the Grand Chamber of the
Supreme Court once again, management still remains of the view that
FAG has compelling legal arguments to defend its position. Based on
the legal considerations and arguments in the case and taking into
account the advice received from the Group's legal advisors, the
Group remains of the view that the decision should be in favour of
the Group, but there is a risk that the independence of the
judicial system and its immunity from economic and political
influences in Ukraine is not upheld. A hypothetical reversal of the
decision by the Grand Chamber of the Supreme Court of Ukraine would
result in the loss of a significant proportion of the Group's main
operating subsidiary in Ukraine and would have a material adverse
impact on the shareholders' equity attributable to the shareholders
of Ferrexpo plc. Due to uncertainties, it is currently
impracticable to reasonably estimate the financial impact, but it
could be material. A negative decision could also have an impact on
potential future dividends from FPM to FAG and, as result, on the
distributable reserves of Ferrexpo plc (see Note 9 Earnings per
share and dividends paid and proposed for further details). No
non-controlling interest has been recognised as of 30 June 2023
because FPM remains wholly owned by FAG as at the date of the
approval of these interim condensed consolidated financial
statements. It is management's view that a hypothetical reversal of
the decision by the Grand Chamber of the Supreme Court of Ukraine
will not cast significant doubt on the Group's ability to continue
as a going concern. However, such a decision might complicate the
daily business of the Group's major subsidiary in Ukraine, as the
intentions of the opposing parties are not clear at this point of
time.
Share freeze
As announced on 7 March 2023 on the Regulatory News Service of
the London Stock Exchange, the Group became aware of a press
release by the Ukrainian Deposit Guarantee Fund suggesting that a
restriction has been placed on shares held by Ferrexpo AG ("FAG"),
the Group's Swiss subsidiary, in three main operating subsidiaries
of the Group in Ukraine, covering 50.3% of the shares held in each
subsidiary. Based on the subsequently published court order in the
Ukrainian official register of court decisions, the Kyiv Commercial
Court ordered the arrest (freeze) of 50.3% of FAG's shareholding in
each of Ferrexpo Poltava Mining ("FPM"), Ferrexpo Yeristovo Mining
("FYM") and Ferrexpo Belanovo Mining ("FBM"). The court order also
prohibits each of FPM, FYM and FBM from making changes to the
amount of its authorised capital. The court order does not affect
ownership of the shares in these three subsidiaries of the Group in
Ukraine, but prohibits the disposal by FAG of 50.3% of its
shareholding in each named subsidiary.
This court order was issued by the Kyiv Commercial Court during
a hearing in the commercial litigation between the Deposit
Guarantee Fund and Mr. Zhevago, the Group's controlling
shareholder, in relation to the liquidation of Bank F&C in
2015.
As disclosed in detail in Note 30 Commitments, contingencies and
legal disputes in the Group's 2020 Annual Report and Accounts,
similar orders to freeze 50.3% of FAG's shareholding in FPM were
received by the Group in November 2019 and in June 2020, which were
subsequently successfully appealed and cancelled by FAG in the
Ukrainian courts.
In addition to the restriction covering 50.3% of FAG's
shareholding in each of FPM, FYM and FBM, the court order also
contains a prohibition on Ferrexpo plc disposing of any of its
shares in FAG. Based on legal advice received by the Group, such
prohibition on Ferrexpo plc disposing of its shares in FAG is not
enforceable in the UK and in Switzerland within a short period of
time. The court order also prohibits the disposal by Fevamotinico
S.a.r.l. of its shares in Ferrexpo plc.
As at the date of the approval of these interim condensed
consolidated financial statements , the Group has no intention, and
never has had any intention, of transferring the shares in FPM,
FYM, FBM or FAG. The Group does not expect an impact on its
operations as a result of this court order.
The Group's subsidiaries affected by this court order, including
FAG, filed on 21 March 2023 appeals in Ukraine to remove the
restrictions. A hearing at the Northern Commercial Court of Appeal
took place on 21 June 2023 and the court accepted FAG and the three
Ukrainian subsidiaries as third parties to this litigation. The
court of appeal refused on 26 July 2023 to satisfy the appeals of
FAG, FPM, FYM and FBM in relation to the restriction covering 50.3%
of corporate rights in FPM, FYM and FBM so that the imposed
restrictions remain effective. The Group's subsidiaries are
preparing a cassation appeal to the Supreme Court of Ukraine, which
is expected to be filed later in August 2023.
Taking into account that the Group has succeeded in the past
that similar court orders were cancelled, it is management's view
that the Group will be again successful cancelling such
restrictions. Based on advice from Ukrainian legal counsel, the
court order was made in contradiction to the Ukrainian law because
the restricted 50.3% of corporate rights in the three Ukrainian
subsidiaries are the property of FAG and not of any other person as
a matter of Ukrainian law. However, as with other ongoing legal
proceedings in Ukraine, there is a risk that the independence of
the judicial system and its immunity from economic and political
influences in Ukraine is not upheld and in that case the Group
might not be successful in cancelling such restrictions.
Currency control measures imposed in Ukraine
With the start of the Russian invasion into Ukraine on 24
February 2022, the Ukrainian government introduced Martial Law
affecting, among others, aspects relating to lending agreements,
foreign exchange and currency controls and banking activities.
As a result of the introduced Martial Law, the National Bank of
Ukraine ("NBU") has introduced significant currency and capital
control restrictions in Ukraine. These measures are affecting the
Group in terms of its cross-border payments to be made, which are
restricted and may be carried out only in exceptional cases. The
maximum period for settlements of invoices under export and import
contracts was decreased as of 1 April 2022 from previously 360 days
to 180 days.
These measures put additional pressure on the Group's liquidity
management as the Ukrainian subsidiaries are currently not in the
position to make cash transfers outside of Ukraine. As it is
essential to the Group that sufficient liquidity is held outside of
Ukraine in order to ensure that the Group's liabilities can be
settled when falling due, intercompany receivable balances due to
the Ukrainian subsidiaries have historically been paid when falling
due and after considering the local cash requirements for the
operating activities and the capital expenditure programmes.
The currently lower operating activities and the reduced capital
expenditure programmes due to the ongoing war has reduced the local
cash requirements and consequently increased the imbalance between
payments to be made into Ukraine and local cash requirements. As a
result of the imposed currency control measures, the Group has to
carefully manage the payments to be made into Ukraine, as the local
subsidiaries cannot transfer any surplus funds back to the Group
entities outside of Ukraine, if required.
Failure to comply with the currency control regulations can
result in financial fines. The offence against the currency control
regulations would result in fines of 0.3% per day computed on the
cumulative overdue receivable balances. The Group has implemented
various measures to mitigate the impact of the currency control
regulations and reduce the risk of material fines, but there exists
legal uncertainty in the application of the currency control
regulations during the Martial Law in Ukraine. The currency control
regulations may also be subject to change in the future (including
with retrospective effect). Therefore, there is a risk that the
Group may become subject to challenges from regulatory authorities
in connection with the application of the regulations. Considering
the amount of outstanding receivable balances between Group
companies, there is a risk of material fines becoming payable in
the future. However, as a result of different interpretations of
the currency control regulations during the Martial Law and the
measures initiated by the Group to mitigate the risk of potential
fines, it is currently not possible to reliably estimate the amount
of a potential exposure.
Other ongoing legal proceedings and disputes
Royalty-related investigation and claim
On 3 February 2022, Ferrexpo Poltava Mining ("FPM") and Ferrexpo
Yeristovo Mining ("FYM") received letters from the Office of
Prosecutor General notifying them about an ongoing investigation on
the potential underpayment of iron ore royalty payments during the
years 2018 to 2021. The amount of underpayment was not specified in
the letters. As part of the investigation, the Office of Prosecutor
General requested documents related to iron ore royalty payments
and requested four representatives of the Group's subsidiaries to
appear as witnesses for investigations.
On 8 February 2022, FPM received a tax audit report, which
claims the underpayment of iron ore royalty payments during the
period from April 2017 to June 2021 in the amount of approximately
UAH1,042 million (approximately US$28,424 thousand as at 30 June
2023). The Group provided its objections to the claims made in the
tax audit report and it was expected that this case will ultimately
be heard by the courts in Ukraine. However, due to the current
situation in Ukraine, it is unknown if and when the tax office will
provide the final tax audit report considering or refusing FPM's
objections as well as if and when a first hearing will take place
in respect of a final claim received and how the aforementioned
investigation is going to further develop.
On 16 November 2022, the detectives from the Bureau of Economic
Security of Ukraine conducted searches at FPM and FYM in connection
with the royalty-related investigation. On 3 February 2023, a
notice of suspicion was delivered to a senior manager of FPM, which
claimed underpayment of royalty payments in the amount of
approximately UAH2,000 million (approximately US$54,557 thousand as
at 30 June 2023). Bail of UAH20 million (US$546 thousand as at 30
June 2023) was approved by the court on 9 February 2023 and
subsequently paid by the Group. On 6 February 2023, the court
arrested the bank accounts of FPM. Following a motion to change the
scope of the arrest filed by FPM, the court on 8 February 2023 and
on 16 February 2023 added exceptions to the original court order to
arrest the bank account of FPM in order to allow FPM to make
payments for salaries, local taxes, social security charges,
payments for utilities as well as payments to state and municipal
companies . An appeal to cancel the arrest of the bank account of
FPM was heard by the court of appeal on 19 April 2023, but the
court did not satisfy the Group's appeal. FPM has filed new
complaints to the court of first instance and the date of the next
hearing is currently unknown.
Based on legal advice obtained, it is management's view that
each of FPM and FYM have compelling arguments to defend their
positions in the court and, as a consequence, no associated
liabilities have been recognised in relation to the claim in the
interim consolidated statement of financial position as at 30 June
2023. However, as with other ongoing legal proceedings, there is a
risk that the independence of the judicial system and its immunity
from economic and political influences in Ukraine is not upheld and
in that case there could be a material adverse impact on the
Group.
Contested sureties claim
On 7 December 2022, Ferrexpo Poltava Mining ("FPM") received a
claim in the amount of UAH4,727 million (US$128,945 thousand as at
30 June 2023) in respect of contested sureties. These contested
sureties relate to Bank F&C, a Ukrainian bank owned by the
Group's controlling shareholder and which the Group previously used
as its main transactional bank in Ukraine. Bank F&C 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. Following the loss of funds
held at Bank F&C of approximately US$177,000 thousand, the
Group, through its major subsidiaries in Ukraine, initiated various
court proceedings with the aim to maximise the Group's recovery in
the liquidation process of Bank F&C.
The counterparty in this claim alleges that it acquired rights
under certain loan agreements originally concluded between the Bank
F&C and various borrowers, some of which are associated
entities of the Group's controlling shareholder, by entering into
the assignment agreement with the State Guarantee Fund on 6
November 2020. The counterparty further claims that Ferrexpo
Poltava Mining ("FPM") provided sureties to Bank F&C to ensure
the performance of obligations under these loan agreements. It is
FPM's position that no such sureties have been signed. Based on a
favourable court decision in respect of the afore-mentioned court
proceedings to maximise its recovery, it is management's view that
FPM has compelling arguments to defend its position in the court
and, as a consequence, no associated liabilities have been
recognised in relation to this claim in the interim consolidated
statement of financial position as at 30 June 2023. A court hearing
on procedural matters took place on 19 July 2023 and the next court
hearing is scheduled for 9 August 2023.
Investigations on use of waste product
On 10 January 2023, the State Bureau of Investigations ("SBI")
in Ukraine performed several searches in respect of investigations
on alleged illegal extraction of minerals ("rubble"). The National
Police of Ukraine also carried out investigations on the same
matter and made searches and collected samples of the rubble on 17
January 2023 at Ferrexpo Poltava Mining ("FPM"). FPM's position is
that the minerals in question are not a separate mineral resource,
but that it is a waste product resulting from the crushing of iron
ore during the technical process for the production of iron ore
pellets.
On 29 June 2023, the SBI issued notices of suspicion to three
representatives of FPM's top management and the head of one
division for allegedly selling the rubble without the appropriate
permit. The FPM employees were detained by the SBI and subsequently
released after FPM paid bails totalling UAH122 million (US$3,336
thousand) that were approved by the court.
The sales of the rubble were subject to inspections by the State
Service for Geology and Subsoil of Ukraine for many years and were
suspended by the Group in September 2021. The position of FPM is
that based on the mining license held, FPM complies with the
relevant legislation. The Group continues to monitor and analyse
the situation regarding the suspicions declared by the SBI. No
associated liabilities have been recognised in relation to this
case in the interim consolidated statement of financial position as
at 30 June 2023 as no damage has been claimed by the SBI to
FPM.
Ecological claims
In September 2021, the State Ecological Inspection carried out
an inspection of Ferrexpo Yeristovo Mining ("FYM") and on 1 October
2021 issued an order to remove a number of alleged violations of
environmental rules. On 19 October 2021, FYM received two
ecological claims from the State Ecological Inspection. One of the
claims was related to an allegation of violation of rules regarding
removal of soil on a particular land plot and the State Ecological
Inspection requested payment for damages of approximately UAH768
million (US$21,000 thousand as at 30 June 2023). The other claim
was related to an allegation of absence of documents for disposal
of waste on a particular land plot and the State Ecological
Inspection requested payment for damages in the amount of
approximately UAH18 million (US$492 thousand as at 30 June 2023).
Each claim states that if FYM does not voluntarily pay the damages,
the State Ecological Inspection will start court proceedings. In
November 2021, FYM sent written objections to these claims to the
State Ecological Inspection. The State Ecological Inspection had
neither responded to FYM's objections nor filed the claims to the
court within a reasonable period by February 2022. In February
2022, FYM therefore filed a lawsuit to the court to challenge the
claims of the State Ecological Inspection. The Kremenchuk District
Prosecutor's Office is conducting the investigation in connection
with alleged violations of environmental rules. The hearing on 19
July 2022 ruled in favour of FYM and this ruling was subsequently
appealed to the court of appeal by the State Ecological Inspection.
The court of appeal returned the appeal claim to the State
Ecological Inspection on 20 March 2023 due to procedural mistakes
when filing the claim and the State Ecological Inspection
subsequently requested an extension of the deadline for the filing
of their next appeal. The State Ecological Inspection subsequently
filed another appeal and on 20 July 2023 the court of appeal
returned the appeal claim back to the State Ecological
Inspection.
Based on legal advice obtained, it is management's view that FYM
has compelling arguments to defend its position in the court and,
as a consequence, no associated liabilities have been recognised in
relation to these matters in the interim consolidated statement of
financial position as at 30 June 2023.
Cancellation of licence for Galeschynske deposit
On 24 June 2021, an Order of the President of Ukraine was
published on the official website of the President (the "Order"),
which enacted the Decision of the National Security and Defence
Council of Ukraine on the application of personal special economic
and other restrictive measures and sanctions (the "Decision").
Ferrexpo Belanovo Mining ("FBM") is included in the list of legal
entities which are subject to sanctions pursuant to the Decision.
The Order and the Decision do not provide any legal ground for the
application of sanctions. The sanction imposed on FBM is the
cancellation of the mining licence for the Galeschynske deposit,
which is one of two licences held by FBM.
The Galeschynske deposit is a project in the exploration phase
that is situated to the north of the Group's active mining
operations. Following the cancellation of this license and
considering the fact that the outcome of the proceedings is
currently uncertain, all capitalised costs associated with this
licence totalling US$3,439 thousand were written off during the
financial year 2021. A court hearing took place on 4 April 2023 and
the judges considered the evidence presented, but has not yet
concluded on the legal merits of the parties involved in this
dispute. There have been no further developments since then.
Taxation
Tax legislation
As disclosed in Note 8 Taxation, the Group is involved in
ongoing tax audits in respect of its cross-border transactions and
an unfavourable outcome would have an adverse impact on the Group's
cash flow generation, profitability and liquidity. See Note 8
Taxation and also the update on the Group's Principal Risks on
pages 60 and 61 of the 2022 Annual Report and Accounts in terms of
the Ukraine country risk.
Note 20: Share capital and reserves
The share capital of Ferrexpo plc at 30 June 2023 was
613,967,956 (31 December 2022: 613,967,956; 30 June 2022:
613,967,956) Ordinary Shares at par value of GBP0.10 paid for cash,
resulting in share capital of US$121,628 thousand, which is
unchanged since the Group's Initial Public Offering in June 2007.
This balance includes 15,830,814 shares (31 December 2022:
25,343,814 shares; 30 June 2022: 25,343,814 shares), which are held
in treasury, resulting from a share buyback that was undertaken in
September 2008, and 9,801,643 shares held in the employee benefit
trust reserve (31 December 2022: 577,370 shares; 30 June 2022:
577,370 shares).
The Group transferred 9,513,000 shares on 9 March 2023 from the
treasury share reserves to the Group's employee benefit trust
reserve, at a price of 140.3 pence per share, being the closing
share price of the Company's ordinary shares on the London Stock
Exchange on 8 March 2023. As a result of this transfer, the
interest of the Group's largest shareholder, Fevamotinico S.a.r.l
(see Note 1 Corporate information for further information), in the
voting rights of Ferrexpo plc is 49.5% as at 30 June 2023 (31
December 2022 and 30 June 2022: 50.3%). Further information is
included in the announcement made on 10 March 2023 on the
Regulatory News Service of the London Stock Exchange,
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 24 of these financial statements for
further details.
As at 30 June 2023 other reserves attributable to equity
shareholders of Ferrexpo plc comprised:
For the financial
year 2022 and the
6 months ended
30.06.23
Uniting of Treasury share Employee benefit Translation Total other
US$000 interest reserve reserve trust reserve reserve reserves
At 1 January 2022 31,780 (77,260) (1,679) (1,938,972) (1,986,131)
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Foreign currency
translation
differences - - - (664,286) (664,286)
Tax effect - - - 13,036 13,036
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Total
comprehensive
loss for the year - - - (651,250) (651,250)
Share based
payments - - 490 - 490
------------------- ------------------- ------------------- ------------------ ------------------- --------------
At 31 December
2022 (audited) 31,780 (77,260) (1,189) (2,590,222) (2,636,891)
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Foreign currency
translation
differences - - - 180 180
Tax effect - - - - -
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Total
comprehensive
income for the
period - - - 180 180
Share based
payments - - 719 - 719
Effect from
transfer of
treasury shares - 29,000 (15,865) - 13,135
------------------- ------------------- ------------------- ------------------ ------------------- --------------
At 30 June 2023
(unaudited) 31,780 (48,260) (16,335) (2,590,042) (2,622,857)
------------------- ------------------- ------------------- ------------------ ------------------- --------------
For the 6 months
ended 30.06.22
Uniting of Treasury share Employee benefit Translation Total other
US$000 interest reserve reserve trust reserve reserve reserves
At 1 January 2022 31,780 (77,260) (1,679) (1,938,972) (1,986,131)
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Foreign currency
translation
differences - - - (186,248) (186,248)
Tax effect - - - 6,297 6,297
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Total
comprehensive
income for the
period - - - (179,951) (179,951)
Share based
payments - - 310 - 310
------------------- ------------------- ------------------- ------------------ ------------------- --------------
At 30 June 2022
(unaudited) 31,780 (77,260) (1,369) (2,118,923) (2,165,772)
------------------- ------------------- ------------------- ------------------ ------------------- --------------
Note 21: Related party disclosures
During the periods presented, the Group entered into arm's
length transactions with entities under the common control of
Kostyantin Zhevago, a controlling shareholder of Ferrexpo plc, with
associated companies and with other related parties. Management
considers that the Group has appropriate procedures in place to
identify, control, properly disclose and obtain independent
confirmation, when relevant, for transactions with the related
parties.
Entities under common control are those under the control of
Kostyantin Zhevago. Associated companies refer to TIS Ruda LLC, in
which the Group holds an interest of 49.9% (31 December 2022:
49.9%; 30 June 2022; 49.9%). This is the only associated company of
the Group.
All related party transactions entered into by the Group during
the periods presented are summarised in the tables on the following
pages, except for those made to the Non-executive Directors and
Executive Directors of Ferrexpo plc.
The payments made to the Non-executive Directors and Executive
Directors in the comparative period ended 31 December 2022 are
disclosed in detail in the Remuneration Report included in the
Group's 2022 Annual Report and Accounts.
Revenue, expenses, finance income and finance expenses
6 months ended 30.06.23 (unaudited) 6 months ended 30.06.22 Year ended 31.12.22
(unaudited) (audited)
------------------------------------------ ------------------------------------------ ----------------------------------------
US$000 Entities Asso- Other related parties Entities Asso- Other related parties Entities Asso- Other related
under ciated under ciated under ciated parties
common compa- common compa- common compa-
control nies control nies control nies
Other sales (a) 144 - 1 423 - 2 560 - 2
---------------- --------- ------- ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Total related
party
transactions
within revenue 144 - 1 423 - 2 560 - 2
---------------- --------- ------- ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Materials (b) 3,289 - - 4,722 - - 6,784 - -
Spare parts and
consumables
(c) 785 - - 3,523 - - 7,056 - -
Other expenses
(d) 860 - - 1,058 - - 1,948 - -
Total related
party
transactions
within cost of
sales 4,934 - - 9,303 - - 15,788 - -
---------------- --------- ------- ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Selling and
distribution
expenses (e) 2,971 20 - 2,680 2,677 - 6,542 3,819 -
General and
administration
expenses (f) 111 - 288 982 - 316 398 - 567
Other operating
expenses (g) 548 - - - - - 2,019 - -
Finance expense 2 - - 5 - - 8 - -
---------------- --------- ------- ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Total related
party
transactions
within
expenses 8,566 20 288 12,970 2,677 316 24,755 3,819 567
---------------- --------- ------- ---------------------- --------- ------- ---------------------- --------- ------- --------------------
Total related
party
transactions 8,710 20 289 13,393 2,677 318 25,315 3,819 569
---------------- --------- ------- ---------------------- --------- ------- ---------------------- --------- ------- --------------------
The Group entered into various related party transactions. A
description of the most material transactions, which are in
aggregate over US$200 thousand (on an expected annualised basis) in
the current or comparative periods is given below. All transactions
were carried out on an arm's length basis in the normal course of
business.
Entities under common control
a Sales of scrap metal to OJSC Uzhgorodsky Turbogas totalling
US$ 94 thousand (30 June 2022: US$279 thousand; 31 December 2022:
US$361 thousand).
b Purchases of oxygen, scrap metal and services from Kislorod
PCC for US$ 519 thousand (30 June 2022: US$1,023 thousand; 31
December 2022: US$1,437 thousand);
b Purchases of cast iron balls from OJSC Uzhgorodsky Turbogas
for US$ 2,250 thousand (30 June 2022: US$2,957 thousand; 31
December 2022: US$4,258 thousand); and
b Purchase of maintenance and construction services from FZ
Solutions LLC (formerly OJSC Berdichev Machine-Building Plant
Progress) for US$ 459 thousand (30 June 2022: US$714 thousand; 31
December 2022: US$997 thousand).
c Purchases of spare parts from OJSC AvtoKraz Holding in the
amount of US$ 2 thousand (30 June 2022: US$1,143 thousand; 31
December 2022: US$1,799 thousand);
c Purchases of spare parts from CJSC Kyiv Shipbuilding and Ship
Repair Plant ("KSRSSZ") in the amount of US$ 195 thousand (30 June
2022: US$342 thousand; 31 December 2022: US$902 thousand);
c Purchases of spare parts from FZ Solutions LLC (formerly OJSC
Berdichev Machine-Building Plant Progress) in the amount of US$ 249
thousand (30 June 2022: US$138 thousand; 31 December 2022: US$1,125
thousand);
c Purchases of spare parts from Kislorod PCC in the amount of
US$ 116 thousand (30 June 2022: US$200 thousand; 31 December 2022:
US$410 thousand);
c Purchases of spare parts from OJSC Uzhgorodsky Turbogas in the
amount of US$ 98 thousand (30 June 2022: US$826 thousand; 31
December 2022: US$1,460 thousand); and
c Purchases of spare parts from Valsa GTV in the amount of US$
125 thousand (30 June 2022: US$799 thousand; 31 December 2022:
US$1,231 thousand).
d Insurance premiums of US$ 860 thousand (30 June 2022: US$1,058
thousand; 31 December 2022: US$1,948 thousand) paid to ASK Omega
for insurance cover in respect of mining equipment and
machinery.
e Purchases of advertisement, marketing and general public
relations services from FC Vorskla of US$ 2,970 thousand (30 June
2022: US$2,678 thousand; 31 December 2022: US$6,541 thousand).
g Insurance premiums of US$ 513 thousand (30 June 2022: US$635
thousand; 31 December 2022: US$1,085 thousand) paid to ASK Omega
for workmen's insurance and other insurances ;
g Purchase of marketing services from TV & Radio Company of
US$ 128 thousand (30 June 2022: US$147 thousand; 31 December 2022:
US$212 thousand); and
g Purchase of food under the Ferrexpo Humanitarian Fund from JSC
Kremenchukmyaso in the amount of US$798 thousand during the second
half of the comparative year ended 31 December 2022 . No such
purchases as at 30 June 2023 and during the comparative period
ended 30 June 2022.
Associated companies
e Purchases of logistics services in the amount of US$ 20
thousand (30 June 2022: US$2,677 thousand; 31 December 2022:
US$3,819 thousand) relating to port operations, including port
charges, handling costs, agent commissions and storage costs. The
scope of the services procured from TIS Ruda is currently affected
by the ongoing war in Ukraine as the Group's seaborne sales through
the Port of Pivdennyi have been suspended as a result of the
closure of the port.
Other related parties
f Legal and administrative services in the amount of US$ 197
thousand (30 June 2022: US$191 thousand; 31 December 2022: US$387
thousand) provided by Kuoni Attorneys at Law Ltd., which is
controlled by a member of the Board of Directors of one of the
subsidiaries of the Group and received Directors' fee of US$50
thousand (30 June 2022: US$50 thousand; 31 December 2022: 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 30.06.23 (unaudited) 6 months ended 30.06.22 Year ended 31.12.22 (audited)
(unaudited)
------------------------------------- --------------------------------- -------------------------------
US$000 Entities Asso-ciated Other Entities Asso- Other Entities Asso- Other
under compa-nies related under ciated related under ciated related
common parties common compa- parties common compa- parties
control control nies control nies
Purchases
in the
ordinary
course of
business 3,426 - - 4,013 - - 11,634 - -
----------- --------- ------------ ------------ --------- -------- ------------ --------- -------- ----------
Total
purchases
of
property,
plant and
equipment 3,426 - - 4,013 - - 11,634 - -
----------- --------- ------------ ------------ --------- -------- ------------ --------- -------- ----------
During the period ended 30 June 2023, the Group purchased major
spare parts and equipment from FZ Solutions LLC (formerly OJSC
Berdichev Machine-Building Plant Progress) totalling US$ 3,426
thousand (30 June 2022: US$3,989 thousand; 31 December 2022:
US$11,598 thousand) in respect of the continuation of the Wave 1
pellet plant expansion project. .
The FPM Charity Fund owns 75% of the Sport & Recreation
Centre ("SRC") in Horishni Plavni and made contributions totalling
US$52 thousand during the period ended 30 June 2023 (30 June 2022:
US$109 thousand; 31 December 2022: US$154 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 30.06.23 (unaudited) Year ended 31.12.22 (audited) 6 months ended 30.06.22
(unaudited)
------------------------------------- ------------------------------ --------------------------------
US$000 Entities Asso-ciated Other Entities Asso- Other Entities Asso- Other
under compa-nies related under ciated related under ciated related
common parties common compa- parties common compa- parties
control control nies control nies
Prepayments
for
property,
plant and
equipment
(g) 2,706 - - 3,847 - - 10,533 - -
------------- --------- ------------ ------------ --------- ------- ---------- --------- ------- ------------
Total
non-current
assets 2,706 - - 3,847 - - 10,533 - -
------------- --------- ------------ ------------ --------- ------- ---------- --------- ------- ------------
Trade and
other
receivables
(h) 36 3,245 - 38 3,245 1 148 4,057 1
Prepayments
and other
current
assets (i) 380 312 - 745 120 - 1,731 - -
Total
current
assets 416 3,557 - 783 3,365 1 1,879 4,057 1
------------- --------- ------------ ------------ --------- ------- ---------- --------- ------- ------------
Trade and
other
payables
(j) 2,166 - - 2,057 244 - 10,355 - -
Accrued and
contract
liabilities 19 - - - - - 44 - -
Total
current
liabilities 2,185 - - 2,057 244 - 10,399 - -
------------- --------- ------------ ------------ --------- ------- ---------- --------- ------- ------------
A description of the most material balances which are over
US$200 thousand in the current or comparative periods is given
below.
Entities under common control
g Prepayments for property, plant and equipment totalling US$
2,706 thousand (31 December 2022: US$3,787 thousand; 30 June 2022:
US$10,005 thousand) were made to FZ Solutions LLC (formerly OJSC
Berdichev Machine-Building Plant Progress) mainly in relation to
the Wave 1 expansion project of the processing plant, and
g At the end of the comparative periods ended 31 December 2022
and 30 June 2022 prepayments for property, plant and equipment
totalling US$59 thousand and US$528 thousand were made to CJSC Kyiv
Shipbuilding and Ship Repair Plant ("KSRSSZ") in relation to
procured spare parts for ongoing maintenance projects. No such
prepayments were made as at 30 June 2023.
i Prepayments and other current assets totalling US$ 247
thousand to ASK Omega for insurance premiums (31 December 2022:
US$233 thousand; 30 June 2022: US$570 thousand); and
j Trade and other payables of US$ 156 thousand (31 December
2022: US$107 thousand; 30 June 2022: US$236 thousand) related to
the purchase of oxygen, metal scrap and services from Kislorod
PCC;
j Trade and other payables of US$ 1,589 thousand (31 December
2022: US$1,603 thousand; 30 June 2022: US$797 thousand) related to
the purchase of spare parts and services from FZ Solutions LLC
(formerly OJSC Berdichev Machine-Building Plant Progress);
j Trade and other payables of US$ 235 thousand (31 December
2022: US$100 thousand; 30 June 2022: US$13 thousand) related to the
purchase of spare parts and services from Uzhgorodsky Turbogas,
OJSC, and
j At the end of the comparative period ended 30 June 2022 trade
and other payables of US$9,000 thousand) were due to Fevamotinico
S.a.r.l. in respect of dividends withheld under agreements
concluded for the full repayment of a loan granted by FC Vorskla
Cyprus Ltd. to a related party entity of the Group's controlling
shareholder outside of the Group. There was no such outstanding
balance as at 30 June 2023 and 31 December 2022.
Associated companies
h Trade and other receivables of US$3,245 thousand (31 December
2022: US$3,245 thousand; 30 June 2022: US$4,057 thousand) related
to dividend receivables from TIS Ruda LLC, which is expected to be
collected only once the Port of Pivdennyi is no longer closed and
the operating business of TIS Ruda will resume again.
i Prepayments and other current assets totalling US$312 thousand
(31 December 2022: US$120 thousand; 30 June 2022: nil) related to
purchases of logistics services from TIS Ruda LLC.
j At the end of the comparative period ended 21 December 2022
trade and other payables included US$244 thousand related to the
purchase of logistics services from TIS Ruda LLC. There was no such
balance as at 30 June 2023 and 30 June 2022.
The Ferrexpo Humanitarian Fund
Following the Russian invasion into Ukraine in February 2022,
the Group has established the Ferrexpo Humanitarian Fund with total
approved funding of US$19,000 thousand in order to support local
communities in Ukraine. The Group procured during the financial
year ended 31 December 2022 medicine totalling US$404 thousand from
Arterium LLC (30 June 2022: US$259 thousand) and food totalling
US$798 thousand from JSC Kremenchukmyaso (30 June 2022: US$94
thousand), both under common control of Kostyantin Zhevago, a
controlling shareholder of Ferrexpo plc. See page 2 for further
information on the Ferrexpo Humanitarian Fund. During the period
ended 30 June 2023, no procurements were made from the
above-mentioned companies.
Note 22: Events after the reporting period
No material adjusting or non-adjusting items have occurred
subsequent to the period-end.
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 ("APMs") that are not
defined or specified under International Financial Reporting
Standards ("IFRSs").
APMs are not uniformly defined by all companies, including those
in the Group's industry. Accordingly, the APMs used by the Group
may not be comparable with similarly titled measures and
disclosures made by other companies. APMs should be considered in
addition to, and not as a substitute for or as superior to,
measures of financial performance, financial position or cash flows
reported in accordance with IFRSs.
Ferrexpo makes reference to the following APMs in the 2023 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$000 As at 30.06.23 As at 30.06.22 As at 31.12.22
(unaudited) (unaudited) (audited)
C1 cash costs 140,145 409,382 503,975
Non-C1 cost components 26,888 (38,018) 36,035
---------------------------------------------------------- --------------- --------------- ---------------
Inventories recognised as an expense upon sale of goods 167,033 371,364 540,010
---------------------------------------------------------- --------------- --------------- ---------------
Own ore produced (tonnes) 1,966,933 4,797,079 6,053,397
C1 cash cost per tonne (US$) 71.3 85.3 83.3
---------------------------------------------------------- --------------- --------------- ---------------
Underlying EBITDA
Definition : The Group calculates the underlying EBITDA as
profit before tax and finance plus depreciation and amortisation,
net gains and losses from disposal of investments and property,
plant and equipment, share-based payments and write-offs and
impairment losses. The underlying EBITDA is presented because it is
a useful measure for evaluating the Group's ability to generate
cash and its operating performance. See Note 3 Segment information
for further details.
Closest equivalent IFRSs measure : Profit before tax and
finance.
Rationale for adjustment : The Group presents the underlying
EBITDA as it is a useful measure for evaluating its ability to
generate cash and its operating performance. Also it aids
comparability across peer groups as it is a measurement that is
often used.
Reconciliation to closest IFRSs equivalent :
US$000 Notes As at 30.06.23 As at 30.06.22 As at 31.12.22
(unaudited) (unaudited) (audited)
Underlying EBITDA 63,643 486,121 765,113
Losses on disposal and liquidation of property, plant and
equipment 5 (96) (1,128) (1,665)
Share-based payments (719) (310) (490)
Write backs/(offs) and impairments 5 180 (254,366) (260,308)
Depreciation and amortisation (29,561) (61,283) (96,977)
----------------------------------------------------------- ------ --------------- --------------- ---------------
Profit before tax and finance 33,447 169,034 405,673
----------------------------------------------------------- ------ --------------- --------------- ---------------
Diluted earnings per share
Definition : Earnings per share calculated using the diluted
number of Ordinary Shares outstanding.
Closest equivalent IFRSs measure: Diluted earnings per
share.
Rationale for adjustment : Excludes the impact of special items
that can mask underlying changes in performance.
Reconciliation to closest IFRSs equivalent :
Year ended 31.12.22
6 months ended 30.06.2023 (unaudited) 6 months ended 30.06.2022 (unaudited) (audited)
Earnings for
the
period/year
attributable
to equity
shareholders
- per share
in US cents
Basic 4.59 13.96 37.41
Diluted 4.54 13.94 37.35
-------------------- --------------------------------------- -------------------------------------- --------------------
Net cash/(debt)
Definition : Cash and cash equivalents net of interest-bearing
loans and borrowings.
Closest equivalent IFRSs measure : Cash and cash
equivalents.
Rationale for adjustment : Net cash/(debt) is a measurement of
the strength of the Group's balance sheet. It is presented as it is
a useful measure to evaluate the Group's financial liquidity.
Reconciliation to closest IFRSs equivalent:
US$000 Notes As at 30.06.23 As at 31.12.22 As at 30.06.22
(unaudited) (audited) (unaudited)
Cash and cash equivalents 16 134,903 112,945 176,766
Interest-bearing loans and borrowings - current 17 (3,012) (5,194) (3,360)
Interest-bearing loans and borrowings - non-current 17 (950) (1,354) (1,754)
----------------------------------------------------- ------ --------------- --------------- ---------------
Net cash 130,941 106,397 171,652
----------------------------------------------------- ------ --------------- --------------- ---------------
Capital investment
Definition: Capital expenditure for the purchase of property,
plant and equipment and intangible assets.
Closest equivalent IFRSs measure: Purchase of property, plant
and equipment and intangible assets (net cash flows used in
investing activities).
Rationale for adjustment : The Group presents the capital
investment as it is a useful measure for evaluating the degree of
capital invested in its business operations.
Reconciliation to closest IFRSs equivalent :
US$000 Notes As at 30.06.23 As at 31.12.22 As at 30.06.22
(unaudited) (audited) (unaudited)
Purchase of property, plant and equipment and intangible
assets
(net cash flows used in investing activities) 10 58,415 161,010 102,008
----------------------------------------------------------- ------ --------------- --------------- ---------------
Total liquidity
Definition : Sum of cash and cash equivalents and available
committed facilities and uncommitted facilities. Uncommitted
facilities include trade finance facilities secured against
receivable balances related to these specific trades. See Note 17
Interest-bearing loans and borrowings for further information.
Closest equivalent IFRSs measure: Cash and cash equivalents.
Rationale for adjustment: The Group presents total liquidity as
it is a useful measure for evaluating its ability to meet
short-term business requirements.
Reconciliation to closest IFRSs equivalent:
US$000 Notes As at 30.06.23 As at 31.12.22 As at 30.06.22
(unaudited) (audited) (unaudited)
Cash and cash equivalents 16 134,903 112,945 176,766
Uncommitted facilities - - 140,000
--------------------------- ------ --------------- --------------- ---------------
Total liquidity 134,903 112,945 316,766
--------------------------- ------ --------------- --------------- ---------------
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
Capex Capital expenditure for the purchase of property,
plant and equipment and intangible assets
Capital Employed The aggregate of equity attributable to shareholders,
non-controlling interests and borrowings
CFR Delivery including cost and freight
CHF Swiss Franc, the currency of Switzerland
China & South East This segmentation for the Group's sales includes
Asia China and Vietnam
CID Committee of Independent Directors
CIF Delivery including cost, insurance and freight
CIS The Commonwealth of Independent States
CODM The Executive Committee is considered to be the Group's
Chief Operating Decision-Maker
Company Ferrexpo plc, a public company incorporated in England
and Wales with limited liability
Controlling Shareholder 49.5% of Ferrexpo plc shares are held by Fevamotinico
S.a.r.l.; Fevamotinico is wholly owned by The Minco
Trust. The Minco Trust is a discretionary trust that
has three beneficiaries, consisting of Mr Zhevago
and two
other members of his family. Each of the beneficiaries
of the Minco Trust is considered a controlling shareholder
of Ferrexpo plc
CPI Consumer Price Index
CRU The CRU Group provides market analysis and consulting
advice in the global mining industry
(see www.crugroup.com)
CSR Corporate Social Responsibility
DAP Delivery at place
DFS Detailed feasibility study
Directors The Directors of the Company
Direct reduction Used in Direct Reduction Iron ("DRI") production
Direct reduction In regions where natural gas is cheap and plentiful,
"DR" pellets such as the Middle East, DR pellets are mixed with
natural gas to produce DRI, an alternative source
of metallic to scrap in Electric Arc Furnace ("EAF")
steelmaking. DR pellets are a niche, higher quality
product with Fe content greater than 67% and a combined
level of silica and alumina of <2%
EBT Employee benefit trust
EPS Earnings per share
Europe (including This segmentation for the Group's sales includes
Turkey) Austria, Czech Republic, Germany, Hungary, Romania,
Serbia, Slovakia and Turkey
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
FRMCC Finance, Risk Management and Compliance Committee,
a sub-committee of the Executive Committee
FTSE 250 Financial Times Stock Exchange top 250 companies
FYM LLC Ferrexpo Yeristovo Mining, a company incorporated
under the laws of Ukraine
GPL Gorishne-Plavninske-Lavrykivske, the iron ore deposit
being mined by FPM
Group The Company and its subsidiaries
HSE Health, safety and environment
HSEC Committee The Health, Safety, Environment and Community Committee
IAS International Accounting Standards
IASB International Accounting Standards Board
IFRIC interpretations IFRS interpretations, as issued by the IFRS Interpretations
Committee
IPO Initial public offering
Iron ore concentrate Product of the beneficiation process with enriched
iron content
Iron ore pellets Balled and fired agglomerate of iron ore concentrate,
whose physical properties are well suited for transportation
to and reduction within a blast furnace
Iron ore sinter fines Fine iron ore screened to -6.3mm
IRR Internal Rate of Return
JORC Australasian Joint Ore Reserves Committee - the internationally
accepted code for ore classification
K22 GPL ore has been classified as either K22 or K23
quality, of which K22 ore is of higher quality (richer)
KPI Key Performance Indicator
Kt Thousand tonnes
LIBOR The London Inter Bank Offered Rate
LLC Limited Liability Company (in Ukraine)
LSE London Stock Exchange
LTI Lost time injury
LTIFR Lost-Time Injury Frequency Rate
LTIP Long-Term Incentive Plan
m(3) Cubic metre
Middle East & North This segmentation for the Group's sales includes
Africa Algeria and the United Arab Emirates.
Mm Millimetre
Mt Million tonnes
Mtpa Million tonnes per annum
NBU National Bank of Ukraine
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 America This segmentation for the Group's sales includes
the United States
North East Asia This segmentation for the Group's sales includes
Japan and Korea
OHSAS 18001 International safety standard 'Occupational Health
& Safety Management System Specification'
Ordinary Shares Ordinary Shares of 10 pence each in the Company
Ore A mineral or mineral aggregate containing precious
or useful minerals in such quantities, grade and
chemical combination as to make extraction economic
Panamax Modern panamax ships typically carry a weight of
between 65,000 to 90,000 tonnes of cargo and can
transit both Panama and Suez canals
PPE Personal protective equipment
PPI Ukrainian producer price index
Probable Reserves Those measured and/or indicated mineral resources
which are not yet 'proved', but of which detailed
technical and economic studies have demonstrated
that extraction can be justified at the time of determination
and under specific economic conditions
Proved Reserves Measured mineral resources of which detailed technical
and economic studies have demonstrated that extraction
can be justified at the time of determination and
under specific economic conditions
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 Board
Reserves Those parts of mineral resources for which sufficient
information is available to enable detailed or conceptual
mine planning and for which such planning has been
undertaken. Reserves are classified as either proved
or probable
Resources Concentration or occurrence of material of intrinsic
economic interest in or on the earth's crust in such
form,
quality and quantity that there are reasonable prospects
for eventual economic extraction
Sinter A porous aggregate charged directly to the blast
furnace which is normally produced by firing fine
iron ore and/or iron ore concentrate, other binding
materials, and coke breeze as the heat source
Spot price The current price of a product for immediate delivery
Sterling/GBP Pound Sterling, the currency of the United Kingdom
STIP Short-Term Incentive Plan
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
UK adopted IFRS International Financial Reporting Standards adopted
for use in the United Kingdom
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
Underlying EBITDA Underlying EBITDA (see definition above) as a percentage
margin of revenue
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
WMS Wet magnetic separation
Yeristovo or Yerystivske The deposit being developed by FYM
[1] Source: CRU Group
[2] Source: CRU Group
[4] Top 63 producing countries, representing 97% of total world crude steel production in 2022.
[5] World Steel Association, Short Range Outlook published April 2023
[6] Lost time injury frequency rate being the number of
incidents that result in an individual (employees or contractor)
not being able to perform their normal role for a full shift the
following day, per million hours worked across the Group.
[7] Calculated as the average full year LTIFR across the Group between 2018 and 2022.
[8] European hot rolled coil price, source: Bloomberg. As of July 2023
[9] Source: CRU Group
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IR UASRROSUWRUR
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