REG - Ferrexpo plc - Interim Results for six months ended 30 June 2023
02/08/2023 07:00
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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$58 million, over
half of which went into expansion projects. However, to maintain a strong cash
balance in an uncertain future pricing environment, we will seek to defer
longer-term expansionary CAPEX, as we right-size our business in the event of
a longer conflict."
Table 1: Summary of financial performance*
6 months ended 30.06.23 6 months ended 31.12.22 Change 6 months ended 30.06.22 Change FY year ended 31.12.22
Total pellet production (kt) 1,967 1,256 +57% 4,797 -59% 6,053
Sales volumes (kt) 2,085 1,806 +15% 4,374 -52% 6,180
Average Platts 62% Fe iron ore fines price (US$/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:
Nick Bias n.bias@ferrexpo.ch +44 (0)20 7389 8305
(file:///C%3A/Users/Nick.Bias/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/GF21OEYA/n.bias@ferrexpo.ch)
+44 (0)7733 177 831
Tavistock:
Jos Simson ferrexpo@tavistock.co.uk +44 (0)20 7920 3150
(file:///C%3A/Users/Nick.Bias/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/GF21OEYA/ferrexpo@tavistock.co.uk)
Emily Moss +44 (0)7785 974 264
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
(http://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$74 million in the comparative period.
Foreign exchange gains include operating and non-operating foreign exchange
effects and the former predominantly results from the conversion of
outstanding US dollar denominated receivable balances in Ukraine. In agreement
with the Group's definition of the underlying EBITDA, the operating foreign
exchange effects are included in the underlying EBITDA. A devaluation of the
local currency has generally a positive effect on the Group's production
costs.
For further information, see section titled Costs (C1 Cash Cost of
production(A)).
Table 4: Ukrainian hryvnia to US dollar
Source: National Bank of Ukraine Spot Opening rate Closing rate Average Average
31.07.23
01.01.23
30.06.23
1H 2023
1H 2022
UAH to US$ 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 (#_ftn6) )) 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
LTIFR 1H 2023 (6M) 2H 2022 (6M) 1H 2022 (6M) 2022
(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 (#_ftn7) )).
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
Project Description Status Activity Total cost Total spent US$m Remaining spend US$m
US$m
Wave 1 Expansion (pelletiser) 3 MTPA of additional pellets Slowdown works and fulfilling hard commitments Reduced activity* 181.5 49.0 132.5
Wave 1 Expansion (concentrator) 4.1 MTPA of additional concentrate (for delivery to pelletiser) Slowdown works and fulfilling 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 market) - - - 16% -16pp
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 (http://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 (#_ftn8) )), whilst prices for
energy have fallen since 2022 they still remain relatively high. As a result,
global steel margins have contracted in 2023(( 9 (#_ftn9) )), 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 (http://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 6 months ended 30.06.23 6 months ended 30.06.22 Year-ended
(unaudited) (unaudited) 31.12.22
(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
US$000 Notes 6 months ended 6 months ended 30.06.22 Year ended
31.12.22
30.06.23
(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 170 (179,970) (651,260)
loss in subsequent periods
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 (68) 12,729 5,336
in subsequent periods
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
US$000 Notes As at As at As at
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
US$000 Notes 6 months ended 6 months ended Year ended
31.12.22
30.06.23 30.06.22
(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 5 29,561 61,283 96,977
amortization of intangible assets
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
US$000 Issued Share premium Other reserves Retained Total capital and reserves Non-controlling interests Total
capital (Note 20) Earnings 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 30 June 2022 Attributable to equity shareholders
of Ferrexpo plc
US$000 Issued Share Other reserves (Note 20) Retained earnings Total capital and reserves Non-controlling interests Total
capital premium 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.
US$000 Notes 6 months ended 6 months ended 30.06.22 Year ended
31.12.22
30.06.23
(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.
US$000 Notes 6 months ended 6 months ended 30.06.22 Year ended
31.12.22
30.06.23
(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:
US$000 6 months ended 6 months ended 30.06.22 Year ended
31.12.22
30.06.23
(unaudited) (unaudited) (audited)
Revenue from sales of iron ore pellets and concentrate 305,598 864,921 1,144,079
Freight revenue related to sales of iron ore pellets and concentrate - 35,526 43,557
Total revenue from sale of iron ore pellets and concentrate 305,598 900,447 1,187,636
Revenue from logistics and bunker business 25,675 31,849 54,491
Revenue from other sales and services provided 2,737 3,578 6,363
Total revenue 334,010 935,874 1,248,490
Information on the commodity risk related to provisionally priced sales are
provided in Note 18 Financial instruments.
Total revenue from sales of iron ore pellets and concentrate by geographical
destination were as follows:
US$'000 6 months ended 6 months ended 30.06.22 Year ended
31.12.22
30.06.23
(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:
US$000 6 months ended 6 months ended 30.06.22 Year ended
31.12.22
30.06.23
(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:
US$000 6 months ended 6 months ended 30.06.22 Year ended
31.12.22
30.06.23
(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
US$000 Notes 6 months ended 6 months ended 30.06.22 Year ended
31.12.22
30.06.23
(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:
US$000 6 months ended 6 months ended 30.06.22 Year ended
31.12.22
30.06.23
(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 ended 6 months Year As at As at As at
30.06.23 ended ended 30.06.23 31.12.22 30.06.22
30.06.22 31.12.22
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:
US$000 6 months ended 6 months ended 30.06.22 Year ended
31.12.22
30.06.23
(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
Interest 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:
US$000 6 months ended 6 months ended 30.06.22 Year ended
31.12.22
30.06.23
(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:
US$000 6 months ended 30.06.23 Year ended 6 months ended 30.06.22
31.12.22
(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:
US$000 6 months ended 30.06.23 Year ended 6 months ended 30.06.22
31.12.22
(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.
6 months ended 30.06.23 (unaudited) 6 months ended 30.06.22 (unaudited) Year ended 31.12.22
(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.
US$000 6 months ended 6 months ended 30.06.22 Year ended
31.12.22
30.06.23
(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.
US$000 6 months ended 6 months ended 30.06.22 Year ended
31.12.22
30.06.23
(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
Future sales and production Proved and probable reserves and available logistics 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:
US$000 6 months ended Year ended 31.12.22 6 months ended
30.06.22
30.06.23
(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
£0.10 paid for cash, resulting in share capital of US$121,628 thousand, which
is unchanged since the Group's Initial Public Offering in June 2007. This
balance includes 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
US$000 Uniting of interest reserve Treasury share reserve Employee benefit trust reserve Translation reserve Total other
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
US$000 Uniting of interest reserve Treasury share reserve Employee benefit trust reserve Translation reserve Total other
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 under common control Asso- Other related parties Entities under common control Asso- Other related parties Entities under common control Asso- Other related parties
ciated compa- nies ciated compa- ciated compa-
nies 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 (unaudited) Year ended 31.12.22 (audited)
US$000 Entities under common control Asso-ciated compa-nies Other related parties Entities under common control Asso- ciated compa- Other related parties Entities under common control Asso- ciated compa- Other related parties
nies 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 compa-nies Other related parties Entities under common control Asso- ciated compa- Other related parties Entities under common control Asso- ciated compa- Other related parties
under common control nies 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:
6 months ended 30.06.2023 (unaudited) 6 months ended 30.06.2022 (unaudited) Year ended 31.12.22
(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 10 58,415 161,010 102,008
(net cash flows used in investing activities)
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 Asia This segmentation for the Group's sales includes 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, such as the Middle East,
DR pellets are mixed with natural gas to produce DRI, an alternative source of
"DR" pellets 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 Turkey) This segmentation for the Group's sales includes 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 Africa This segmentation for the Group's sales includes 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/£ 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 margin Underlying EBITDA (see definition above) as a percentage 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
(#_ftnref3)
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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