REG - Ferrexpo plc - Interim Results for six months ended 30 June 2024
31/07/2024 07:00
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RNS Number : 4802Y Ferrexpo PLC 31 July 2024
31 July 2024
Ferrexpo plc
("Ferrexpo", the "Group" or the "Company")
Interim Results for the six months ended 30 June 2024
Resilience drives an improved performance
Ferrexpo plc (LSE: FXPO), a premium iron ore pellet producer and exporter to
the global steel industry, is pleased to report interim results for the six
months ended 30 June 2024 ("the period" or "first half" or "first six months"
or "1H 2024").
Commenting on the results, Lucio Genovese, Executive Chair, said:
"Ferrexpo continues to demonstrate resilience, retaining the entire workforce
during a time of war, whilst increasing production and ensuring exports to our
customers around the world. The significance of our operations has never been
greater to our people, local communities and Ukraine.
From a corporate perspective, we are adapting to the complexities of a
prolonged war. We have learnt how to operate a large-scale business more
nimbly, embedding flexibility into our operations and working practices. This
means that we are able to adapt to the constant challenges that confront us.
With access to Ukrainian Black Sea ports returning during the period, we were
able to respond quickly, bringing idled production capacity back on line and
exporting to our customers via seaborne routes, thereby achieving our best
production result since the start of Russia's full-scale invasion.
Revenues and EBITDA also improved in the first six months and underscore the
extraordinary effort and commitment of our workforce. 8,000 people, across
every business function, co-ordinating their skills and expertise, time and
resources, to realise these tremendous results. The fact that we can achieve
so much in such challenging conditions is testament to our resilience and
perseverance today, and in the future.
During the period, we deployed cash to increase production and preserve the
integrity of our assets. Nevertheless, despite adding volume and lowering our
controllable unit costs, we must accept that we are operating in an
environment where lower iron ore prices and significantly higher electricity
prices put pressure on our margins. It is therefore pleasing to note that we
were able to end the period with a modest increase in our net cash position.
For the remainder of the year, we will focus on optimising current production
levels. We remain hopeful that domestic electricity supply will improve during
the third quarter when power plants that were shut for maintenance come back
on-line.
Since the start of the full-scale invasion, we have demonstrated our ability
to operate flexibly and adapt to ever changing circumstances. I am confident
that should we see an opportunity to benefit from changes in iron ore pellet
prices, we will adjust our production accordingly."
Production and Financial Highlights
· Total commercial production for the first six months of 2024
increased by 75% to 3.7 million tonnes, comprising 3.3 million tonnes of
pellets and 0.4 million tonnes of commercial concentrate.
· Total sales for the first six months of 2024 increased by 85% to 3.8
million tonnes, of which 1.8 million tonnes were exported through Ukrainian
Black Sea ports.
· Revenues increased by 64% to US$549 million due to increased sales
volume, although prices were lower than in 1H 2023.
· Profit after tax increased by 104% to US$55 million.
· C1 Cash Cost of Production(A) (C1 costs) increased to US$79 per tonne
in the half year, due to higher energy costs, expanded mining activities,
maintenance and repairs, partially offset by positive effects from a currency
devaluation and cost saving initiatives.
· Interim Underlying EBITDA increased by 24% to US$79 million,
reflecting the net effects from higher sales volume and lower realised prices
and higher production costs, principally driven by rising energy prices in
Ukraine.
· The Group ended the period with a US$112 million Net Cash(A)
position, comprising US$115 million of cash and cash equivalents, and minimal
financial debt of US$4 million as of 30 June 2024 (Net Cash position(A) as at
31 December 2023: US$108 million).
· US$55 million of continued capital investment in sustaining and
development capital expenditure projects in Ukraine.
Commenting on the financial results, Nikolay Kladiev, CFO, said:
"For the first six months of the year, our business demonstrated its
resilience from a financial perspective. The strong rebound in production
resulted in revenues increasing 64%. We achieved excellent progress managing
our controllable costs on a unit basis, however costs did increase overall due
to additional mining and maintenance activities, higher energy costs and
towards the end of the period a big jump in electricity prices. In the context
of a weakening iron ore price environment, we achieved a 24% increase in
EBITDA to US$79 million for the period. After continued investment in our
operations of US$55 million, our closing net cash position was maintained at
US$112 million, four million higher than at the end of 2023.
Towards the end of the period, the authorities in Ukraine mandated that large
enterprises including Ferrexpo to import 80% of their electricity needs from
neighbouring European countries. This policy was established in response to
Russian attacks on Ukrainian power generation and transmission infrastructure,
estimated to have reduced domestic electricity supply capacity by 50%. It is
noticeable that the reduction in available domestic energy has also been
affected due to maintenance at several domestic nuclear power plants during
this time of year. At the current time, we are sourcing electricity from our
European neighbours, however, the costs are higher and indeed quite volatile.
For the month of June, this added approximately US$11 a tonne to our C1 costs
compared to the previous month, meaning, we expect this to have a greater
impact for the remainder of the summer due to continued high prices, until
domestic nuclear power comes back on line in the autumn."
Summary financial performance
US$ million (unless otherwise stated)
Total pellet production (kt) 3,297 1,967 +68% 1,878 +76% 3,845
Total sales volumes (pellets and concentrate) (kt) 3,849 2,085 +85% 2,089 +84% 4,174
Average 62% Fe iron ore fines price (US$/t) 117.3 118.3 -1% 121.4 -3% 119.9
Revenue 549 334 +64% 318 73% 652
C1 Cash Cost of production (US$/t) 78.8 71.3 +11% 82.0 -4% 76.5
Underlying EBITDA(A) 79 64 +24% 66 +20% 130
Diluted EPS (US cents) 9.26 4.54 +104% -18.90 -149% -14.41
Net cash flow from operating activities 56 80 -30% 21 167% 101
Capital investment 55 58 -5% 43 28% 101
Closing Net Cash 112 131 -15% 108 4% 108
Note: The Group amended its definition of the Underlying EBITDA. Further
information is provided in the APM section
Health, safety and wellbeing
· The safety and wellbeing of the Group's workforce is the highest
priority, and the Group continues to take extensive measures to protect its
workforce, their families and local communities.
· During the first half, the Group reported an LTIFR of 0.48,
materially below the historic five-year trailing average of 0.52. The Group is
proud to report zero fatalities for the period, and for 46 months in total.
Market
· Following strong increases in the final months of 2023, the benchmark
62% grade iron ore price fell during the first six months by 21%. Over the
same period realised pellet premiums also decreased.
· Access to Ukrainian Black Sea ports enabled the Group to export more
volumes, including to customers in Far East for the first time since the start
of the full-scale invasion. However, geopolitical disruption in the Middle
East has added to higher freight rates and risk premia.
Operations
· During the first half of the year, the Group variably operated two to
three pelletiser lines depending on power availability and customer demand.
· Iron ore pellet and concentrate production totalled 3,727 thousand
tonnes in 1H 2024 comprising of 3,297 thousand tonnes of premium pellets,
representing a 76% increase compared to the previous six months and a 68%
increase compared to the same period in 2023, and 430 thousand tonnes of
concentrate for sale.
· Focus on higher-grade iron ore production continued during the first
half, with all pellets and concentrates grading 65% iron ore content or above.
Production and sales of FDP pellets also resumed.
· Sales volumes totalled 3,849 thousand tonnes, comprised of pellets
and commercial concentrate. This represents an 84% increase compared to the
previous six months to December 2023 and an 85% increase compared to the first
six months of 2023.
· The Group's C1 Costs increased to US$78.8 per tonne in 1H 2024 due to
higher electricity prices and resumed mining activities offset by a small
devaluation of the UAH in 1H 2024 and the effects from the more beneficial
fixed cost absorption due to higher production volume.
· Continued capital investment in projects that can deliver short-term
efficiencies and savings, notably the press filtration complex which is partly
in operation, supporting improvements in the physical strength and chemical
quality of higher-grade pellets.
· The Group continues to receive adequate supplies of key consumables,
with Ukraine's reduced industrial output resulting in lower overall demand.
Environment, social and governance
· During the first half, the Company continued its humanitarian and CSR
efforts, supporting a range of projects and initiatives including a focus on
the support for veterans.
· Even during a time of war, the Group has not lost sight of its ESG
goals, publishing two significant projects: a 'Life Cycle assessment' for its
FDP pellets and a 'Double Materiality assessment'.
· Later in the year, the Group intends to release its annual
'Responsible Business Report' for 2024, which will be defined by the material
topics identified in its the Double Materiality Assessment, and an updated
Climate Change report, which will assess scenarios for the Group's carbon
targets in light of the war in Ukraine.
Corporate governance
On 23 May, Ferrexpo Plc held its 2024 Annual General Meeting (AGM), at which
the majority of the resolutions were passed. However, more than 50% of the
independent shareholder votes were cast against the re-election of one of the
Company's Independent Non-Executive Directors. Consequently, Ferrexpo Plc
announced that the Board intends to consult and engage with shareholders to
better understand the reasons behind these votes and put the matter to a
second vote of all shareholders within 120 days of the AGM.
Principal legal issues and provision
The Group recorded as at 31 December 2024 a provision in the amount of
UAH4,727 million (approximately US$124 million as at 31 December 2023) in
respect of a contested sureties claim made against the Group's major
subsidiary in Ukraine. As the legal proceedings in relation to this claim have
not yet been concluded at the time of approval of these interim condensed
consolidated financial statements, this provision is still recognised in full
as at 30 June 2024 (US$117 million as at 30 June 2024). Additional information
in respect on the potential impact of this ongoing legal case are provided in
Note 2 Basis of preparation and Note 19 Commitments, contingencies and legal
disputes to these interim condensed consolidated financial statements, as well
as for other ongoing legal proceedings.
In terms of an application to open bankruptcy proceedings ("creditor
protection proceedings") filed by a supplier and related party to the Group in
February 2024 against the Group's major subsidiary in Ukraine for an amount of
UAH4.6 million (US$0.1 million as at 30 June 2024), the Group's subsidiary
settled this debt on 18 July 2024 and submitted all documents to the court for
consideration to avoid the possible opening of such creditor protection
proceedings. See Note 2 Basis of preparation and Note 19 Commitments,
contingencies and legal disputes to these interim condensed consolidated
financial statements for further details.
For further information please contact:
Ferrexpo:
Nick Bias n.bias@ferrexpo.ch +44 (0)20 7389 8305
(mailto:n.bias@ferrexpo.ch?subject=Interim%20Results%202024)
+44 (0)7733 177 831
Tavistock:
Jos Simson ferrexpo@tavistock.co.uk +44 (0)20 7920 3150
(mailto:ferrexpo@tavistock.co.uk?subject=Ferrexpo%20Interim%20Results%202024)
Gareth Tredway +44 (0)7785 974 264
About Ferrexpo:
About Ferrexpo: Ferrexpo is a Swiss headquartered iron ore company with assets
in Ukraine and a listing in the equity shares commercial companies category on
the London Stock Exchange (ticker FXPO) and a constituent of the FTSE
All-Share index. The Group produces high grade iron ore pellets, which are a
premium product for the global steel industry and enable reduced carbon
emissions and increased productivity for steelmakers when converted into
steel, compared to more commonly traded forms of iron ore. Ferrexpo's
operations have been supplying the global steel industry for over 50 years.
Before Russia's full-scale invasion of Ukraine in February 2022, the Group was
the world's third largest exporter of pellets. The Group has a global customer
base comprising of premium steel mills around the world. For further
information, please visit www.ferrexpo.com (https://www.ferrexpo.com/) .
Notes:
Please note that numbers may not add up due to rounding. Items including C1
cash cost of production, underlying EBITDA, net cash/(debt), capital
investment and total liquidity are Alternative Performance Measures ("APM")
that are not defined or specified under International Financial Reporting
Standards ("IFRSs"). These are marked with "(A)" and more information on these
is detailed below in this report.
Introduction
The war in Ukraine continues to dominate Ferrexpo's workforce and activities.
Today marks 888 days since the full-scale invasion of Ukraine.
The effects of the war on our business and our workforce cannot be
understated. At the end of June 2024, 693 of our colleagues were serving in
the Armed Forces of Ukraine. Tragically, as at the end of June 2024, 39 of our
colleagues have been killed serving in the Armed Forces since the start of the
full-scale invasion in February 2022. We honour the memory of each of them. As
at the end of June 2024, 132 colleagues had been decommissioned from the Armed
Forces, of whom 66 have returned to work with the remainder included in our
in-house veteran rehabilitation programme.
It is important to recognise that our workforce is operating in extremely
challenging conditions. Loved ones, friends and colleagues are serving in the
Armed Forces, whilst they are living and working under a constant threat of
attack. Missile and drone attacks and air raid alerts are a constant in the
Poltava region. Working patterns are frequently interrupted because of the
need to seek shelter, in addition to load shedding which limits effective
working hours, all putting additional stress on members of our workforce.
As a business, we have shifted the focus of our support. At the start of the
war, we supported the influx of internally displaced people fleeing from the
south-eastern regions of Ukraine, with shelter, food and medicines. At
present, we are focussed on supporting our colleagues that are serving in the
Armed Forces and our returning veterans. We are also focused on supporting
mental health and community-based initiatives that bolster morale as the war
prolongs.
The health and safety of our workforce is paramount, as is the social
contribution that we can offer in our communities, and to Ukraine as a whole.
Sustaining employment in a safe manner for our 8,000 strong workforce means
that they, and the communities that depend on them, can better weather the
challenges of a prolonged war.
Since the full-scale invasion of Ukraine in February 2022, Ferrexpo has
significantly changed the way it operates. The lack of access to Ukrainian
Black Sea ports until the end of last year forced us to pivot our sales
towards European customers via rail. Concurrently, the business was
right-sized to operate at lower production levels due to logistics
constraints. The business also had to adapt to constant new challenges,
including conscription, establishing alternative procurement channels for
important inputs and interruptions to energy supplies. Rising to the
challenges has resulted in a business that is adaptive to change and flexible
in how it can meet its customers' needs. It is in itself a demonstration of
resilience that is testament to the hard work and determination of our people.
Establishment of a maritime corridor has allowed for the reopening of
Ukraine's Black Sea ports and exports of Ukrainian products. Ferrexpo once
again demonstrated its agility, by quickly restoring production and resuming
seaborne sales via the corridor. During the first half of 2024, the Group
successfully operated two or three out of four pelletising lines, and
increased total production of pellets and concentrates to 3.7 million tonnes,
an 83% increase compared to the previous six months and a 75% increase
compared to same period last year.
Sales volumes totalled 3.8 million tonnes, comprised of pellets and commercial
concentrates. This represents an 84% increase compared to the previous six
months to December 2023 and an 85% increase compared to the first six months
to June 2023. In total, 18 vessels were loaded with Ferrexpo cargoes from
Ukrainian ports during the period under review. Of total sales, 80% were to
European customers (seaborne, rail and barge) and for the first time since the
start of the full-scale invasion of Ukraine, the balance to customers in Asia
and MENA. The Group also produced and sold Direct Reduction pellets ("FDP")
during the period.
The increase in sales volumes albeit at lower realised prices due to the iron
ore index falling 21% over the period, resulted in revenue increasing to
US$549 million for the period, a 73% increase compared to the previous six
months and a 64% increase compared to the same period last year. Higher unit
costs due to elevated seaborne freight rates, risk premiums and electricity
prices resulted in costs increasing during the period, which is reflected in
lower margins and an Underlying EBITDA, which totalled US$79 million.
For a detailed review of iron ore markets, please see the section 'Sales and
Marketing Review' below and for the Group financials, please see the
'Financial Review' section.
Outlook
Currently, the outlook for the second half of 2024 is premised on sustaining
the restored production levels achieved during the first half, provided that
seaborne exports continue to be safe and viable in an environment where iron
ore prices are subdued and costs under pressure. The Group continues to
demonstrate resilience, as it manages the many challenges to keep producing,
exporting and supporting its workforce and communities.
Shareholder returns
The Group has long maintained a policy of investing in the future growth of
the business alongside providing shareholder returns and maintaining a prudent
cash position. As disclosed in the 2023 Annual Report and Accounts, the Board
of Directors decided not to proceed with the interim dividend of 3.3 US cents
per ordinary share, which was announced on 18 January 2024 and due to be paid
to shareholders on 23 February 2024, as a result of the unexpected court
decision in the contested sureties claim against one of the Group's Ukrainian
subsidiaries. The Board will continue to assess the Group's ability to provide
shareholder returns in the form of dividends or share buy backs, however, due
to the ongoing risks associated with operating in Ukraine at the present time,
the Board of Directors have elected not to declare an interim dividend for
2024 at this time, also considering the ongoing legal disputes in Ukraine,
which might affect the Group's ability to continue as a going concern as
disclosed in Note 2 Basis of preparation and Note 19 Commitments,
contingencies and legal disputes to these interim condensed consolidated
financial statements.
Sales and Marketing Review
Iron ore supply, demand and prices
Following a strong rally in December 2023 on expectations of restocking in
China, iron ore prices started 2024 at relatively high levels. Optimism,
however, was not sustained as Chinese mills broke from the usual restocking
patterns and adapted to operating with lower inventories. This resulted in
prices subsequently falling throughout much of the first quarter of 2024.
Iron ore prices (US$/t)
The early part of the second quarter of 2024 saw some recovery as China moved
into its seasonal peak construction period and margins on steel products saw
some support. However, once again, the rally failed to sustain, this time
largely attributed to strong iron ore exports from Australia and Brazil and a
build-up of inventories at Chinese ports and on the water.
Global iron ore supply for the remainder of 2024 is forecast to be strong as
Australia and Brazil increase production. From a demand perspective, the
low-inventory model adopted by Chinese mills, and limited desire to chase
productivity even in a low margin steel environment, means expectations are
that iron ore prices will remain subdued.
Pellet premiums
Pellet premiums during the first half were affected by two distinct market
dynamics. First, supply disruptions, notably from North Europe due to
operational issues and ongoing war-related disruptions from Ukraine and
Russia. These suppliers traditionally delivered to steel mills in the Atlantic
markets, and therefore pellet supply was tight in these regions, resulting in
firm premiums. In contrast, soft steel margins and a stable supply of iron ore
pellets in Asia resulted in pellet premiums remaining low in these markets.
This pattern is forecast to continue for the remainder of 2024.
Customer development
With access to Ukrainian Black Sea ports restored, the Group was able to
expand its seaborne sales, particularly to customers in Asia.
During the period, the Group also restarted production and sales of its
high-grade FDP pellets. Quality improvement projects implemented at site, such
as the press filtration facility partly in operation and the coating facility
have improved the pellet physical strength and chemical quality.
These efforts, along with increased support of the market development in the
regions focusing on the direct reduction steelmaking route, have enabled
Ferrexpo to secure a position as a suitable supplier for a steelmaking sector
targeting the decrease of carbon emissions. During the first half, several
Memorandum of Understandings ("MoU") were agreed upon to explore green steel
initiatives with leading steel producers and equipment manufacturers around
the world, including the announced MoU with Salzgitter.
Freight
The C3 freight rate (Capesize freight rate from Brazil to China), is used as a
reference in the pricing of the Group's sales. C3 rates in 1H 2024 were
relatively high at US$26 per tonne (2H 2023: US$23 per tonne and 1H 2023:
US$20 per tonne), due to stronger than expected demand as a result of
unseasonably dry weather.
Seaborne exports via Ukrainian Black Sea ports increased significantly due to
the establishment of a temporary maritime export corridor. Encouragingly, more
shipowners are showing interest in returning to the Black Sea, which could see
future cost benefits for the Group's seaborne exports.
FINANCIAL REVIEW
Maintaining stable net cash despite war related restrictions, with continued
capital investment.
Summary
With the reopening of Ukrainian Black Sea ports (please see Sales and
Marketing Review for more detail), Group revenues increased by 64% to US$549
million mainly due to an 85% increase in sales volumes, though partially
offset by a 15% fall in realised prices compared to the same period in 2023.
The Group's C1 cash cost of production ("C1 costs") increased to US$78.8 per
tonne in the first half of 2024, compared to US$71.3 per tonne in the same
period in 2023. The positive effects from the higher production and the
devaluation of the local currency were offset by higher prices for some input
materials, mainly for electricity. The prices for electricity in Ukraine rose
sharply in June 2024, mainly due to the attacks on power generation and
transmission infrastructure requiring the import of up to 80% of total
electricity consumption requirements from neighbouring countries.
As a result, the Group's Underlying EBITDA increased by 24% to US$79 million,
largely due to the higher volume driven revenue generation. The net profit for
the period was US$55 million, compared with US$27 million in the first half of
2023. The Group continued to make capital investments, totalling US$55 million
during the first six months (1H 2023: US$58 million), comprising both
sustaining and development projects.
Key performance indicators
US$ million (unless stated otherwise)
Total pellet production (kt) 3,297 1,967 +68% 3,845
Total sales volume (pellets and concentrate) (kt) 3,849 2,085 +85% 4,174
Revenue 549 334 +64% 652
Average C1 cash costs of production(A) (US$/t) 78.8 71.3 +11% 76.5
Underlying EBITDA(A) 79 64 +24% 130
Underlying EBITDA margin(A) 14.4% 19.2% -25% 20%
Capital investment(A) 55 58 -5% 101
Closing net cash 112 131 -15% 108
Note: The Group amended its definition of the Underlying EBITDA. Further
information is provided in the APM section
Revenue
Group revenue increased by 64% to US$549 million in the first half of 2024,
compared to US$334 million in the same period in 2023, mainly due to the
resumption of exports from Ukrainian Black Sea ports. It is important to note,
that at the present time shipping costs from Ukrainian Black Sea ports are
higher than before the full-scale invasion of Ukraine in February 2022. The
sales volume was 85% higher at 3.8 million tonnes in the first half of 2024,
compared to 2.1 million tonnes in the same period in 2023.
After a strong start to 2024, the iron ore index price in March averaged
approximately 18% below the one in January. Index prices remained stable in
April and recovered in May by approximately 8% before dropping in June again
to the average index price in April. Despite this volatility in 1H 2024, the
index prices averaged at a similar level as those in the first half of 2023.
The positive effect from the higher sales volume was partially offset by the
lower realised prices than in 2023. Whilst the average benchmark iron ore
price (65% Fe) remained stable, the price decline is attributed to lower
overall pellet premiums due to weaker demand for iron ore products,
particularly in China. Furthermore, higher rates for international freight
during the first half of 2024 had a negative impact on the Group's realised
net back prices for sales under the International Commercial Terms Free on
Board, compared to the same period in 2023.
Iron ore prices
US$ per tonne
Average 62% Fe iron ore fines price 117.3 118.3 -1% 119.9 -2%
Average 65% Fe iron ore fines price 130.7 132.1 -1% 132.1 -1%
Average 62%/65% spread 13.3 13.8 -4% 12.1 +10%
Source: Platts
Since the beginning of the full-scale invasion, the Group's export routes have
predominantly involved either the railing of products direct to European
customers, or the railing of iron ore pellets to the Group's barging
subsidiary on the River Danube for delivery to specific customers in Europe,
or by barge to other non-Ukrainian Black Sea ports, for onward sale by ship.
In January 2024, the Group resumed its shipping operations from Ukrainian
Black Sea ports, which provided more capacity and flexibility than previously.
This also had a positive effect on the Group's cash conversion cycle due to
shorter logistics distances and times. Of the total sales volume during the
first half of 2024, 1.8 million tonnes were shipped through Ukrainian Black
Sea ports (1H 2023: nil) of a total of 2.1 million tonnes of seaborne sales
(1H 2023: 0.49 million tonnes).
The Russian attacks on power generation and transmission facilities in Ukraine
in the first half of 2024 resulted in country-wide power supply constraints,
and there is a risk that the situation could worsen in the second half of
2024, potentially affecting the Group's production and sales volumes.
Cost of sales and C1 Cash Cost of production(A)
The Group's cost of sales in the first half of 2024 totalled US$314 million,
up 74% compared to US$182 million in the same period in 2023. This increase is
mainly due to a 73% increase in production to 3.7 million tonnes, compared to
2.1 million tonnes in the comparative period in 2023. The Group's current
production volume continues to align with the available logistics capacity. As
a result, sales from Ukrainian Black Sea ports had a positive effect on the
Group's sales and therefore production volumes.
In addition, the Group's production volume is also dependent on the constant
power supply in Ukraine, which was affected in the first half of 2024 by
Russian attacks on domestic power generation and transmission infrastructure.
As a result of these attacks resulting in restrictions of power supply, prices
rose by approximately 24% and 64% in May and June 2024, compared to the same
months in 2023. On the other hand, the Group benefited from lower prices for
natural gas and diesel fuel compared to the same period in 2023, although the
effect from the lower prices for diesel fuel was offset by a higher
consumption as a result of the ramp up of the mining operation to secure the
access to the ore in future periods.
C1 costs during the first half of 2024 increased to US$78.8 per tonne,
compared to US$71.3 per tonne in the same period in 2023. The positive effects
from the higher production on the fixed cost absorption per tonne of iron ore
pellets produced and the devaluation of the local currency were tempered by
higher electricity prices. The higher production costs were also influenced by
the increased mining activities, as well as repair and maintenance programme
for the key equipment used in current operations.
The main C1 costs drivers are the prices for electricity, natural gas and
diesel fuel in Ukraine, being outside of the Group's control, which
collectively represented 45% of the Group's total C1 costs during the period,
compared to 48% in the same period in 2023. Whilst the proportion of the
electricity remained relatively stable despite higher prices, and natural gas
benefited from the better fixed cost absorption due to the higher production
volume, the proportion of diesel fuel increased marginally, despite lower
prices, due to the higher consumption as mining activities ramped up.
The average electricity price in Ukraine increased in the first half of 2024
by 20% in US dollar terms, peaking at US$177 per megawatt-hour ("MWh") in June
2024, compared to an average of US$95 per MWh in the same period in 2023. The
average Brent price for oil and the average price for natural gas, both in US
dollar terms, were 4% higher and 23% lower in the first half of 2024 than in
the same period in 2023. As a result of the significantly higher production
and the ramp up of the Group's mining operations in the first half of 2024,
the consumption of electricity, natural gas and diesel fuel increased by 34%,
72% and 95% respectively, compared to the same period in 2023.
Another important component of the Group's C1 costs that is outside of the
Group's control is royalties, which accrue and are paid based on a tiered
system. Based on this regime, royalties are calculated based on the benchmark
index price for a medium-grade (62% Fe) iron ore fines price and computed
based on the cost of different iron ore products. The rate depends on the
benchmark index price for 62% Fe fines and is 3.5%, 5.0% or 10%. The royalty
expense totalled US$20 million in the first half of 2024, compared to US$13
million in the same period in 2023, driven by the higher production volume.
The Group operating costs denominated in Ukrainian hryvnia ("UAH") account
generally for approximately two thirds of the Group's C1 costs. However, it is
expected that the necessary electricity imports will temporarily reduce this
share of UAH denominated operating costs. Consequently, changes to the US
dollar rate can have a significant impact on the Group's operating costs,
including the C1 costs. The UAH depreciated in the first half of 2024 by 7%,
from 37.982 to 40.537 to the US dollar as of 30 June 2024, resulting in a
positive effect on the Group's C1 costs.
In line with previous years, the Group's C1 costs represent the cash cost of
the production of iron pellets from own ore ('to the mine gate'), divided by
production volume from own ore. This excludes non-cash costs such as
depreciation, pension costs and inventory movements, as well as the costs of
purchased ore, concentrate and gravel. The C1 cash cost of production (US
dollars per tonne) is regarded as an Alternative Performance Measure ("APM").
The table below shows the breakdown and change in the composition of the
Group's C1 costs, with energy-related costs (electricity, natural gas and
sunflower husks and fuel (including diesel) accounting for the largest share
at 45% of the total C1 costs, compared to 48% in the first half of 2023.
Breakdown of C1 cash cost of production
Electricity 27% 31% -4% 32% -5%
Natural gas and sunflower husks 7% 10% -3% 9% -2%
Fuel (including diesel) 11% 7% 4% 7% 4%
Materials 13% 7% 6% 8% 5%
Personnel 9% 12% -3% 11% -2%
Maintenance and repairs 17% 14% 3% 16% 1%
Grinding media 6% 7% -1% 6% -
Royalties 8% 10% -2% 9% -1%
Explosives 2% 2% - 2% -
Selling and distribution costs
Total selling and distribution costs increased to US$148 million in the first
half of 2024, compared to US$74 million in the same period in 2023. The
seaborne logistics routes are generally the lowest cost and most efficient way
for delivering the Group's products to its customers. The increase of the
Group's selling and distribution costs mainly reflects the resumption of
seaborne sales from Ukrainian Black Sea ports, supporting the sales volume of
the Group in the first half of 2024.
As a result, the seaborne sales volume increased by 1.7 million tonnes to 2.1
million tonnes in the first half of 2024, compared to 0.4 million tonnes in
the same period in 2023. In addition to the effect from the higher volume of
seaborne sales, the Group's selling and distribution costs were also affected
by inflated costs for shipments from the Ukrainian Black Sea ports, with
actual freight costs exceeding freight index prices due to the increased risks
for ship owners and insurance companies. The average C3 freight index during
the first half of 2024 was approximately 32% higher than in the same period in
2023. During the comparative period in 2023, the Group's international freight
costs were affected by the export of some of the Group's products through
third country ports with services provided by alternative logistics providers
and port operators at higher costs. Vessel charter rates for shipments from
Ukrainian Black Sea ports remain relatively high, in addition to premiums for
required war risk covers in the Ukrainian Black Sea area, but also in the Red
Sea area for shipments to customers in MENA and Asia. The Group spent US$6
million for war risk covers during the first half of 2024 (1H 2023: nil).
The average of the relevant applicable rail tariffs during the first half of
2024 were 15% lower in US dollar terms than in the comparative period in 2023.
Whereas the tariffs remained largely unchanged in the local currency, the
rates in US dollar terms benefited from depreciation of the local currency
during the first half of 2024, but also by the opening of the Ukrainian Black
Sea ports, which led to shorter railway transport routes. The two positive
effects were partially offset by temporarily reduced access to a portion of
the Group's own rail wagons due to ongoing legal disputes, which required the
substitution of third-party rolling stock at marginally higher costs.
General and administrative expenses
General and administrative expenses remained relatively stable at US$32
million. Continued positive effects from cost management and saving
initiatives have been offset by higher legal costs relating to the Group's
ongoing legal disputes. See Note 19 Commitments, contingencies and legal
disputes to these interim condensed consolidated financial statements for
further information on the ongoing legal challenges and disputes of the Group
in Ukraine.
Other operating expenses
Other operating expenses were US$14 million in the first half of 2024,
compared to US$15 million in the same period in 2023. The largest positions
included in other operating expenses relate to the Group's charitable
donations of US$4 million (1H 2023: US$2 million) and changes of the allowance
for doubtful debts based on the expected credit loss model of US$4 million (1H
2023: US$3 million).
Currency
The Group prepares its consolidated financial statements in US dollars and the
functional currency of the Group's operations in Ukraine is the Ukrainian
hryvnia ("UAH"). In the past, approximately two thirds of the Group's
operating costs were denominated in local currency and are subject to change
of the Ukrainian hryvnia to the US dollar. It is however expected that the
necessary electricity imports will temporarily reduce this share of UAH
denominated operating costs.
The UAH depreciated from UAH37.982 per US dollar to UAH40.537 as at 30 June
2024 resulting in an average exchange rate of UAH39.009 in the first half of
2024, compared to UAH36.569 in the comparative period in 2023 (+7%), when the
local currency was pegged to the US dollar by the National Bank of Ukraine
("NBU").
The Martial Law regime in Ukraine continued throughout the first half of 2024
and is currently extended until 11 August 2024. Despite the partial relaxation
of Ukrainian hryvnia controls in May 2024 around the regulatory framework
specific to foreign currency transactions, intercompany settlements and
transfers offshore for international Groups, the NBU maintains tight capital
controls in Ukraine. As a result, the current regulation continues to
significantly limit the possibility to convert balances in Ukraine from local
currency into US dollars, and the subsequent ability to transfer US dollars to
the offshore accounts of the Group.
A devaluation of the local currency has generally a positive effect on the
Group's production costs and results in foreign exchange gains on the US
dollar denominated receivable balances of the Group's Ukrainian subsidiaries.
For further information, see sections titled C1 Cash Cost of production(A).
Ukrainian hryvnia to US dollar
UAH to US$ 41.098 37.982 40.537 39.009 36.569
Source: National Bank of Ukraine
Operating and non-operating foreign exchange gains/losses
The Group's total net foreign exchange gains, including operating and
non-operating gains and losses, totalled US$30 million in 1H 2024, compared to
net foreign exchange gains of US$3 million in the comparative period in 2023.
As the functional currency of the Ukrainian subsidiaries is the Ukrainian
hryvnia, a depreciation of the Ukrainian hryvnia against the US dollar results
in foreign exchange gains on the Group's Ukrainian subsidiaries' US dollar
denominated receivable balances from the sale of pellets.
Underlying EBITDA
The Group's Underlying EBITDA was positively affected by the higher sales
volumes in the first half of 2024, compared to the same period in 2023. As a
result, the Underlying EBITDA increased by 24% to US$79 million (1H 2023:
US$64 million). Historically and in agreement with the Group's definition of
the Underlying EBITDA at that time, the Group's Underlying EBITDA included
operating foreign exchange gains and losses, which could be material depending
on the devaluation of the Ukrainian hryvnia compared to the US dollar.
During the period ended 30 June 2024, the Group amended its definition of the
Underlying EBITDA by excluding the operating foreign exchange gains and
losses. The Underlying EBITDA as at the end of the comparative period ended 30
June 2023 is not affected by the change of the definition.
For further information on the Group's performance in the first half of 2024,
see section titled "Revenue" and "C1 Cash Cost of production(A"). Further
information on the change of the Group's definition of the Underlying EBITDA
is provided in the Alternative Performance Measures ("APMs") section at the
end of this report.
Net finance income/expenses
Offsetting finance income and finance expense of US$2 million during the first
half of 2024, compared to a net finance expense of US$1 million in the
comparative period in 2023. The Group's finance expenses decreased to US$2
million, compared to US$3 million in the comparative period in 2023. Most of
the finance expense is related to the calculated interest on the Group's
pension scheme, without any effects of cash outflows, and to bank charges.
Except for lease liabilities, the Group does not have any outstanding
interest-bearing loans and borrowings and, as a result, no interest expenses
incurred on such finance facilities.
The finance income results from investments of available funds in deposits and
remained stable at US$2 million.
Further details on finance expense are disclosed in Note 7 Net finance expense
to these interim condensed consolidated financial statements.
Income tax
The income tax expense for the first half of 2024 increased to US$20 million,
compared to US$8 million for the same period in 2023, because of a higher
profit before tax. The profit before tax during the period ended 30 June 2024
benefited from the 85% increase in sales volume, which was partially offset by
lower realised prices than in the same period in 2023. The expected weighted
average tax rate computed for the full year 2024 based on the expected profit
split is 23.7%, compared to the rate of 16% that was assumed for the first
half of 2023. The increase of the expected tax rate for 2024 is mostly
attributed to the 'BEPS Pillar Two' legislation that was implemented in
Switzerland with effect from 1 January 2024, and the new corporate profit tax
regime in the U.A.E. The effective tax rate for the first half of 2024 is
26.7%, compared to 23.8% for the same period in 2023. The effective tax rate
of the Group is subject to effects from expenses not tax deductible in certain
jurisdictions, mainly Ukraine, allowances on recognised deferred taxes in
Ukraine and from the recognition or release of the provisions related to
previous financial years. The effective tax rate of the financial year 2023,
before the effect of the recognised provisions for legal disputes in Ukraine
in the amount of US$131 million in the consolidated income statement, was
26.1%. This provision recognised as at 31 December 2023 is not tax-deductible
in Ukraine and no deferred tax asset was recognised.
In the first half of 2024, the income tax paid by the Group totalled US$13
million, compared to US$7 million during the same period in 2023, of which
US$10 million was paid in Ukraine.
The Group operates across a number of jurisdictions and its effective tax rate
is subject to various factors outside of the Group's control. This includes
the volatility in the global iron ore pellet market and foreign exchange rate
movements, primarily between the Ukrainian hryvnia and the US dollar.
The Group's two main subsidiaries in Ukraine received in the second half of
2023 claims totalling UAH2,421 million (US$60 million as at 30 June 2024) in
relation to cross-border transactions for iron ore products between the two
Ukrainian subsidiaries of the Group and two subsidiaries of the Group outside
of Ukraine during the financial years 2015 to 2017. Both subsidiaries filed
the objections against the potential claims stated in the tax audit reports
received and the Group will continue to defend its methodology applied to
determine the prices between its subsidiaries in the Ukrainian courts. No
specific provisions have been recorded as at 30 June 2024, neither for the
claims received nor for any subsequent years, which might also be material.
Further details on taxation are disclosed in Note 8 Taxation to these interim
condensed consolidated financial statements in respect of the application of
tax legislation in the jurisdictions the Group operates and the critical
judgements to be made by the management.
Items excluded from underlying earnings
There are no significant items excluded from the Group's underlying earnings
as at 30 June 2024, whereas the earnings for the financial years 2023 and 2022
were subject to significant adjustments. The Group's Underlying EBITDA for the
financial year 2023 was adjusted for the effect from the recognition of
provisions for ongoing legal proceedings in Ukraine totalling US$128 million.
Considering the magnitude of one specific claim in respect of contested
sureties and the risks associated with the judicial system in Ukraine, a full
provision in the amount of US$124 million was recorded as at 31 December 2023
for this claim. As the legal proceedings in relation to this claim have not
yet been concluded at the time of approval of these interim condensed
consolidated financial statements, this provision is still recognised in full
as at 30 June 2024 with no effects on the Group's underlying earnings.
Furthermore, the Group's Underlying EBITDA for the financial year 2022 was
adjusted for the effect from the recognition of an impairment loss of US$254
million because of the reduction in the carrying value of the Group's
non-current operating assets in Ukraine due to the lower cash flow generation
caused by the war. The impairment test performed as at 30 June 2024 did not
result in an additional impairment loss or a partial or full reversal of the
recorded impairment loss.
During the period ended 30 June 2024, the Group amended its definition of the
Underlying EBITDA. As a result of this amendment, the operating foreign
exchange gains and losses are no longer included in the Underlying EBITDA as
it better reflects the Group's ability to generate cash and to evaluate its
operating performance.
For more information, please see Note 10 Property, plant and equipment and
Note 19 Commitments, contingencies and legal disputes to these interim
condensed consolidated financial statements. Further information on the change
of the Group's definition of the Underlying EBITDA is provided in in the
Alternative Performance Measures ("APMs") section in this report.
Profit for the period
The Group's profit for the first half of 2024 increased to US$55 million,
compared to US$27 million in the comparative period in 2023, primarily
reflecting the higher sales volume, partially offset by lower realised prices.
However, the result of the Group is still affected by the ongoing war in
Ukraine, mainly due to higher costs for required logistic network and power
supply restrictions because of recent Russian attacks on power generation and
distribution facilities in Ukraine.
For further information, see sections titled "Revenue", "C1 Cash Cost of
production(A") and "Underlying EBITDA" above.
Cash flows and net cash(A)
Operating cash flow before changes in working capital increased by 22% to
US$82 million in the first half of 2024, compared to US$67 million in the same
period in 2023. The increase is driven by the 85% higher sales volume of 3.8
million tonnes, compared to 2.1 million tonnes in the same period in 2023.
Working capital outflow of US$12 million to 30 June 2024, compared to an
inflow of US$21 million in the same period in 2023. The outflow during the
reporting period largely reflects the increase of the trade and other
receivables and inventories whereas there is an offsetting effect from higher
trade payables and the increase of the outstanding VAT balances. The working
capital inflow during the comparative period in 2023 mainly benefited from the
collection of outstanding VAT balances from the financial year 2022.
The net cash flow from operating activities in the first half of 2024 totalled
US$56 million, compared to US$80 million in the same period in 2023. As
mentioned above, the cash flow generation in the comparative period in 2023
benefited from the collection of outstanding VAT balances from the previous
financial year. The Group continued to invest in its operations in Ukraine
despite the challenging situation in the country, with capital investments in
the amount of US$55 million in the first half of 2024, compared to US$58
million in the same period in 2023. As at the date of today's announcement,
the Board has not proposed an interim dividend for the financial year 2024.
The Group maintained the balance of cash and cash equivalents at US$115
million as at 30 June 2024, compared to US$115 million as at the beginning of
the year, with a total balance of US$6 million held in Ukraine (1H 2023: US$15
million). Following the adoption of Martial Law in Ukraine, the NBU has
introduced significant currency and capital control restrictions in Ukraine,
which were relaxed from May 2024 onwards, allowing certain foreign currency
transactions within limits established by the NBU.
The Group continues to protect its net cash(A) position and balancing
operational and financial targets. As a result of this continued prudent
approach, the Group managed to maintain its net cash(A) position at US$112
million as at 30 June 2024, compared to US$108 million as at the beginning of
the year, despite the difficult environment in which the Group has been
operating since the beginning of the war. The Group does not have any
committed debt facilities or uncommitted trade finance facilities as at 30
June 2024. The minor debt positions relate to finance lease arrangements,
resulting in a gross debt balance of US$4 million as at 30 June 2024, compared
to US$7 million as at 31 December 2023.
It is the Group's intention to maintain a robust balance sheet whilst
continuing to invest, as the current cash flow generation allows.
For further information on the ongoing legal disputes in Ukraine see Note 19
Commitments, contingencies and legal disputes to these interim condensed
consolidated financial statements.
Capital investment(A)
Capital expenditure in the first half of 2024 totalled US$55 million compared
to US$58 million in the same period in 2023. Of the total amount spent in the
first half of 2024, sustaining and modernisation capital expenditure totalled
US$19 million (1H 2023: US$27 million), covering the activities at all the
Group's major business units, and investments in strategic development
projects totalled US$36 million (1H 2023: US$31 million).
The level of the Group's current capital expenditures is also dependent on
operational and logistics constraints because of the ongoing war in Ukraine.
Taking also into account the Group's cash flow generation and the market
outlook for the remainder of 2024, the Group reconsidered the level of its
investments in sustaining capital expenditure projects, by reviewing and
optimising the level and timing of its repair activities.
Considering the currently existing constraints in Ukraine, the Group
reconsidered the timing of investments in its strategic development projects,
particularly with projects that are expected to deliver returns over the
medium to long term.
As such, investments made in major projects in the first half of 2024 include
US$17 million spent on the enhancement of the Group's press filtration complex
(1H 2023: US$7 million), which will help raise pelletising capacity in the
near term once operations return to full capacity and further enhance quality
of pellets produced. Furthermore, the Group continued to invest US$10 million
in the concentrator and pelletiser projects (1H 2023: US$9 million) as part of
the Wave 1 Expansion Programme and US$2 million spent on stripping activities
for future production growth (1H 2023: US$17 million). Further expenditures of
US$1 million relate to the development and exploration of the Belanovo deposit
(1H 2023: US$2 million) and US$1 million in a hydrolysis plant (1H 2023: US$1
million) for the trial of hydrogen use as a fuel in the Group's pelletiser.
Related party transactions
The Group enters into arm's length transactions with entities under the common
control of the Group's controlling shareholder and his associates. All these
transactions are considered to be in the ordinary course of business.
During the first half of 2024, the Group made bail payments totalling US$1.3
million (1H 2023: US$0.5 million; FY 2023: US$15.0m) on behalf of a senior
manager of one of the Group's subsidiaries in Ukraine in respect of various
legal actions and ongoing court proceedings initiated by certain governmental
bodies against the Group's subsidiaries and members of the senior management
in Ukraine. See also below under Contingent liabilities and legal disputes for
further details.
Further information on related party transactions is disclosed in Note 21
Related party disclosure to these interim condensed consolidated financial
statements.
Contingent liabilities and legal disputes
The Group is exposed to risks associated with operating in a developing
economy during a time of war and the current circumstances facing the Group's
controlling shareholder. As a result, the Group is subject to various legal
actions and ongoing court proceedings initiated by different government
agencies in Ukraine. There is a risk that the independence of the judicial
system and its immunity from economic and political influences in Ukraine is
not upheld, consequently Ukrainian legislation might be inconsistently applied
to resolve the same or similar disputes. As a result, the Group is exposed to
a number of higher risk areas than those typically expected in a developed
economy, which require a significant portion of critical judgements to be made
by the management.
As previously announced, the Group's main Ukrainian subsidiary is subject to
an ongoing legal dispute in Ukraine relating to contested sureties. The
Group has made an appeal to the Supreme Court of Ukraine in respect of such
claim, and as at the date of approval of these interim condensed consolidated
financial statements the date of the next hearing of the Supreme Court is
unknown. In respect of the contested sureties claim, if the final Supreme
Court ruling is not in favour of Ferrexpo Poltava Mining ("FPM") (or if the
current suspension on enforcement action is otherwise lifted before a final
decision of the Supreme Court),the claimant may take steps to appoint either a
state or a private bailiff and request the commencement of the enforcement
procedures, which could have a material negative impact on the Group's
business activities and its ability to continue as a going concern, as the
assets of FPM could be seized or subject to a forced sale.
In addition to the afore-mentioned claim, a supplier and related party to the
Group filed by an application to open bankruptcy proceedings ("creditor
protection proceedings") against the Group's major subsidiary in Ukraine for
an amount of UAH4.6 million (US$0.1 million as at 30 June 2024). On 18 July
2024, the Group's subsidiary settled the outstanding debt to the supplier and
submitted all documents to the court for consideration to avoid the possible
opening of such creditor protection proceedings.
Considering the magnitude of the contested sureties claim and the risks
associated with the judicial system in Ukraine, the Group recorded a full
provision in the amount of UAH4,727 million (US$124 million as at 31 December
2023) for this claim as at the end of the financial year 2023. As the legal
proceedings in relation to this claim have not yet been concluded at the time
of approval of these interim condensed consolidated financial statements, this
provision is still recognised in full as at 30 June 2024 (US$117 million as at
the exchange rate as at 30 June 2024).
See Note 2 Basis of preparation and Note 19 Commitments, contingencies and
legal disputes to these interim condensed consolidated financial statements.
Going concern
As at the date of the approval of these interim condensed consolidated
financial statements, the war in Ukraine is still ongoing and continues to
pose a significant threat to the Group's mining, processing and logistics
operations within Ukraine. As a result, a material uncertainty remains as some
of the uncertainties remain outside of the Group management's control, with
the duration and the impact of the war still unable to be predicted at this
point of time.
In addition to the war-related material uncertainty, the Group is also exposed
to the risks associated with operating in a developing economy, which may or
may not be exacerbated by the war and/or the current circumstances facing the
Group's controlling shareholder. As a result, the Group is exposed to several
risk areas that are heightened compared to those expected in a developed
economy, such as an environment of political, fiscal and legal uncertainties,
which represents another material uncertainty as at the approval of these
interim condensed consolidated financial statements.
See Note 2 Basis of preparation to these interim condensed consolidated
financial statements for further information.
Operational review
Health and safety
Despite the ongoing war in Ukraine, Ferrexpo continues to maintain its good
safety record, with zero fatalities for the last 46 months. The Group recorded
a 6-month lost time injury frequency rate ("LTIFR") of 0.48, higher than the
average 0.32 for 2023 due to two lost time injuries at the Group's barging
subsidiary First-DDSG Logistics Holding GmbH in June 2024.
Group and subsidiary six-month LTIFR
FPM 0.34 0.34 0.26 0.18
FYM 0 0.66 0.34 0
FBM 0 0 0 0
Ukraine 0.26 0.40 0.27 0.14
First-DDSG 3.87 - 0.88 1.80
Group 0.48 0.37 0.32 0.26
The Group has maintained a low incidence of safety incidents due to multi-year
projects implementing a strong safety culture at its operations, including
workforce engagement, safety training and regular monitoring of leading and
lagging safety indicators. This comprehensive approach has resulted in a
safety performance below the historic five year trailing average LTIFR of
0.52.
Pellet production and pellet quality
During the first six months of 2024, the Group has successfully operated three
out of four pelletiser lines, on a one, two or three at a time basis. The
Group announced its production for the first half of 2024 in its second
quarter 2024 production report on 8 July 2024. Total commercial production for
the period was 3,727,306 tonnes, comprising concentrate production of 429,865
tonnes and pellet production of 3,297,441 tonnes, of which FDP accounted for
162,645 tonnes.
The Group has continued to focus on high-grade production, with 100% of
production in the period being with an iron ore content of 65% or above.
Production of FDP pellets also restarted during the first six months of 2024,
the first time since the full-scale invasion.
Iron ore production
Direct Reduction Pellets ("FDP") 67% 162,645 - - - -
Premium Pellets 65% 2,836,331 1,828,481 +55% 1,966,933 +44%
Other Pellets 65% 298,465 49,911 +498% -
Total pellet production 3,297,441 1,878,392 +76% 1,966,933 +68%
Concentrate production (for sale) 67% 429,865 158,594 +171% 160,000 +169%
Total commercial production 3,727,306 2,036,986 +83% 2,126,933 +75%
Exploration projects
The Group has invested in licences for exploration-stage projects contiguous
to the north of Ferrexpo's established operations, along strike from the main
orebody. Due to the war, current efforts are desk-based, with the intention to
resume field work and drilling in the future.
Capital investment during 1H 2024
While certain capital expenditure plans have been suspended to conserve cash,
the Group continues to invest in programmes that can deliver shorter-term
efficiency and productivity benefits. For example, in the first half of 2024,
the Group installed and started the commissioning of the second stage of its
modern press filtration technology at the Pellets Production Workshop at FPM.
Manufactured by Metso Corporation, this technology lowers the moisture content
in the iron ore concentrate before pellet beneficiation, thereby significantly
improving the quality of iron ore pellets by strengthening finished products.
The technology also helps to reduce the consumption of natural gas in the
process furnace, where raw pellets are heated and dried until they solidify.
By optimising gas consumption, the technology allows Ferrexpo to save costs
and further reduce Scope 1 emissions.
New press filtration complex at FPM in operation
The level of the Group's current capital expenditures is also dependent on
operational and logistics constraints because of the ongoing war in Ukraine.
Taking also into account the Group's cash flow generation and the market
outlook for the remainder of 2024, the Group reconsidered the level of its
investments in sustaining capital expenditure projects, by reviewing and
optimising the level and timing of its repair activities.
Considering the currently existing constraints in Ukraine, the Group
reconsidered the timing of investments in its strategic development projects,
particularly with projects that are expected to deliver returns over the
medium to long term.
As such, investments made in major projects in the first half of 2024 include
US$17 million spent on the enhancement of the Group's press filtration complex
(1H 2023: US$7 million), which will help raise pelletising capacity in the
near term once operations return to full capacity and further enhance quality
of pellets produced. Furthermore, the Group continued to invest US$10 million
in the concentrator and pelletiser projects (1H 2023: US$9 million) as part of
the Wave 1 Expansion Programme due for previously entered commitments and US$2
million spent on stripping activities for future production growth (1H 2023:
US$17 million). Further expenditures of US$1 million relate to the development
and exploration of the Belanovo deposit (1H 2023: US$2 million) and US$1
million in a hydrolysis plant (1H 2023: US$1 million) for the trial of
hydrogen use as a fuel in the Group's pelletiser.
Marketing
With the ability to export through Ukrainian Black Sea ports during the first
half of 2024, the Group was able to produce more products for export to
customers in Europe (in addition to the established rail and barge routes) and
further afield to its customers in MENA and Asia.
The sales mix comprised of high grade commercial concentre and pellets,
including FDP pellets.
Sales by region
Europe, including Turkey 80% 100% 100%
MENA 2% - -
Asia 18% - -
Responsible business activities
Safety
The Group is pleased to report that there were no fatalities at its operations
in 1H 2024, following up on 2023 being the third consecutive year that we have
reported zero fatalities at our operations and the Group's operations continue
to perform below the five-year trailing average for its lost time injury
frequency rate.
Community support
Since the early stages of Russia's invasion of Ukraine in 2022, the Group has
sought to utilise its position as a business in Ukraine to source and provide
support throughout the communities where the Group operates. In response to
the humanitarian crisis in Ukraine, the Group has established the dedicated
Ferrexpo Humanitarian Fund, which combined with its regular CSR activities,
have operated over 100 programmes and initiatives.
Pathway to low carbon production
Whilst the war is having many effects on the Group's operations, work
continues to reduce greenhouse gas ("GHG") emissions and retain progress
achieved in previous years. In April 2024, the Group announced as part of its
Full Year Results for 2023 that it had achieved a 32% reduction in GHG
emissions since its baseline year of 2019.
To build confidence around the reporting of sustainability topics, the Group
completed an external assurance process on its 2023 reporting of GHG emission
and safety disclosures.
Table 8: Greenhouse gas emissions
Absolute emissions (tonnes CO(2)e)
Scope 1 (direct emissions, principally diesel and natural gas) 193 130 +48%
Scope 2 (indirect emissions, reflecting electricity consumption) 111 59 +90%
Group total 304 188 +61%
Unit emissions (kg CO(2)e per tonne of production)
Scope 1 54 62 -13%
Scope 2 31 28 +12%
Group total 85 90 -5%
As shown in the table above, the Group has reduced its emissions on a unit
basis in 1H 2024, while absolute Scope 1 and 2 emissions have risen with
increased production volumes for the 1H 2024 period. This progress has been
achieved through a combination of factors, which includes the following:
· Clean power purchasing. In 1H 2024, the Group continued to purchase
high levels of clean power, with 61% of electricity purchases coming from
clean sources such as hydro and nuclear power (1H 2023: 73%). Power
interruptions and sourcing alternative supply from neighbouring countries have
changed the availability of the power source mix and it is not certain that
the Group can continue to source as much clean power as it has in the past.
· Mining activities. Ferrexpo continues to operate its mining
activities at a reduced capacity compared to before the full-scale invasion,
however, it has successfully managed to restore some production during the
first six months of 2024. Consequently, the consumption of diesel increased
83% in 1H 2024 compared to 1H 2023, reflecting higher mining volumes.
· Processing and beneficiation activities. In line with increased ore
production, processing and beneficiation activities increased as up to three
pelletiser lines were operated during the period. The increased throughput and
product mix resulted in higher absolute emissions compared to previous
periods, as a result of increased natural gas consumption at the pelletising
plant for example, which increased 63% in 1H 2024 compared to 1H 2023.
However, compared to pre-war times, Scope 1 emissions intensity remains lower
at 54 kg CO(2)e per tonne of production compared to 57kg in 2021 as the Group
continues to optimise production to meet emissions targets.
The Group's Scope 3 emissions are dominated by the emissions generated by
steelmakers in the conversion of iron ore to steel, with this activity
representing 96% of Scope 3 emissions in 1H 2024 (1H 2023: 95%), and more than
85% of total emissions (Scopes 1, 2 and 3 combined). Ferrexpo's Scope 3
emissions footprint was 1.31 tonnes CO(2) per tonne of production in 1H 2024,
which represents a figure lower than 2023 due to an increase in the quantity
of FDP produced in the period that is used in the direct reduction steelmaking
route, which produces lower levels of emissions in steelmaking compared to the
traditional blast furnace steelmaking route.
As part of the steel value chain, the Group understands the importance of the
shift in thinking towards green steel - the production of steel without GHG
emissions. Whilst the projects outlined above will reduce the Group's carbon
footprint on a per tonne basis for Scope 1 and 2 emissions, over 90% of the
Group's overall carbon footprint per tonne relates to Scope 3 emissions, which
predominantly relate to the conversion of iron ore to steel. In the short
term, steelmakers are incentivised to use iron ore pellets as they offer blast
furnace steelmakers the opportunity to lower their carbon emissions by 40% for
every tonne of sinter fines substituted, but this is an existing benefit that
will not materially affect the Group's Scope 3 emissions. Longer term, the
Group is planning to lower its Scope 3 emissions by producing more FDP
pellets, which are typically converted to steel using a combination of
electricity and natural gas in the conversion process, and therefore have a
materially lower carbon footprint.
Veterans
Since the full-scale invasion of Ukraine 132 members of Ferrexpo's workforce
have been demobilised from the Armed Forces of Ukraine, of whom 66 have
returned to work. Ferrexpo maintains contact with colleagues whilst serving,
and after the formal decommissioning process, veterans are introduced to the
'Ferrexpo Veteran Support Programme'.
Initially, personal contact is made through the veteran's line manager. An
appropriate period of paid leave for resettling is agreed. Previous experience
suggests that getting back to work sooner rather than later can limit the risk
of mental health issues. At this early-stage, advice and support are provided
on any legal, administrative or financial issues. Medical examinations for
both physical and mental health are undertaken, with secondary screening when
needed.
Subsequently, Ferrexpo veterans will have the right to return to their
previous roles, or to a new role if their physical or mental health or other
circumstances does not allow this. The Group's support extends to ensuring
veterans are well-integrated back into the workforce. Additionally, Ferrexpo
provides opportunities for retraining and transitioning to new roles, as well
as offering help with retraining and finding new employment suited to their
new skills and health status.
In addition to immediate resettling support, Ferrexpo offers a comprehensive
social and material support programme. This includes an annual bonus and
retirement packages.
Ferrexpo has implemented a six-week training programme for managers and
colleagues of veterans. This programme teaches the basics of interacting with
individuals who have physiological disabilities and post-traumatic stress
disorder (PTSD), ensuring a supportive work environment for returning
veterans.
Women in the workplace
Ferrexpo was a pioneer in diversity and inclusion which is reflected today by
the highest ratio of female employees in the Ukrainian metals and mining
sector. At the end of June 2024 just over 31% of all employees are female and
the average number of women in management positions is 22.4% (with a target of
25% by the end of 2030)
Ferrexpo is a signatory of the "Declaration for achieving gender equality and
preventing domestic violence" initiated by the UN Population Fund, a member of
the 'Progression Project' initiated by Biasless, 'Together with the After
Tomorrow' NGO, UN Women Ukraine and the Women Empowerment Principles,
initiated by the UN Global Compact and UN Women.
The flagship initiative to advance women in the workplace is Ferrexpo's
'Fe_munity School of Women's Leadership', an educational platform and
programme completed by over 200 female leaders, aimed at obtaining the
necessary knowledge and competences for the further professional growth of
women. The platform was rolled-out at a national level, with over 50 Ukrainian
women from different regions and business sectors joining the programme, and
the first cohort of 50 young women and men completed the inaugural 'Fe_munity
Teens' programme in June this year. This programme was developed and run by
'Fe_munity Alumni', who are now, also providing mentoring support following
completion of the programme.
Chemical analysis laboratory assistant at FPM Surveyors at FYM
Chef at FYM canteen Shift foreman at pellet production workshop, FPM
The Group also founded the 'Ferrexpo School of Inclusion' which has provided
training for over 100 managers, covering the principles of inclusiveness,
gender equality and non-discrimination, and gained knowledge that contributes
to the support of ideas of tolerance, countering gender and other types of
stereotypes. This project was expanded to the community level and 30
representatives of local council and education facilities have now also
completed the training.
Other initiatives to advance women in the workplace include:
· The appointment of a Gender Equality Ambassador.
· Psychological training for female employees to remove mental barriers
that hinder the development of female leadership.
· Development and implementation of gender based KPIs.
· A Group-wide D&I study of the level of inclusivity in the Group.
· A Stem_Streamers quest was held for 100+ teenagers on the topic of
gender equality and inclusiveness to break down gender stereotypes.
· Introduction of DEI officer position.
· An industry leading number of employees have taken the national
'HeForShe' pledge and joined the 'HeForShe' solidarity movement for gender
equality.
· Introducing paternity leave for men before being made a legislative
requirement, including leave at the higher of either of a married employee
couples' salary.
· Ferrexpo was one of the first companies in the mining industry to
join the global action "16 days against gender-based violence".
Today, women are represented at all levels across the business, including in
what were previously 'typically male dominated' roles including surveyors,
geologist, truck drivers and gas welders.
Ferrexpo's efforts in female diversity and inclusion have been recognised with
awards such as the 'HR Pro Awards', and recognition as a top ten Ukrainian
employer according to the Ukrainian Index of Corporate Equality.
Responsible Business Report 2024
Later in the year the Group will release its eighth annual Responsible
Business Report.
Consideration of significant judgements and material uncertainties
In the course of preparing the interim condensed consolidated financial
statements, the Group's management team has had to make estimates and
judgements that have the potential to create a significant impact on the
Group's interim consolidated financial statements. The most critical
accounting estimates and judgements are disclosed in Note 2 Summary of
significant accounting policies of these interim condensed consolidated
financial statements. The critical estimates presented are predominantly
related to the computation of the value in use of the Group's non-current
operating assets as the Group's cash flows are still adversely affected by the
war in Ukraine.
Critical judgements made predominantly relate to: (a) the basis of preparation
of the Group's Interim Condensed Consolidated Financial Statements for 1H 2024
in respect of going concern assumptions made; (b) the application of tax
legislation in the jurisdictions the Group operates; and (c) the assessment of
matters in an environment of political, fiscal and legal uncertainties.
Going concern assessment and stress testing
The ongoing war in Ukraine continues to pose a threat to the Group's mining,
processing and logistics operations within Ukraine. The Group is also exposed
to the risks associated with operating in a developing economy such as an
environment of political, fiscal and legal uncertainties, which may or may not
be exacerbated by the war and/or the current circumstances facing the Group's
controlling shareholder (see Ukraine country risk in the Update on Principal
Risks section below). As a result, these factors therefore represent material
uncertainties in terms of the Group's ability to continue as a going concern.
As part of management's going concern assessment, the Group continuously
adjusts its long-term model to reflect the latest developments in terms of
currently possible sales and production volumes as well as expected realised
prices taking into account the situation on the global iron ore markets and
its productions costs. The latest base case of the long-term model shows that
the Group has sufficient available liquidity to continue its operations at a
reduced level for the entire period of the management's going concern
assessment.
See Note 2 Summary of significant accounting policies to these interim
condensed consolidated financial statements for further information on Group's
going concern assessment and stress testing.
Update on principal risks
Principal Risks are those considered to have the greatest potential impact on
the Ferrexpo business, assessed on the basis of impact and probability. The
Group considers the Principal Risks facing the business, including risk
associated with conflict, country risk, counterparty risk, the global demand
for steel, changes in pricing methodology, iron ore prices, pellet premiums,
seaborne freight rates, risks relating to producing our products, risks
relating to the delivery of our products, health and safety, operating costs,
information technology and cybersecurity, and climate change.
These principal risks detailed on pages 74 to 90 of the 2023 Annual Report and
Accounts (published in April 2024), remain relevant. An update on material
developments that relate to the Group's Principal Risks since their
publication in April 2024 is provided below.
Update since publication of Annual Report and Accounts in April 2024
Conflict risk and outlook
The primary consideration for Ferrexpo's risk profile at the present time is
Russia's invasion of Ukraine, and the impact that this is having, and will
continue to have, on Ferrexpo's business in Ukraine.
Since the Group published its Principal Risks in April 2024, the Russian army
has made small advances in the occupied territories of Ukraine. Ukraine has
also continued to suffer airborne attacks on civilians and civilian, energy
and transport infrastructure.
Ferrexpo's operations continue to operate, albeit with greater limitations on
working hours due to air raid alerts and occasional disruption to power
transmission. The previous blockade of Ukraine's Black Sea ports has been
alleviated with the establishment of a 'maritime safe passage' which has
allowed the Group to resume seaborne trade out of Ukraine's ports. As long as
the level of risk is acceptable, the Group will continue to use this export
route.
The conflict in Ukraine continues to represent a significant threat to
Ferrexpo's operations in Ukraine, should the war continue in its current
configuration, or even escalate further. The outlook for Ukraine at present
remains inherently unpredictable in the short to medium term, with a range of
military, financial and other factors all having a significant influence on
the outcome for the people of Ukraine and businesses deriving their revenues
from Ukraine. In the near term, it is expected that the conflict will continue
to put increasing strain on the economy of Ukraine, in particular with regard
to elevated electricity prices and railway tariffs.
For further information, please see the sections titled Sales and Marketing
Review and Financial Review in this report in addition to the Going Concern
Statement above.
Ukraine country risk
The Group's mining and processing operations are located in Ukraine, which is
a country currently under invasion by Russia.
For more information, please see the section titled "Conflict Risk", as well
as the Principal Risks section of the 2023 Annual Report and Accounts.
As a result of operating in a developing economy, the Group is subject to a
number of elevated risks, such as the fiscal and political stability of
Ukraine, independence of the judiciary, access to key inputs and capital,
exposure to monopolies and other influential businesses (particularly those
that are related parties to the government of Ukraine), in addition to a range
of other factors.
The independence of the judiciary system in Ukraine has been frequently
referenced in the Principal Risks section of the Group's 2023 Annual Report
and Accounts, and this is a consideration that remains particularly relevant
for the Group today. As described in Note 19 Commitments, contingencies and
legal disputes in the 2024 interim condensed consolidated financial
statements, the Group is currently subject to several legal proceedings in
Ukraine that are similar in part to previously heard legal proceedings, and it
cannot be guaranteed that the Ukrainian legal system will always provide a
ruling in line with the laws of Ukraine or international law.
As a result, the Group is exposed to an unclear fiscal and legal system in
Ukraine.
As referenced in the Group's 2023 Annual Report and Accounts, these matters
relate to the Group's controlling shareholder, and there is a risk that assets
owned or controlled (or alleged to be owned or controlled) by him may be
subject to restrictions, in Ukraine or elsewhere, or that the Group is
affected by and involved in legal proceedings relating to these matters, in
Ukraine or elsewhere.
At the present time, the Group is subject to a number of legal claims and
legislative actions in Ukraine that threaten how the business operates. Such
claims and actions include attempts to freeze the shareholding of Ferrexpo AG
in its operating subsidiaries, the inclusion of the subsidiary Ferrexpo
Belanovo Mining into Ukrainian sanctions list and the cancellation of the
mining licence for the Galeschynske deposit as a result, claims regarding iron
ore royalty payments, an investigation into the alleged illegal extraction of
minerals of national importance, in addition to contested surety claim from
third party.
For further information on ongoing legal disputes, please see Note 19
Commitments, contingencies and legal disputes to these interim condensed
consolidated financial statements.
Global steel demand and realised prices for iron ore pellets
Global steel prices have remained relatively rangebound in 2024, with European
hot rolled coil prices ranging between EUR625 and EUR770 per tonne
(Fastmarkets) and Asian prices remaining similarly rangebound too. Volatility
around input costs, including coking coal and iron ore, has therefore resulted
too in an overall uncertain margin environment. As a result, steel mills have
been pivoting toward a higher proportion of lower-grade iron ore in their
feedstock to control costs.
The Group expects that the longevity of the conflict in Ukraine will play a
significant role in the inflationary price environment currently being seen
throughout the commodity space. The war in Ukraine is resulting in numerous
supply-side disruptions in commodity markets, either through sanctions imposed
on Russia, or shifts in Russian supply away from western nations, and
therefore it can be expected that elevated energy costs, and therefore global
inflation, will persist for the foreseeable future whilst the conflict in
Ukraine continues.
Pellet premiums
Historically, pellet premiums have been correlated to steel mill profitability
as they are the most productive source of iron units in a blast furnace and
thus trade at a price premium to other types of iron ores. When steel producer
profitability is under pressure, the reduction in usage of higher cost raw
materials could lead to lower demand for iron ore pellets or a fall in pellet
premiums, which in turn will lower profitability for the Group.
Market mix and freight
Logistical constraints seen since the start of the full-scale Russian invasion
in 2022 that have limited the Group's ability to access the global iron ore
markets have eased this year, as a result of the reopening of the Ukrainian
Black Sea ports. However, seaborne freight costs remain high due to the
perceived higher levels of risk associated with shipping through the export
corridor and thus, pressuring the Group's profit margins via this channel.
Whilst the Group is now able to supply customers in MENA and Asia, the higher
logistics and freight costs associated with accessing these markets may
constrain the Group's ability to achieve the same profitability as it has done
so in the past prior to the 2022 full-scale invasion of Ukraine.
Directors' responsibility statement
The Interim Report complies with the Disclosure Guidance and Transparency
Rules ("DTR") of the United Kingdom's Financial Conduct Authority in respect
of the requirement to produce a half-yearly financial report. The preparation
of the Interim Report for the six months ended 30 June 2024 in accordance with
applicable laws, regulations and accounting standards is the responsibility
of, and has been approved by, the Directors.
We confirm that to the best of our knowledge:
· the condensed set of consolidated financial statements has been
prepared in accordance with IAS 34 as contained in UK adopted IFRS;
· the Interim Management Report includes a fair review of the
important events that have occurred during the first six months of the
financial year and their impact on the condensed financial statements, and
description of the principal risks and uncertainties for the remaining six
months of the financial year, as required by DTR4.2.7R; and
· the Interim Management Report includes a fair review of
disclosures of material related party transactions that have occurred in the
first six months of the financial year and of material changes in the related
party transactions described in the 2023 Annual Report and Accounts, as
required by DTR4.2.8R.
The Directors are also responsible for the maintenance and integrity of the
Ferrexpo plc website.
A list of current Directors is maintained on the Ferrexpo plc website, which
can be found at www.ferrexpo.com (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-months ended 30
June 2024 which comprises the Interim Consolidated Income Statement, the
Interim Consolidated Statement of Comprehensive Income, the Interim
Consolidated Statement of Financial Position, the Interim Consolidated
Statement of Cash Flows, the Interim Consolidated Statement of Changes in
Equity and the related explanatory Notes 1 to 22.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2024 is not prepared, in all
material respects, in accordance with International Accounting Standard
('IAS') 34 "Interim Financial Reporting", as adopted for use in the United
Kingdom and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued for use in the United Kingdom. A
review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with International
Standards on Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
As disclosed in Note 2 Basis of preparation, the annual financial statements
of the Group are prepared in accordance with International Financial Reporting
Standards adopted for use in the United Kingdom ("UK adopted IFRS"). The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
('IAS') 34 "Interim Financial Reporting", as adopted for use in the United
Kingdom.
Material Uncertainty Relating to Going Concern
We draw your attention to Note 2 Basis of preparation, which indicates that
management has assessed the ongoing armed conflict in Ukraine to pose a threat
to the Group's mining, processing and logistics operations within Ukraine and
on the ability of the Group to continue as a going concern due to the
unpredictable duration and severity of such events and circumstances, which
are outside of the Group's control. This indicates that a material uncertainty
exists that may cast significant doubt upon the Group's ability to continue as
a going concern.
In addition, there is a further material uncertainty as disclosed in Note 2
Basis of preparation, due to the application of local legislation in Ukraine
in respect of the outcome of the proceedings in which the Group is involved.
The award in favour of the claimant by the Ukraine Court of Appeal in the
contested sureties claim and the possible enforcement of such decision, has
imposed potential increased demand on the Group's current and future cash
resources, the timing of which is outside of Group management's control.
Furthermore, the opening of the creditor protection proceedings might
potentially affect Ferrexpo Poltava Mining's ability to continue as a going
concern and, as a result, also the Group's. These circumstances indicate the
existence of a material uncertainty that may cast significant doubt upon the
Group and Company's ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have failed to appropriately disclose all material uncertainties
relating to going concern
This conclusion is based on the review procedures performed in accordance with
ISRE 2410, however future events or conditions may cause the entity to
continue as a going concern.
Emphasis of Matters
We draw your attention to Note 19 Commitments, contingencies and legal
disputes, which describes the uncertainty in the application of local
legislation in Ukraine in respect of the outcome of the proceedings in which
the Group is involved.
We also draw your attention to Note 10 Property, plant and equipment and Note
19 Commitments, contingencies and legal disputes, which describes the
uncertainty related to the estimate of the recoverable amount of the Group's
Cash Generating Unit as a result of the ongoing war and ongoing legal
proceedings in Ukraine.
Our opinion is not modified in respect of either of these matters.
Responsibilities of Directors
The Directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the Directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our conclusions
relating to the material uncertainty relating to going concern, are based on
procedures that are less extensive than audit procedures, as described in the
Basis for Conclusion paragraph of this report.
Use of our Report
This report is made solely to the Company in accordance with guidance
contained in ISRE (UK) 2410 "Review of Interim Financial Information Performed
by the Independent Auditor of the Entity" issued by the Financial Reporting
Council. Our review work has been undertaken so that we might state to the
company those matters we are required to state to them in a review report and
for no other purposes. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company, for our
work, for this report, or for the conclusions we have formed.
MHA, Statutory Auditor
London, United Kingdom
30 July 2024
MHA is the trading name of MacIntyre Hudson LLP, a limited liability
partnership in England and Wales (registered number OC312313)
Interim Consolidated Income Statement
US$000 Notes 6 months ended 30.06.24 6 months ended 30.06.23 Year-ended
(unaudited) (unaudited) 31.12.23
(audited)
Revenue 3/4 548,535 334,010 651,795
Operating expenses 5 (508,418) (302,236) (616,107)
Other operating income 3,471 1,877 4,067
Operating foreign exchange gains 6 55,258 (42) 31,371
Operating profit 98,846 33,609 71,126
Recognition of provisions for legal disputes − − (131,117)
Share of profit/(loss) from associates 1,809 (162) (372)
Profit/(loss) before tax and finance 100,655 33,447 (60,363)
Net finance expense 7 (8) (641) (104)
Non-operating foreign exchange losses 6 (24,976) 2,640 (7,934)
Profit/(loss) before tax 75,671 35,446 (68,401)
Income tax expense 8 (20,181) (8,437) (16,352)
Profit/(loss) for the period/year 55,490 27,009 (84,753)
Profit/(loss) attributable to:
Equity shareholders of Ferrexpo plc 55,471 27,002 (84,775)
Non-controlling interests 19 7 22
Profit/(loss) for the period/year 55,490 27,009 (84,753)
Earnings/(loss) per share:
Basic (US cents) 9 9.43 4.59 (14.41)
Diluted (US cents) 9 9.26 4.54 (14.41)
Interim Consolidated Statement of Comprehensive Income
US$000 Notes 6 months ended 6 months ended 30.06.23 Year ended
31.12.23
30.06.24
(unaudited) (unaudited) (audited)
Profit/(loss) for the period/year 55,490 27,009 (84,753)
Items that may subsequently be reclassified to profit or loss:
Exchange differences on translating foreign operations 6 (84,417) 170 (54,855)
Income tax effect (3,369) - 1,479
Net other comprehensive loss that may be reclassified to profit or loss in (87,786) 170 (53,376)
subsequent periods
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains/(losses) on defined benefit pension liability 66 (68) 899
Net other comprehensive income not being reclassified to profit or loss in 66 (68) 899
subsequent periods
Other comprehensive loss for the period/year, net of tax (87,720) 102 (52,477)
Total comprehensive loss for the period/year, net of tax (32,230) 27,111 (137,230)
Total comprehensive loss attributable to:
Equity shareholders of Ferrexpo plc (32,227) 27,114 (137,244)
Non-controlling interests (3) (3) 14
(32,230) 27,111 (137,230)
Interim Consolidated Statement of Financial Position
US$000 Notes As at As at As at
30.06.24 31.12.23 30.06.23
(unaudited) (audited) (unaudited)
Assets
Property, plant and equipment 10 797,456 826,034 840,493
Right-of-use assets 11 3,497 6,852 3,838
Goodwill and other intangible assets 12 5,827 6,368 7,636
Investments in associates 6,077 4,616 5,005
Inventories 14 5,512 5,883 6,277
Other non-current assets 36,966 38,104 30,064
Deferred tax assets 8 9,247 10,149 14,168
Total non-current assets 864,582 898,006 907,481
Inventories 14 194,490 201,429 209,061
Trade and other receivables 74,536 82,321 45,387
Prepayments and other current assets 15 26,924 21,380 37,507
Income taxes recoverable and prepaid 8 65 2,432 1,739
Other taxes recoverable and prepaid 13 44,409 26,291 47,111
Cash and cash equivalents 3/16 115,131 115,241 134,903
Total current assets 455,555 449,094 475,708
Total assets 1,320,137 1,347,100 1,383,189
Equity and liabilities
Issued capital 20 121,628 121,628 121,628
Share premium 185,112 185,112 185,112
Other reserves 20 (2,763,945) (2,676,294) (2,622,857)
Retained earnings 3,538,375 3,482,883 3,593,693
Equity attributable to equity shareholders of Ferrexpo plc 1,081,170 1,113,329 1,277,576
Non-controlling interest 78 81 64
Total equity 1,081,248 1,113,410 1,277,640
Interest-bearing loans and borrowings 3/17 528 1,009 950
Defined benefit pension liability 15,974 16,518 17,379
Provision for site restoration 2,830 2,780 4,675
Deferred tax liabilities 8 3,333 2,729 1,334
Total non-current liabilities 22,665 23,036 24,338
Interest-bearing loans and borrowings 3/17 3,092 5,939 3,012
Trade and other payables 46,705 35,310 33,803
Provisions 19 119,979 128,050 −
Accrued and contract liabilities 16,691 17,328 15,730
Income taxes payable 8 16,239 15,202 18,792
Other taxes payable 13,518 8,825 9,874
Total current liabilities 216,224 210,654 81,211
Total liabilities 238,889 233,690 105,549
Total equity and liabilities 1,320,137 1,347,100 1,383,189
The financial statements were approved by the Board of Directors and
authorised for issue on 30 July 2024 and signed on behalf of the Board.
Lucio
Genovese
Nikolay Kladiev
Executive
Chair
Chief Financial Officer and Executive Director
Interim Consolidated Statement of Cash Flows
US$000 Notes 6 months ended 6 months ended Year ended
31.12.23
30.06.24 30.06.23
(unaudited) (unaudited) (audited)
Profit/(loss) before tax 75,671 35,446 (68,401)
Adjustments for:
Depreciation of property, plant and equipment, right-of-use assets and 5 33,606 29,561 57,669
amortisation of intangible assets
Net finance income 7 (1,242) (818) (2,536)
Losses on disposal and liquidation of property, plant and equipment 5 45 96 11
Write-(backs)/offs and impairments 5 (118) (180) 978
Share of (profit)/loss from associates (1,809) 161 372
Movement in allowance for doubtful receivables 3,978 2,559 4,403
Movement in site restoration provision 229 392 (1,377)
Employee benefits 1,707 1,830 3,518
Share-based payments 114 719 830
Recognition of provisions for legal disputes − − 131,117
Operating foreign exchange (gains)/losses 6 (55,258) 42 (31,371)
Non-operating foreign exchange losses/(gains) 6 24,976 (2,640) 7,934
Operating cash flow before working capital changes 81,899 67,168 103,147
Changes in working capital:
Increase in trade and other receivables (3,381) (38,539) (71,946)
(Increase)/decrease in inventories (4,327) 15,588 15,930
Increase/(decrease) in trade and other payables (incl. accrued and contract 14,003 (630) 6,724
liabilities)
(Increase)/decrease in other taxes recoverable and payable (incl. VAT) (18,054) 44,737 62,554
Cash generated from operating activities 70,140 88,324 116,409
Interest paid (8) (191) (223)
Income tax paid (13,406) (6,948) (12,779)
Post-employment benefits paid (1,202) (1,079) (2,238)
Net cash flows from operating activities 55,524 80,106 101,169
Cash flows (used in)/from investing activities
Purchase of property, plant and equipment and intangible assets (55,371) (58,415) (101,247)
Proceeds from disposal of property, plant and equipment and intangible assets 32 69 91
Interest received 1,904 1,953 4,608
Net cash flows used in investing activities (53,435) (56,393) (96,548)
Cash flows used in financing activities
Principal elements of lease payments 17 (2,846) (2,703) (5,410)
Dividends paid to equity shareholders of Ferrexpo plc 9 (44) (449) (456)
Net cash flows used in financing activities (2,890) (3,152) (5,866)
Net (decrease)/increase in cash and cash equivalents (801) 20,561 (1,245)
Cash and cash equivalents at the beginning of the period/year 115,241 112,945 112,945
Currency translation differences 691 1,397 3,541
Cash and cash equivalents at the end of the period/year 16 115,131 134,903 115,241
Interim Consolidated Statement of Changes in Equity
For the financial year 2023 and the six months ended Attributable to equity shareholders
30 June 2024 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 2022 (audited) 121,628 185,112 (2,636,891) 3,580,329 1,250,178 67 1,250,245
(Loss)/profit for the year − − − (84,775) (84,775) 22 (84,753)
Other comprehensive (loss)/income − − (53,368) 899 (52,469) (8) (52,477)
Total comprehensive (loss)/profit for the year − − (53,368) (83,876) (137,244) 14 (137,230)
Equity dividends to shareholders of Ferrexpo plc − − − (435) (435) − (435)
(Note 9)
Share-based payments − − 830 − 830 − 830
Effect from transfer of treasury shares (Note 20) - - 13,135 (13,135) - - -
At 31 December 2023 (audited) 121,628 185,112 (2,676,294) 3,482,883 1,113,329 81 1,113,410
Profit/(loss) for the period - - - 55,471 55,471 19 55,490
Other comprehensive loss - - (87,764) 66 (87,698) (22) (87,720)
Total comprehensive loss for the period - - (87,764) 55,537 (32,227) (3) (32,230)
Equity dividends paid to shareholders of Ferrexpo plc (Note 9) - - - (45) (45) - (45)
Share-based payments - - 113 - 113 - 113
At 30 June 2024 (unaudited) 121,628 185,112 (2,763,945) 3,538,375 1,081,170 78 1,081,248
For the six months ended 30 June 2023 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 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/(loss) 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
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, the
U.A.E. (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.
The ongoing war in Ukraine continued to impact the Group's activities in the
first half of the financial year 2024, as the availability of certain logistic
networks and its cost bases are still affected. Despite the continued
difficult business environment, the Group has managed to continue its
operations throughout the first half of the financial year 2024, albeit the
mining and processing plans had still to be aligned with the logistics network
available for sales to its customers in the various markets as it was done
since the beginning of the war. While the power supply has stabilised since
the second quarter for most of the 2023 financial year, the intensified
Russian attacks on power generation and distribution facilities in Ukraine in
the first half of the financial year 2023 has again impacted the Group's
production challenges and could have a further negative impact in future
periods. As at the date of the approval of these interim condensed
consolidated financial statements, the war is still ongoing and continues to
pose a significant threat to the Group's mining, processing and logistics
operations within Ukraine. In addition to the war-related material
uncertainty, the Group is also exposed to the risks associated with operating
in a developing economy, which may or may not be exacerbated by the war and/or
the current circumstances facing the Group in Ukraine. See Note 2 Summary of
significant accounting policies, Note 10 Property, plant and equipment and
Note 19 Commitments, contingencies and legal disputes 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 49.3% (31 December 2023: 49.3%; 30 June 2023:
49.5%) 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
2023 Annual Report & Accounts.
At 30 June 2024, the Group also holds through PJSC Ferrexpo Poltava Mining an
interest of 49.9% (31 December 2023: 49.9%; 30 June 2023: 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 2024 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 2023.
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 2023. 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) did not contain a
statement under section S498(2) or S498(3) of the Companies Act 2006, but
(iii) included a separate section with regard to material uncertainties
related to going concern as a result of the ongoing war and the application of
local legislation in Ukraine in respect of the outcome of the proceedings in
which the Group is involved. The audit report also drew attention to the
uncertainty in the application of local legislation in Ukraine in respect of
the outcome of the proceedings in which the Group is involved and to the
uncertainty related to the estimate of the recoverable amount of certain
assets of the Group as result of the ongoing war and ongoing legal proceedings
in Ukraine..
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 is still ongoing and the duration and
impact on the Group's operation is difficult to predict. However, the Group
continued to demonstrate a high level of commitment and resilience also during
the six month period ended 30 June 2024 and was able to adapt to the constant
challenges with which it was confronted. As a result, the Group gained
invaluable experience in operating a large-scale business more nimbly,
embedding flexibility into the operations and working practices. With the
re-gained access to the Ukrainian Black Sea ports during the reporting period,
the Group was able to respond quickly and bring back idled capacity, achieving
the Group's best production result since the full-scale invasion of Ukraine.
The difficult environment in which the Group has been operating since the
beginning of the war and the resulting situation in the country continues to
represent a material uncertainty in terms of the Group's ability to continue
as a going concern. In addition to the war-related material uncertainty, the
Group is also exposed to the risks associated with operating in a developing
economy, which may or may not be exacerbated by the war and/or the current
circumstances facing the Group's controlling shareholder (see Ukraine country
risk in the Update on Principal Risks section. 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 represents another material uncertainty as at
the date of the approval of these interim condensed consolidated financial
statements.
As in the previous financial years since the beginning of the war, the Group's
production level is aligned to the sales currently possible based on the
available logistics network. In addition, the Group's production volume is
also dependent on a constant power supply in Ukraine, which was affected in
the first half of 2024 by Russian attacks on power generation and transmission
infrastructure in Ukraine, which has, together with the availability of the
required logistics network, an impact on the Group's cash flow generation and
profitability. The Group's ability to operate its assets also depends on
constant and sufficient supply of other key input materials required for the
mining and production processes as well as maintaining an adequate number of
experienced and skilled members of the workforce in Ukraine.
Despite the continued challenging situation during the six-month period ended
30 June 2024, the Group increased its commercial production to 3,297 thousand
tonnes of iron ore pellets, representing an increase of 68% compared to the
period ended 30 June 2023, and sold 3,849 thousand tonnes of its products,
compared to 2,085 thousand tonnes during the six-month period ended 30 June
2023. As a result, the Group's net cash position slightly increased from
US$108,293 thousand at the beginning of the year to US$111,511 thousand as at
30 June 2024, despite pressure on prices for key input materials and continued
investment in sustaining and efficiency capital expenditure projects to ensure
asset integrity and some efficiency gains. 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$107,300 thousand with an available cash
balance of approximately US$110,900 thousand. In addition to the available
cash balance, the Group has an outstanding trade receivable balance of
approximately US$50,500 thousand from its pellet and concentrate sales, which
are expected to be collected in the next few months, and finished goods
already stockpiled at different ports or storage locations other than the
plant of 206 thousand tonnes.
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 the lower production
volumes, compared to pre-war levels. This long-term model is also used for the
impairment test of the Group's non-current operating assets and the key
assumptions used when preparing this model are disclosed in Note 10 Property,
plant and equipment.
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, even 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 volume of 45% of the pre-war level for the financial year 2024,
before an increase to approximately 80% in 2025 and an expected recovery to
pre-war levels in 2026. However, as mentioned above, the production and sales
volumes are dependent on the logistics network available and a constant power
supply to the Group as well as other potential adverse effects on the Group's
operation as a result of the ongoing war. 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 historical natural hedge between 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 deplete its available cash balance by December 2024, without making use
of any available mitigating actions within its control, such as further
reductions of uncommitted development capital expenditure and operating costs.
As disclosed in the Group's 2023 Annual Report & Accounts, the ongoing 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 in Ukraine, which could have a
material negative impact on the Group's business activities and reputation,
although the financial impact cannot be reasonably quantified. The Group
announced on 29 January 2024 that a Ukrainian court of appeal has confirmed a
claim against Ferrexpo Poltava Mining ("FPM") in the amount of UAH4,727
million (US$116,608 thousand as at 30 June 2024), in respect of contested
sureties (see Note 19 Commitments, contingencies and legal disputes for
further details). The claim and court decision are another example of the risk
of operating in a dynamic and adverse political landscape in Ukraine, which
creates additional challenges for both the Group's subsidiaries in Ukraine
and, also for the Group itself. Although the Group's management is of the
opinion that this claim is without merit and FPM has appealed this decision to
the Supreme Court of Ukraine, considering the magnitude of this specific claim
and the risks associated with the judicial system in Ukraine, the outcome of
this ongoing legal dispute represents a material uncertainty in terms of the
Group's ability to continue as a going concern. In accordance with the
requirements of IAS 37 Provisions, contingent liabilities and contingent
assets, the Group recorded a full provision for this claim as at 31 December
2023. A future cash outflow, which also depends on the details and
technicalities of a possible enforcement in the event of a negative decision
by the Supreme Court, is likely to have a significant impact on the Group's
future cash flow generation and available liquidity.
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;
· the feasibility and effectiveness of all available mitigating actions
within the Group management's control for identified uncertainties; and
· the legal merits in terms of the ongoing legal dispute mentioned
above and potential future actions available to protect the interests of the
Group in case of a negative decision from the Supreme Court,
there remains a material uncertainty in respect of the ongoing war and the
legal dispute in Ukraine, which are outside of the Group management's control,
with the duration and the impact of the war still unable to be predicted, and
the uncertainty in relation to the independence of the judicial system and its
immunity from economic and political influences in Ukraine.
In respect of the contested sureties claim mentioned above, the Supreme Court
suspended on 1 April 2024 the possible enforcement of the decision of the
Ukrainian court of appeal, so that such enforcement procedures cannot be
initiated by the claimant until a final decision is made by the Supreme Court,
or the Supreme Court's suspension order is otherwise lifted. As at the date of
the approval of these interim condensed consolidated financial statements, no
decision has been made by the Supreme Court in the contested sureties claim.
The commencement of the enforcement procedures could potentially have a
material negative impact on the Group's business activities and its ability to
continue as a going concern. See Note 19 Commitments, contingencies and legal
disputes for further information, which should be read in conjunction with
this note.
A supplier and related party to the Group filed in February 2024 an
application to open bankruptcy proceedings ("creditor protection proceedings")
against FPM for an amount of UAH4.6 million (US$113 thousand as at 30 June
2024). FPM settled this debt on 18 July 2024 and submitted all documents to
the court for consideration to avoid the possible opening of such creditor
protection proceedings. Although FPM fulfilled its obligations, the risk of
opening of the creditor protection proceedings remains until closed by the
court. An opening of the creditor protection proceedings might affect FPM's
ability to continue as a going concern and, as a consequence, also the Group.
See Note 19 Commitments, contingencies and legal disputes for further
information, which should be read in conjunction with this note.
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 affected by the ongoing war, 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 for further
information.
Considering the current situation of the ongoing war and legal disputes in
Ukraine, mainly the contested sureties claim, the Group's ability to swiftly
adapt to the changing circumstances caused by the war, as demonstrated during
the financial years 2023 and 2022, 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, as
explained above, many of the identified uncertainties in respect of the
ongoing war and legal disputes are outside of the Group management's control,
and are unpredictable, which may cast significant doubt upon the Group's
ability to continue as a going concern, including a potential seizure or
forced sale of the Group's assets in Ukraine, including movable, immovable and
financial assets, in respect of the contested sureties claim. See Note 10
Property, plant and equipment and Note 14 Inventories for further information.
For more information on critical judgements made by management in preparing
these interim condensed consolidated financial statements, see also Note 19
Commitments, contingencies and legal disputes in respect of other ongoing
legal proceedings and disputes.
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 interim condensed 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 2023, except for the adoption of the new
standards, interpretations and amendments to IFRSs listed below that became
effective as of 1 January 2024, although without an impact on the Group's
interim condensed consolidated financial statements as at 30 June 2024.
· Amendments to IAS 1 Presentation of Financial Statements provide
guidance on the classification of liabilities with covenants, and further
clarify the classification criteria for liabilities as either current or
non-current.
· Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial
Instruments: Disclosures clarify the characteristics of supplier finance
arrangements and require additional disclosure of such arrangements to
understand the effects of supplier finance arrangements on an entity's
liabilities, cash flows and exposure to liquidity risk.
· Amendments to IFRS 16 Leases specify the requirements that a
seller-lessee uses in measuring the lease liability arising in a sale and
leaseback transaction, to ensure the seller-lessee does not recognise any
amount of the gain or loss that relates to the right of use it retains.
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) as
a result of the ongoing war and 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;
· the application of tax legislation in the jurisdictions the Group
operates (Note 8 Taxation); and
· the assessment of ongoing legal proceedings and claims 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 2023. 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 amended its definition of Underlying EBITDA during period ended 30 June
2024 by excluding operating foreign exchange gains and losses. The full
definition of Underlying EBITDA and details in respect of the amended
definition are provided in the Alternative Performance Measures ("APMs")
section.
US$000 Notes 6 months ended Restated Restated
30.06.24 6 months ended Year ended
31.12.23
30.06.23
(unaudited) (unaudited) (audited)
Profit/(loss) before tax and finance 100,655 33,447 (60,363)
Losses on disposal and liquidation of property, plant and equipment 5 45 96 11
Share-based payments 113 719 830
Write-(backs)/offs and impairments 5 (118) (180) 978
Recognition of provisions for legal disputes - - 131,117
Depreciation and amortisation 5 33,606 29,561 57,669
Operating foreign exchange (gains)/losses 6 (55,258) 42 (31,371)
Underlying EBITDA 79,043 63,685 98,871
US$000 Notes 6 months ended 6 months ended 30.06.23 Year ended
31.12.23
30.06.24
(unaudited) (unaudited) (audited)
Revenue 4 548,535 334,010 651,795
Cost of sales 5 (314,221) (182,364) (362,495)
Gross profit 234,314 151,646 289,300
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 30.06.24 As at 31.12.23 As at 30.06.23
(unaudited) (audited) (unaudited)
Cash and cash equivalents 16 115,131 115,241 134,903
Interest-bearing loans and borrowings - current 17 (3,092) (5,939) (3,012)
Interest-bearing loans and borrowings - non-current 17 (528) (1,009) (950)
Net cash 111,511 108,293 130,941
Except for lease liabilities, the Group does not have any outstanding
interest-bearing loans and borrowings as at 30 June 2024 and the end of the
comparative periods ended 31 December 2023 and 30 June 2023.
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 in the APM section.
Note 4: Revenue
Revenue for the six-month period ended 30 June 2024 consisted of the
following:
US$000 6 months ended 6 months ended 30.06.23 Year ended
31.12.23
30.06.24
(unaudited) (unaudited) (audited)
Revenue from sales of iron ore pellets and concentrate 491,000 305,598 598,909
Freight revenue related to sales of iron ore pellets and concentrate 31,334 - 652
Total revenue from sale of iron ore pellets and concentrate 522,334 305,598 599,561
Revenue from logistics and bunker business 22,709 25,675 45,343
Revenue from other sales and services provided 3,492 2,737 6,891
Total revenue 548,535 334,010 651,795
Information on the commodity risk related to provisionally priced sales are
provided in Note 18 Financial instruments.
Total revenue from sales of iron ore pellets and concentrate by geographical
destination were as follows:
US$'000 6 months ended 6 months ended 30.06.23 Year ended
31.12.23
30.06.24
(unaudited) (unaudited) (audited)
Europe, including Turkey 419,527 305,907 599,869
China & South East Asia 89,965 (84) (83)
Middle East & North Africa 12,842 (225) (225)
Total revenue from sale of iron ore pellets and concentrate 522,334 305,598 599,561
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. The Group's sales of
iron ore pellets and concentrate are still impacted by the ongoing war in
Ukraine as it was also the case for the comparative periods ended 30 June 2023
and 31 December 2023. The Group's seaborne sales through the Ukrainian Black
Sea ports were suspended since the beginning of the war, but resumed again
during the six-month period ended 30 June 2024, albeit still at a
significantly lower level and at higher costs due to war related risk premiums
to be paid.
Note 5: Operating expenses
Operating expenses for the six-month period ended 30 June 2024 consisted of
the following:
US$000 6 months ended 6 months ended 30.06.23 Year ended
31.12.23
30.06.24
(unaudited) (unaudited) (audited)
Cost of sales 314,221 182,364 362,495
Selling and distribution expenses 147,750 73,667 161,315
General and administrative expenses 31,968 31,586 63,509
Other operating expenses 14,479 14,619 28,788
Total operating expenses 508,418 302,236 616,107
Total operating expenses include:
US$000 6 months ended 6 months ended 30.06.23 Year ended
31.12.23
30.06.24
(unaudited) (unaudited) (audited)
Inventories recognised as an expense upon sale of goods 304,935 167,033 339,349
Employee costs (excl. logistics and bunker business) 42,091 38,564 73,924
Inventory movements 9,469 8,385 3,910
Depreciation of property, plant and equipment and right-of-use assets 3 33,380 29,181 56,294
Amortisation of intangible assets 3 226 380 1,375
Royalties 19,675 12,928 24,693
Costs of logistics and bunker business 27,756 27,587 57,739
Audit and non-audit services 971 1,267 1,924
Community support donations 3,685 1,672 3,781
Write-(backs)/offs and impairments (118) (180) 978
Losses on disposal and liquidation of property, plant and equipment 45 96 11
US$000 Notes 6 months ended 6 months ended 30.06.23 Year ended
31.12.23
30.06.24
(unaudited) (unaudited) (audited)
Write-(backs)/offs of inventories (123) (196) 177
Write-off of property, plant and equipment 5 16 606
Write-off of receivables and prepayments − - 195
Total write-(backs)/offs (118) (180) 978
Note 6: Foreign exchange gains and losses
Foreign exchange gains and losses for the six-month period ended 30 June 2024
consisted of the following:
US$000 6 months ended 6 months ended 30.06.23 Year ended
31.12.23
30.06.24
(unaudited) (unaudited) (audited)
Operating foreign exchange gains/(losses)
Conversion of trade receivables 55,162 1 31,685
Conversion of trade payables 26 (19) (177)
Others 70 (24) (137)
Total operating foreign exchange gains/(losses) 55,258 (42) 31,371
Non-operating foreign exchange (losses)/gains
Conversion of interest-bearing loans (26,196) 598 (11,740)
Conversion of cash and cash equivalents 398 1,903 1,895
Others 822 139 1,911
Total non-operating foreign exchange (losses)/gains (24,976) 2,640 (7,934)
Total foreign exchange gains 30,282 2,598 23,437
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 are
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 devalued from 37.982 to 40.537 (-7%) compared to the US
dollar during the period ended 30 June 2024. The local currency was unchanged
at 36.568 from 21 July 2022 to the comparative period ended 30 June 2023,
before depreciating to 37.982 during the last quarter of 2023. A devaluation
of the local currency can result in significant foreign exchange gains on US
dollar denominated receivable balances, depending on the underlying net
balances, and a reduction of the Group's net assets as a significant portion
of assets and liabilities of the Ukrainian subsidiaries are denominated in the
local currency.
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
30.06.24 ended ended 30.06.24 31.12.23 30.06.23
30.06.23 31.12.23
UAH 39.009 36.569 36.574 40.537 37.982 36.569
EUR 0.925 0.925 0.925 0.933 0.906 0.919
Note 7: Net finance expense
Finance expense and income for the period ended 30 June 2024 consisted of the
following:
US$000 6 months ended 6 months ended 30.06.23 Year ended
31.12.23
30.06.24
(unaudited) (unaudited) (audited)
Finance expense
Interest expense on loans and borrowings (1) (35) −
Net interest on defined benefit plans (1,249) (1,459) (2,640)
Bank charges (296) (701) (1,118)
Interest expense on lease liabilities (106) (55) (85)
Other finance costs (260) (343) (859)
Total finance expense (1,912) (2,593) (4,702)
Finance income
Interest income 1,897 1,952 4,602
Other finance income 7 - (4)
Total finance income 1,904 1,952 4,598
Net finance expense (8) (641) (104)
Except for lease liabilities, the Group does not have any outstanding
interest-bearing loans and borrowings and no borrowing costs are therefore
capitalised. 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 the U.A.E. (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 2024, the income tax expense was recorded based on an
expected weighted average statutory income tax rate of 23.7% for the financial
year 2024 (30 June 2023: 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 2024 is 26.7% (30 June 2023: 23.8%; 31
December 2023: 26.1% before the effect of the recognised provision for legal
disputes in the amount of US$131,177 thousand), which results from the net
effects of an under-provision for a previous year of US$1,477 thousand and a
withholding tax expense of US$588 thousand incurred on intercompany dividend
payments included in income tax expense. Without these special effects, the
effective tax rate would have been 23.9% (30 June 2023: 13.3%; 31 December
2023: 15.1%).The effective tax rates for the comparative periods were affected
by the release of a tax provision for a previous year (30 June 2023: US$7,174
thousand; 31 December 2023: US$7,174 thousand), an additional allowance on
deferred tax assets (30 June 2023: US$4,813 thousand; 31 December 2023:
US$10,145 thousand) and withholding tax expense on intercompany dividends (30
June 2023: US$3,166 thousand; 31 December 2023: US$3,943 thousand) included in
the total income tax expense.
The income tax expense for the period ended 30 June 2024 consisted of the
following:
US$000 6 months ended 6 months ended 30.06.23 Year ended
31.12.23
30.06.24
(unaudited) (unaudited) (audited)
Current income tax
Current income tax charge 17,554 15,204 12,672
Amounts related to previous years 1,885 (7,057) (1,601)
Total current income tax 19,439 8,147 11,071
Deferred income tax
Origination and reversal of temporary differences 742 290 5,281
Total deferred income tax 742 290 5,281
Total income tax expense 20,181 8,437 16,352
The net income tax payable as at 30 June 2024 consisted of the following:
US$000 6 months ended 30.06.24 Year ended 6 months ended 30.06.23
31.12.23
(unaudited) (audited) (unaudited)
Income tax receivable balance 65 2,432 1,739
Income tax payable balance (16,239) (15,202) (18,792)
Net income tax payable (16,174) (12,770) (17,053)
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.
In connection with two audits initiated by the State Tax Service of Ukraine
("STS") , formerly known as State Fiscal Service of Ukraine ("SFS"), on 18
February and on 14 June 2021 the Group's two major subsidiaries in Ukraine
received tax audit reports on 13 September 2023 and 8 November 2023, stating
potential claims for underpayment of corporate profit taxes in Ukraine of
UAH2,162 million (US$53,333 thousand as at 30 June 2024), including fines and
penalties, and UAH259 million (US$6,389 thousand as at 30 June 2024), without
potential fines and penalties, respectively. The two claims received are in
relation to cross-border transactions for iron ore products between the two
Ukrainian subsidiaries of the Group and two subsidiaries of the Group outside
of Ukraine during the financial years 2015 to 2017. Both subsidiaries filed
the objections against the potential claims stated in the tax audit reports
received and the first preparatory meetings took take place in April and May
2024 and the preparatory hearings are still ongoing and, as a result, no final
decisions have been made for the claims received by the Group's subsidiaries
in Ukraine.
Based on past experience, it is to be expected that no agreements will be
reached with the tax authorities and that the claims will be heard by the
courts in Ukraine. The amount stated in one of the tax audit reports is
excluding potential fines and penalties and the magnitude of fines and
penalties for this specific claim may not be known until the final tax report
is issued by the tax authorities.
Despite a partially negative verdict of the Supreme Court received in respect
of claims made by the SFS as a result of a tax audit of cross-border
transactions for the period from 1 September 2013 to 31 December 2015, it is
still the Group's position that the two Ukrainian subsidiaries have complied
with the applicable legal provisions in all its cross-border transactions
based on the relevant technical grounds, including those during the financial
years 2015 to 2017 for which the substantial claims have been received. It is
the Group's position that the STS used the verdict of the Supreme Court on the
claims for the period from 1 September 2013 to 31 December 2015 as a precedent
for the claims made for cross-border transactions during the financial years
2015 to 2017, although the Supreme Court did not appropriately consider
relevant technical grounds and the applicable legislation when ruling on this
specific case.
In terms of the claims received, the Group will continue to defend its
methodology applied to determine the prices between its subsidiaries in the
Ukrainian courts, 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. As at the date of the approval of these interim condensed
consolidated financial statements, no final court decisions have been made for
the claims received by the two Ukrainian subsidiaries of the Group totalling
UAH2,162 million (US$53,333 thousand as at 30 June 2024) and UAH259 million
(US$6,389 thousand as at 30 June 2024) and, as a consequence, no provisions
have been recorded as at 30 June 2024, neither for the claims received nor for
any subsequent years, which might also be material, as it is impossible to
reasonably quantify the potential exposure. See Note 19 Commitments,
contingencies and legal disputes for further information.
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. FPM cooperated with the SBI and
provided the requested information as per the court ruling to support these
investigations. Except for the SBI raid of FPM offices on 20 October 2023,
which intended to collect documents and information for ongoing transfer
pricing investigations there have been no further actions or new requests.
In accordance with the provisions of IFRIC 23 Uncertainty over income tax
treatments, the Group reviewed and reassessed its exposure in respect of all
uncertain tax positions, including the claims received and for cross-border
transactions in subsequent years. It is the position of the management of the
Group and the Group's external tax advisors that 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. Considering the uncertainties in terms
of the legal and tax framework in Ukraine, the Group will continue to defend
its pricing methodology applied during all the 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, as it was the case in respect of the legally binding decision
of the Supreme Court received in June 2022. See also the Update on Principal
Risks section for further information on the Ukraine country risk.
Except for the matters in Ukraine mentioned above, the Group is not aware of
any other significant 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 2024 consisted of the
following:
US$000 6 months ended 30.06.24 Year ended 6 months ended 30.06.23
31.12.23
(unaudited) (audited) (unaudited)
Total deferred tax assets 9,247 10,149 14,168
Total deferred tax liabilities (3,333) (2,729) (1,334)
Net deferred tax assets 5,914 7,420 12,834
The net deferred tax asset balance of US$6,152 thousand includes net deferred
tax assets totalling US$9,166 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
net deferred tax assets in Ukraine are net of an allowance of US$20,324
thousand (31 December 2023 US$20,407 thousand; 30 June 2023: US$15,562
thousand). 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. Due to 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. Based on the
forecast taxable profits of the Ukrainian subsidiaries for the period covered
by the going concern assessment and the expected timing of the unwind of some
of the temporary differences, no additional allowances were to be booked as at
the end of the six-month period ended 30 June 2024. Temporary differences of
US$490,900 thousand, including the effect from the allowance mentioned above,
have not been recognised as at 30 June 2024 (December 2023: US$442,192
thousand). The vast majority relates to impairment losses of US$227,137
thousand and provisions for legal disputes of US$131,117 thousand related to
previous years.
The level of taxable profits of the Group's subsidiaries in the different
jurisdictions depends on many factors, such as the volatility in the global
iron pellet market and foreign exchange rate changes, but also on the
implications of the ongoing war in Ukraine, mainly in terms of the available
logistics network in the country.
BEPS - Pillar Two
Whilst the Group's consolidated revenues were less than EUR750 million for the
financial year 2023, the Group is considered to be in the scope of the BEPS
Pillar Two Model Rules as the consolidated revenues for the financial years
2022 and 2021 were well above the threshold set and this level is expected to
be achieved again once the war in Ukraine comes to an end.
The Group makes use of the temporary exception issued by the IASB in May 2023
in respect of the accounting requirements for deferred taxes under IAS 12. As
a result, the Group does neither recognise nor disclose any information on
deferred tax assets and liabilities related to Pillar Two income taxes in its
interim condensed consolidated financial statements, which is consistent with
the application in the Group's annual financial statements for the financial
year 2023.
Based on the BEPS Pillar Two Global Anti-Base Erosion ("GloBE") Model Rules,
the parent company of the Group, Ferrexpo plc with its tax domicile in
Switzerland, is the Ultimate Parent Entity ("UPE") and, as a result, the
enacted legislation in Switzerland is most relevant for the Group. On 22
December 2023, the Swiss government enacted the Pillar Two income taxes
legislation effective from 1 January 2024. The legislation in Switzerland
currently only provides for the Qualifying Domestic Minimum Top-up Tax
("QDMTT") and the implementation of the other elements of the BEPS Pillar Two
Rules, including the Income Inclusion Rule ("IIR") and the Undertaxed Profits
Rule ("UTPR") is postponed.
Although the Group's effective tax rate for the six-month period ended 30 June
2024 is well above the minimum tax rate of 15.0%, there are two jurisdictions
where the Group is operating with enacted statutory tax rates below the
minimum tax rate of 15.0% set under the BEPS Pillar Two Model Rules. As a
result of the legislation enacted in Switzerland, the Group's subsidiaries in
Switzerland are subject to the QDMTT for taxable profits from the financial
year 2024 whereas those of the Group's subsidiary in the U.A.E. (Dubai) are
neither subject to IIR or UTPR in any other jurisdiction, as not implemented
by the relevant tax jurisdictions. It is expected that the profits of this
subsidiary will become subject to taxation under the IIR or UTPR as of 1
January 2025.
Based on the expected profit split for the financial year 2024 and considering
the effects from the QDMTT, the IIR and the UTPR under the BEPS Pillar Two
GloBE Model Rules, the impact on the Group's income tax expense is expected to
be insignificant.
The Group's future effective tax rate, before any special items included in
the profit before tax for the period and the income tax expense, is expected
to be in a range of 17.0% to 19.0%. The Group's 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 that 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 30.06.24 (unaudited) 6 months ended 30.06.23 (unaudited) Year ended 31.12.23
(audited)
Earnings/(loss) for the period/year attributable to equity shareholders - per
share in US cents
Basic 9.43 4.59 (14.41)
Diluted 9.26 4.54 (14.41)
Profit/(loss) for the period/year attributable to equity shareholders - US$000
Basic and diluted earnings/(loss) 55,471 27,002 (84,775)
Weighted average number of shares - thousands
Basic number of ordinary shares outstanding 588,335 588,212 588,274
Effect of dilutive potential ordinary shares 10,709 6,706 8,847
Diluted number of ordinary shares outstanding 599,044 594,918 597,121
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 six-month period ended 30 June 2024 as at the
date of the approval of these interim condensed consolidated financial
statements. Considering the provisions of the Companies Act 2006 and relevant
thin capitalisation rules, the total available distributable reserves of
Ferrexpo plc would be approximately US$119,520 thousand for the remainder of
the financial year 2024.
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. Distributable profits at subsidiaries' level are
also subject to potential impairment losses to be or already recorded in the
respective stand-alone statutory financial statements as a result of
war-related uncertainties. Certain Group companies are currently restricted
from paying dividends outside of Ukraine as a result of Ukrainian currency
control measures imposed under Martial Law. Furthermore, 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 also have a negative impact on
Ferrexpo plc's ability and potential for future dividend payments. As at 31
December 2023, one of the Group's subsidiaries in Ukraine recognised
provisions for legal disputes totalling US$128,050 thousand reducing the
distributable profits of this subsidiary by this amount. The provisions in
Ukrainian hryvnia remained unchanged as at 30 June 2024, but the amount in US
dollar decreased to US$119,979 thousand as a result of the devaluation of the
local currency in Ukraine. Although this subsidiary still has a considerable
amount of distributable profits, an outflow of funds in this amount would have
an adverse impact on the Group's available liquidity for potential future
dividend payments.
US$000 6 months ended 6 months ended 30.06.23 Year ended
31.12.23
30.06.24
(unaudited) (unaudited) (audited)
Dividends paid during the period
Dividends on vested 2021 LTIP awards 44 − −
Dividends on vested 2020 LTIP awards − 449 456
Total dividends paid during the period 44 449 456
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 2024, the additions to property,
plant and equipment totalled US$61,441 thousand (31 December 2023: US$112,093
thousand; 30 June 2023: US$64,740 thousand) and the net book value of the
disposals of property, plant and equipment totalled US$6,065 thousand (31
December 2023: US$4,216 thousand; 30 June 2023: US$978 thousand).
The total depreciation charge for the period was US$33,380 thousand (31
December 2023: US$58,888 thousand; 30 June 2023: US$31,200 thousand).
The carrying value of property, plant and equipment includes capitalised
borrowing costs on qualifying assets totalling US$27,608 thousand (31 December
2023: US$32,110 thousand; 30 June 2023: US$34,947 thousand).
No borrowing costs are capitalised any longer as the Group does not have any
borrowing costs attributable to qualifying assets.
Critical estimates
During the financial year 2023, the Group continued to demonstrate a high
level of commitment and resilience that enabled it to operate at a constant,
but lower capacity, with a high degree of flexibility to adapt its operations
to changing circumstances. However, as at the date of the approval of these
interim condensed consolidated financial statements, the war in Ukraine is
still ongoing and the duration is difficult to predict.
The ongoing war continues to have an adverse impact on the Group's production
volume and cash flow generation and it is expected that this will continue to
be the case until the war comes to an end. As in previous years since the
start of the war, the production volume of the Group still depends primarily
on the currently possible sales volume, as certain logistics networks are not
yet fully available, and on the constant availability of the electricity
supplies.
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 future
production volumes do not consider the effects of expected future mine life
extension programmes. 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
focus on the realistically plausible production volumes in light of the
current situation in Ukraine, expected realised sales prices and production
cost forecasts as well as the discount rate used to discount the cash flows.
The Group's long-term model was updated again in July 2024 using management's
best estimate of reasonably conservative key assumptions, taking also into
account the current circumstances the Group must operate in. In terms of the
key assumptions used, an average iron ore price of US$107 per tonne of 65% Fe
fines CFR North China was used in the assumptions for the cash flow projection
for the next five years. When assessing its expected future long-term selling
price, the Group considers external and internal analysis of the short-term
and longer-term supply and demand dynamics on the international market for
iron ore products as well as more specific local supply and demand balances
affecting its major customers. The level of the Group's production remains
predominantly dependent on the access to logistic routes within Ukraine as the
production volume is still to be aligned to currently possible sales to
minimise working capital outflow and maintain a solid net cash position. As a
result, the production capacity used for the base-case cash flow projection is
expected to be approximately 54% of the pre-war level for the financial year
2024, before an increase to approximately 80% in 2025 and an expected recovery
to pre-war levels in 2026. The planned increase of the future production
capacity has been adversely affected by the war as the work on certain growth
projects had to be slowed down or even halted to preserve the Group's
available to mitigate the lower cash flow generation. There is no perpetual
growth rate applied for the cash flow projections beyond the last year covered
by the Group's long-term model. The Group's expected major cost components,
such as production and shipping costs, are determined taking into account
local inflationary pressure, major exchange rate developments between the
Ukrainian hryvnia and the US dollar, the short-term and longer-term trends in
energy supply and demand and the expected movements in steel-related commodity
prices, which could have a material effect on the cost of certain production
input materials. An average devaluation of the hryvnia of 6.1% per year was
assumed over the next five years in the Group's cash flow projection, with the
expected local inflation having an offsetting effect.
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 outcome of the Group's impairment test depends primarily on the forecast
cash flow generation and the nominal pre-tax discount rate to be applied. The
WACC of 22.3% (31 December 2023: 23.0%) is still significantly higher than the
pre-war WACC of 13.8% as at 31 December 2021 reflecting the current situation
in Ukraine as underlying macro-economic data is still adversely affected by
the war.
Based on the base case of the Group's impairment test prepared as at the end
of the six-month period ended 30 June 2024 for the Group's interim condensed
consolidated financial statements, there is 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 assets
and other non-current assets, to be recognised as at 30 June 2024. The key
assumptions in respect of production and sales volumes, and of production
costs, are largely dependent on the easing of the war-related risks facing the
Group's business in Ukraine, and therefore a wide range of alternative
outcomes is possible, reflecting a continued high level of uncertainty.
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
US$316,900 thousand. A reduction of the realised price by 10% in 2024 and 5%
for each year until 2048 would reduce the value in use by approximately
US$239,800 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 of the assessment, would reduce the value in use by approximately
US$328,000 thousand whereas every 1.0% increase of the nominal pre-tax
discount rate would impact the value in use by approximately US$46,100
thousand, with all other assumptions remaining unchanged.
The impairment losses of US$254,477 thousand recorded during the financial
year 2022, of which an amount of US$219,931 thousand was allocated to various
asset categories within property, plant and equipment, will be re-assessed
again 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. As at 30 June 2024, there is no partial or full reversal of the
impairment loss recognised during the financial year 2022 to be recorded.
As disclosed in Note 2 Basis of preparation and Note 19 Commitments,
contingencies and legal disputes, the Group announced on 29 January 2024 that
a Ukrainian court of appeal has confirmed a claim against Ferrexpo Poltava
Mining ("FPM") in the amount of UAH4,727 million (US$116,608 thousand as at 30
June 2024), in respect of contested sureties. Despite the fact that it was
management's view that FPM has compelling arguments to defend its position in
the Supreme Court of Ukraine, given the magnitude of this specific claim and
the underdeveloped and fragile judicial system in Ukraine, the Group recorded
a full provision for this claim as at 31 December 2023 in accordance with IAS
37 Provisions, contingent liabilities and contingent assets. If the ruling of
the Supreme Court is not in favour of FPM, there is a risk that some of the
Group's property, plant and equipment will be seized or subject to a forced
sales process as part of the enforcement proceedings. Although the Group has
recognised a provision for the full amount of the contested sureties claim,
there is a risk that any assets subject to seizure or a forced sales process
are valued at an amount which is different than their current carrying values
as at 30 June 2024. Note 2 Basis of preparation provides further information
in terms of the possible implications on the Group's ability to continue as a
going concern.
Note 11: Right-of-use assets and lease liabilities
As at 30 June 2024, right-of-use assets totalled US$3,497 thousand (31
December 2023: US$6,852 thousand; 30 June 2023: US$3,838 thousand). The
additions to the right-of-use assets totalled US$5,824 thousand and US$55
thousand for the comparative periods ended 31 December 2023 and 30 June
2023. No such additions during the period ended 30 June 2024. The total
depreciation charge for the period was US$2,930 thousand (31 December 2023:
US$5,128 thousand; 30 June 2023: US$2,559 thousand).
As at 30 June 2024, the carrying amount of the lease liabilities consisted of
the following:
US$000 As at 30.06.24 As at 31.12.23 As at 30.06.23
(unaudited) (audited) (unaudited)
Non-current 528 1,009 950
Current 3,092 5,939 3,012
The total cash outflow for leases falling under the scope of IFRS 16 Leases
during the period ended 30 June 2024 was US$2,904 thousand (31 December 2023:
US$5,562 thousand; 30 June 2023: US$2,792 thousand). During the period ended
30 June 2024 US$359 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 2023: US$740 thousand; 30 June 2023: US$318 thousand). Furthermore,
interest expense on lease liabilities in the amount of US$106 thousand was
recognised in the interim consolidated income statement during the period
ended 30 June 2024 (31 December 2023: US$85 thousand; 30 June 2023: US$55
thousand).
Lease related commitments for future contingent rental payments were US$
US$103,603 thousand as at 30 June 2024 (31 December 2023: US$118,124 thousand;
30 June 2023: US$110,322 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 2024, the additions to the
intangible assets totalled US$356 thousand (31 December 2023: US$121 thousand;
30 June 2023: US$89 thousand). The total amortisation charge for the period
was US$226 thousand (31 December 2023: US$1,375 thousand; 30 June 2023: US$281
thousand).
Critical estimates
Information on the critical estimates used for the Group's impairment test
performed as at 30 June 2024 are provided in Note 10 Property, plant and
equipment.
The impairment test performed as at 30 June 2024 did not result in an
additional impairment loss.
Note 13: Other taxes recoverable and prepaid
As at 30 June 2024, taxes recoverable and prepaid comprised:
US$000 As at 30.06.24 As at 31.12.23 As at 30.06.23
(unaudited) (audited) (unaudited)
VAT receivable 43,753 25,639 41,961
Other taxes prepaid 656 652 5,150
Total other taxes recoverable and prepaid - current 44,409 26,291 47,111
As at 30 June 2024, US$41,158 thousand of the VAT receivable relates to the
Group's Ukrainian business operations (31 December 2023: US$23,916 thousand;
30 June 2023: US$39,527 thousand).
The total VAT receivable balance in the table above is net of an allowance of
US$1,174 thousand (31 December 2023: US$3,188 thousand; 30 June 2023: US$1,174
thousand) to reflect the uncertainties in terms of the timing of the recovery
of VAT receivable balances, mainly in respect of one of the Group's
subsidiaries in Ukraine.
The Group received regular VAT refunds in Ukraine during the six-month period
ended 30 June 2024. Regular refunds in future periods do also depend on the
situation in Ukraine and how the country continues to cope with the state
budget constraints as a result of the ongoing war. There are no material VAT
receivable balances overdue in Ukraine as at 30 June 2024 or as at the end of
the comparative periods ended 31 December 2023 and 30 June 2023.
Note 14: Inventories
As at 30 June 2024, inventories comprised:
US$000 As at 30.06.24 As at 31.12.23 As at 30.06.23
(unaudited) (audited) (unaudited)
Raw materials and consumables 49,989 47,302 48,369
Spare parts 84,583 88,000 94,057
Finished ore pellets 37,173 45,040 49,563
Work in progress 20,442 18,844 14,499
Other 2,303 2,243 2,573
Total inventories - current 194,490 201,429 209,061
Weathered ore 5,512 5,883 6,277
Total inventories - non-current 5,512 5,883 6,277
Total inventories 200,002 207,312 215,338
Inventories are held at the lower of cost or net realisable value.
Historically, inventories classified as non-current comprised of 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$5,512 thousand as at
30 June 2024 is net of impairment losses of US$231,111 thousand recorded as of
31 December 2021, as it was not possible to reliably predict when required
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 a portion of 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. Due to the ongoing war in Ukraine, it is currently impossible to
accelerate the commenced engineering studies for the exploration of possible
options for new processing capabilities required to specifically process
low-grade ore, so that there are still no changes in facts and circumstances
to be considered as at 30 June 2024.
During the six-month period ended 30 June 2024, 3,003 thousand tons of
low-grade ore in the amount of US$29,821 thousand was extracted and
stockpiled, but directly recognised in the interim condensed consolidated
financial statements, included in cost of sales, due to the uncertainties in
respect of the expected time of processing. No such ore was extracted during
the comparative periods ended 31 December 2023 and 30 June 2023 as a result of
the lower mining activity due to the ongoing war and the reduced operating
activity.
As disclosed in Note 2 Basis of preparation and Note 19 Commitments,
contingencies and legal disputes and, there is a risk that some of the Group's
inventories are seized or subject to a forced sales process, if enforcement
procedures in respect of an ongoing legal dispute commence. Although the Group
has recognised a provision for the full amount of the contested sureties
claim, there is a risk that the future net realisable value of potentially
seized finished goods subject to any potential seizure or forced sales process
is different than the value recognised at cost in the consolidated financial
statements as at 30 June 2024.
Note 15: Prepayments and other current assets
As at 30 June 2024, prepayments and other current assets comprised prepayments
to suppliers for goods and services in the amount of US$21,972 thousand (31
December 2023: US$17,658 thousand; 30 June 2023: US$21,352 thousand) and
prepaid expenses totalling US$4,843 thousand (31 December 2023: US$3,598
thousand; 30 June 2023: US$3,326 thousand).
As at the end of the comparative period ended 30 June 2023, prepayments and
other assets also included cash deposits in the amount of 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. No such cash deposits have been
made as at 30 June 2024 and 31 December 2023.
The total balance of prepayments and other current assets as at 30 June 2024
include US$699 thousand (31 December 2023: US$513 thousand; 30 June 2023:
US$692 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 2024, cash and cash equivalents comprised:
US$000 Notes As at 30.06.24 As at 31.12.23 As at 30.06.23
(unaudited) (audited) (unaudited)
Cash at bank and on hand 115,131 115,241 134,903
Total cash and cash equivalents 3 115,131 115,241 134,903
The balance of cash and cash equivalents held in Ukraine amounts to US$5,809
thousand as at 30 June 2024 (31 December 2023: US$11,175 thousand; 30 June
2023: US$14,503 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.
Information on the Group's gross debt is provided in Note 17 Interest-bearing
loans and borrowings.
Cash deposits for letters of credit are classified as other current assets, if
available only after three months from the date of inception. As at the end of
the comparative period ended 30 June 2023 cash deposits in the amount of
US$13,026 thousand were classified as other current assets. No such cash
deposits have been made as at 30 June 2024 and 31 December 2023. 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 30.06.24 As at 31.12.23 As at 30.06.23
(unaudited) (audited) (unaudited)
Current
Lease liabilities 14 3,092 5,939 3,012
Total current interest-bearing loans and borrowings 3 3,092 5,939 3,012
Non-current
Lease liabilities 14 528 1,009 950
Total non-current interest-bearing loans and borrowings 3 528 1,009 950
Total interest-bearing loans and borrowings 3,620 6,948 3,962
The table below shows the movements in the interest-bearing loans and
borrowings:
US$000 6 months ended Year ended 31.12.23 6 months ended
30.06.23
30.06.24
(unaudited) (audited) (unaudited)
Opening balance of interest-bearing loans and borrowings 6,948 6,548 6,548
Cash movements
Principal and interest elements of lease payments (2,904) (5,562) (2,792)
Total cash movements (2,904) (5,562) (2,792)
Non-cash movements
Additions to lease liabilities 507 5,812 55
Others (incl. translation differences) (931) 150 151
Total non-cash movements (424) 5,962 206
Closing balance of interest-bearing loans and borrowings 3,620 6,948 3,962
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 2023
Annual Report & 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 30.06.24 As at 31.12.23 As at 30.06.23
(unaudited) (audited) (unaudited)
Financial assets
Cash and cash equivalents 115,131 115,241 134,903
Trade and other receivables 74,536 82,321 45,387
Other financial assets 5,231 5,245 18,302
Total financial assets 194,898 202,807 198,592
Financial liabilities
Trade and other payables 46,705 35,310 33,803
Accrued liabilities 14,391 15,387 13,946
Interest-bearing loans and borrowings 3,620 6,948 3,962
Total financial liabilities 64,716 57,645 51,711
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 these interim condensed consolidated income statements as of 30 June 2024
and during the comparative periods ended 31 December 2023 and 30 June 2024 was
not material and therefore not disclosed separately in the interim
consolidated income statement.
The Group, through its trading operations, enters into binding contracts,
which contain obligations that create exposure to credit, counterparty and
country risks. It is the primary objective of the Group to manage such risks
to reduce uncertainty of collection from buyers. A secondary objective is to
minimise the cost of reducing risks within acceptable parameters.
Credit risk is the risk associated with the possibility that a buyer will
default, by failing to make required payments in a timely manner or to comply
with other conditions of an obligation or agreement. Where appropriate, the
Group uses letters of credit to assist in mitigating such risks.
Counterparty risk crystallises when a party to an agreement defaults. Where
letters of credit are used to minimise this risk, the Group uses a confirming
bank with a similar or higher credit rating to mitigate country and/or credit
risk of the issuing bank.
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. Consequently, the receivable balance may change in a future period
when final invoices can be issued based on final iron ore prices to be applied
according to the specific underlying contract terms. The provisionally priced
iron ore exposure as at 30 June 2024 was 327,595 tonnes (none at the
comparative periods ended 31 December 2023 and 30 June 2023) and gave rise to
a fair value gain relating to the embedded provisional pricing mechanism of
US$2,218 thousand as at 30 June 2024 (none at the comparative periods ended 31
December 2023 and 30 June 2023). Final iron ore prices based on the relevant
index are normally known within 60 days after the reporting period. The
difference between the provisionally priced receivable balance recognised as
at 30 June 2024 and the receivable balance taking into account known final and
latest forward prices is US$163 thousand (none at the comparative periods
ended 31 December 2023 and 30 June 2023) and would have decreased the
consolidated result and the shareholders' equity by this amount.
Where pricing terms deviate from the index-based pricing model, derivative
commodity contracts may be used to swap the pricing terms to the iron ore
index price.
Finished goods are held at cost without revaluation to a spot price for iron
ore pellets at the end of the reporting period, if the recoverable amount
exceeds the cost basis.
Note 19: Commitments, contingencies and legal disputes
Commitments
Commitments as at 30 June 2024 consisted of the following:
US$000 As at 30.06.24 As at 31.12.23 As at 30.06.23
(unaudited) (audited) (unaudited)
Total commitments for the lease of mining land (out of the scope of IFRS 16) 48,672 52,739 41,280
Total capital commitments on purchase of property, plant and equipment 127,245 128,934 140,754
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 Right-of-use
assets and lease liabilities.
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 76 to 78 of the 2023 Annual Report &
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 76 and 78 of the 2023 Annual Report & Accounts). As a
result, the Group's exposure to a number of risk areas is 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.
Critical judgements for ongoing legal proceedings and disputes with
corresponding provisions
Contested sureties claim
On 7 December 2022, Ferrexpo Poltava Mining ("FPM") received a claim in the
amount of UAH4,727 million (30 June 2024: US$116,608 thousand; 31 December
2024: US$124,450 thousand; 30 June 2023: nil) 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.
The counterparty in this claim alleges that it acquired rights under certain
loan agreements originally concluded between 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 FPM
provided sureties to Bank F&C to ensure the performance of obligations
under these loan agreements. On 9 August 2023, the court of first instance
ruled in favour of the claimant and FPM filed an appeal in September 2023. On
26 January 2024 a Ukrainian court of appeal confirmed the claim against FPM in
the amount of UAH4,727 million (30 June 2024: US$116,608 thousand; 31 December
2024: US$124,450 thousand; 30 June 2023: nil). On 30 January 2024, FPM filed a
cassation appeal to the Supreme Court of Ukraine and the first hearing was
scheduled for 20 March 2024, but the hearing did not take place as the
presiding judge recused himself. Following the appointment of a new panel of
judges, on 1 April 2024 the Supreme Court suspended the possible enforcement
of the decision of the court of appeal. A Supreme Court hearing on 17 April
2024 considered primarily procedural matters and a hearing scheduled for 27
May 2024 was postponed to 17 June 2024. On 17 June 2024, the panel of three
judges decided to transfer the consideration of the case to another bigger
joint panel of judges. The new panel consists of six judges and the date of
the next hearing is unknown.
Notwithstanding the two negative court decisions of the lower courts and based
on legal advice obtained, management remains of the view that these claims are
without merit and FPM has compelling arguments to defend its position in the
Supreme Court. However, considering the magnitude of this claim and the risks
associated with the judicial system in Ukraine as further described above, the
Group recorded a full provision for this claim as at 31 December 2023, in
accordance with the requirements of IAS 37 Provisions, contingent liabilities
and contingent assets.
As at the date of the approval of these interim condensed consolidated
financial statements, no enforcement procedures have commenced and, further to
the Supreme Court's order of 1 April 2024 suspending possible enforcement of
the decision of the court of appeal, such procedures cannot be initiated by
the claimant until a final decision is made by the Supreme Court, or the
current suspension order is otherwise lifted. If the final ruling of the
Supreme Court is not in favour of FPM, the claimant may take steps to appoint
either a state or a private bailiff and request the commencement of the
enforcement procedures, which could have a material negative impact on the
Group's business activities and its ability to continue as a going concern, as
the assets of FPM could be seized or subject to a forced sale. The potential
seizure or forced sale of FPM's assets, including moveable, immovable and
financial assets, may have a material adverse impact on the Group's cash flow
generation, profitability and available liquidity in future periods. As at the
date of the approval of these interim condensed consolidated financial
statements, it is not possible reasonably to assess the implications of a
potential seizure or forced sale of assets on the Group's business activities,
as the timing, scope and impact are unknown and outside of the Group's
control. However, the Group is considering and has prepared a number of
mitigating actions and responses within its control in order to seek to ensure
continuation of production and generation of revenue streams. Beyond that, in
case of an enforcement, FPM will challenge orders and actions of the bailiff
in the court where possible, in order to seek to allow the Group to continue
to trade and generate resources to meet its other liabilities as they fall
due. See Note 2 Basis of preparation, Note 10 Property, plant and equipment
and Note 14 Inventories for further information.
Critical judgements for ongoing legal proceedings and disputes without
corresponding provisions
Creditor protection application against Ferrexpo Poltava Mining ("FPM")
In February 2024, a supplier and related party to the Group filed an
application to open bankruptcy proceedings ("creditor protection proceedings")
against FPM, which was accepted by the relevant court for further
consideration. The amount of debt claimed by the supplier of FPM was initially
UAH2.2 million (US$54 thousand as at 30 June 2024). The operation of FPM is
not affected by this application and the supplier continued to provide its
services to FPM. The amount of debt claimed by the supplier subsequently
increased to UAH4.6 million (c. US$113 thousand as at 30 June 2024). A
preparatory court hearing was scheduled by the court for 12 March 2024. This
hearing did not take place and further hearings scheduled for 9 April 2024 and
30 April 2024 were also postponed. A preparatory hearing was scheduled for 4
June 2024 and was rescheduled by the court to 30 July 2024. On 18 July 2024,
FPM settled the outstanding debt to the supplier and FPM submitted all
documents to the court for consideration at a hearing scheduled for 30 July
2024. This hearing has not taken place and the date of the hearing is
currently not known. . See Note 2 Basis of preparation for further
information.
Shares freeze in relation to claim from the Ukrainian Deposit Guarantee Fund
("DGF")
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 DGF
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.
According to 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 DGF and Mr.
Zhevago, the Group's controlling shareholder, in relation to the liquidation
of Bank F&C in 2015, which commenced in 2015.
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 Fevamotinico
S.a.r.l. disposing of its shares in Ferrexpo plc and Ferrexpo plc disposing of
any of its shares in FAG. 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 because of this
court order.
The Group's subsidiaries affected by this court order, including FAG, filed
appeals in Ukraine in March 2023 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. On 26 July 2023, the court of appeal dismissed the appeals of FAG,
FPM, FYM and FBM in relation to the restrictions covering 50.3% of the
corporate rights in FPM, FYM and FBM so that the imposed restrictions remain
effective. The Group's subsidiaries filed cassation appeals to the Supreme
Court of Ukraine in August 2023 and a first hearing of the case at the Supreme
Court took place on 8 November 2023, without any decision being taken. On 10
January 2024, the Supreme Court rejected the cassation appeals from the
Group's subsidiaries and the restrictions remain effective. After a review by
the Supreme Court of other cassation appeals related to the main dispute
between the DGF and Mr. Zhevago, to which the Group is not a party, the case
was sent to the court of first instance, the Kyiv Commercial Court, to proceed
with consideration of the main dispute between the DGF and Mr. Zhevago. The
first preparatory hearing at the Kyiv Commercial Court took place on 10 July
2024. During the next court hearing on 17 July 2024, the court granted a
request for the involvement of the Bank F&C as a third party and the
preparatory hearing was postponed to 31 July 2024.
Based on advice from Ukrainian legal counsel, management considers that the
court order dated 3 March 2023 to arrest (freeze) 50.3% of FAG's shareholding
in each of FPM, FYM and FBM was made in contradiction to 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. The Group will file new applications and motions with the Kyiv Commercial
Court to challenge the validity of these restrictions.
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 procuring the cancellation of such restrictions.
Shares freeze in relation to claim from the National Bank of Ukraine ("NBU")
In addition to the case initiated by the Ukrainian Deposit Guarantee Fund
("DGF") as described above, there is a commercial litigation between the NBU
and Mr. Zhevago, the Group's controlling shareholder, in relation to the
personal surety given by Mr. Zhevago for the loan provided by the NBU to Bank
F&C prior to its insolvency. In respect of this commercial litigation, the
Chief State Bailiff of the Ministry of Justice of Ukraine issued in September
2023 a resolution on arrest (freeze) of property of Mr. Zhevago as part of
intended enforcement proceedings.
As part of this September 2023 resolution, the State Bailiff imposed an order
to arrest (freeze) 50.3% of the issued share capital of Ferrexpo Yeristovo
Mining ("FYM") and Ferrexpo Bellanovo Mining ("FBM"), owned by Ferrexpo AG
("FAG"), based on the incorrect assumption that these corporate rights are
owned by Mr. Zhevago. In reaching this decision to arrest these corporate
rights, the State Bailiff relied on conclusions made by the Northern
Commercial Court of Appeal in the DGF case described above that Mr. Zhevago is
the ultimate beneficial owner of the Ukrainian subsidiaries and that all
companies in the Group are just nominal owners of the assets ultimately owned
by Mr. Zhevago. FAG filed a civil claim in October 2023 seeking to cancel the
order and to block the enforcement procedure initiated by the State Bailiff.
On 30 November 2023, the Komsomolskyi Town Court of Poltava Region, a court of
first instance, suspended the enforcement procedure, prohibiting the State
Bailiff from taking any further actions to forcefully sell FAG's corporate
rights in FYM and FBM. The State Bailiff filed an appeal. On 1 July 2024, the
Poltava Court of Appeal cancelled the Komsomolskyi Town Court of Poltava
Region's ruling of 30 November 2023 and, therefore, lifted the interim
measures which suspended the actions on potential auction. As a result, the
State Bailiff may shortly revert to FYM and FBM with its enquiries to collect
data on the value of FYM and FBM, which were previously made in September
2023, in order to prepare the 50.3% of shares in FYM and FBM for the forceful
sale (auction). FYM and FBM plan to file cassation appeals to the Supreme
Court. In parallel, on 30 May 2024, the court of first instance ruled to
resume the proceedings in the case and scheduled a hearing for 16 July 2024.
The hearing at the Komsomolskyi Town Court of Poltava region was postponed and
the next hearing is scheduled for 17 September 2024. If the enforcement
process pursuant to which the September 2023 resolution has been issued is not
interrupted, this could ultimately lead to a potential sale of shares
representing 50.3% of the issued shares in each of FYM and FBM.
Shares freeze in relation to investigation in connection with Bank F&C
As part of the ongoing investigation in connection with Bank F&C, on 25
March 2024, the Group became aware of a court order dated 18 January 2024 in
the Ukrainian Register of Court Decisions regarding restrictions on certain
corporate rights in all of the Group's Ukrainian subsidiaries. These
restrictions were imposed in September 2023 on 49.5% of the shares in all of
the Group's Ukrainian subsidiaries, except for Nova Logistics LLC and TIS-Ruda
LLC, an associated company of the Group, where the relevant percentages
restricted are 25.2% and 24.7%, respectively.
The restrictions do not affect ownership of the relevant shares, but prohibit
their transfer and restrict the right to use corporate rights of such shares,
including the right to vote. The Group is not a party to the proceedings in
which the restrictions have been imposed and these restrictions were imposed
without official notification to the Group and/or its subsidiaries. The
Group's subsidiaries plan to file appeals to seek the cancellation of these
restrictions on the corporate rights. As at the date of the approval of these
interim condensed consolidated financial statements, Ferrexpo AG ("FAG") has
not been provided with the case file or the documents submitted in these
proceedings. On 21 May 2024, FAG filed a formal appeal against the arrest
order imposed in September 2023 with the Kyiv Court of Appeal, but it will
have to be updated once FAG has access to the relevant files and documents.
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 what
was 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
significant cash transfers outside of Ukraine. As it is essential to the Group
that sufficient liquidity is held outside of Ukraine to ensure that the
Group's liabilities can be settled when falling due, intercompany receivable
balances due to the Ukrainian subsidiaries have historically only 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 have 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 fines.
The offence against the currency control regulations would result in fines of
0.3% per day calculated 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 application of 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.
Given the amount of outstanding receivable balances between Group companies,
there is a risk of material fines becoming payable in the future. However,
because of different interpretations of the currency control regulations
during the application of 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.
Share dispute
On 23 November 2020, the Kyiv Commercial Court reopened court proceedings in
relation to an old shareholder litigation.
This old shareholder litigation started in 2005, when a former shareholder in
Ferrexpo Poltava Mining ("FPM") brought proceedings in the Ukrainian courts
seeking to invalidate the share sale and purchase agreement concluded in 2002
pursuant to which a 40.19% stake in FPM was sold to nominee companies that
were previously ultimately controlled by Mr. Zhevago, amongst other parties.
After a long period of litigation, 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 seeking to invalidate the share sale and purchase agreement
concluded in 2002.
In February 2021, FAG became aware that an additional 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.
After several hearings, in September 2022 the Group received a judgment from
the appeal court, 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
Ukrainian law in the judgment of the Northern Commercial Court of Appeal by
the Group's Ukrainian 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. During the hearing on 19 April 2023, the
judges of the Grand Chamber of the Supreme Court ruled in favour of the Group.
Allegations of bribery against the Head of the Supreme Court made by the
National-Anti-Corruption Bureau of Ukraine ("NABU") and the Specialised
Anti-Corruption Prosecutor's Office ("SAPO") in May 2023 make reference to the
ruling made by the Supreme Court on 19 April 2023 and the Group's controlling
shareholder. Following the subsequent removal of the Head of the Supreme
Court, investigations by NABU and SAPO are underway into the conduct of the
former Head of the Supreme Court and a lawyer who allegedly acted as the
intermediary in the alleged bribery. On 3 August 2023, NABU announced that the
Group's controlling shareholder had been issued with a notice of suspicion in
NABU's and SAPO's investigation. Media in Ukraine reported on 10 July 2024
that the High Anti-Corruption Court ("HACC") in Ukraine apparently issued a
ruling on 10 July 2024 to place the Group's controlling shareholder into
custody in absentia in connection with the suspicion of bribing Ukrainian
Supreme Court judges.
If the Ukrainian Anti-Corruption Court concludes that a judge received a bribe
for the favourable decision in the share dispute case, and such verdict of the
Anti-Corruption Court remains valid after any potential appeal, then the
claimants may apply to the Supreme Court to review the decision of the Grand
Chamber of the Supreme Court given on 19 April 2023 due to exceptional
circumstances. In February 2024, all four claimants were dissolved according
to the records at the UK Companies House. As at 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 share dispute case were to be reviewed by the Grand Chamber of the
Supreme Court once again, management 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 considering the advice received
from the Group's Ukrainian legal advisors, management 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 would result in the loss of
a significant proportion of the shareholding in the Group's main operating
subsidiary in Ukraine, which holds approximately 65% of the Group's
non-current operating assets, and would have a material adverse impact on the
shareholders' equity attributable to the shareholders of Ferrexpo plc. Due to
the uncertainties, it is currently not possible 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 12 Earnings per share
and dividends paid and proposed for further details).
No non-controlling interest has been recognised as of 30 June 2024 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 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, the claimants in the share dispute case, are not clear at this point
in time.
Other ongoing legal proceedings and disputes
Other ongoing legal proceedings and disputes with corresponding provisions
Challenge of squeeze-out of minority shareholders
Following the completion of squeeze-out procedures in 2019 in respect of the
one of the Group's subsidiaries in Ukraine, Ferrexpo Poltava Mining ("FPM"),
two former minority shareholders of FPM challenged the valuation of the shares
of FPM. This valuation formed the basis for the mandatory buy-out of minority
shareholders according to Ukrainian law.
On 19 September 2023, a court of first instance ruled in favour of the two
former minority shareholders and decided that FPM should pay UAH136 million
(30 June 2024: US$3,355 thousand; 31 December 2023: US$3,720 thousand; 30 June
2023: nil) in aggregate to the two former shareholders of FPM. Following the
appeal filed by FPM, the court of appeal in Kharkiv refused on 21 February
2024 to satisfy the appeal of FPM, and FPM subsequently filed a cassation
appeal to the Supreme Court of Ukraine. On 25 March 2024, the Supreme Court
suspended the enforcement of the decision of the court of appeal and scheduled
a court hearing for 17 April 2024. On 17 April 2024, the Supreme Court heard
the arguments of the parties and scheduled another hearing for 27 May 2024
during which another hearing for 3 June 2024 was scheduled. On 3 June 2024,
the Supreme Court granted the cassation appeal of FPM and referred the case
back to the court of first instance for a new hearing. The date of the new
hearing is currently not known.
The Group recorded a full provision for this claim as at 31 December 2023, in
accordance with the requirements of IAS 37 Provisions, contingent liabilities
and contingent assets.
Other ongoing legal proceedings and disputes without corresponding provisions
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 into 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 (US$25,705 thousand
as at 30 June 2024), excluding fines and penalties. The Group provided its
objections to the claims made in the tax audit report. On 11 August 2023, FPM
received a tax notification decision, which claims the underpayment of royalty
payments in the amount of UAH1,233 million (US$30,416 thousand as at 30 June
2024), which is higher than the amount initially stated in the tax audit
report due to imposed fines and penalties. FPM challenged the notification
received as part of administrative procedures with the tax authorities. On 20
October 2023, the tax authorities decided that the amount in the
notification-decision is final and not subject to changes. In November 2023,
FPM filed a lawsuit before the court to challenge the tax authorities'
decision and the first court hearing took place on 29 January 2024. A
subsequent court hearing scheduled for 18 March 2024 did not take place due to
air raid alerts and a reconvened court hearing on 15 April 2024 decided that
the court proceedings are suspended until the review of another case on
challenge of individual tax consultation.
On 16 November 2022, 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 (US$49,337 thousand
as at 30 June 2024). Bail of UAH20 million (US$547 thousand as at date of the
payment) 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 accounts 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 and the arrest order remains
in effect. The Group has taken certain measures, where possible, to limit the
impact of the arrested bank account of FPM.
On 31 October 2023, a notice of suspicion was delivered to another senior
manager of FPM. On 13 November 2023, a court of first instance approved the
bail in the amount of approximately UAH800 million (US$21,993 thousand as at
that date). An appeal was filed by the Group's subsidiary and after several
scheduled court hearings were postponed and on 29 April 2024, the court of
appeal approved a bail in the amount of UAH650 million (US$16,034 thousand as
at 30 June 2024). No clarification was given by the court of appeal of the
rationale for this exceptionally high amount, which is also not aligned to the
senior manager's financial standing. Although the Group has neither a legal
nor a constructive obligation, the Group subsequently made a partial payment
of the bail in the amount of UAH50 million (US$1,259 thousand as at date of
the payment) and the case is now transferred to a local court. There was a
hearing on 15 July 2024 and next court hearing is scheduled for 22 August
2024.
Based on legal advice obtained, it is management's view that 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 2024. 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.
Investigations on use of waste product and asset freeze
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 senior 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 as at date of the payment) that were approved by
the court.
On 22 September 2023, the National Police of Ukraine searched the private
residence of a senior manager of FPM and issued a notice of suspicion. The
senior manager was subsequently detained by the National Police of Ukraine. On
26 September 2023, a court of first instance approved bail in the amount of
UAH999 million (US$27,318 thousand as at that date) and then on 30 October
2023 the court of appeal reduced the bail to UAH400 million (US$11,063
thousand as at date of the payment). Following payment of the bail by the
Group, the senior manager was released.
The sales of the rubble were subject to inspections by the State Service for
Geology and Subsoil of Ukraine for many years and the sales were suspended by
the Group in September 2021. The position of FPM is that based on the mining
license held, FPM complied with the relevant legislation. In the pre-trial
investigation of the rubble case and following an application from the
prosecutor to arrest (freeze) all rail cars and railway access tracks owned by
FPM, a court of first instance issued the order to freeze the rail cars and
the railway access tracks. FPM filed an appeal and at a hearing of the court
of appeal on 30 October 2023 the court of appeal confirmed the arrest (freeze)
of assets, but refused to provide clarifications on the exact scope of the
order which created a restriction on the use of one type of FPM's rail cars.
Since that time FPM has not been using this type of rail cars (totalling 1,339
units), but continues to use another type of its rail cars (totalling 1,043
units). FPM filed new applications to several courts to remove the arrest
order. On 22 April 2024, the court of first instance cancelled the prohibition
to use rail cars and the railway access tracks. A new application to prohibit
the use of railcars was filed by the prosecutor. On 18 June 2024, the court
decided to postpone the hearing of this application without specifying the
date of the next court hearing.
In the same pre-trial investigation of the rubble case, some of the real
estate assets and transport vehicles of FPM were also arrested, but this
arrest does not restrict the use of these assets in operations. As disclosed
under the royalty-related investigation and claim above, a court in Ukraine
arrested on 6 February 2023 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 accounts 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. On 5 March 2024, the same bank
accounts were again arrested by another governmental body, the National Police
of Ukraine, but in respect of the investigations on the use of waste products.
FPM has filed again a motion to the court to change the scope of the arrest to
allow certain payments to be made from these arrested bank accounts. As at the
date of the approval of these interim condensed consolidated financial
statements, FPM's operations is not materially impacted as FPM can take
advantage of a number of exemptions in the court order for the payments for
salaries, local taxes, social security charges, payments for utilities as well
as payments to state and municipal companies. The court of appeal hearings
scheduled for 16 April 2024 and 14 May 2024 did not take place. A hearing
scheduled for 8 July 2024 had to be cancelled due to an air raid alert and was
postponed to 25 July 2024. On 25 July 2024, the court of appeal rejected the
appeal of FPM.
On 29 April 2024, a court placed a restriction on the sale of the mining
license of FPM. This restriction does not affect the use of the mining licence
and FPM continues its mining operations as planned. FPM has filed an appeal
against this restriction.
No associated liabilities have been recognised in relation to this case in the
interim consolidated statement of financial position as at 30 June 2024 as no
damage has been claimed from FPM.
Ecological claims
As discussed in detail in the 2022 Annual Report & Accounts, 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. After the court of first instance ruled in
favour of FYM on 19 July 2022 the State Ecological Inspection filed an appeal.
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. There had
been no actions in respect of this dispute until 5 October 2023, when the
National Police of Ukraine reviewed land plots of FYM.
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 2024.
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 because 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 have not yet concluded on the legal merits of this
dispute. The court hearing scheduled for 26 February 2024 did not take place
and the next hearing is scheduled for 5 August 2024.
Taxation
Tax legislation
As disclosed in Note 8 Taxation, following the completion of tax audits in
respect of its cross-border transactions, the Group's major subsidiaries,
Ferrexpo Poltava Mining ("FPM") and Ferrexpo Yeristovo Mining ("FYM") received
tax claims in the amount of UAH2,162 million (US$53,333 thousand as at 30 June
2024), including fines and penalties, and UAH259 million (US$6,389 thousand as
at 30 June 2024), still subject to potential fines and penalties,
respectively. The Group's subsidiaries filed the objections to be considered
by the tax authorities. Based on past experience, the Group expects that no
agreement will be made with the tax authorities and that the claims will need
to be heard by the courts in Ukraine. On 28 February 2024, a court of first
instance opened a case in relation to the lawsuit filed by FPM to challenge
the tax-notification-decisions dated 27 November 2023. The first preparatory
hearing took place on 1 April 2024 with subsequent preparatory hearings taking
place on 20 May 2024 and 17 June 2024. The next hearing is scheduled for 14
August 2024. On 7 May 2024, a court of first instance opened a case in
relation to the lawsuit filed by FYM to challenge the tax
notification-decision dated 16 January 2024. The first preparatory hearing
took place on 4 June 2024 and a second hearing took place on 20 June 2024. The
next hearing is scheduled for 1 August 2024. As at the date of the approval of
these interim condensed consolidated financial statements, the preparatory
hearings before the court are still ongoing and, as a result, no final
decisions have been made for the claims received by FPM and FYM. An
unfavourable outcome would have an adverse impact on the Group's cash flow
generation, profitability and liquidity. See Note 8 Taxation and the update on
the Group's Principal Risks section on pages 76 to 78 of the 2023 Annual
Report & Accounts for further information on the Ukraine country risk.
Note 20: Share capital and reserves
The share capital of Ferrexpo plc at 30 June 2024 was 613,967,956 (31 December
2023: 613,967,956; 30 June 2023: 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 2023: 15,830,814 shares; 30
June 2023: 15,830,814 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 2023: 9,801,643 shares; 30
June 2023: 9,801,643 shares).
During the comparative period ended 30 June 2023, the Group transferred
9,513,000 shares on 10 March 2023 from the treasury share reserves to the
Group's employee benefit trust reserve, affecting 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, which is 49.3%
as at 30 June 2023 (31 December 2023: 49.3%; 30 June 2023: 49.5%). 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 from the translation
of the Group's foreign operations are initially recognised in the other
comprehensive income. See also the interim consolidated statement of
comprehensive income of these financial statements for further details.
As at 30 June 2024 other reserves attributable to equity shareholders of
Ferrexpo plc comprised:
For the financial year 2023 and the 6 months ended 30.06.24
US$000 Uniting of interest reserve Treasury share reserve Employee benefit trust reserve Translation reserve Total other
reserves
At 1 January 2023 (audited) 31,780 (77,260) (1,189) (2,590,222) (2,636,891)
Foreign currency translation differences - - - (54,847) (54,847)
Tax effect - - - 1,479 1,479
Total comprehensive loss for the year - - - (53,368) (53,368)
Share based payments - - 830 - 830
Effect from transfer of treasury shares - 29,000 (15,865) - 13,135
At 31 December 2023 (audited) 31,780 (48,260) (16,224) (2,643,590) (2,676,294)
Foreign currency translation differences - - - (91,167) (91,167)
Tax effect - - - 3,403 3,403
Total comprehensive income for the period - - -
Share based payments - - 113 - 113
At 30 June 2024 (unaudited) 31,780 (48,260) (16,111) (2,731,354) (2,763,945)
For 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 2023 (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)
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 2023: 49.9%; 30 June 2023; 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 2023 are disclosed in detail in the
Remuneration Report included in the Group's 2023 Annual Report & Accounts.
The Group has entered into a settlement agreement with Kostyantin Zhevago on
23 July 2024 relating to amounts owing to Mr Zhevago under his CEO contract.
Mr Zhevago stepped down from his role as CEO of the Group in October 2019, and
subsequently entered into contractual arrangements with the Group in December
2020 (as more particularly detailed in the 2020 Annual Report & Accounts).
At the time of entering into these new contractual arrangements, the Group did
not make any payments to Mr Zhevago for amounts outstanding under the CEO
contract, including accrued vacation leave and payments in connection with the
notice period. The total amount potentially owing to Mr Zhevago was calculated
in the sum of up to approximately US$725 thousand as at 30 June 2024. As a
benefit under the CEO contract, Mr Zhevago was entitled to receive fully
furnished accommodation at the Group's expense and this arrangement continued
until December 2023. Mr Zhevago has agreed to fully set-off the cost of the
accommodation paid for by the Group against the sum potentially owed by the
Group to him under the settlement agreement for the CEO contract.
Revenue, expenses, finance income and finance expenses
6 months ended 30.06.24 (unaudited) 6 months ended 30.06.23 Year ended 31.12.23
(unaudited) (audited)
US$000 Entities under common control Asso- Other related parties Entities under common control Asso- Other related parties Entities Asso- Other related parties
ciated compa- nies ciated compa- under ciated compa-
nies common control nies
Other sales (a) 157 - - 144 - 1 271 - 1
Total related party transactions within revenue 157 - - 144 - 1 271 - 1
Materials and services (b) 3,791 - - 3,289 - - 6,473 - -
Spare parts and consumables (c) 1,413 - - 785 - - 1,730 - -
Other expenses (d) - - - 860 - - 1,289 - -
Total related party transactions within cost of sales 5,204 - - 4,934 - - 9,492 - -
Selling and distribution expenses (e) 2,838 6,584 - 2,971 20 - 5,825 20 -
General and administration expenses (f) 60 - 362 111 - 288 200 - 691
Other operating expenses(g) 101 5 - 548 - - 1,019 - -
Finance expense 1 - - 2 - - 3 - -
Total related party transactions within expenses 8,204 6,589 362 8,566 20 288 16,539 20 691
Total related party transactions 8,361 6,589 362 8,710 20 289 16,810 20 692
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$100
thousand (30 June 2023: US$94 thousand; 31 December 2023: US$170 thousand).
b Purchases of oxygen, scrap metal and services from Kislorod PCC for
US$529 thousand (30 June 2023: US$519 thousand; 31 December 2023: US$1,020
thousand). See Note 19 Commitments, contingencies for further details
regarding the application to open bankruptcy proceedings ("creditor protection
proceedings") against Ferrexpo Poltava Mining ("FPM") filed by the related
party;
b Purchases of cast iron balls from OJSC Uzhgorodsky Turbogas for US$2,521
thousand (30 June 2023: US$2,250 thousand; 31 December 2023: US$4,552
thousand); and
b Purchase of maintenance and construction services from FZ Solutions LLC
for US$676 thousand (30 June 2023: US$459 thousand; 31 December 2023: US$779
thousand).
c Purchases of spare parts from CJSC Kyiv Shipbuilding and Ship Repair
Plant ("KSRSSZ") in the amount of US$64 thousand (30 June 2023: US$195
thousand; 31 December 2023: US$218 thousand);
c Purchases of spare parts from FZ Solutions LLC in the amount of US$254
thousand (30 June 2023: US$249 thousand; 31 December 2023: US$372 thousand);
c Purchases of spare parts from Kislorod PCC in the amount of US$170
thousand (30 June 2023: US$116 thousand; 31 December 2023: US$256 thousand).
See Note 19 Commitments, contingencies for further details regarding the
application to open bankruptcy proceedings ("creditor protection proceedings")
against Ferrexpo Poltava Mining ("FPM") filed by the related party;
c Purchases of spare parts from OJSC Uzhgorodsky Turbogas in the amount of
US$625 thousand (30 June 2023: US$98 thousand; 31 December 2023: US$746
thousand); and
c Purchases of spare parts from Valsa GTV in the amount of US$300 thousand
(30 June 2023: US$125 thousand; 31 December 2023: US$137 thousand).
d Insurance premiums paid to ASK Omega for insurance cover in respect of
mining equipment and machinery in the amount of US$860 thousand and US$1,289
thousand during the comparative periods ended 30 June 2023 and 31 December
2023. No such insurance premiums paid during the period ended 30 June 2024.
e Purchases of advertisement, marketing and general public relations
services from FC Vorskla of US$2,837 thousand (30 June 2023: US$2,970
thousand; 31 December 2023: US$5,823 thousand).
g Insurance premiums paid to ASK Omega for workmen's insurance and other
insurances in the amount of US$513 thousand and US$804 thousand during the
comparative periods ended 30 June 2023 and 31 December 2023. No such insurance
premiums paid during the period ended 30 June 2024.
g Purchase of marketing services from TV & Radio Company of US$100
thousand (30 June 2023: US$128 thousand; 31 December 2023: US$210 thousand).
Associated companies
e Purchases of logistics services in the amount of US$6,584 thousand (30
June 2023: US$20 thousand; 31 December 2023: US$20 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.
Other related parties
f Legal and administrative services in the amount of US$268 thousand (30
June 2023: US$197 thousand; 31 December 2023: US$510 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 2023: US$50 thousand; 31 December 2023: 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 30.06.24 (unaudited) 6 months ended 30.06.23 (unaudited) Year ended 31.12.23 (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 58 - - 3,426 - - 3,499 - -
Total purchases of property, plant and equipment 58 - - 3,426 - - 3,499 - -
During the period ended 30 June 2023, the Group purchased major spare parts
and equipment from FZ Solutions LLC totalling US$58 thousand (30 June 2023:
US$3,426 thousand; 31 December 2023: US$3,499 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$49 thousand during the
period ended 30 June 2024 (30 June 2023: US$52 thousand; 31 December 2023:
US$69 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:
As at 30.06.24 (unaudited) As at 31.12.23 (audited) As at 30.06.23 (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) 3,188 - - 3,001 - - 2,706 - -
Total non-current assets 3,188 - - 3,001 - - 2,706 - -
Trade and other receivables (h) 91 2,928 - 71 3,125 - 36 3,245 -
Prepayments and other current assets (i) 309 390 - 124 389 - 380 312 -
Total current assets 400 3,318 - 195 3,514 - 416 3,557 -
Trade and other payables (j) 1,616 21 - 1,219 - - 2,166 - -
Accrued and contract liabilities 7 - - - - - 19 - -
Total current liabilities 1,623 21 - 1,219 - - 2,185 - -
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$3,188
thousand (31 December 2023: US$2,990 thousand; 30 June 2023: US$2,706
thousand) were made to FZ Solutions LLC mainly in relation to the Wave 1
pellet plant expansion project.
i Prepayments and other current assets totalling US$269 thousand to FZ
Solutions LLC (31 December 2023: US$89 thousand; 30 June 2023: US$65 thousand)
related to the purchase of spare parts and services; and
i Prepayments and other current assets to ASK Omega for insurance
premiums in the amount of US$247 thousand as at the end of the comparative
period ended 30 June 2023. No such prepayment made as at 30 June 2024 or as at
31 December 2023.
j Trade and other payables of US$732 thousand (31 December 2023: US$138
thousand; 30 June 2023: US$156 thousand) related to the purchase of oxygen,
metal scrap and services from Kislorod PCC. See Note 19 Commitments,
contingencies on for further details regarding the application to open
bankruptcy proceedings ("creditor protection proceedings") against Ferrexpo
Poltava Mining ("FPM") filed by the related party;
j Trade and other payables of US$435 thousand (31 December 2023: US$703
thousand; 30 June 2023: US$1,589 thousand) related to the purchase of spare
parts and services from FZ Solutions LLC;
j Trade and other payables of US$102 thousand (31 December 2023: US$317
thousand; 30 June 2023: US$235 thousand) related to the purchase of spare
parts and services from Uzhgorodsky Turbogas, OJSC; and
j Trade and other payables of US$203 thousand (31 December 2023: nil; 30
June 2023: US$69 thousand) related to the purchase of replacement spare parts
from Valsa GTV Ltd.
Associated companies
h Trade and other receivables of US$2,928 thousand (31 December 2023:
US$3,125 thousand; 30 June 2023: US$3,245 thousand) related to dividend
declared by TIS Ruda LLC prior to the beginning of the war and collection is
expected to commence in the second half of the financial year 2024.
i Prepayments and other current assets totalling US$390 thousand (31
December 2023: US$389 thousand; 30 June 2023: US$312 thousand) related to
purchases of logistics services from TIS Ruda LLC.
Payments on behalf of a key management member
As disclosed in Note 19 Commitments, contingencies and legal disputes, the
Group is subject to various legal actions and ongoing court proceedings
initiated by certain governmental bodies in Ukraine. It is current practice of
these governmental bodies to issue notices of suspicion to members of the
senior management of the Group's subsidiaries in Ukraine and requesting
significant bail payments.
During the half year ended 30 June 2024, the Group made bail payments
totalling US$1,259 thousand (31 December 2023: US$14,901 thousand; 30 June
2023: US$547 thousand) on behalf of one member of the senior management of one
of the Group's subsidiaries in Ukraine (31 December 2023: four members; 30
June 2023: one member).
Due to their roles as key management members of the Group, the payments made
are considered to be related party transactions under the Listing Rules as the
payments were made to their benefit. As a result, and as required by the
Listing Rules, the Group consulted its sponsor before making any of these
payments.
Note 22: Events after the reporting period
As announced on 11 March 2024 on the Regulatory News Service of the London
Stock Exchange and subsequently disclosed in Note 30 Commitments,
contingencies and legal disputes included in the 2023 Annual Report &
Accounts, a supplier and related party to the Group filed an application to
open bankruptcy proceedings ("creditor protection proceedings") against
Ferrexpo Poltava Mining ("FPM") in respect of a claimed amount of UAH4.6
million (c. US$113 thousand as at 30 June 2024). On 18 July 2024, FPM settled
the outstanding debt to the supplier and FPM submitted all documents to the
court for consideration at a hearing scheduled for 30 July 2024. This hearing
has not taken place and the date of the hearing is currently not known.
No other material adjusting or non-adjusting events have occurred subsequent
to the period-end other than the event disclosed above.
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 2024 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$000 As at 30.06.24 As at 30.06.23 As at 31.12.23
(unaudited) (unaudited) (audited)
C1 cash costs 259,975 140,145 294,213
Non-C1 cost components 44,960 26,888 45,136
Inventories recognised as an expense upon sale of goods 304,935 167,033 339,349
Own ore produced (kt) 3,297 1,967 3,845
C1 cash cost per tonne (US$) 78.8 71.3 76.5
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, effects from
share-based payments, write-offs and impairment losses, operating foreign
exchange gains/losses and exceptional items. The Underlying EBITDA is
presented because it is a useful measure for evaluating the Group's ability to
generate cash and its operating performance.
Historically and in agreement with the Group's definition of the Underlying
EBITDA at that time, the Group's Underlying EBITDA included operating foreign
exchange gains and losses, which could be material depending on the
devaluation of the Ukrainian hryvnia compared to the US dollar. During the
period ended 30 June 2024, the Group amended its definition of the Underlying
EBITDA by excluding the operating foreign exchange gains and losses. The vast
majority of the Group's operating foreign exchange gains or losses is expected
to incur on intercompany trade receivable balance of the Ukrainian
subsidiaries, which are denominated in US dollar. For practicability reason,
the entire balance of the operating foreign exchange gains and losses are
excluded from the Group's Underlying EBITDA. It is management's view that the
amended definition better reflects the Group's ability to generate cash and to
evaluate its operating performance.
See Note 3 Segment information for further details on the composition of the
Group's Underlying EBITDA.
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 30.06.24 Restated Restated
As at 30.06.23 As at 31.12.23
(unaudited) (unaudited) (audited)
Underlying EBITDA 79,043 63,685 98,871
Losses on disposal and liquidation of property, plant and equipment 5 (45) (96) (11)
Share-based payments (113) (719) (830)
Write backs/(offs) and impairments 5 118 180 (978)
Recognition of provisions for legal disputes − − (131,117)
Depreciation and amortisation 5 (33,606) (29,561) (57,669)
Operating foreign exchange gains/losses 6 55,258 (42) 31,371
Profit before tax and finance 100,655 33,447 (60,363)
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 30.06.24 As at 31.12.23 As at 30.06.23
(unaudited) (audited) (unaudited)
Cash and cash equivalents 16 115,131 115,241 134,903
Interest-bearing loans and borrowings - current 17 (3,092) (5,939) (3,012)
Interest-bearing loans and borrowings - non-current 17 (528) (1,009) (950)
Net cash 111,511 108,293 130,941
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 30.06.24 As at 31.12.23 As at 30.06.23
(unaudited) (audited) (unaudited)
Purchase of property, plant and equipment and intangible assets 10 55,371 101,247 58,415
(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 30.06.24 As at 31.12.23 As at 30.06.23
(unaudited) (audited) (unaudited)
Cash and cash equivalents 16 115,131 115,241 134,903
Uncommitted facilities − − −
Total liquidity 115,131 112,945 134,903
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 All Share Index Capitalisation rated index of 600 of London Stock Exchange quoted 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, adjusted for net gains and losses from
disposal of investments property, plant and equipment, effects from
share-based payments, write-offs and impairment losses, operating foreign
exchange gains/losses and exceptional items
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
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