1H 2016 INTERIM RESULTS PRESENTATION Supplying the world with iron - - PowerPoint PPT Presentation

1H 2016 INTERIM RESULTS PRESENTATION

Supplying the world with iron ore pellets for over 35 YEARS

D ISC LAIMER

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• n information until after it is made publicly available by the Company.

Any dealing or encouraging others to deal on the basis of such information may amount to insider dealing under the Criminal Justice Act 1993 and/or to market abuse under the Financial Services and Markets Act 2000. This presentation should be read in conjunction with the 2015 interim results announcement.

MICHAEL ABRAHAMS CBE DL, CHAIRMAN

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CHRIS MAWE, CFO

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1 H 2 0 1 6 R E S U LT S D E M O N S T R AT E R E S I L I E N C E & Q U A L I T Y O F B U S I N E S S

– Excellent operational performance

• Record production from own ore in 1H period
• Record output of 65% Fe pellets (94% in 1H 2016)
• Record sales volumes
• Significantly lower costs

– Increase in operating profit excl foreign exchange gains – EBITDA margin 35% – Diluted EPS before special items up 3% vs. 1H 2015 – $54M increase in net cash flows from operating activities

• Lower working capital

– $120M of debt repaid - cash balance increased $9M to $44M – Net debt to EBITDA improved to 2.5x at 30 June 20161 – Improving credit metrics

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SUMMARY FINANCIALS

$M (unless otherwise stated) 1H 16 1H 15 Change 2015 Production from own ore (kt) 5,700 5,503 4% 11,258 Sales volumes (kt) 6,017 5,680 6% 11,330 Avg CFR 62% fines price (US$/t) 52 61

• 15%

56 Avg C1 cost (US/t) 25.7 33.4

• 23%

31.9 Revenue 458 512

• 11%

961 Cost of sales

• 192
• 236
• 19%
• 447

Gross profit 266 276

• 4%

514 Selling & distribution

• 101
• 113
• 11%
• 226

General & admin

• 18
• 21
• 14%
• 37

Other income 2 3

• 33%

7 Other expense

• 17
• 18
• 6%
• 33

Operating FX gains (non-cash) 2 15

• 87%

26 Operating profit excl operating forex gains 131 128 2% 225 EBITDA 160 176

• 9%

313 Diluted EPS before special items (cents) 13.14 12.80 3% 23.86 Net CF from operating activities 142 88 61% 128 Net debt to EBITDA1 2.5 1.9 32% 2.8

1 Last twelve months

C1 COST PER TONNE 1H 2015 VS. 1H 2016 ($) 6

EBITDA COMPARISON EXCLUDING NON-CASH OPERATING FOREX GAIN 1H 2015 VS. 1H 2016 ($M)

S T R O N G P E R F O R M A N C E D U E T O H I G H E R S A L E S O F P R E M I U M P R O D U C T, L O W E R F R E I G H T & C O S T R E D U C T I O N S

33.4 25.7 2.8 2.6 2.3 5 10 15 20 25 30 35 C1 cost 1H 2015 Mining efficiency gains Lower oil & gas price Currency devaluation C1 cost 1H 2016

176 163 160 23 8 44 13 49 23 6 20 40 60 80 100 120 140 160 180 200

1H 2015 EBITDA Oper forex gain 1H 15 EBITDA

• excl. oper fx

Platts 62% Fe fines index Lower C3 Platts Atlantic PP Sales volume C1 cost Other 1H 2016 EBITDA

– Notable working capital improvement in 1H 2016

• Lower net trade receivables/account payables
• Lower pellet stocks
• VAT recovery

– Lower interest & tax – Net cash flow from operations $54M higher than 1H 15 & $14M higher than FY 15 – New borrowings (trade finance) – Repaid $120M of debt in line with amortisation schedule – Net debt reduced by $115M – Cash balance increased by $9M to $44M

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S T R O N G C A S H G E N E R AT I O N

$M (unless otherwise stated) 1H 16 1H 15 Change 2015 EBITDA 160 176

• 9%

313 Operating FX gains (non-cash)

• 2
• 15
• 87%
• 26

Working capital movements 16

• 28
• 157%
• 77

Interest paid

• 29
• 34
• 15%
• 64

Tax paid

• 2
• 8
• 75%
• 11

Other

• 1
• 3
• 67%
• 7

Net cash flow from operating activities 142 88 61% 128 Capex

• 24
• 25
• 4%
• 65

Proceeds from sale of investment

• 42
• 42

Reclassification of restricted cash

• 185

Dividend paid

• 58
• 78

Other (including FX on cash) 2

• 23

n/a

• 40

Net cash flow 120 24 n/a

• 198

Proceeds from new borrowings 9

• Repayment of borrowings
• 120
• 180
• 33%
• 394

Cash balance at start of period 35 627

• 94%

627 Cash balance at end of period 44 471

• 91%

35 Net debt

• 753
• 653

15%

• 868

CASH FLOW 1H 2016 VS. 1H 2015

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D E B T M AT U R I T Y P R O F I L E E A S I N G I N 2 H 2 0 1 6 A N D 2 0 1 7

DEBT MATURITY PROFILE AS OF 30 JUNE 2016 – Repaid $420M PXF facility in full - final payment July 2016 – Secured new trade finance lines in 1H 2016 – 2H 2016 debt amortisation $76M (1H 2016: $120M) – 2017 debt amortisation approximately $50M per quarter – Continue to asses new financing options – Refinancing risk diminishing – Net debt reduction – Improving credit metrics (net debt to EBTIDA towards 2x)

50 100 150 200 250 300 1H 2016 2H 2016 1H 2017 2H 2017 1H 2018 2H 2018 1H 2019

$ million

ECA, Leasing PXF-1 PXF-2 Bond

Repaid from cash generated

120 76 102 100 273 55 173

• Excellent results
• EBITDA in line with prior year
• Net cash flow from operating activities $142M
• Net debt reduced by $115M
• Cash increased by $9M
• Well placed to continue deleveraging in 2H 2016

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C O N C L U S I O N T O F I N A N C I A L R E V I E W

KOSTYANTIN ZHEVAGO, CEO

IRON ORE, OIL & UAH C1 COST REDUCED 23% TO US$25.7 PER TONNE – Electricity prices reflect local inflation – Year on year CPI reducing significantly – 2H 2016 increased stripping at FPM, in line with 5 year mine plan

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10 20 30 40 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 %

YEAR ON YEAR INFLATION RATE 1H 2016 (CPI)

31.8 42.4 34.4 39.7 50.7 59.7 59.8 45.9 31.9 25.7 10 20 30 40 50 60 2007 2008 2009 2010 2011 2012 2013 2014 2015 1H 2016

$ per tonne

1H 2016 C1 CASH COST AT RECORD LOW

S I G N I F I C A N T C O S T R E D U C T I O N S

Electricity, 21% Salaries, 6% Royalties, 4% Explosives, 2% Biofuels, spare parts & materials, 7% Inland logistics, 25% Gas, 9% Fuel, 5%

Spare parts & materials, 10% Flotation reagent, 3% Grinding media, 6%

Note: inland logistics costs are not defined as part of the C1 cost of production UAH costs US$ costs

COST BREAKDOWN – Efficiency improvements have reduced costs by 17% since 2007

0.00 0.05 0.10 0.15 0.20 0.25 50 100 150 200 250 31/01/2007 31/07/2007 31/01/2008 31/07/2008 31/01/2009 31/07/2009 31/01/2010 31/07/2010 31/01/2011 31/07/2011 31/01/2012 31/07/2012 31/01/2013 31/07/2013 31/01/2014 31/07/2014 31/01/2015 31/07/2015 31/01/2016

$ per UAH $ per tonne/barrel

Iron ore fines 62% Fe Brent UAH to US$ inverted

INCREASED VOLUMES AND QUALITY FROM OWN ORE

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HIGH NPV CAPITAL INVESTMENT OPPORTUNITIES TO GROW PELLET OUTPUT

– Incremental investment into existing beneficiation, pelletising and mining facilities to increase output, subject to funding and market conditions

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

80 90 100 110 120 130 140 1H 2011 2H 2011 1H 2012 2H 2012 1H 2013 2H 2013 1H 2014 2H 2014 1H 2015 2H 2015 1H 2016

% of 65% Fe production Total Fe output Linear (Total Fe output) Total Fe output rebased to 100 % of 65% Fe production from own ore

RECORD VOLUMES OF HIGHER QUALITY OUTPUT

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CONTINUALLY STRENGTHENING CUSTOMER PORTFOLIO – Growing market share in premium markets:

• Shipments to 2 new customers in Western Europe and SE Asia
• First long term contract in Korea

– Strong demand from premium customers continuing in 2H 2016 – Ferrexpo’s focus is on delivering directly to the world’s premier steel makers

53% 9% 24% 8% 6% 46% 17% 18% 13% 6%

Central Europe Western Europe China & SE Asia North East Asia Turkey, Middle East, India

1H 2015 1H 2016

M A R K E T I N G C O N T I N U E S T O P E R F O R M W E L L S E RV I C I N G T H E W O R L D ’ S T O P S T E E L M I L L S

1H 2016 SALES DATA:

1,000 2,000 3,000 4,000 5,000 6,000 2007 2008 2009 2010 2011 2012 2013 2014 2015

Sales volumes (000 tonnes)

Ukraine / Russia Western Europe North East Asisa MENA China Central Europe

SALES BREAKDOWN BY PRICING TERMS SALES VOLUME BY COUNTRY 79% 10% 9% 3% Monthly spot index Current quarter spot index Lagging three month spot index Spot sales fixed on day 0% 20% 40% 60% 80%

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THE PELLET MARKET HAS HIGH BARRIERS TO ENTRY

F E R R E X P O I S A T O P S U P P L I E R I N A P R E M I U M M A R K E T P E L L E T S U P P LY I N D E F I C I T

Exports of iron ore MT 2000 2015 increase Proportion of increase Pellets 106 121 151 4% Lump 93 228 136 15% Sinter fines 265 1,012 747 81% Total 464 1,381 918

1 excludes 30MT of Samarco production that is idled due to tailings dam incident in November 2015

PELLET PREMIUMS ARE LESS VOLATILE THAN THE FINES PRICE

Source: CRU Source: CRU, Market Outlook July 2016. Values are real 2015 US dollars

Million tonnes 1H 16 1H 15 Change 2H 15 South America 16.5 28.3

• 42%

25.5 North America 11.2 11.3

• 1%

10.9 South Asia (India) 0.6 0.2 195% 0.3 CIS 13.1 16.9

• 23%

11.3 Europe (Sweden) 9.9 10.0

• 1%

9.5 Middle East (DRI) 6.1 4.2 44% 3.2 Australia 1.3 1.2

• 19%

61.8 Total world pellet exports 58.6 72.0

• 19%

61.8 Total supply of iron ore exports 753 721 4% 763 Global hot metal production 630 656

• 4%

644

TOP PELLET EXPORTERS 1H 2016 EXPORT SUPPLY

20 40 60 80 100 120 140 160 180

2011 2012 2013 2014 2015 2016 F 2017 F 2018 F 2019 F 2020 F

$ per tonne

China 62% Fe fines CFR Blast furnace pellet premium Peak of iron ore fines price

Source: CRU Market Outlook July 2016 Source: CRU, Government statistics, Bloomberg, Ferrexpo internal analysis

Million tonnes 2016 F Vale (Brazil + Oman) 40.0 LKAB (Sweden) 19.0 Ferrexpo (Ukraine) 11.8 Rio Tinto (IOC, Canada) 9.8 ArcelorMittal (QCM Canada) 6.5 Severstal (Russia) 4.4 Metalloinvest (Russia) 3.2 Metinvest (Ukraine) 3.2 Grange (Australia) 3.0 Cliffs (USA) 2.5 CMP (Chile) 2.2 Bahrain Steel (Bahrain) 1.5 Total pellet export market 120.5 Ferrexpo’s market share 10%

• One of the lowest cost pellet producers in the world
• Pellet premiums remain well supported due to lower supply
• Operations continue uneffected by situation in Ukraine
• Well placed to generate positive operating cash flows throughout the cycle
• Priority remains to reduce debt

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O U T L O O K

35% 45% 21% 45% 45% 28% 32% 36% 33% 35% 20 40 60 80 100 120 140 160 180 0% 10% 20% 30% 40% 50%

2007 2008 2009 2010 2011 2012 2013 2014 2015 1H 2016

Avg iron ore fines price $/t EBITDA margin

Ferrexpo Vale MetInvest Samarco Metalloinvest IOC Cliffs LKAB Bahrain Steel FOB cost curve, pellets, 2016 Y-axis: Cost ($/t) X-axis: Cumulative production (Mt) Not currently in production

STRONG EBITDA MARGIN PERFORMANCE COMPETIVELY PLACED ON COST CURVE

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THANK YOU – QUESTIONS?