2017 FULL YEAR RESULTS PRESENTATION MARCH 2018 D I S C L A I M E R - - PowerPoint PPT Presentation

2017 FULL YEAR RESULTS PRESENTATION MARCH 2018

D I S C L A I M E R

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• 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. 2

Steve Lucas Chairman

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SU C C ESSFU L 2017, W ELL POSITION ED FOR TH E FU TU R E

– Large resource and good assets

– Low cost – High value product – Quality customers

4

FERREXPO IS WELL PLACED TO BENEFIT FROM DEMAND FOR HIGHER QUALITY IRON ORE

– Continued strong financial performance – Significant debt reduction – Full year dividend per share 16.5 cents (2016: 6.6 cents)

EXCELLENT RESULTS

2017 FINANCIAL PERFORMANCE

Chris Mawe, CFO

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$M (unless otherwise stated) 2017 2016 Change Pellet production (kt) 10,444 11,201

• 7%

Sales volumes (kt) 10,467 11,697

• 11%

Avg CFR 62% Fe fines price ($/t) 71.3 58.3 22% Avg C1 cost (US/t) 32.3 27.7 17% Revenue 1,197 986 21% Cost of sales

• 411
• 400

3% Gross profit 786 586 34% Selling & distribution

• 220
• 210

5% General & admin & other

• 83
• 77

8% Operating foreign exchange gains 7 14

• 50%

Operating profit 490 313 57% EBITDA 551 375 47% Profit for the year 394 189 108% Diluted EPS (cents) 66.85 31.91 109% Final dividend (ordinary + special) per share (cents) 9.9 6.6 50% Net debt

• 403
• 589
• 32%

Net debt to EBITDA (x) 0.73 1.57

• 54%

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SUMMARY FINANCIALS REVENUE HIGHER (up 21%) – Lower sales volume production driven – Strong market environment for pellets (significant increase in premiums) COSTS REFLECT STRONGER PRICE ENVIRONMENT (C1 cost up 17%) – Higher: commodity prices, maintenance & mining activity. Lower production PROFIT IMPROVEMENT REFLECTS DEMAND FOR QUALITY – Gross profit $200M higher – reflecting improved prise realisations – EBITDA margin 46% vs. 38% in 2016 – Profit for the year up 108% to $394M BALANCE SHEET CONTINUES TO STRENGTHEN – $239M of debt repaid – Available liquidity up $167M to $312M – Net debt to EBITDA comfortably below 1x – 2018 debt amortisations covered by cash & undrawn facilities DIVIDEND DECLARED – Dividend reflects strong business profile & outlook – Full year dividend 16.5 cents per share (FY 2016: 6.6 cents per share)

S T R O N G B U S I N E S S P R O F I L E R E F L E C T S I N C R E A S E D D E M A N D F O R H I G H E R Q U A L I T Y P R O D U C T

S T R O N G M A R G I N S U N D E R P I N N E D B Y H I G H Q U A L I T Y P R O D U C T

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EBITDA 2017 VS. 2016 ($M)

MARKET

• Platts 62% Fe fines price up $13.0/t
• Pellet premiums up $13.4/t
• Freight up $6.0/t

OPERATIONS

• $7/t increase in price due to improved product quality
• Higher commodity price environment
• Production impacted by maintenance

FOREX / OTHER

• Local currency more stable

MARKET +$213M OPERATIONS -$24M FOREX / OTHER

• $14M

375 551 137 140 72 64 48 48 14 100 200 300 400 500 600 700

FY 2016 EBITDA Platts 62% Fe fines index C3 freight Atlantic pellet premium Improved price realisations Sales volume C1 cost of production Operating forex &

• ther

FY 2017 EBITDA

EBITDA margin 38% EBITDA margin 46%

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COST PERFORMANCE – Commodity price inflation reflects higher diesel, gas, steel prices – Ukrainian inflation reflects higher electricity tariffs & wages – UAH relatively stable – Lower production volumes – Higher maintenance costs – $5 per tonne of low grade ore stockpiled in 2017 (2016: $3.75 per tonne)

27.7 32.3 1.7 1.3 0.7 0.9

5 10 15 20 25 30 35 40

C1 cost 2016 Commodity price increases Local inflation Lower volumes Other incl. Maintenance costs C1 cost 2017

C1 COST 2016 VS. 2017

$ per tonne

Electricity 28% Fuel 9% Gas 10% Materials 14% 7% spare parts 8% Maintenance 8% Personnel 9% Grinding bodies 5% Royalities 2% Explosives

BREAKDOWN OF C1 CASH COST – C.60% COMMODITY RELATED

L O W C O S T P R O D U C E R ; C 1 C O S T I M PA C T E D B Y L O W E R V O L U M E S & H I G H E R M A I N T E N A N C E

51 60 60 46 32 28 32 166 129 136 97 56 58 71

2011 2012 2013 2014 2015 2016 2017

C1 cash cost 62% Fe iron ore fines price

HISTORIC CASH COST & IRON ORE FINES PRICE

$ per tonne

WORKING CAPITAL (-$110M) – Low grade ore $53M or $5 per tonne – Normalisation of working capital

– Increased spare parts & raw materials – Higher trade receivables – 2016 reflects refund of corporate profit tax

CAPEX INCREASED IN LINE WITH IMPROVED LIQUIDITY – Development capex of $24M – Sustaining capex incl’s $21M of capitalised stripping at FYM RESUMED DIVIDEND PAYMENTS REDUCED DEBT & HIGHER LIQUIDITY – Repaid $239M of debt – Available liquidity of $312M vs. $145M as of 31 December 2016 – Strong credit metrics

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S T R O N G C A S H F L O W G E N E R AT I O N F U RT H E R S T R E N G T H E N I N G B A L A N C E S H E E T

CASH FLOW 2017 VS. 2016

$M (unless otherwise stated) 2017 2016 Change EBITDA 551 375 47% Working capital movements

• 57

50 Working capital change – stockpiled ore

• 53
• 42

Interest paid

• 49
• 59

Tax paid

• 14

24 Other (incl. non-cash operating FX)

• 26
• 16

Net cash flow from operating activities 353 332 6% Capex

• 103
• 48

115% Dividend paid

• 58
• Other

6 3 Net cash flow 198 287

• 31%

Proceeds from new borrowings

• 19

Repayment of borrowings

• 239
• 196

Cash balance at end of period 98 145 Available facilities 214

• Net debt
• 403
• 589
• 32%

Net debt to EBITDA (x) 0.73 1.57

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S T R O N G B A L A N C E S H E E T

AMORTISATION PROFILE AS OF 31 DECEMBER 2017 (PROFORMA2)

– 1Proforma gross debt at 31 Dec 2017 incl’s $195M undrawn PXF & $19M available facilities on existing PXF – Since 31 Dec 2015 net debt has reduced by $465M – Secured $195M PXF facility in Nov 2017 – Available trade finance facilities of $80M as of 31 December 2017

312 23 173 173 113 24 24 24 24 96 50 100 150 200 250 300 350 Liquidity 31.12.17 2018 1Q 2019 2Q 2019 3Q 2019 4Q 2019 2020 2021

$ million

Liquidity ECA Bond PXF 2013 PXF 2018

2019: $283M 2015 2016 2017 Liquidity cover of upcoming debt amortisations (months) 2 8 12

STRONG DEBT REDUCTION TARGET NET DEBT LEVELS

– Target net debt around $200M – 2017: net debt as of 31 December 2017 $403M – 2018: expect to reduce net debt further – 2019: repay debt amortisations from cash generation. Also re-financing

• ptions available as deemed appropriate

868 753 589 481 403 904 797 733 574 715

100 200 300 400 500 600 700 800 900 1,000 31 Dec 15 30 Jun 16 31 Dec 16 30 Jun 17 31 Dec 17

$ million Net Debt Gross Debt

2 On 8 March 2018 Ferrexpo drew down in full its US$195M PXF

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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

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– Another strong set of financial results – Demand for the Group’s product remains high – Substantially strengthened the balance sheet – Achieved target of reducing net debt to EBITDA below 1x – Balance dividends, growth and debt reduction

STRONG RESULTS

– Expect demand for high quality iron ores, especially pellets, to remain strong – High barriers to entry into the pellet market – Long term growth drivers underpin pellet demand

EXCELLENT BUSINESS

MARKET REVIEW & STRATEGY

KOSTYANTIN ZHEVAGO, CEO

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HIGHER STEEL PRODUCTION & PROFITABILITY: – Rationalisation of Chinese steel capacity (c. 50MT of capacity closed)

• fewer but larger blast furnaces
• improved profitability of incumbents
• more stringent environmental & quality controls

– Global steel production increased 5.3% – China +5.7% (but exports -30%) – Europe (incl CIS) +3.8% – North East Asia +1.7% STEEL MARKET IN 2017: – Mills look for higher rates of productivity – While limiting emissions – Strong demand for pellet – Limited supply of seaborne pellet – Supply of actively traded pellet increased by 5MT in 2017 – Pellet premiums traded at a 9 year high

S T R O N G D E M A N D F O R H I G H Q U A L I T Y O R E

P E L L E T T R A D E S AT A S I G N I F I C A N T P R I C E P R E M I U M W H I L E T H E D I S C O U N T F O R 5 8 % F E O R E W I D E N E D

14 Source: Platts Note: 65% Fe pellet price calculation: Platts 62% Fe fines price CFR + Atlantic pellet premium + Fe premium

40% 60% 80% 100% 120% 140% 160% 180% 200%

Price as a % of the 62% Fe fines price CFR

CFR Platts 58% Fe fines CFR Platts 65% Fe fines CFR 65% Fe pellets* 82%

PRICE PREMIUMS AND DISCOUNTS COMPARED TO 62% Fe IRON ORE FINES PRICE (CFR)

96%

H I G H E S T C O S T P E L L E T E X P O RT E R S N E E D A B R E A K E V E N 6 2 % F E F I N E S P R I C E O F C . $ 6 5 - 7 5 P E R T O N N E

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120 110 100 90 80 70 60 50 40 30 20 10 90 80 70 60 50 40 30 20 10

Definition: Business Costs/Breakeven costs are the sum of Realisation Costs and Site Costs. Site Costs gives the ex-works cost of mining and processing the

• re. Realisation costs include the cost of getting the material to market, the marketing of the material and the financing cost of selling the material. The power of

Business Costs is that by adjusting all product qualities relative to the same benchmark (62% fines product delivered north China) it allows all mines to be compared on a cost curve on a like-for-like basis. This also means that by subtracting the benchmark price from the business costs for a mine you get an estimate of cashflow from that operation. * Delivery to China assumes all shipments from all producers go to the Chinese market, which has a lower pellet premium than

• ther pellet markets.

Breakeven costs for pellet exports, 2017, CFR China, $/t Ferrexpo Cumulative pellet exports, 2017, MT

High market concentration:

• 2 largest exporters

supply c. 45% of market

• Both exporters sit in 1st,

3rd & 4th quartile of curve

• Largest supplier to

restart idled capacity (in 4th quartile of cost curve) CRU BREAKEVEN PELLET COST CURVE TO CHINA:

Ferrexpo

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Platts 62% Fe CFR China FXPO realised FOB price* 43% FPP 46% FPP 53% FPP 89% FPP 94% FPP 95% FPP 16

H I G H G R A D E P R O D U C T I O N S U P P O RT I N G P R I C E R E A L I S AT I O N S

– Quality upgrade investment programme completed 4Q 2014 / 1Q 2015 – % of high quality sales volume increased from 43% of total production in 2012 to a record 95% in 2017

% of production of 65% Fe pellet

FERREXPO’S REALISED PRICE1 VS. PLATTS 62% FE CHINA

* Note: Realised FOB price is calculated as Platts 62% Fe CFR + Atlantic pellet premium + Fe premium – C3 freight

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M A R K E T I N G – S T R O N G C U S T O M E R D E M A N D

CONSOLIDATING POSITION IN PREMIUM MARKETS

• Geographic sales volume split in line with 2016

61% 8% 20% 9% 2% Current month 1 month forward Current quarter Lagging 3 months Spot fixed on day

49% 16% 15% 12% 8% Central Europe North East Asia Western Europe China & South East Asia Turkey, India, ME

PRICING TERMS

• Average reference period for 62% Fe iron ore fines

PELLET PREMIUMS – Strong demand from long term customers – Largest sales markets Austria, Germany and Japan – Received pellet premium in line with international premium, adjusted for quality – Net price reduced by higher freight during the period (C3 freight increased from $6/t to $15/t)1.

Note 1: The Group’s long-term contracts are all based on a spot index iron ore fines price and an agreed pellet premium using various reference periods as well as the cost of international freight, typically the C3 index.

10 20 30 40 50 2011 2012 2013 2014 2015 2016 2017 $ per tonne

Platts Atlantic pellet premium

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M I N I N G A N D P R O C E S S I N G O P E R AT I O N S

SAFETY FIRST

– One fatality in mobile maintenance workshop (2016: two) – 2017 LTIFR 1.17 (in line with 2016)

PELLET LINE REFURBISHMENTS

– 1H 2017: 55 day refurbishment to pellet line #4 – 2 out 4 lines now refurbished (2014 & 2017) – 2H 2017 reflected lower performance from lines # 1 & 2 – Pellet line #1: 65 day refurbishment in 2Q 2018 – Refurbishment of remaining line in 1H 2019

PROCESSING

– In 2017 accelerated construction of MFC1 – Achieved record proportion of 65% Fe pellet – Increase in maintenance compared to 2015 and 2016 levels

MINING

– Increased stripping at FYM ahead of future production – Initial pre-stripping activity at FBM – Ongoing efficiency improvements at FPM & FYM

U K R A I N E

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– Second year of economic growth after challenging economic & political period 2013 - 2015 – Government has implemented a number of reforms to address structural imbalances – Further reforms necessary to secure higher levels of domestic & international investment

UKRAINE SOVEREIGN CREDIT RATING (FITCH) OUTLOOK REMAINS STABLE

Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17

R C C CC B- B B+ BB- BB

70 80 90 100 110 120 130 140 150 160 2012 2013 2014 2015 2016 2017 2018

Ukraine

WORLD BANK: EASE OF DOING BUSINESS RANKING

Ranked out of 190 countries, the lower the ranking the easier to do business

Ease of doing business

Source: World Bank Doing Business Reports

O U T L O O K

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– Well placed to benefit from demand for higher quality iron ore – Expect higher pellet premiums in 2018 – One of the lowest cost pellet producers in the world – Half way through pellet line refurbishment programme – Well placed to generate positive operating cash flows through the cycle – Focus on balance between debt amortisation, growth & dividends

Thank you

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Appendix

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Significant resource base Premium iron ore product: 65% Fe pellets

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World class asset –

• ver US$2.15bn invested since IPO

Established logistics

BROVARIKOVSKO YE 4.0BT MANUILOVSKOYE 3.4BT KHARCHENKOVSKO YE 2.8BT VASILIEVSKOYE 1.4BT ZARUDENSKOYE 1.5BT GALESCHINSKOYE 0.2BT BELANOVSKOYE 1.7BT YERISTOVSKOYE 1.2BT GPL 3.5BT

PRODUCTION DEVELOPMENT LICENCE MAINTENANCE

13.1

FSU SOVIET CLASSIFIED RESOURCES

13.1 6.6

JORC CLASSIFIED RESOURCES

FPM: modernisation & quality upgrade c.$1.1BN FYM: new mine & infrastructure c.$600M Logistics: barging, rail cars, port/transshipment c.$300M

F E R R E X P O H A S A L A R G E R E S O U R C E A N D W E L L I N V E S T E D A S S E T B A S E P R O D U C I N G A H I G H Q U A L I T Y P R O D U C T

12% 8% 16% 15% 49%

CENTRAL & EASTERN EUROPE CHINA & SOUTH EAST ASIA NORTH EAST ASIA WESTERN EUROPE TURKEY, MIDDLE EAST & INDIA

High quality sales portfolio

GLOBAL IRON ORE CONSUMPTION BY PRODUCT

– Largest consumers of pellet: China, Russia, India, USA, Iran – Accounting for 65% of total pellet consumption

PELLETS COMPRISE ONLY 8% OF IRON ORE EXPORTS

– Majority of pellet manufactured within distance of steel mill – Largest importers of pellet: China, Japan, Germany, Saudi Arabia, Turkey – Europe accounts for 33% of imports, NE Asia 17%

EXPORTS OF PELLETS PEAKED IN 2010 AT C.150 MT – Pellet exports peaked in 2010 & since declined 18% – Lump & fines exports increased 62% & 44% respectively since 2010 – Pellet exports increased by c. 5MT in 2017 while pellet premiums traded at a 9 year high – Suggests most pelletising plants operating at near full capacity in 2017 – High cost capacity of c. 5Mt to return in 2018 – Samarco restart & volume remains unclear

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T H E P E L L E T M A R K E T

MT 2010 exports 2017 exports % change

• vs. 2010

2016 exports Exports of pellet 151 124

• 18%

118 Exports of lump 160 260 63% 260 Exports of fines 787 1,130 44% 1,164 Total iron ore exports 1,098 1,514 38% 1,542

Source: CRU, Market Outlook January 2018

Fines 62% or 1,230 MT Pellet 22% or 443 MT Lump 16% or 321 MT Fines 75% or 1,130 MT Pellet 8% or 124 MT Lump 17% or 260 MT

Source: CRU, Market Outlook January 2018

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AV E R A G E U T I L I S AT I O N O F I R O N O R E P R O D U C T P E R T O N N E O F H O T M E TA L

EUROPE LARGEST PELLET MARKET NE ASIA HIGHER % OF LUMP CHINA HEAVY USE OF SINTERING – Lump contains higher impurities vs. pellets & has inconsistent form – Sintering most pollutive part of steel making – China’s own pellet production peaked in 2010 at 140 MT – Since 2016 China closed c. 60MT of obsolete pelletising capacity – Ferrexpo believes marginal cost to produce pellet feed approximately $70 per tonne in China – A 1% increase in the proportion of pellet in a blast furnace burden mix would increase demand for pellet by c.20MT.

Pellet 33% Lump 7% Fines 60% Pellet 11% Lump 23% Fines 66% Pellet 11% Lump 13% Fines 76%

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P E L L E T S H AV E H I G H B A R R I E R S T O E N T RY

New pellet capacity Duration Tonnes Cost Cost/tonne of capacity Description Samarco 2011-2014 8.3MT R$6.459BN ($3.251BN at the time) $391/t Construction of 9.5MT concentrator Construction of slurry pipeline with 20MT capacity Construction of 8.3MT pelletising plant Increase of capacity at port facilities by 9MT Vale Tubarao VIII 2011-2015 7.5MT $1.3BN $176/t Construction of pellet plant Metalloinvest 2012-2015 5MT RUB16BN ($460M at the time) $92/t Construction of pellet plant NMLK 2011- 2016 6MT RUB41BN ($1.4BN at the time) $233/t Construction of pellet plant – $680M or $113/t Expanded mining & beneficiation capacity

Source: Company announcements

MOST RECENT CAPACITY ADDITIONS

E S T I M AT E D B R E A K D O W N B E T W E E N B L A S T F U R N A C E & D R P E L L E T S U P P L I E R S

2.9 8.1 0.8 0.1 2.6 7.0 17.3 3.0 8.4 0.8 1.8 6.5 16.3

0.0 5.0 10.0 15.0 20.0 DR16 DR17

(+8%) (+4%) (-3%) (-4%) (+40%) (+6%) 0.5 1.8 2.4 2.8 4.8 5.3 5.6 5.6 7.7 10.5 11.8 20.8 0.4 2.7 1.9 2.4 3.4 5.1 4.0 4.9 8.0 11.7 12.0 21.6

0.0 5.0 10.0 15.0 20.0 25.0 BF16 BF17

(-4%) (-2%) (-11%) (-4%) (+13%) (+39%) (+6%) (+41%) (+14%) (+26%) (-32%) (+49%)

Direct Reduction Blast Furnace

Bahrain Steel US Exports Samarco Severstal Evraz Grange CMP (Chile) ENRC Metalloinvest Metinvest ArcelorMittal IOC Ferrexpo LKAB Vale

Source: management estimates, March 2018

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