2019 HALF YEAR RESULTS PRESENTATION AUGUST 2019 D I S C L A I M E - - PowerPoint PPT Presentation

2019

HALF YEAR RESULTS PRESENTATION

AUGUST 2019

D I S C L A I M E R

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• n forward-looking statements, which speak only as of the date of this document.

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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. 1

Steve Lucas

Chairman

2

3

1H 2019 FINANCIAL PERFORMANCE

CHRIS MAWE, CFO

Operations – 5% increase in output, pellet line refurbishment in 2H 2019 – 4% increase in sales, stocks higher at period end – C1 cost of $46 per tonne reflects local inflation & strong currency Market – Significant supply side disruptions – Strong increase in iron ore fines pricing – Majority of seaborne pellet priced off 65% Fe index Net operating cash flow – Working capital reflects higher trade receivables & pellet stocks Capital investment – Investment doubled: modernisation & concentrator expansion programme Dividends – Record 2019 interim ordinary dividend declared of 6.6 US cents (1H 2018: 3.3 US cents) – Dividend payments in 1H 2019 $78M; 2H 2019 payments $78M Balance sheet – Further deleveraging – Net debt to EBTIDA 0.44x

4

S T R O N G P E R F O R M A N C E W I T H P R O F I T A F T E R TA X U P 7 8 %

Summary Financials

$M (unless otherwise stated) 1H 19 1H 18 Change 2018 Pellet production (kt) 5,353 5,096 5% 10,607 Pellet sales volumes (kt) 4,990 4,798 4% 10,227 Avg CFR 62% fines price ($/t) 91.7 69.8 31% 71.3 Avg CFR 65% fines price ($/t) 105.4 88.1 20% 90.4 Avg C1 cost ($/t) 46.0 41.6 11% 43.3 Revenue 787 617 28% 1,274 EBITDA 372 234 59% 503 EBITDA margin 47% 38% 9ppt 39% Profit after tax 270 152 78% 335 Diluted earnings per share (cents) 45.8 25.8 78% 56.7 Interim ordinary dividend per share (cents) 6.6 3.3 100% 23.1 Net cash flow from operating activities 256 156 64% 292 Capital investment 114 56 104% 135 Cash 92 82 12% 63 Net debt 282 369

• 24%

339 Net debt to EBITDA1 (x) 0.44 0.74

• 41%

0.67

5 9 % I N C R E A S E I N 1 H 2 0 1 9 E B I T D A V S . 1 H 2 0 1 8

5

OPERATIONS – Higher production volumes – Costs impacted by local inflation & strong UAH – Increase in pellet stocks of c.370kt – Planned refurbishment of final pellet line in 2H 2019 Avg freight per tonne MARKET Increase in fines price & higher quality premium

$155M

• 12%

+4%

Sales volumes from 1/1/2019 to 30/6/2019 FOREX UAH appreciated

5%

Note: other realised price effect principally included lagged pricing base on previous quarter less one month

234 372 109 46 9 9

1H 2018 EBITDA Platts 62% Fe index Conversion to 65% Fe index C3 freight Sales volumes Sales mix C1 cost Other 1H 2019 EBITDA

EBITDA 1H 2019 vs. 1H 2018

$M

6

C 1 C O S T R E F L E C T S L O C A L I N F L AT I O N , S T R O N G E R C U R R E N C Y, S T R I P P I N G & M A I N T E N A N C E

Costs reflect:

– Local inflation of 9%: wages, electricity tariffs – Real UAH appreciated 13% vs. $ compared to 1H 2018 – Stripping: to support product quality & for future production growth – Repairs at an ongoing level – Lower gas prices (-10% half on half) offset by higher biofuel prices – Lower diesel prices (-2% half on half) offset by higher bentonite prices – Costs remain subject to local currency, local inflation and commodity prices

Average C1 cost 1H 2019 vs. 1H 2018

$ per tonne

Structure of C1 cash costs – c.30% related to electricity & gas

Liberalisation of Ukraine electricity market as of 1/7/2019

– Follows liberalization of Ukrainian gas market in 2015

EBITDA – Higher iron ore fines prices slightly offset by cost inflation Working capital reflects – Higher pellet stocks of c.370kt – Higher trade receivables due to higher pricing – Minimal increase in iron ore stocks – Stockpiled ore to be processed starting 2020 Tax – Based on expected Group weighted tax rate of 15% for 2019 Increased investment – Concentrate expansion programme on track for end 2020 completion ($14M) – Construction of new press filtration plant commenced ($8M) – Continued rail car purchase programme ($6M) – Increased stripping to support future production growth ($19M) – Sustaining and other capex ($67M) Record dividends – 1H 2019: $78M

– 2H 2019: $78M

7

H I G H E R C A S H G E N E R AT I O N F U N D E D W O R K I N G C A P I TA L , I N C R E A S E D I N V E S T M E N T, D I V I D E N D PAY M E N T S & N E T D E B T R E D U C T I O N

Cash flow 1H 2019 VS. 1H 2018

$M (unless otherwise stated) 1H 19 1H 18 Change 2018 EBITDA 372 234 59% 503 Working capital movements

• 67
• 11
• 76

Working capital – stockpile ore

• 3
• 24
• 40

Interest paid

• 20
• 26
• 23%
• 43

Tax paid

• 36
• 26

38%

• 44

Other (incl. non-cash operating FX) 10 9

• 11%
• 8

Net cash flow from operating activities 256 156 64% 292 Capex

• 114
• 56

104%

• 135

Dividend paid

• 78
• 74

5%

• 97

Other 3 3

• Net cash flow

67 29 131% 60 Proceeds from new borrowings 185 211 12% 214 Repayment of borrowings

• 223
• 254

13%

• 309

Cash balance at end of period 92 82 12% 63 Net debt

• 282
• 369
• 24%
• 339

Note: net debt as of 30 June 2019 included a $6 million effect from the first time application of IFRS16 Leases.

8

C O N T I N U E D D E L E V E R A G I N G & S T R O N G B A L A N C E S H E E T

– Since 31 Dec 2015 net debt has reduced by $586M – $40M undrawn on 2017 PXF (current outstanding balance $360M) – 2017 PXF facility amortises at c.$11M per month starting in 1Q 2020 – LTM net debt to EBITDA 0.44x – Target to further decrease net debt in 2H 2019

Strong debt reduction

Net Debt Net debt to LTM EBITDA

9

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

Excellent financial performance

– Higher production and sales – EBITDA up 59% – Profit after tax up 78% – Significant increase in cash generation applied to:

• Capital investment – low risk growth
• Dividend payments
• Net debt reduction
• Working capital – increased stocks reflect market conditions

– Good cost control – Strong balance sheet with low gearing – Record 1H dividend declared

KOSTYANTIN ZHEVAGO, CEO

MARKET, OPERATIONS & STRATEGY

I R O N O R E M A R K E T D Y N A M I C S : V E RY P O S I T I V E 1 H 2 0 1 9 H I G H E R S U P P LY E X P E C T E D I N 2 H 2 0 1 9

11

$ per tonne Spot2 1H 2019 avg 62% Fe CFR 121 92 65% Fe CFR 129 105 Atlantic pellet premium1 67 67 Chinese pellet premium1 24 33 C3 freight 23 15 Dec 2019 62% Fe futures 100

1H 2019 iron ore prices reflected supply disruptions

Note1: based off the 62% Fe fines price; 2 spot as of 30 July 2019 Source: PLATTS as of 30 July 2019

FY 2019 iron ore market deficit to be highest in 7 years

• 70
• 50
• 30
• 10

Current spot pricing remains strong

– Supply disruptions in 1H 2019 with 62% Fe rising above $100 per tonne – Iron ore supply in 2H 2019 to increase. Also increased pellet availability anticipated – Overall CRU forecast iron ore market to remain in deficit till 2021 – Steel mill margins under pressure in 1H 2019 due to higher raw material costs & weak end-user demand – Ferrexpo sells to international steel mills under long term contract – Ferrexpo follows international benchmarks pricing

12

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

1H 2019 geographic split of sales volume %

(1H 2018 % split) – Overall long term customer performance in 1H 2019 in line with contract agreements – China sales under long term contracts in 1H 2019 – Europe showing weaker demand – 2H 2019 sales split will reflect prevailing market conditions

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

Longer term pellet demand driven by: – Higher productivity – Higher quality – Lower CO2 emissions – Rising CO2 prices in Europe

O P E R AT I O N S D E L I V E R I N G I M P R O V E M E N T S

13

SAFETY FIRST

– Zero fatalities (2018: one) – Total accidents halved to 5 in 1H 2019 vs. 1H 2018 – 1H 2019 LTIFR 0.45 (1H 2018 LTIFR: 0.97) – Firmly focused on achieving zero harm

MINING – focus on improved material movement efficiency

– Mine optimisation programmes have reduced mining costs, through:

• Improved dig rates
• Transition to 100% liquid emulsion blasting media
• Consolidation of FPM & FYM’s maintenance centre for mobile equipment
• Centralised mining control hub

PROCESSING – focus on maintenance & reducing downtime

– Improving process plant reliability via: – Improved maintenance management reducing unplanned downtimes – Maintenance scheduling across operations – Improved spare parts availability

PELLETISING – improved availability through refurbishment

– 1H 2019 production up 5% – Final pellet line refurbishment in 3Q 2019 – Continued focus on quality – High grade 65% Fe pellets 96% of output (1H 2018: 94%)

65% Fe pellets as % of production

C U R R E N T C A P I TA L P R O J E C T S M A K I N G G O O D P R O G R E S S O U T P U T T O R E A C H 1 2 M T PA B Y 2 0 2 1

14

New grinding section (section 9)

– Process 6MTPA of crushed ore into pellet feed – Total cost: $35M – 1H 2019 spend:$7M – Remaining spend: $8M – Expected completion: 2020

C U R R E N T C A P I TA L P R O J E C T S M A K I N G G O O D P R O G R E S S O U T P U T T O R E A C H 1 2 M T PA B Y 2 0 2 1

15

Concentrate stockyard

– Decoupling of concentrator & pellet plant by providing concentrate storage capacity – Total cost: $24M – 1H 2019 spend: $7M – Remaining spend: $7M – Expected completion: 2019

C O N S T R U C T I O N O F N E W P R E S S F I LT R AT I O N P L A N T C O M M E N C E D I N 1 H 2 0 1 9

16

Press filtration plant

– Replacement of disc filtration to reduce moisture in balling plant – Total cost: $115M – 1H 2019 spend: $8M – equipment order placed – Remaining spend: $107M – Expected completion: completed in 4 phases of 6MTPA; final phase completed 2024

F E R R E X P O C A P I TA L P R O J E C T S

17

F E R R E X P O ’ S B R O W N F I E L D E X PA N S I O N S C A N I N C R E A S E O U T P U T T O 2 0 M T PA W I T H M O D E S T C A P I TA L I N T E N S I T Y

18

– Ferrexpo is a low cost pellet producer with over 6 billion tonnes of JORC resources + 13 billion tonnes Soviet classified resources – Can grow output in a sustainable manner – Projects can be matched to cash flow generation – Expansion will commence with projects that are self funding by increasing output

Priority project Description Concentrate expansion projects

• Further debottlenecking at FPM
• Additional concentrate production at FYM

Pellet line upgrades

• Upgrade of existing pellet lines

Engineering studies currently underway for the following projects

S U M M A RY

19

Outlook – Long term market dynamics underpin pellet demand – Ferrexpo prices its pellets in line with international benchmarks & sells under long term contract – Sales mix will reflect underlying demand Strategy – Increase output – Continue operational improvements – Pursue low risk growth – Maintain prudent balance sheet

57 78 69

$M

1H 2019 capital allocation

Reduction in net debt during 1H 2019 Dividends paid in 1H 2019 Development capex in 1H 2019

20

Thank you

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

21

World class asset –

• ver US$2.15bn invested since IPO

13.1

13.1 6.6

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

Low cost producer

Established logistics

C U R R E N T C A P I TA L P R O J E C T S M A K I N G G O O D P R O G R E S S O U T P U T T O R E A C H 1 2 M T PA B Y 2 0 2 1

22 Project Description Status Expected completion Total cost Spend 1H 2019 Remaining spend Projects to reach 12MTPA New grinding section Process 6MTPA of crushed ore into pellet feed Construction & assemble works underway 2020 $35M $7M $8M Concentrate stockyard Decoupling of concentrator & pellet plant by providing concentrate storage capacity Construction & assemble works underway 2019 $24M $7M $7M Phase 2 expansion project Press filtration plant Replacement of disc filtration to reduce moisture in balling plant 1st equipment

• rder placed 1H

• $6M