2019 Full Year Results Presentation March 2020 D I S C L A I M E - - PowerPoint PPT Presentation

2019

Full Year Results Presentation

March 2020

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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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

Corporate Governance

2

Corporate Governance – Comply with UK Corporate governance code – Related party transactions – strict procedures, systems & controls in place – Board composed of a majority of Independent Non-Executive Directors Independent Board

Executive Director

3

F O C U S O N C O R P O R AT E G O V E R N A N C E

10+ years listed on the LSE (since 2007) Steve Lucas Independent Non-executive Chairman Graeme Dacomb Independent Non-Executive Director Vitalii Lisovenko Senior Independent Non-Executive Director Lucio Genovese Non-Executive Director Fiona MacAulay Independent Non-Executive Director Kostyantin Zhevago Non-Executive Director Christopher Mawe Acting Chief Executive Officer

Non-Executive Directors

Non-Independent

4

Roman Palyvoda, Acting CFO

2019 Financial Performance

Summary Financials Operations

– Production of 65% Fe pellets from own ore up 3% – 65% Fe pellets 96% of total production (2018: 94%) – Sales volumes up 1%

Market

– All high grade pellets priced off 65% Fe index (or equivalent) – Pellet premiums lower in 4Q 2020

EBITDA +17%

– 17% increase in average received price – Partially offset by higher C1 & G&A costs – Non-cash operating forex loss of $47M (2018: $5M 2018)

Net operating cash flow +62%

– Higher working capital – pellet stocks 1MT

Capital investment +83%

– Reflects modernisation, concentrator expansion programme to 12MTPA, rail car purchases

Balance sheet

– Net debt to EBTIDA 0.48x

5

S T R O N G P E R F O R M A N C E W I T H N E T C A S H F L O W F R O M O P E R AT I N G A C T I V I T I E S U P 6 0 %

$M (unless otherwise stated) 2019 2018 Change Pellet production from own ore (kt) 10,519 10,506 +0.1% Pellet sales volumes (kt) 10,312 10,227 +0.8% Avg CFR 62% fines price ($/t) 93 69 +35% Avg CFR 65% fines price ($/t) 104 90 +16% Avg C1 cost ($/t) 47.8 43.3 +10% Revenue 1,507 1,274 +18% EBITDA 586 503 +17% EBITDA margin 39% 39%

• Profit after tax

403 335 +20% Diluted earnings per share (cents) 68.4 56.7 +21% Net cash flow from operating activities 473 292 +62% Capital investment 247 135 +83% Cash 131 63 +108% Net debt 281 339

• 17%

Net debt to EBITDA (x) 0.48 0.67

• 28%

1 7 % I N C R E A S E I N 2 0 1 9 E B I T D A V S . 2 0 1 8

6

EBITDA 2019 vs. 2018

$ million

OPERATIONS

– Production volumes from own ore in line with 2018 – 3% increase in production volumes of 65% Fe pellets – Final pellet line refurbishment in 2019 – Costs impacted by local inflation (4%) & strong UAH – Increase in pellet stocks of c.218kt

Note: other realised price effect is a result of a variety of reference periods used in sales price calculations. This had a positive effect in 2019. MARKET Increase in fines price

$246M

Increase in received price

17% +1%

Sales volumes from 1/1/2019 to 31/12/2019 FOREX

14%

UAH appreciation vs. $

503 633 586 246 10 19 73 1 47 12 11 47 FY 2018 EBITDA Platts 62% Fe index Average pellet premium C3 freight Sales volumes Other realised price effect C1 cost S&D Other EBITDA Non cash

• perating forex

FY 2019 EBITDA

C 1 C O S T I N C R E A S E D D U E T O 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 & H I G H E R M A I N T E N A N C E C O S T S

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43.27 47.81 2.5 2.0

FY 2018 UA inflation & UAH appreciation Repair & maintenance Commodity inputs Consumption norms FY 2019

Average C1 cost 2019 vs. 2018

$ per tonne

Costs reflect:

– Local inflation of 4% – UAH appreciated 14% vs. $ from 1.1.2019 to 31.12.2019 – Higher fleet repairs – Costs subject to local currency, local inflation and commodity prices – From 2Q 2020, royalties due to increase by c. $1 per tonne

CAT 6060 hydraulic mining shovel

Cash flow 2019 vs. 2018 EBITDA

– Higher iron ore fines prices partially offset by lower pellet premiums & cost inflation

Working capital reflects

– Higher pellet closing stocks of c.218kt – Higher trade receivables due to higher pricing & strong sales in Dec 2019 – Minimal increase in ore stocks

Tax

– Higher profits drove 91% increase in taxes paid in 2019 to $84M

Increased investment

– Concentrate expansion programme (2019: $34M) – Construction of new press filtration plant commenced (2019: $22M) – Pelletizer drying upgrade (2019: $3M) – Continued rail car purchase programme (2019: $26M) – FYM investment (2019: $46M) – Belanovo & other (2019: $14M) – Sustaining and other capex ($102M)

Higher dividends

– Record dividends paid in 2019 of $155M, +60% vs. 2018 – Board committed to dividends, will make further declarations once there is better market visibility 8

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 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

$M (unless otherwise stated) 2019 2018 Change EBITDA 586 503 +17% Working capital movements

• 28
• 76
• 63%

Working capital – stockpile ore

• 2
• 40
• 95%

Interest paid

• 34
• 43
• 21%

Tax paid

• 84
• 44

+91% Other (incl. non-cash operating FX) 35

• 8

n/a Net cash flow from operating activities 473 292 +62% Capex

• 247
• 135

+83% Dividend paid

• 155
• 97

+60% Other

• 1
• Net cash flow before change in borrowings

70 60 +17% Proceeds from new borrowings 225 214 +5% Repayment of borrowings

• 224
• 309
• 28%

Cash balance at end of period 131 63 +108% Net debt

• 281
• 339
• 17%

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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

Note: net debt as of 31 December 2019 includes a $7 million effect from the first time application of IFRS16 Leases. $ million Net debt to EBITDA

– 2017 PXF facility amortises at c.$33M per quarter from 1Q 2020 to 4Q 2022 – Debt free by 1 January 2023 assuming no further borrowing – Further decrease in net debt in 2020, in line with amortisation profile

Strong debt reduction

868 589 394 339 281 2.72 1.57 0.72 0.67 0.48 0.5 1 1.5 2 2.5 3 100 200 300 400 500 600 700 800 900 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 Net debt Net debt to EBITDA

Magnetic hydraulic separator

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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

Excellent Cash Generation

– Average received price up 17% – EBITDA up 17% – Profit after tax up 20% – Cash generated from operating activities up 62% – Significant increase in cash generation applied to:

• Capital investment – low risk growth
• Dividend payments
• Net debt reduction

– Strong balance sheet with low gearing – Board committed to dividends and will declare further dividends at an appropriate time

KKD 1500/180 crusher

The town of Horishni Plavni Pelletizer facilities Concentrator facilities Poltava mine Yeristovo mine Tailings Dam

Chris Mawe, Acting CEO

Investment proposition, Strategy, Outlook

11

Continuing to expand production – significant reserve base

– Updated JORC statements for GPL & Yerystivske – Reserve uplift of c. 350MT (mainly GPL) & higher Fe content (33%) & Fe mag (24%) 12

I N V E S T M E N T P R O P O S I T I O N

13% (16%) 5% (6%) 30% (13%) 36% (47%)

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

16% (17%) 0% (1%)

USA

Ferrexpo developing DR offering:

Estimated split of 2019 pellet export market ― Suppliers able to balance between BF & DRI customers

Established infrastructure: Diversified sales portfolio (2018 % split)

Strong market reputation

– In 2018 sold 60kt of DR pellets – 2020: 2-3% DR pellet for market development

5 10 15 20 Vale Bahrain Steel LKAB Cliffs US Steel

BF pellet DR pellet

Top 5 DR exporters (Million tonnes) 54MT 81MT

– Continue to develop long term contract book

• Acquired 600 new

wagons in 2019

• Fleet of 2,850 own

rail cars

• 28 capes loaded

in 2019

• 154 strong barge

fleet

81MT 54 MT

Blast Furnace pellets DR pellets

1.6BNT

JORC

reserves 5.7BNT

JORC

resources At current production rates, Group has reserves for next 55 years

55 years

Ferrexpo low on cost curve Pellets sold at a premium & show supply side flexibility

Pelletising conversion costs from pellet feed to pellet, 2019, ex-works, US$/dmt

Industry fundamentals support long term demand

– Higher quality demands – Rising CO2 prices in Europe – Growing pellet usage in China as industry matures – Limited high quality concentrate & high capital intensity barriers

Pellets have lower CO2 burden

Iron ore to steel emissions factor for sinter & pellet (tCO2e per t) 13

I R O N O R E P E L L E T A H I G H VA L U E A D D E D P R O D U C T

Cumulative pellet exports, 2019, Mt (dry)

Sinter Pellet

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8

38%

Less emissions

Source: CRU February 2020

Data in graph is based on EU average blast furnace CO2 emissions for Scope 3 only and includes sinter plant emissions but does not include emissions from the pelletising plant or coke plant.

20 40 60 80 2015 2016 2017 2018 2019 Atlantic BF pellet premium DR pellet premium Chinese spot pellet premium

Source: Platts

* Based on the 62% Fe iron ore fines index

Pellets receive highest price premium of all iron ore types

Structurally rising pellet premiums ($ per tonne)*

Reduced local air emissions

― Tubarão 1 & 2, Sau Louis & Oman currently on maintenance or reduced output

Focus on quality has improved returns

– 2019: increased quality & consistency – Expanding beneficiation plant to process more concentrate and increase pellet output – On track to increase pellet output by 14% to 12MTPA by 2021 – DR trial shipments planned in 2020

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

Thousand tonnes $ per tonne

New grinding section Concentrate stockyard

– Increase beneficiation capacity to process 6MTPA of crushed

• re into pellet feed

– 85% complete; completion: 2H 2020 – Total cost: $41M

• Remaining spend: $8M

– Decoupling of concentrator & pellet plant, smoothing bottlenecks – 60% complete

• 2Q 2020: technological commissioning
• 1Q 2021: commissioning of loading complex

– Total cost: $38M

• Remaining spend: $11M

10 20 30 40 50 2000 4000 6000 8000 10000 12000 2014 2015 2016 2017 2018 2019 2020f 2021f 62% Fe pellets 67% Fe pellets 65% Fe pellets C1 cash cost per tonne

LOW NET DEBT COMMITTED TO DIVIDENDS

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S T R AT E G Y T O C O N T I N U E : D I S C I P L I N E D A P P R O A C H T O C A P I TA L A L L O C AT I O N G R O W T H B A S E D O N S O U N D E C O N O M I C S & E X E C U T I O N

$281M $750M

INCREMENTAL GROWTH ABOUT ABOVE 12MT: CAPITAL INVESTMENT

$150/tonne $2.5+BN

OF CAPITAL INVESTMENT FROM 2007 TO 2019 DISCIPLINED GROWTH INVESTMENT

$19M $80M

TO COMPLETE CAPEX PROJECTS TO 12MTPA SUSTAINING CAPEX PER YEAR OF DIVIDENDS PAID SINCE IPO (2007) AS OF 31 DECEMBER 2019 LIMITED SPEND ON ONGOING PROJECTS (not including capitalised stripping & capitalised repairs)

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I N V E S T I N G & O P E R AT I N G W I T H C O N F I D E N C E A K E Y C O M P O N E N T O F U K R A I N I A N I N D U S T R Y

$829M

OF TAXES & ROYALTIES PAID TO GOVERNMENT SINCE IPO

10,767 $2.5+BN

EMPLOYEES & CONTRACTORS IN 2019 OF CAPITAL INVESTMENT FROM 2007 TO 2019 LARGEST EMPLOYER IN THE POLTAVA REGION A RELIABLE CUSTOMER OF STATE INFRASTRUCTURE ELECTRICITY, GAS, RAILWAYS, PORT

Safety First

NO FATALITIES IN 2019 LTIFR 0.58 PER MILLION MAN HOURS

2%

ACCOUNTED FOR 2% OF UKRAINE’S TOTAL GOODS EXPORTED IN 2019

S U M M A R Y: C O N T I N U E T O E X E C U T E D I S C I P L I N E D A P P R O A C H – Market dynamics underpin pellet demand – Cost curve underpins pellet premium – Production growth in pipeline – Disciplined approach to capital expenditure – Continue to lower debt – Committed to dividends

17 CAT 793D haul truck

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Thank you