2020 Interim Results Presentation August 2020 Steve Lucas, - - PowerPoint PPT Presentation

2020

Interim Results Presentation

August 2020

Steve Lucas, Chairman

Update on Corporate Governance

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CORPORATE GOVERNANCE – Comply with UK Corporate governance code – Related party transactions – strict procedures, systems & controls in place – At least half of Board (excluding the Chairman) are Independent Non-executive Directors – Company looking to recruit an additional Independent Non-executive Director – Steve Lucas announced intention to not seek re-election at next AGM, process underway to identify a replacement

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U P D AT E 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)

FERREXPO BOARD OF DIRECTORS

Executive Director

Steve Lucas Independent Non-executiveChairman Graeme Dacomb Independent Non-executiveDirector Vitalii Lisovenko Senior Independent Non-executiveDirector Lucio Genovese Non-executiveDirector FionaMacAulay Independent Non-executiveDirector Kostyantin Zhevago Non-executiveDirector Jim North Acting Chief Executive Officer Non-Independent

NON-EXECUTIVE DIRECTORS

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Roman Palyvoda, Acting CFO

1H 2020 Financial Performance

SUMMARY FINANCIALS OPERATIONAL PERFORMANCE

– Production up 5% to 5.6Mt, second highest first half production since IPO – 22% increase in sales, reflecting destocking process – Revenue flat reflecting lower pellet premiums – C1 costs 11% lower

MARKET

– Disruption to iron ore supply in 1H 2020, mitigating impact of COVID-19 and weaker steel demand – Iron ore pricing remains at elevated level relative to historic prices

NET OPERATING CASH FLOW

– In line with 1H 2019 at US$258M reflecting strong operating performance and destocking

CAPITAL INVESTMENT

– Investment mainly related to sustaining capex – Completion of new concentrator section – Pelletiser refurbishment programme completed in 2019

DIVIDENDS

– Interim dividend of 6.6 US cents per Ordinary Share declared

BALANCE SHEET

– Net debt to EBTIDA of 0.31x

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N E T C A S H F L O W F R O M O P E R AT I O N S R E M A I N S AT H I G H E S T L E V E L S I N C E 2 0 1 0

US$M (unless otherwise stated) 1H 20 1H 19 Change 2019 Pellet production from own ore (kt) 5,598 5,353 +5% 10,519 Pellet sales volumes (kt) 6,107 4,990 +22% 10,312 Avg CFR 62% fines price (US$/t) 91.1 91.4

• 0.3%

93.3 Avg CFR 65% fines price (US$/t) 105.9 105.1 +1% 102.8 Avg C1 cost (US$/t) 40.9 46.0

• 11%

47.8 Revenue 776 787

• 1%

1,507 EBITDA 352 372

• 5%

586 EBITDA margin 45% 47%

• 2pp

39% Profit after tax 250 270

• 8%

403 Diluted earnings per share (US cents) 42.6 45.8

• 7%

68.4 Net cash flow from operating activities 258 256 +1% 473 Capital investment 96 114

• 16%

247 Cash 169 92 +84% 131 Net debt 174 282

• 38%

281 Net debt to EBITDA (x) 0.31x 0.44x

• 30%

0.48x

372 300 352 3 12 32 83 31 3 52 237

1H 2019 EBITDA Platts 65% Fe Index Pellet Premium C3 Freight Other realised price effect Sales volumes C1 cost S&D and other EBITDA Non cash operating forex 1H 2020 EBITDA

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

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EBITDA 1H 2020 Vs. 1H 2019

US$ million

OPERATIONS IN 1H 2020 – Higher production volumes (+5%) – 11% lower C1 costs (commodity prices, primarily oil) – Destocking volumes c.600kt Pellet Premium (Atlantic) MARKET IN 1H 2020 Fines price (65% Fe)

+$1/t

• $37/t
• $2/t

Average freight rate from 1/1/2020 to 30/6/2020 FOREX UAH depreciated

+12%

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

46.0 40.9 0.2 4.3 0.0 0.6 1H 2019 UAH inflation and exchange rate Commodity inputs Repair & maintenance Other 1H 2020

COSTS REFLECT:

– 5% production increase diluting fixed cost base – Falling oil prices result in natural gas cost halving as proportion

• f costs (now 4%), and diesel falling to 7% of C1 (from 10%)

– Depreciation of local currency by 12% to UAH 26.7 as of 30th June – Government royalty increase in June 2020, expected to add US$1/t from 2H 2020 – All other cost items remain unchanged (+/-2pp)

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FA L L I N G O I L P R I C E D R I V E S 11 % FA L L I N C 1 C O S T

AVERAGE C1 COST 1H 2020 VS. 1H 2019

US$ per tonne

STRUCTURE OF C1 CASH COSTS – LOWER GAS AND DIESEL COSTS

23% 4% 7% 17% 12% 11% 8% 8% 7% 2% Electricity Gas Fuel Materials Personnel Spare parts Maintenance & repairs Grinding media Royalities Explosives

CAT 6060 hydraulic mining excavator

CASH FLOW 1H 2020 VS. 1H 2019 EBITDA

– Impact of lower pellet premiums, partially offset by higher sales volumes through destocking

WORKING CAPITAL

– Working capital lower reflecting pellet inventory and accelerated cash collection as a result of sales mix

TAX

– Tax expense based on an expected tax rate of 15% for the financial year 2020, in line with the rate applied for 1H 2019

CAPITAL INVESTMENT

– Sustaining and other capital investment of US$54M – Development capital investment for:

• concentrate expansion programme of US$12M; and
• press filtration complex of US$17M

– Capitalised pre-stripping activities of US$13M to gain access to ore expected to be extracted in a future period

DIVIDENDS

– Continued strong performance and cash generation of the Group in 1H 2020 – Directors declare 6.6 US cents 2020 interim dividend (1H 2019: 6.6 US cents), to be paid in August 2020 – Additional interim dividend declared in June 2020 of 6.6 US cents, which was paid in July 2020

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

US$M (unless otherwise stated) 1H 2020 1H 2019 Change EBITDA 352 372

• 5%

Working capital movements

• 25
• 67
• 63%

Working capital – stockpile ore

• 3
• 100%

Interest paid

• 13
• 20
• 35%

Tax paid

• 19
• 36
• 48%

Other (incl. non-cash operating FX)

• 38

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• 5%

Net cash flow from operating activities 258 256 1% Capex

• 96
• 114
• 16%

Dividend paid

• 58
• 78
• 25%

Other 3 3 0% Net cash flow before change in borrowings 106 67 58% Proceeds from new borrowings

• 185
• 100%

Repayment of borrowings

• 70
• 222
• 69%

Cash balance at end of period 169 92 +84% Net debt 174 282

• 39%

MAINTAINING A BALANCED DISTRIBUTION OF CAPITAL

– Draw down of undrawn portion of PXF facility in 2019 – Existing debt facilities continue to amortise at US$33M a quarter in 2020-2022 – Capital investment programme in 1H 2020 focused on sustaining capex and finalising Section 9 concentrator expansion, following pelletiser maintenance in 2019.

STRONG DEBT METRICS

– Company has shown strong cash generation throughout the cycle, averaging full year EBITDA margin of 37% since IPO – Company has reduced gross debt to US$343M as of June 2020, down from a peak of US$1.3BN in 2014 – Net debt US$174M, reduced from peak of US$868M in 2015 – Covenant compliance comfortably met

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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

0.00 0.50 1.00 1.50 2.00 2.50 3.00 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 HY 2020

Net Debt to EBITDA ratio

16% 50% 34% 31% 43% 26%

1H 2019 1H 2020

Debt reduction Capital investment Dividends

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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

VERY STRONG FINANCIAL AND OPERATIONAL PERFORMANCE – Strong operating performance, with operations benefiting from previous years of higher capital investment. – Destocking during 1H 2020 has enabled Company to increase liquidity – Market uncertainty around global COVID-19 pandemic resulting in lower steel demand, balanced by iron ore supply disruption

• ut of Brazil. Prices stable as a result.

– C1 Costs down 11% – High level of cash generation, second time half year net cash flow from operations has exceeded US$250M since 2012 – Company using funds to service existing debt, capital investment returning to historical levels, whilst also maintaining a dividend in line with previous years. – Low levels of gearing as existing facilities are repaid

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

Jim North, Acting CEO

Operations and Strategy Update

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COVID-19 UPDATE – Operations continue with minimal disruption to activities EMBEDDING CHANGES IN APPROACH TO SAFETY – 2019 represented a good year for safety performance, with this progressed continued into 1H 2020 – LTIFR in 1H 2020 of 0.77x remains below five year rolling average of 1.01x – Company uses a number of leading and lagging indicators to monitor safety of both employees and contractors alike – Leading indicators include:

• Safety Inspections and Audits
• Training sessions and emergency drills

– Lagging indicators include:

• Lost time injury rates
• Total recordable injury rates
• Significant incidents and near miss hazard reporting

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D E V E L O P I N G A S A F E T Y F I R S T C U LT U R E

0.57 0.95 1.11 1.46 0.77 0.66 1.07 0.86 0.96 1.17 1.17 1.18 0.58 0.77 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 HY 2020

Group LTIFR (per million hours)

1 2 3 4 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 HY 2020

Group Fatalities

SAFETY STATISTICS SINCE IPO: FATALITIES SAFETY STATISTICS SINCE IPO: LOST TIME INJURY FREQUENCY RATE

CONCENTRATOR EXPANSION RAMP UP IN 2H 2020 – Section 9 to be completed 2H 2020, adding 6MT of additional processing capacity, raising installed raw ore capacity to 36MTPA – Will enable Company to realise full capacity of pelletiser in 2021 (12MTPA pellet production) CONCENTRATE STOCKYARD – Concentrate stockyard enables company to continue producing concentrate during pelletiser downtime – Provides additional operational flexibility and potential to increase output. – To be completed 1H 2021 – Total construction cost US$36M

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O P E R AT I O N A L F O C U S I N 1 H 2 0 2 0 – E X PA N D I N G T O 1 2 M T PA

ENGINEERING STUDIES UNDERWAY FOR FURTHER EXPANSION BEYOND 12MTPA – Mining

• Existing Ore Reserve allows for further 50 years of mining at current

mining rates

• Existing mining fleet capacity c.180MTPA, compared to 120MT mined

in 2019

– Processing – Concentrator

• Recent expansion increases raw ore processing capacity to 36MTPA
• Targeting modular expansions and debottlenecking, replicating existing

installed crushing and beneficiation sections

– Processing – Pelletiser

• Engineering studies underway to expand pelletiser capacity
• Would result in 3MTPA incremental increases to existing pellet lines

– Logistics

• Excess capacity exists in rail network and Port of Yuzhny
• Additional flexibility available for Company to utilise government owned

port capacity

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F U T U R E G R O W T H B E Y O N D 1 2 M T PA

STRONG LOGSITICS INFRASTRUCTURE IN UKRAINE – Fleet of Ferrexpo owned rail cars and barges to deliver to customers in Europe – Seaborne sales to Asian customers via Ferrexpo’s TIS-Ruda terminal at Port of Yuzhny on Black Sea GEOGRAPHIC ADVANTAGE IN CENTRAL LOCATION – Excess logistics capacity and location in Ukraine has helped facilitate a pivot towards exports to China – Chinese demand in 1H 2020 has remained strong – Peers in Canada and Sweden are more restricted to selling to Europe

China Japan EU

• 40%
• 30%
• 20%
• 10%
• 10%

January February March April May June

Steel Production YoY

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

Source: World Steel Association

DIFFERING GLOBAL IMPACT OF COVID-19 ON STEEL OUTPUT

13% (16%)

54 CANADA UKRAINE 33 SWEDEN 44 BRAZIL 39

SAILING DAYS TO CHINA – ADVANTAGEOUS LOCATION

• VS. PEER GROUP

LATEST STEP IN FERREXPO’S QUALITY IMPROVEMENT PROJECT – Direct Reduction (“DR”) pellets are higher grade (67% Fe), lower impurity pellets – DR pellets are used in Direct Reduced Iron process of making steel, which typically uses natural gas, rather than coal, and therefore generates less carbon dioxide. – DR pellets represent approximately a third of the global pellet export market and generate an additional premium above other forms of iron ore pellets. – Ferrexpo produced and sold 185,000 tonnes of DR pellet in 1H 2020 – Trial shipments are required to build relationships with future customers, and show suitability in the steelmaking process. – The Group intends to increase production of DR pellets in the medium term.

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I N C R E A S I N G T H E P R O D U C T P O R T F O L I O – D R P E L L E T S

F E R R E X P O I N V E S T M E N T C A S E

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PREMIUM PRODUCT

– Iron ore pellets represent a high quality product for the premium steel mills – Environmental benefit for steel mills’ carbon footprint when using pellets over sinter fines

STRONG CASH FLOW

– Average full year EBITDA margin of 37% since IPO

WELL INVESTED ASSET BASE

– Over US$2.5 billion invested since IPO – Concentrator expansion due to ramp up in 2H 2020

HIGH QUALITY AND DIVERSE CUSTOMER BASE

– Central location between Europe and Asia enables Ferrexpo to pivot between customers to meet demand

INTEGRATED LOGISTICS

– Excess capacity in logistics chain provides flexibility in marketing

DISCIPLINED CAPITAL ALLOCATION

– Gross debt reduced by 70% to US$343 million since 2014

EXPERIENCED MANAGEMENT TEAM

– Local management with detailed understanding of operations

1 2 3 4 5 6 7

GROWTH BEYOND 12MT

– Long life asset – Brownfield expansion options in both concentrator and pelletiser plants

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Thank you