2020 Interim Results Presentation August 2020
Steve Lucas, Chairman Update on Corporate Governance 1
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 CORPORATE GOVERNANCE FERREXPO BOARD OF DIRECTORS Executive Director – 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 Jim North Non-executive Directors Acting Chief Executive Officer – Company looking to recruit an additional Independent NON-EXECUTIVE DIRECTORS Non-executive Director – Steve Lucas announced intention to not seek re-election at next AGM, process underway to identify a replacement Steve Lucas Vitalii Lisovenko FionaMacAulay Independent Senior Independent Independent Non-executiveChairman Non-executiveDirector Non-executiveDirector 10+ years listed on Graeme Dacomb Lucio Genovese Kostyantin Zhevago the LSE (since 2007) Independent Non-executiveDirector Non-executiveDirector Non-executiveDirector Non-Independent 2
Roman Palyvoda, Acting CFO 1H 2020 Financial Performance 3
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 SUMMARY FINANCIALS OPERATIONAL PERFORMANCE – Production up 5% to 5.6Mt, second highest first half production since IPO US$M (unless otherwise stated) 1H 20 1H 19 Change 2019 – 22% increase in sales, reflecting destocking process Pellet production from own ore (kt) 5,598 5,353 +5% 10,519 – Revenue flat reflecting lower pellet premiums – C1 costs 11% lower Pellet sales volumes (kt) 6,107 4,990 +22% 10,312 MARKET Avg CFR 62% fines price (US$/t) 91.1 91.4 -0.3% 93.3 – Disruption to iron ore supply in 1H 2020, mitigating impact of COVID-19 Avg CFR 65% fines price (US$/t) 105.9 105.1 +1% 102.8 and weaker steel demand Avg C1 cost (US$/t) 40.9 46.0 -11% 47.8 – Iron ore pricing remains at elevated level relative to historic prices Revenue 776 787 -1% 1,507 NET OPERATING CASH FLOW EBITDA 352 372 -5% 586 – In line with 1H 2019 at US$258M reflecting strong operating performance and destocking EBITDA margin 45% 47% -2pp 39% Profit after tax 250 270 -8% 403 CAPITAL INVESTMENT Diluted earnings per share (US cents) 42.6 45.8 -7% 68.4 – Investment mainly related to sustaining capex – Completion of new concentrator section Net cash flow from operating activities 258 256 +1% 473 – Pelletiser refurbishment programme completed in 2019 Capital investment 96 114 -16% 247 DIVIDENDS Cash 169 92 +84% 131 – Interim dividend of 6.6 US cents per Ordinary Share declared Net debt 174 282 -38% 281 BALANCE SHEET Net debt to EBITDA (x) 0.31x 0.44x -30% 0.48x – Net debt to EBTIDA of 0.31x 4
C O N S I S T E N T C A S H G E N E R AT I O N D E S P I T E FA L L I N P E L L E T P R E M I U M EBITDA 1H 2020 Vs. 1H 2019 US$ million 237 3 52 31 3 83 32 372 12 352 300 1H 2019 EBITDA Platts 65% Fe Pellet Premium C3 Freight Other realised price Sales volumes C1 cost S&D and other EBITDA Non cash operating 1H 2020 EBITDA Index effect forex MARKET IN 1H 2020 OPERATIONS IN 1H 2020 FOREX Fines price Pellet Premium Average – Higher production volumes (+5%) UAH (65% Fe) (Atlantic) freight rate depreciated – 11% lower C1 costs (commodity prices, primarily oil) – Destocking volumes c.600kt from 1/1/2020 +$1/t -$37/t -$2/t +12% to 30/6/2020 Note: other realised price effect principally included lagged pricing base on previous quarter less one month 5
FA L L I N G O I L P R I C E D R I V E S 11 % FA L L I N C 1 C O S T AVERAGE C1 COST 1H 2020 VS. 1H 2019 COSTS REFLECT: US$ per tonne – 5% production increase diluting fixed cost base 4.3 0.2 – Falling oil prices result in natural gas cost halving as proportion of costs (now 4%), and diesel falling to 7% of C1 (from 10%) – Depreciation of local currency by 12% to UAH 26.7 as of 30 th June – Government royalty increase in June 2020, expected to add US$1/t from 46.0 0.0 0.6 2H 2020 – All other cost items remain unchanged (+/-2pp) 40.9 1H 2019 UAH inflation and Commodity Repair & Other 1H 2020 exchange rate inputs maintenance STRUCTURE OF C1 CASH COSTS – LOWER GAS AND DIESEL COSTS Electricity 7% Gas 23% 8% 2% Fuel Materials 8% Personnel 4% Spare parts 11% 7% Maintenance & repairs Grinding media Royalities 12% CAT 6060 hydraulic 17% Explosives mining excavator 6
S T R O N G P R O D U C T I O N C O M B I N E D W I T H D E S T O C K I N G S U P P O R T E D C A S H G E N E R AT I O N CASH FLOW 1H 2020 VS. 1H 2019 EBITDA – Impact of lower pellet premiums, partially offset by higher sales volumes US$M (unless otherwise stated) 1H 2020 1H 2019 Change through destocking EBITDA 352 372 -5% WORKING CAPITAL Working capital movements -25 -67 -63% – Working capital lower reflecting pellet inventory and accelerated cash collection as a result of sales mix Working capital – stockpile ore - -3 -100% TAX Interest paid -13 -20 -35% – Tax expense based on an expected tax rate of 15% for the financial year Tax paid -19 -36 -48% 2020, in line with the rate applied for 1H 2019 Other (incl. non-cash operating FX) -38 10 -5% CAPITAL INVESTMENT Net cash flow from operating activities 258 256 1% – Sustaining and other capital investment of US$54M Capex -96 -114 -16% – Development capital investment for: Dividend paid -58 -78 -25% • concentrate expansion programme of US$12M; and Other 3 3 0% • press filtration complex of US$17M – Capitalised pre-stripping activities of US$13M to gain access to ore Net cash flow before change in borrowings 106 67 58% expected to be extracted in a future period Proceeds from new borrowings - 185 -100% DIVIDENDS Repayment of borrowings -70 -222 -69% – 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 Cash balance at end of period 169 92 +84% – Additional interim dividend declared in June 2020 of 6.6 US cents, which Net debt 174 282 -39% was paid in July 2020 7
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 STRONG DEBT METRICS MAINTAINING A BALANCED DISTRIBUTION OF CAPITAL – Company has shown strong cash generation throughout the cycle, – Draw down of undrawn portion of PXF facility in 2019 averaging full year EBITDA margin of 37% since IPO – Existing debt facilities continue to amortise at US$33M a quarter in – Company has reduced gross debt to US$343M as of June 2020, down 2020-2022 from a peak of US$1.3BN in 2014 – Capital investment programme in 1H 2020 focused on sustaining capex and – Net debt US$174M, reduced from peak of US$868M in 2015 finalising Section 9 concentrator expansion, following pelletiser maintenance in 2019. – Covenant compliance comfortably met 3.00 1H 2019 1H 2020 2.50 Net Debt to EBITDA ratio 16% 2.00 26% 31% 34% 1.50 1.00 50% 43% 0.50 0.00 FY FY FY FY FY FY FY FY FY FY FY FY FY HY 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Debt reduction Capital investment Dividends 8
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 out 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 9
Yeristovo mine The town of Poltava mine Horishni Plavni Tailings Dam Concentrator Pelletizer facilities facilities Jim North, Acting CEO Operations and Strategy Update 10
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 COVID-19 UPDATE SAFETY STATISTICS SINCE IPO: FATALITIES 4 – Operations continue with minimal disruption to activities 3 Group Fatalities EMBEDDING CHANGES IN APPROACH TO SAFETY 2 – 2019 represented a good year for safety performance, with this progressed continued into 1H 2020 1 – LTIFR in 1H 2020 of 0.77x remains below five year rolling 0 average of 1.01x FY FY FY FY FY FY FY FY FY FY FY FY FY HY 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 – Company uses a number of leading and lagging indicators to monitor safety of both employees and contractors alike SAFETY STATISTICS SINCE IPO: LOST TIME INJURY FREQUENCY RATE – Leading indicators include: • Safety Inspections and Audits 1.60 1.46 • Training sessions and emergency drills Group LTIFR (per million hours) 1.40 1.17 1.17 1.18 – Lagging indicators include: 1.11 1.20 1.07 0.95 0.86 0.96 • Lost time injury rates 1.00 0.77 0.77 0.80 0.66 • Total recordable injury rates 0.57 0.58 0.60 • Significant incidents and near miss hazard reporting 0.40 0.20 0.00 FY FY FY FY FY FY FY FY FY FY FY FY FY HY 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 11
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