ferrexpo 2014 full year results presentation · fym concentrator on hold net debt increased...
TRANSCRIPT
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F E R R E X P O 2 0 1 4 F U L L Y E A R R E S U LT S P R E S E N TAT I O N
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D I S C L A I M E R
2
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directly or indirectly, to any other person.
Some of the information in this document is still in draft form and is subject to verification,
finalisation and change. Neither the Company nor its affiliates nor advisers are under an
obligation to correct, update or keep current the information contained in this document or to
publicly announce the result of any revision to the statements made herein except where they
would be required to do so under applicable law.
No reliance may be placed for any purpose whatsoever on the information contained in this
document. No representation or warranty, expressed or implied, is given by or on behalf of the
Company or any of the Company’s directors, officers or employees or any other person as to the
accuracy or completeness of the information or opinions contained in this document and no
liability whatsoever is accepted by the Company or any of the Company’s members, directors,
officers or employees nor any other person for any loss howsoever arising, directly or indirectly,
from any use of such information or opinions otherwise arising in connection therewith.
This presentation and its contents are confidential. By reviewing and / or attending thispresentation you are deemed to accept that you are under a duty of confidentiality in relation tothe contents of this presentation. You agree that you will not at any time have any discussion,correspondence or contact concerning the information in this document with any of the directorsor employees of the Company or its subsidiaries nor with any of their customers or suppliers, or
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Certain statements, beliefs and opinions in this document and any materials distributed inconnection with this document are forward-looking. The statements typically contain words suchas “anticipate”, “assume”, “believe”, “estimate”, “expect”, “plan”, “intend” and words of similarsubstance. By their nature, forward-looking statements involve a number of risks, uncertaintiesand assumptions that could actual results or events to differ materially from those expressed orimplied by the forward-looking statements. These risk, uncertainties and assumptions couldadversely affect the outcome and financial effects of the plans and events described herein.Statements contained in the document regarding past trends or activities should not be taken as arepresentation or warranty (express or implied) that such trends or activities will continue in thefuture. No statement in this document is intended to be a profit forecast. You should not placereliance on forward-looking statements, which speak only as of the date of this document.
You should not base any behaviour in relation to financial instruments related to the Company’ssecurities or any other securities and investments on information until after it is made publiclyavailable by the Company or any of their respective advisers. Any dealing or encouraging othersto deal on the basis of such information may amount to insider dealing under the Criminal JusticeAct 1993 and to market abuse under the Financial Services and Markets Act 2000.
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I N T R O D U C T I O N
M I C H A E L A B R A H A M S C B E D L , C H A I R M A N
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4
2 0 1 4 F I N A N C I A L S R E S U LT S
C H R I S M AW E , C F O
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2 0 1 4 : S T R O N G P E R F O R M A N C E
US$M (unless otherwise stated) 2014 2013 % Change
Total production (kt) 11,021 10,813 2%
Sales volumes (kt) 11,167 10,689 5%
Average CFR 62% fines price (US$/t) 97 135 (28%)
Revenue 1,388 1,581 (12%)
C1 cash cost (US$/t) 46 60 (23%)
Operating foreign exchange gains 76 1 n/a
EBITDA 496 506 (2%)
Impairments (84) (1) n/a
Profit for the period 184 264 (30%)
Income tax % 28% 14% 100%
Diluted eps 30.39 44.69 (31%)
Net cash flow from operating activities 288 233 24%
CAPEX 235 278 (15%)
Dividend 13.2 13.2 -
Closing net debt 678 639 6%
Net assets 718 1,735 (59%)
Benchmark iron ore price down 47% in 2014 from US$135/t to US$72/t, however
Strong performance highlights strength of business model
Higher pellet premiums
Improved pricing terms
Increased production volumes and quality
Improved efficiency
Lower costs (currency effects)
Lower freight – from December
Dividend retained in line with 2013
Capex to complete QUP & CUP; 12 MTPA capacity reached
FYM concentrator on hold
Net debt increased modestly by US$39M
US$20M increase in VAT (no repayment in Nov & Dec), normal repayments in Jan & Feb 2015
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1,581
430
164
62
64
1,388
11
0
200
400
600
800
1000
1200
1400
1600
2013revenue
Spot 62% Fefines
Pelletpremium &
pricerealisation
Volume, ownore
Freight &other
2014revenue
6
506496
164
23 45104
43
76
430 35
0
100
200
300
400
500
600
2013EBITDA
Spot 62%Fe fines
Pelletpremium &
pricerealisation
Volume,own ore
C1 /constantcurrency
Other costs /constantcurrency
C1 / forexeffect
Other costs /forex effect
Forex non-cash gain
2014EBITDA
REVENUE 2014 VS. 2013 (US$M) EBITDA 2014 VS. 2013 (US$M)
H I G H E R V O L U M E S , I N D E X B A S E D P R I C I N G , I M P R O V E D P E L L E T
P R E M I U M S A N D L O W E R C O S T S S U P P O R T E D 2 0 1 4 E B I T D A
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L O W E R C O S T S
C1 CASH US$ PER TONNE
6046
36
30
35
40
45
50
55
60
2013 2014 Jan/Feb 2015
7
25% Electricity
15% Gas
13% Fuel
10%Materials
10%Personnel
7% Grinding bodies
7%Maintenance
6% Spares
4% Royalites3% Explosives
BREAKDOWN OF C1 CASH COST
Average
2013
Average
2014
Average 2015
as of 28 Feb
2015
Current spot
(approximately)
UAH vs. US$ 8.0 11.9 20.3 23.0
C1 cost US$14 per tonne lower
Largely driven by UAH devaluation
Positive FYM contribution
15% decline in gas prices
Improved consumption norms
14% increase in electricity tariffs
Increased royalty payments in UAH
-23%
45% = FPP1 52% = FPP1 81% = FPP1
1Ferrexpo Premium Pellets, 65% Fe
US
$ pe
r to
nne
-22%
-
US$2 BILLION CAPEX PROGRAMME SINCE IPO DELIVERING BENEFITS TO CONSUMPTION NORMS
Electricity consumption (kWh/t pellets) Gas (m3/t pellets)Grinding bodies (t/th.t pellets)
8
15.0
15.5
16.0
16.5
17.0
17.5
18.0
18.5
2007
2008
2009
2010
2011
2012
2013
2014
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
2007
2008
2009
2010
2011
2012
2013
2014
Project (US$M) 2014 2013 Status
Capacity upgrade project 37 20 Complete
Sustaining capex (incl. logistics) 43 67
Total sustaining capex 80 87
Quality upgrade project 44 47 Complete 1Q 2015
FYM 74 100 Complete
Logistics 18 20 Complete
Other projects 19 24 Complete
Total development capex 155 191
Total capex 235 278
MAJOR CAPEX PROGRAMMES DELIVERED
CUP: modernisation complete
QUP: final of 3 floatation units commissioned in 1Q 15 (c. US$3M)
FYM: mining infrastructure complete
November 2014 run rate 11.5 MTPA of pellets
January 2015 1 MT pellet production, February 2015 all 65% pellet output
M A J O R C A P E X P R O G R A M M E S C O M P L E T E D –
1 2 M T PA C A PA C I T Y A C H I E V E D
140
150
160
170
180
190
200
2007 2008 2009 2010 2011 2012 2013 2014
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C A S H F L O W S 2 0 1 4 V S . 2 0 1 3
US$M (unless otherwise stated) 2014 2013 % Change
EBITDA 496 506 (2%)
Non cash operating forex gain (76) (1) n/a
Interest, tax & working capital (132) (272) (51%)
Net cash flows from operating activities 288 233 24%
Sustaining capex (80) (87) (8%)
Free cash flow 208 146 42%
Development capex (155) (191) (21%)
Dividend (77) (78) -
Acquisition - (82) n/a
Other (15) (10) n/a
Change in net debt (39) (215) (82%)
Net debt at period end (678) (639) (6%)
Net debt to EBITDA (x) 1.4 1.3 -
Cash balance at period end 627 390 60%
EBITDA flat year on year
Working capital reflects VAT refunds
Sustaining capex in-line with historic run rate
42% increase in free cash flow
Growth projects complete
Drawdown of PXF facility in 2H 2014 increased liquidity
Strong credit metrics maintained, net debt to EBITDA 1.4x
1US$54M bond prepayment as announced on 23 February 2015
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L I Q U I D I T Y A N D F I N A N C I N G 2 0 1 4 V S . 2 0 1 3
10
US$M (unless otherwise stated) Net debt Gross debt
Opening net debt - 1 January 2014 (639) (1,029)
Movement in net debt (39)
Debt facilities repaid 119
New debt facilities (393)
Closing net debt – 31 December 2014 (678) (1,305)
627
54
573
300
273
0
100
200
300
400
500
600
700
Cas
h 31
/12/
14
Pai
d to
bond
hold
ers
24.2
.15
Pro
form
a ca
sh
2015
/1Q
201
6ba
nkam
ortis
atio
n
Pro
form
a ca
sh210
PROFORMA CASH & CORE NET DEBT – POST BOND EXCHANGE
0
100
200
300
400
500
600
700
2015/ 1Q2016
Apr-16 Rest 2016 2017 2018 2019
Bank Bond
Debt maturity flat
Net debt increased by US$39M – losses on VAT
Main debt maturity US$286M April 2016 Eurobond
Diversified sources of funding (bond, PXF, ECA/leasing)
US
$286
M
BA
NK
US
$M US
$M
PRO FORMA GROSS DEBT MATURITY PROFILE AT 31 DECEMBER 2014
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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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Strong financial performance
Market weakness mitigated by:
Higher volume & quality
Improved pellet premiums
Index based pricing
Improved efficiency
Currency devaluation
Growth projects successfully completed
Net debt reflects completion of projects
Maintained healthy credit metrics
Debt repayment profile well matched to cash flow
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B U S I N E S S U P D AT E
K O S T YA N T I N Z H E VA G O , C E O
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2 0 1 4 : D E C L I N E I N I R O N O R E F I N E S P R I C E S B U T P E L L E T
P R E M I U M S I N C R E A S E
INCREASE IN PRICE GAP BETWEEN FINES & PELLETS IN 2014
Exports of Iron Ore (MT) 2000 2014Increase
(MT)
Proportion of
increase
Pellets 106 144 38 4%
Lump 93 207 144 12%
Sinter fines 265 1,016 751 78%
Pellet feed 18 73 55 6%
Total 482 1,440 958
Avg annual world GDP growth (2000 to 2014) 3.7%
Pellet exports (MT) 2014
Vale 26.8
Samarco 23.2
LKAB 21.3
Metalloinvest 13.9
Ferrexpo 11.0
Rio Tinto (IOC) 8.3
Cliffs 6.0
Total 143.7
% of top 7 exporters 74%
Costs normalised to basis of 62% sinter fines CFR Qingdao1CRU PELLET COST CURVE ANALYSIS, average 2014
0
50
100
150
200
250
300
0 50 100 150 200 250 300
Cumulative production, M tonnes, 2014 Source: CRU Iron Ore Cost Model 2014
Samarco
Vale(average) Ferrexpo
LKAB(average)
Cliffs(average)
US
$ pe
r to
nne
1These costs curves are based on CRU’s “business costs”. This includes site operating costs of the mining operation, the realisation costs associated with transporting products to market,
sales and marketing expenses, the financing of inventories, goods in transit and receivables, as well as any discount or premium associated with product quality compared with the
benchmark product. The concept of business costs permits a more direct comparison among different products produced in different locations.
40
60
80
100
120
140
160
18065% Fe fines FOB 65% Fe pellets FOB
Source: Platts, Metal Bulletin
US
$ pe
r to
nne
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2007 2014
Mines FPM FPM & FYM
Pellet output 9MT 11MT (31% from FYM)
Logistics
110 rail cars
Acquired berth at TIS Ruda port in May 2007 (5MTPA capacity)
0 capes loaded
No barging operations
2,200 rail cars
Shipped a record 6.3MT through port
22 capes loaded
139 strong barging fleet
Customer diversification
77% to Traditional markets (of which 25% in Ukraine)
2% to Natural markets
21% to Growth markets
49% to Traditional markets (zero Ukraine)
16% to Natural markets
35% to Growth markets
Pricing Negotiated 100% index based
Revenue US$698M US$1,388M
C1 cost US$32 per tonne US$46 per tonne
EBITDA US$246M US$496M
# of employees 10,112 9,658
Modernisation of facilities Average monthly pellet output c.750kt 12MTPA capacity in place, 1MT pellet output achieved in January 2015
Processing capacity41% of production FPP
One floatation unit in operation
53% of production FPP, ramping up
Capacity in place to produce all FPP (65% Fe) – 100% FPP output in
February 2015
S I G N I F I C A N T P R O G R E S S S I N C E I P O :
R E V E N U E & E B I T D A D O U B L E D , A S S E T B A S E W E L L I N V E S T E D
US$2 BILLION RE-INVESTED INTO THE BUSINESS SINCE IPO IN 2007
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F E R R E X P O W E L L P O S I T I O N E D T O C O N T I N U E T O G E N E R AT E
P O S I T I V E C A S H F L O W
151For indicative purposes only does not represent Ferrexpo’s received price
Stable pellet premiums
C3 freight 2015 forward curve c. US$14 per tonne, improving net back price
Higher production
Improvement in pellet quality
Lower costs due to higher output & devaluation
Benefit from lower oil price – Brent average YTD US$53 per barrel (2014 avg US$99
per barrel
Lower average iron ore benchmark prices
Ukrainian inflation (railway tariffs, electricity, wages)
BEHAVIOUR OF MARGIN & COSTS THROUGH THE CYCLE:
0
50
100
150
200
250
2009 2010 2011 2012 2013 2014
US
$ pe
r to
nne
CRU historic price curve for 65% Fe FOB Tubarao pellets1
Ferrexpo FOB costs
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U K R A I N E
-
U K R A I N E
Uncertain operating environment but progress has been made:
Introduction of flexible exchange rate
VAT refunds reintroduced
But still some difficulties:
Prepaid corporate profit tax
Inflation
Weak Ukrainian banking sector
International support
IMF US$17.5 billion loan package announced in February 2015
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S T R AT E G Y I N T H E C U R R E N T E N V I R O N M E N T
Increase production & quality
Improve operating costs, efficiency and competitiveness of the operations
Continue to finalise new long term contracts with premium steel mills
Refinance prudently
Target prudent balance sheet ratios - net debt levels commensurate with forecast long term iron ore prices
Invest where adequate returns can be made and financial resources are available
Pay dividends commensurate with earnings and balance sheet capacity
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IN LINE WITH OUR CASH GENERATION ABILITY, OUR PRIORITIES ARE TO:
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A P P E N D I X
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A W O R L D C L A S S P E L L E T P R O D U C E R
LONG LIFE RESOURCE ESTABLISHED LOGISTICS CAPABILITY
PREMIUM GLOBAL CUSTOMER PORTFOLIO
BR
OV
AR
IKO
VS
KO
YE
4.0BT
MA
NU
ILO
VS
KO
YE
3.4BT
KH
AR
CH
EN
KO
VS
KO
YE
2.8BT
VA
SIL
IEV
SK
OY
E
1.4BT
ZA
RU
DE
NS
KO
YE
1.5BT
GA
LE
SC
HIN
SK
OY
E
0.2BT
BE
LA
NO
VS
KO
YE
1.7BT
MIN
E LIF
E –
XX
YE
AR
S
YE
RIS
TO
VS
KO
YE
1.2BT
MIN
E LIF
E –
23 YE
AR
S
13.1 6.7FSU SOVIET
CLASSIFIED
RESOURCES
JORC
CLASSIFIED
RESOURCES
GO
RIS
HN
E-P
LA
VN
INS
KO
YE
& L
AV
RIK
OV
SK
OY
E
3.5BT
MIN
E LIF
E –
25 YE
AR
S
PRODUCTION
DEVELOPMENT
LICENCE MAINTENANCE
EASTERN & CENTRAL EUROPE
CHINA
NORTH EAST ASIA
WESTERN EUROPE
TURKEY, MIDDLE EAST & INDIA
25%
8%
10%
49%
8%
105
278
86
167
380
430
278
232
0
50
100
150
200
250
300
350
400
450
2007 2008 2009 2010 2011 2012 2013 2014
US$2BN CAPITAL INVESTMENT SINCE IPO
US
$M
-
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R E C O N C I L I AT I O N O F E B I T D A T O P R O F I T F R O M C O N T I N U I N G
O P E R AT I O N S B E F O R E A D J U S T E D I T E M S
US$M (unless otherwise stated) 2014 2013
EBITDA 496.3 505.9
Share-based payments (0.5) (1.3)
Losses on disposal of PPE (4.8) (8.5)
Write-down of VAT receivable (6.8) (36.4)
Depreciation (82.3) (99.6)
Impairment (83.5) (0.9)
Profit before tax & finance 318.4 359.2
Tax (70.4) (41.6)
Non-operating forex (14.8) 9.8
Net interest expense (49.2) (63.6)
Profit from continuing operations before adjusted items 183.8 263.8