Unaudited Nine Month Results to 30 September 2012

Not for distribution, directly or indirectly, in or into the United States (except to qualified institutional buyers, as defined in Rule 144A under the U.S. Securities Act of 1933, as amended), Australia, Canada, Japan or any other jurisdiction where to do so would be unlawful.

30 January 2013

Ferrexpo plc

("Ferrexpo", the "Group" or the "Company")

 

Unaudited Nine Month Results to 30 September 2012

 

Ferrexpo plc, a major iron ore pellet producer and member of the FTSE 250, today announces that it has mandated Morgan Stanley and Credit Suisse to arrange a series of fixed income investor meetings commencing on Thursday, 31 January 2013 in anticipation of a potential USD-denominated senior unsecured Reg S / 144A Eurobond issue (the "Notes Offering"). Placement of the Notes Offering will be dependent on market conditions.

 

As part of the fixed income investor meetings, Ferrexpo will be presenting financial information from its unaudited interim financial statements for the nine month period to 30 September 2012, as described below. As such, this release is to inform the market of these financial results. Ferrexpo will report its full year results for the period ended 31 December 2012 on 13 March 2013.

 

The proceeds of the expected Notes Offering, if issued, will be used for general corporate purposes, to reduce reliance on secured lending and to add further liquidity. This is consistent with the Group's strategy to maintain prudent financial ratios enabling it to develop its substantial iron ore reserves through the economic cycle. For the nine months to September 2012, the Group had a net debt to LTM EBITDA ratio of below 1 times. 

 

Highlights for the nine months ended 30 September 2012 are presented below:

 

Financial

·      Turnover of US$1,082.6 million (9M 2011: US$1,313.8 million)

·      Net profit before taxation of US$228.8 million (9M 2011: US$533.6 million)

·      EBITDA of US$328.8 million (9M 2011: US$612.3 million)

·      Group consolidated shareholder equity of US$1,545.8 million (9M 2011: US$1,265.8 million)

·      Group Net financial indebtedness of US$337.8 million (9M 2011:US$16.4 million)

·      Cash and cash equivalents of US$673.9 million (9M 2011: US$543.2 million)

 

Sales and Marketing

§ Average benchmark China CFR 62% Fe fines price was US$131 per tonne (9M 2011: US$177 per tonne)

§ Sales volumes were 7.0 million tonnes of pellets (9M 2011: 7.2 million tonnes of pellets)

§ Lower prices were partially mitigated through reduced freight rates to seaborne markets

§ Growth markets accounted for 42% of sales up from 36% of sales for the prior year period

 

Operations

§ 6.9 million tonnes of pellet production, from own ore(9M 2011: 6.7 million tonnes)

§ C1 cash cost of US$59.9 per tonne (9M 2011: US$49.4 per tonne)

§ C1 cash cost impacted by stable exchange rate between Ukrainian hryvnia and US dollar and local inflation including electricity tariff and gas price increases

 

Growth Projects

§ Growth projects progressed as planned on budget and schedule

§ First ore achieved at FYM in July 2012, commercial production expected in 2013

§ FYM mining license renewed for 20 years to 2032

§ 37% increase in capital investment for the period to US$324 million (9M 2011: US$236 million)

 

VAT

§ Net VAT outstanding as of 30 September 2012 was US$269.6 million (9M 2011: US$149.7 million)

§ A US$15.9 million discount has been recorded to reflect the time value of money for VAT and the expectation that a portion of VAT will be recovered after more than one year

 

Key financial information is summarised in the table below

US$'000 unless otherwise stated

 

	9 months ended 30.09.12	9 months ended 30.09.11	Change	Year ended 31.12.11
	(unaudited)	(unaudited)		(unaudited)
Pellets produced from own ore (thousand tonnes)	6,934	6,728	3%	9,063
Total pellet production (thousand tonnes)	7,156	7,257	(1%)	9,811
Sales volumes (thousand tonnes)	6,954	7,175	(3%)	9,875
Revenue	1,082.6	1,313.8	(18%)	1,788.0
EBITDA1	328.8	612.3	(46%)	800.9
Profit before tax and finance	288.7	581.0	(50%)	758.6
Diluted EPS (US cents per share)	32.4	75.4	(57%)	96.7
Net cash flow from operating activities	107.3	428.9	(75%)	502.7
Capital investment	323.8	236.0	37%	380.4
VAT outstanding	269.6	149.7	80%	172.4
Net debt / (Net funds position)	337.8	16.4		(80.2)
Cash and cash equivalents	673.9	543.2	24%	890.2
Net debt to LTM EBITDA	0.7	0.0		0.1

¹ EBITDA - the Group calculates EBITDA as profit from continuing operations before tax and finance plus depreciation and amortisation and non-recurring exceptional items included in other income and other expenses, and the net of gains and losses from disposal of investments, property, plant and equipment.

 

For further information, please contact:   Ferrexpo:
Ingrid McMahon	+44 207 389 8304
Pelham Bell Pottinger
Charles Vivian	+44 207 861 3126
Lorna Spears	+44 207 861 3883

Notes to Editors:

 

Ferrexpo is a Swiss headquartered iron ore company with assets in Ukraine. It is principally involved in the production and export of high quality iron ore pellets, which are used in the manufacture of steel. Ferrexpo's resource base is one of the largest iron ore deposits in the world. Its current producing asset, FPM, produced approximately 10 million tonnes of iron ore pellets in 2012 making it the largest exporter of pellets in the CIS. The Company has a diversified customer base supplying steel mills in Austria, Slovakia, Czech Republic, Germany and other European states, as well as in China, India, Japan, Taiwan and South Korea. Ferrexpo is listed on the main market of the London Stock Exchange under the ticker FXPO. For further information, please visit www.ferrexpo.com

 

The information contained herein is not for publication or distribution, directly or indirectly, in or into the United States of America. The materials do not constitute an offer of securities for sale in the United States of America, nor may the securities be offered or sold in the United States of America absent registration or an exemption from registration as provided in the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act), and the rules and regulations thereunder. There is no intention to register any portion of the offering in the United States of America or to conduct a public offering of securities in the United States of America and the securities will only be offered for sale in the United States of America to "qualified institutional buyers" (QIBs) as defined in and in reliance upon Rule 144A under the U.S. Securities Act and will only be offered for sale outside the United States of America to persons other than U.S. persons under Regulation S under the U.S. Securities Act.

 

The information contained herein shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the securities referred to herein in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, exemption from registration or qualification under the securities laws of any such jurisdiction. The offering and the distribution of this communication and other information referred to herein may be restricted by law and persons into whose possession this communication or such other information comes should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

 

This communication is not being made, and this communication has not been approved, by an authorised person for the purposes of section 21 of the Financial Services and Markets Act 2000, as amended (the "FSMA"). Accordingly, this communication is not being distributed to, and must not be passed on to; the general public in the United Kingdom or to persons in the United Kingdom save in circumstances where section 21(1) of the FSMA does not apply. This announcement is made to and is directed only at persons in the United Kingdom having professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) or are high net worth companies, unincorporated associations etc falling within Article 49(2), in each case of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, and to those persons to whom it can otherwise lawfully be distributed (all such persons together being referred to as "relevant persons"). This communication and the securities referred to herein are, and will be made, available only to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, such relevant persons. No other person should rely or act upon it. This communication is not intended for distribution to and must not be passed on to any retail client.

 

Interim Consolidated Income Statements

US$'000	Notes	9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Revenue	4	1,082,608	1,313,827	1,788,012
Cost of sales	3/5	(502,905)	(473,902)	(649,544)
Gross profit		579,703	839,925	1,138,468
Selling and distribution expenses	6	(233,371)	(218,061)	(317,951)
General and administrative expenses	7	(41,821)	(38,663)	(51,969)
Other income		7,019	5,323	6,943
Other expenses		(22,117)	(8,825)	(17,091)
Operating foreign exchange losses	8	(447)	(605)	(1,360)
Operating profit from continuing operations before adjusted items		288,966	579,094	757,040
Write-offs and impairment losses	9	(518)	(198)	(478)
Share of profit from associates		1,604	2,405	2,012
Losses on disposal of property, plant and  equipment		(1,389)	(284)	(46)
Profit before tax and finance		288,663	581,017	758,528
Finance income		1,807	1,862	2,511
Finance expense		(66,279)	(49,818)	(68,205)
Non-operating foreign exchange gains/(losses)	8	4,588	527	(1,934)
Profit before tax		228,779	533,588	690,900
Income tax expense		(37,581)	(88,138)	(115,964)
Profit for the period/year		191,198	445,450	574,936
Attributable to:
Equity shareholders of Ferrexpo plc		189,958	440,834	567,822
Non-controlling interests		1,240	4,616	7,114
		191,198	445,450	574,936
Earnings per share:
Basic (US cents)	10	32.48	75.48	97,09
Diluted (US cents)	10	32.44	75.40	96.67

Interim Consolidated Statement of Comprehensive Income

US$ 000 9 months ended 30.09.12 9 months ended 30.09.11 Year ended 31.12.11 (unaudited) (unaudited)  (audited) Profit for the period/year 191,198 445,450 574,936 Exchange differences on translating foreign operations (477) (1,105) (3,024) Income tax effect  - -  - Exchange differences arising on hedging of foreign operations (201) (243) (894) Income tax effect 32 40 153 Net gains/(losses) on available-for-sale investments (113) (1,853) (1,868) Income tax effect 25 464 437 Other comprehensive income for the period/year, net of tax (734) (2,697) (5,196) Total comprehensive income for the period/year, net of tax 190,464 442,753 569,740 Total comprehensive income attributable to: Equity shareholders of Ferrexpo plc 189,232 438,198 562,883 Non-controlling interests 1,232 4,555 6,857 190,464 442,753 569,740

 

Interim Consolidated Statement of Financial Position

US$'000	Notes	As at 30.09.12	As at 30.09.11	As at 31.12.11    (audited)
		(unaudited)	(unaudited)
Assets
Property, plant and equipment	11	1,246,624	844,061	924,690
Goodwill and other intangible assets		108,131	103,224	103,240
Investments in associates		19,416	21,329	19,186
Available-for-sale financial assets	18	765	1,722	1,290
Other non-current assets		53,551	42,400	93,358
Other taxes recoverable and prepaid	12	91,008	-	-
Deferred tax assets		27,130	16,512	23,426
Total non-current assets		1,546,625	1,029,248	1,165,190
Inventories		143,478	108,840	117,046
Trade and other receivables		86,614	93,772	128,905
Prepayments and other current assets		24,037	44,695	22,720
Income taxes recoverable and prepaid		17,527	345	384
Other taxes recoverable and prepaid	12	178,853	150,633	172,951
Cash and cash equivalents	13	673,913	543,188	890,154
		1,124,422	941,473	1,332,160
Assets classified as held for sale		1,784	2,938	1,845
Total current assets		1,126,206	944,411	1,334,005
Total assets		2,672,831	1,973,659	2,499,195
Equity and liabilities
Share capital	14	121,628	121,628	121,628
Share premium		185,112	185,112	185,112
Other reserves		(348,089)	(346,451)	(348,603)
Retained earnings		1,565,818	1,287,524	1,414,512
Equity attributable to equity shareholders of the parent		1,524,469	1,247,813	1,372,649
Non-controlling interest		21,367	18,034	20,480
Total equity		1,545,836	1,265,847	1,393,129
Interest-bearing loans and borrowings	3/15	977,985	529,343	951,430
Defined benefit pension liability		19,331	23,921	13,329
Provision for site restoration		3,194	2,833	3,015
Deferred tax liability		2,152	1,823	2,232
Total non-current liabilities		1,002,662	557,920	970,006
Interest-bearing loans and borrowings	3/15	33,724	30,244	18,948
Trade and other payables		40,524	38,788	42,648
Accrued liabilities and deferred income		25,274	25,832	29,713
Income taxes payable		12,789	36,398	36,674
Other taxes payable		12,022	18,630	8,077
Total current liabilities		124,333	149,892	136,060
Total liabilities		1,126,995	707,812	1,106,066
Total equity and liabilities		2,672,831	1,973,659	2,499,195

The financial statements were approved by the Board of Directors on 24 January 2013.

Kostyantin Zhevago                                               Christopher Mawe

Chief Executive Officer                                          Chief Financial Officer

Interim Consolidated Statement of Cash Flows

US$'000	Notes	9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Profit before tax		228,779	533,588	690,900
Adjustments for:
Depreciation of property, plant and equipment and amortisation of intangible assets		36,954	30,100	41,003
Interest expense		61,515	46,917	62,321
Interest income		(2,035)	(3,379)	(2,511)
Share of income of associates		(1,604)	(2,405)	(2,012)
Movement in allowance for doubtful receivables		(313)	(3,333)	(2,406)
Loss on disposal of property, plant and equipment		1,389	284	46
Write-offs and impairment losses	9	518	198	478
Site restoration provision		176	89	269
Employee benefits		9,276	10,405	1,069
Share based payments		1,240	605	891
Operating foreign exchange losses	8	447	605	1,360
Non-operating foreign exchange (gains)/losses	8	(4,588)	(527)	1,934
Operating cash flow before working capital changes		331,754	613,147	793,342
Changes in working capital:
Decrease/(Increase) in trade and other receivables		32,935	(4,606)	(17,391)
Increase in inventories		(26,368)	(4,013)	(12,220)
Decrease in trade and other accounts payable		(1,466)	(10,861)	(9,788)
Increase in VAT recoverable and other taxes recoverable and payable		(108,864)	(47,087)	(72,051)
Cash generated from operating activities		227,991	546,580	681,892
Interest paid		(33,854)	(16,559)	(43,266)
Income tax paid		(83,483)	(98,263)	(132,176)
Post-employment benefits paid		(3,372)	(2,809)	(3,741)
Net cash flows from operating activities		107,282	428,949	502,709
Cash flows from investing activities
Purchase of property, plant and equipment		(318,218)	(234,340)	(378,302)
Proceeds from disposal of property, plant and equipment		562	-	-
Purchase of intangible assets		(5,611)	(1,675)	(2,092)
Interest received		2,097	1,407	2,067
Dividends from associates		3,123	-	2,207
Proceeds from loans to associates		-	1,000	1,000
Cash payment for acquisition made in 2010		-	(38,045)	(38,045)
Acquisition of subsidiaries, net of cash acquired		-	-	(390)
Net cash flows used in investing activities		(318,047)	(271,653)	(413,555)
Cash flows from financing activities
Proceeds from borrowings and finance		41,912	514,800	952,269
Repayment of borrowings and finance		(10,569)	(393,142)	(410,027)
Arrangement fees paid		(350)	(18,800)	(21,021)
Dividends paid to equity shareholders of Ferrexpo plc		(35,555)	(35,697)	(38,663)
Dividends paid to non-controlling shareholders		(634)	(264)	(880)
Net cash flows from/(used) in financing activities		(5,196)	66,897	481,678
Net (decrease)/increase in cash and cash equivalents		(215,961)	224,193	570,832
Cash and cash equivalents at the beginning of the period/year		890,154	319,470	319,471
Currency translation differences		(280)	(475)	(149)
Cash and cash equivalents at the end of the period/year	13	673,913	543,188	890,154

 

Interim Consolidated Statement of Changes in Equity

For the financial year 2011 and the nine months ended 30 September 2012	Attributable to equity shareholders of the parent
US$ 000	Issued capital	Share premium	Uniting of interest reserve	Treasury share reserve	Employee Benefit Trust reserve	Net unrealised gains reserve	Translation reserve	Retained earnings	Total capital and reserves	Non-controlling interests		Total equity
At 1 January 2011	121,628	185,112	31,780	(77,260)	(10,172)	2,515	(291,283)	885,353	847,673	13,801		861,474
Profit for the period	-	-	-	-	-	-	-	567,822	567,822	7,114		574,936
Other comprehensive income	-	-	-	-	-	(1,431)	(3,508)	-	(4,939)	(257)		(5,196)
Total comprehensive income for the period	-	-	-	-	-	(1,431)	(3,508)	567,822	562,883	6,857		569,740
Equity dividends paid to shareholders of Ferrexpo plc	-	-	-	-	-	-	-	(38,663)	(38,663)	(322)		(38,985)
Share based payments	-	-	-	-	756	-	-		756			756
Adjustments relating to the increase in non-controlling interests	-	-	-	-	-	-	-			144		144
At 31 December 2011 (audited)	121,628	185,112	31,780	(77,260)	(9,416)	1,084	(294,791)	1,414,512	1,372,649	20,480		1,393,129
Profit for the period	-	-	-	-	-	-	-	189,958	189,958	1,240		191,198
Other comprehensive income	-	-	-	-	-	(89)	(637)	-	(726)	(8)		(734)
Total comprehensive income for the period	-	-	-	-	-	(89)	(637)	189,958	189,232	1,232		190,464
Equity dividends paid to shareholders of Ferrexpo plc	-	-	-	-	-	-	-	(38,652)	(38,652)	(345)		(38,997)
Share based payments	-	-	-	-	1,240	-	-	-	1,240	-		1,240
At 30 September 2012 (unaudited)	121,628	185,112	31,780	(77,260)	(8,176)	995	(295,428)	1,565,818	1,524,469	21,367		1,545,836
	Attributable to equity shareholders of the parent
For the nine months ended 30 September 2011
US$ 000	Issued capital	Share premium	Uniting of interest reserve	Treasury share reserve	Employee Benefit Trust reserve	Net unrealised gains reserve	Translation reserve	Retained earnings	Total capital and reserves	Non-controlling interests		Total equity
At 1 January 2011	121,628	185,112	31,780	(77,260)	(10,172)	2,515	(291,283)	885,353	847,673	13,801		861,474
Profit for the period	-	-	-	-	-	-	-	440,834	440,834	4,616		445,450
Other comprehensive income	-	-	-	-	-	(1,390)	(1,246)	-	(2,636)	(61)		(2,697)
Total comprehensive income for the period	-	-	-	-	-	(1,390)	(1,246)	440,834	438,198	4,555		442,753
Equity dividends paid to shareholders of Ferrexpo plc	-	-	-	-	-	-	-	(38,663)	(38,663)	(322)		(38,985)
Share based payments	-	-	-	-	605	-	-	-	605	-		605
At 30 September 2011 (unaudited)	121,628	185,112	31,780	(77,260)	(9,567)	1,125	(292,529)	1,287,524	1,247,813	18,034		1,265,847

 

Notes to the Interim Condensed Consolidated Financial Statements

Note 1: Corporate information

Organisation and operation

Ferrexpo plc (the 'Company') is incorporated in the United Kingdom with registered office at 2-4 King Street, London, SW1Y 6QL, UK. Ferrexpo plc and its subsidiaries (the 'Group') operate two mines and a processing plant near Kremenchuk in Ukraine, an interest in a port in Odessa and sales and marketing activities in Switzerland, Dubai and Kiev. The Group also owns a logistics group located in Austria which operates a fleet of vessels operating on the Rhine and Danube waterways. The Group's operations are vertically integrated from iron ore mining through to iron ore concentrate and pellet production and subsequent logistics. The Group's mineral properties lie within the Kremenchuk Magnetic Anomaly and are currently being exploited at the Gorishne-Plavninsky and Lavrikovsky ('GPL') and Yeristovo deposits.

The majority shareholder of the Group is Fevamotinico S.a.r.l. ('Fevamotinico'), a company ultimately owned by The Minco Trust, of which Kostyantin Zhevago, the Group's Chief Executive Officer, is a beneficiary. At the time this report was published, Fevamotinico held 51.0% (30 September 2011: 51.0%; 31 December 2011: 51.0%) of Ferrexpo plc's issued share capital. The Group's operations are largely conducted through Ferrexpo plc's principal subsidiary, OJSC Ferrexpo Poltava Mining and logistics for Western Europe are managed through the Helogistics subsidiaries.

The Group comprises of Ferrexpo plc and its consolidated subsidiaries as set out below:

			Equity interest owned
Name	Country of incorporation	Principal activity	30.09.12 %	30.09.11 %	31.12.11 %
OJSC Ferrexpo Poltava Mining1	Ukraine	Iron ore mining	97.3	97.3	97.3
Ferrexpo AG2	Switzerland	Sale of iron ore pellets	100.0	100.0	100.0
DP Ferrotrans3	Ukraine	Trade, transportation services	97.3	97.3	97.3
United Energy Company LLC3	Ukraine	Holding company	97.3	97.3	97.3
Ferrexpo Finance plc1	England	Finance	100.0	100.0	100.0
Ferrexpo Services Limited1	Ukraine	Management services & procurement	100.0	100.0	100.0
Ferrexpo Hong Kong Limited1	China	Marketing services	100.0	100.0	100.0
LLC Ferrexpo Yeristovo GOK4	Ukraine	Iron ore mining	100.0	98.6	100.0
LLC Ferrexpo Belanovo  GOK4	Ukraine	Iron ore mining	100.0	98.6	100.0
Nova Logistics Limited3	Ukraine	Service company (dormant)	51.0	51.0	51.0
Ferrexpo Middle East FZE6	U.A.E.	Sale of iron ore pellets	100.0	100.0	100.0
Ferrexpo Singapore PTE Ltd6	Singapore	Marketing services	100.0	100.0	100.0
Helogistics Holding GmbH5	Austria	Holding company	100.0	100.0	100.0
EDDSG GmbH5	Austria	Barging company	100.0	100.0	100.0
DDSG Tankschiffahrt GmbH5	Austria	Barging company	100.0	100.0	100.0
Helogistics Transport GmbH5	Austria	Barging company	100.0	100.0	100.0
DDSG MahartKft. (formerly MahartDuna Cargo Kft.) 5	Hungary	Barging company	100.0	100.0	100.0
Pancar Kft.5	Hungary	Barging company	100.0	100.0	100.0
Ferrexpo Port Services GmbH7	Austria	Port services	100.0	100.0	100.0
Ferrexpo Shipping International Ltd. 8	Marshall Islands	Holding company	100.0	100.0	100.0
Iron Destiny Ltd.8	Marshall Islands	Holding company	100.0	100.0	100.0
Transcanal SRL9	Romania	Port services	77.6	-	77.6
Helogistics Asset Leasing Kft. 7	Hungary	Asset holding company	100.00	-	-
Universal Service Group Ltd.10	Ukraine	Asset holding company	100.0	-	-

 

¹ The Group's interest in these entities is held through Ferrexpo AG.

² Ferrexpo AG was the holding company of the Group until, as a result of the pre-IPO restructuring, Ferrexpo plc became the holding company on 24 May 2007.

³ The Group's interest in these entities is held through OJSC Ferrexpo Poltava Mining.

⁴ The Group's interest in this entity is held through both Ferrexpo AG and Ferrexpo Service Limited.

⁵ The Group's interest in these entities is held through Ferrexpo AG.

⁶ Both subsidiaries were incorporated in March 2011. The Group's interest in Ferrexpo Middle East FZE is held by Ferrexpo AG whereas Ferrexpo Singapore PTE Ltd is a subsidiary of Ferrexpo Middle East FZE.

⁷ The subsidiaries were incorporated in April and December 2011 and the Group's interest is held through Helogistics Holding GmbH.

⁸ The subsidiaries were incorporated on 14 July 2011.

⁹ The company was acquired in October 2011 and its interest is held through Helogistics Holding GmbH.

¹⁰The company was incorporated in December 2012 and the Group's interest is held through Ferrexpo Services Limited.

Note 2: Summary of significant accounting policies

At 30 September 2012, the Group also holds through OJSC Ferrexpo Poltava Mining an interest of 48.6% (30 September 2011: 48.6%; 31 December 2011: 48.6%) in TIS Ruda, a Ukrainian port located on the Black Sea. As this is an associate, it is accounted for using the equity method of accounting.

Basis of preparation

The interim condensed consolidated financial statements for the nine month period ended 30 September 2012 have been prepared in accordance with International Accounting Standard ('IAS') 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all of the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2011.The interim condensed consolidated financial statements do not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the full year is based on the statutory accounts for the financial year ended 31 December 2011. A copy of the statutory accounts for that year, which were prepared in accordance with International Financial Reporting Standards ('IFRS') issued by the International Accounting Standard Board ('IASB'), as adopted by the European Union as they apply to financial statements of the Group for the year ended 31 December 2011, has been delivered to the Register of Companies. The auditors' report under section 495 of the Companies Act 2006 in relation to those accounts was unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

Financing and going concern

At the period end, the Group's main debt facilities comprised a US$500 million Eurobond which is due for repayment on 7 April 2016 and a US$420 million revolving pre-export finance facility including a commitment amortisation over a 24 month period from September 2014 to August 2016. The Group is of the view that it can generate sufficient cash flows to fully repay the borrowings as they fall due in compliance with the terms and conditions of the loan facility and Eurobond terms and conditions.

The Group faces several risks to its business and strategy, which are included in the Principal Risks section of published Interim Report 2012 and these financial statements should be read in conjunction with this report.

The Directors are of the view that the Group is a going concern and the interim consolidated financial statements have been drawn up on this basis.

Changes in accounting policies

The accounting policies and methods of computation adopted in the preparation of the interim condensed consolidated financial statements are the same as those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2011 except for the adoption of new amendments to IFRSs effective as of 1 January 2012, noted below:

IAS 12 Income taxes - recovery of underlying assets

The amendment to the standard was issued in December 2010 and became effective for financial years beginning on or after 1 January 2012.The amendment provides an exception to the general principle of measuring deferred taxes for investment properties measured at fair value and introduces a rebuttable presumption that the carrying amount of such assets will be recovered entirely through sale. The adoption of this amended standard did not have an impact on the financial position or performance of the Group.

IFRS 1 First-time adoption of IFRS - severe hyperinflation and removal of fixed dates for first time adopters

The amendments were issued in December 2010 and became effective for annual periods beginning on or after 1 July 2011. The amendments to IFRS 1 provide guidance for entities emerging from severe hyperinflation and replace the date of prospective application of the de-recognition of financial assets and liabilities of '1 January 2004' with 'the date of transition to IFRS'. Both amendments did not have an impact on the financial position or performance of the Group.

IFRS 7 Financial instruments: disclosures - transfer of financial assets

The amendment to IFRS became effective for financial years beginning on or after 1 July 2011. The amendment requires the disclosure of information that enables the users of the financial statements to understand the relationship between transferred financial assets that are not de-recognised in their entirety and the associated liabilities as well as, in the case of fully de-recognised financial assets in which the entity retains continuing involvement, information to evaluate the nature of, and associated risks with continuing involvement in the derecognized financial assets. The application of this amendment did not have impact on the financial statements of the Group.

Seasonality

The Group's operations are not affected by seasonality.

Note 3: Segment information

The Group is managed as a single entity which produces, develops and markets its principal product, iron ore pellets, for sale to the metallurgical industry. While the revenue generated by the Group is analysed, there are no separate measures of profit reported to the Group's Chief Operating Decision-Maker ('CODM'). In accordance with IFRS 8 Operating Segments, the Group presents its results in a single segment which are disclosed in the income statement for the Group. The management monitors the operating result of the Group based on a number of measures including EBITDA, C1 costs and the net financial indebtedness.

EBITDA

The Group calculates EBITDA as profit from continuing operations before tax and finance plus depreciation and amortisation and non-recurring exceptional items included in other income and other expenses, share based payment expenses and the net of gains and losses from disposal of investments and property, plant and equipment. The Group presents EBITDA because it believes that EBITDA is a useful measure for evaluating its ability to generate cash and its operating performance.

 

US$ 000	Notes	9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Profit before tax and finance		288,663	581,598	758,528
Write-offs and impairment losses	9	518	198	478
Share based payments		1,240	735	891
Losses on disposal of PPE		1,389	285	46
Depreciation and amortisation		36,954	30,100	41,003
EBITDA		328,764	612,917	800,946

C1 costs

C1 costs represent the cash costs of production of iron ore pellets from own ore divided by production volume of own ore, and excludes non-cash costs such as depreciation, pension costs and inventory movements, costs of purchased ore and concentrate and production cost of gravel.

US$'000		9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Cost of sales - pellet production		462,651	437,430	600,790
Depreciation and amortisation		(25,988)	(20,911)	(28,639)
Purchased concentrate and other items for resale		(23,638)	(66,573)	(102,908)
Processing costs for purchased ore and concentrate		(2,559)	(4,952)	(7,873)
Production cost of gravel		(476)	(340)	(572)
Inventory movements		19,456	5,053	481
Pension service costs		(4,224)	(3,942)	5,334
Other		(10,089)	(13,551)	(7,099)
C1 cost		415,133	332,214	459,514
Own ore produced (tonnes)		6,933,900	6,727,700	9,063,398
C1 cash cost per tonne US$		59.9	49.4	50.7

 Net financial indebtedness

Net financial indebtedness as defined by the Group comprises cash and cash equivalents, term deposits, interest bearing loans and borrowings.

US$ 000	Notes	As at 30.09.12	As at 30.09.11	As at 31.12.11
		(unaudited)	(unaudited)	(audited)
Cash and cash equivalents	13	673,913	543,188	890,154
Interest bearing loans and borrowings - current	15	(33,724)	(30,244)	(18,948)
Interest bearing loans and borrowings - non-current	15	(977,985)	(529,343)	(951,430)
Net financial indebtedness		(337,796)	(16,399)	(80,224)

Note 4: Revenue

Revenue consisted of the following:

US$ 000		9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Revenue from sales of ore pellets:
Export		1,010,585	1,241,409	1,699,154
Ukraine		319	273	742
		1,010,904	1,241,682	1,699,896
Revenue from logistics and bunker business		62,664	58,066	73,276
Revenue from services provided		2,160	5,113	4,092
Revenue from other sales		6,880	8,967	10,748
Total revenue		1,082,608	1,313,828	1,788,012

Export sales of iron ore pellets and concentrate by geographical destination were as follows:

US$'000		9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
China		388,940	385,007	569,924
Austria		275,779	352,348	453,586
Slovakia		109,824	86,274	121,041
Czech Republic		96,115	92,467	119,793
Turkey		49,213	55,995	83,722
Japan		33,041	52,375	88,875
Germany		21,496	29,157	28,898
Serbia		19,723	134,054	158,687
India		14,390	37,653	47,119
Hungary		2,064	16,079	27,509
Total export revenue		1,010,585	1,241,409	1,699,154

 During the period ended 30 September 2012 sales made to three customers accounted for approximately 47.7% of the revenues from export sales of ore pellets(30 September 2011: 57.8%; 31 December 2011: 50.2%).

Sales made to two customers individually amounted to more than 10% of total sales. These are disclosed below:

US$'000		9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Customer A		275,779	352,348	453,586
Customer B		109,824	142,269	279,728

 

Note 5: Cost of sales

 

Cost of sales consisted of the following:

US$ 000		9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Materials		67,022	60,053	75,246
Purchased concentrate and other items for resale		23,638	66,753	102,908
Electricity		105,924	88,468	121,364
Personnel costs		52,958	45,067	51,677
Spare parts and consumables		19,327	14,284	20,968
Depreciation and amortisation		25,988	20,911	28,639
Fuel		40,411	33,687	47,343
Gas		57,181	42,987	63,485
Repairs and maintenance		56,843	45,676	63,801
Royalties and levies		9,355	7,584	10,437
Cost of sales from logistics business		17,601	16,981	23,363
Bunker fuel		22,653	19,490	25,391
Inventory movements		(19,456)	(5,053)	(481)
Other		23,460	17,014	15,403
Total cost of sales		502,905	473,902	649,544

 

US$ 000		9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Cost of sales - pellet production		462,651	437,431	600,790
Cost of sales - logistics and bunker business		40,254	36,471	48,754
Total cost of sales		502,905	473,902	649,544

 Note 6: Selling and distribution expenses

Selling and distribution expenses consisted of the following:

US$ 000		9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
International freight for pellets		84,343	76,168	119,572
Railway transportation		71,346	64,879	89,185
Port charges		25,779	26,744	37,724
Other pellet transportation costs		8,069	7,977	13,453
Costs of logistics business		21,016	26,126	36,671
Gravel delivery costs		422	1,546	1,783
Advertising		7,217	5,127	6,911
Depreciation		6,709	6,112	8,231
Other		8,470	3,382	4,421
Total selling and distribution expenses		233,371	218,061	317,951

 

Note 7: General and administrative expenses

General and administrative expenses consisted of the following:

US$ 000		9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Personnel costs		22,469	22,263	26,912
Buildings and maintenance		1,818	1,567	2,182
Taxes other than income tax and other charges		1,093	1,695	1,480
Professional fees		3,547	3,776	7,799
Depreciation and amortisation		3,424	2,958	3,968
Communication		842	830	1,149
Vehicles maintenance and fuel		1,435	1,114	1,553
Repairs		1,071	845	1,365
Audit fees		1,164	1,050	1,445
Non-audit fees		254	280	510
Security		1,686	1,357	1,859
Other		3,018	928	1,747
Total general and administrative expenses		41,821	38,663	51,969

Note 8: Foreign exchange gains and losses

US$ 000		9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Operating foreign exchange (losses)/gains		(447)	(605)	(1,360)
Non-operating foreign exchange gains		4,588	527	(1,934)
Total foreign exchange losses		4,141	(78)	(3,294)

 

Operating foreign exchange gains and losses are those items that are directly related to the production and sale of pellets (e.g. trade receivables, trade payables on operating expenditure). Non-operating gains and losses are those associated with the Group's financing and treasury activities and with local income tax payables.

Note 9: Write-offs and impairment losses

Impairment losses relate to adjustments made against the carrying value of assets where this is higher than the recoverable amount.

Write-offs and impairment losses for the nine month period ended 30 September 2012 consisted of the following:

US$ 000		9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Write-off of inventories		-	-	105
Write-off of property, plant and equipment		90	-	175
Impairment of available-for-sale financial assets		428	198	198
Total write-offs and impairment losses		518	198	478

 

The impairment of the available-for-sale financial assets is related to the investment in VostokRuda LLC.

Note 10: Earnings per share and dividends paid and proposed

Basic EPS is calculated by dividing the net profit for the period attributable to ordinary equity shareholders of Ferrexpo plc by the weighted average number of ordinary shares.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares. All share awards are potentially dilutive and have been considered in the calculation of diluted earnings per share.

		9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Profit for the period / year attributable to equity shareholders:
Basic earnings per share (US cents)		32.48	75.48	97,09
Diluted earnings per share (US cents)		32.44	75.40	96.67
Underlying earnings for the period / year:
Basic earnings per share (US cents)		32.13	75.44	97,47
Diluted earnings per share (US cents)		32.09	75.36	97,35

 

The calculation of the basic and diluted earnings per share is based on the following data:

Thousands		9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Weighted average number of shares
Basic number of ordinary shares outstanding		585,041	584,788	584,811
Effect of dilutive potential ordinary shares		913	617	730
Diluted number of ordinary shares outstanding		585,954	585,405	585,541

 

The basic number of ordinary shares is calculated by subtracting the shares held in treasury from the total number of ordinary shares in issue.

'Underlying earnings' is an alternative earnings measure, which the directors believe provides a clearer picture of the underlying financial performance of the Group's operations. Underlying earnings exclude adjusted items and is calculated after non-controlling interest have been deducted from these items. The calculation of underlying earnings per share is based on the following earnings data:

US$ 000	Notes	9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Profit attributable to equity holders		189,958	440,834	567,822
Write-offs and impairment losses	9	518	198	478
Losses on disposal of PPE		1,389	284	46
Non-operating foreign exchange (gains)/losses	8	(4,588)	(527)	1,934
Tax on adjusted items		652	(214)	(282)
Underlying earnings		187,929	440,575	569,998

 

Adjusted items are those items of financial performance that the Group believes should be separately disclosed on the face of the income statement to assist in the understanding of the underlying financial performance achieved by the Group. Adjusted items that relate to the operating performance of the Group include impairment charges and reversals and other exceptional items. Non-operating adjusted items include gains and losses on disposal of investments and businesses and non-operating foreign exchange gains and losses.

Dividends
US$ 000		9 months ended 30.09.12	9 months ended 30.09.11	Year ended 31.12.11
		(unaudited)	(unaudited)	(audited)
Proposed per ordinary share
Final dividend for 2011: 3.3 US cents		-	-	19,301
Total dividends proposed		-	-	19,301
Paid per ordinary share
Interim dividend for 2012: 3.3 US cents		19,312	-	-
Final dividend for 2011: 3.3 US cents		19,340	-	-
Interim dividend for 2011: 3.3 US cents		-	19,301	19,301
Final dividend for 2010: 3.3 US cents		-	19,362	19,362
Total dividends paid during the period		38,652	38,663	38,663

Note 11: Property, plant and equipment

During the nine months period ended 30 September 2012, the Group acquired property, plant and equipment with a cost of US$374,422thousand (30 September 2011: US$242,515 thousand; 31 December 2011: US$334,666 thousand) and disposed of property, plant and equipment with original costs of US$8,814 thousand (30 September 2011: US$3,428 thousand; 31 December 2011: US$5,796 thousand).

Note 12: Other taxes recoverable and prepaid

US$ 000		As at 30.09.12	As at 30.09.11	As at 31.12.11
		(unaudited)	(unaudited)	(audited)
VAT receivable		178,582	149,724	172,434
Other taxes prepaid		271	909	517
Total other taxes recoverable and prepaid - current		178,853	150,633	172,951
VAT receivable		91,008	-	-
Total other taxes recoverable and prepaid - non-current		91,008	-	-

VAT receivable is as a result of VAT paid on domestic Ukrainian purchases of goods, capital equipment and services and on the import of goods, capital equipment and services into Ukraine to the extent that this cannot be offset on VAT paid on domestic sales. Ferrexpo currently has limited domestic sales and exports the majority of its products. As a result, VAT has to be recovered from the Government tax authority and Ferrexpo is reliant on the normal functioning of this system.

During the nine months period ended 30 September 2012, FPM received VAT refunds in respect of 2011 and 2012 amounting to US$39,585 thousand and paid Ukrainian VAT amounting to US$166,019 thousand, including US$61,050 thousand in respect of capital expenditure. As a result the gross recoverable balance increased by US$109,940 thousand to US$281,429 thousand (UAH2,249 million).

Management expects this amount to be fully recovered in local currency. However, the exact timing of recovery and method of settlement is subject to uncertainties, along with the prevailing exchange rate to the US Dollar at the time of repayment. In the past, VAT has been recovered in cash and by the issuance of domestic local currency bonds. An alternative method of settlement could be to offset amounts recoverable against current and future corporate profit tax. A financial loss could result, for example from the issuance of bonds which trade at a discount at the time of issue; continued late repayment as a result of Government fiscal constraints diminishing the present value of the receivable, or the conversion to US Dollar of local currency received at a different exchange rate to that recorded at the time of payment.

Management has considered these uncertainties including potential continued International Monetary Fund support for the Ukrainian national budget, domestic economic and budgetary constraints, and current discussions with fiscal authorities in making an estimate of the timing of recovery of the VAT due. Management concluded that a large portion of the VAT is likely to be repaid considerably beyond the settlement terms which will result in additional funding costs for the Group. As a result, an estimated discount of US$15,900 thousand has been recorded to reflect this uncertainty and its effect is included in finance expense. The discount was calculated on the basis that VAT refunds will continue to be limited to an amount which is double monthly corporation tax payments, which has been our recent experience. Based on current management estimates, US$174,537 thousand of VAT is expected to be recovered within one year of the period end, with the remainder, amounting to US$91,008 thousand, net of the associated discount to reflect the time value of money, recoverable after more than one year of the period end.

Further information on the Ukrainian VAT situation is provided in the risk section on page 23 of the Interim Report for the period ended 30 June 2012.

Note 13: Cash and cash equivalents

As at 30 September 2012 the Group held cash and cash equivalents of US$673,913 thousand (30 September 2011: US$543,188 thousand; 31 December 2011: US$890,154 thousand).

Note 14: Share capital and reserves

The share capital of Ferrexpo plc at 30 September 2012 was 613,967,956 (30 September 2011: 613,967,956; 31 December 2011: 613,967,956) ordinary shares at par value of £0.10 paid for cash, resulting in share capital of US$121,628 thousand which is unchanged since the Group's Initial Public Offering in June 2007.

This balance includes 25,343,814 shares (30 September 2011: 25,343,814 shares; 31 December 2011: 25,343,814 shares) which are held in treasury, resulting from a share buyback that was undertaken in September 2008, and 3,504,523 shares held in the employee benefit trust reserve (30 September 2011: 3,744,658 shares; 31 December 2011: 3,744,658 shares).

As at 30 September 2012 other reserves attributable to equity shareholders of Ferrexpo plc comprised:

US$ 000	Uniting of interest reserve		Treasury share reserve		Employee Benefit Trust reserve		Net unrealised gains reserve		Translation reserve		Total other reserves
At 1 January 2011	31,780		(77,260)		(10,172)		2,515		(291,283)		(344,420)
Foreign currency translation differences	-		-		-		-		(3,661)		(3,661)
Loss on available-for-sale investments		-		-		-	(1,868)			-	(1,868)
Tax effect	-		-		-		437		153		590
Total comprehensive income for the period		-		-	-	-	(1,431)		(3,508)		(4,939)
Share based payments	-		-		756		-		-		756
At 31 December 2011 (audited)	31,780		(77,260)		(9,416)		1,084		(294,791)		(348,603)
Foreign currency translation differences	-		-		-		-		(669)		(669)
Loss on available-for-sale investments		-		-		-	(113)			-	(113)
Tax effect	-		-		-		24		32		56
Total comprehensive income for the period	-		-		-		(89)		(637)		(726)
Share based payments	-		-		1,240		-		-		1,240
At 30 September 2012 (unaudited)	31,780		(77,260)		(8,176)		995		(295,428)		(348,089)

For the nine months period ended 30 September 2011:

US$ 000	Uniting of interest reserve		Treasury share reserve		Employee Benefit Trust reserve		Net unrealised gains reserve	Translation reserve		Total other reserves
At 1 January 2011	31,780		(77,260)		(10,172)		2,515	(291,283)		(344,420)
Foreign currency translation differences	-		-		-		-	(1,286)		(1,286)
Loss on available-for-sale investments		-		-		-	(1,853)		-	(1,853)
Tax effect	-		-		-		463	40		503
Total comprehensive income for the period	-		-		-		(1,390)	(1,246)		(2,636)
Share based payments	-		-		605		-	-		605
At 30 September 2011 (unaudited)	31,780		(77,260)		(9,567)		1,125	(292,529)		(346,451)

 

Uniting of interest reserve

The uniting of interest reserve represents the difference between the initial investment by Ferrexpo AG in OJSC Ferrexpo Poltava Mining to gain control of the subsidiary in 2005 and the net assets acquired, which under the pooling of interests method of accounting are consolidated at their historic cost, less non-controlling interests.

Treasury share reserve

During September 2008, Ferrexpo plc completed a buyback of 25,343,814 shares for a total cost of US$77,260 thousand. These shares are currently held as treasury shares by the Group. The Companies Act 2006 forbids the exercise of any rights (including voting rights) and the payment of dividends in respect of treasury shares.

Employee benefit trust reserve

This reserve represents the treasury shares held by Ferrexpo AG setting up an employee benefit trust reserve. The reserve is used to satisfy future grants of shares for senior management incentive schemes.

Net unrealised gains reserve

This reserve records fair value changes on available-for-sale investments.

Translation reserve

The translation reserve represents exchange differences arising on the translation of non-US Dollar (e.g. Ukrainian Hryvnia) functional currency operations within the Group into US Dollars.

Share premium

Share premium represents the premium paid by subscribers for the share capital issues, net of costs directly attributable to the share issue. Subsequent increases in the stake have been accounted for using the parent extension concept method of accounting as described in the accounting policy section of the Annual Report and Accounts 2011 (note 2).

Note 15: Interest bearing loans and borrowings

As at 30 September 2012 the Group has in place a syndicated US$420 million revolving pre-export finance facility and a US$500 million Eurobond.

The revolving pre-export finance facility was drawn in full on 7 October 2011. This finance facility is available for 60 months including a commitment amortisation over the final 24 months. The maturity is 31 August 2016.

As at 30 September 2012 the major bank debt facility was guaranteed and secured as follows:

·     Ferrexpo AG and Ferrexpo Middle East FZE assigned the rights to revenue from certain sales contracts;

·     OJSC Ferrexpo Poltava Mining assigned all of its rights of certain export contracts for the pellets sales to Ferrexpo AG and Ferrexpo Middle East FZE; and

·     the Group pledged bank accounts of Ferrexpo AG and Ferrexpo Middle East FZE into which all proceeds from the sale of certain iron ore pellet contracts are received.

The unsecured US$500 million Eurobond was issued on 7 April 2011 and is due for repayment on 7 April 2016. The bond has a 7.875%coupon and interest is payable on a semi-annual basis.

As at 30 September 2012, the Group has other committed credit lines amounting to US$72,000 thousand (30 September 2011: US$68,800 thousand;31 December 2011: US$50,000 thousand). These are undrawn at 30 September 2012.

Note 16: Related party disclosure

During the periods presented the Group entered into arm's length transactions with entities under the common control of the majority owner of the Group, Kostyantin Zhevago and with associated companies and with other related parties. Management considers that the Group has appropriate procedures in place to identify and properly disclose transactions with the related parties.

Entities under common control are those under the control of Kostyantin Zhevago. Associated companies refer to TIS Ruda LLC, in which the Group holds an interest of 48.6%. This is the only associated company of the Group. Other related parties are principally those entities controlled by Anatoly Trefilov and Olexander Moroz. Anatoly Trefilov is a member of the supervisory board of OJSC Ferrexpo Poltava Mining from which Olexander Moroz resigned as of 14 May 2010. All transactions taking place up to 31 May 2011, being within one year of his resignation from the supervisory board, are considered to be transactions with a related party and thus included in the disclosures made for the comparative period. Related party transactions entered into by the Group during the periods presented are summarised in the following tables:

Revenue, expenses, finance income and finance expenses

	9 months ended 30.09.12 (unaudited)			9 months ended 30.09.11 (unaudited)			Year ended 31.12.11          (audited)
US$ 000	Entities under common control	Asso-ciated compa-nies	Other related parties	Entities under common control	Asso-ciated compa-nies	Other related parties	Entities under common control	Asso-ciated compa-nies	Other related parties
Other sales a	1,046	-	85	5,019	807	61	6,718	-	1,783
Total related party transactions with revenue	1,046	-	85	5,019	807	61	6,718	-	1,783
Materials b	4,496	-	-	2,919	-	-	4,638	-	8,475
Purchased concentrate and other items for resale c	17,450	-	-	17,453	-	-	24,891	-	-
Spare parts and consumables d	5,628	-	22	3,567	-	-	4,726	-	256
Fuel e	1,373	-	-	7,356	-	-	7,980	-	-
Gas e	2,355	-	-	15,455	-	-	15,455	-	-
Total related parties transactions within cost of sales	31,302	-	22	46,749	-	-	57,690	-	8,731
Selling and distribution expenses f	7,029	16,463	7,160	-	11,487	11,240	-	16,674	13,470
General and administration expenses g	2,420	-	49	5,778	-	-	7,767	-	15
Total related parties transactions within expenses	40,752	16,463	7,230	52,527	11,487	11,240	65,457	16,674	22,216
Finance income h	695	-	-	761	9	-	899	9	-
Finance expenses h	(183)	-	-	(284)	-	-	(411)	-	-
Net finance income/(expenses)	511	-	-	477	9	-	488	9	-

 

The Group entered into various related party transactions with entities under common control. A description of the material transactions, all of which were carried out on an arm's length basis in the normal course of business for the members of the Group (see note 1), are listed below:

^a     Sales of power, steam and water and other materials to Kislorod PCC for US$386thousand (30 September 2011: US$1,540thousand; 31 December 2011: US$2,128 thousand). Revenue of US$492thousand was received from Vorskla Steel Ltd. for the sale of sand and other materials (30 September 2011: US$113thousand; 31 December 2011: US$548 thousand). Other sales as of 31 December 2011 comprised tolling fees of US$2,622 thousand paid by VostokRuda Ltd. to OJSC Ferrexpo Poltava Mining for the production of pellets. No pellets were produced under the tolling scheme in the first nine months of the financial year 2012 (30 September2011: US$2,466thousand).

^b   Purchases of compressed air and oxygen from Kislorod PCC for US$3,675 thousand (30 September2011: US$2,919 thousand; 31 December 2011: US$4,033 thousand).

^c   Purchases of concentrate and other items for resale from VostokRuda Ltd. amounting to US$17,450 thousand (30 September2011: US$5,290 thousand; 31 December 2011: US$12,728 thousand).

^c     No purchases of merchant concentrate from VostokRuda Ltd. as of 30 September2012 were made (30 September2011: US$7,458 thousand; 31 December 2011: US$7,458 thousand). VostockRuda Ltd earned no fees for the period to 30 September2012. Fees on the purchase and resale for concentrate amounting to US$6 thousand were received as of 30 September2011 (31 December 2011: US$10thousand). This covered costs incurred in procuring and delivering third party merchant concentrate supplied.

^c     Handling commissions to SIA Wellmark Latvia amounting to US$25 thousand as of 30 September2011 for the purchase of goods. No handling commissions were paid for the period to 30 September 2012(31 December 2011: US$35 thousand).

^d   Purchases of spare parts from AutoKraZ Holding Co. in the amount of US$3,823 thousand (30 September2011: 496; 31 December 2011: US$1,456 thousand);

^d   Purchases of spare parts from OJSC Berdichev Machine-Building Plant Progress of US$314thousand (30 September2011: US$695thousand; 31 December 2011: US$1,017 thousand);

^d   Purchases of spare parts from Valsa GTV of US$530thousand (30 September2011: US$474thousand; 31 December 2011: US$541 thousand); and

^d     Purchase of spare parts from Komsomolsk Cogeneration Company LLC in the amount of US$600 thousand (30 September 2011: US$178 thousand; 31 December 2011: US$736 thousand).

^e     Procurement of fuel for US$1,374 thousand (30 September  2011: US$7,356 thousand; 31 December 2011: US$7,980 thousand) and gas for US$2,355 thousand (30 September 2011: US$15,455 thousand; 31 December 2011: US$15,455 thousand) during the first nine month of the financial year 2012 from OJSC Ukrzakordongeologia.

^g     Purchases from FC Vorskla for advertisement, marketing and general public relations services for the period to 30 September  2012 of US$6,974 thousand (30 September2011: US$4,861 thousand; 31December 2011: US$6,536 thousand).

^h     Transactional banking services are provided to certain subsidiaries of the Group by Bank Finance & Credit (Bank F&C) Finance income and expenses relate to these transactional banking services. Further information is provided under transactional banking arrangements below.

The Group entered into related party transactions with its Associated Company TIS Ruda LLC, which were carried out on an arm's length basis in the normal course of business for the members of the Group (see note 1). These are described below:

^f     Purchases of logistics services in the amount of US$17,407 thousand (30 September2011: US$11,487thousand; 31 December 2011: US$16,674 thousand) relating to port operations, including port charges, handling costs, agent commissions and storage costs.

The group entered into various transactions with other related parties. Descriptions of the material transactions are below:

^a     Sales of scrap metal to Ferolit amounting to US$1,201 thousand and other sales of US$509 thousand as of 31 December 2011 and 30 September2011. Ferolit is no longer a related party to the Group due to the resignation of Olexander Moroz as supervisory board member of OJSC Ferrexpo Poltava Mining in May 2010.

^b   Purchases of cast iron grinding bodies from Ferolit for US$8,475 thousand as of 31 December 2011 and 30 September2011. As noted above, Ferolit is no longer a related party to the Group.

^f     Purchases of logistics management services from SlavutichRuda Ltd relating to customs clearance services and the coordination of rail transit. Total billings amounted to US$7,160 thousand (30 September 2011: US$11,225 thousand; 31 December 2011: US$13,470 thousand). SlavutichRuda Ltd. earned commission income of US$663thousand on these services (30 September2011: US$608thousand; 31 December 2011: US$809 thousand).

^g     Purchases of legal services from Kuoni Attorneys at Law Ltd. amounting to US$49thousand as of 30 September2012 (30 September2011: US$4 thousand; 31 December 2011: US$12 thousand). All services were provided on an arm's length basis.

Sale and purchases of property, plant, equipment and investments

The table below details the transactions of a capital nature which were undertaken between group companies and entities under common control, associated companies and other related parties during the periods presented.

	9 months ended 30.09.12 (unaudited)			9 months ended 30.09.11 (unaudited)			Year ended 31.12.11          (audited)
US$ 000	Entities under common control	Asso-ciated compa-nies	Other related parties	Entities under common control	Asso-ciated compa-nies	Other related parties	Entities under common control	Asso-ciated compa-nies	Other related parties
Purchases with independent confirmation	2,659	-	-	13,478	-	-	14,655	-	-
Purchases with shareholder approval	55,026	-	-	8,059	-	-	13,167	-	-
Other purchases	391	-	-	-	-	-	-	-	-
Total purchases of property, plant and equipment i	58,076	-	-	21,537	-	-	27,822	-	-

 

ⁱ      During the first nine months of the financial year 2012, the Group entered into the following transactions with related parties that were not of a revenue nature, but were in the normal course of business. As such, these transactions were, in so far as they exceeded the relevant aggregated threshold tests on a rolling annual basis, subject to independent confirmation that the terms are fair and reasonable in accordance with the requirements of the UK Listing Rules.

·     In September 2012, metal works amounting to US$1,019 thousand were procured from OJSC Berdichev Machine-Building Plant Progress in connection with the floatation plant

·     In July 2012, design concept and documentation services in the amount of US$194 thousand were procured from OJSC DIOS in relation to the replacement of mixers and the construction of a dust aspiration system at a pellet plant. The Group also procured deslimer equipment from CJSC Kiev Shipbuilding and Ship Repair Plant ('KSRSSZ') and OJSC Berdichev Machine-Building Plant Progress for the beneficiation plant in the amount of US$668 thousand.

·     In March 2012, project management services in the amount of US$140 thousand were procured from Vorskla Steel Ltd. in connection with the construction of service facilities and technical design documentation amounting to US$618 thousand from OJSC DIOS related to the update of the beneficiation plant.

·     In February 2012, the Group procured design documentation from OJSC DIOS in the amount of US$21 thousand in relation to the construction of roads and loading facilities.

In addition to the transaction above, the Group obtained on 24 May 2012 shareholder approval for an option to purchase up to 500 rail cars from PJSC Stakhanov Railcar Company between the date of the approval and 31 December 2014. As of 30 September2012, no rail cars have been ordered under this authority.

During period ended 30 September 2011, the Group entered into the following transactions with related parties that required independent confirmation in accordance with the requirements of the UK Listing Rules.

·     In September 2011, the Group purchased 12 dumper rail cars from PJSC Stakhanov Railcar Company in the amount of US$1,756 thousand.

·     In August 2011, design services in relation to the conversion of a vessel were provided by Zaliv Ship Design LLC in the amount of US$483 thousand.

·     In June 2011, project management services in the amount of US$140 thousand were procured from Vorskla Steel Ltd. in connection with the construction of service facilities.

·     In May 2011, the Group entered into an agreement for the purchase of equipment for the crushing and beneficiation plants from CJSC Kiev Shipbuilding and Ship Repair Plant ('KSRSSZ') in the amount of US$493 thousand. Orders were also placed for three press-filters for US$8,991 thousand from OJSC Berdichev Machine-Building Plant Progress.

·     In April 2011, the Group entered into an agreement for engineering services to be provided by OJSC DIOS in the amount of US$1,650 thousand for the upgrade of the crushing and concentrating equipment.

The purchase of 400 rail cars, with an option to purchase an additional 600 rail cars, was approved by the general meeting of the shareholders on 15 March 2011. 712 rail cars were ordered under the authority of this shareholder approval during the financial year 2011 and 288 rail cars in 2012 bringing the total ordered to 1,000 units. As of 30 September2012, all rail cars have been delivered under these orders bringing the total fleet of own rail cars to 1,933 units; not including 200 dumper rail cars previously used in the mine and related area and recently brought into service. Purchased rail cars under this authority amounting to US$55,026 thousand were put into operation during the period ended 30 September2012 (30 September 2011: US$8,059 thousand; 31 December 2011: US$13,167 thousand).

During the last quarter of the financial year 2011, the Group entered into the following transactions with related parties that required independent confirmation in accordance with the requirements of the UK Listing Rules.

·     In December 2011, the Group purchased two dust filters from OJSC Berdichev Machine-Building Plant Progress for the pellet production plant amounting to US$438 thousand.

·     In November 2011, the Group entered into another agreement with OJSC DIOS for the procurement of engineering design services in the amount of US$739 thousand.

Balances with related parties

The outstanding balances, as a result of transactions with related parties, for the periods presented are shown in the table below:

	9 months ended 30.09.12 (unaudited)			9 months ended 30.09.11 (unaudited)			Year ended 31.12.11          (audited)
US$ 000	Entities under common control	Associated companies	Other related parties	Entities under common control	Associated companies	Other related parties	Entities under common control	Associated companies	Other related parties
Investments available-for-sale j	688	-	-	1,707	-	-	1,286	-	-
Prepayments for property, plant and equipment k	1,294	-	-	1,535	-	-	29,080	-	-
Total non-current assets	1,982	-	-	3,242	-	-	30,366	-	-
Trade and other receivables l	738	-	2	4,144	-	1	1,262	1,981	6
Prepayments and other current assets m	2,880	-	340	397	-	672	414	-	279
Cash and cash equivalents n	95,601	-	-	72,762	-	-	94,933	-	-
Total current assets	99,220	-	343	77,303	-	673	96,609	1,981	285
Trade and other payables 0	763	739	160	1,065	-	117	2,151	549	515
Current liabilities	763	739	160	1,065	-	117	2,151	549	515

 

Entities under common control

^j         The balance of the investments available-for sale comprised shareholdings in PJSC Stakhanov Railcar Company(1.10%) and VostokRuda Ltd. (1.10%). The ultimate beneficial owner of these companies is Kostyantin Zhevago. PJSC Stakhanov Railcar Company is further listed on the Ukrainian stock exchange. The changes of the values in the table above are related to fair value adjustments recorded during the respective reporting periods. The shareholdings for all investments remained unchanged during the periods disclosed above. The investment in VostokRuda Ltd. was subject to an impairment of US$428thousand (30 September2011: US$198 thousand recorded during the period ended 30 September2011.

^k        Prepayments of US$390thousand were made to DIOS (30 September 2011: US$264thousand; 31 December 2011: US$302 thousand) for engineering design services. Further prepayments of US$373 thousand (30 September 2011: US$92 thousand; 31 December 2012: nil) were made to CJSC Kiev Shipbuilding and Ship Repair Plant ('KSRSSZ') and US$489 thousand (30 September 2011: nil; 31 December 2012: nil) to OJSC Berdichev Machine-Building Plant Progress in connection with the procurement of equipment. The balance as of 31 December 2011 includes prepayments of US$28,705 thousand made in relation to key components for rail cars purchased from PJSC Stakhanov Railcar Company(30 September 2011: US$1,052 thousand). These prepayments were offset as of 30 September 2012 with deliveries obtained.

^l         As of 30 September2012, trade and other receivables included outstanding amounts of US$251 thousand due from Vorskla Steel Ltd. (30 September2011: US$52thousand; December 2011: US$828 thousand) in relation to other sales and US$413thousand (30 September2011: US$297thousand; 31 December 2011: US$349 thousand) from Kislorod PCC for the sale of power, steam and water. The open balance as of 30September 2011 includes a receivable balance of US$3,486 thousand in relation to the pellets produced under a tolling scheme for VostokRuda Ltd. No such receivable balances were due as of 31 December 2011and 2010.

^m     Prepayments and other current assets relate mainly to prepayments of US$2,031thousand (30 September 2011: nil; 31 December 2011: nil)made to VostokRuda Ltd. for concentrate and US$603 thousand (30 September 2011: nil; 31 December 2012: nil) to CJSC Ukrenergozbutfor gas. Advance payments are in the normal course of business as requested by any third party supplier in Ukraine.

ⁿ     As of 30 September2012, cash and cash equivalents with Bank F&C were US$95,601 thousand (30 September2011: US$63,901 thousand; 31 December 2011: US$94,933 thousand). Further information is provided under Transactional banking arrangements below.

^o     Trade and other payables amounting to US$521thousand for compressed air and oxygen purchased from Kislorod PCC (30 September2011: US$461thousand; 31 December 2011: US$535thousand)The balance as of 31 December 2011 included US$1,276thousand due to VostokRuda Ltd. for purchased concentrate (30 September 2012: nil; 30 September2011: nil).

 

Associated companies

^l      As of 31 December 2011, other receivables of US$1,749thousand relate a dividend declared by TIS Ruda LLC (30 September 2012: nil; 30 September 2011: nil).

Other related parties

^m     Prepayments and other current assets relate to advance payments of US$340thousand to SlavutichRuda Ltd. for distribution services (30 September2011: US$672thousand; 31 December 2011: US$279 thousand). Advance payments are in the normal course of business and are common for the provision of supplies in Ukraine.

^o     Trade and other payables amounting to US$160thousand as of 30 September2012 are in respect of distribution services provided by SlavutichRuda Ltd. (30 September2011: US$117thousand;31 December 2011: US$515 thousand).

Transactional banking arrangements

The Group has transactional banking arrangements with Bank Finance & Credit ('Bank F&C') for its main day-to-day banking needs in Ukraine in the normal course of business. Bank F&C is under common control of the majority shareholder of Ferrexpo plc. In respect of these arrangements, finance income and finance costs as well as cash and cash equivalents at Bank F&C are disclosed in the tables above. The Group has an undrawn multicurrency revolving loan facility agreement with Bank F&C which will expire on 16 April 2013. The maximum limit of this undrawn facility is UAH80,000 thousand (US$10,009 thousand at the exchange rate as of 30 September 2012) at an interest rate for Ukrainian Hryvnia advances of 18% per annum. The total value of pledges for this loan facility is US$9,126 thousand.

Bank F&C provides mortgages and loans to employees of the Group for the acquisition, construction and renovation of apartments in Ukraine. This is part of a social loyalty programme started by the Group in December 2011 allowing certain employees of the Group to borrow at preferential interest rates. OJSC Ferrexpo Poltava Mining and LLC Ferrexpo Yeristovo GOK act as guarantors for the bank's loans to the employees of the Group and have deposited US$2,046 thousand at Bank F&C as security (30 September 2011: nil; 31 December 2011: US$1,500 thousand). The interest rate margin earned by Bank F&C covers the costs of administrating the mortgages and loans. Detailed information on the social loyalty programme is provided in the Corporate Social Responsibility Review section of the Annual Report and Accounts 2011.

Note 17: Commitments and contingencies

Commitments

US$ 000		As at 30.09.12	As at 30.09.11	As at 31.12.11
		(unaudited)	(unaudited)	(audited)
Operating lease commitments		78,488	52,184	61,361
Capital commitments on purchase of PPE		157,135	152,171	137,029

Legal

In the ordinary course of business, the Group is subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition or the results of future operations of the Group.

The Group is currently involved in a share dispute which commenced in 2005 and which was disclosed and as relevant updated in the Group's 2007 Annual Report and Accounts and subsequent IPO and Eurobond prospectuses, interim as well as annual reports as appropriate since then.

A former shareholder in FPM brought proceedings in the Ukrainian courts against certain nominee companies that were previously ultimately controlled by Kostyantin Zhevago, among other parties, seeking to invalidate the shares sale and purchase agreement pursuant to which a 40% stake in FPM (which was subsequently diluted to less than 14% following further share issues by FPM) was sold to those nominee companies. On 11 January 2010, a judgment rejecting the claims of the former shareholder that had previously been made by the Commercial Court of Poltava Region was upheld on appeal by the Kyiv Inter Region Appellate Commercial Court. Following the appeal proceedings, the former shareholder filed a cassation complaint with the High Commercial Court of Ukraine requesting that it reverse the judgments of the lower courts. The High Commercial Court of Ukraine granted the cassation complaint of the former shareholder on 21 April 2010 and invalidated the respective shares sale and purchase agreement without ruling on any consequences of such invalidity.

On 6 October 2011, the claimants filed a new claim in Ukraine alleging that as a result of invalidity of the shares sale and purchase agreement with respect to a 40% stake in FPM their rights were infringed by the decisions on the capital increases taken at the general shareholders meeting of FPM which took place on 20 November 2002 and all further decisions of the general shareholders meetings of FPM relating to subsequent changes to FPM's charter capital. Accordingly, the claimants asked the court to invalidate the decisions taken at the general shareholders meeting of FPM which took place on 20 November 2002, restore their status as shareholders of FPM as of 20 November 2002 having a 40% stake in FPM, cancel all share issues of FPM that took place after 20 November 2002 and register shares in their names.

On 22 November 2011, Ferrexpo AG filed a claim against the claimants at the High Court of Justice in London seeking a confirmation of ownership in FPM shares. The claim was launched in order to take an active step outside Ukraine to resolve this long-running dispute. By a judgment dated 3 April 2012, the proceedings in the UK were stayed while the case continued in Ukraine.

On 20 August 2012, the Commercial Court of Poltava Region, which was considering the case as a court in the first instance, upon motion of the claimants ruled that the case be transferred to the Kyiv City Commercial Court, which has exclusive jurisdiction over the case, given that one of the defendants in the case, the National Commission on Securities and Stock Market of Ukraine, has the status of a central executive authority. FPM challenged the transfer of the case to the Kyiv City Commercial Court; however, both the Kharkiv Appellate Commercial Court and the High Commercial Court of Ukraine upheld the ruling of the Commercial Court of Poltava Region dated 20 August 2012.

The case is currently pending before the Kyiv City Commercial Court and at the latest hearing on 14 January 2013 the decision was made to assign the case to a panel of three judges instead of a sole judge due to its complexity.

After having taken Ukrainian legal advice, we believe the claim has little legal merit primarily since neither the final decision by the High Commercial Court of Ukraine nor any subsequent claims entitle claimants to direct enforcement rights to the shares of FPM. In addition, the restitution of the status quo ante of the shareholding position as sought by claimants does not have a basis under Ukrainian law for various legal, technical and practical reasons. It follows that no provision was recorded for this dispute as of 30 September 2012. At the same time, in light of the risks surrounding the operation and independence of Ukrainian courts, including the risks associated with the Ukrainian legal system in general, the claimants may ultimately prevail in this dispute and our ownership of the relevant interest in FPM may be successfully challenged in the future, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

Tax and other regulatory compliance

Ukrainian legislation and regulations regarding taxation and custom regulations continue to evolve. Legislation and regulations are not always clearly written and are subject to varying interpretations and inconsistent enforcement by local, regional and national authorities, and other governmental bodies. Instances of inconsistent interpretations are not unusual.

The uncertainty of application and the evolution of Ukrainian tax laws, including those affecting cross border transactions, create a risk of additional tax payments having to be made by the Group, which could have a material effect on the Group's financial position and results of operations. The Group does not believe that these risks are any more significant than those of similar enterprises in Ukraine.

Note 18: Other financial assets

Other financial assets are available-for-sale investments, which are measured subsequent to initial recognition at fair value, categorised into Levels 1 to 3 based on the degree to which the fair value is observable.

There were no changes in fair value hierarchy during the period ended 30 September 2012 and in the equivalent comparative period.

During the period ended 30 September 2012, a decrease of the fair value of the available-for-sale investments of US$113 thousand was recorded in other comprehensive income (30 September 2011: US$1,437 thousand; 31 December 2011: US$1,868 thousand). In the same period, an impairment of US$428 thousand was recorded in the income statement (30 September 2011: US$198 thousand; 31 December 2011: US$198 thousand).

Note 19: Business combination

Business combination in previous years

On 31 December 2010, the Group acquired Helogistics Holding GmbH and its subsidiaries ('Helogistics') in order to develop the Group's distribution and logistics capabilities. The initial accounting for the acquisition of Helogistics as of 31 December 2010 (acquisition date) was only provisionally determined.

During the financial year 2011, the necessary valuations and assessments have been received so that the accounting for this acquisition has been finalised resulting in adjustments of the provisionally determined fair values of certain assets acquired and liabilities assumed. These adjustments did not have an effect on the gain on bargain purchase of US$2,623 thousand initially recognised as of 31 December 2010. Further details are provided in the Annual Report and Accounts 2011. These adjustments have been reflected in the statement of financial position of the comparative period ended on 30 September 2011 and the income statement effect of these is immaterial.

Note 20: Events after the reporting period

No material adjusting or non-adjusting events have occurred subsequent to the period end.