Ferrexpo EBITDA soars 2.5x in 1H21, USc 39.6 DPS declared

Revenue jumped 74.3% yoy to USD 1,353 mln at Ukraine’s
largest iron ore pellet exporter Ferrexpo (FXPO LN), the company said in its
1H21 financial report released on Aug. 4. Its 1H21 EBITDA soared 2.5x yoy to
USD 868 mln and net profit skyrocketed 2.6x yoy to USD 661 mln. Operating cash
flow before working capital soared 2.9x yoy to USD 901 mln, while net cash from
operating activities jumped 2.6x yoy to USD 661 mln. CapEx increased 48.4% yoy
to USD 142 mln.

 

Ferrexpo’s net cash position amounted to USD 213 mln
at end-June. During 1H21, the company repaid USD 257 mln of debt, including a
full early repayment of its PXF facility. As a result, the gross debt plunged
to USD 22 mln by end-June. Ferrexpo said that it had no debt covenants
(particularly, no debt-related covenants that limit its ability to pay
dividends) at end-June following this debt repayment.

 

Ferrexpo’s C1 cash production cost rose 14.0%, or USD
5.7/t yoy to USD 46.6/t. The company disclosed that commodity input cost
increases contributed USD 5.1/t to the C1 production cost growth in 1H21,
including USD 2.2/t due to natural gas prices, USD 0.9/t due to electricity
tariffs, and USD 0.5/t due to fuel prices. The maintenance costs added USD
1.5/t, which was partially offset by a USD 1.1/t decrease due to the currency
effects.

 

The share of China and South East Asia in Ferrexpo’s
sales volumes plunged 39pp to 29% in 1H21 (from 68% in 1H20), while gains were
reported for Central Europe (+13pp to 34%), Turkey and MENA (+12pp to 13%), and
Western Europe (+10pp to 14%).

 

Ferrexpo also presented its plans for Wave 1 of its
capacity expansion project. The company plans to add 3 mmtpa of pelletizer
capacity at a cost of USD 181 mln and 4.1 mmtpa of concentrate capacity at a
cost of USD 240 mln. Both projects are tentatively expected to be completed by
2024.

 

Ferrexpo also declared an interim dividend of USc 39.6
per share to be paid on Aug. 26, with the record date for the payment of Aug.
13 and ex-dividend date of Aug. 12, according to the report.

 

During a call with investors on the same day, the
company’s management said that its CapEx for 2021 might amount to around USD
300 mln, or about 50% more yoy. The management clarified that the pelletizer
capacity increase, expected to be completed by 2024, will involve shutting
down, for several months, one of its four pelletizers (currently with the
capacity of 3 mmtpa each) and bringing it back online with an increased
capacity of 6 mmtpa.

 

Dmytro Khoroshun: Ferrexpo’s
dividends for 2021 might match and exceed USc 85.8 per share it paid for 2020.

 

The company will likely remain a cash cow at least for
the next few quarters because of the favorable product prices, its modest CapEx
plans (the Wave 1 expansion is expected to last more than two years), and its
being essentially debt-free. However, its profitability will likely gradually
decrease from the 1H21 levels due to the expected drops in global iron ore prices.

 

The outlined cost of Wave 1 pellet capacity
expansion amounts to at least USD 140 per ton of integrated pellet production
capacity, we calculate. Namely, the cost of increasing the pelletizing capacity
amounts to USD 60/t, with the concentrate capacity expansion cost being around
USD 80 per ton of pellets (the 4.1 mmtpa of concentrate capacity is close to
what will be required to feed the 3 mmtpa pelletizing capacity, we expect).