Ferrexpo proposes DPS of USD 0.1, 2017 EBITDA jumps 47%

Ukraine’s largest iron ore pellet exporter Ferrexpo
(FXPO LN, FXPOLN) reported its full-year financial results on March 21. Revenue
increased 21% yoy to USD 1,197 mln, while EBITDA jumped 47%
yoy to USD 551 mln.

Operating cash flow before working capital also
increased 47% to USD 527 mln. However, net cash from operating activities grew
only 6% to USD 353 mln. Cash conversion was less efficient in 2017 due to cash
outflow for inventories of USD -79 mln (2016: USD -42 mln) and accounts payable
of USD -27 mln (2016: inflow of USD 30 mln).

Regarding working capital outflows, the company
explained that it experienced outflow of USD 53 mln related to the increase in
stocks of lower grade iron ore in 2017 (USD 42 mln). Ferrexpo said it plans to
utilize this low-grade upon installing additional processing capacity. Its
total iron ore stockpile grew by 11.4 mmt to 49.0 mmt during 2017. The company
also reported plans to complete a concentrator with raw iron ore capacity of 6
mmt per year by 2020.

Ferrexpo’s net debt amounted to USD 403 mln at the end
of 2017, a 32% yoy drop. The net debt-to-EBITDA ratio dropped to 0.73x at the
end of 2017, down from 1.57x a year ago.

Its C1 cash production cost increased 17% yoy to USD
32.3/t. The company emphasized that its 2016 C1 cash cost, USD 27.7/t, was at a
ten-year low.

Ferrexpo also announced that its board proposed a USD
0.099 per share final dividend. If the final dividend is approved, the total
2017 dividend would amount to USD 0.165 per share.

Dmytro Khoroshun: Ferrexpo’s
profitability is excellent, but the growing iron ore stockpiles might be a
risky move that might result in losses in a scenario of cost and product price
deflation.

We retain our neutral view on FXPOLN Eurobonds.