6 August 2014
Ukrainian iron ore miner and pellet exporter Ferrexpo (FXPO LN) reported a set of strong financial results for 1H14 on August 6. Revenue slid just 2% yoy to USD 759 mln, against a 3% yoy increase in sales and 9% yoy lower selling price. EBITDA grew 32% yoy to USD 321 mln and net income grew 65% yoy to USD 208 mln (EPS of USD 0.3465). The company’s production C1 costs decreased 23% yoy to USD 47.8/t, which contributed strongly to the financial result, outweighing the plunging prices for iron ore products.
The company’s net debt grew 9% during 1H14 to USD 694 mln, while CapEx came in at USD 132 mln (10% lower yoy). Approved investment projects were carried out according to schedule, and the Board has additionally authorized purchasing long lead items in 2H14, worth USD 40 mln, for a 10 mmt concentrator.
Ferrexpo expects its full capacity load of 12 mmt in 2H14, after its third pellet production line overhaul was completed in 1H14.
Roman Topolyuk: Ferrexpo has beaten consensus expectations by 32% on EBITDA and by 65% on EPS in 1H14. Even if its EBITDA is adjusted by USD 47 mln in a non-cash upward revaluation of receivables in 1H14, the company is strongly ahead of our expectations for annual EBITDA of USD 457 mln. The production costs decrease, driven by hryvnia depreciation and more use of iron ore from the Yeristovo Mine with higher iron ore content, are behind such a strong advance of financials. However, we are keeping a bearish view on the stock, given that the iron ore price decline in 2014 is deeper than expected previously (to USD 111/t, China port, CFR). The prices will decline further, while room for additional hryvnia devaluation or other production cost cuts seem limited so far.
The company continued its approach of implementing its concentrator project in stages (worth totally about USD 750 mln), which will keep Ferrexpo’s balance sheet strong and safe, in case the market deteriorates sharply going forward.