Ferrexpo declares DPS of USc 39.6 as 2020 EBITDA jumps 46%

Ukraine’s largest iron ore pellet exporter Ferrexpo
(FXPO LN) will pay a special interim dividend of USc 39.6 per share on Apr. 15,
the company reported in a March 17 release on its 2020 results. The record date
for the payment will be March 26.

 

The total dividends declared to date with respect to
the 2020 financial year amount to USc 72.6 per share, compared with USc 19.8
per share for 2019, the release said. Ferrexpo’s board will consider whether or
not to propose a final dividend in respect of 2020, which if proposed will be
put to the Group’s AGM in May 2021.

 

Ferrexpo’s revenue increased 12.8% yoy to USD 1,700
mln, while EBITDA jumped 46.5% yoy to USD 859 mln and net income soared 57.5%
yoy to USD 635 mln. Operating cash flow before working capital gained 27.2% yoy
to USD 792 mln, while net cash from operating activities jumped 45.2% yoy to
USD 687 mln. CapEx dropped 16.8% yoy to USD 206 mln, with sustaining and
modernization investments inching up 1% yoy to USD 103 mln. Dividends paid
during 2020 amounted to USD 195 mln, 26.2% more yoy.

 

Ferrexpo’s net cash amounted to USD 4 mln at the end
of 2020, compared with net debt of USD 281 mln a year ago. Gross debt dropped
35.4% yoy to USD 266 mln at the end of 2020.

 

Ferrexpo’s C1 cash production cost decreased 13.1%, or
USD 6.3/t yoy to USD 41.5/t. The company disclosed that lower electricity,
natural gas and fuel costs contributed approximately USD 4/t to the decrease in
the C1 production cost in 2020. The depreciation of Ukraine’s hryvnya against
the US dollar in 2020 also pushed down the C1 production cost.

 

The company disclosed that the committee of
independent directors of its board has concluded in March a review into
Ferrexpo’s sponsorship arrangements with its related party, football club (FC)
Vorskla. The USD 17 mln loan made by FC Vorskla to another related party,
Collaton Limited, should be repaid in full by July 31, 2022, as per
arrangements put in place by Ferrexpo’s majority owner and former CEO,
Kostyantin Zhevago and his associated entities, according to the release.
However, if it turns out that FC Vorskla or Collaton Limited misappropriated
some funds provided by Ferrexpo, the company might accrue liabilities,
including fines and penalties.

 

Ferrexpo’s total available distributable reserves
stood at USD 318 mln at the end of 2020, with dividends of USD 78 mln (USc 13.2 per share) proposed in January
and USD 233 mln announced today. The amount of the distributable reserves takes
into account the relevant thin capitalization rules and dividend-related
covenants for the company’s major bank debt facility. The payment of further
dividends during the 2021 calendar year will require a waiver from lenders, or
full repayment of this facility, according to the release.

 

During a call with the investors the same day, the
company’s acting CFO Roman Palyvoda said, without giving a formal guidance,
that the company sees a possible increase of its CapEx of up to 50% yoy to
about USD 300 mln in 2021, adding that its investment plans remain flexible.

 

Dmytro Khoroshun: Ferrexpo’s
ability to pay dividends in 2021 will be restrained due to the exhaustion of
its distributable reserves (USD 318 mln available at end-2020 with USD 310 mln
of dividends declared since). To continue declaring and paying dividends, the
company will have to obtain a waiver from its lenders or repay in full its USD
257 mln PXF facility, only half of which is due for repayment in 2021.

 

That said, the company’s shareholders will reap the
windfall from strong iron ore prices with today’s USc 39.6 per share special
interim dividend announcement, which alone is about twice the average annual
amount declared for 2017-2019.

 

Ferrexpo’s financial performance in 2021 will be
supported by the strong iron ore prices at the global markets. However, we
expect the prices to decrease during the year.