Ferrexpo EBITDA surges 20% in 2016
23 March 2017
Ukraine’s largest iron ore pellet exporter Ferrexpo (FXPO LN, FXPOLN) improved its revenue by 3% yoy to USD 986 mln, according to the company’s results published on March 22. The growth was fueled only by a 3% yoy increase in pellet sales volumes to 11.70 mmt, implying that average prices for its products were flat yoy (USD 84.3/t).
Average prices of 62% iron ore fines in China increased 5% yoy to USD 58.3/t, Ferrexpo said, which implies the company’s pellet premium declined. Pellet premiums improved throughout the year and have recovered from low levels seen at the year start to finish the year strongly, the company said.
Ferrexpo reduced its C1 production cost of iron ore by 13.2% yoy (USD 4.2/t) to USD 27.7/t in 2016, including USD 1.1/t (3.4%) due to its cost reduction initiatives. As a result of cost reduction, Ferrexpo boosted its EBITDA 20% yoy to USD 375 mln in 2016. Its operating cash flow before working capital changes improved 27% yoy to USD 359 mln.
Ferrexpo’s CapEx was limited to a maintenance level of USD 48 mln, compared to USD 65 mln in 2015. In 2017, it will accelerate its USD 50 mln project of concentrate production increase by 1.5 mmt, after being frozen last year.
The company generated positive free cash flow of USD 288 mln. Its total debt decreased 19% yoy to USD 734 mln as of end-December 2016 after repaying USD 196 mln of debt and attracting USD 19 mln in trade finance facilities. Its net debt-to-EBITDA ratio improved to 1.6x as of end-2016 from 2.8x a year before.
Also, Ferrexpo reinstated payments of dividends. It will pay 3.3 cents per share in ordinary dividends (dividend yield of 1.5%) and the same amount in special dividends. Ordinary dividends will be paid on May 31, with an ex-dividend date of May 6. Special dividends will be paid on April 11, with an ex-dividend date of April 1.
Andriy Perederey: Ferrexpo’s financial results were stronger than we expected (EBITDA of USD 32.1/t vs. our expectation of USD 28.6/t). The company’s strong cash position, our projections of a USD 62/t iron ore price in 2017 and an average pellet premium of USD 24/t that the company may reach – these are all factors that indicate Ferrexpo will be able to earn around USD 33/t in EBITDA in 2017 (close to USD 376 mln).
Based on our estimates, with USD 144 mln in cash, this would easily cover USD 201 mln in debt amortization in 2017. But we retain our neutral view on Ferrexpo bonds, seeing the upside and downside risks for its price being balanced.
