Slide 1: 2017 Full Year Results Presentation
2017 FULL YEAR RESULTS PRESENTATION MARCH 2018
Slide 2: Disclaimer
DISCLAIMER This document is being supplied to you solely for your information and does not any discussion, correspondence or contact concerning the information in this document constitute or form part of any offer or invitation or inducement to sell or issue, or any with any of the directors or empl
Slide 3: Steve Lucas, Chairman
Steve Lucas Chairman 3
Slide 4: Successful 2017, well positioned for the future
SUCCESSFUL 2017, WELL POSITIONED FOR THE FUTURE FERREXPO IS WELL PLACED TO BENEFIT FROM DEMAND FOR HIGHER QUALITY IRON ORE – Large resource and good assets – Low cost – High value product – Quality customers EXCELLENT RESULTS – Continued strong financial performance – Significant debt reduction – Fu
Slide 5: 2017 Financial Performance
2017 FINANCIAL PERFORMANCE Chris Mawe, CFO 5
Slide 6: Strong business profile reflects increased demand for higher quality product
STRONG BUSINESS PROFILE REFLECTS INCREASED DEMAND FOR HIGHER QUALITY PRODUCT SUMMARY FINANCIALS $M (unless otherwise stated) 2017 2016 Change REVENUE HIGHER (up 21%) Pellet production (kt) 10,444 11,201 -7% – Lower sales volume production driven Sales volumes (kt) 10,467 11,697 -11% – Strong market
Slide 7: Strong margins underpinned by high quality product
STRONG MARGINS UNDERPINNED BY HIGH QUALITY PRODUCT EBITDA 2017 VS. 2016 ($M) FOREX / OTHER MARKET +$213M OPERATIONS -$24M -$14M 700 EBITDA 72 48 margin 600 48 46% 14 500 EBITDA 140 margin 64 137 400 38% 300 551 200 375 100 0 FY 2016 EBITDA Platts 62% Fe fines C3 freight Atlantic pellet Improved pric
Slide 8: Low cost producer; C1 cost impacted by lower volumes and higher maintenance
L O W C O S T P R O D U C E R ; C 1 C O S T I M PA C T E D B Y L O W E R VOLUMES & HIGHER MAINTENANCE C1 COST 2016 VS. 2017 $ per tonne COST PERFORMANCE 40 – Commodity price inflation reflects higher diesel, gas, steel prices 35 1.3 0.7 0.9 – Ukrainian inflation reflects higher electricity tariffs &
Slide 9: Strong cash flow generation further strengthening balance sheet
S T R O N G C A S H F L O W G E N E R AT I O N F U R T H E R S T R E N G T H E N I N G BALANCE SHEET CASH FLOW 2017 VS. 2016 $M (unless otherwise stated) 2017 2016 Change WORKING CAPITAL (-$110M) EBITDA 551 375 47% – Low grade ore $53M or $5 per tonne Working capital movements -57 50 – Normalisation
Slide 10: Strong balance sheet
STRONG BALANCE SHEET STRONG DEBT REDUCTION AMORTISATION PROFILE AS OF 31 DECEMBER 2017 (PROFORMA2) 1,000 350 Net Debt Gross Debt 900 904 300 312 800 797 250 113 2019: $283M 733 715 1 700 200 $ million 24 600 574 $ million 150 500 868 173 100 173 400 753 300 589 50 96 481 23 24 24 24 200 403 0 Liquid
Slide 11: Conclusion to financial review
CONCLUSION TO FINANCIAL REVIEW STRONG RESULTS – Another strong set of financial results – Demand for the Group’s product remains high – Substantially strengthened the balance sheet – Achieved target of reducing net debt to EBITDA below 1x – Balance dividends, growth and debt reduction EXCELLENT BUSI
Slide 12: Market Review & Strategy
MARKET REVIEW & STRATEGY KOSTYANTIN ZHEVAGO, CEO 12
Slide 13: Strong demand for high quality ore
STRONG DEMAND FOR HIGH QUALITY ORE STEEL MARKET IN 2017: HIGHER STEEL PRODUCTION & PROFITABILITY: – Rationalisation of Chinese steel capacity (c. 50MT of capacity closed) – Mills look for higher rates of productivity • fewer but larger blast furnaces – While limiting emissions • improved profitabili
Slide 14: Pellet trades at a significant price premium
P E L L E T T R A D E S AT A S I G N I F I C A N T P R I C E P R E M I U M W H I L E T H E DISCOUNT FOR 58% FE ORE WIDENED PRICE PREMIUMS AND DISCOUNTS COMPARED TO 62% Fe IRON ORE FINES PRICE (CFR) 200% CFR Platts 58% Fe fines CFR Platts 65% Fe fines CFR 65% Fe pellets* 180% Price as a % of the 62%
Slide 15: Highest cost pellet exporters need a breakeven price
HIGHEST COST PELLET EXPORTERS NEED A BREAKEVEN 62% FE FINES PRICE OF C. $65-75 PER TONNE CRU BREAKEVEN PELLET COST CURVE TO CHINA: High market 90 concentration: Ferrexpo • 2 largest exporters Breakeven costs for pellet exports, 2017, CFR China, $/t 80 supply c. 45% of * Delivery to China market 70 a
Slide 16: High grade production supporting price realisations
H I G H G R A D E P R O D U C T I O N S U P P O R T I N G P R I C E R E A L I S AT I O N S FERREXPO’S REALISED PRICE1 VS. PLATTS 62% FE CHINA – Quality upgrade investment programme completed 4Q 2014 / 1Q 2015 – % of high quality sales volume increased from 43% of total production in 2012 to a record
Slide 17: Marketing – strong customer demand
MARKETING – STRONG CUSTOMER DEMAND CONSOLIDATING POSITION IN PREMIUM MARKETS – Strong demand from long term customers • Geographic sales volume split in line with 2016 – Largest sales markets Austria, Germany and Japan Central Europe – Received pellet premium in line with international premium, 8% 1
Slide 18: Mining and processing operations
M I N I N G A N D P R O C E S S I N G O P E R AT I O N S SAFETY FIRST PROCESSING – One fatality in mobile maintenance workshop (2016: two) – In 2017 accelerated construction of MFC1 – 2017 LTIFR 1.17 (in line with 2016) – Achieved record proportion of 65% Fe pellet – Increase in maintenance compared
Slide 19: Ukraine
UKRAINE – Second year of economic growth after challenging economic & political period 2013 - 2015 – Government has implemented a number of reforms to address structural imbalances – Further reforms necessary to secure higher levels of domestic & international investment UKRAINE SOVEREIGN CREDIT RAT
Slide 20: Outlook
OUTLOOK – Well placed to benefit from demand for higher quality iron ore – Expect higher pellet premiums in 2018 – One of the lowest cost pellet producers in the world – Half way through pellet line refurbishment programme – Well placed to generate positive operating cash flows through the cycle – F
Slide 21: Thank you
Thank you 21
Slide 22: Appendix
Appendix 22
Slide 23: Large resource and well invested asset base
FERREXPO HAS A LARGE RESOURCE AND WELL INVESTED ASSET BASE PRODUCING A HIGH QUALITY PRODUCT Significant resource base World class asset – Premium iron ore product: 65% Fe pellets over US$2.15bn invested since IPO PRODUCTION DEVELOPMENT LICENCE MAINTENANCE Logistics: barging, rail cars, port/transshi
Slide 24: The pellet market
THE PELLET MARKET GLOBAL IRON ORE CONSUMPTION BY PRODUCT EXPORTS OF PELLETS PEAKED IN 2010 AT C.150 MT Lump 16% or 321 MT 2010 2017 % change 2016 MT exports exports vs. 2010 exports Fines 62% or Pellet 22% or 1,230 MT Exports of pellet 151 124 -18% 118 443 MT Exports of lump 160 260 63% 260 Source:
Slide 25: Average utilisation of iron ore product per tonne of hot metal
AV E R A G E U T I L I S AT I O N O F I R O N O R E P R O D U C T P E R T O N N E O F H O T M E TA L EUROPE LARGEST PELLET MARKET CHINA HEAVY USE OF SINTERING Pellet 11% Pellet Lump 33% 13% Fines Fines 60% 76% Lump 7% NE ASIA HIGHER % OF LUMP – Lump contains higher impurities vs. pellets & has incon
Slide 26: Pellets have high barriers to entry
P E L L E T S H AV E H I G H B A R R I E R S T O E N T R Y MOST RECENT CAPACITY ADDITIONS Cost/tonne of New pellet capacity Duration Tonnes Cost capacity Description Construction of 9.5MT concentrator R$6.459BN Construction of slurry pipeline with 20MT capacity Samarco 2011-2014 8.3MT $391/t ($3.251
Slide 27: Estimated breakdown between blast furnace and DR pellet suppliers
E S T I M AT E D B R E A K D O W N B E T W E E N B L A S T F U R N A C E & D R P E L L E T SUPPLIERS Direct Reduction Blast Furnace 16.3 21.6 (-4%) (+6%) 17.3 Vale 20.8 6.5 LKAB 12.0 (+8%) 7.0 11.8 (-2%) Ferrexpo 11.7 10.5 (-11%) 8.0 (+40%) 2.6 1.8 IOC 7.7 (-4%) Severstal 4.9 5.6 (+13%) 0.1 Metalloi