9 January 2017
In addition the company reported its key operating performance figures on the basis of which we estimate that in Y2016 its total revenues were close to USD 1bln, EBITDA – at about USD 365M. In Y2016 Ferrexpo repaid USD 196M of debt and significantly improved its cash position.
In Q4 total pellets production made 2.873M tons, by 10% higher than in previous quarter, but by 3.7% lower than in Q4 2015. In total in Y2016 Ferrexpo produced 11.2M tons of pellets, by 4% less than in previous year. Main reason – the company fully concentrated on production of premium pellets with 65% Fe content (its production grew y-o-y by 1.6% up to 10.535M tons, so the share in total production made 94% vs. 89% in Y2015). In addition during reporting period Ferrexpo realized some repairing works of pelletiser, which led to decrease of production levels in Q3.
On the other side realization volumes of the company in Y2016 reached record-high 11.7M tons (vs. 11.3M tons in Y2015).
In addition to production figures, in its report management of the company provided an update on key performance figures in Y2016. According to report, in Y2016 average C1 cost of production made close to USD 29 per 1 ton, average pellets price slightly increased vs. previous year, mainly due to growth of benchmark iron ore price index (for iron ore with 62% Fe content) from USD 55.5/t in Y2015 up to USD 58.5/t. We note that after sharp drop in Q4 2015-Q1 2016 (to as low as USD 40/t levels), in further period prices recovered and rallied in the end of year up to the highest levels for the last 2.5 years (USD 83/ton).
As a result, in H2 2016 average iron ore benchmark index increased up to USD 65/t (USD 52/ton in H1). Basing on this figure and reported realization volumes, assuming some growth of 65% pellets premium vs. benchmark index in H2 2016 (vs. beginning of year), we estimate that total revenues volume of Ferrexpo in H2 was close to USD 540M (USD 460M in H1). In this case revenues figure for the whole year will stand at about USD 1bln (slightly higher than in Y2015).
As for EBITDA estimation, firstly we note increase of C1 cash cost in H2 2016 vs. first half of the year. As average preliminary figure for the whole year reported by the company is USD 29/t, in H1 it was at USD 25.7/t, calculated C1 cash cost for H2 is about USD 31.5/t (substantial growth vs. H1). Taking into account increase of freight costs during last period of time, we estimate that EBITDA of Ferrexpo per 1 ton of produced pellets in H2 2016 made close to USD 36 (vs. USD 27 in H1 2016), absolute value of EBITDA – USD 205M (which means for the whole Y2016 EBITDA is estimated at USD 365M vs. USD 313M a year ago).
Basing on our assumptions, net operating cash flow in H2 2016 was close to EBITDA level (at about USD 205M), which allowed the company to repay close to USD 76M of its debt, provide for some maintenance investments and improve its cash position from USD 45M as of 30.06.16 up to USD 145M (cash position as of year-end was also stated in Ferrexpo report). Taking into account amount of debt principal to repay by the company in Y2017 stands at about USD 200M, short-term positions of Ukrainian pellets producer significantly improved.
There is still risk for Y2018, but with current market fundamentals and financial standing of Ferrexpo in general (Net Debt stands at about USD 560M vs. USD 868M a year ago), we estimate ability of the company to extend its debt maturities) as rather good.
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