In H1 2023 Ferrexpo activity remains profitable

3 August 2023

Despite all the challenges in H1 2023 Ferrexpo improved its financial performance in comparison to H2 2022, liquidity position improved as well.

Ferrexpo published its financial results for H1 2023:
H1 2023 H2 2022
Output, kmt 1 967 1 256
Sales, kmt 2 085 1 806
Revenue, $ mln 334 313
EBITDA, $ mln 64 279
Adjusted EBITDA*, $ mln 66 26
Net income, $ mln 27 138
Operating cash flow, $ mln 80 68
Cash, $ mln 135 113
Debt, $ mln 4 7
*-disregarding FX revaluation

In the first half of the current year, Ferrexpo iron ore pellets output amounted to 2.1 million tons, which is 56% lower than in the same period of the previous year, but 56% more than in the second half of 2022, when production volumes were significantly affected by electricity supply problems due to Russian missile attacks of Ukrainian energy infrastructure.

Ferrexpo is currently operating at about 35-40% of its maximum capacity, the company restarted the second of its four pellet production lines in March, but production on the second line is currently unstable.

Pellet sales in the first half of 2023 amounted to 2.1 million tons, 15% more than in the second half of 2022.

As for the average sales prices of pellets, in the reporting half-year, the global price index for iron ore with an iron content of 65% (based on CFR China) exceeded the value for the second half of 2022 ($118 and $101 per 1t, respectively).

Atlantic premiums for high-grade iron ore pellets remained relatively high (about $50 per 1t), but have declined from the record highs of 2022 (average $72 per 1t).

Thus, mainly due to the growth of sales in natural terms, Ferrexpo revenues in the reporting period increased by 7% compared to the second half of 2022 and amounted to $334 million (at the same time, compared to the first half of 2022, turnover decreased by 64 %).

The main indicator of the cost of production for mining companies is the so-called C1 cash cost. In the reporting period at Ferrexpo, C1 cash cost was $71/t ($75/t in the previous period), which (along with a slight decrease in logistics costs per ton) also contributed to maintaining the company's profitability.

The formal EBITDA of Ferrexpo decreased compared to the second half of 2022 - from $279 million to $64 million, but the only reason for this is the profit from the currency revaluation due to the devaluation of the hryvnia in July 2022 ($254 million). Without taking into account this profit, the EBITDA of the reporting period exceeded H2 2022 figure.

We should also note that due to the earned profit, as well as VAT refund obtained, the operating cash flow of Ferrexpo in the first half of 2023 amounted to $80 million ($68 million in H2 2022).

Part of the cash flow ($58 million) was directed to capital investments, while the other part increased the amount of cash on the company's balance sheet (from $113 million to $135 million).

The structure and quality of Ferrexpo's balance sheet remain at a good level - the company's debt is close to zero, while the amount of cash on the balance sheet is sufficient to support operating activities at the current level in the short term.

The biggest risks for the company (besides the risks directly related to full-scale war) are a possible decline in global iron ore prices, as well as potential problems with electricity supplies in late 2023.

Capitalization of Ferrexpo as of August 2, 2023 is $663 million.