Ferrexpo Regulatory News (FXPO)

12 March 2014

FERREXPO plc

("Ferrexpo" or the "Group")

2013 Full Year Results

Ferrexpo, the FTSE 250 iron ore pellet producer, today announces its full year results for the year ended 31 December 2013.

Michael Abrahams, Non-Executive Chairman, said:

"We would like to express our profound sadness for the loss of life as a result of the recent political turmoil in Ukraine, and extend our deepest sympathies to the families, communities and colleagues who have been affected.

We are hopeful of a satisfactory political outcome reflecting democratic principles.

At the time of writing, there have been no disruptions to Ferrexpo's operations in Ukraine.

In 2013, Ferrexpo was the fastest growing supplier by volume of pellets to the global steel industry and a top five seaborne producer. Total pellet production increased by 12% to 10.8 million tonnes, compared to an average industry decline during the year of over 5%. The Group also increased the quality of its pellet output, with a 20% increase of higher grade 65% Fe pellets. Ferrexpo achieved an average increase in its realised price of 4% and progressively reduced its cost of production quarter on quarter following the ramp up of mining operations at Ferrexpo Yeristovo Mining (FYM), and thus stabilised production costs year on year. Group production costs progressively reduced quarter on quarter. Overall, EBITDA increased by 25% to US$506 million (2012: US$405 million).

In 2014, the Group is well positioned to reduce costs through increased production volumes, as well as a more appropriately valued local currency. Since the balance sheet date, the Ukrainian Hryvnia has devalued by 16%. This will reduce those operating costs of the Group which are denominated in local currency, although, it will lower the carrying value of assets and liabilities which are also denominated in local currency.

Ferrexpo expects to benefit from growing demand for higher quality iron ore feedstock in 2014. The trend for premium iron ore is expected to be driven by greater environmental requirements for steel mills to reduce their harmful emissions as well as a necessity to compensate for the growth in lower grade iron ore fines that is becoming increasingly prevalent.

The Company is pleased to announce a final ordinary dividend of US3.3 cents per share and a special dividend of US6.6 cents per share reflecting the progress it has made in 2013."

2013 Financial Highlights:

· Record pellet production of 10.8 million tonnes, 12% higher than 2012 driven by the ramp-up of production from the new Ferrexpo Yeristovo Mine (FYM). Two million tonnes of pellets were produced from FYM ore. The development of FYM and continued investment in the processing facilities at FPM has reduced the risk profile of the Group. Ferrexpo now has access to a new open pit mine which has on average higher grade ore and lower mining costs and productive capacity ramping up to 12 million tonnes per year.

· Sales volumes grew by 11% to 10.7 million tonnes due to strong pellet demand from all of the Group's markets. The Group's achieved price was 4% higher than 2012. As of 1 January 2014, all of the Group's long-term sales contracts will be based on a benchmark indexed formula. In the fourth quarter of 2013, Ferrexpo delivered 3.1 million tonnes of pellets to its global customer base via rail, barge or ship. This was a record and in line with the Group's target of annualised production of 12 million tonnes.

· The Group's average C1 cash cost of production for the period was US$59.8 per tonne (2012: US$59.6 per tonne) whilst the UAH remained stable at around 8.0 to the US dollar. The mining and processing of FYM ore had a positive impact on the Group's overall production cost throughout the year following the ramp up of its production in the first quarter of 2013, where Group costs peaked at US$63.9 per tonne. The processing complex at Ferrexpo Poltava Mining (FPM) performed strongly in 2013 as it processed more ore and increased pellet output leading to a higher level of fixed cost absorptions.

· EBITDA increased by 25% or over US$100 million to US$506 million in 2013 compared to US $405 million in 2012. The increase was due to strong growth in sales volumes and higher market pricing.

· The gross Ukrainian VAT receivable balance as at 31 December 2013 was US$318 million (2012: US$302 million).An additional provision of US$40 million (2012: US$20 million) has been taken, bringing the total to US$60 million. In January 2014, the Group received a VAT repayment for December 2013 for Ferrexpo Poltava Mining (FPM) and for FYM related to 2012. As of 31 January 2014, the gross VAT outstanding balance was US$291 million. No VAT refund was received in February, however, it is hoped that a resolution to this long standing problem in Ukraine will be found in 2014.

· Balance sheet position remains strong. Net debt to EBITDA was 1.3x as of 31 December 2013 (31 December 2012: 1.1x). Net debt at year end was US$639 million (31 December 2012: US$423 million) of which approximately 63% had been used to finance outstanding VAT receivables and pre-paid corporate profit tax. Total liquidity (including undrawn facilities and cash) was US$671 million as of 31 December 2013 compared to US$597 million at 31 December 2012.

· Final ordinary dividend maintained at US3.3 cents per share due to iron ore pricing uncertainty and the VAT situation, which is yet to be fully resolved.

· Special divided of US6.6 cents declared. This reflects the progress the business has made in 2013 with productive capacity increasing by 30% compared to 2008 and pellet output growth of 12% compared to 2012.

· The Group is on track to complete its US$647 million investment programme to increase the quantity and quality of its pellets.

There will be an analyst and investor meeting at 09.30 (UK time) today at The London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS. A live video webcast and slide presentation of this event will be available on www.ferrexpo.com. It is recommended that participants register at 09.15. The presentation will be hosted by Michael Abrahams (Chairman), Kostyantin Zhevago (CEO) and Chris Mawe (CFO).

For further information contact:

Notes to Editors:

Ferrexpo is a Swiss headquartered iron ore company with assets in Ukraine. It has been mining, processing and selling high quality iron ore pellets to the global steel industry for over 35 years. Ferrexpo's resource base is one of the largest iron ore deposits in the world. The Group is the 5th largest supplier of pellets to the global steel industry and the largest exporter of pellets from the CIS. In 2013, it produced 10.8 million tonnes of pellets, a 12% increase compared to 2012. Ferrexpo has a diversified customer base supplying steel mills in Austria, Slovakia, the Czech Republic, Germany and other European states, as well as in China, India, Japan, Taiwan and South Korea. Ferrexpo is listed on the main market of the London Stock Exchange under the ticker FXPO. For further information, please visit www.ferrexpo.com

A REVIEW OF 2013

In 2013, Ferrexpo was the fastest growing supplier by volume of pellets to the global steel industry and a top five seaborne producer. Total pellet production increased by 12% to 10.8 million tonnes, compared to an average industry decline during the year of over 5%. The Group also increased the quality of its pellet output, with a 20% increase of higher grade 65% Fe pellets.

Ferrexpo Yeristovo Mining (FYM), Ferrexpo's new open pit mine, provided 20% of the Group's ore in 2013 while the Group's beneficiating and pelletising plant was able to increase output while simultaneously continuing a major capital refurbishment programme to modernise its facilities.

The Group improved its logistics infrastructure during the year which contributed to a 20% reduction in freight costs per tonne to Asian markets. It also agreed three long-term contracts with leading steel mills in Asia.

As a result, Ferrexpo has further reduced its risk profile in 2013 and continued to build on its reputation as a reliable supplier of high grade iron ore to the global steel market.

Results

- Group revenue increased by 11% to US$1.6 billion

- EBITDA rose by 25% to US$506 million

- Financial discipline maintained, net debt to EBITDA 1.3x

Group revenue increased by 11% to US$1.6 billion for the 12 months ended 31 December 2013 (2012: US$1.4 billion) primarily driven by record sales volumes of 10.7 million tonnes (2012: 9.7 million tonnes) and a 4% increase in industry benchmark prices to US$135 per tonne (2012 average benchmark CFR China 62% fines price: US$130 per tonne).

The Group's average C1 cash cost of production for the period was US$59.8 per tonne in line with 2012 (2012: US$59.6 per tonne). The mining and processing of FYM ore has had a positive impact on the Group's overall production cost throughout the year following the ramp up of its production in the first quarter of 2013, where Group costs peaked at US$63.9 per tonne. Total production volumes increased 12% to 10.8 million tonnes of pellets in 2013 (2012: 9.7 million tonnes) leading to higher fixed cost absorptions. In addition, there were cost benefits related to the high grade ore at FYM as well as lower mining costs at the new open pit.

In terms of logistics costs, rail tariff cost inflation was partially mitigated by savings from using the Group's own rail cars, while Ferrexpo reduced its cost of freight per tonne to the Far East by 20% compared to 2012.

Overall EBITDA rose by 25% to US$506 million (2012: US$405 million) driven by strong growth in sales volumes and higher market pricing.

The Group tax rate in 2013 was 14% compared to 18% in 2012. The decline principally reflects the reduction in the statutory tax rate in Ukraine.

Group profit after tax increased to US$264 million compared to US$219 million in 2012.

Ukrainian VAT incurred at FPM was recovered on a timely basis in 2013, however balances from 2012 and prior years as well as from FYM and amounts in dispute in the court system remained unpaid. As of 31 December 2013, Ferrexpo was owed US$318 million (2012: US$302 million) of VAT by the Ukrainian government. The Group has recorded a total provision in respect of the overdue and disputed VAT amounts of US$60 million (2012: US$20 million). At the current time it is unclear how VAT will be repaid and the provision in part reflects the likely discount to face value of any financial instrument which may be issued and converted to cash. In January 2014, the Group received a VAT repayment relating to December 2013 for Ferrexpo Poltava Mining (FPM) and for FYM related to 2012. As of 31 January 2014, the gross VAT outstanding balance was US$291 million, this compares to an expected VAT balance, reflecting normal business activity, of between US$50 million and around US$100 million depending on the level of capital investment in any period.

Net cash flow from operating activities was US$233 million, a 96% increase compared to 2012 (2012: US$119 million).

Working capital increases were principally due to the stockpiling of the lower grade ore at FPM as priority was given during the year to processing the higher grade ore from FYM in order to focus on pellet quality. The lean ore at FPM will be processed in 2015 following completion of the quality upgrade project. This stockpiling together with an increase in pre-paid corporate profit tax (see page 11 for further explanation) were the main drivers behind a working capital outflow of US$103 million.

During the year the Group spent US$278 million on capital investment in its existing and new mines as well as on logistics infrastructure (2012: US$429 million). The reduction compared to 2012 reflects the near completion of the Group's approved capex programme to improve the quality and quantity of its pellet output to 65% Fe and 12 million tonnes respectively.

Savings on capital investments have also been made, particularly in sustaining capital where projects have been optimised. The Group closed the year with US$103 million of capital commitments, compared to US$163 million as at 31 December 2012.

Ferrexpo has continued to maintain its financial discipline with net debt to EBITDA of 1.3 times (2012: 1.1 times). At the period end, Ferrexpo had net debt of US$639 million (2012: US$423 million) and cash combined with undrawn committed facilities with a maturity in excess of 1 year of US$671 million.

Dividend

Ordinary dividend

The Group has invested significantly over the past six years and has maintained its dividend since IPO at 6.6 cents per share split equally between interim and final payments. Ferrexpo is continuing to invest prudently in its operations to ensure sustained volume increases and earnings growth over the coming years. However, taking into consideration the volatility of iron ore pricing the Board feels it is appropriate to maintain the ordinary dividend at its current level during the continued investment in the business. As such, the Board recommends a final dividend in respect of profits generated by the Group in 2013 of US3.3 cents per ordinary share (2012 final ordinary dividend: US3.3 cents per ordinary share) for payment on 30 May 2014 to shareholders on the register at the close of business on 2 May 2014. The dividend will be paid in UK Pounds Sterling with an election to receive US Dollars.

Special dividend

In recognition of the good results for 2013, and the success in growing output by 30% since IPO and 12% compared to 2012, the Board is pleased to announce a special dividend of US6.6 cents per ordinary share for payment on 28 March 2014 to shareholders on the register at the close of business on 21 March 2014. The payment will be made in UK Pounds Sterling with an option to receive US Dollars.

Market environment

The World Steel Association reported that global crude steel production grew 3.5% in 2013 compared to 2012 to 1.6 billion tonnes. Of this, 779 million tonnes were produced in China representing 7.5% growth in Chinese steel production. This growth in steel production supported iron ore demand and prices with seaborne exports increasing by approximately 11% to 1.3 billion tonnes. The average benchmark price for iron ore (62% Fe CFR fines to China) increased by 4% to US$135 per tonne compared to an average price in 2012 of US$130 per tonne.

Demand for iron ore pellets was strong in 2013 with pellet premiums increasing from approximately US$15 per tonne in the Chinese spot market (the largest buyer of iron ore including pellets) at the beginning of the year to over US$30 per tonne by year end.

The improvement in pellet premiums was largely due to a reduction in supply from the market's principal pellet producers following low pellet premiums in 2012 as well as increasing demand for pellets in the Middle East.

Direct reduction steel making in the Middle East requires high quality iron ore which reduces the availability of pellets for traditional blast furnaces in the rest of the world.

Management believe that the marginal cost to produce pellets from pellet feed is approximately US$30 per tonne based on the position of the larger suppliers of pellets on the global pelletising cost curve. Ferrexpo's position at the low end of the curve highlights that it is well placed to benefit from growing demand for a high quality product.

Marketing & logistics

- Pellet sales increased 11% in 2013

- 20% reduction in seaborne freight costs per tonne to Asia

In 2013, Ferrexpo sold 10.7 million tonnes of iron ore pellets compared to 9.7 million tonnes in 2012, an 11% increase.

During the year Ferrexpo reduced its cost of freight to the Far East by 20% per tonne primarily due to increased utilisation of capesize vessels and the commencement of its own transshipment facilities. The Group continued to build its brand awareness in these regions with the signing of new long-term contracts including its first long-term contract with one of China's largest steel producers as well as renewal of two existing contracts with long established steel mills. In 2013, sales volumes to Japan increased four-fold while volumes sold to Turkey doubled and sales to Germany increased by over 85% compared to 2012.

Breakdown of sales volume by market

The reduction in sales to Growth markets reflects the Group's decision to focus on building market share in Natural markets and as well as current constraints regarding the Group's production output. As Ferrexpo increases its output it anticipates increasing sales to Growth markets.

43% of Ferrexpo's contracted sales volume in 2013 was based on the Platts benchmark index(1) compared to 29% in 2012.

(1) Platts benchmark index for 62% Fe iron ore fines CFR to China. As is industry standard, this price is then adjusted for quality and a pellet premium (typically negotiated on a quarterly basis).

Sales volumes priced on a quarterly negotiation, based on the underlying market conditions, were reduced to 40% in 2013 compared to 47% in 2012. As of 1 January 2014, this type of pricing was eliminated and it is intended that all of the Group's long-term sales contracts will be based on a benchmark indexed formula1.

In 2013, 17% of sales volume was priced on a spot basis compared to 24% in 2012.

Overall, 83% of Ferrexpo's sales were made to long-term customers (2012: 75%) on contracts with tenures typically running from two to ten years.

Sales volume by contract type

In 2013, Ferrexpo loaded 22 capesize vessels carrying an average of 170 thousand tonnes of pellets (2012: 17 capesize vessels).

Ferrexpo has implemented improvements to its logistics infrastructure during the year which has resulted in sustainable cost reductions to its seaborne freight rate. This included cost savings from the commissioning of the Group's own transshipment vessel as well as contributing to an improvement in load rates through-out the year. Other enhancements included improved vessel scheduling and more competitive freight rates as the Company looked to attract additional ship owners to the region.

The 20% reduction of the Group's freight rate per tonne to Asian markets was a vital step in establishing the Group's reputation as a competitive global supplier of pellets.

As of 31 December 2013, the Group owned 2,200 rail cars (2012: 1,933 rail cars) and has ordered an additional 300 units to be delivered in 2014, so as to maintain maximum independence and reduce reliance on state rail cars as production volumes continue to increase. It is the Group's aim to be broadly self-sufficient in rail cars which will necessitate further purchases above the orders already placed. The Group shipped 6.7 million tonnes of pellets through its own shipping terminal as well as a neighbouring terminal at the port of Yuzhny in 2013. Ferrexpo believes it currently has seaborne shipping capacity of seven million tonnes per annum. Original capacity of five million tonnes has been enhanced through improved vessel scheduling and more consistent rail deliveries. Finally, Ferrexpo delivered 1.5 million tonnes of pellets by barge to steel mills in Central Europe via the Danube River (2012: 1.4 million tonnes).

Overall in the fourth quarter of 2013, Ferrexpo delivered 3.1 million tonnes of pellets to its global customer base via rail, barge or ship. This was a record and in line with the Group's target of annualised production of 12 million tonnes.

Health and safety

The management of Ferrexpo fosters and continually develops a culture of safety in the organisation, linking safety performance to remuneration.

Most regrettably there was a contractor fatality in 2013 at the Group's operations.

The lost-time injury frequency rate ('LTIFR') at FPM continued to fall in 2013 to 0.67 per million man hours worked (2012: 0.74). At FYM one lost-time injury was reported during the year (2012: nil). Overall, Ferrexpo's total LTIFR in Ukraine for 2013 was 0.64 compared to 0.66 in 2012.

Ferrexpo is pleased to announce that in 2013, FPM was awarded second place in the category 'Cultural Evolution in Safety or Sustainability' by DuPont at its annual Safety and Sustainability Awards. The award evaluated companies from 17 countries. DuPont believe the award reflects FPM's determination to continue to improve is safety record in line with industry best practice.

Production

- Pellet production increased 12% to 10.8mt

- 20% of production from the new FYM mine

In 2013, Ferrexpo's pellet production increased by 12% to 10.8 million tonnes. This was a record for the Group and ensured Ferrexpo was the fastest growing global pellet exporter by volume for the year. The production growth was underpinned by the ramp up of production at the Group's second mine FYM. In 2013, 6.6 million tonnes of crude ore from FYM was delivered to FPM for beneficiating and pelletising. As a result, two million tonnes of pellets were produced from FYM ore or 20% of Group production. The FYM mine will continue to ramp up production enabling the Group to reach its target of producing 12 million tonnes of pellets on an annualised basis in 2014.

In 2013, Ferrexpo produced 5 million tonnes of premium grade pellets (Ferrexpo Premium Pellets). This was a record for the Group and represented growth of 20% compared to 2012.

During the year FPM continued to complete a major modernisation and refurbishment programme of its production facilities whilst increasing the volume of output. As result of the modernisation of 3 of the 15 grinding sections in 2013 FPM was able to process more ore and thus produce more concentrate for pelletising. Six out of the 15 grinding sections have now been refurbished with a further three expected to be completed in 2014. This should allow the Group to reach its target of producing 12 million tonnes of annualised production in 2014.

Production Statistics

Production Costs

For the year ended 31 December 2013, the C1 cash cost of production of pellets from own ore was US$59.8 per tonne in line with the cost in 2012.

During the year, the Ukrainian Hryvnia remained stable. Just over half of C1 cash costs are denominated in local currency. Cost inflation was principally driven by a 7% increase in electricity tariffs.

Following the ramp up of production at FYM in the first quarter, the C1 cost declined throughout the year with the average cost for the year in line with 2012 and 7% below the first quarter.

The mining and processing of FYM ore has had a positive impact on the Group's overall production volumes and unit cost through increased volume efficiencies, lower mining costs and the addition of higher grade ore. The ore mined at FYM has magnetic properties that allow for easier separation of the iron from other elements compared to the lower grade ore which forms part of the seam mined at the FPM pit. To increase output and minimise overall cost, FPM focused on processing the higher grade portion of its ore together with the ore from FYM. The lower grade ore from FPM has been stockpiled to be processed once the quality upgrade project is complete. This has enabled better recovery and higher profitability to be earned whilst optimising FYM's mining plan and ore recovery.

Ferrexpo's strategy is to continually improve efficiency and reduce costs so as to remain competitive on the global cost curve. During the year, improved efficiencies were achieved through higher output and the Business Improvement Programme ('BIP') which has a target to reduce the C1 cost of production by 1% to 2% per annum on a constant output basis. The BIP programme has resulted in an overall reduction in the C1 cost of US$8.6 per tonne since its inception in 2006.

Ferrexpo's average cost of transportation of its pellets to Ukrainian border points was US $14.4 per tonne in line with 2012. Rail tariff cost increases of 5% were largely offset by savings gained from using the Group's own rail cars which qualify for a discount from the State rail authority. Ferrexpo sells its pellets mainly on a CFR basis and its realised pricing depends on freight costs. Importantly, during the year Ferrexpo reduced its cost of freight to China by 20% per tonne achieving its goal of being at least in line with the cost of freight for capesize vessels from Brazil to China.

Overall on the global cost curve for iron ore, management believe that Ferrexpo is positioned in the middle after adjusting for different iron ore products on a like for like basis, including any benefits or discounts a producer may receive relative to the 62% Fines CFR China price. At current cost levels, Ferrexpo estimates that approximately 1 billion tonnes of supply would need to be eliminated due to iron ore price declines before Ferrexpo's operations would be loss making.

In 2014, Ferrexpo is aiming to reduce its costs through increased production and further efficiencies from processing FYM ore.

Capital investments

- 35% reduction in capital investment in 2013

- Projects on track to increase pellet volume and quality

In 2013, capital investment amounted to US$278 million (2012 capex: US$429 million). The reduction in spend largely reflects the near completion of the Group's US$647 million programme, approved in November 2010, to primarily increase the quality of its pellet output to an average of 65% Fe and to open the Group's second mine providing ore to increase pellet production to 12 million tonnes. These projects, as well as the Mine Life Extension project to extend FPM's mine life to 2038, are progressing to plan and budget.

A summary of the Group's major capital projects can be found below.

Sustaining capex and capacity upgrade project

During the period, the Group spent US$81 million on modernisation and reducing bottlenecks at FPM's production facilities (2012: US$108 million).

Included in sustaining capital investments are projects to upgrade FPM's beneficiating and pelletizing facilities to allow processing capability of 12 million tonnes of pellets per year. Activities during the period, focused on the redesign and refurbishment of the three grinding sections. These were completed and commissioned through the year, while maintaining day to day operations and increasing production levels above those in 2012. As a result of the upgrade of the FPM beneficiation plant, concentrate production increased by more than 11% during the year.

Future activities will involve the modernisation of additional grinding sections of the existing beneficiation plants, as well as the replacement of medium/fine crushing sections and a major rebuild of one kiln in the pelletizing plant.

Sustaining capital investment also provides for the modernisation of existing assets and systems to increase operating efficiencies benefiting the cash cost of production. As the capacity upgrade project is nearing completion, management believe that sustaining capex at FPM for 2014 and future years is expected to reduce.

Quality upgrade project

In order to improve the quality of the pellet product, the overall iron content of the concentrate requires upgrading. The primary method to achieve this is through vertimill fine grinding technology and flotation. This will allow for the production of concentrate with an average 67% iron content (compared to the current average iron content of 65%) and will ensure all pellets contain 65% iron content.

During 2013, a floatation cell with all related equipment was installed and will be commissioned in 2014. This was constructed along with part of the second floatation plant and the associated upgrade of the tailing facilities.

In addition the following engineering work was carried out in relation to the quality upgrade project aimed at further enhancing returns.

- Engineering design for the modernisation of the existing flotation and installation of associated vertimills

- Pre-feasibility study for the construction of a new filter plant at the pelletizing plant which will accommodate the filtering of the higher grade concentrate to increase yields

In 2013, US$47 million was spent on the above activities (2012: US$35 million), mainly relating to the construction of the additional floatation and fine grinding unit.

FYM capital project

In 2013, FYM spent US$100 million on pit and associated infrastructure development (2012: US$146 million). During the year, FYM delivered 6.6 million tonnes of ore to the FPM processing plants. In terms of infrastructure development, the construction field office, tyre repair centre, and the canteen were commissioned along with the potable water and sewage handling facilities. The welding bay, equipment service centre, administration and repair centres are expected to be completed in the first half of 2014.

As the Group's current processing capacity of crude ore at FPM will be limited to 35 million tonnes per annum, during the year FYM finalised the design for a 10mtpa concentrating facility in order to process mined ore from the FYM pit that is not delivered to FPM for further processing (crude ore volumes from FPM's pit is approximately 30 million tonnes per annum while FYM will be able to mine 28 million tonnes per annum at full capacity). Studies are also underway to evaluate concentrate transportation and pelletizing options.

Investment opportunities

In 2013, Ferrexpo announced it had acquired a stake in Ferrous Resources ('Ferrous'), a producing iron ore company operating in the iron ore quadrangle of the Minas Gerais region of Brazil, a major iron ore producing region in the world. Total consideration for the stake was US$82 million.

For the year ended 31 December 2013, Ferrous produced over 5.1 million tonnes of 62% iron ore fines compared to 3.2 million tonnes in 2012. Ferrous has a 4 billion tonne JORC compliant reserve and resource base, and the company is targeting to expand output to 17 million tonnes per annum by 2017. Ferrexpo currently owns 15.5% of the company.

Financial management

Ferrexpo's financial position as of 31 December 2013, reflected its strategy of maintaining prudent balance sheet metrics and ensuring sufficient liquidity given that it operates in a volatile commodity market and is a single country operation.

Net debt to EBITDA was 1.3x at year end compared to 1.1x for the same period in 2012. Net debt at year end was US$639 million (31 December 2012: US$423 million), of which approximately 63% has been used to finance outstanding gross VAT balances of US$318 million as well as prepaid corporate profit tax of US$88 million in Ukraine. During 2013, Ferrexpo secured a new revolving credit facility of US$350 million. The facility has a forward start date of no later than 1 September 2014 and carries a cost of 325bps above US Libor. This facility can be used to extend the tenor of the Group's existing US$420 million bank facility which commences its two year amortization period in September 2014 maturing on 31 August 2016. Together with the Group's cash balance as of 31 December 2013, cash and available undrawn facilities totaled US$671 million (1).

(1) As of 31 December 2013, US$280 million of the new US$350 million pre-export finance facility was available. Once repayment of the in-situ pre-export finance facility commences in 2014 the remaining US$70 million will become available.

Ukraine

Ukraine is experiencing financial difficulties due to low growth and high public spending. As a result, it has a high current account deficit while foreign reserves were reported at approximately US$16 billion as of 28 February 2014. To date in 2014, the Hryvnia has devalued by 16%. These economic problems are not expected to be resolved in a short time frame and with external debt markets difficult to access for the country, Ukraine is expected to be reliant on external financial aid. In the coming year this could include aid directly from individual sovereign states or the European Union as well as from the IMF.

The Group's facilities are located in central Ukraine in the Poltava region 200 miles south of Kyiv. At the time of writing, Ferrexpo's operations remain unaffected by the unfolding events of recent weeks. Production and logistics to the western border of the country and to the Group's port in Odessa on Ukraine's south coast operate normally. Ferrexpo, however, continues to monitor the situation closely.

The Group's priority continues to be to maintain production and supply its first class customer base with high quality premium iron ore product as it has done throughout its 40 year production history. It has and will continue to follow its strategy which will grow production and reduce risk in its operations.

VAT

In 2013, the Group received 11 monthly VAT refunds which took the outstanding VAT balance as of 31 December 2013 to US$318 million (31 December 2012: US$302 million). In January 2014, the Group received VAT repayments for December 2013 and January 2014. As of 31 January 2014, the gross VAT outstanding balance was US$291 million. The Group did not receive a VAT refund in February.

Of the total VAT outstanding balance at the end of 2013, US$146 million related to 2012 and prior years, and US$102 million was in dispute in the court system. As such the gross VAT amount as of 31 December 2013 of US$318 million has been adjusted by US$60 million (2012: US$20 million) to US$258 million in order to reflect either the likely discount if financial instruments are issued to settle the outstanding balance or, alternatively, the time value of money related to the cost of financing these balances.

The late repayment of VAT is, in the view of the Board, a result of the Ukrainian government's current weak fiscal position. The Board believes that there is a risk that continued fiscal weakness could further impact the timely repayment of VAT. This would lead to higher levels of working capital and increase the risk of a financial loss when repayment occurs which would depend on the eventual type of repayment and the prevailing exchange rate as repayments will be made in local currency. Ferrexpo has received VAT repayments consistently throughout 2013, however, balances from 2012 and earlier remain unpaid. Ferrexpo continues to have a constructive dialogue with the Ukrainian authorities regarding the repayment of overdue VAT and hopes that a resolution to this long standing problem in Ukraine will be found in 2014.

Full details on Ukrainian VAT receivable are disclosed in notes 11 and 14 to the accounts.

Pre-paid corporate profit tax

As part of an agreement with the majority of industry players in Ukraine the tax authorities have been remitting regular VAT refunds in 2013 in exchange for the pre-payment of corporate profit tax in respect of future periods. In 2013, Ferrexpo paid US$63 million in this respect resulting in a year-end balance of US$88 million (2012 pre-paid corporate profit tax: US$25 million).

 Full details on pre-paid corporate profit tax are disclosed in note 11 to the accounts.

Court case

The Group faces an ongoing legal claim over a shareholding in FPM. After having taken Ukrainian legal advice, the Board believes that risks related to these court proceedings are remote. Due to the nature of the country and its court system, however, a negative outcome cannot be ruled out. The case has been running for seven years and the Board believe it still has a considerable way to go.

Full details on the court case are disclosed in note 14 to the accounts.

Corporate governance

The Board of Ferrexpo remains committed to maintaining high standards of governance and integrity throughout the Group. As a set of individuals of different nationalities and backgrounds with complementary skills and experience, the Board has worked together effectively in guiding the notable progress the Company has made since its IPO, and within the context of a volatile global economic environment.

The UK Corporate Governance Code of 2012, highlights the need for progressive refreshing of the Board and recommends that the re-election of directors who have served more than six years be reviewed. The Board has appointed external recruitment consultants to search for suitable candidates who can provide diversity and balance in terms of knowledge, experience and gender. The Board will prioritise an orderly succession once new members have been recruited.

Ferrexpo's principal shareholder and CEO, Kostyantin Zhevago, holds 50.3% of the shares in the Company and his interests remain fully aligned with all shareholders. Mr Zhevago is a long-term investor focused on developing a high quality sustainable business. He has unparalleled experience of operating in Ukraine which can be a difficult and at times unstable environment. Mr Zhevago's experience is of significant value to Ferrexpo and all its shareholders.

The strategy of the Board, including Mr Zhevago, is to operate to best international standards of governance, transparency and fairness.

People

The Board would like to express its sincere appreciation to all of Ferrexpo's employees for their continued hard work and dedication which has led to another excellent year of progress at the Company.

Brian Maynard, Chief Operating Officer, will be leaving Ferrexpo in April 2014. Brian has contributed greatly to the Group during his three years and Ferrexpo wishes him success in his future endeavours.

Outlook

The Group has successfully opened its new mine, FYM, and it is increasing its annualised production capacity to 12 million tonnes of pellets which should reduce costs through higher volumes in 2014. Since the balance sheet date, the Ukrainian Hryvnia has devalued by 16%. This will lower the operating costs which are denominated in local currency, as expressed in US Dollars, and reduce the carrying value of assets and liabilities which are also denominated in Hryvnia.

In the first quarter of 2014 iron ore prices have been weak. It is expected that prices will stabilise but remain volatile for the remainder of the year. There is a growing demand for higher quality iron ore feedstock. The trend for premium iron ore is expected to be driven by greater environmental requirements for steel mills to reduce their harmful emissions as well as a necessity to compensate for the growth in lower grade iron ore fines that is becoming increasingly prevalent. Ferrexpo believes it should benefit from this trend.

Ferrexpo is committed to reducing its unit costs and developing its substantial resource from own generated cash flows within the discipline of prudent balance sheet management whilst providing appropriate dividend returns to shareholders.

FINANCIAL REVIEW

(1) As a result of the retrospective application of the amendments to IAS 19, the pension cost for the year ended 31 December 2012 was amended and had a positive effect of US$3.9 million on the previously disclosed EBITDA figures.

(2) The Group calculates EBITDA as profit from continuing operations before tax and finance plus depreciation and amortisation and non-recurring exceptional items included in other income and other expenses, share-based payment expenses and the net of gains and losses from disposal of investments, property, plant and equipment. See note 3 on page 26.

Revenue

Total revenue increased by 11.1% to US$1.6 billion for the year ended 2013 compared to US$1.4 billion in 2012. The increase was driven by a 10.5% growth in sales volumes to 10.7 million tonnes (2012: 9.7 million tonnes) as well as a 4% improvement in the Group's received price in line with the industry benchmark price which increased on average by US$5 per tonne (2013 CFR Platts 62% fines China: US$135 per tonne vs. 2012 CFR Platts 62% fines China: US$130 per tonne).

Other revenue, not related to pellet sales was broadly stable year on year and amounted to US$86.5 million (2012: US$94.0 million). This included revenue from third party services, such as bunker fuel sales and freight services at the Group's logistics operations as well as sales of gravel.

Cost of Sales

Total cost of sales for the year ended 31 December 2013 was US$773.2 million (2012: US$690.7 million). Cost of sales consists of the C1 cash cost of sales, the cost of sales of the logistics and bunker business, depreciation as well as the cost of production from third party concentrate. Increases in the year related to production growth along with an increase in depreciation following the commencement of operations at the FYM mine.

C1 Cash Cost

The C1 cash cost of production per tonne is defined as the cash costs of production of pellets from own ore divided by production volume of own ore, and excludes non-cash costs such as depreciation, pension costs and inventory movements, costs of purchased ore, concentrate and production cost of gravel.

Overall, C1 costs in 2013 were in line with 2012 at US$59.8 per tonne (2012: US$59.6 per tonne). This reflected increases in electricity tariffs which increased to 9.2 US cents per KW hour (2012: 8.6 US cents per KW hour) and royalties attached to FYM ore, offset partly by slightly reduced costs in other categories particularly oil and gas. The Hryvnia was stable during the year. Against this backdrop, the C1 cost declined in each quarter of the year following the ramp up of production at FYM in the first quarter and the start of full commercial production from FYM ore in Q3. The C1 cost in 4Q 2013 was 10% lower than the peak which was reached in 1Q 2013. This is shown in the table below:

The mining and processing of FYM ore has had a positive impact on the Group's overall production cost through increased volume efficiencies, lower mining costs and the addition of higher grade ore which combined with efficiency improvements at FPM resulting from the BIP and capital investment programmes has resulted in lower costs.

Gross Margin

The Group's gross margin was 51.1% in 2013 in line with 2012 (2012: 51.5%). This reflected higher sales volumes and prices with the margin unchanged as a result of stable C1 costs and increased depreciation due to projects being bought into production.

Selling and Distribution Expenses

Selling and distribution expenses were US$335.7 million in 2013 compared to US$312.0 million in 2012 driven by increased volumes and higher market rates for capesize vessels offset by logistics cost saving as a result of capital investments in ship loading top-off facilities, the use of more capesize vessels and rail cars compared to 2012.

DAP/FOB distribution costs incurred in delivering product to the Ukrainian border were US$154.2 million (2012: US$140.4 million), equating to US$14.4 per tonne in line with 2012. These costs primarily include railway freight to the southern ports at Yuzhny, Izmail and ocean freight to Constanta as well as port charges and railway freight to the western Ukrainian border. Rail tariff cost inflation was 4.6% in 2013 which was mitigated by lower costs associated with using own rail cars which increased by 267 units to 2,200 units during the year.

International freight costs to seaborne markets, which are also reflected as part of revenue on associated CFR sales, amounted to US$114.4 million in line with 2012 (2012: US$113.5 million). This reflected an increase in seaborne sales volumes offset by the freight savings achieved by the Group during the year through enhanced port capacity, increased use of capesize vessels and improved scheduling.

The Group loaded 5.9 million tonnes of pellets at its port facilities in 2013, an increase of 55% compared to 3.8 million tonnes loaded in 2012. The introduction of Iron Destiny, the Group's top-off vessel, helped improve throughput at the port and reduced freight costs to Asia by US$2.30 per tonne in 2013.

Selling and Distribution Expenses

General and Administrative Expenses and Other Expenses

General and administrative expenses were US$5.1 per tonne sold in 2013 compared to US$5.8 per tonne in 2012. The improvement reflects higher sales volumes and lower costs of US$54.8 million compared to 2012 (2012: US$56.3 million).

Other expenses were US$6.7 million below the prior year mainly as a result of lower community support donations due to the timing of project completions in the prior year.

EBITDA

EBITDA increased 24.8% or by US$100.5 million to US$505.9 million in 2013 compared to US$405.4 million in 2012. The increase was due to strong growth in sales volumes, higher market pricing and stable C1 costs.

Finance Income and Expense

Finance income was US$2.4 million (2012: US$2.6 million) reflecting lower average cash balances. The average cash balance in 2013 was US$435.6 million compared to US$743.4 million in 2012.

Net debt at 31 December 2013 was US$638.7 million (31 December 2012: US$423.4 million) while gross debt was US$1,029.2 million (31 December 2012: US$1,020.0 million).

Finance expense was US$66.0 million (2012: US$88.2 million). The average cost of Group debt for the period was 5.15% compared to an average of 5.24% in 2012.

In 2012, finance expense included a US$20.0 million discount to reflect the time value of money on outstanding VAT balances in Ukraine that were expected to be recovered after more than one year. This discount has been increased by US$3.7 million in 2013, with a further US$36.4 million reflected separately in the income statement. Further information in respect of the VAT situation in Ukraine is provided in the VAT section below and the note 11.

Income Tax Expense

The income tax expense in 2013 was US$41.6 million compared to US$47.1 million in 2012.

The effective tax rate in 2013 was 13.6% (2012: 17.8%). This reduction mainly reflects the lower tax rate in Ukraine which reduced from 21% in 2012 to 19% in 2013.

Cash Flows

Working capital

Working capital increased by US$103.0 million in 2013, mainly reflecting a US$88.5 million increase in inventories due to the stockpiling of FPM ore which is expected to be processed in 2015 following the completion of the quality upgrade project. Other working capital increased by US$14.5 million principally due to higher trade receivables reflecting higher volumes and prices.

VAT

In 2013, the Group received 11 monthly VAT refunds for FPM and first refunds for FYM, taking the outstanding VAT balance as of 31 December 2013 to US$318.2 million (31 December 2012: US$301.5 million). In January 2014, the Group received VAT repayments for December 2013 and January 2014. As of 31 January 2014, the gross VAT outstanding balance was US$291.4million. The Group did not receive a VAT refund in February 2014.

The amount of VAT outstanding from 2012 and prior years is US$145.7 million. Management believe that this will be recovered within the next year, possibly through the issue of financial instruments, as has been the practice in the past. There is no fully reliable way to estimate the ultimate amount of recoverability, however, it is believed that if financial instruments were to be issued they would trade at a discount for which an appropriate provision of US$36.4 million has been recorded as of 31 December 2013 (disclosed separately in the income statement).

The provision recorded in respect of the total outstanding VAT balances amounts to US$60.1 million as of 31 December 2013 (2012: US$20.0 million). This includes a discount of US$23.7 million to reflect the time value of money on outstanding VAT balances in Ukraine that are expected to be recovered after more than one year and the provision of US$36.4 million (2012: nil).

Full details on the Ukrainian VAT receivable are disclosed in note 11 to the accounts.

Pre-paid corporate profit tax

As part of an agreement with the majority of companies in Ukraine the tax authorities have been remitting regular VAT refunds in 2013 in exchange for the pre-payment of corporate profit tax in respect of future periods. In 2013, Ferrexpo paid US$62.6 million resulting in a US$87.5 million prepayment as of 31 December 2013 (2012 pre-paid corporate profit tax: US$24.9 million).

Net cash flow

Net cash flow from operating activities was US$232.9 million representing a 96% increase over 2012 (2012: US$118.6 million). This was principally due to higher EBITDA and regular VAT refunds which compensated for the pre-payments of corporate profit tax.

Capital investment

Total capital investment for 2013 was US$277.8 million compared to US$429.3 million for 2012. The reduction in spend largely reflects the near completion of the Group's US$647 million programme. This was approved in November 2010 to increase the volume and quality of its pellet output to 12 million tonnes and 65% Fe respectively. The level of capital expenditure also reflects savings on projects. Overall, capital commitments were US$103.0 million at the year end, in line with 2012.

In 2013, sustaining capital expenditure was US$86.7 million (2012: US$113.5 million) for the Group, of which US$81.0 million was invested at FPM (2012: US$108.4 million). This included US$19.8 million for the capacity upgrade project. The remaining US$5.7 million of sustaining capex in 2013 was principally invested in the Group's barge fleet (2012: US$5.1 million).

Capital investment in FPM's development projects during the year was US$61.9 million (2012: US$83.7 million) while development expenditure at FYM was US$100.3 million (2012: US$146.3 million).

Acquisitions

In 2013, Ferrexpo acquired a stake in Ferrous Resources a producing iron ore company operating in the iron ore quadrangle of the Minas Gerais region of Brazil. Total consideration for the stake was approximately US$82.4 million. Ferrexpo currently owns 15.5% of the company.

Dividends

The Group paid dividends, gross of applicable withholding taxes, of US$77.9 million in 2013 (2012: US$38.7 million) which included a US$39.1 million ordinary payment and a US$38.7 million special dividend relating to 2012.

Group liquidity and debt

In 2013, Ferrexpo maintained a prudent financial metrics. As of 31 December 2013, net debt to EBITDA was 1.3x at year end compared to 1.1x for the same period in 2012.

Summary of Group Liquidity and Debt

(1) Ferrexpo secured a new pre-export finance (PXF) facility in 2013 for US$350 million maturing in 2018. This facility remains undrawn and as of 31 December 2013, US$280 million of the US$350 million was available. Once repayment of Ferrexpo's US$420 million PXF facility commences in 2014 the remaining US$70 million of the US$350 million PXF will become available. Ferrexpo can use the new facility to extend the maturity of its US$420 million PXF should it wish.

Net debt at year end was US$638.7 million (31 December 2012: US$423.4 million) of which approximately 63% had been used to finance outstanding VAT receivables and pre-paid corporate profit tax.

In 2013, Ferrexpo secured a new revolving credit facility of US$350 million. The facility has a forward start date of no later than 1 September 2014 with a four year tenor, including two years of amortisation, and carries a cost of 325bps above US Libor. This facility may be used to repay the Group's existing US$420 million bank facility which commences its two year amortization period in September 2014 maturing on 31 August 2016.

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

The financial statements were approved by the Board of Directors on 11 March 2014.

Kostyantin Zhevago Christopher Mawe

Chief Executive Officer Chief Financial Officer

Consolidated Statement of Cash Flows

Consolidated Statement of Changes in Equity

Notes to the Consolidated Financial Statements

Note 1: General information

The financial information for the year ended 31 December 2013 does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The audited statutory accounts for the year ended 31 December 2012 have been delivered to the Registrar of Companies and those for 2013 will be delivered following the Company's annual general meeting convened for Thursday, 22 May 2014.

The auditor has reported on the statutory accounts for year ended 31 December 2013. The auditor's report was unqualified.

Note 2: Summary of significant accounting policies

International Financial Reporting Interpretations Committee (IFRIC)

Whilst the preliminary announcement has been prepared in accordance with International Financial Reporting Standards ('IFRS') and International Financial Reporting Interpretation Committee ("IFRIC") interpretations adopted for use by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Board approved the full financial statements that comply with IFRS on Tuesday, 11 March 2014. The financial statements have been prepared under the historical cost convention as modified by the recording of pension assets and liabilities and the revaluation of certain financial instruments.

The accounting policies and methods of computation adopted in the preparation of these consolidated financial statements are consistent with those of the previous year, except for the adoption of new and amended IFRS and IFRIC interpretations effective as of 1 January 2013.

The accounting policies and methods of computation adopted in the preparation of the consolidated financial statements are the same as those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2012 except for the adoption of new amendments and improvements to IFRSs effective as of 1 January 2013, noted below:

Standards adopted affecting reported results, financial position or disclosures

IAS 1 Financial statement presentation - presentation of items of other comprehensive income

The amended standard became effective for financial years beginning on or after 1 July 2012. The amendment requires the grouping of items in other comprehensive income based on whether they will be potentially reclassifiable to profit or loss at a future point of time or whether they will never be reclassified. The amendment did affect the presentation of the consolidated statement of comprehensive income only and did not have an impact on the Group's financial position or performance.

IAS 16 Property, plant and equipment

The improvement clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are not inventory and became effective for financial years beginning on or after 1 January 2013. The amendment affected presentation only and did not have an impact on the Group's financial position or performance. As a result of this improvement, major spare parts and servicing equipment were reclassified from inventory to property, plant and equipment and previously disclosed balances for the comparative period ended 31 December 2012 changed by US$5,524 thousand. The effect of this improvement as of 31 December 2013 is US$7,574 thousand without a material impact on the Group's consolidated income statement and basic and diluted earnings per share

IAS 19 Employee benefits

The most fundamental change of the numerous amendments made to IAS 19 is to remove the so-called 'corridor-approach' and to require the recognition of all actuarial gains and losses from the remeasurement of the defined benefit obligation and the fair values of the plan assets in other comprehensive income in the current period. In addition, finance income from scheme assets is now recognised as part of the interest on the net defined benefit liability using the discount rate used to measure the defined benefit obligation; unvested past service costs are now recognised in profit or loss at the earlier of when the amendment occurs or when the related restructuring or termination costs are recognised; and scheme administration costs (other than costs of managing the plan assets) are recognised in profit and loss as they are incurred. The amendments became effective for financial years beginning on or after 1 January 2013 and the retrospective adoption requires to change the opening statement of financial position of the earliest comparative period presented. The tables below provide the details of these effects:

As a result of the retrospective application of IAS 19 revised, the total equity of the shareholders as of 31 December 2011 decreased from US$1,393,129 thousand to US$1,349,663 thousand.

As a result of the retrospective adoption of the amendments to IAS 19, the defined benefit pension liability and costs of the comparative period ended 31 December 2012 changed as follows:

The application of IAS 19 revised did not have a material impact on the Group's consolidated statement of cash flows, the basic and diluted earnings per share of the comparative period ended 31 December 2012.

The effect of IAS 19 revised on the current year service costs is US$3,236 thousand without a material impact on the Group's basic and diluted earnings per share.

IFRS 13 Fair value measurement

The new standard became effective for financial years beginning on or after 1 January 2013 and provides guidance on how to measure fair value under IFRS when fair value is required or permitted by other standards and requires additional specific disclosures. Other than the additional disclosure requirements, the adoption of this new standard did not have an impact on the financial position or performance of the Group.

Standards and interpretations adopted with no effect on reported results, financial position or disclosures

IFRS 1 First-time adoption of IFRS - government loans

The amendment requires first-time adopters to apply the requirements of IAS 20 Accounting for government grants and disclosure of government assistance prospectively to government loans existing at the date of transition to IFRS. This amendment became effective for financial years beginning on or after 1 January 2013. This amended standard is not relevant, as the Group is not a first-time adopter and consequently did not have an impact on the financial position or performance of the Group.

IFRS 7 Financial instruments: disclosures - offsetting financial assets and financial liabilities

The amendment requires disclosure of information about rights of offset and related arrangements (e.g. collateral posting requirements) for financial instruments under an enforceable master netting agreement or similar agreement. The amendments became effective for financial years beginning on or after 1 January 2013 with retrospective disclosure for all comparative periods. The adoption of this amended standard did not have an impact on the financial position or performance of the Group.

IFRIC 20 Stripping costs in the production phase of a surface mine

The new interpretation covers the accounting for the necessary removal of mine waste materials in order to gain access to the mineral ore deposit during the production phase of a mine. The interpretation provides guidance on the accounting and separation of the costs of stripping activities resulting in the production of inventory in the current period or improved access to further mineral ore deposits that will be mined in future periods. The new interpretation applies to annual periods beginning on or after 1 January 2013. The adoption of this new interpretation did not have an impact on the financial position or performance of the Group.

New standards and interpretations not yet adopted

The Group has elected not to early adopt the following revised and amended standards:

IFRS 9 Financial instruments

The standard has been issued as the IASB completes each phase of its project to replace IAS 39. The first elements of IFRS 9 were issued in November 2009 and October 2010 to replace the parts of IAS 39 that relate to the classification and measurement of financial instruments. In November 2013 an amendment was issued to address hedge accounting and to remove the previously determined effective date of 1 January 2015. Instead, the IASB proposes to set the effective date of IFRS 9 when it completes the impairment phase of the project. The Group will assess IFRS 9's full impact and will determine the date to adopt IFRS 9 once it is endorsed for use in the EU.

IFRS 10 Consolidated financial statements

The new standard provides additional guidance to assist in the determination of which entities are controlled and are required to be consolidated. This standard replaces the portion of IAS 27 Consolidated and separate financial statements that addresses the accounting for consolidated financial statements. The IASB implementation date is for periods beginning on or after 1 January 2013 whereas the standard becomes mandatory in the EU only for annual periods beginning on or after 1 January 2014. The Group does not intend to take advantage of the possibility of an early adoption. The impact on the accounting for the Group's associated company TIS Ruda will be assessed.

IFRS 11 Joint arrangements

The new standard replaces IAS 31 Interests in joint ventures and SIC 13 Jointly-controlled entities - non-monetary contributions by venturers. The IASB implementation date is for periods beginning on or after 1 January 2013 whereas the standard becomes mandatory in the EU only for annual periods beginning on or after 1 January 2014. The standard defines contractually agreed sharing of control of an arrangement and the accounting for joint operations and joint ventures. The Group does not intend to take advantage of the possibility of an early adoption and will review its arrangements in place in order to evaluate the potential impact.

IFRS 12 Disclosure of involvement with other entities

The new standard covers the disclosures that were previously required in consolidated financial statements under IAS 27 Consolidated and separate financial statements as well as those included in IAS 31 Interests in joint ventures and IAS 28 Investments in associates. The IASB implementation date is for periods beginning on or after 1 January 2013 whereas the standard becomes mandatory in the EU only for annual periods beginning on or after 1 January 2014. The Group does not intend to take advantage of the possibility of an early adoption, but expects that a number of additional disclosures will be required under the new standard.

IAS 19 Employee benefits - defined benefit plans: employee contributions

The amendment to the standard was issued in November 2013 and becomes effective for financial years beginning on or after 1 July 2014. The amendment provides guidance in respect of the accounting for employee contributions set out in the formal terms of a defined benefit plan. The Group does not intend to take advantage of the possibility of an early adoption and will review its arrangements in place in order to evaluate the potential impact.

IAS 32 Financial instruments: presentation - offsetting financial assets and financial liabilities

The amendments clarify existing application issues relating to the offset of financial assets and financial liabilities requirements. The amendments are not effective until annual periods beginning on or after 1 January 2014 with retrospective application. No material effects on the Group's financial position and performance are expected from this amendment.

IAS 36 Impairment of assets - recoverable amount disclosures

The amendment to the standard was issued in May 2013 and becomes effective for financial years beginning on or after 1 January 2014. The amendment removes the requirement to disclose recoverable amounts when there has been no impairment or reversal of impairment. Further to that, the disclosure requirements have been aligned with those under US GAAP for impaired assets. The Group does not intend to take advantage of the possibility of an early adoption and will review its arrangements in place in order to evaluate the potential impact.

IFRIC 21 Levies

The new interpretation clarifies when to recognise a liability for a levy imposed by governments (including government agencies and similar bodies) in accordance with laws and regulations. The new interpretation applies to annual periods beginning on or after 1 January 2014. The interpretation has not yet been endorsed by the EU and the effective date is not yet known. The Group is currently assessing the potential effect on the Group's accounting for production and similar taxes. Income taxes in accordance with IAS 12, fines and other penalties and liabilities arising from trading schemes are not covered by this interpretation.

Note 3: Segment information

The Group is managed as a single entity which produces, develops and markets its principal product, iron ore pellets, for sale to the metallurgical industry. While the revenue generated by the Group is monitored at a more detailed level, there are no separate measures of profit reported to the Group's Chief Operating Decision-Maker ('CODM'). In accordance with IFRS 8 Operating Segments, the Group presents its results in a single segment which are disclosed in the income statement for the Group.

Management monitors the operating result of the Group based on a number of measures including EBITDA, 'C1' costs and the net financial indebtedness.

EBITDA

The Group presents EBITDA because it believes that EBITDA is a useful measure for evaluating its ability to generate cash and its operating performance.

As a result of the retrospective adoption of the amendments to IAS 19, the pension costs of the comparative period ended 31 December 2012 changed and had a positive effect of US$3,847 thousand on the previously disclosed EBITDA figures. See note 2 for further details.

'C1' costs

'C1' costs represents the cash costs of production of iron pellets from own ore divided by production volume of own ore, and excludes non-cash costs such as depreciation, pension costs and inventory movements, costs of purchased ore, concentrate and production cost of gravel.

Net financial indebtedness

Net financial indebtedness as defined by the Group comprises cash and cash equivalents, term deposits, interest-bearing loans and borrowings and amounts payable for equipment.

Disclosure of revenue and non-current assets

The Group does not generate significant revenues from external customers attributable to the Company's country of domicile. The information on the revenues from external customers attributed to the individual foreign countries is given in note 4.

The Group does not have any significant non-current assets that are located in the country of domicile of the Company. The vast majority of the non-current assets are located in Ukraine.

Note 4: Revenue

Revenue for the year ended 31 December 2013 consisted of the following:

Export sales of iron ore pellets and concentrate by geographical destination were as follows:

During the year ended 31 December 2013 sales made to three customers accounted for 47.2% of the revenues from export sales of ore pellets (2012: 44.7%).

Sales to customers that individually represented more than 10% of total sales in either current or prior year are as follows:

Note 5: Cost of sales

Cost of sales for the year ended 31 December 2013 consisted of the following:

Note 6: Selling and distribution expenses

Selling and distribution expenses for the year ended 31 December 2013 consisted of the following:

Note 7: General and administrative expenses

General and administrative expenses for the year ended 31 December 2013 consisted of the following:

Auditor remuneration

Auditor remuneration paid in respect of the audit of the financial statements of the Group and its subsidiary companies and for the provision of other services not in connection with the audit is disclosed below:

Assurance related services include fees paid for services provided in relation to raising of new debt for the Group.

Note 8: Finance income and expense

Finance income and expenses for the year ended 31 December 2013 consisted of the following:

Bank charges include arrangement fees charged in relation to the Group's major bank debt facility.

Other finance costs include the effect from the increase of the recorded discount of US$3,695 thousand (2012: US$20,000 thousand) to reflect the time value of money on the outstanding VAT receivable balances in Ukraine that are expected to be recovered after more than one year of the period end. Further information is provided in note 11.

Note 9: Income tax expense

The income tax expense for the year ended 31 December 2013 consisted of the following:

Other comprehensive income contained taxes on the following items charged or credited to it for the year ended 31 December 2013:

The effective income tax rate differs from the corporate income tax rates. The weighted average statutory rate was 8.3% for 2013 (2012: 9.3%). This is calculated as the average of the statutory tax rates applicable in the countries in which the Group operates, weighted by the profits/(losses) before tax of the subsidiaries in the respective countries, as included in the consolidated financial information. The effective tax rate is 13.6% (2012: 17.8%). The decrease is a result of the reduction of the statutory tax rate in Ukraine and the change in profit mix between the different local jurisdictions.

A reconciliation between the income tax charged in the accompanying financial information and income before taxes multiplied by the weighted average statutory tax rate for the year ended 31 December 2013 is as follows:

Note 10: Earnings per share and dividends paid and proposed

Basic earnings per share ('EPS') is calculated by dividing the net profit for the year attributable to ordinary equity shareholders of Ferrexpo plc by the weighted average number of Ordinary Shares.

The calculation of the basic and diluted earnings per share is based on the following data:

The basic number of Ordinary Shares is calculated by reducing the total number of Ordinary Shares in issue by the weighted average shares held in treasury and employee trust reserve.

Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary Shares in issue on the assumption of conversion of all potentially dilutive Ordinary Shares. All share awards are potentially dilutive and are considered in the calculation of diluted earnings per share.

Dividends paid and proposed

Note 11: Taxes payable, recoverable and prepaid

The income tax receivable balance as of 31 December 2013 is shown below:

Split by:

As at 31 December 2013 taxes recoverable and prepaid comprised:

The vast majority of the outstanding VAT receivable balance is related to Ukraine and a result of VAT paid on domestic Ukrainian purchases of goods, capital equipment and services and on the import of goods, capital equipment and services into Ukraine to the extent that this cannot be offset on VAT paid on domestic sales in Ukraine. Ferrexpo currently has limited domestic sales and exports the majority of its products. As a result, VAT has to be recovered from the Government tax authority and Ferrexpo is reliant on the normal functioning of this system. During the financial year 2013, the Group received VAT refunds in respect of 2012 and 2013 amounting to US$170,967 thousand and paid Ukrainian VAT amounting to US$219,024 thousand. This was reduced by VAT incurred on domestic product sales of US$31,380 thousand. As a result, the gross recoverable balance increased from US$301,536 thousand to US$318,213 thousand (UAH2,543 million).

Management expects this amount to be fully recovered in local currency. However, the exact timing of recovery and method of settlement is subject to uncertainties, along with the prevailing exchange rate to the US Dollar at the time of repayment. In the past, VAT has been recovered in cash and by the issuance of domestic local currency bonds. Alternative methods of settlement have been proposed, but not adopted, including offset of amounts recoverable against current and future corporate profit tax. A financial loss could result, for example, from the issuance of bonds or treasury promissory notes which trade at a discount at the time of issue; continued late repayment as a result of Government fiscal constraints diminishing the present value of the receivable; or the conversion to US Dollar of local currency received at a different exchange rate to that recorded at the time of payment; or adverse decision in the courts regarding VAT balances in dispute, which management believe is fully recoverable. In October 2013, the cabinet of ministers of Ukraine confirmed that outstanding VAT liabilities incurred prior to 2013 will be settled with bonds or treasury promissory notes instead of cash repayment. As of the date of the publication of these accounts no such financial instruments have been issued.

Management has assessed the considerable uncertainties regarding the method of repayment of VAT and uncertainties relating to the timing of recovery of the VAT due. Currently the Group has amounts repayable in respect of 2013 under normal terms which is being recovered fully and promptly in the normal course of its business. During the financial year 2013 this was in exchange for a 50% prepayment of corporation tax. As a result of this, the prepaid balance of prepaid corporate profit tax increased from US$24,869 thousand to US$87,475 thousand as of 31 December 2013. It is the management's view that this balance will be offset with future profits.

At the end of the reporting period, the Group also has US$101,977 thousand in the court system which management believes will be fully recovered. The protracted procedures involved and the complexity of the system will, however, result in a delay in repayment and it is the best estimate of management that at the current time it will take two years before all the court process are completed and payment in full will be received. A discount of US$23,695 thousand (2012: US$20,000 thousand) to reflect the time value of money during this period has been made and this asset has been disclosed net of provision as non-current.

The Group has US$145,685 thousand of VAT outstanding from the financial year 2012 and earlier, which management believe will be recovered in the next year through the issue of financial instruments as has been the practice in the past. There is no fully reliable way to estimate the ultimate financial recovery which can ultimately be at par value, however it is the best estimate of management, based on past practice, that the financial instruments would if issued trade at a discount of 25% for which a provision of US$36,421 thousand (2012: nil) has been made as of 31 December 2013.

The total provision recorded in respect of the outstanding VAT receivable balances is US$60,116 thousand as of 31 December 2013 (2012: US$20,000 thousand).

As at 31 December 2013 other taxes payable comprised:

Note 12: Interest-bearing loans and borrowings

This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost. All loans are in US Dollars. For more information about the Group's exposure to interest rate, foreign currency and liquidity risk.

As at 31 December 2013 the Group has a syndicated US$420 million revolving pre-export finance facility in place and a US$500 million Eurobond.

The revolving pre-export finance facility was drawn in full on 7 October 2011. This finance facility is available for 60 months including a commitment amortisation over the final 24 months. The maturity is 31 August 2016.

As at 31 December 2013 the major bank debt facility was guaranteed and secured as follows:

· Ferrexpo AG and Ferrexpo Middle East FZE assigned the rights to revenue from certain sales contracts;

· OJSC Ferrexpo Poltava Mining assigned all of its rights of certain export contracts for the pellets sales to Ferrexpo AG and Ferrexpo Middle East FZE; and

· the Group pledged bank accounts of Ferrexpo AG and Ferrexpo Middle East FZE into which all proceeds from the sale of certain iron ore pellet contracts are received.

The unsecured US$500 million Eurobond was issued on 7 April 2011 and is due for repayment on 7 April 2016. The bond has a 7.875% coupon and interest is payable on a semi-annual basis.

On 2 September 2013 the Group secured an additional US$315 million revolving pre-export finance facility, which is undrawn as of 31 December 2013. In November 2013, the facility was increased to US$350 million. The new facility becomes effective when the Group declares the effective date within one year after the signing and matures four years after this date. As at 31 December 2013 US$280 million from this new facility would have been available for draw down if the effective date had been declared. The Group has no other committed credit lines as of 31 December 2013 (2012: nil).

Note 13: Related party disclosure

During the periods presented the Group entered into arm's length transactions with entities under the common control of the majority owner of the Group, Kostyantin Zhevago, with associated companies and with other related parties. Management considers that the Group has appropriate procedures in place to identify, control and properly disclose transactions with the related parties.

Entities under common control are those under the control of Kostyantin Zhevago. Associated companies refers to TIS Ruda LLC, in which the Group holds an interest of 48.6%. This is the only associated company of the Group. Other related parties are principally those entities controlled partially by Anatoly Trefilov. Anatoly Trefilov is a member of the supervisory board of OJSC Ferrexpo Poltava Mining.

Related party transactions entered into by the Group during the periods presented are summarised in the following tables:

Revenue, expenses, finance income and expenses