Ferrexpo Regulatory News (FXPO)

FERREXPO plc

("Ferrexpo", the "Group" or the "Company")

2016 Interim Results

Ferrexpo plc, a top three supplier of iron ore pellets to the global steel industry, today announces interim results for the six months ended 30 June 2016.

Michael Abrahams, Non-Executive Chairman, said:

 "We are pleased to report a good set of financial results given the challenging circumstances in the iron ore industry. We have improved the quality of our pellet output, increased sales volumes to record levels and significantly reduced our cost base. Cash generated from operating activities was US$142 million for the period (up 61% compared to the first half of 2015) which allowed the Group to repay US$120 million of debt amortisation in the first half of 2016.

The Group continues to control costs and to benefit from selling a premium product to the world's top steel mills. Pellet demand remains strong and Ferrexpo believes it is well placed to continue to generate positive net operating cash flows throughout the commodities cycle."

1H 2016 Financial Summary:

· Production volumes from own ore grew 4% to 5.7 million tonnes while output of the Group's 65% Fe pellets increased to a record 5.4 million tonnes.

· Record sales volumes for a half year period increasing 6% to 6.0 million tonnes.

· Pellet premiums recovered from lows seen at the start of the year to finish the period strongly.

· The cash cost of production reduced 23%, or by US$7.7 per tonne, to US$25.7 per tonne of pellets (1H 2015: US$33.4 per tonne) as a result of local currency devaluation, lower oil prices and increased operating efficiencies.

· Operating profit, excluding foreign exchange gains, increased 2% to US$131 million in 1H 2016 compared to US$128 million in 1H 2015.

· Net cash flows from operating activities increased by US$54 million to US$142 million compared to US$88 million in 1H 2015 while, compared to FY 2015, net cash flows from operating activities increased by US$14 million (FY 2015: net cash flows from operating activities US$128 million).

· Net debt as of 30 June 2016 was US$753 million a US$115 million reduction compared to US$868 million as of 31 December 2015. Net debt to EBITDA for the last twelve months reduced to 2.5x as of 30 June 2016 compared to 2.8x as of 31 December 2015.

· New trade finance facilities were secured in 1H 2016 with US$9 million in place at period end. The Group's cash balance increased US$9M to US$44 million as of 30 June 2016 compared to US$35 million as of 31 December 2015.

· In July 2016, the Group made the final amortisation of its US$420 million pre-export finance facility that had been amortising over the past 24 months.

There will be an analyst and investor meeting at 08.30 (UK time) today at the offices of JP Morgan on 60 Victoria Embankment, London EC4Y 0JP. A live video webcast and slide presentation of this event will be available on www.ferrexpo.com. It is recommended that participants register by 08.15. The presentation will be hosted by Michael Abrahams (Chairman), Kostyantin Zhevago (CEO) and Chris Mawe (CFO).

Webcast link: http://edge.media-server.com/m/p/vpofze3k 

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 currently the 3rd largest exporter of pellets to the global steel industry and the largest exporter of pellets from the CIS. In 2015, it produced a record 11.7 million tonnes of pellets, a 6% increase compared to 2014. 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

Introduction 

Ferrexpo's 2016 interim results demonstrate the strength of the business and its strategy enabling the Group to report an EBITDA margin for the first half of 2016 in line with the first half of 2015 at 35% despite very challenging industry conditions.

Weak industry prices, particularly in the first quarter of 2016, were offset by increased sales of higher quality product and significantly lower costs allowing the Group to report EBITDA in the first half 2016 of US$160 million (US$16 million below the EBITDA of US$176 million reported for first half 2015). This strong performance underpinned excellent net cash generation from operations which increased to US$142 million, US$54 million higher than the first half of 2015, reflecting lower tax, interest and working capital.

During this period of near decade low iron ore prices, the Group reduced borrowing by US$120 million, increased cash on hand by US$9 million and remains comfortably within the terms of its borrowing facilities.

The Board has not declared an interim dividend for the period (1H 2015: 3.3 US cents per Ordinary Share), however, it may review this later in the year subject to the financial capacity of the Company and to market conditions.

In July 2016, the Group made the final scheduled repayment of its US$420 million pre-export finance facility which had been amortising in equal instalments over the past 24 months.

Pricing and Sales

In the first six months of 2016 the PLATTS CFR China iron ore fines price averaged US$52 per tonne compared to an average of US$61 per tonne in the first half of 2015. The average price was slightly higher than the average of US$51 per tonne in the second half of 2015. The market was, however, volatile with iron ore trading within a wide range from an eight year low of US$38 per tonne in mid-December 2015 to a 15 month high of US$71 per tonne in April 2016. The average iron ore price in July 2016 was US$57 per tonne.

The pellet premium that the Group received in addition to the PLATTS fines price improved throughout the first half of 2016 recovering from lows seen at the start of the year to finish the period more strongly. In China the spot pellet premium traded at US$11 per tonne in January 2016 before recovering to US$22 per tonne in June 2016 (1H 2016 China spot average: US$17 per tonne; 1H 2015 China spot average: US$28 per tonne). The headline long term contract pellet premium in the key markets of Western Europe and North East Asia was slightly lower than the first half of 2015.

The Group's net realised FOB/DAP price was in line with the second half of 2015 reflecting a weak environment in the first quarter of the year before prices recovered in the second quarter of 2016 driven by improved demand for iron ore and lower pellet availability. The Group's pricing benefitted from reduced C3 freight rates (1H 2016 US$7.1 per tonne vs. 1H 2015 US$10.8 per tonne) which increased its overall realised price.

The Group achieved record sales volumes for a half year period with sales increasing 6% to 6.0 million tonnes compared to 5.7 million tonnes in the first half of 2015. Ferrexpo continues to develop its customer portfolio and successfully agreed its first long term contract in Korea during the period.

Sales of pellets exceeded production in the half year period, partially unwinding the build-up of pellet stocks in the second half of 2015. The Group sold 244 thousand tonnes of stocks during the period and as of 30 June 2016 carried 479 thousand tonnes of pellet stocks.

Production Performance and Costs

Ferrexpo's operations successfully increased production of pellets from own ore by 4% to 5.7 million tonnes (1H 2015: 5.5 million tonnes) while increasing production of premium 65% Fe pellet to 94% of total production volumes, a record level for a half year period (1H 2015: 87% of total production volumes).

The Group remained one of the lowest cost pellet producers in the world in the first half of 2016. Its C1 cash cost of production fell by 23% or US$7.7 per tonne to US$25.7 per tonne compared to US$33.4 per tonne in the first half of 2015.

Outlook

Ferrexpo is the third largest iron ore pellet exporter in the world by volume with a well invested long life asset, a competitive cost base and a diversified high quality customer portfolio. The Group operates in a premium sector of the iron ore market with high barriers to entry and is benefiting from its US$2 billion investment programme since IPO in 2007.

The Group continues to control costs intensively through its business improvement programme and to benefit from selling a niche product to key customers under long term contracts. Pellet demand remains strong and the Group believes it is well placed to continue to generate positive net operating cash flows.

Financial Results

Revenue

Group revenue was US$458 million in the first half of 2016, 11% lower than the first half of 2015 (US$512 million) reflecting a lower iron ore price index which fell on average by 14% compared to the same period in 2015. Ferrexpo increased its sales volumes by 6% to 6.0 million tonnes (1H 2015: 5.7 million tonnes) while the Group's net realised FOB/DAP price was in line with the second half of 2015 reflecting a weak environment in the first quarter of the year before prices recovered in the second quarter of 2016 driven by improved demand for iron ore and lower pellet availability. The Group's pricing benefitted from reduced C3 freight rates (1H 2016 US$7.1 per tonne vs. 1H 2015 US$10.8 per tonne) which increased its overall realised price. For further information see Market Environment and Marketing.

Costs

C1 Cost of Production

The Group's C1 cost of production reduced by US$7.7 per tonne to US$25.7 per tonne compared to US$33.4 per tonne in the first half of 2015. Of this 23% cost reduction, approximately US$2.8 per tonne was driven by mining efficiency gains (for further information see Production Costs), US$2.6 per tonne due to lower oil and gas prices, and US$2.3 per tonne was due to the Hryvnia devaluation against the US Dollar.

In the first half of 2016, the average Hryvnia per US dollar was 25.47 compared to 21.43 in the first half of 2015, a 19% depreciation. The higher rate in the first half of 2016 reduced the C1 cash cost by 7% as approximately 50% of the Group's cost to produce a pellet is in Hryvnia. This includes electricity, salary, royalties, some consumable products, spare parts and materials.

Local cost inflation during the period was primarily driven by electricity price increases (+7% vs. average 1H 2015) following the devaluation of the Hryvnia against the US Dollar. Overall, these costs were still significantly lower in US dollar terms in the first half of the year compared to the prior period. The table below shows the year on year change in CPI for the first half of 2016. Inflation peaked in January 2016 at 40.3% and thereafter CPI has slowed to 6.9% in June 2016. For further information see Update on Risks: Ukrainian Inflation.

Ukrainian 2016 Year on Year CPI

Source: www.ukrstat.gov.ua

The Group's C1 cost represents the cash cost of production for iron ore pellets, from own ore, divided by production volume of pellets from own ore, and excludes non-cash costs such as depreciation, pension costs and inventory movements as well as costs of purchased ore and concentrate and production cost of gravel. Please see Note 3 of the accounts for a reconciliation of C1 Costs.

Selling and Distribution Costs

Selling and distribution costs decreased by 10% to US$101 million (1H 2015: US$113 million) as a result of the depreciation of the Hryvnia against the US Dollar as well as lower international freight rates.

The cost to transport the Group's pellets to border points for international dispatch declined 15% to US$8.6 per tonne (or US$52 million) compared to US$10.1 per tonne in the first half of 2015 (or US$57 million). All rail costs are in local currency and the net reduction compared to the first half of 2015 is after taking into account the Hryvnia depreciation against the US Dollar as well as a 15% increase in rail tariffs from May 2016.

International freight costs reduced to US$31 million in the first half of 2016 (1H 2015: US$36 million). This was driven by lower oil prices and weaker freight rates due to depressed market conditions in the shipping industry. For further information see Marketing.

Currency

Ferrexpo prepares its accounts in US Dollars. The functional currency of the Ukrainian operations is the Hryvnia.

During the first half of 2016 the Hryvnia devalued from UAH24.00 per US Dollar as of 1 January 2016 to UAH27.05 per US Dollar in February 2016 before appreciating to UAH24.85 per US Dollar as of 30 June 2016. Over half of the Group's total cost base, including inland logistics costs, are denominated in Hryvnia.

Ukrainian Hryvnia vs. US Dollar

Source: National Bank of Ukraine

Balances at 30 June 2016 are converted at the prevailing rate. The devaluation of the currency since 31 December 2015 has resulted in a US$33 million reduction in the net assets of the Group and has been reflected in the translation reserve.

Operating Profit from Continuing Operations before Adjusted Items

In the first half of 2016 Group revenue declined by US$54 million compared to the first half of 2015. The reduction in revenue was largely offset by a US$44 million reduction in cost of sales and lower selling and distribution, general and administrative and other expenses. As a result operating profit from continuing operations before adjusted items was US$133 million in the first half of 2016 compared to US$142 million in the first half of 2015.

EBITDA

EBITDA for the period was US$160 million compared to US$176 million in the first half of 2015. The fall in iron ore prices during the period was offset by an improved sales mix, higher sales volumes and cost reductions. The decline reflected lower operating foreign exchange gains compared to the prior year due to a more stable Hryvnia against the US Dollar in the first half of 2016.1

1 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 and property, plant and equipment. Please see Note 3 of the accounts for a reconciliation of EBITDA.

Interest

Finance expense was in line with the first half of 2015 at US$38 million. This amount includes interest expense on interest bearing loans of US$28 million compared to US$32 million in the first half of 2015. Further details on finance expense are disclosed in Note 10 of the accounts.

The Group carried lower gross debt following the repayment of US$120 million of facilities over the period. The average cost of debt for the period ended 30 June 2016 was 6.6% (30 June 2015: 5.32%; 31 December 2015: 5.97%). The increased average rate reflected US$204 million amortisation of the Group's US$420 million pre-export banking facility over the last year which has a margin of 225 bps over LIBOR and US$30 million of other facilities with an average cost of 3%.

As of 30 June 2016 gross debt was US$797 million, a 29% decrease or a US$326 million reduction compared to gross debt at 30 June 2015 of US$1.1 billion (31 December 2015: US$904 million).

Tax

The income tax expense for the first half of 2016 was US$14 million (1H 2015: US$27 million) based on a forecasted effective tax rate of 12% to 13% for the full year which is in line with the effective tax rate before special items for 2015 of 13.5%.

Over the past several years the Group has built a large prepaid corporate profit tax balance as a result of the local practice of linking VAT refunds to corporate profit tax payments. During the period CPT paid in advance reduced to US$53 million as a result of exchange rate differences. Following the period end, Ferrexpo recovered UAH100 million in cash (approximately US$4 million). Further details on prepaid corporate profit tax are disclosed in Note 11 of the accounts.

Cash Flows

Working Capital

Cash generated from operating activities increased 32% to US$174 million in the first half of 2016 compared to US$131 million in the first half of 2015. This strong performance reflected a US$16 million working capital inflow during the period due to the sale of 244 thousand tonnes of pellets held on stock at the end of 2015, a reduction in trade receivables and the recovery of overdue VAT. The Group secured new trade finance arrangements in the first half of the year, of which US$9 million was in place at the end of June 2016.

Capital Investment

Total capital expenditure in the first half of 2016 was US$24 million, in-line with the first half of 2015 at US$25 million. During the period, the Group paid US$7 million for medium and fine crushing lines to Metso France.

Financial Management

Net debt declined by US$115 million to US$753 million as of 30 June 2016 compared to US$868 million as of 31 December 2015.

Net debt to EBITDA for the last 12 months was 2.5x compared to 2.8x as of 31 December 2015. As of 30 June 2016, Ferrexpo's cash and cash equivalents balance had increased by US$9 million to US$44 million compared to US$35 million at the end of December 2015.

In the first six months of the year, the Group repaid US$105 million of debt under the US$420 million pre-export finance facility in addition to US$15 million of debt under Export Credit Agency funding lines.

The Group's debt amortisation schedule in the second half of 2016 is lower than the first half with repayments of US$76 million falling due compared to US$120 million in the first six months of the year.

In July 2016, the Group paid the final amortisation, US$17.5 million, of its US$420 million pre-export finance facility that had been amortising over the past 24 months.

Ferrexpo will continue to assess new financing options while repaying its debt obligations as they fall due.

As a result of the forecast cash flows of the business, the large reserve base and Ferrexpo's competitive positioning on the global iron ore and pellet cost curves, the accounts have been drawn up on a going concern basis, however attention is drawn to the Going Concern section of the financial statements, Note 2, and the risks facing the business.

Market Environment

Compared to the first half of 2015, global hot metal output, reflective of steel demand, fell 4% to 630 million tonnes compared to 656 million tonnes in the first half of 2015 while total supply of iron ore exports increased 4% from 721 million tonnes in the first half of 2015 to 753 million tonnes in the first half of 20162. This demand/supply dynamic impacted the iron ore price compared to the first half of 2015 and the PLATTS CFR China iron ore fines price averaged US$52 per tonne compared to an average of US$61 per tonne in the first half of 2015.

Compared to the second half of 2015, global hot metal production fell 2% to 630 million tonnes versus 644 million tonnes in the second half of 2015 while total exports of iron ore fell 1.3% in the first half of 2016 to 753 million tonnes compared to 763 million tonnes in the second half of 20152. The PLATTS CFR China iron ore fines price in the first half of 2016 was in line with the second half of 2015 at US$51 per tonne. Nevertheless, pricing remained volatile in 2015 and to date in 2016 trading within a wide range reaching a high of US$71 per tonne and a low of US$38 per tonne.

Global supply of pellet exports declined 19% to 59 million tonnes in the first half of 2016 from 72 million tonnes in the first half of 2015, according to CRU2, principally reflecting a 15 million tonne or 44% reduction in supply from Brazil3. Compared to the second half of 2015 the supply of exported pellets fell 5%, again due to reduced supply from Brazil following the Samarco tailings dam accident in November 2015.

2 CRU July 2016 Market Outlook.

3 Reflecting the production stoppage at Samarco following a tailings dam failure in November 2015. Prior to the failure, Samarco produced approximately 30 million tonnes of pellets per annum or approximately 20% of global pellet exports.

The pellet premium that the Group received in the first half of 2016 improved throughout the period recovering from lows seen at the start of the year to finish the period more strongly. In China the spot pellet premium fell to a low of US$11 per tonne in January 2016 before recovering to US$22 per tonne in June 2016 (1H 2016 average: US$17 per tonne, 1H 2015 average: US$28 per tonne). While the headline long term contract pellet premium in the key markets of Western Europe and North East Asia was slightly lower than the same period last year.

CRU expects pellet utilisation rates to increase to 88% in 2016 from 70% in 2015 based on a recovery in steel mill profitability from the lows seen in recent years. Together with an expected deficit in pellet supply due to the outage of Samarco, demand and pricing for pellets is expected to be well supported for the remainder of 2016.

Operational Review

Marketing

In the first half of 2016, Ferrexpo increased sales volumes by 6% to 6.0 million tonnes of iron ore pellets compared to 5.7 million tonnes in the first half of 2015. The table below shows the breakdown of sales by key market regions. Sales to Western Europe increased to 17% in the first half of 2016 compared to 9% in the first half of 2015 while sales to North East Asia increased to 13% (1H 2015:8%). This significant increase in sales to the premium steel markets follows the completion of the Group's quality upgrade project in 2015.

Of total sales volumes, 93% represented Ferrexpo Premium Pellets of 65% Fe, while 6% represented Ferrexpo Basic Pellets of 62% Fe and 1% represented Ferrexpo Pellet Feed sold together with Ferrexpo's premium pellets as part of a customer development programme.

Sales Volume by Market Regions:

The Group's long term contracts are all based on a spot index iron ore fines price using various reference periods. The table below shows the breakdown of sales by pricing terms.

Sales Volume by Pricing Terms:

Ferrexpo's realised price for its 65% Fe iron ore pellets is calculated by taking the average PLATTS CFR China iron ore fines index for an agreed time period, adjusting for quality and adding a pellet premium. For sales to the Far East, delivery is made on CFR terms with the resulting FOB netback determined by the actual cost of freight. For sales to European and regional markets, delivery is generally made on FOB/DAP terms which is determined by deducting a transparent freight market index such as C3.

Key Price Data:

Note: source for China spot pellet premium in 1H 2016 is PLATTS and for 2015 is PLATTS and Metal Bulletin.

The above table represents average numbers for a six monthly period and does not show actual price movements during a period which impacts customer pricing.

The C3 freight index, as published by the Baltic Exchange, represents the industry benchmark price to transport goods by sea from Tubarao, Brazil to Qingdao, China. The C3 index declined 34% during the period compared to 1H 2015 following the substantial fall in the oil price. On average C3 freight reduced to US$7.1 per tonne in 1H 2016 (1H 2015: US$10.8 per tonne) resulting in a higher net back price for the Group.

Overall, taking account of the PLATTS fines index in the first half of 2016 compared to the second half of 2015 (as can be seen from the table above), achieved pellet premiums, and freight costs, the Group's realised price in the first half of 2016 remained in line with the second half of 2015.

Production

Health and Safety

Most regrettably there was a contractor fatality at FPM during the period when a light vehicle traveling on a FPM mine road overturned whilst completing security operations. Following the accident, Ferrexpo has further strengthened its focus on safe behaviour when driving vehicles. The prevention of all incidents and injuries to employees is the highest priority of the Board and management, who follow the principle that all accidents are avoidable.

Overall, the Group's LTIFR in the first half of 2016 was 0.89 per million man hours worked compared to 0.61 per million man hours worked in the first half of 2015. The number of accidents at FPM reduced to four in the first half of 2016 compared to 5 in the first half of 2015 while FYM LTIFR reported one accident during the period compared to zero in the first half of 2015. At the barging operations, the number of accidents rose to three in the first half of 2016 compared to one in the first half of 2015.

Both the mining and barging operations improved their LTIFR compared to the second half of 2015 as can be seen from the table below. The difference in LTIFR between the mining and barging operations principally reflects the lower hours worked at the barging operations compared to the mining operations.

Lost Time Injury Frequency Rate

Pellet Production

Pellet production from own ore increased 3.6% compared to 5.7 million tonnes (1H 2016: 5.5 million tonnes). This included a 12.3% increase in production of the Group's premium 65% Fe pellets to a record 5.4 million tonnes (1H 2015: 4.8 million tonnes). Overall total production for the first half of 2016, was 5.7 million tonnes compared to 5.8 million tonnes in first half of 2015 due to a significant reduction in output of pellets from third party concentrate. Approximately 94% of total production volumes were Ferrexpo Premium Pellets of 65% Fe compared to 87% in the first half of 2015.

The table below summarises production in the first half of 2016 compared to the first half of 2015.

Pellet Production 1H 2016 and 1H 2015 ('000)

Note: Production in April 2016 included 39kt of concentrate that was sold as Pellet Feed to a customer in South East Asia.

Production Costs

The Group's average C1 cash cost reduced by 23% to US$25.7 per tonne in 1H 2016 compared to US$33.4 per tonne in 1H 2015 and by 19% when compared to US$31.9 per tonne for FY 2015. The decline was driven by fixed cost benefits from increased production of own ore and more efficient operating practices, lower oil and gas prices and the depreciation of the Hryvnia against the US dollar. For further information see Costs and Currency.

The Group has several projects underway which are contributing to cost savings and efficiency improvements. These include improved drilling and blasting techniques which yield better ore fragmentation and improved excavator dig rates as well as a project to increase concentrate yield by optimising the amount of reagent used and the blend ratios of ore.

The Group has continued to make good progress in reducing its gas consumption through co-firing with bio fuel. Since the project commenced in September 2015 approximately US$950,000 has been saved through the reduced consumption of natural gas which has declined by approximately 21 million cubic metres (representing circa 20% of total natural gas consumption on an annualised basis). The Group aims to replace up to 30% of its total natural gas consumption in the pelletiser by this method.

Ferrexpo is a low cost and efficient pellet producer and is competitively placed on the global benchmark cost curve for 62% Fe iron ore fines after adjusting for the premium it receives relative to the index fines price. This allows the Group to remain profitable even in the current low iron ore price environment.

Capital Investment

Ferrexpo's brownfield operations lend themselves to incremental additions of pellet supply subject to market conditions and funding availability. A programme to increase pellet production has been defined internally which would involve incremental investment in the existing beneficiation, pelletising and mining facilities. These projects are highly NPV accretive.

Ukraine 

Economic activity in Ukraine is showing signs of recovery as indicated by an increase in industrial production of 2%4 in the first half of 2016 compared with the first half of 2015 and a 9%4 increase in construction activity compared to the first half of 2015, albeit these increases are off a low base following a recession over the past two years.

4 Source: State Statistics Service of Ukraine

The Group is pleased to report that the Government continues to reform the process of VAT recovery which has increased in transparency and predictability.

To date Ukraine has received US$6.7 billion of a US$17.5 billion IMF loan package which was approved in March 2015. 

The Government has been in negotiations to receive a third tranche of the package which is expected to be received in the second half of the year.

Sovereign risk as measured by the yields on outstanding Ukrainian government bonds have reduced significantly since the start of 2016, for example, the outstanding Ukrainian 2019 bond is currently trading above par while the yield to maturity has fallen from a high of 11.4% in June 2016 to around 7.7% as of 1 August 2016, indicating a lower country risk environment. For further information see Update on Risks: Political and Legal risks pertaining to Ukraine.

Board

At the Annual General Meeting of the Company held on 19 May 2016, five of the Independent Directors (Oliver Baring, Wolfram Kuoni, Ihor Mitiukov, Bert Nacken and Mary Reilly) did not receive the requisite votes required for re-appointment by independent shareholders. As stated in the Company's AGM Notice dated 12 April 2016 and under Listing Rule 9.2.2.F, the Company will put the matter to a second vote of all shareholders, to be held between 90 and 120 days after the Annual General Meeting. Pending the second vote, the relevant Directors are deemed to have been re-elected to the Board. Wolfram Kuoni and Ihor Mitiukov, having completed 9 years on the Board on 1 June 2016, are now no longer deemed to be independent, in accordance with the UK Corporate Governance Code. Ihor Mitiukov will stand for re-election at the EGM on the basis that he will step down when a suitable Ukrainian successor to him has been found. Wolfram Kuoni will stand for re-election at the EGM but is likely to step down from the Board later in the year. A successor to Oliver Baring as Senior Independent Director is being sought with a view to replacing him once he ceases to be independent in December 2016.

Having consulted a number of the larger shareholders of the Company, the Board intends to hold a second vote for the re-election of all five of the above Directors, and notice of a General Meeting for this purpose will be sent to shareholders shortly.

Update on Risks

Since the publication of the 2015 annual results in March 2016, the Group assesses that the risks facing the business, as highlighted on pages 30 to 39 of the 2015 Annual Report and Accounts, remain relevant. An update is provided below on material developments of key risks during the first half of 2016.

· Debt maturity profile

As at the end of July 2016, Ferrexpo has fully repaid a US$420 million pre export finance facility that had been amortising over the past 24 months. The Group has a semi-annual US$18 million bond coupon payment due on 6 October 2016 and it will begin quarterly repayments of approximately US$44 million of its US$350 million pre export finance facility in November 2016. Should the iron ore price reduce from current levels there is a risk that the Group may not be able to service these payments. As a result of lower gearing resulting from net operating cash flow generation and good performance in the first half of the year together with a lower amortisation profile in the second half of the year the Group considers this risk to have diminished but still remains.

For further information see Going Concern Basis - Note 2 of the financial accounts.

· Interest rate risk

The Group has a mix of debt facilities at fixed and floating interest rates. An increase in US$ LIBOR could result in higher costs for the Group. As of 30 June 2016 the proportion of debt with floating interest reduced to 50% of outstanding debt (30 June 2015: 55% of outstanding debt; 31 December 2015: 56% of outstanding debt) principally due to the monthly amortisation of a US$420 million pre-export finance facility which completed in July 2016. Any new debt facilities could result in an increase in interest costs. The Group's average cost of debt for the period ended 30 June 2016 was 6.6% (30 June 2015: 5.32%; 31 December 2015: 5.97%).

· Global macroeconomic growth

The demand for steel, and hence iron ore, is driven by global economic growth trends, which in the recent past has been largely determined by Chinese economic growth as China has produced more than 45% of the world's steel output for the past 7 years. China has reported real GDP growth of 6.7% for the first half of 2016 compared to 7% in the first half of 2015 following a Government stimulus package in the first quarter of 2016. A reduction in world or Chinese GDP growth could impact demand for steel and iron ore.

· Iron ore price and pellet premiums

Fluctuations in the iron ore price have negatively impacted the financial results of the Group in the first half of 2016 compared to the comparative period in 2015. In the first six months of 2016 the PLATTS CFR China iron ore fines price averaged US$52 per tonne compared to an average of US$61 per tonne in 1H 2015. The price was volatile, however, and traded within a wide range from an eight year low of US$38 per tonne in mid-December 2015 to a 15 month high of US$71 per tonne in April 2016 before settling at around US$50 per tonne broadly in line with the average of the second half of 2015. Should the iron ore price decline further in the second half of the year there is a risk it could negatively impact the Group's profitability and cash generation ability.

Ferrexpo receives a pellet premium in addition to the iron ore fines price. Currently, a substantial portion of the Group's profit is due to this premium. The pellet premium improved throughout the first half of 2016 recovering from lows seen at the start of the year. In China the spot pellet premium traded at US$11 per tonne in January 2016 before recovering to US$22 per tonne in June 2016 (1H 2016 average: US$17 per tonne, 1H 2015 average: US$28 per tonne). While the headline long term contract pellet premium in the key markets of Western Europe and North East Asia was set at US$31 per tonne to US$32 per tonne in the first half of 2016 compared to US$32 per tonne to US$33 per tonne in the first half of 2015. The pellet premium currently represents a high proportion of the underlying iron ore fines price and there is a risk that premiums could reduce negatively impacting the Group's profitability and cash generation ability. For further information see Introduction and Market Environment.

· C3 freight

Ferrexpo is exposed to international freight rates as all of its long term contracts are priced with reference to transparent indices such as the Baltic Exchange C3 freight price (capesize route from Tubarao, Brazil to Qingdao, China). Fronthaul capesize voyage rates are currently trading at just above historic low levels, with the reductions driven by low oil prices and overcapacity. The C3 index declined 39% to US$7 per tonne in 1H 2016 to US$7 per tonne compared to US$11 per tonne in 1H 2015. An increase in freight rates would directly reduce the Group's received net back price.

· Political and legal risks pertaining to Ukraine

The economic recovery in Ukraine remains fragile and Ferrexpo remains exposed to the Government's ability to meet its payment obligations to Ferrexpo on amounts due, such as VAT refunds. Furthermore the economic recession of the past two years has impacted the Government's ability to fund usual social services and this could lead to social upheaval and political tension within local communities. Any escalation of the rebels conflict in Eastern Ukraine could have a further adverse effect on the economy and impact the ability of local companies and financial institutions to obtain funding from the international capital markets, including Ferrexpo's ability to obtain financing.

Other risks include a weak judicial system that is susceptible to outside influence, and can take an extended period of time for the courts to reach final judgment. For further information see Ukraine above and Note 20 of the financial accounts.

· Ukrainian banking sector

The Ukrainian banking sector continues to go through a period of industry rationalisation. Year to date in 2016, the National Bank of Ukraine has placed 15 banks into temporary administration and the number of operating banks in Ukraine has reduced from 180 at the start of 2014 to 102 as of 30 June 2016. The sector is still considered to be under capitalised and there remains a risk that funds held by Ferrexpo in the Ukrainian banking system could be lost.

For further information see Note 16 and Note 20 of the financial accounts.

· Ukrainian currency

The Group receives all of its income from pellet sales in US dollars while more than half of its total cost base is denominated in Ukrainian Hryvnia. Following a period of sharp devaluation against the US dollar in 2014 and 2015 the Hryvnia has been relatively stable. The average Hryvnia per US dollar in 1H 2016 was 25.5 compared to an average rate of UAH21.4 per US dollar in 1H 2015 (average FY 2015: UAH21.9 per US dollar). Since 30 June 2016, the Hryvnia has appreciated slightly against the US dollar to 24.8.

Should the Hryvnia appreciate further against the US dollar it could increase local costs in US dollar terms reducing Group profitability.

· Ukrainian inflation

In 2015 consumer price inflation reached a high of 49% following the substantial devaluation of the Hryvnia against the US Dollar in 2014 and 2015 when the Hryvnia depreciated from UAH8 per US Dollar as of 1 January 2014 to UAH24 per US Dollar as of 31 December 2015. As of 30 June 2016, year on year inflation had reduced to 6.9%. The areas of inflation that the Group is most exposed to are wages, electricity and rail tariffs. The Group looks to partly offset cost inflation through increases in mining and production efficiencies. There is a risk that the Group is unable to offset inflation through production efficiencies and that the Group's cost base could increase as a result. For further information see Costs and Ukrainian currency above.

· Ukrainian VAT

During 1H 2016, the Group received VAT refunds in full, including outstanding VAT balances from previous years. As such the current balance of VAT outstanding is a significant improvement over recent years. The process of recovering VAT in Ukraine has become more transparent for all industry participants. The risk remains, however, that there could be delays in recovering outstanding VAT should the Government's finances deteriorate.

· Ukrainian Taxes

In 2014 and 2015, VAT receivable balances in Ukraine were mainly recovered in exchange for prepayments of corporate profit tax (CPT). To date in 2016, the prepayment of CPT is no longer a requirement and the Group recovered a small portion of prepaid CPT in July 2016. Ferrexpo is hopeful that the Government will take further steps in the second half of 2016 in resolving the issue of prepaid CPT. There is a risk, however, that the Government's financial position could deteriorate and that the previous practice of prepaying CPT could resume which would absorb significant amounts of working capital. For further information see Note 11 of the financial accounts.

Directors' Responsibility Statement

The Interim Report complies with the Disclosure and Transparency Rules ('DTR') of the United Kingdom's Financial Conduct Authority in respect of the requirement to produce a half-yearly financial report. The Interim Report is the responsibility of, and has been approved by, the Directors.

We confirm that to the best of our knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34;

· the Interim Management Report includes a fair review of the important events during the first six months and description of the principal risks and uncertainties for the remaining six months of the year, as required by DTR4.2.7R; and

· the Interim Management Report includes a fair review of disclosure of related party transactions and changes therein, as required by DTR 4.2.8R.

The Directors are also responsible for the maintenance and integrity of the Ferrexpo plc website.

A list of current Directors is maintained on the Ferrexpo plc website which can be found at www.ferrexpo.com.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

For and on behalf of the Board

Michael Abrahams CBE DL

Chairman

Chris Mawe

Chief Financial Officer

Independent Review Report to Ferrexpo PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the Interim Consolidated Income Statement, Interim Consolidated Statement of Comprehensive Income, Interim Consolidated Statement of Financial Position, Interim Consolidated Statement of Cash Flows, Interim Consolidated Statement of Changes in Equity and related notes 1 to 22. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Emphasis of matter - Going concern

In forming our opinion, which is not qualified in this respect, we have also considered the adequacy of the disclosures made in note 2 to the financial statements concerning the Company's ability to continue as a going concern. The conditions described in note 2 indicate the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.

Ernst & Young LLP

London

2 August 2016

Interim Consolidated Income Statement

Interim Consolidated Statement of Comprehensive Income

Interim Consolidated Statement of Financial Position

The financial statements were approved by the Board of Directors on the 2 August 2016.

Interim Consolidated Statement of Cash Flows

Interim Consolidated Statement of Changes in Equity

Notes to the Interim Condensed Consolidated Financial Statements

Note 1: Corporate information

Organisation and operation

Ferrexpo plc (the "Company") is incorporated in the United Kingdom, which is considered to be the country of domicile, with its registered office at 55 St James's Street, London, SW1A 1LA, UK. Ferrexpo plc and its subsidiaries (the "Group") operate two mines and a processing plant near Kremenchug in Ukraine, an interest in a port in Odessa and sales and marketing activities around the world including offices in Switzerland, Dubai, Japan, China, Singapore and Ukraine. The Group also owns logistics assets in Austria which operates a fleet of vessels operating on the Rhine and Danube waterways and an ocean going vessel which provides top off services and operates on international sea routes. The Group's operations are vertically integrated from iron ore mining through to iron ore concentrate and pellet production and subsequent logistics. The Group's mineral properties lie within the Kremenchug Magnetic Anomaly and are currently being extracted at the Gorishne-Plavninskoye and Lavrikovskoye ("GPL") and Yeristovskoye deposits.

The majority shareholder of the Group is Fevamotinico S.a.r.l. ("Fevamotinico"), a company incorporated in Luxembourg and ultimately owned by The Minco Trust, of which Kostyantin Zhevago, the Group's Chief Executive Officer, is a beneficiary. At the time this report was published, Fevamotinico held 50.3% (30 June 2015: 50.3%; 31 December 2015: 50.3%) of Ferrexpo plc's issued share capital.

The Group's interests in its subsidiaries are held indirectly by the Company, with the exception of Ferrexpo AG, which is directly held. The Group's consolidated subsidiaries are disclosed in Note 37 of the Annual Report and Accounts 2015.

At 30 June 2016, the Group also holds through OJSC Ferrexpo Poltava Mining an interest of 48.6% (30 June 2015: 48.6%; 31 December 2015: 48.6%) in TIS Ruda, a Ukrainian port located on the Black Sea. As this is an associate, it is accounted for using the equity method of accounting.

Note 2: Summary of significant accounting policies

Basis of preparation

The interim condensed consolidated financial statements for the six months period ended 30 June 2016 have been prepared in accordance with International Accounting Standard ('IAS') 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all of the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2015.

The interim condensed consolidated financial statements do not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the full year is based on the statutory accounts for the financial year ended 31 December 2015. A copy of the statutory accounts for that year, which were prepared in accordance with International Financial Reporting Standards ('IFRS') issued by the International Accounting Standard Board ('IASB'), as adopted by the European Union as they apply to financial statements of the Group for the year ended 31 December 2015, have been delivered to the Register of Companies. The auditors' report under section 495 of the Companies Act 2006 in relation to those accounts was (i) unqualified, (ii) included a reference to a matter to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

Going Concern Basis

Over the next year from the approval of the financial statements, US$158,150 thousand of debt amortisation falls due for repayment. Iron ore pricing levels have been volatile and could reduce to levels where, without associated cost relief, the Group's net cash flow generation would only be able to meet these payments over a longer period triggering cross default across part or all of its debt facilities.

The Group expects to be able to repay its facilities and meet its liabilities as they fall due based on current forecasts and also expects, that if necessary, it would be able to agree amendments to relevant facilities to make repayments over a longer period or obtain additional financing. As a result the financial statements have been drawn up on a going concern basis.

The impact of the uncertainty of the future level of the iron ore price and operating cost inputs are material uncertainties and may cast significant doubt upon the Group's ability to meet its debt amortisation obligations as they fall due and to continue as a going concern. Under these circumstances it would be necessary to restate amounts in the balance sheet, which will materially change the amounts and classification of figures contained in the financial statements.

Accounting policies adopted

The accounting policies and methods of computation adopted in the preparation of the interim condensed 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 2015.

The following new standards and interpretations have been applied from 1 January 2016, with no effect on reported results, financial position or disclosure in the interim financial statements:

Amendments to IFRS 11: Joint arrangements: Accounting for acquisitions of interests

Amendments to IAS 16 and IAS 38: Clarification of acceptable methods of depreciation and amortisation

Annual Improvements to IFRSs - 2012-2014 Cycle

Seasonality

The Group's operations are not affected by seasonality.

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. The 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. The Group's full definition of EBITDA is disclosed in the Glossary.

C1 costs

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

Net financial indebtedness

Net financial indebtedness as defined by the Group comprises cash and cash equivalents less interest bearing loans and borrowings.

The Group's net financial indebtedness increased in the second half of the financial year 2015 by the insolvency of the Group's transactional bank in Ukraine resulting in a reduction of the balance of cash and cash equivalents available in Ukraine (see Note 16 and Note 20).

The Group's balance of cash and cash equivalents increased by US$9,110 thousand after debt repayments of US$119,775 thousand during the period ended 30 June 2016 (30 June 2015: US$179,944 thousand, 31 December US$393,876 thousand).

Note 4: Revenue

Revenue for the six months period ended 30 June 2016 consisted of the following:

No sales were made in Ukraine during the periods presented. Export sales of iron ore pellets and concentrate by geographical destination were as follows:

The Group markets its products across various regions. The sales segmentation data was previously disclosed by Traditional Markets, Natural Markets and Growth Markets and the disclosure of this segmentation has been changed for the period ended as of 30 June 2016 to better reflect how the Group now makes its business decisions and monitors its sales.

Information about the composition of the regions is provided in the Glossary.

Note 5: Cost of sales

Cost of sales for the six months period ended 30 June 2016 consisted of the following:

Note 6: General and administrative expenses

General and administrative expenses for the six months period ended 30 June 2016 consisted of the following:

During the six months period ended 30 June 2016, non-audit services in the amount of US$225 thousand provided for debt management activities of the Group are included in other finance cost and not included in the table above.

During the comparative period ended 31 December 2015, non-audit services totalling US$681 thousand have been capitalised as prepaid arrangement fees and are not included in the table above.

Note 7: Other expenses

Other expenses for the period ended 30 June 2016 consisted of the following:

Note 8: Foreign exchange gains and losses

Foreign exchange gains and losses for the six months period ended 30 June 2016 consisted of the following:

Operating foreign exchange gains and losses are those items that are directly related to the production and sale of pellets (e.g. trade receivables, trade payables on operating expenditure). Non-operating gains and losses are those associated with the Group's financing and treasury activities and with local income tax payables.

During the period ended 30 June 2016, the devaluation of the Ukrainian Hryvnia compared to the US Dollar was significantly less than in the comparative periods presented above. The local currency in Ukraine has devalued by approximately 4% compared to the US Dollar; from 24.001 as at 31 December 2015 to 24.854 as at the end of this reporting period compared to 33% and 52% during the comparative periods ended 30 June 2015 and 31 December 2015.

Note 9: Write-offs and impairment losses

Impairment losses relate to adjustments made to the carrying value of assets where this is higher than the recoverable amount. Write-offs and impairment losses for the six months period ended 30 June 2016 consisted of the following:

The write-off of receivables and prepayments in the comparative period ended 31 December 2015 is predominantly related to the cancellation of a contract for equipment ordered and partially prepaid in line with the terms of the contract.

Note 10: Finance income and expense

Finance income and expense for the period ended 30 June 2016 consisted of the following:

Fees for liability management activities of the Group for the amount of US$5,230 thousand (30 June 2015: nil, 31 December 2015: nil) are included in other finance costs.

Note 11: Taxation

The Group pays corporate profit tax in a number of jurisdictions and its tax rate is influenced by the mix of profits primarily between Ukraine, Switzerland, the United Kingdom and Dubai, as well as the level of non-deductible expenses for tax purposes in each of these jurisdictions. For the period ended 30 June 2016, the income tax expense was based on an expected weighted average tax rate of 12.2% for the financial year 2016, adjusted for some one-off items for the period, compared to an effective tax rate before special items of 13.5% for the financial year 2015.

The income tax credit of US$6,108 thousand shown as of the end of the financial year 2015 was a result of a deferred tax credit of US$28,420 thousand recognised as a deferred tax asset in respect of the allowance for the restricted cash and deposits for which the Group expects that it will become tax deductible in a future period (see Note 20 for further details).

During the financial years 2014 and 2015, current VAT receivable balances in Ukraine were mainly recovered in exchange for prepayments of corporate profit tax. As at 30 June 2016, the balance of these prepayments made in previous periods amounted to US$52,616 thousand (30 June 2015: US$53,902 thousand; 31 December 2015: US$54,482 thousand) and it is management's view that this balance will be offset with future profits or will be refunded in cash.

The Group received a refund of prepaid corporate profit tax in Ukraine in the amount of US$4,029 thousand in July 2016 and expects further refunds in the following months. The amount already refunded or expected to be recovered later in 2016 of US$16,826 thousand was classified as current whereas the remaining balance of US$36,522 thousand is still shown as non-current due to the uncertainty as to the timing of the recovery of this balance.

Note 12: Earnings per share and dividends paid and proposed

Basic EPS is calculated by dividing the net profit for the period attributable to ordinary equity shareholders of Ferrexpo plc by the weighted average number of Ordinary Shares.

Diluted earnings per share are 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 have been considered in the calculation of diluted earnings per share.

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 subtracting the shares held in treasury from the total number of ordinary shares in issue.

Dividends

Neither a final dividend for the financial year 2015 nor an interim dividend for 2016 were proposed.