Ferrexpo Regulatory News (FXPO)

19 Sep 2007 07:02

Ferrexpo PLC19 September 2007 19 September 2007 Interim Results for the Six Months ended 30 June 2007 Financial and Production Highlights Six months ended Six months ended %(US$ '000, unless stated) 30 June 2007 30 June 2006 Change------------------------------------------------------------------------------------Iron ore production (kt) 14,446 12,522 15%Pellet production (kt) 4,653 3,923 19%Of which 65% Fe content (kt) 1,778 1,563 14%Revenue 327,915 236,217 39%EBITDA 112,300 51,218 119%Profit for the period 40,579 14,564 179%Underlying earnings 67,408 16,501 309%EPS (USc) 6.03 2.55 136%------------------------------------------------------------------------------------ Performance Highlights • Revenue increased by 39% to $327.9 million • Profit for the period (after IPO costs) increased by 179% to $40.6 million • Underlying earnings increased by 309% to $67.4 million • Growth in pellet production volumes of 19% to 4.7mt • Product quality improved, 14% increase in production of 65% pellets • Flat nominal unit production costs, despite high Ukrainian inflation • Successful flotation on the London Stock Exchange in June raising $202.1 million • Entry into the FTSE 250 index on 12 September 2007 Michael Abrahams, Chairman of Ferrexpo plc commented: "These strong results are a testament to the continuing operational improvementsat Ferrexpo. We believe the current positive market environment for our businessis set to continue, with the outlook for steel, iron ore and particularlypellets remaining strong globally. These trends are likely to continuethroughout the second half of this year and beyond." Mike Oppenheimer, CEO of Ferrexpo plc commented "I am pleased to report an excellent set of inaugural results, made possiblethrough a combination of higher volumes, improved operational performance andstrong pricing. Our Business Improvement Programme has led to tight costcontrol, and we expect it to continue to yield results across our operations. Wehave already begun to deliver on our growth strategy, and we continue to lookfor appropriate methods of maximising the value of our extensive undeveloped oredeposits." For further information, please contact: Ferrexpo: +44 207 389 8304Mike OppenheimerDennis McShaneGavin Mackay Finsbury: +44 207 251 3801Robin WalkerAlex Simmons Notes to Editors: Ferrexpo is a Swiss headquartered resources company with assets in Ukraine,principally involved in the production and export of iron ore pellets, used inproducing steel. Current output is over 9 million tonnes, approximately 90% of which is exported to steelmakers around the world. The Group is currently undertaking a significant growth programme and listed on the main market of the London Stock Exchange in June 2007 under the ticker FXPO. For further information please visit www.ferrexpo.com. Chairman's Statement I am delighted to present Ferrexpo plc's first set of results following oursuccessful listing on the London Stock Exchange in June this year, when weraised $202 million (£102 million) for the Group. Our listing as a UK plc andsubsequent inclusion in the FTSE 250 index mark the latest stage in the Group'sdevelopment, and we are now well-placed to build on our track record ofsuccessful financial and operational performance. We extend a warm welcome to all our new shareholders. Results The excellent operational performance and strong financial results over the lastsix months demonstrate the strengths of our business. Significant growth in bothrevenues and profits was achieved through increased volumes, improved operatingefficiency and a favourable global iron ore market. Our revenues for the firstsix months were 39% ahead of the equivalent period last year at $327.9 million($236.2 million). Pre-tax profit increased by 187% to $54.5 million ($19.0 million). Group EBITDA for the period increased by 119% to $112.3 million ($51.2 million). Market Environment Global pricing for iron ore remains firm, driven by continuing demand for steelfrom China and other industrialising nations. Seaborne benchmark pricesincreased by 9.5% for fine and lump ores and 5.3% for blast furnace pellets fromearly 2007. This price increase has had a knock-on effect on our pellet pricingand resulted in a marked positive impact on our second quarter earnings, wherethe average price per tonne achieved in the first six months of 2007 rose by 23%as compared with the same period last year. Operations Ferrexpo remains the leading exporter of iron ore pellets from the Ukraine. Thevolume of iron ore mined during the period rose to 14.4 million tonnes, anincrease of 15% over the same period in the prior year. Pellet productionreached 4.7 million tonnes, a 19% increase. Notably, our increase in productionwas accompanied by an increase in the quality of our pellets, with the volume ofhigh-grade pellets (Fe content above 65%) produced reaching 1.8 million tonnes,14% more than in the equivalent period in 2006. In contrast to many businesses in the sector, we have kept our production costsbroadly flat in nominal terms. Given the fact that the official Producer PriceInflation rate in Ukraine for the six months to 30 June 2007 was 11.0%, we haveachieved a material real reduction in costs compared with the equivalent periodlast year. These reductions, and the achieved rates of production growth, have resulteddirectly from the implementation of a comprehensive Business ImprovementProgramme at our major asset, the Ferrexpo Poltava mine, aimed at moving theoperations towards best practice in mining, processing and business processes.This rate of cost improvement is unlikely to be sustained and whilst ongoingimprovements in efficiencies and productivity will be relentlessly pursued viathe Business Improvement Programme, we are facing increasing cost pressures onkey input prices and competition for skilled labour. Marketing and distribution remain important to both our revenue and ourprofitability, and we will continue to build on the Group's existing globalcustomer base to grow market share as well as develop the Group's logisticalcapabilities to match its growing production. Progress has already been made onthis front. Management of health, safety and the environment is a priority and our programmeof continuous improvement is delivering positive results. Investing Activities Operating cash flow for the Group has increased significantly to $83.3 million,when compared to the same period last year. This strong cash flow along with theproceeds of our listing gives us the financial capacity to begin investing inour growth programme. We are using these funds to continue to execute ourstrategy as set out at our IPO. During the first six months of 2007, the Groupinvested $21.6 million in continuing to develop and upgrade our existingoperations. The main emphasis of the Group's investment policy is the commencement of ourexpansion project. The Board has conducted a preliminary review of this project,and management preparations for the integrated expansion of the business are ontrack, with $64.5 million having already been committed to this project. Thisincludes the $46 million recently committed for new draglines, representing thefirst capital expenditure for the development of the Yeristovskoe deposit. People The first six months of 2007 have seen fundamental changes within the Group. TheBoard would like to thank all the employees of Ferrexpo, who have responded tothe challenges presented by these changes with enthusiasm. On the operatinglevel, improvements to efficiency and productivity are increasingly evident, andwe continue to build capability in best practice mining. Corporate Governance and Social Responsibility As a newly-listed company on the London Stock Exchange, the Board is firmlycommitted to delivering high standards of corporate governance. We aim to befully compliant with the Combined Code within the first year of listing. Webelieve that the combination of a strong management team and experiencedindependent Directors will provide the best opportunities for growth andstrategic direction for the Group. We take Corporate Social Responsibility very seriously and believe that thehealth and safety of our employees, respect for the environment and activeengagement with local communities are a vital part of our business in the longterm. We will continue to put in place measures to ensure our responsibilitiesin this regard are fulfilled. Strategy The Board continues to refine and develop the strategy as set out at the IPO,aiming to increase the efficiency and productivity of the current operations,deliver on our project pipeline and extend our producing assets. However, thegreat long-term opportunity for Ferrexpo, with one of the world's largest ironore resources, is to find the most appropriate method of maximising its value byaccelerating the commercialisation of our extensive undeveloped ore deposits.The Board is considering several options to accelerate this commercialisation,including the involvement of outside parties to provide funding and executioncapability. Outlook We are of the view that the positive market environment for our business is setto continue. Our iron ore customers remain largely unaffected by the recentvolatility in the global credit and equity markets, with the result that theoutlook for iron ore and steel remains strong globally. Regionally, in ourtraditional markets such as Central/Eastern Europe and Ukraine, and in ourgrowth markets, principally China and Turkey, the outlook for iron ore pelletsin particular continues to be good. We believe that these trends will continuethroughout the second half of this year and beyond. The Board will continue to drive the growth of the Group to take advantage ofthe unprecedented market environment for iron ore. As set out in the Prospectus, the Directors intend to pursue a dividend policyconsistent with the Group's growth profile, reflecting the investment the Groupis making to drive future growth and the cash generated by the existingoperations, while maintaining a prudent level of dividend cover. The Group willnot pay an interim dividend in 2007, but the Directors intend to declare a finaldividend of not less than US$10 million for the year ending 31 December 2007.Thereafter, an interim and final dividend of approximately equal proportionswill be paid. OPERATING & FINANCIAL REVIEW Highlights • Revenue increased to $327.9 million, up 39% on the equivalent period in 2006 • Profit for the period (after IPO costs) increased to $40.6 million, up 179% • Net financial indebtedness reduced by $143.4 million to $127.5 million • Growth in pellet production volumes of 19% to 4.7mt • Product quality improved, 14% increase in production of 65% pellets • Flat nominal unit production costs, despite high Ukrainian inflation • Operations commenced at our new port investment on the Black Sea - TIS Ruda • Development of the Yeristovskoe deposit underway • Studies underway for the upgrading of the current pit and for the development of the Belanovskoe and Galeschinskoe deposits OPERATING REVIEW Key Statistics UOM 6 months ended 6 months ended % Change 30 June 2007 30 June 2006------------------------------------------------------------------------------Iron ore mined 000't 14,446 12,522 15 Average Fe content % 29.80 29.64 1 Produced concentrate 000't 5,293 4,475 18 Average Fe content % 63.44 63.32 - Purchased concentrate 000't 223 212 5 Average Fe content % 64.01 63.85 - Total pellet production (BFP) 000't 4,653 3,923 19-------------------------------------------------------------------------------| from produced concentrate 000't 4,450 3,738 19|| - Higher grade 000't 1,778 1,563 14|| Average Fe content % 65.13 65.08 -|| - Lower grade 000't 2,672 2,175 23|| Average Fe content % 62.26 62.16 -|| || from purchased concentrate 000't 203 185 10|| - Lower grade 000't 203 185 10|| Average Fe content % 62.26 62.16 -|-------------------------------------------------------------------------------Pellet sales volume 000't 4,511 4,055 11 Gravel production 000't 1,604 1,468 9------------------------------------------------------------------------------ The first six months of 2007 saw an increasingly positive market environment forour products. This has provided the impetus for Ferrexpo Poltava Mining("Ferrexpo Poltava") to focus strongly on growing production volumes over theperiod. Since the beginning of the year Ferrexpo Poltava has mined 14,446kt ofiron ore with an average Fe content of 29.80%. This represents a 15% increase inore extraction compared to the same period last year. In addition, rich ore madeup a greater proportion of the overall volumes extracted (45% versus 42% in theequivalent period last year). This greater volume together with higher qualityore represents a considerable improvement in mining performance. Production ofiron ore concentrate reached 5,293kt, an increase of 18% over the equivalentperiod last year. The quality of the concentrate was also higher than in thefirst half of 2006, which enabled us to raise our production of higher-gradepellets, achieving an average Fe content of 65.13%. The volume of pellet production was 4,653kt, an improvement of 18.6% over thefirst half of 2006, with pellet production from our produced concentrateincreasing by 19.2%. Historically, the Group has produced a small proportion ofiron ore pellets from purchased concentrate in order to optimise capacityutilisation at our pelletising plant, albeit at a significantly lower marginthan can be achieved from pellets produced from from own ore concentrate. .During the first half of 2007, the Group purchased 223kt of concentrate toproduce additional pellets. However, tightness of the concentrate market hasdriven prices up to a level where it is now difficult for the Company to achievean appropriate margin on pellets produced from purchased concentrate. Managementhas decided to scale back purchases of concentrate until market conditionsimprove, with the result that the business may produce less of this lower marginproduct in the second half of 2007. As expected, the first half of 2007 saw a slightly lower volume from strippingoperations, due to a shift of mining operations towards the south-eastern partof the pit, which has a lower stripping ratio. We have continued to see positive results from our Business Improvement Program("BIP"), which is being strongly driven by Ferrexpo Poltava management, assistedby GPR Dehler, a consultant widely used in the mining industry to facilitatethese improvement initiatives. The aim of the BIP is to introduce global bestpractice in efficiency and productivity into the different areas of operation atFerrexpo Poltava. As a consequence of the BIP, in the first half of 2007Ferrexpo Poltava reduced the nominal cost per cubic metre of drilling andblasting, as well as rock transportation by conveyors. For example, theperformance from the KRUPP crushing and conveying complex improved such that thecost per tonne of crushing decreased by 69%, and a reorganisation of the in-pittransport vehicle maintenance and repair process has led to more efficient usageof these vehicles. Ferrexpo Poltava was also able to control costs via a reduction in the rate ofconsumption of energy and raw materials. Electricity consumption per tonne ofpellets produced, the largest single cost item, declined by 8.6 % during thefirst six months of 2007 as against the equivalent period last year, with gasconsumption declining by 14.2%. There was also a 5.7% decline in the consumptionof steel grinding bodies. More efficient use of machinery was also acontributing factor. As a result, in the first half of 2007 the nominal cashcost of pellet production (C1) was 29.88 $/t, whereas in the first half of 2006it was 29.83 $/t. Our costs are principally denominated in Ukrainian Hryvnia,which is a managed currency currently maintained at approximately UAH5/$1. Thefact that our nominal costs remained flat over a period during which theUkrainian Producer Price Index (PPI) was 11.0% indicates a material real termsreduction in costs relative to the equivalent period last year. The average number of personnel on the Ferrexpo Poltava payroll was reduced from10,690 in the first half of 2006 to 9,771 in the reported period as a result oforganisation redesign, and efficiency and productivity initiatives. Marketing and distribution remain a key factor in the success of the Group'sbusiness. We have continued to strengthen our position in our traditionalmarkets (Eastern and Central Europe and Ukraine). We are actively pursuing newmarket positions to underpin our growth strategy and have now added supply intoTurkey and also Japan to our mix of growth markets, currently centered aroundChina. We continue to strive to move our overall sales book further towardslonger term contracts and to build strategic relationships with major customers.Since the end of the period under review, one of our long-standing customerrelationships was cemented by the extension to 2015 of the long term supplyagreement with Voestalpine AG, in late July. Distribution costs per ton of pellets sold have increased by 3% compared withthe equivalent period last year, from 10.12$/t to 10.43$/t. This resulted fromincreases in railway tariffs and port charges imposed by the Ukrainianauthorities. The Group has begun to implement a series of measures to minimisethe effect of rising distribution costs. These include renegotiating freightterms with customers, using transhipment ports with lower charges, using our ownbarge port on the Dnieper River more intensively and investing in a new,privately owned and operated port facility.. The decision by the Group to invest in the first privately owned bulk commodityport in the former CIS at Yuzhny on the Black Sea was driven by a strategy ofmanaging distribution costs as well as providing port capacity to enable theGroup to grow exports to its growth markets. The TIS Ruda venture wasestablished in December 2006. The Group owns 49.9% of the equity, but has rightsto use 100% of its capacity. began operations in May 2007.The terminal hasstate-of-the-art facilities for bulk cargo handling, and its capacity of 5mtpaallows the Group to accelerate the loading of seaborne vessels, while reducingits reliance on congested state ports. During the first half of 2007 the Group's total capital expenditure was $53.4million, an increase of 11% over the equivalent period in 2006. The major partof this, $21.6 million, was invested in the mining complex as maintenancecapital and on projects to optimise the current pit performance. During thereported period pre-stripping operations in the new pit at Yeristovskoe (whichborders on the northern part of the current pit) were started. $2.2 million wasspent over the period. Organisation of the pre-stripping operations and theplacement of orders for mining equipment are being carried out jointly with ourmining alliance partners, DTP Terassement S.A. (France). Preliminary engineeringassessments and a geological survey were undertaken at the Belanovskoe depositand technical activities continue on our northern deposits in line with outlicence commitments. FINANCIAL REVIEW Summary of Financial Results US$ 000 6 months to 30 June 6 months to 30 June % Change 2007 2006-----------------------------------------------------------------------------Revenue 327,915 236,217 39 EBITDA 112,300 51,218 119As % of revenue 34% 22% Profit before taxation 54,484 18,973 187 Income tax 13,905 4,409 215 Profit for the period 40,579(1) 14,564 179 Underlying earnings 67,408 16,501 309 Underlying earnings per share 11.10 2.80 296------------------------------------------------------------------------------------------------------------------------------------------------------Earnings per share 6.03 2.55(2) 136--------------------------------------------------------------------------- The Group achieved top line growth of 39% compared to the first six month of2006, with revenue increasing by $91.7 million to $327.9 million. This strongperformance was principally due to strong pellet prices, together with growth inboth absolute sales volume and in high-grade pellet sales volume. Firm cost control enabled the Group to increase EBITDA for the first six monthsof the year by 119% to US$112.3 million. Of particular note is the improvementto the Group's sales margin, which resulted in a rise in EBITDA margin from 22%in the first half of 2006 to 34% in the current period, and also led to anincrease in underlying earnings by 309% to $67 million. The Group did experience an increase of 32% in General and AdministrativeExpenses, primarily as a result of the IPO and the additional costs associatedwith becoming and maintaining a UK plc, and hiring and retaining qualitymanagement. These costs commenced prior to the IPO and are likely to continue atthese levels, as the cost structure of the Group's administrative functions hasbeen fundamentally altered. IPO costs amounting to US$30.1 million were incurredduring the period under review. The Group experienced a small increase in its effective tax rate in the firsthalf of 2007, which was a direct consequence of the considerable growth inpellet sales to the Ukrainian market over this period. This is higher marginbusiness, and resulted in an increased amount of profit taxable at the 25%corporate tax rate applied in Ukraine. The Group's Ukrainian operations have continued to experience delays inrecovering VAT from the government on a timely basis during the period, whichrepresents an additional debt burden to the Group. Management are of the opinionthat the VAT refunds are fully recoverable - there are no legal grounds for thenon-payment of this receivable and are actively pursuing this issue with therelevant government authorities. In the beginning of 2007 the Group restructured its bank debt, extending thematurity dates of its outstanding loans and decreasing its cost of debt. As partof this restructuring, the Group raised a syndicated loan in an initial amountof $275.0 million. This successful transaction was later increased to $335.0million as a result of oversubscription. These strong results together with a considerable increase in net cash flow fromoperating activities and the proceeds of our recent IPO have enabled us tostrengthen our Balance Sheet. As a result, Net Financial Indebtedness ("NFI")has decreased from $270.9 million (as of 30 June 2006) to $127.5 million (as of30 June 2007). The Group's balance sheet has strengthened, and our increased financialstability is apparent in our debt to equity ratio (calculated as NFI divided byNFI plus Equity) which was 0.21 as at 30 June 2007, as compared to 0.50 as at 30June 2006. -------------------------- (1) After IPO costs of $30 million(2) Pro forma Consolidated income statement US$ 000 Notes 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06--------------------------------------------------------------------------Revenue 2,3 327,915 236,217 547,310Cost of sales (160,287) (141,151) (296,720)--------------------------------------------------------------------------Gross profit 167,628 95,066 250,590--------------------------------------------------------------------------Selling and distribution expenses (47,178) (41,033) (86,376)General and administrative expenses (19,962) (15,135) (41,140)Other income 1,680 1,084 2,583Other expenses (3,203) (3,443) (5,078)--------------------------------------------------------------------------Operating profit from continuing 98,965 36,539 120,579operations before adjusted itemsWrite-offs and impairment losses 4 (1,101) (1,770) (2,205)Share of losses of associates (118) - - Net loss on disposal of subsidiary 5 - - (3,524)Initial public offering costs (30,142) - ---------------------------------------------------------------------------Profit before tax and finance 67,604 34,769 114,850--------------------------------------------------------------------------Finance income 854 1,560 2,326 Finance expense (12,985) (15,738) (32,655) Foreign exchange loss (989) (1,618) (3,784)--------------------------------------------------------------------------Profit before tax 54,484 18,973 80,737--------------------------------------------------------------------------UK tax (92) (89) (279)--------------------------------------------------------------------------Overseas tax (13,813) (4,320) (14,479)--------------------------------------------------------------------------Profit for the year 40,579 14,564 65,979--------------------------------------------------------------------------Attributable to:Equity shareholders of Ferrexpo plc 36,634 15,485 63,578Minority interest 3,945 (921) 2,401 40,579 14,564 65,979 Earnings per shareBasic 7 6.03 2.55 10.47Diluted 7 6.00 2.55 10.47 No dividends were paid or proposed in the periods presented. Consolidated balance sheet US$ 000 Notes As at As at As at 30.06.07 30.06.06 31.12.06----------------------------------------------------------------------AssetsProperty, plant and equipment 8 322,769 313,345 301,343Goodwill and other intangible assets 156,534 9,275 156,534Investments in associates 16,832 - 16,950Available-for-sale financial assets 36,040 34,628 34,641Other non-current assets 3,699 17,496 916----------------------------------------------------------------------Total non-current assets 535,874 374,744 510,384---------------------------------------------------------------------- Inventories 55,383 50,632 48,487Trade and other receivables 49,951 31,096 58,284Prepayments and other current assets 14 10,310 122,581 17,118Income taxes recoverable and prepaid 118 3,814 1,424Other taxes recoverable and prepaid 46,812 28,252 42,489Available-for-sale financial assets 95 139 1,451Short term deposits with banks 9 1,460 9,489 11,043Cash and cash equivalents 10 71,904 7,735 16,236----------------------------------------------------------------------Total current assets 236,033 253,738 196,532---------------------------------------------------------------------- ----------------------------------------------------------------------Total assets 771,907 628,482 706,916---------------------------------------------------------------------- Equity and liabilities Share capital 11 121,628 - -Reserves 319,698 161,977 300,646----------------------------------------------------------------------Equity attributable to equity 441,326 161,977 300,646shareholders of the parent----------------------------------------------------------------------Minority interest 39,840 109,321 36,146----------------------------------------------------------------------Total equity 481,166 271,298 336,792---------------------------------------------------------------------- Interest-bearing loans and borrowings 13 178,667 86,450 204,732Trade and other payables 4,994 11,085 10,484Shares redemption liability 12 9,532 8,607 9,062Defined benefit pension liability 15,136 14,272 14,501Provision for site restoration 440 370 402Deferred tax liability 2,613 6,058 2,535----------------------------------------------------------------------Total non-current liabilities 211,382 126,842 241,716---------------------------------------------------------------------- Interest-bearing loans and borrowings 15,350 184,711 81,243Trade and other payables 29,002 24,826 21,492Liability to minority participants - 3,566 -Accrued liabilities and deferred income 27,331 13,602 17,986Income taxes payable 2,579 2,413 4,646Other taxes payable 5,097 1,224 3,041----------------------------------------------------------------------Total current liabilities 79,359 230,342 128,408--------------------------------------------------------------------------------------------------------------------------------------------Total liabilities 290,741 357,184 370,124--------------------------------------------------------------------------------------------------------------------------------------------Total equity and liabilities 771,907 628,482 706,916---------------------------------------------------------------------- Consolidated cash flow statement $000 Notes 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06-------------------------------------------------------------------------------------Net cash flows from operating activities 15 83,324 4,039 68,300Cash flows from investing activitiesPurchase of property, plant and equipment (53,430) (37,253) (48,760)Proceeds from sale of property, plant and equipment 14,870 290 374Purchase of intangible assets - (10) (745)Deposits lodged at banks 7,475 9,877 8,732Purchases of available for sale securities - - (3,119)Proceeds from sale of financial assets 139 - 2,408Interest received 329 116 1,473Dividends received - - 17Acquisition of minority interest in subsidiaries - - (231,945)Acquisition of associates - - (16,950)Loans provided to related parties - - (16,674)Loans provided to related parties (associates) (5,000) - -Loans repaid by related parties - - 123,457Proceeds from disposal of subsidiaries - - 4,338-------------------------------------------------------------------------------------Net cash flows used in investing activities (35,617) (26,980) (177,394)-------------------------------------------------------------------------------------Cash flows from financing activitiesProceeds from borrowings and finance 175,244 201,432 565,593Repayment of borrowings and finance (267,471) (160,015) (512,819)Dividends paid to minority interest (465) (4) (245)Distribution under 50/50 tax ruling (5,000) (10,210) (31,521)Proceeds from issue of share capital in subsidiaries - 2,684 -Proceeds from issue of share capital in Ferrexpo AG - - 109,329Purchase of shares in previous parent (64,055) - -Initial public offering proceeds 202,072 - -Initial public offering costs (32,250) (6,199) (7,503)--------------------------------------------------------------------------------------Net cash flows from financing activities 7,797 27,688 122,834--------------------------------------------------------------------------------------Net increase in cash and cash equivalents 55,504 4,747 13,740 Cash and cash equivalents at the beginning of the period 16,236 2,496 2,496Currency translation differences 164 492 --------------------------------------------------------------------------------------Cash and cash equivalents at the end of the period 10 71,904 7,735 16,236 Consolidated statement of changes in equity Attributable to equity shareholders of the parent Uniting of Issued Share Treasury interest Revaluation Translation Retained Total Minority Total$000 capital Premium shares reserve reserve reserve earnings reserves interests equity------------------------------------------------------------------------------------------------------------------------At 31 December 2005 - - - 27,967 2,453 186 117,548 148,154 107,756 255,910Profit for the period - - - - - - 15,485 15,485 (921) 14,564Items recognised directly in equity:Distribution under 50/50 tax ruling - - - - - - (1,662) (1,662) - (1,662)Share capital issue by subsidiary undertakings tominority shareholders - - - - - - - - 2,686 2,686Equity dividends paid by subsidiary undertakings to minority shareholders - - - - - - - - (200) (200)------------------------------------------------------------------------------------------------------------------------At 30 June 2006 - - - 27,967 2,453 186 131,371 161,977 109,321 271,298------------------------------------------------------------------------------------------------------------------------Profit for the period - - - - - - 48,093 48,093 3,322 51,415Items recognised directly in equity:Distribution under 50/50 tax ruling tax ruling - - - - - - (19,528) (19,528) - (19,528)Acquisition of minority interest through capitalincrease - - - - - - - - (75,359) (75,359)Equity dividends paid by subsidiary undertakings tominority shareholders - - - - - - - - (363) (363)Proceeds from issue of share capital in Ferrexpo AG - - - 109,329 - - - 109,329 - 109,329Reversal of revaluationrelating to previouslyheld interest in Vostock Ruda LLC, upon acquisitionof a controlling interest - - - - (2,453) - 3,228 775 (775) -------------------------------------------------------------------------------------------------------------------------At 31 December 2006 - - - 137,296 - 186 163,164 300,646 36,146 336,792------------------------------------------------------------------------------------------------------------------------Profit for the period - - - - - - 36,634 36,634 3,945 40,579Items recognised directly in equity:Distribution under 50/50 tax ruling - - - - - - (4,835) (4,835) - (4,835)Equity dividends paid by subsidiary undertakings tominority shareholders - - - - - - - - (251) (251)Share issue in parent company 121,628 215,275 - - - - - 336,903 - 336,903Transaction costs associated with issue of shares - (34,388) - - - - - (34,388) - (34,388)Uniting of interest elimination - - - (105,516) - - - (105,516) - (105,516)Share buyback of previous parent of the Group - - - - - - (64,055) (64,055) - (64,055)Treasury shares issued to Employee benefit Trust - - (29,216) - - - - (29,216) - (29,216)Employee benefit trust award - - 5,153 - - - - 5,153 - 5,153 ------------------------------------------------------------------------------------------------------------------------At 30 June 2007 121,628 180,887 (24,063) 31,780 - 186 130,908 441,326 39,840 481,166------------------------------------------------------------------------------------------------------------------------ Notes to the Consolidated Financial Information Note 1: Basis of preparation and summary of significant accounting policies On 24 May 2007, Ferrexpo plc allotted and issued 533,043,489 ordinary shares inthe Company at a par value of £0.10 each (£53,304,349 (US$105,515,959)) toFevamotinico Sarl in exchange for 129,944,923 registered shares of CHF1 each inthe capital of Ferrexpo AG. Pursuant to such transaction, Ferrexpo plc becamethe sole shareholder of Ferrexpo AG. As this transaction involved the combination of businesses under common control,the pooling of interests method of accounting has been applied in thepresentation of the consolidated financial statements for the year ended 31December 2006 and periods ended 30 June 2007 and 30 June 2006, which present theresults of the Group as if the Ferrexpo plc had always been the parent companyof the Group. The last filed accounts of Ferrexpo plc qualified for exemptionfrom audit under section 249AA of the Companies Act 1985 as it was dormantduring the period. The last filed accounts of Ferrexpo AG (the previousconsolidated Group accounts) contained an unqualified audit opinion, and nostatements equivalent to s237(2) or s237(3) under the Companies Act 1985. A historic share purchase and sale transaction in Ferrexpo Poltava GOKCorporation shares, the amount of which following dilution now represents lessthan 25% of the issued share capital of Ferrexpo Poltava GOK Corporation, is thesubject of an ongoing legal challenge that commenced in November 2005, and wasinitially dismissed by the Ukrainian Supreme Court in April 2006, but hasrecently been recommenced in a lower court. The plaintiff, a party to thedisputed transaction, initiated legal proceedings in the Ukrainian courtsseeking to invalidate the original share sale and purchase agreement. Theplaintiff claims that the agreement was not executed in accordance withUkrainian legislation. No remediation or damage has been claimed. In the eventof the claim succeeding and being upheld on appeal and the issued share capitalbeing transferred to the plaintiff, the Group will retain control of FerrexpoPoltava GOK Corporation. Neither the Company, nor the beneficial owner nor anyof the Group's subsidiary undertakings are involved in the legal proceedings.Management, having taken appropriate legal advice, believe that the claim iswithout merit and consider that there is a remote likelihood that the Group'sownership of the related interest in Ferrexpo Poltava GOK Corporation will besuccessfully challenged and that the Group will not suffer material financialcosts in connection with this matter. On the 15 June 2007, the Company's ordinary shares were admitted to the OfficialList of the Financial Services Authority and to trading on the London StockExchange. The global offer comprised of 152,097,932 ordinary shares of £0.10each at a price of £1.40, of which 72,527,361 new ordinary shares of £0.10 eachwere issued by the Company (US$14,433,743) and 79,570,571 were ordinary sharesof £0.10 each sold by existing shareholders. Gross proceeds of £101,538,305($202,072,397) were received by the Company following the issue of the newordinary shares. The interim consolidated financial statements for the six months ended 30 June2007 have been prepared in accordance with International Accounting Standard(IAS) 34 Interim Financial Reporting. The interim financial statements have beenprepared on a historical cost basis, except for post-employment benefitsmeasured at fair value and available for sale financial instruments measured atfair value in accordance with the requirements of IAS 39 "Financial instruments:recognition and measurement". The consolidated historical financial informationis presented in US Dollars thousands and all values are rounded to the nearestthousand except where otherwise indicated. The interim condensed consolidated financial statements do not include all theinformation and disclosures required in the annual financial statements, andshould be read in conjunction with the Group's annual financial statements as at31 December 2006 as presented in the listing Prospectus. The financial information for the year ended 31 December 2006 does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. This information was derived from the Group's annual financial statementsfor the year ended 31 December 2006 presented in the listing prospectus, a copyof which has been delivered to the London Stock Exchange. The accounting policies applied are consistent with those adopted and disclosedin the Group's annual financial statements for the year ended 31 December 2006,except for the adoption of new Interpretations, noted below: • IFRIC 9 Reassessment of Embedded Derivatives The Group adopted IFRIC Interpretation 9 as of 1 January 2007, which states that the date to assess the existence of an embedded derivative is the date that an entity first becomes party to the contract, with reassessment only if there is a change to the contract that significantly modifies the cashflow. • IFRIC 10 Interim Financial Reporting and Impairment The Group adopted IFRIC Interpretation 10 as of 1 January 2007, which requires that an entity must not reverse an impairment loss recognised in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost. There is no material impact to the Group's financial statements resulting fromthe adoption of these Interpretations. Note 2: Segment information A segment is a distinguishable component of the Group that is engaged either inproviding products or services (business segment), or in providing products orservices within a particular economic environment (geographical segment), whichis subject to risks and rewards that are different from those of other segments.Segment information is presented in respect of the Group's business andgeographical segments. Segment results, assets and liabilities include items directly attributable to asegment as well as those that can be allocated on a reasonable basis. Primary reporting format - Business segments The Group's activity is primarily the mining of iron ore and sale of iron orepellets thereof and for the purpose of the consolidated financial statementsonly one business segment is therefore identified as a reportable segment. Secondary reporting format - Geographical segments The Group operated in two distinct geographical segments for the processing andsale of iron ore for the three years ended 31 December 2006. The Group's principal mining operations are based in Ukraine and its marketingand management operations are based in Switzerland. The unallocated amountsrelate to non-operating assets and liabilities of the head office function,which is based in Switzerland. 6 months ended 30.06.07$000 Ukraine Switzerland Unallocated Total-----------------------------------------------------------------------RevenueSales 274,301 265,478 3,519 543,298Inter-segment sales (211,864) - (3,519) (215,383)------------------------------------------------------------------------Sales to external customers 62,437 265,478 - 327,915------------------------------------------------------------------------ Other segment information Segment assets 604,461 525,583 517,945 1,647,989Elimination (876,082) ------------Total assets 771,907 ------------ Segment liabilities 221,620 291,084 169,873 682,577Elimination (391,836) ------------Total liabilities 290,741 ------------ Capital expenditure: Property, plant and equipment 50,570 416 6 50,992Depreciation and amortisation 14,037 125 62 14,224 6 months ended 30.06.06$000 Ukraine Switzerland Unallocated Total-----------------------------------------------------------------------Sales 208,744 215,546 3,009 427,299Inter-segment sales (188,073) - (3,009) (191,082)------------------------------------------------------------------------Sales to external customers 20,671 215,546 - 236,217------------------------------------------------------------------------ Other segment information Segment assets 764,969 151,804 129,666 1,046,439Elimination (417,957) ------------Total assets 628,482 ------------ Segment liabilities 317,539 49,583 128,122 495,244Elimination (138,059) ------------Total liabilities 357,185 ------------ Capital expenditure: Property, plant and equipment 37,576 214 44 37,834Depreciation and amortisation 16,159 78 60 16,297 Year ended 31.12.06$000 Ukraine Switzerland Unallocated Total-----------------------------------------------------------------------RevenueSales 468,321 467,700 7,917 943,938Inter-segment sales (388,711) - (7,917) (396,628)------------------------------------------------------------------------Sales to external customers 79,610 467,700 - 547,310------------------------------------------------------------------------ Other segment information Segment assets 611,058 391,616 62,048 1,064,722Elimination (357,806) ------------Total assets 706,916 ------------ Segment liabilities 248,840 160,385 60,258 469,483Elimination (99,359) ------------Total liabilities 370,124 ------------Capital expenditure: Property, plant and equipment 53,993 297 59 54,349Intangible fixed assets 156,423 - - 156,423Depreciation and amortisation 28,270 176 117 28,563 Elimination balances represent intercompany transactions. Note 3: Revenue Revenue consisted of the following: 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06 $000 $000 $000------------------------------------------------------------- Revenue from sales of ore pellets:Export 265,454 215,470 467,099Ukraine 59,527 16,531 73,089------------------------------------------------------------- 324,981 232,001 540,188------------------------------------------------------------- Revenue from sales of services 150 2,520 3,158Revenue from other sales 2,784 1,696 3,964------------------------------------------------------------- 327,915 236,217 547,310------------------------------------------------------------- Export sales by geographical destination were as follows: 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06 $000 $000 $000-------------------------------------------------Austria 84,037 67,148 140,286China 45,185 37,131 83,258Slovakia 30,254 25,931 54,143Serbia 48,163 24,126 64,015Czech Republic 22,676 21,226 52,775Bulgaria 13,368 10,791 15,587Poland 5,466 8,340 15,571Romania 7,038 7,815 23,838Germany - 4,183 4,183Turkey 5,849 8,779 12,302Italy 3,418 - -Other - - 1,141------------------------------------------------- 265,454 215,470 467,099------------------------------------------------- Note 4: Write-offs and impairment losses Impairment losses relate to adjustments made against the carrying value ofassets where this is higher than the recoverable amount. Write-offs andimpairment losses comprise: $000 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06--------------------------------------------------------------------Write-off of inventories 112 37 341Write-off of property, plant and equipment 693 1,543 1,543Other impairment / (reversal) 296 190 321-------------------------------------------------------------------- 1,101 1,770 2,205-------------------------------------------------------------------- Note 5: Net loss on disposal of subsidiary Loss on disposal of subsidiary consisted of the following: $000 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06----------------------------------------------------------------Loss on disposal of subsidiary - - 3,524 In 2006 the Group sold a 90.6% interest in its subsidiary Vostock Ruda toentities under common control for consideration of $9,474,000, resulting in aloss on disposal of $3,524,000. Of the total consideration, $4,338,000 wasreceived during the year ended 31 December 2006 and $5,136,000 remains unpaid atthe period ending 30 June 2007 and is included in current assets within otherreceivables. Note 6: EBITDA The Group calculates EBITDA as profit from continuing operations before tax andfinance less foreign exchange (loss)/gain plus depreciation and amortisation(included in cost of sales, administrative expenses and selling and distributioncosts) and non-recurring cash items included in other income, non-recurring cashitems included in other costs plust the net gain/(loss) from disposal ofsubsidiaries and associates. The Group presents EBITDA because it believes thatEBITDA is a useful measure for evaluation its ability to generate cash and itsoperating performance. US$ 000 Notes 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06-------------------------------------------------------------------------Profit before tax and finance 67,604 34,769 114,850 Foreign exchange loss (989) (1,618) (3,784)Write-offs and impairment losses 4 1,101 1,770 2,205Net loss on disposal of subsidiary 5 - - 3,524Initial public offering costs 30,142 - -Depreciation and amortisation 2 14,442 16,297 28,563 --------------------------EBITDA 112,300 51,218 145,358 -------------------------- Note 7: Earnings per share and dividends paid and proposed The earnings per share ("EPS") calculation has assumed that the number ofordinary shares issued pursuant to the share exchange agreements in relation tothe acquisition of Ferrexpo AG by Ferrexpo plc have been in issue throughout2004 and 2005 which is consistent with the pooling of interests method used toaccount for combinations of businesses under common control. The directorsbelieve that this measure of EPS provides a more meaningful comparison with theGroup's ongoing business than using the statutory EPS which would only reflectshares issued based on the actual date of issue. Basic EPS is calculated by dividing the net profit for the year attributable toordinary equity shareholders of Ferrexpo AG by the number of ordinary shares asdefined above. 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06---------------------------------------------------------------------------------------Profit for the period attributable to equity shareholders: Basic earnings per share (US cents) 6.03 2.55 10.47Diluted earnings per share (US cents) 6.00 2.55 10.47 Underlying earnings for the period: Basic earnings per share (US cents) 11.10 2.80 10.92Diluted earnings per share (US cents) 11.05 2.80 10.92 The calculation of the basic and diluted earnings per share is based on the following data: Thousands 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06-------------------------------------------------------------------------------------- Number of sharesBasic number of ordinary shares outstanding 607,471 607,471 607,471Effect of dilutive potential ordinary shares 2,716 - - ----------------------------------Diluted number of ordinary shares outstanding 610,187 607,471 607,471 ---------------------------------- The number of ordinary shares in issue excludes the shares held by the Applebyemployee benefit trust. Diluted earnings per share is calculated by adjustingthe number of ordinary shares in issue on the assumption of conversion of allpotentially dilutive ordinary shares. All share awards are potentially dilutiveand have been included in the calculation of diluted earnings per share. 'Underlying earnings' is an alternative earnings measure, which the directorsbelieve provides a clearer picture of the underlying financial performance ofthe Group's operations. Underlying earnings is presented after minorityinterests and excludes adjusted items. The calculation of underlying earningsper share is based on the following earnings data: $000 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06-------------------------------------------------------------------Profit attributable to Equity holders 36,634 15,485 63,578 Write offs/impairments 1,101 1,770 2,205 Loss on disposals - - 3,524 IPO costs 30,142 - - Tax on adjusting items (275) (442) (1,432) Minority interests (155) (250) (1,213) Tax on Minority interests (39) (62) (303) ------------------------------- Underlying earnings 67,408 16,501 66,359 ------------------------------- Adjusted items are those items of financial performance that the Group believesshould be separately disclosed on the face of the income statement to assist inthe understanding of the underlying financial performance achieved by the Group.Adjusted items that relate to the operating performance of the Group includeimpairment charges and reversals and other exceptional items. Non-operatingadjusting items include profits and losses on disposal of investments andbusinesses. Dividends paid and proposed $000 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06---------------------------------------------------------------------Dividends proposed Dividend proposed by subsidiary to 251 200 563minority interest 30 June 2007 $0.015 (30 June 2006: $0.005: 31 December 2006:$0.01)---------------------------------------------------------------------Total 251 200 563---------------------------------------------------------------------Dividends paid during the periodFinal dividend paid by parent company - - 108proposed in 2004Final dividend proposed in previous years 465 4 178to minority interest---------------------------------------------------------------------Total 465 4 286--------------------------------------------------------------------- Note 8: Property, plant and equipment Acquisitions and Disposals During the six months ended 30 June 2007, the Group acquired assets with a costof $50,992,000 (30 June 2006: $37,834,000; 31 December 2006: $54,349,000), notincluding property and equipment acquired through business combination. Assets with a net book value of $15,014,000 were disposed of by the Group duringthe six months ended 30 June 2007, (30 June 2006: $77,000; 31 December 2006:$301,000), resulting in a gain/(loss) of $140,000 (30 June 2006: $197,000; 31December 2006: $(601,000)). Note 9: Short term deposits with banks Interest bearing term deposits with a maturity term of less than one yearcomprised: $000 Currency As at As at As at 30.06.07 30.06.06 31.12.06------------------------------------------------------------------------Short term deposits held with UAH 10 2,777 2,777related parties (refer to note 14)Short term deposits held with USD 1,450 5,089 5,164related parties (refer to note 14)Ukrainian bank - - 1,070 Interest accrued with related - 1,623 2,032parties (refer to note 14)------------------------------------------------------------------------ 1,460 9,489 11,043------------------------------------------------------------------------ The related party balances are with a bank which is an entity under common control. Note 10: Cash and cash equivalents $000 As at As at As at 30.06.07 30.06.06 31.12.06-------------------------------------------------------------Cash and cash equivalents at bank 67,846 4,906 14,718 Cash and cash equivalents held 4,015 2,816 1,515with related parties (refer to note 14)Petty Cash 43 13 3 ----------------------------- 71,904 7,735 16,236 ----------------------------- The related party balances are with a bank which is an entity under common control. Note 11: Share capital $000----------------------------------------------------Balance at 31 December 2006 and 30 June 2006 -----------------------------------------------------Issue of new shares on 21 May 2007 99Issue of new shares on 24 May 2007 105,516Initial public offering on 15 June 2007 14,434Issue of new shares on 25 June 2007 1,579Balance at 30 June 2007 121,628---------------------------------------------------- The authorised and fully paid share capital of Ferrexpo plc at 30 June 2007 was613,917,956 ordinary shares at a par value of £0.10 paid for in cash, resultingin share capital of $121,627,585 per the balance sheet. At 30 June 2006 and 31 December 2006 the authorised and fully paid share was 2ordinary shares at a par value of £1 paid for in cash, resulting in sharecapital of $4. On 21 May 2007 Ferrexpo plc allotted and issued 49,998 ordinary shares in theCompany at par value of £1 each (US$98,620). Following such the allotment,Ferrexpo plc's total issued and authorised share capital was subdivided into500,000 ordinary shares of £0.10 each. The Company's authorised share capitalwas subsequently increased to £60,050,000 divided into 600,500,000 shares of£0.10 shares each. On 24 May 2007, Ferrexpo plc allotted and issued 533,043,489 ordinary shares inthe Company at a par value of £0.10 each (US$105,515,959) to Fevamotinico Sarlin exchange for 129,944,923 registered shares of CHF1 each in the capital ofFerrexpo AG. Pursuant to such transaction, Ferrexpo plc became the soleshareholder of Ferrexpo AG. On the 15 June 2007, the Company's ordinary shares were admitted to the OfficialList of the Financial Services Authority and to trading on the London StockExchange. The global offer comprised 152,097,932 ordinary shares of £0.10 eachat a price of £1.40, of which 72,527,361 new ordinary shares of £0.10 each wereissued by the Company (US$14,433,743) and 79,570,571 were ordinary shares of£0.10 each sold by existing shareholders. Gross proceeds of £101,538,305 ($202,072,000) were received by the Company following the issue of the newordinary shares. On the 25 June 2007 Ferrexpo plc allotted and issued 7,897,016 ordinary sharesof £0.10 in the Company (US$1,579,263) fully paid at a premium of £1.75 to theAppleby Trust (the employee benefit trust) in exchange for 2,000,000 shares ofCHF 1 in the capital of Ferrexpo AG, representing the treasury shares held byFerrexpo AG, setting up a treasury share reserve. Note 12: Shares redemption liability In October 2003, JSC Poltava GOK sold 15 per cent of its shares to DCM DecometalInternational Trading GmbH ("DCM") subject to a deferred obligation torepurchase these shares at a fixed price of US$11.0 million. The shareredemption liability represents the present value in respect of this contractualobligation. The movement in the shares redemption liability comprised: $000 -------------------------------------------Balance as at 31 December 2005 8,182-------------------------------------------Interest expense 425-------------------------------------------Balance as at 30 June 2006 8,607-------------------------------------------Interest expense 455-------------------------------------------Balance as at 31 December 2006 9,062-------------------------------------------Interest expense 470-------------------------------------------Balance as at 30 June 2007 9,532------------------------------------------- Note 13: Interest bearing loans and borrowings Borrowing and repayment of debt During the period ended 30 June 2007 the amount of $35,000,000 was repaid on themajor bank debt facility, a $275,000,000 pre-export finance facility. At theperiod end the amount not utilised was $145,000,000. During the period$53,000,000 million was repaid on a number of the financing relationships withUkrainian banks (including $7,200,000 with Finance and Credit Bank, a relatedparty). Debt Refinancing No debt was refinanced or renegotiated in the period ended 30 June 2007.Effective from 11 July 2007 the pre-export finance facility was renegotiatedwith a new limit of $335,000,000 agreed with the syndication of banks providingthe finance. Note 14: Related party disclosure In the rapidly developing business environment of Ukraine, the Group's entitieshave frequently used nominees and other forms of intermediary companies intransactions. In 2006, the Group entered into transactions with companies actingon behalf of the beneficial owner of the Group which are disclosed below astransactions with entities under common control of the beneficial owner,Kostyantyn Zhevago. These transactions are effected in this way to transfer andreallocate economic resources between companies of the Group or outside of theGroup. Management considers that the Group has appropriate procedures in place toidentify and properly disclose transactions with the related parties and hasdisclosed all of the relationships identified and which it deemed to besignificant. The significant related party transactions undertaken by the Groupare disclosed below in the following tables below. Period ended 30 June 2007 $000 Revenue Revenue Purchase of Purchases Purchased Purchased from from investments of services property, sales other materials, plant and of ore sales gas and equipment pellets electricity--------------------------------------------------------------------------------------------------------Entities under common control - 32 - 113 872 179Other 46 1,562 3,083 7,207 2,580 61--------------------------------------------------------------------------------------------------------Total 46 1,594 3,083 7,320 3,452 240-------------------------------------------------------------------------------------------------------- $000 Finance Finance Bank Bank Loans Other costs income loans loans provided activities received repaid----------------------------------------------------------------------------------------------Entities under common control 109 303 1,700 10,900 5,000 (501)Other 471 - - - - (1,575)-----------------------------------------------------------------------------------------------Total 580 303 1,700 10,900 5,000 (2,076)----------------------------------------------------------------------------------------------- $000 Cash and Trade and Promissory Accounts cash other notes payable equivalents receivables issued and other creditors-------------------------------------------------------------------------------Entities under common control 4,015 10,859 218 (874)Other - 1,123 - (1,597)-------------------------------------------------------------------------------Total 4,015 11,982 218 (2,471)------------------------------------------------------------------------------- Period ended 30 June 2006 $000 Revenue Revenue Sale of Purchases Purchased Purchased from from property, of services property, sales other plant and materials, plant and of ore sales equipment gas and equipment pellets electricity------------------------------------------------------------------------------------------------Entities under common control 373 2,748 261 4,468 1,016 1,300Other - 2,237 - 4,356 1,439 85------------------------------------------------------------------------------------------------Total 373 4,985 261 8,824 2,455 1,385------------------------------------------------------------------------------------------------ $000 Finance Finance Bank Bank Prepayments Other costs income loans loans made activities received repaid----------------------------------------------------------------------------------------------Entities under common control 1,131 474 39,502 37,133 2,600 (228)Other 447 1 - - - 25----------------------------------------------------------------------------------------------Total 1,578 475 39,502 37,133 2,600 (203)---------------------------------------------------------------------------------------------- $000 Cash and Term Trade and Advances Interest Promissory Promissory Accounts cash deposit other provided bearing notes notes payable equivalents receivable loans and issued repaid other borrowings----------------------------------------------------------------------------------------------------------------------Entities under common control 2,816 9,489 819 106,783 16,440 2,307 792 4,798Other - - 406 - - 2,453 71 732----------------------------------------------------------------------------------------------------------------------Total 2,816 9,489 1,225 106,783 16,440 2,453 863 5,530---------------------------------------------------------------------------------------------------------------------- During 2005 advances of $106,783,000 were made to entities under common (shownwithin prepayments and other current assets on the balance sheet). Theseadvances were not secured with any collateral. As of 30 June 2006 they werecarried at the nominal amount paid. In September 2006, these advances wererepaid to the Group. Year ended 31 December 2006 $000 Revenue Revenue Sale of Purchases Purchased Purchased from from property, of services property, sales other plant and materials, plant and of ore sales equipment gas and equipment pellets electricity-----------------------------------------------------------------------------------------------------Entities under common control 2,825 407 280 5,002 1,821 1,481Other - 1,885 - 11,198 3,059 -----------------------------------------------------------------------------------------------------Total 2,825 2,292 280 16,200 4,880 1,481---------------------------------------------------------------------------------------------------- $000 Finance Finance Bank Bank Loans costs income loans loans provided/ received repaid (re-paid)--------------------------------------------------------------------------------Entities under common control 1,996 1,303 224,421 216,607 (118,984)Other - 2 - - ----------------------------------------------------------------------------------Total 1,996 1,305 224,421 206,607 (118,984)--------------------------------------------------------------------------------- $000 Cash and Term Trade and Interest Trade cash deposit other bearing and equivalents receivables loans and other other accounts borrowings payable-----------------------------------------------------------------------------------------Entities under common control 1,515 9,973 25,732 7,200 1,855Other - - 1,538 - 630-----------------------------------------------------------------------------------------Total 1,515 9,973 27,270 7,200 2,485----------------------------------------------------------------------------------------- Business combinations During the year ended 31 December 2006 the Group acquired a further 25.6% of thevoting rights in Ferrexpo Poltava GOK Corporation for a consideration of$238,986,000 from entities under common control. In 2006, the Group acquired the minority interest of United Energy Company LLCfrom an entity under common control for consideration of $3,609,000 increasingthe Group's interest in the net assets to 100%. Disposal of control in Vostock Ruda In 2006 the Group sold a 90.6% interest in its subsidiary Vostock Ruda toentities under common control for consideration of $9,474,000, resulting in aloss on disposal of $3,524,000. Of the total consideration, $4,338,000 wasreceived during the year and $5,136,000 remains unpaid at the period end and isincluded in current assets within other receivables (as noted in the abovetable). As part of the disposal of Vostock Ruda loans totalling $19,347,741 toentities under common control were disposed of. Distributions under 50/50 tax rulings Prior to the listing in the period to 30 June 2007 the Group made a distributiontotalling $4,835,000 (30 June 2006: $1,662,000, 31 December 2006: $21,190,000)under the 50/50 Swiss tax ruling to the ultimate beneficial owner. The rulingallows for a qualifying company to distribute a percentage of its profits freeof tax. On listing the Group no longer qualifies for this tax treatment. Share buy-back During the period 30 June 2007, Ferrexpo AG entered into a share buy-backarrangement within its then shareholder Collaton Limited under which Ferrexpo AGrepurchased 5,178,877 shares of 1 CHF each in exchange for cash in a number oftransactions which took place between 13 February and 18 May 2007. the totalconsideration paid under the arrangement was $64,055,329. Note 15: Reconciliation of profit before income tax to net cash flow fromoperating activities $000 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06------------------------------------------------------------Profit before income tax 54,484 18,973 80,737Adjustments for: Depreciation of property, plant 14,224 16,297 28,563and equipment and amortisation ofintangible assetsInterest expense 9,980 13,332 27,425Interest income (849) (1,301) (2,326)Share of losses of associates 118Dividend income - - (17)Reversal of and allowance for - - 183doubtful receivables(Gain)/loss on disposal of (140) (197) 601property, plant and equipmentWrite offs and impairment losses 1,101 1,770 2,021Losses on disposal of investments - - 31available for saleLosses from disposal of - - 3,524subsidiaries and associatesLoss from settlements of 294 - -financial instrumentsEmployee benefits 1,562 1,950 3,163IPO costs 30,142 - -Foreign exchange loss 34 174 645------------------------------------------------------------Operating cash flow before 110,950 50,998 144,550working capital changes------------------------------------------------------------ Changes in working capital (Increase) / decrease in trade 16,110 (11,710) (38,658)accounts receivable and otherreceivables(Increase) / decrease in (7,904) 7,818 9,237inventoriesIncrease / (decrease) in trade (7,722) (20,858) (2,467)and other accounts payable------------------------------------------------------------Cash generated from operating 111,434 26,248 112,662activities------------------------------------------------------------ Interest paid (9,743) (11,759) (28,119)Income tax paid (17,439) (9,914) (14,562)Post employment benefits paid (928) (536) (1,681)------------------------------------------------------------Net cash flows from operating 83,324 4,039 68,300activities------------------------------------------------------------ Note 16: Commitments and Contingencies $000 As at As at As at 30.06.07 30.06.06 31.12.06--------------------------------------------------Capital commitments on 16,348 10,200 11,111purchase of propertyand equipmentGuarantees provided 275,000 140,155 12,185 Taxation Ukrainian legislation and regulations regarding taxation and custom regulationscontinue to evolve. Legislation and regulations are not always clearly writtenand are subject to varying interpretations and inconsistent enforcement bylocal, regional and national authorities, and other Governmental bodies.Instances of inconsistent interpretations are not unusual. The uncertainty ofapplication and the evolution of Ukrainian tax laws, including those effectingcross border transactions, create a risk of additional tax payments having to bemade by the Group, which could have a material effect on the Group's financialposition and results of operations. The Group does not believe that these risksare any more significant than those of similar Groups with operations inUkraine. Management's assessment of these risks remains unchanged from thatdisclosed at 31 December 2006. Management is of the opinion that the Group has applied an appropriateinterpretation of relevant legislation, has complied with all regulations andpaid or accrued all taxes and withholdings as applicable. However, due to thecomplexities of the local tax legislation where the Group operates it ispossible that the tax basis of certain transactions undertaken by the Group maybe challenged, which may mean that the Group incurs additional tax liabilities,the quantum of which is not practical to determine. Glossary: Term DefinitionBFP - blast furnace pelletsC1 costs - cash costs per ton of pellets, ex-works, excluding administrative and distribution costsCFR - delivery including cost and freightCIF - delivery including cost, insurance and freightDAF - delivered at frontierEXW - ex-worksFOB - delivered free on boardIPO - Initial Public OfferingLSE - London Stock ExchangeWMS - wet magnetic separationUnderlying - an alternative earnings measure, which the directors believeearnings provides a clearer picture of the underlying financial performance of the Group's operations. Underlying earnings is presented as profit attributable to equity shareholder before adjusted items. Adjusted items are those items of financial performance that the Group believes should be separately disclosed on the face of the income statement to assist in the understanding of the underlying financial performance achieved by the Group. Adjusted items that relate to the operating performance of the Group include impairment charges and reversals and other exceptional items. Non-operating adjusting items include profits and losses of investments and businesses as well as IPO costs. This information is provided by RNS The company news service from the London Stock Exchange