Ferrexpo Regulatory News (FXPO)

28 Aug 2008 07:00



28 August 2008

Interim Results for the Six Months ended 30 June 2008

Financial highlights

Revenue up by 58% to US$519.5m 

EBITDA for the period up by 101% to US$228.0m

Profit for the period up by 288% to US$157.7m

Underlying earnings up by 106% to US$138.8m 

Net cash from operating activities increased 70% to $141.8m 

Interim dividend of 3.2 US cents per share

Operating highlights

Stable iron ore output and total pellet production

8% increase in production of high quality (65% Fe) pellets from Company's own ore 

Price increases of over 90% achieved from 1 April

Efficiency improvements partially offsetting cost inflation

Expansion of existing operations on schedule and within budget

Procurement of own rail cars on schedule

Definitive Feasibility Study for new Yeristovskoye mine near completion

Definitive Feasibility Study for projects to upgrade product quality and optimise existing beneficiation plants near completion

Actively seeking strategic partner for joint venture of major growth projects

Financial and production highlights 

(US$ '000, unless stated)	Six Months ended 30 June 2008	Six Months ended 30 June 2007	% Change
Pellet production (kt)	4,504	4,450	+1%
Of which 65% Fe content (kt)	1,920	1,776	+8%
Revenue	519,498	327,915	+58%
EBITDA	228,023	113,289	+101%
Profit for the period	157,658	40,579	+288%
Underlying earnings	138,783	67,408	+106%
Underlying EPS (USc)	22.76	11.10	+105%

Mike Oppenheimer, CEO of Ferrexpo plc commented:

"We have delivered another strong set of results and we continue to make excellent progress with our growth projects. I am particularly pleased with our strong operational response to the challenges presented by industry and regional cost pressures. Our logistics and favourable location position us as the supplier of choice to some of the most important end markets in the world and we are pleased to have achieved price settlements that reflect this.  Looking forward, strong market outlook, tight cost control in the face of significant inflationary pressures and aggressive management of our growth projects will remain the characteristics of our business. We will continue to update the market on our plans to accelerate delivery of value from our strong reserve and resource base with our strategic partner programme."

For further information, please contact:

Ferrexpo: Mike Oppenheimer, CEO Chris Mawe, Finance Director Gavin Mackay, Head of Investor Relations	+44 207 389 8304
Finsbury: Robin Walker  Alex Simmons	+44 207 251 3801

Notes to editors:

Ferrexpo plc is a Swiss headquartered resources company with assets in Ukraine, principally involved in the production and export of iron ore pellets, used in producing steel. Current output is over 9 million tonnes, approximately 85% of which is exported to steelmakers around the world. The Ferrexpo Group is currently undertaking a significant growth programme and became 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 pleased to present another set of excellent results for Ferrexpo plc. Throughout the first half of 2008, the Group has continued to build on the track record of strong financial and operational delivery that it established in 2007. 

Results

The Group's results over the past six months reflect the continuing strength of our business in the face of a challenging global economic environment. Once again, the Group achieved significant growth in both revenues and profits as a result of very strong contract pricing outcomes and the continuing positive impact of the Business Improvement Programme on operating efficiency. Revenues in the first half of 2008 were $519.5 million, 58% above those achieved in the same period last year ($327.9 million). Despite substantial inflationary pressures on the Group, its EBITDA for the period increased by 101% to $228.0 million ($113.3 million), and Group pre-tax profit increased by 269% to $201.4 million ($54.5 million).

Market Environment

The global market for iron ore, and in particular iron ore pellets, remains strong, driven principally by demand for iron and steel from industrialising nations such as China, and despite record benchmark iron ore price settlements in the first half of 2008. Seaborne benchmark prices in Europe and Asia increased by between 65% and 96.5% for fine and lump ores, and a record premium paid for blast furnace pellets resulted in an 86.7% benchmark increase for these pellets as of 1 April 2008. Importantly for Ferrexpo, demand for blast furnace pellets continues to rise in our traditional markets as steel companies seek to improve performance and reduce emissions. The Group was able to achieve a premium to the pellet benchmark, realising price increases of over 90% on average across all of its long-term supply contracts compared with the twelve months to 31 March 2008. The new prices resulted in very strong earnings growth in the second quarter of the year, and contributed to the 58% increase in the Group's average price per tonne achieved in the first six months of 2008, as compared with the same period last year.

Operations

At the time of our preliminary results in April, we announced that the Group had suffered two fatal accidents at its Poltava site at the beginning of 2008, and regrettably we had another in July. To further reinforce Group's ongoing efforts to enhance its safety standards, Du Pont Safety Resources were engaged early in the year to implement a cultural and behavioural change throughout Ferrexpo's operations, and tangible progress has been made in this regard. The management of health, safety and the environment remains an absolute priority for the Group.

This year, the Group's production operations have continued to perform well, and Ferrexpo remains the largest Ukrainian iron ore exporter. Iron ore extraction was comparable with the same period last year and in line with our expectations following substantial increases in production in prior periods. The volume of pellets produced from the Group's own raw materials increased by 1.2% to 4.50 million tonnes compared to the first six months of 2007 (4.45 million tonnes), and this was accompanied by a 8.0% increase in the volume of higher quality 65% Fe pellets, to 1.92 million tonnes (1.78 million tonnes). The Group has all but ceased to produce iron ore pellets from third party concentrate due to lack of availability of concentrate supply, which resulted in a marginal decline in overall pellet production over the period. This has had negligible financial impact on the Group due to the increasingly low margin nature of this business. 

The Group has faced significant cost pressures in the first six months of 2008. Inflation in Ukraine has risen substantially, with Producer Price Inflation (PPI) reaching 29.4% by the end of the period. There were also substantial increases in the costs of cyclically priced commodities, a theme common to most of the global mining industry. These increases were principally for steel grinding media and energy including diesel fuel, which collectively account for 58% of the Group's C1 cash costs of production. The price of the Group's grinding media increased by 48% in the first six months of 2008, and diesel by 31%, with natural gas and electricity increasing by 55% and 30% respectively. The Ukrainian Hryvnia has been permitted to appreciate to an average rate for the period of UAH5.017/$, which has also increased the dollar costs of certain inputs in the period to June. However, our Business Improvement Programme continued to drive efficiency and reduce the utilisation of cost inputs per tonne of production, thereby mitigating some of these inflationary pressures. Nonetheless, the Group's cash production costs rose by 37.0% compared with the average production cost per tonne in the first half of 2007. This compares favourably against the Ukrainian Producer Price Inflation over the period between 1 July 2007 and 30 June 2008 of 43.7%.

The Group will continue to pursue further improvements in efficiencies and productivity via the Business Improvement Programme and other initiatives, but increasing cost pressures on key input prices are likely to remain a feature of our business for at least the remainder of the year.

The Group's marketing department has delivered a very successful first six months of 2008, having secured record price settlements during the period. Marketing and distribution remain critical to our business, and our focus is now firmly on ensuring that the Group's extensive growth plans are matched by expanded logistical capabilities. 

Investing Activities

The Group has a pipeline of significant growth projects, and our increasingly strong cash flow generation has given us the financial capacity to accelerate our investment in this growth programme. The Group's operating cash flow in the first half of 2008 has increased by 70% to $141.8 million, when compared to the same period last year ($83.3 million). These funds are being used to execute our strategy to accelerate the commercialisation of our vast iron ore resource. During the first half of 2008, the Group invested $51 million in the project to expand and extend our existing operations, and $43 million for the development of the new Yeristovskoye mine.

The Group's investment policy remains focused on our organic growth projects. The project to expand and extend the existing mining operation that was announced in November last year is proceeding on schedule and within budget. Development plans for the new mines to be built on the Yeristovskoye and Belanovskoye deposits are well advanced and these remain the Group's major growth projects, with expected total development costs of approximately $5 billion. The Yeristovskoye Definitive Feasibility Study and Belanovskoye Preliminary Feasibility Assessment are expected to be completed in September, and the Board expects to review and, if appropriate, approve the capital commitment for the entire Yeristovskoye project in October. By this time, the initial draglines and mining fleet purchased with the $103 million of capital expenditure committed to the project last year will be on site and assembled in preparation for the commencement of stripping works. The first two of these draglines are already on site in the early stages of assembly.

Significant progress has also been made on plans to upgrade existing pellet quality and to further enhance the efficiency and productivity of our existing beneficiation plants. The definitive feasibility study for the various projects intended to achieve these objectives will also be completed in September and will be reviewed by the Board in October.

Dividend

The Group is declaring an interim dividend of 3.2 US cents per share for the first six months of 2008 (H1 2007: nil), in line with the policy of the Board to pay a dividend which reflects the cash flow of the business and the growth profile of the Group. The Board is committed to maintaining a dividend which enables the Group to invest in the substantial growth projects within its portfolio. The full year dividend will be split approximately equally between the interim and final dividend.

The Board is also considering further returns of capital or dividends in the coming months, in view of the high prices and significant cash generation of the Group in the first half of the year. This is consistent with sound capital management, as cashflows have exceeded both expectations and the funding requirements of the Group. 

People

The Group has continued to evolve as a listed company in the first six months of 2008, and the Board would like to thank all the employees of Ferrexpo, who continue to make this positive development possible. We continue to build our organisation, adding capability in project execution and consolidating our strengths in best practice mining and marketing. 

Corporate Governance and Social Responsibility

I am proud to say that the Group is delivering on its promise, and is substantially compliant with the Combined Code within the first year of listing. Ferrexpo has a strong and experienced Board dedicated to the highest standards of corporate governance and capable of providing continuing best practice management and strategic guidance to the company. 

The Board has established a Corporate Social Responsibility Committee to fulfil its commitment to the ongoing health and safety of the Group's employees, active engagement with local communities and environmental awareness. Corporate Social Responsibility remains the first priority of the management of the Group. 

Strategy

The Board remains committed to its strategy of maximising the value of the Group through the accelerated commercialisation of its extensive undeveloped iron ore deposits, increasing the productivity of its existing operations, and improving product quality. Planning for the new mines at Yeristovskoye and Belanovskoye is now at an advanced stage, and the Group is actively seeking the involvement of other industry participants to form a joint venture to assist it in the development of these mines. The Board believes the formation of such a joint venture to be the best strategy to accelerate the exploitation of these assets through access to additional funding capability, project execution expertise and a significant reduction of the risks associated with project execution. 

Outlook

Favourable iron ore market conditions are expected to continue for at least the next eighteen months and potentially far beyond, driven by China and the developing countries of Asia and Europe. We believe the Group is extremely well positioned to benefit further from this positive environment. Most importantly for Ferrexpo, very strong demand growth is forecast in the markets closest to our Poltava operations, which will enable the Group to sell the majority of its expanded production to our traditional and natural customer base. Our unique logistical advantages in supplying these customers will result in sustained high margins for growth. 

The principal risks and uncertainties facing the Group over the next six months relate to costs, in particular those concerned with energy, and Ukrainian inflation. Cost pressures on the Group are expected to remain significant for the rest of 2008, but given that the prices for the Group's products have been set at record highs for the 2008/2009 contract year, we nonetheless expect the Group to achieve very strong growth in revenues and profits in 2008. We will continue to drive the development of our growth projects to extract maximum value from our extensive reserves and resource base. 

Michael Abrahams CBE DL

Chairman

  OPERATING & FINANCIAL REVIEW

Operating Highlights 

Average pellet prices increased by over 90% from 1 April

Product quality improved, 8% increase in production of higher grade 65% Fe pellets 

330 own rail cars delivered and operating with remaining 220 expected by year end

Project to expand and extend existing operations proceeding on schedule and within budget

Definitive Feasibility Study for new Yeristovskoye mine near completion

First equipment for Yeristovskoye development delivered to site

Preliminary Feasibility Study for new Belanovskoye mine near completion

Actively seeking strategic partner for joint venture of major growth projects

Financial Highlights

Revenue increased by 58% to $519.5 million (H1 2007: $327.9 million) 

EBITDA increased by 101%, to $228.0 million (H1 2007: $113.3 million)

Profit after tax increased by 288%, to $157.7 million (H1 2007: $40.6 million) 

Net cash flow from operating activities $141.8 million (H1 2007: $83.3 million)

OPERATING REVIEW

Key Statistics 

		UOM	6 months ended 30 June 2008	6 months ended 30 June 2007	% Change
Iron ore mined		000't	14,361	14,446	(0.6)
Average Fe content		%	30.06	29.80	0.9
Produced concentrate		000't	5,440	5,293	2.8
Average Fe content		%	63.41	63.44	(0.1)
Purchased concentrate		000't	52	223	(76.7)
Average Fe content		%	65.78	64.01	2.8
Purchased iron ore		000't	149	19	684
Average Fe content		%	33.01	33.00	0.0
Total pellet production (BFP)		000't	4,596	4,653	(1.2)
	From produced concentrate	000't	4,504	4,450	1.2
	- Higher grade	000't	1,920	1,778	8.0
	Average Fe content	%	65.01	65.13	(0.2)
	- Lower grade	000't	2,584	2,672	(3.3)
	Average Fe content	%	62.26	62.26	-
	From purchased raw materials	000't	92	203	(54.7)
	- Lower grade	000't	92	203	(54.7)
	Average Fe content	%	62.26	62.26	-
Pellet sales volume		000't	4,517	4,511	0.1
Gravel production		000't	1,637	1,604	2.1

Existing Operations

Ferrexpo Poltava Mining ("FPM") continued to improve its operational performance during the first six months of 2008, focussing on product quality improvement and accelerating stripping operations for the Gorishne-Plavninskoye Lavrikovskoye (GPL) Expansion Project. This will in due course form the basis of future production increases from the Group's existing GPL mine. Ore extraction volumes were comparable to the equivalent period in 2007, but through selective mining, FPM was able to increase the proportion of richer ore mined (48% versus 45% in the equivalent period last year). The greater proportion of higher quality ore enabled FPM to increase the yield during the beneficiation process, resulting in an increase in the production of iron ore concentrate to 5,440kt, a 3% increase over the equivalent period last year. The quality of the concentrate produced in the first six months of 2008 was also improved, which enabled FPM to increase production of higher grade 65% Fe pellets by 8% to 1,920kt, enabling further sales in the higher quality markets to be made.

Pellet production from produced concentrate increased by 1% in the period. A sharp decline in the availability of third party concentrate at acceptable prices meant overall pellet production volume for the period was 4,596kt, a decline of 1% compared to the first half of 2007. The Group has historically produced a small volume of pellets from purchased concentrate, but this activity has generated low contributions to profitability.

Stripping volumes increased by 14% in the first half of 2008 to 10,550 cubic metres. This was to rectify low stripping in prior years and place the pit in a position to yield higher production when the GPL Expansion Project is completed. Stripping costs of $6.2 million associated with the project to expand the GPL mine were capitalised during the period. 

The ongoing Business Improvement Program ("BIP") has continued to achieve tangible efficiency savings at FPM. The BIP continues to be driven forward by FPM management. FPM is now approximately halfway through a four-year programme. The aim of the BIP is to introduce global best practice in efficiency and productivity into the different areas of operation at FPM. Ongoing BIP initiatives in the first six months of 2008 enabled FPM to reduce the consumption per tonne of pellets produced for both energy and raw materials. More efficient use of mining vehicles and equipment has reduced the consumption of diesel fuel over the period by 2.6% per tonne of ore mined. Use of steel grinding bodies has been similarly reduced by 1.4%, and FPM's largest single cost item, the consumption of electricity per tonne of pellets produced, declined by 6.2%. Gas consumption also declined by 3.3%. 

The increased operating efficiency and associated cost savings demonstrated by FPM in the first half of 2008 are material improvements in the context of the inflationary cost environment and sector in which the Group is operating. Ukrainian Consumer Price Index inflation was 15.5% for the period, increasing unit labour costs. The official Ukrainian Producer Price Inflation ("PPI") was 29.4% over the same period. Overall in the six months to 30 June 2008, the Group incurred a 36.6% increase in the price of diesel fuel and a 47.9% increase in the price of grinding bodies and spare parts. Both diesel and steel price increases were in line with the cyclical trends in those commodities experienced globally in the first half of the year. The price of electricity also increased by 29.8% and that of natural gas by 55.0%.

As a result of these trends, the Group's nominal cash costs of pellet production (С1) was $40.92/t for the six months to 30 June 2008, an increase of 36.9% over that in the equivalent period last year ($29.88/t) and an increase of 28.72% over the C1 cost in FY 2007 ($31.79/t). Placing these increases in context, Ukrainian CPI for the twelve months to 30 June 2008 was 29.3%, and Ukrainian PPI was 43.7% over the same period.

The Group's costs are principally denominated in Ukrainian Hryvnia, which until 2008 was a currency managed in a mid range of UAH5.05/$. Since the middle of May, the currency has been permitted to appreciate to an official rate for the period of UAH4.85/$. This has increased the dollar costs of all inputs, which accounted for $1.82/t in June 2008 and $0.30/t in the six month period to 30 June 2008. 

The Group continued to actively manage its labour costs, introducing further measures to reorganise its key skills and heighten productivity and efficiency during the first half of 2008. The number of personnel on the FPM payroll decreased by 3.9% from 9,008 at the end of 2007 to 8,655 as at 30 June 2008. Average salaries in June 2008 were 20.4% higher than those in December 2007.

Marketing and Distribution

Marketing and distribution skills and routes to market remain a major driver of the value of the Group's business. Demand for Ferrexpo blast furnace pellets was at extremely high levels in the first half of 2008, consistent with continued strong global demand for iron and steel products. Demand for the Group's products has continued to outstrip its ability to supply. Pellet sales in the first six months of the year amounted to 4,517kt, with a similar segment mix to the equivalent period in 2007. This was driven by the fact that 81% of sales were to the Group's highest margin Traditional Markets (Eastern and Central Europe). This trend is set to continue, with strong demand growth forecast in the Group's Traditional and Natural Markets, enabling the Group to continue to sell the majority of its production to higher-margin customers in these regions, while expanding its output. 

Progress continues in the Group's marketing and logistics department in developing a profitable portfolio of customers in a range of global markets to underpin our growth plans. Over the past two years the marketing strategy has focused on structuring a stable customer base, culminating in approximately 90% of planned 2008 sales being made to long term framework contract customers. Deliveries to Turkey commenced in the first half of the year under a new long term contract from TIS Ruda, the Group's joint venture ocean vessel shipping terminal in Yuzhny on the Black Sea. This Turkish contract gives another customer in close proximity to FPM that enables smaller lot 'just in time' delivery to be achieved. This better serves the Group's target customers' needs relative to their other long-haul pellet supply options. A new long term contract also commenced to Russia during the period, marking the return to that market in the Group's sales portfolio. Taking advantage of very high spot market prices, the Group also sold product on a spot basis whenever supply beyond contract requirements was available. Further evidence of the Group's efforts in its Traditional Markets was the honour of receiving a 'Supplier of the Year - 2007' award from US Steel in the first quarter of the year.

Annual contract pricing for 2008/9 was largely completed in the first half of the year with the average price increase exceeding 90% as compared to 2007/8 contracted prices. This result was well above global benchmark blast furnace pellet price outcomes, reflecting the Group's continuing efforts to maximize value by focusing on value in use to customers based on quality, reliability and logistics service. 

Heightened focus on logistics chain management continued in the first half of 2008 in response to significant increases to rail tariffs imposed by the Ukrainian state railways during the period. Tariffs rose by 46%. This was the major contributing factor to the 41% increase in distribution costs per tonne of pellets sold in the first six months of the year, to $14.77/t ($10.46/t). The Group took delivery of and deployed a further 330 rail wagons in the first half. This initiative underscores the Group's commitment to mitigate such cost increases and add further reliability into the supply chain to its customers. The Group plans to have 550 of its own rail cars in operation during the second half of 2008, all of which incur a discounted tariff when used on the Ukrainian state rail network. The Group also increased throughput in its joint venture TIS Ruda terminal, and commenced detailed assessments of further potential investments in logistics, which will enhance the reliability of the Group with its core customers. Investments to upgrade inbound rail capacity to the TIS Ruda terminal and channel dredging were committed in the period under review and will be undertaken in the second half of the year.

Capital Expenditure and Growth Projects

The Group's total capital expenditure during the first half of 2008 was $131.2 million, an increase of 145% over the equivalent period in 2007. $19.5 million of this was invested in the GPL Expansion Project, and includes $6.2 million of capitalised stripping. The project is proceeding according to schedule and remains within budget. A further $21 million was spent on mining equipment for the Yeristovskoye mine, much of which has already arrived on site. The Definitive Feasibility Study for this project is expected to be completed in September, along with the Preliminary Feasibility Study on Belanovskoye, the Group's other major growth project. Stripping at the Yeristovskoye deposit is expected to commence in the fourth quarter of this year. Subject to Board approval, the final capital commitment for the project should follow before the end of the year. Scoping studies continue at the Galeshina deposit, and technical activities continue on the Group's northern deposits in line with its licence commitments.

In the fourth quarter the Board will also consider a series of upgrade projects for the GPL processing facilities. The most material of these relate to the upgrade of the first concentrator line such that it will be able to produce higher quality (65% Fe) blast furnace pellets from the Group's leaner ore, and an upgrade of the second concentrator line to enable the production of a low-silica Direct Reduction pellet with an iron content of approximately 68%. These projects include an upgrade to concentrate mixing and filter systems in the pellet plants. If both of these concentrator projects are approved and executed in parallel, the likely capital expenditure will be approximately $350 million. Definitive Feasibility Studies for both of these projects will be completed in September.

Principal risks and uncertainties

The principal risks and uncertainties facing the Group's business for the remainder of the year relate to production costs. The Group has experienced substantial increases to most of its cost inputs in the first half of the year, as stated elsewhere in this report, and there is a risk that these increases may continue in the second half.

As a mining company, the Group is also subject to the ordinary risks associated with large-scale mining operations.

 

 FINANCIAL REVIEW

 Summary of Financial Results

US$ 000	6 months to 30 June 2008	6 months to 30 June 2007	% Change
Revenue	519,498	327,915	58.4
EBITDA	228,023	113,289	101.3
As % of revenue	44%	34%
Profit before taxation	201,350	54,484	269.6
Income tax	43,692	13,905	214.2
Profit for the period	157,658	40,579	288.5
Underlying earnings	138,783	67,408	105.9
Underlying earnings per share	22.76	11.10	105.0
Earnings per share	23.20	6.03	284.7

The Group increased its revenues by 58% to $519.5 million in the period under review compared to the first six months of 2007 ($327.9 million). This excellent performance was due to strong pellet prices, particularly in the second quarter of the year, when the Group was successful in achieving an average price increase of over 90%. Growth in sales volume of higher grade 65% Fe pellets also contributed to improved margins.

C1 Cost, defined as cash cost of production, increased by 36.9% over the first half of 2007. Production costs were impacted by domestic Ukrainian inflation and increases in the costs of energy including diesel, steel and spare parts. These increases were partly mitigated by ongoing efficiency improvements.

The table below sets out the breakdown of the Group's C1 Cost of Sales.

	6 months to 30 June 2008		6 months to 30 June 2007
	US$ 000	% of total	US$ 000	% of total
Materials	34,641	19	30,921	23
Electricity	44,010	24	34,030	26
Personnel costs	28,199	15	21,099	16
Spare parts and consumables	26,216	14	18,317	14
Fuel	22,568	12	11,985	9
Gas	17,883	10	12,488	9
Royalties and levies	3,739	2	3,911	3
Other	7,073	4	-	-
C1 Cost Of Sales	184,329	100%	132,751	100%
C1 Cost per tonne	40.92	-	29.88	-
Depreciation	16,317	-	11,298	-
Cost Of Sales	207,508	-	160,287	-

Selling and Distribution costs increased by 42% to $67.1 million in the first half (H1 2007: $47.2 million), primarily as a result of increases to rail tariffs in Ukraine imposed by the state railway authority. General and Administrative Expenses in the first half of 2008 increased, reflecting increases in costs as a result of the full 6 month period as a listed company compared to pre IPO operations in 2007.

The strong revenue growth was reflected in increased EBITDA for the first six months of the year. EBITDA rose by 101% to $228.0 million, with the Group's EBITDA margin increasing from 34.5% in the first half of 2007 to 43.9% in the current period.

As price rises were effective from the first of April, the group enjoyed significantly enhanced margins in the second quarter. As a result, the EBITDA margin of 22.4% in the first quarter of 2008 increased to 53.6% in the second quarter, demonstrating the effect of the Group's improved sales contracts.

The Group experienced an increase in its effective tax rate in the first half of 2008 to 21.7% (FY 2007: 16.6%) due to increased profitability in the Ukraine as a result of strong price rises. 

The delays experienced historically by the Group's Ukrainian operations in recovering VAT from the government on a timely basis have been resolved, and this additional working capital requirement was removed as at 30 June 2008. 

 

These strong results together with a considerable increase in net cash flow from operating activities have enabled the Group to continue to strengthen its Balance Sheet. The Group increased its net cash flows from operating activities to $141.8 million from $83.3 million in the comparable prior period. The Group's debt to equity ratio (Net Debt divided by Net Debt plus Equity) was 14% as at 30 June 2008 (16% as at 31st December 2007).  

Dividend

The group is declaring an interim dividend of 3.2 US cents per share for the first six months of 2008 (H1 2007: nil). The interim dividend will be paid in Pounds Sterling, but those shareholders who have in the past elected to receive dividends in US dollars will continue to do so. Other shareholders wishing to receive dividends in US dollars should obtain a Currency Election Form from the Ferrexpo website and return the completed form to the Company's registrars by 5 September 2008. The dividend is payable on 17 October 2008 to shareholders on the register on 5 September 2008. 

 

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 2008 which comprises the Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement, Consolidated Statement of Changes in Equity, and the related notes 1 to 20. 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 ISRE 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 Services 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 2008 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 Services Authority. 

Ernst & Young LLP

1 More London Place

28 August 2008

  Statement of Directors' Responsibilities

The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the European Union and that the half-yearly report included a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely: 

an indication of important events that have occurred during the first six months of the financial year and their impact on this condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and 

material related party transactions in the first six months of the year and any material changes in the related party transactions described in the Ferrexpo plc Annual Report 2007. 

The Directors of Ferrexpo plc are listed in the Ferrexpo Annual Report 2007. 

  Consolidated income statement

US$'000	Notes	6 months ended 30.06.08 (unaudited)	6 months ended 30.06.07 (unaudited)	Year ended 31.12.07 (audited)
Revenue	3, 4	519,498	327,915	698,216
Cost of sales	5	(207,508)	(160,287)	(335,936)
Gross profit		311,990	167,628	362,280
Selling and distribution expenses	6	(67,113)	(47,178)	(100,614)
General and administrative expenses	7	(32,438)	(19,962)	(44,308)
Other income		2,736	1,680	4,844
Other expenses		(5,916)	(3,203)	(5,096)
Operating profit from continuing operations before adjusted items		209,259	98,965	217,106
Write-offs and impairment losses	8	(94)	(1,101)	(1,568)
Share of gains / (losses) of associates		1,420	(118)	687
Initial public offering costs		(3,897)	(30,142)	(34,004)
Negative goodwill generated on rights issue		5,077	-	-
Gain on disposal of available-for-sale investments		1,547	-	4,714
Profit before tax and finance		213,312	67,604	186,935
Finance income		1,214	854	3,242
Finance expense		(9,110)	(12,985)	(25,950)
Foreign exchange loss		(4,066)	(989)	(3,467)
Profit before tax		201,350	54,484	160,760
Tax		(43,692)	(13,905)	(26,725)
Profit for the period		157,658	40,579	134,035
Attributable to:
Equity shareholders of Ferrexpo plc		141,449	36,634	124,076
Minority interest		16,209	3,945	9,959
		157,658	40,579	134,035
Earnings per share
Basic (US cents)	10	23.20	6.03	20.41
Diluted (US cents)	10	23.14	6.00	20.33

Consolidated balance sheet

US$'000	Notes	As at 30.06.08 (unaudited)	As at 30.06.07 (unaudited)	As at 31.12.07 (audited)
Assets
Property, plant and equipment	11	474,742	322,769	364,545
Goodwill and other intangible assets		157,443	156,534	156,827
Investments in associates		19,267	16,832	17,637
Available-for-sale financial assets		35,962	36,040	47,134
Deferred tax asset		10,494	-	8,107
Other non-current assets		39,131	3,699	15,179
Total non-current assets		737,039	535,874	609,429
Inventories		75,234	55,383	56,545
Trade and other receivables		78,447	49,951	43,575
Prepayments and other current assets		21,543	10,310	10,773
Income taxes recoverable and prepaid		15	118	5,350
Other taxes recoverable and prepaid		45,855	46,812	52,362
Available-for-sale financial assets		8,768	95	2,941
Short term deposits with banks	12	-	1,460	-
Cash and cash equivalents	13	62,600	71,904	86,966
Total current assets		292,462	236,033	258,512
Total assets		1,029,501	771,907	867,941
Equity and liabilities
Share capital	14	121,628	121,628	121,628
Share premium		183,387	180,887	188,566
Other reserves		33,339	7,903	14,258
Retained earnings		338,616	130,908	216,616
Equity attributable to equity shareholders of the parent		676,970	441,326	541,068
Minority interest		60,693	39,840	45,854
Total equity		737,663	481,166	586,922
Interest-bearing loans and borrowings	16	111,386	178,667	146,091
Trade and other payables		1,705	4,994	2,583
Shares redemption liability	15	-	9,532	-
Defined benefit pension liability		16,746	15,136	16,169
Provision for site restoration		1,955	440	1,746
Deferred tax liability		4,521	2,613	1,025
Total non-current liabilities		136,313	211,382	167,614
Interest-bearing loans and borrowings	16	73,693	15,350	54,537
Trade and other payables		42,849	29,002	25,127
Accrued liabilities and deferred income		15,496	27,331	13,812
Shares redemption liability	15	10,998	-	10,036
Income taxes payable		11,073	2,579	7,717
Other taxes payable		1,416	5,097	2,176
Total current liabilities		155,525	79,359	113,405
Total liabilities		291,838	290,741	281,019
Total equity and liabilities		1,029,501	771,907	867,941

Consolidated cash flow statement 

US$'000	Notes	6 months ended 30.06.08 (unaudited)	6 months ended 30.06.07 (unaudited)	Year ended 31.12.07 (audited)
Net cash flows from operating activities	18	141,805	83,324	188,846
Cash flows from investing activities
Purchase of property, plant and equipment		(131,200)	(53,430)	(104,352)
Proceeds from sale of property, plant and equipment		46	14,870	1,896
Purchase of intangible assets		(545)	-	(435)
Deposits lodged at banks		-	7,475	9,011
Purchases of available for sale securities		-	-	(12,126)
Proceeds from sale of financial assets		59	139	5,704
Interest received		493	329	4,805
Loans provided to associates		-	(5,000)	(5,000)
Net cash flows used in investing activities		(131,147)	(35,617)	(100,497)
Cash flows from financing activities
Proceeds from borrowings and finance		-	175,244	175,244
Repayment of borrowings and finance		(22,049)	(267,749)	(276,084)
Dividends paid to equity shareholders of the parent		(19,449)	-	-
Dividends paid to minority interests		(232)	(465)	(786)
Distribution under 50/50 tax ruling		-	(5,000)	(5,000)
Proceeds from issue of share capital in Ferrexpo plc:
Initial public offering proceeds		-	202,072	202,072
Non initial public offering proceeds		-	-	99
Initial public offering costs		-	(32,250)	(48,648)
Share buy back in previous parent		-	(64,055)	(64,055)
Net cash flows (used in)/from financing activities		(41,730)	7,797	(17,158)
Net increase/(decrease) in cash and cash equivalents		(31,072)	55,504	71,191
Cash and cash equivalents at the beginning of the period		86,966	16,236	16,236
Currency translation differences		6,706	164	(461)
Cash and cash equivalents at the end of the period	13	62,600	71,904	86,966

Consolidated statement of changes in equity (unaudited)

	Attributable to equity shareholders of the parent
$000	Issued capital	Share Premium	Uniting of interest reserve	Employee Benefit Trust reserve	Net unrealised gains reserve	Translation reserve	Retained earnings	Total reserves		Minority interests	Total equity
At 1 January 2007	-	-	137,296	-	-	186	163,164	300,646		36,146	336,792
Profit for the period	-	-	-	-	-	-	36,634	36,634		3,945	40,579
Total income and expense for the period recognised in equity	-	-	-	-	-	-	36,634	36,634		3,945	40,579
Items recognised directly in equity:
Distribution under 50/50 tax ruling	-	-	-	-	-	-	(4,835)	(4,835)		-	(4,835)
Equity dividends paid by subsidiary undertakings to minority shareholders	-	-	-	-	-	-	-	-		(251)	(251)
Share issue in parent company	121,628	215,275	-	-	-	-	-	336,903		-	336,903
Transaction 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 Group	-	-	-	-	-	-	(64,055)	(64,055)		-	(64,055)
Shares issued to Employee Benefit Trust	-	-	-	(29,216)	-	-	-	(29,216)		-	(29,216)
Share based payments	-	-	-	5,153	-	-	-	5,153		-	5,153
At 30 June 2007	121,628	180,887	31,780	(24,063)	-	186	130,908	441,326		39,840	481,166
Deferred tax on transaction costs	-	5,179	-	-	-	-	-	5,179		-	5,179
Revaluation of available-for-sale assets	-	-	-	-	2,384	-	-	2,384		-	2,384
Profit for the period	-	-	-	-	-	-	87,442	87,442		6,014	93,456
Total income and expense for the period recognised in equity	-	5,179	-	-	2,384	-	87,442	95,005		6,014	101,019
Items recognised directly in equity:
Distribution under 50/50 tax ruling	-	-	-	-	-	-	(1,734)	(1,734)		-	(1,734)
Transaction costs associated with issue of shares		2,500	-	-	-	-	-	2,500		-	2,500
Share-based payments	-	-	-	3,971	-	-	-	3,971		-	3,971
At 31 December 2007	121,628	188,566	31,780	(20,092)	2,384	186	216,616	541,068		45,854	586,922
Profit for the period	-	-	-	-	-	-	141,449	141,449		16,209	157,658
Realised gains on financial assets available for sale	-	-	-	-	(1,530)	-	-	(1,530)		-	(1,530)
Unrealised losses on financial assets available for sale	-	-	-	-	(4,447)	-	-	(4,447)		(618)	(5,065)
Deferred tax	-	-	-	-	1,040	-	-	1,040		144	1,184
Write-off of deferred tax asset on IPO costs	-	(5,179)	-	-	-	-	-	(5,179)		-	(5,179)
Foreign currency translation adjustments	-	-	-	-	-	19,094	-	19,094		2,879	21,973
Total income and expense for the period recognised in equity	-	(5,179)	-	-	(4,937)	19,094	141,449	150,427		18,614	169,041
Items recognised directly in equity:
Equity dividends paid to shareholders of Ferrexpo plc	-	-	-	-	-	-	(19,449)	(19,449)		-	(19,449)
Equity dividends paid by subsidiary undertakings to minority shareholders	-	-	-	-	-	-	-	-		(324)	(324)
Share based payments	-	-	-	4,924	-	-	-	4,924		-	4,924
Adjustments relating to the increase in minority interest	-	-	-	-	-	-	-	-		(3,451)	(3,451)
							-
At 30 June 2008	121,628	183,387	31,780	(15,168)	(2,553)	19,280	338,616	676,970		60,693	737,663

Notes to the consolidated financial information

Note 1: Corporate information

Organisation and operation

Ferrexpo plc (the "Company") is incorporated in the United Kingdom with registered office at 2 - 4 King Street, London, SW1Y 6QL, UK. Ferrexpo plc and its subsidiaries (the "Group") operate a mine and processing plant near Kremenchuk in Ukraine. The Group's operations are vertically integrated from iron ore mining through to iron ore concentrate and pellet production. In addition, the Group owns a 49.9% interest in TIS Ruda, a port on the Black Sea. The Group's mineral properties lie within the Kremenchuk Magnetic Anomaly and are currently being exploited at the Gorishne-Plavninsky and Lavrikovsky deposits. These deposits are being jointly mined as one mining complex.

The Group's operations are largely conducted through Ferrexpo plc's principal subsidiary, Ferrexpo Poltava GOK Corporation. The Group is comprised of Ferrexpo plc and its consolidated subsidiaries and associate as set out below:

			Equity interest owned at
Name	Country of incorporation	Principal activity	30.06.08 %	30.06.07 %	31.12.07 %
Ferrexpo Poltava GOK Corporation*	Ukraine	Iron ore mining	87.8	85.9	85.9
Ferrexpo AG**	Switzerland	Sale of iron ore pellets	100.0	100.0	100.0
DP Ferrotrans***	Ukraine	Trade, transportation services	100.0	100.0	100.0
United Energy Company LLC***	Ukraine	Holding company	100.0	100.0	100.0
Ferrexpo UK Limited*	England	Finance	100.0	100.0	100.0
Ferrexpo Services Limited*	Ukraine	Management services & procurement	100.0	100.0	100.0
Ferrexpo Yeristova GOK LLC	Ukraine	Iron ore mining	100.0	100.0	100.0
TIS Ruda ****	Ukraine	Port	49.9	49.9	49.9

* The Group's interest in these entities is held through Ferrexpo AG.

**Ferrexpo AG was the holding company of the Group until, as a result of the pre-IPO restructuring, Ferrexpo plc became the holding company on 24 May 2007.

*** The Group's interest in these entities is held through Ferrexpo Poltava GOK Corporation.

**** Accounted for using the equity method of accounting.

Note 2: Summary of significant accounting policies

The interim consolidated financial statements for the six months ended 30 June 2008 have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting. The interim 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.

The interim consolidated financial statements do not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the full year is based on the statutory accounts for the financial year ended 31 December 2007. 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 up to 31 December 2007, has been delivered to the Register of Companies. The auditors' report under section 235 of the Companies Act 1985 in relation to those accounts was unqualified.

Changes in accounting policy

The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2007, except for the adoption of the following IFRIC interpretation mandatory for annual periods beginning on or after 1 January 2008:

International Financial Reporting Interpretations Committee (IFRIC)  Effective date 

IFRIC 14  (IAS 19) The limit on a defined benefit asset, minimum

funding requirements and their Interaction 1 January 2008

The adoption of this IFRIC interpretation did not affect the Group results from operations or financial positions.

Foreign currency translation

The following exchange rates have been applied:

Currency rates (US$1)	Average HY 2008	30 June 2008	Average HY 2007	30 June 2007	Average FY 2007	31 Dec 2007
Ukrainian Hryvnia	5.017	4.8489	5.050	5.050	5.050	5.050

Note 3: Segmental information

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

The Group's activity is primarily the processing and sale of iron ore and only one business segment is therefore identified as a reportable segment. As a result, we have not presented the segment information in respect of the Group's business segment.

Note 4: Revenue

Revenue for the six months ended 30 June 2008 consisted of the following:

US$'000	6 months ended 30.06.08	6 months ended 30.06.07	Year ended 31.12.07
Revenue from sales of ore pellets:
Export	439,753	265,454	560,805
Ukraine	75,905	59,527	128,731
	515,658	324,981	689,536
Revenue from sales of services	680	150	3,005
Revenue from other sales	3,160	2,784	5,675
	519,498	327,915	698,216

Export sales by geographical destination were as follows:

US$'000	6 months ended 30.06.08	6 months ended 30.06.07	Year ended 31.12.07
Austria	115,987	84,037	160,324
Serbia	95,295	48,163	83,708
China	83,827	45,185	103,223
Slovakia	59,154	30,254	81,516
Czech Republic	36,116	22,676	55,617
Russia	18,341	-	-
Turkey	11,526	5,849	9,777
Bulgaria	9,833	13,368	27,389
Poland	9,674	5,466	23,766
Romania	-	7,038	7,038
Japan	-	-	5,029
Italy	-	3,418	3,418
	439,753	265,454	560,805

Note 5: Cost of sales

Cost of sales for the period ended 30 June 2008 consisted of the following:

US$'000	6 months ended 30.06.08	6 months ended 30.06.07	Year ended 31.12.07
Materials	47,624	34,165	92,449
Purchased ore and concentrate	8,144	13,196	17,587
Electricity	43,717	35,313	74,621
Personnel costs	29,640	22,981	47,402
Spare parts and consumables	16,922	12,095	14,663
Depreciation and amortisation	14,447	11,603	25,635
Fuel	23,745	12,269	28,086
Gas	18,021	13,315	25,576
Royalties and levies	3,806	4,157	8,570
Other	1,442	1,193	1,347
	207,508	160,287	335,936

Cost of sales is reconciled to "C1" costs in the following manner:

US$'000	6 months ended 30.06.08	6 months ended 30.06.07	Year ended 31.12.07
Cost of sales	207,508	160,287	335,936
Depreciation and amortisation	(13,898)	(11,425)	(25,635)
Purchased ore and concentrate	(8,394)	(14,151)	(19,911)
Production cost of gravel	(709)	(1,240)	(2,101)
Stock movement in the period	5,017	1,536	(6,284)
Pension current service cost	(667)	(927)	(1,877)
Other	(4,528)	(1,114)	(555)
C1 Cost	184,329	132,966	279,573
Own ore produced (tonnes)	4,504,000	4,450,000	8,793,000
C1 cash cost per tonne $	40.92	29.88	31.79

"C1" costs represent the cash costs of production of own ore divided by production volume of own ore, and excludes non-cash costs such as depreciation, pension costs and stock movement, and costs of purchased ore, concentrate and production cost of gravel.

  Note 6: Selling and distribution expenses

Selling and distribution expenses for the period ended 30 June 2008 consisted of the following:

US$'000	6 months ended 30.06.08	6 months ended 30.06.07	Year ended 31.12.07
Personnel costs	496	533	827
Railway tariffs	43,518	26,192	59,387
Sea and river freight	16,545	17,227	33,119
Commission fees	962	818	2,025
Other distribution costs	4,202	1,530	2,865
Other marketing costs	968	600	1,816
Depreciation	422	278	575
	67,113	47,178	100,614

Note 7: General and administrative expenses

General and administrative expenses for the period ended 30 June 2008 consisted of the following:

US$'000	6 months ended 30.06.08	6 months ended 30.06.07	Year ended 31.12.07
Personnel costs	16,059	9,886	19,621
Buildings and maintenance	1,920	1,406	2,361
Communication costs	436	190	700
Security	641	305	769
Consulting and other professional fees	6,968	1,549	8,464
Taxes other than income tax and other charges	2,141	1,814	3,674
Bank charges	335	195	339
Other	2,530	3,873	6,833
Depreciation	1,408	744	1,547
	32,438	19,962	44,308

Note 8: Write-offs and impairment losses

Impairment losses relate to adjustments made against the carrying value of assets where this is higher than the recoverable amount. Write-offs and impairment losses for the period comprise:

US$'000	6 months ended 30.06.08	6 months ended 30.06.07	Year ended 31.12.07
Write-off/(write-up) of inventories	-	112	(544)
Write-off of property, plant and equipment	-	989	2,112
Impairment of available-for-sale investments	94	-	-
	94	1,101	1,568

Note 9: EBITDA

The Group calculates EBITDA as profit from continuing operations before tax and finance less foreign exchange gain/(loss) plus depreciation and amortisation (included in cost of sales, administrative expenses and selling and distribution costs) and non-recurring cash items included in other income, non-recurring cash items included in other costs plus the net gain/(loss) from disposal of subsidiaries and associates. The Group presents EBITDA because it believes that EBITDA is a useful measure for evaluating its ability to generate cash and its operating performance.

US$'000	6 months ended 30.06.08	6 months ended 30.06.07	Year ended 31.12.07
Profit before tax and finance	213,312	67,604	186,935
Write-offs and impairment losses	94	1,101	1,568
Net gain on disposal of available-for-sale investment	(1,547)	-	(4,714)
Initial public offering costs	3,897	30,142	34,004
Share based payments	1,027	-	-
Negative goodwill generated on rights issue	(5,077)	-	-
Depreciation and amortisation	16,317	14,442	28,264
EBITDA	228,023	113,289	246,057

Note 10: 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 number of ordinary shares. The number of shares was assumed to be constant throughout 2007, the year of the Group's Initial Public Offering.

	6 months ended 30.06.08	6 months ended 30.06.07	Year ended 31.12.07
Profit for the period attributable to equity shareholders:
Basic earnings per share (US cents)	23.20	6.03	20.41
Diluted earnings per share (US cents)	23.14	6.00	20.33
Underlying earnings for the period:
Basic earnings per share (US cents)	22.76	11.10	24.93
Diluted earnings per share (US cents)	22.70	11.05	24.84

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

Thousands	6 months ended 30.06.08	6 months ended 30.06.07	Year ended 31.12.07
Number of shares
Basic number of ordinary shares outstanding	609,794	607,471	607,796
Effect of dilutive potential ordinary shares	1,492	2,716	2,403
Diluted number of ordinary shares outstanding	611,286	610,187	610,199

Diluted earnings per share is calculated by adjusting the 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 included in the calculation of diluted earnings per share.

'Underlying earnings' is an alternative earnings measure, which the directors believe provides a clearer picture of the underlying financial performance of the Group's operations. Underlying earnings is presented after minority interests and excludes adjusted items. The calculation of underlying earnings per share is based on the following earnings data:

US$'000	Notes	6 months ended 30.06.08	6 months ended 30.06.07	Year ended 31.12.07
Profit attributable to equity holders		141,449	36,634	124,076
Write offs/impairments	8	94	1,101	1,568
IPO costs		3,897	30,142	34,004
Negative goodwill generated on rights issue		(5,077)	-	-
Gain on sale of available-for-sale investment		(1,547)	-	(4,714)
Tax on adjusted items		(23)	(275)	(3,217)
Minority interests		(13)	(155)	(220)
Tax on minority interests		3	(39)	48
Underlying earnings		138,783	67,408	151,545

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 adjusted items include gains and losses on disposal of investments and businesses.

Dividends paid and proposed

US$'000	6 months ended 30.06.08	6 months ended 30.06.07	Year ended 31.12.07
Declared and paid
Final dividend for 2007: 3.2 US cents per ordinary share	19,449	-	-
Total	19,449	-	-

Note 11: Property, plant and equipment

During the six months ended 30 June 2008, the Group acquired property, plant and equipment with a cost of $118,524,000 (31 December 2007: $95,370,000; 30 June 2007: $50,992,000).

Note 12: Short term deposits with banks

At 30 June 2008 the Group held no interest bearing term deposits with a maturity term of less than one year (31 December 2007: $nil; 30 June 2007: $1,460,000).

Note 13: Cash and cash equivalents

The cash and cash equivalents of the Group at the end of the period comprised:

US$'000	As at 30.06.08	As at 30.06.07	As at 31.12.07
Cash at bank	62,599	71,861	86,963
Petty cash	1	43	3
	62,600	71,904	86,966

Note 14: Share capital

The share capital of the Company consists of 613,967,956 ordinary shares of £0.10 each, giving a nominal value of $121,628,000 which is unchanged since the Group's Initial Public Offering in June 2007.

Note 15: Shares redemption liability

In October 2003, JSC Poltava GOK sold 15 per cent of its shares to DCM Decometal International Trading GmbH ("DCM") subject to a deferred obligation to repurchase these shares at a fixed price of $11.0 million. The share redemption liability represents the present value in respect of this contractual obligation. The movement in the shares redemption liability comprised:

US$'000
Balance as at 1 January 2007	9,062
Interest expense	470
Balance as at 30 June 2007	9,532
Interest expense	504
Balance as at 31 December 2007	10,036
Interest expense	962
Balance as at 30 June 2008	10,998

  Note 16: Interest bearing loans and borrowings

Borrowing and repayment of debt

During the period ended 30 June 2008 the amount of $18,182,000 was repaid on the major bank debt facility (31 December 2007 and 30 June 2007: $35,000,000), a $335,000,000 pre-export finance facility (31 December 2007: $335,000,000; 30 June 2007: $275,000,000). At the period end $135,000,000 of the facility was unutilised (31 December 2007: $135,000,000; 30 June 2007: $145,000,000). 

All other loan balances relate to Ferrexpo Poltava GOK Corporation.

Note 17: Related party disclosure

During the periods presented the Group entered into arm's length transactions with entities under common control of the majority owner of the Group, Kostyantin Zhevago and with other related parties.

Management considers that the Group has appropriate procedures in place to identify and properly disclose transactions with the related parties. 

Excluding the associated company TIS Ruda, the related party transactions undertaken by the Group during the periods presented are summarised below:

	6 months ended 30.06.08		6 months ended 30.06.07		Year ended 31.12.07
US$'000	Entities under common control	Other related parties	Entities under common control	Other related parties	Entities under common control	Other related parties
Iron ore pellet sales	-	-	-	46	-	-
Other sales	519	1,686	32	1,562	3,013	4,336
Total revenue	519	1,686	32	1,608	3,013	4,336
Purchase of materials	9,996	8,858	113	7,207	18,417	13,731
Purchase of services	162	270	1,912	718	2,460	767
General and administration expenses	1,212	34	-	-	361	19
Selling and distribution	-	5,347	-	822	1,801	1,797
Other expenses	6	6	-	-	202	76
Total expenses	11,376	14,515	2,025	8,747	23,241	16,390
Finance income	141	-	303	-	415	212
Finance costs	378	-	109	-	141	-
Net finance costs/(income)	237	-	(194)	-	(274)	(212)

Finance income and finance costs

The financing of the Group is principally undertaken with third party financial institutions outside of Ukraine. The Group also has transactional banking arrangements with Finance & Credit Bank in Ukraine which is under common control.

  Sale and purchases of property, plant and equipment and investments

	6 months ended 30.06.08		6 months ended 30.06.07		Year ended 31.12.07
US$'000	Entities under common control	Other related parties	Entities under common control	Other related parties	Entities under common control	Other related parties
Sale of investments (i)	1,849	-	-	-	5,613	-
Purchase of investments (ii)	-	-	-	-	11,994	-
Sale of property, plant and equipment (iii)	-	-	-	-	690	-
Purchase of property, plant and equipment (iv)	77	-	179	61	5,450	61

(i) In May 2008 the Group disposed of 2.054% of its share in Vostock Ruda, an available-for-sale investment, to entities under common control for a consideration of $1,849,000 resulting in a gain on disposal of $16,000 (31 December 2007: The Group sold a 6.2% interest in Vostock Ruda, for consideration of $5,613,000, resulting in a gain on disposal of $4,714,000; 30 June 2007: $nil).

(ii) During 2007 the Group acquired 9.91%, ex rights, of the share capital in OJSC Stahanov, a quoted rail car manufacturing business located in the Luhansk region of Ukraine for consideration of $11,994,000 from an entity under common control. Following successful completion of the capital reorganisation in May 2008, this holding was reduced to 3.3%.

(iii)  During 2007 land and buildings not used by the Group were disposed to an entity under common control for $690,000.

(iv) During 2008 the Group purchased property, plant and equipment from entities under common control for a consideration of $77,000 (2007: $5,450,000 of which $4,965,000 was for the purchase of 110 railcars from OJSC Stahanov).

On 15 July 2008 the company subscribed for additional capital amounting to $270,000 in OJSC Stahanov as part of the rights issue of that company.

The outstanding investments/balances with related parties for the periods presented are as follows:

	As at 30.06.08		As at 30.06.07		As at 31.12.07
US$'000	Entities under common control	Other related parties	Entities under common control	Other related parties	Entities under common control	Other related parties
Investments available for sale	35,962	3	35,884	97	47,023	97
Total non-current assets	35,962	3	35,884	97	47,023	97
Investments available for sale	8,768	-	-	-	2,839	-
Promissory notes issued	-	-	218	-	218	12
Trade and other receivables	2,671	243	10,859	1,123	793	581
Prepayments and other current assets	4	110	-	-	-	-
Short term deposits with banks	-	-	1,460	-	-	-
Cash and cash equivalents	10,740	-	4,015	-	8,727	-
Total current assets	22,183	353	16,552	1,123	12,577	593
Trade and other payables	388	740	874	1,597	2,185	1,099
Accrued liabilities and deferred income	367	-	-	-	-	-
Current liabilities	755	740	874	1,597	2,185	1,099

As of 30 June 2008 available for sale investments included $35,962,000 in LLC Atol (31 December 2007: $34,530,000), $7,737,000 in OJSC Stahanov (31 December 2007: $12,493,000) and $1,031,000 in Vostock Ruda (31 December 2007: $2,839,000).

As of 30 June 2008 trade and other receivables included outstanding amounts relating to the disposal of Vostock Ruda of $1,925,000, including exchange rate difference (31 December 2007: $nil).

As of 30 June 2008 Cash and cash equivalents with Finance & Credit Bank were $10,740,000 (31 December 2007: $8,727,000).

Note 18: Reconciliation of profit before income tax to net cash flow from operating activities

US$'000	6 months ended 30.06.08	6 months ended 30.06.07	Year ended 31.12.07
Profit before income tax	201,350	54,484	160,760
Adjustments for:
Depreciation of property, plant and equipment and amortisation of intangible assets	16,317	14,442	28,265
Interest expense	7,473	9,762	24,488
Interest income	(1,214)	(849)	(3,242)
Share of (income)/losses of associates	(1,420)	118	(687)
Movement in allowance for doubtful receivables	121	-	336
(Gain)/loss on disposal of property, plant and equipment	677	(140)	-
Write off and impairment losses	94	1,101	1,568
Site restoration provision	243	-	1,269
(Gains)/ losses on disposal of investments available for sale and other financial instruments	(1,546)	294	(4,714)
Employee benefits	1,394	1,562	3,915
IPO costs	3,897	30,142	34,004
Share based payments	1,027	-	-
Negative goodwill generated on rights issue	(5,077)	-	-
Foreign exchange (gain)/loss	4,066	34	3,467
Operating cash flow before working capital changes	227,402	110,950	249,429
Changes in working capital
(Increase)/decrease in trade accounts receivable and other receivables	(45,372)	16,110	13,951
(Increase)/decrease in inventories	(18,689)	(7,904)	(7,840)
Increase/(decrease) in trade and other accounts payable	19,391	(7,722)	6,534
(Increase)/decrease in other taxes receivable	5,747	-	(14,411)
Cash generated from operating activities	188,479	111,434	247,663
Interest paid	(7,487)	(9,743)	(24,525)
Income tax paid	(37,711)	(17,439)	(32,018)
Post employment benefits paid	(1,476)	(928)	(2,274)
Net cash flows from operating activities	141,805	83,324	188,846

Note 19: Commitments and contingencies

US$'000	As at 30.06.08	As at 30.06.07	As at 31.12.07
Operating lease commitments	21,776	13,863	13,744
Capital commitments on purchase of property and equipment	79,420	16,348	60,904
Guarantees provided	316,818	275,000	335,000

Legal

In the ordinary course of business, the Group is subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition or the results of future operations of the Group.

Tax and other regulatory compliance

Ukrainian legislation and regulations regarding taxation and custom regulations continue to evolve. Legislation and regulations are not always clearly written and are subject to varying interpretations and inconsistent enforcement by local, regional and national authorities, and other Governmental bodies. Instances of inconsistent interpretations are not unusual.

The uncertainty of application and the evolution of Ukrainian tax laws, including those effecting cross border transactions, create a risk of additional tax payments having to be made by the Group, which could have a material effect on the Group's financial position and results of operations. The Group does not believe that these risks are any more significant than those of similar enterprises in Ukraine.

Note 20: Subsequent events

No material adjusting or non-adjusting events have occurred subsequent to the year-end that warrant disclosure in these financial statements.

ENDIR GGGZRNNGGRZM