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Ferrexpo profits surge on back of higher iron ore prices
Ferrexpo declared a higher special dividend than most investors may have expected, as a 7% fall in pellet production was offset by higher iron ore prices and expectations for premium pellet prices in 2018.
The 10.4m tonnes of iron ore pellets produced in the calendar year was sold at an average price up 22% to $71.3 per tonne, leading to revenues jumping 21% to $1.2bn.
Rising prices meant that Ferrexpo, which mines its iron in the Poltava region of Ukraine and is headquartered in Baar, Switzerland, saw profits surge in spite of rising costs.
Market premiums for higher quality iron ore pellets reached a record for the group, but costs per tonne increased from a ten-year low in 2016, with cash costs up 17% to $32.3 per tonne reflecting higher costs for commodity priced inputs as well as the impact of a 7% decline in production volumes due to maintenance activities.
As cost of sales was up by a smaller proportion than sales, underlying earnings before interest, tax, depreciation and amortisation leapt 47% to $551m as the EBITDA margin clicked up eight percentage points to 46% and attributable profit doubled to US$393m.
With operational cash generation coming in at $527m but net cash flow reduced to $353.5m due to a large adverse working capital movements and a $24.4m tax refund the year before, eclipsing the $97.5m invested in the business.
As a result, the company was able to pay a final and special dividend of 9.9 cents to bring the total dividend for the year to 16.5 cents, and cut net debt by $238.7m to $403m, the lowest since 2011.
On the outlook, management expect to benefit from higher pellet premiums in 2018, "reflecting agreements already reached with customers and the prevailing strength in demand for high quality pellets".
There will be a 65-day pellet line shutdown in the second quarter but first half production should still be in-line with last year, while in the second it should be ahead.