6th Aug 2014 06:54
LONDON (Alliance News) - Ferrexpo PLC Wednesday said pretax profit jumped in its first half due to a large reduction in operating costs through production efficiencies and the devaluation of the Ukrainian currency.
The iron-ore producer, which operates solely in Ukraine, said its pretax profit increased 65% to USD247.6 million for the six months ended June 30 from USD149.9 million the previous year.
The company said revenue fell 2.0% to USD758.9 million from USD774.7 million due to lower benchmark iron ore prices, which on average fell by 19% compared to the same period the previous year.
However, Ferrexpo also said its cost of sales fell 15% to USD333.1 million as a result of higher sales volumes, coupled with lower costs per tonne of pellets produced due to production efficiencies and the devaluation of the Ukrainian hryvnia.
The company also booked a one-off gain of USD47.4 million as a result of a revaluation of its US dollar denominated trade receivables in Ukraine, following the drop in the value of the hryvnia.
Ferrexpo maintained its interim dividend at 3.3 US cents per share.
The company did note that the reduction in costs could be offset in the future by inflation and the Hryvnia devaluation has also resulted in a significant write-down of the outstanding US dollar balance of VAT and prepaid corporate profit tax.
Ferrexpo also said that a contractor died during the period at its operations, and a full investigation is being conducted to prevent future work-related injuries and fatalities.
In the first half, the company's total pellet production increased 2% to 5.4 million tonnes, while production of premium 65% iron pellets increased 13% to 2.6 million tonnes.
As a result, Ferrexpo saw a 3% increase in sales volumes to 5.5 million tonnes with demand strong throughout the period, and its long term contracts performing at or above base volume levels.
During the period, its Poltava operations completed a major planned refurbishment of one of the pellet lines. It was the first time a maintenance programme of such scale had been undertaken by the company, it said, and it was completed without disrupting production of the remaining three pellet lines. Ferrexpo intends to refurbish another pellet line in 2015.
The company said it remains on track to increase its pellet volume to 12 million tonnes and to upgrade the iron content of all of its pellet production to 65% iron. Further growth in its production volumes and quality will depend on its ability to fund capital expenditure from its own cash flows.
Ferrexpo is currently operating in a difficult environment due to the conflict in eastern Ukraine, but Ferrexpo Chairman Michael Abrahams drew attention to the fact that its facilities are located in the Poltava region in the centre of the country, 425 kilometres north of Donetsk.
"To date, Ferrexpo's operations have not been directly impacted by the unrest in the east and Ferrexpo's solid operational performance and strong export sales during the period were able to provide the country with much needed revenue and tax income," Abrahams said in a statement.
By Tom McIvor; [email protected]; @TomMcIvor1
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