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Ferrexpo plc
Annual Report & Accounts 2023
DETERMINED
WE ARE DETERMINED
Ferrexpo plc Annual Reports & Accounts 2023
Contents
Strategic Report 01
Executive Chair’s Statement 02
Chief Financial Officer’s Statement 04
Operating during a time of war 06
Our Business
Business Model 08
Value Proposition 10
Strategic Framework 12
KPIs 14
Operational Review 18
Market Review 22
Financial Review 26
Responsible Business Review
Introduction 32
Safety 34
Net Zero Pathway 36
Double Materiality Assessment 38
Life Cycle Assessment 42
TCFD Disclosures 43
Diversity, Equity and Inclusion 60
Governance 62
Non-Financial Information Statement 63
Stakeholder Engagement – Section 172 64
Risk Management 72
Principal Risks 74
Viability Statement 91
Corporate Governance 93
Financial Statements 158
Additional Disclosures 235
Alternative Performance Measures 236
Glossary 238
References to Ferrexpo plc
For references to Ferrexpo plc in this report see glossary.
We are determined to
protect our people and
ourassets so that we
maycontinue to operate
and contribute positively
toUkrainian society and
theeconomy.
As a leading European
supplier of premium iron
orepellets we are enabling
the transition to green steel.
Ourproducts are important
to Ukraine and to customers
around the world.
Look out for our
operational Q&As
Throughout the report this year,
you will find Q&As from our colleagues
across different areas of our business
discussing what it is like operating during
a time of war.
01
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Executive
Chair and CFO
statements
Market
Review
Financial
Review
02
Operational
Review
Responsible
business
Operating
during a time
of war
32
06
18
26
22
02
Ferrexpo plc Annual Reports & Accounts 2023
Executive Chair’s Statement
Ferrexpo has demonstrated a
strong performance during a
time of war and we shouldbe
proud of our achievements.
Inthe face of extraordinary
circumstances, wehave
continued to produce, export,
and preserve cash.
Dear Shareholder
The challenges that Ferrexpo faced in
2023 cannot be understated. After two
years of war in Ukraine, our people and our
business continue to be severely affected.
Our strategy to move early and right-size our
business, so that we are more responsive
to ever changing circumstances, is working.
During the year, we have worked tirelessly
to protect our people, preserve the integrity
of our assets, and contribute to local society
and the national economy. In the face of
such extraordinary circumstances, we
have continued to produce and export our
products and preserve cash. I believe that
the company has performed exceptionally
well and despite the challenges we
should be proud of our achievements.
War
This announcement covers the financial year
2023, the second year of war since Russia
commenced its full-scale invasion of Ukraine in
February 2022 and at the time of the publication
of this report it is already the third year.
Beyond the challenges in Ukraine, it would
appear that the wider world is entering a
new era of geopolitical uncertainty. Old
conflicts have reignited, new ones are
emerging, and autocratic leaders and their
nationalist agendas are prevailing in and
across many countries and regions.
Against this increasingly volatile and complex
backdrop, it is perhaps inevitable, regrettably,
that when it comes to Ukraine, a certain level
of ‘war weariness’ is starting to appear.
Weariness, however, is not an option for the
people of Ukraine who at no point have lost
sight of what is at stake – the very existence
of the Ukrainian state. It is my observation
that the Ukrainian identity has strengthened
over this period, which has bolstered the
resilience and commitment of Ukrainians
– who remain as determined as ever.
Reconstruction
Today, even during a time of war, Ukraine
is already considering what sort of state it
wants to be when the war is over, and how
to reconstruct its political system, economy
and society as a whole. In December 2023,
this thinking took a decisive direction when
the EU opened member accession talks with
Ukraine. Setting a path for the integration of
Ukraine into the EU is the right thing, and one
in which Ferrexpo can play a critical role.
As Ukraine embarks on the task of economic
reconstruction, government and business
must work together to agree on the steps
needed to create an investment environment
that will help rebuild Ukraine as quickly
as possible and shorten the path to EU
membership. This includes upholding the
rule of law, creating a level playing field for
business and gaining the trust of a new set
of investors who see prospects for rapid,
sustained growth in the country after the
war. It also means rooting out much of the
corruption that is endemic in Ukraine.
03
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo holds a pivotal position in shaping
Ukraine’s future. As a UK-based public
limited company, we uphold governance
standards that instil confidence in international
investors, safeguarding their investments. Our
commitment extends beyond financial security;
we aim to bolster and expand our capabilities
to drive growth in the Ukrainian economy.
With a focus on producing premium products
essential for steel producers’ decarbonisation
efforts, especially within Europe, we are poised
to facilitate the growth of sustainable trade
between Ukraine and the EU. Our dedication
to this cause marks our distinctive role in
Ukraine’s reconstruction. Ferrexpo is uniquely
positioned to lead the charge towards a
prosperous and sustainable future for Ukraine.
People
Our future hinges upon our people – our
steadfast workforce, their families, and the
communities we serve. This commitment
unequivocally extends to those members of
our workforce who are bravely serving in the
Armed Forces of Ukraine. We honour their
sacrifice and eagerly anticipate their return
to the roles we have preserved for them.
Ferrexpo stands out for its unparalleled
combination of large-scale and top-tier
assets within our industry. However, it is
the unwavering dedication of our workforce
that truly fuels the productivity of these
assets. So, at this point, I’d like to express
our heartfelt gratitude to each and every
member of our team for their tireless
efforts and unwavering determination.
I am deeply saddened that 19 of our
colleagues were killed serving in the Armed
Forces of Ukraine in 2023, bringing the total to
35 since February 2022. We bow for each of
these brave souls. May they rest in peace and
be remembered for their extraordinary courage
and sacrifice. At the date of this report, 641
of our colleagues are serving in the armed
forces, equal to 9% of our total workforce.
Safety and wellbeing
Throughout the year, Ukraine has continued to
face regular attacks from Russia, influencing
how we ensure the wellbeing of our people,
who remain our primary concern. We are
committed to ensuring their safety and offering
comprehensive physical and psychological
support during these challenging times.
Examples of this include providing protective
clothing for those serving in the armed forces,
building bomb shelters for those working in
industrial functions, the provision of meals
for those on longer shifts, permitting those in
administrative functions to work from home
and offering child care in safe bomb shelters.
We continue to provide broader assistance
through our humanitarian aid programmes,
which have provided housing, food and
medicine, funded the donation of equipment,
and support programmes and initiatives.
Safety must be thought of in new and broader
terms. For example, as the war evolves we
are starting to see people return from the
armed forces. The rehabilitation of veterans
into the workforce is challenging, especially
for those with physical and mental injuries.
We have helped with physical rehabilitation,
including prosthetics, and emotional
trauma. This extends to support for family
members too. It is our role to foresee and
adapt to these changes, so that we can
continue to keep our people as safe as
possible and support their wellbeing.
Skills
The enlisting of such a large amount of
our Ukrainian workforce, particularly those
with technical skills, has had an inevitable
impact on our human and operational
capacity. The workforce that remained
on site have proven remarkably agile
and flexible, ensuring the continuity of all
activities. Our training centres have risen to
the challenge to help people develop new
skills, including internally displaced people
joining our workforce, and for others learning
to upskill and cross-skill, to provide the
optimum flexibility across our workforce.
The determination of our employees has
proven invaluable in overcoming some
disruptions to vital infrastructure, an
inevitable eventuality of Russia’s regular
attacks on Ukraine. While we did suffer
some downtime as a result of damage to
electricity transformers, roads and bridges,
our speedy repairs, sometimes working with
various authorities has meant that operational
disruptions were mostly short lived.
Assets and logistics
Thanks to the resilience of our employees
the Company’s assets remain intact
and operational. Together, we have
continued to seek to preserve Ferrexpo’s
underlying value as well as the Company’s
significance for the Ukrainian economy.
During the year, we continued to invest in
our assets, such as the construction and
commissioning of the press filtration complex,
to improve the quality of our products.
Resources have been devoted to undertaking
desktop reviews and engineering analysis.
By completing these studies at a time of
considerable constraint, we will not only
be in a far better position to recommission
production in the future, but also have more
clarity when we reinitiate upgrade and
expansion projects. We will continue with
this advanced preparatory work into 2024.
Limitations on our logistics corridors have
again constrained our ability to export,
whichforced us to limit production levels.
Wehave been able to operate one, sometimes
two, of our four pellet lines to match the
reduced export capacity available to us.
The lack of access to Black Sea export
routes, in particular, sharply reduced
opportunities to export product volumes
to the Middle East and Asia, however, this
has started to ease since early 2024.
Thanks
There were some Board changes during the
year. Ann-Christin Andersen and Graeme
Dacomb resigned from the Board and I would
like to express my thanks to both. I would
also like to extend my thanks to Jim North
who stepped down as CEO in April 2023.
Ihad the pleasure over eight years to observe
the tremendous positive impact Jim had on
modernising and expanding Ferrexpo. Jim
is both a pragmatic realist and a visionary,
and he possesses the rare balance of being
technically brilliant and a skilful diplomat. The
war impeded his objectives to grow Ferrexpo
towards an annual net-zero production of
24million tonnes, but he has left us a road
map that we will resume when the time is right.
Following Jim’s departure I assumed
responsibility as interim Executive Chair,
leading the business with an experienced
Executive management team whom in
2024 will celebrate working at Ferrexpo for
a collective 100 years, and in the industry
for 150 years. As I said in last year’s report
when I was Non-executive Chair, strong
governance is essential now more than ever,
and whilst my interim role as an Executive
Chair is admittedly a combined role, we do
not believe now is the right time to make
any significant management changes.
Finally, I wish to thank each and every
one of our employees as well as our local
communities for the bravery and resolve
they have continued to show in the face
of such fierce adversity and express my
gratitude to all those associated with
Ferrexpo for their contribution and continued
support over the past 12 months.
Lucio Genovese
Executive Chair, Ferrexpo plc
04
Ferrexpo plc Annual Reports & Accounts 2023
Dear Stakeholders,
As we reflect on 2023, another year blighted
by Russia’s ongoing invasion of Ukraine,
I am proud that we are able to report
operating and financial results that reflect
the determination of our people in these
difficult times. The cohesion shown by our
employees across the various departments
of the business demonstrates a team that is
unified and working together to overcome any
challenge they face. This fortitude has made
us stronger and allows us to understand what
our people and operations are capable of.
While the challenges of the past year
have been formidable, they have also
accelerated our learning and adaptation,
making us more agile and responsive to
the ever evolving situation on the ground.
As we started 2023, we once again faced
significant uncertainties surrounding the
energy supply in the winter months, given
previous attacks on the electricity grid
and other infrastructure. This compelled
us to manage our working capital and
stocks effectively to mitigate the potential
risk of blackouts while ensuring we could
fulfil our obligations to customers.
Pleasingly, the team’s cohesiveness,
coupled with our proactive planning ahead
of time meant we were able to manage
through this uncertain start to the year.
Aswe headed for the second quarter, and
bolstered by a strong liquidity position, we
seized market opportunities and restarted
an additional pelletiser, thereby increasing
our production capability and flexibility.
With stable production from the first pellet line,
and an initial contribution from the second
pellet line, total iron ore pellet production for
the first half was almost 2 million tonnes, a 57%
increase compared to the second half of 2022.
Unfortunately, any expectations for further
growth in production and sales in the
second half of the year were thwarted
by the continued inability to use the
Black Sea for exports, which would have
justified us further expanding capacity for
exports to the Middle East and Asia.
Despite these setbacks, we adjusted our
operational plans swiftly, leveraging alternative
routes into Europe and other Black Sea
ports, to maintain sales levels while reducing
production to align with market conditions.
Asa result, we ended the year producing at the
logistics capacity available to us at 4.2 million
tonnes of pellet and concentrate production.
The challenges of the last year have
accelerated our learning and adoption
tomake us more agile and responsive
toever changing circumstances.
Thecohesion shown by our employees
across the business demonstrates a team
that is unified and working together to
overcome any challenges that they face.
Chief Financial Officer’s Statement
WE ARE DETERMINED
05
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
1. Source: Independent research provided by CRU.
In terms of budgeting, we encountered some
surprises, notably in logistics challenges
and costs, however iron ore prices were
strong in the final quarter helping to offset
these costs. Indeed, for the year as a whole
our unit costs reduced. All in all, thanks to
years of investment prior to the war, our
quality assets and premium product range
continues to ensure our net cash position.
It was important that throughout 2023, we
maintained a prudent approach to cash
allocation, focusing on key operational and
capital projects essential for sustaining our
business amid volatile wartime conditions.
The Group operates in an evolving political,
fiscal and legal environment in Ukraine and
the risks associated with this heightened
further in 2023 and early 2024. As result, the
Group has recognised provisions totalling
US$128 million, including US$124 million
for one specific ongoing legal dispute. See
details in Note 2 Basis of preparation and
Note 30 Commitments, contingencies and
legal disputes to the Consolidated Financial
Statements in respect of the possible
impact on the Group’s business activities.
Looking ahead to the start of the new
year, we remain cautiously optimistic.
Inparticular, logistics costs have improved,
providing us with a favourable environment
to capitalise on market opportunities.
As we navigate the complexities of operating
in a dynamic geopolitical landscape, our focus
remains on building resilience, optimising
our assets, and enhancing operational
flexibility. Our high quality assets have been
instrumental in providing stability amidst
uncertainty, underscoring the importance
of prudent investments made in the past.
In conclusion, while the road ahead will
no doubt continue to present its share of
challenges, we are confident in our ability to
navigate through uncertainty and are prepared
to continue delivering the embedded value
in our quality assets to our shareholders.
We appreciate your continued support and
trust as we navigate these uncertain times.
Nikolay Kladiev
Chief Financial Officer, Ferrexpo plc
Culture
page 15
HR
page 41
Facilities
page 17
Administration
page 61
Procurement
page 21
Logistics
page 67
Sales
page 25
Internal reporting
page 29
Transport
page 68
Translation
page 31
Communications
page 71
CSR
page 35
Processing
page 37
Look out for ourQ&As with colleagues
Throughout this year’s report, colleagues from different functions across the
business share their insights to explain what it is like working during a time of war.
See the pages below for their stories:
Q&A
06
Ferrexpo plc Annual Reports & Accounts 2023
Operating during a time of war
The full-scale invasion of Ukraine commenced
on24 February 2022. With all our production
basedinUkraine, our workforce and operations
areaffectedbythe ongoing war. In this section we
explainhowthe war is affecting our people and
howweare managingthe business at this time.
People
The safety and wellbeing of our people
is paramount, especially during a time
of war. At the end of 2023 our Ukrainian
workforce comprised 6,432 employees
and 933 contractors. In addition, 641
colleagues are currently serving in the Armed
Forces of Ukraine, whom we support on
an ongoing basis with safety equipment,
clothing and other essentials throughout
the time that they are in the military.
As the war progresses, the availability of
people and skills is becoming more complex.
More members of our workforce are being
conscripted to join the armed forces. Ferrexpo
employees are attractive candidates because
they possess the technical and mechanical
skills that the army needs, the very skills that
are critical to our production processes.
During 2023, more than 700 employees
resigned or left our business. Although
our operations are over 250 kilometres
from the front lines, many have chosen to
leave the region and move to the far west
of Ukraine or abroad. This is in addition
to the 900 or so that left in 2022.
The business continues to carry a large
workforce while operating at a reduced
capacity. This means that to date there
has been the sufficient amount of people
to continue operations. As the business
continues to restore idled capacity, many
employees are back to a full working week,
with some already working overtime. We
are also recruiting more people, including
younger and older people, and more women.
At our Ferrexpo Technical Expertise Centre,
multiple initiatives have been established
to upskill, cross-skill and reskill employees,
including fast tracking vocational training
and qualifications programmes.
In 2023, 67 colleagues were demobilised from
the armed forces, 46 of whom have returned
to work. During the year, we expanded our
support for veterans to include physical
rehabilitation and psychological support.
Veterans unable to return to their previous
functions due to factors such as noise and
vibration, are offered the opportunity to train
and qualify for other more suitable roles.
Remembering
those we have lost
Tragically, 19 colleagues were
killed serving in the armed forces
during 2023, bringing the total
to 35 since February 2022.
2023
Yuriy Bilenko, age 38
Serhii Buhuev, age 42
Oleksiy Bulba, age 45
Serhiy Chemkayev, age 44
Maksym Chystyakov, age 24
Volodymyr Holub, age 54
Oleksiy Khanilevych, age 24
Rostyslav Ledovskyy, age 25
Dmytro Lysachenko, age 28
Roman Lytvynenko, age 31
Vitaliy Med, age 40
Ihor Novohatniy, age 39
Volodymyr Pavlenko, age 43
Petro Perovskiy, age 25
Andrii Petrenko, age 49
Serhii Pizniy, age 34
Oleksandr Smyrnov, age 32
Vladyslav Solomko, age 33
Oleksandr Terlenko, age 48
2022
Dmytro Belikov, age 32
Oleksiy Bridnya, age 33
Andriy Chernya, age 37
Oleksandr Chugainov, age 54
Guy Dudka, age 52
Andriy Dukanych, age 33
Serhiy Kharlamov, age 57
Serhii Kondyk, age 31
Denys Koshovyy, age 31
Oleksiy Nazimov, age 25
Kostyantyn Orchikov, age 30
Oleksandr Scherbakov, age 28
Denys Svyrydov, age 50
Yaroslav Taran, age 50
Oleksiy Yatskov, age 36
Anatoliy Zakupets, age 37
Slava Ukraini.
07
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Local communities
During the early stages of the war, it was clear
that the local communities where we operate
needed humanitarian support. Although many
people left, displaced people fleeing the war
in the eastern regions passed through, and in
some instances, settled in the Poltava region.
In early 2022 the Ferrexpo Humanitarian
Fund was established, which combined with
associated CSR funding at the date of this
report has donated US$25 million to foster
over 100 individual programmes and initiatives.
As the war protracts, the needs of society
are changing. In the early stages of the
war, the immediate focus was to help
house and feed people. This situation
has settled now. Indeed, of the many
new people that settled in the region,
102have taken employment at Ferrexpo.
The focus of humanitarian support has
evolved. Presently, we are committed to
supporting our colleagues actively serving
in the armed forces, as well as aiding in
the rehabilitation of veterans. Additionally,
contributions are directed towards addressing
critical national emergencies, such as
providing assistance to the residents of
the Kherson region in the aftermath of
the Nova Kakhovka Dam explosion.
Humanitarian support
US$25
M
In Horishni Plavni, the town centred on our
operations, we continue to offer community
support through commitments to cultural and
social programmes, education and medical
facilities, and infrastructure. This support
also includes programmes and initiatives
that support sports, social clubs and arts,
along with physical and mental health.
Operations and logistics
Our operations are large in scale. The process
flow is relatively simple: mining, processing
and beneficiation, with considerable built-
in production flexibility at each stage.
During 2023, reduced logistics availability
forced us to reduce production to a
roughly a third of our full capacity.
In addition to people, our operations rely on
many inputs, including, energy, chemicals
and equipment. Since the start of the full-
scale invasion, we have learnt to adapt to
ever-changing conditions. This can mean
finding new suppliers as our traditional
suppliers have suffered from the war, or
wherelogistics routes are no longer available.
Before the full-scale invasion, Ferrexpo
transported its products using its own fleet
of rail wagons and barges to customers in
Europe, or via rail to Ukrainian Black Sea ports
for onward transportation by ship, primarily
from the Group’s joint venture facilities at the
Port of Pivdennyi. Access to Ukrainian Black
Sea ports was severely restricted in 2023, with
only a handful of vessels leaving with cargoes
of iron ore towards the end of the year.
In response, the Group sales strategy focused
on premium European customers that could
be reached by rail or a combination of rail and
river barge using the Company’s owned barge
fleet company First-DDSG Logistics. Another
export route was later developed by rail to the
Ukrainian border, and onward transportation
by barge through inland waterways to
a Black Sea port in another country.
The business learnt to be nimble and adapt
to the many challenges it faced in 2023.
Altering mining and processing to produce
different products to meet customer needs,
sourcing supplies of critical inputs, managing
inventories to reduced logistics capacity, and
finding alternative routes to supply customers.
The determination of the workforce, the
flexibility of our operations, and our premium
products sold to premium customers are
our strengths, and explain how we are
continuing to operate during a time of war.
08
Ferrexpo plc Annual Reports & Accounts 2023
Our Business Model
Ferrexpo is a vertically integrated,
pure-play iron ore pellet producer
and supplier
MINING
QUALITY
ASSETS
LOW-COST
PRODUCTION
GLOBAL
DISTRIBUTION
PROCESSING
TRANSPORTATION
AND LOGISTICS
What we do
The competitive advantages that help us to create value
Our world-class, long-life
depositshold 5.7 billion tonnes of
JORC-compliant mineral resources.
Contiguous open pit mines use
modern equipment and have an
industry-leading safety performance.
Our ore processing metallurgical
beneficiation and pelletiser plants
produce a variety of pellets at a
competitive cost.
Established and efficient large-scale
plants with built-in operational flexibility
to supply evolving customer needs.
Owned transport equipment and
logistics infrastructure, including
rail,ports, river and ocean vessels.
Flexible handling and shorter
delivery times to Europe and
MENAthan global peers.
50
years
Mineral Reserves
12
MT
Annual capacity from
fourpelletising lines
3
rd
Largest exporter of
pellets globally (pre-war)
REINVESTMENT INTO PEOPLE, TECHNOLOGY INNOVATION AND R&D
09
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
The outcomes we deliver
Our high quality products are preferred by premium steel producers
around the world and are enabling the transition to green steel,
whilst at the same time supporting the Ukrainian economy.
PREMIUM
PRODUCTS
MARKETING
What we do
The competitive advantages that help us to create value
We have relationships with premium
steel mills around the world, serving
customers in Europe, MENA, Asia
and North America.
Our premium products enable us
toadd more value for customers,
supporting higher margins.
65-67
%
Fe content in all our products
ECONOMIC
SOCIAL
ENVIRONMENTAL
ROBUST PRE-WAR EARNINGS TRACK RECORD
SHAREHOLDER DISTRIBUTIONS
FISCAL CONTRIBUTIONS
ENABLING GREEN STEEL
SUPPORTING THE DRIVE TO NET ZERO
INVESTMENT IN UKRAINE
SUPPORT DURING TIME OF WAR
SUPPORTING OUR WORKFORCE AND COMMUNITIES
DEVELOPING OUR WORKFORCE
See how our activities create value
for all of our stakeholders on page 64
10
Ferrexpo plc Annual Reports & Accounts 2023
Value Proposition
Why
invest in
Ferrexpo?
The essential
nature of steel
Iron ore is the main ingredient to make
steel,on which our everyday lives depend.
Ifsomething is not made of steel, it is made
using it. Steel is also integral to the energy
transition, critical for energy generation
technologies such as wind turbines,
transmission infrastructure and usage, and
end-user products such as electric vehicles.
Transition to
green steel
However, traditional steel production
isemissions-intensive. Legislation and
environmentally conscious end-users
arefacing a shift to lower and zero carbon
steel. Consequently, steel producers will
beforced to transition to lower and zero
carbon feedstocks and production methods.
What’s the industry challenge?
>1.85
BN
Total steel production
in 2023 (tonnes)
7
%
Global greenhouse
gas emissions currently
generated through steel
production
U S $1.7
T
Value of iron ore-steel value chain
in2022
30
%
Forecast growth in demand
for steel by 2050
+200
MT
greensteel
Forecast global lower and zero
carbon steel demand growth
by2030
80
MT
DR pellets
Forecast global demand growth
forDR pellets by 2030, over one
thirdof which in Europe
11
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Our industry-
leading products
Ferrexpo is already a leading supplier
ofpremium iron ore pellets and Direct
Reduction Iron (“DR”) pellets, the products
needed to transition to lower carbon steel.
When used in an electric arc furnace
(“EAF”), our DR pellets are proven to
improve productivity and lower-carbon
emissions by over a third compared to
thetraditional sinter and coal process.
Our unique scale,
structure and
infrastructure
As the only publicly listed, vertically
integrated iron ore pellet producer and
supplier of its size in Europe, Ferrexpo is
uniquely positioned. The established scale
of our assets, and the infrastructure,
technology and skills that we have invested
in over decades are difficult to replicate.
Our focus on
responsible
operations
Before the war, Ferrexpo was the world’s
third-largest exporter of iron ore pellets.
Wehave committed to decarbonisation and
Net Zero by 2050. Our safety performance
isindustry leading. We are a significant
contributor to the local communities where
we operate, and the Ukrainian economy.
Why are we well positioned for the future?
-37
%
Lower global warming
potentialof steel made
withFerrexpo DR pellets
+50
years
Life-of-mine high grade
magnetite deposits
0.32
LTIFR
Improved safety performance.
2023 below five-year historical
average 0.69
100MTPA
Forecast DR grade pellet deficit by
2031 as pellets outpace traditional
concentrates
Pellet
efficiency
DR pellets command premium
prices due to their efficiency in
lower carbon steel making
Large scale
Mines and pellet lines ensure
variable and flexible production
Owned logistics
infrastructure
Providing multiple export routes
to a global customer base
50
%
reduction
2050 net-zero pathway, targeting
50% reduction in Scope 1 and 2
by 2030
US$25
M
Funding for more than 100
humanitarian projects and initiatives
12
Ferrexpo plc Annual Reports & Accounts 2023
Strategic Framework
High quality
production
Focus on
sustainability
Low cost
operations
World class
customer network
Disciplined capital
allocation
Strategic goal Goals
Strategic direction
01
02
03
04
05
Focus on higher
gradepremium iron
oreproductsneeded
toenablethe transition
tolower-carbon steel.
Through sustainable,
ethicalpartnerships,
realisevalue for all
stakeholders. Prioritising
support for Ukraine
duringatime ofwar.
Conserve the integrity
ofourassets, and
continueinvesting to
maintain competitive
costofproduction.
Working in partnership
withour customers to
improve efficiencies
anddecarbonise
steelproduction.
Prudent capital framework
that balances operational
and societal demands
during a time of war.
13
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
– High grade focus with 100% of all pellet and
concentrate production grading 65% Fe or higher.
– Second pelletiser line restarted adding production
capacity and flexibility.
– Resilient performance in challenging conditions during
a time of war.
– Improved safety performance with an LTIFR of 0.32
below the five-year trailing average of 0.69.
– Zero fatalities for the third consecutive year.
– Completion of a double materiality exercise.
– Completion of a life cycle assessment for DR pellets.
– Ongoing activities funded by Ferrexpo Humanitarian
Fund.
– Lowering of Scope 1 and 2 emissions by 2% per unit
ofproduction basis.
– C1 costs fell by 8% to US$76.5 per tonne due to
devaluation of Ukrainian hvyrnia, lower gas prices and
cost saving initiatives.
– The Group maintained contact with its global customer
base through its sales teams in Europe, the MENA
region and Asia.
– Focus on accessible logistics resulted in 81% of sales
to European customers, with the balance of sales to
MENA customers.
– Agreements signed with European customers to
explore longer-term cooperation to decarbonise the
steel value chain.
– Balance sheet strength with net cash position
increasing marginally to US$108 million.
– Ongoing capital investment, totalling US$101 million
forthe year, including sustaining and modernisation
capital expenditure.
– Continue to develop product portfolio.
– Continue to invest in high grade and lower carbon forms of iron ore.
– Completion of press filtration technology to improve product quality
and cost efficiencies.
– Continue strong safety performance.
– Respond to the needs of our workforce and local communities
during a time of war.
– Undertake a further life cycle assessment for blast furnace
pelletsto better understand environmental impact of other
portfolioproducts.
– Use the findings in the double materiality work to enhance our
annual Responsible Business Report.
– Publish a Climate Report that complies with latest regulations.
– Ensure that operations can continue to be flexible and
adapttocustomers’ needs.
– Balance supply risks for key consumables with effective
costcontrol.
– Continue to implement cost-saving initiatives across the
Group’soperations.
– Continue to analyse safe and cost effective solutions for seaborne
markets, including Ukrainian Black Sea ports.
– Continue to liaise with customers and suppliers on decarbonisation
efforts, to develop future sales in DR pellets in electric arc furnaces.
– Ensure that the needs of all stakeholders are met and balanced
through a measured approach to capital investment and balance
sheet maintenance.
Achievements in 2023 Focus for 2024
14
Ferrexpo plc Annual Reports & Accounts 2023
Key Performance Indicators (“KPIs”)
Measuring our performance
US$130M
US$765M
US$1,439M
US$859M
US$586M
2023
2021
2022
2020
2019
US$101M
US$301M
US$1,093M
US$687M
US$473M
2023
2021
2022
2020
2019
-US$85M
US $220M
US$871M
US$635M
US$403M
2023
2021
2022
2020
2019
Underlying EBITDA
US$130
M
Net cash flow from operating activities
US$101
M
Underlying EBITDA is an Alternative
Performance Measure – please see
page 236 for more details.
The Group calculates the underlying
EBITDA as profit before tax and finance plus
depreciation and amortisation, adjusted
for net gains and losses from disposal of
investments property, plant and equipment,
effects from share-based payments, write-offs
and impairment losses and exceptional items.
The remuneration packages of the
Group’s executive management team
include references to Underlying EBITDA.
See page 143 for more details.
2023 performance
Underlying EBITDA in 2023 fell 83% to US$130
million, mainly due to lower production, sales
volumes, realised prices and pellet premiums,
partially offset by an 8% decrease in C1 costs.
Underlying EBITDA also includes operating
foreign exchange gains of US$31 million
in 2023 compared to US$339 million in
2022. These foreign exchange differences
are predominantly dependent on the
fluctuation of the exchange rate of the
Ukrainian hryvnia against the US dollar.
2024 outlook
The future performance of the Group is largely
dependent on the ongoing war situation in
Ukraine and the levels of achievable sales due
to logistics restrictions.
In addition to Alternative Performance
Measures, Ferrexpo considers the IFRS
results of the Group to be an important
measurement of profitability. Loss after tax
isreported in the Group’s Consolidated
Income Statement on page 171. Loss after
tax is the earnings of a business after all
income taxes have been deducted.
2023 performance
For the financial year the Group reported a
loss of US$85 million, due to provisions for
ongoing legal proceedings and disputes
in Ukraine totalling US$128 million as at
31 December 2023. Without the effect from
these provisions, the result for the financial
year 2023 would have been a profit of US$46
million, compared to US$220 million in 2022.
2024 outlook
Like other factors, the Group’s
outlook for the year ahead is heavily
dependent on the war situation.
In addition to the factors discussed in
the Underlying EBITDA section, loss after
tax also considers the tax impact on the
Group and other factors such as interest
andfinance expenses. Given that Ferrexpo
remains in a net cash position, with no
debt, these are currently not material in the
Group’s overall financial performance.
In light of the Group’s net cash position and
operations being based in Ukraine, the Group
does not expect to take on any new material
debt facilities in 2024, but remains in contact
with a number ofpotential capital providers.
Net cash flow from operating activities
represents the cash flow generating ability
of the Group, and measures the funding a
company generates from ongoing, regular
business activities, such as production
and sales. It is reported in the Group’s
Consolidated Statement of Cash Flows
on page 174. It also indicates the level of
cash flow available forinvestments, returns
to shareholders anddebt reduction.
2023 performance
The net cash flow from operating activities
for the year was US$101 million, and was
considered by the Group in its capital
allocation framework, including capital
expenditure, shareholder returns, and
exceptional bail payments for managers
of one of the Group’s subsidiaries.
Despite the lower cash flow generation, the
Group maintained a closing balance of cash
and cash equivalents at US$115 million as
of 31 December 2023 (2022: US$113).
2024 outlook
The Group’s financial performance, including
net cash flow from operating activities,
is dependent on the ongoing war, with
a wide range of potential outcomes.
The Group continues to focus on high grade,
high quality forms of higher margin iron ore,
which the Group expects will allow it to remain
competitive throughout the commodities cycle.
(Loss)/Profit after tax
-US$85
M
Financial KPIs
Link to strategy: 1, 2, 3, 4 and 5. Link to strategy: 1, 2, 3, 4 and 5.Link to strategy: 1, 2, 3, 4 and 5.
WE ARE DETERMINED
15
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
US$76.5/T
US $83.3/T
US$55.8/T
US$41.5/ T
U S $ 47. 8 / T
2023
2021
2022
2020
2019
C1 cash cost of production
US$76.5/T
C1 cash cost of production
A
(“C1 costs
”
)
is an Alternative Performance Measure –
please see page 236 for more details.
The C1 cash cost of production is the cost
ofproduction processes to the factory
gate, divided by production to derive a
cost per tonne figure. This is an industry
standard measurement and can be used
to assess the relative competitiveness.
The remuneration packages of the Group’s
executive management team include
references tothe Group’s C1 cash cost of
production. Please see page 143 for more.
2023 performance
C1 costs per tonne depends on production
volumes due to large fixed overheads. The
average C1 costs for 2023 fell 8% to US$76.50
per tonne, mainly due to devaluation of the
local currency in the second half of 2022, the
positive net effect of lower gas prices and
higher electricity and cost saving initiatives,
partially offset by the negative effects of fixed
cost absorption from operating below capacity.
2024 outlook
The war in Ukraine affects a range of
production outcomes. Should risks and
restrictions ease in the coming year,
the Group would expect its C1 cash
costs to reduce, as the Group would
benefit from economies of scale through
operating at an increased capacity.
Link to strategy: 1, 2, 3, 4 and 5.
The Ferrexpo museum in Horishni
Plavni is a place of cultural pride
forthe local community. Managed
by Mykola, the museum collection
covers the history of thelocal
region and Ferrexpo. Itisalso an
important learning institution
through its affiliations with local
schools.
What is the biggest impact the
warhashad on your job?
With the beginning of a full-scale invasion,
the opportunities to update exhibitions,
accept excursions, and implement
museum projects were significantly limited.
What has the war taught you
abouthow you do your job?
Since the start of the war in 2014 and
through the COVID pandemic, we have
learned to work under restrictions and with
extreme conditions. Although on a smaller
scale, we continued to conduct excursions
and exhibitions, working with more archival
materials. We have also been cooperating
with Ferrexpo employees serving in the
armed forces to accession documents,
photos, and items from the war as
evidence of Russian aggression.
What do you look forward to most
about your job when the war ends?
In the future we hope to create a museum
website and digital archive so that we can
widen our audiences. There are lots of
opportunities for new exhibitions. I believe
that preserving history is important. It is
important for the development of Ferrexpo
and the corporate spirit of its employees.
Mykola Stakhiv,
Head of the Corporate Museum, FPM
Q&A
16
Ferrexpo plc Annual Reports & Accounts 2023
Key Performance Indicators (“KPIs”) continued
Lost-time injury frequency rate (“LTIFR”)
0.32 LTIFR
Greenhouse gas emissions
89kg/t
Safety is the Group’s highest priority.
An organisation’s LTIFR is a lagging indicator
of safety. It is calculated as the number of
lost-time injuries incurred by an organisation’s
workforce (being employees and contractors)
per million hours worked. LTIFR is an industry
standard measurement and an important
indicator of how safe the work environment is.
The remuneration packages of the
Group’s executive management team
include references to the Group’s LTIFR.
Please see page 143 for more details of
the Group’s incentive programme.
2023 performance
The Group’s LTIFR has remained at a relatively
low level for approximately five years, falling
from an average of 1.18 (2016–2018) to an
average of 0.32 for 2023, ahead of the Group’s
historical five-year trailing average of 0.69.
Safety performance is also measured via
the number of fatalities at the Group’s
operations, which have remained fatality
free for more than three successive years.
2024 outlook
The Group has maintained a low level of
injuries and injury incidents in recent years.
The Group aims to continue this progress,
through targeting zero lost-time injuries.
In 2022, Ferrexpo introduced a ‘Zero
Harm’ policy that aims to ensure all
workers return home safely from every
shift. Please see page 34 for more on
our approach to health and safety.
Ferrexpo has initiatives to promote
diversity in many forms – including
based on gender, disability, sexual
orientation and cultural diversity.
Gender diversity is measured in a number
of ways, including total workforce and
female representation in management
positions. The Group prefers to focus on
female representation in management
roles as it isareflection of women
progressing their careers at Ferrexpo.
The remuneration packages of the Group’s
executive management team, include
references to the Group’s workforce diversity.
Please see page 143 for more details.
2023 performance
Female representation in managerial
positions increased to 22% in 2023
following a multi-year trend from 18% in
2019. The Group target is 25% by 2030.
2024 outlook
The Group’s diversity programme is
targetingfemale representation in a number
of departments, at a range of levels within
ourorganisation. Our lead programme for
promoting gender diversity in management
roles is our Fe_munity Women in Leadership
programme (“Fe_munity”), which is now
in its fourth year of selecting and training
high potential future female leaders of our
business. This programme has trained over
200 participants since this project’s inception.
Please see page 60 for more on our
approach to diversity in our workforce.
The Group understands the importance
ofclimate change and we report emissions
ofgreenhouse gases (Scope 1, 2 and 3) to
track decarbonisation efforts. Due to the
war in Ukraine, we consider emissions per
tonne, not absolute emissions, as the most
representative performance measure.
The remuneration packages of the Group’s
executive management team, include
references tothe Group’s greenhouse gas
emissions. Please see page 143 for more.
2023 performance
Scope 1 and 2 emissions per tonne fell 2%
in 2023, reflecting a reduction in the ancillary
activities due to lower production and more
electricity being sourced from cleaner
sources including hydro and nuclear power.
However, no DR pellets were produced in
2023, consequently, Scope 3 emissions
on a unit basis increased to 1.33 tCO
2
/t
of pellet production from 1.24 tCO
2
/t
in 2022. Absolute Scope 3 emissions
nevertheless decreased 25% year-on-year
due to the overall lower production.
2024 outlook
The Group aims to continue its
decarbonisation pathway, although
a protracted war may require some
revisions to its targets in future. The
current targets are a 50% reduction in
Scope 1 and 2 emissions by 2030.
Due to the war in Ukraine, it is difficult
to estimate short-term outcomes in
emissions reduction, but we remain
focused on our goal to decarbonise.
Diversity in management roles
22.3
%
female
Non-financial KPIs
0.32
0.51
0.41
0.79
0.58
2023
2021
2022
2020
2019
89kg/t
91kg/t
92kg/t
110kg/t
132kg/t
2023
2021
2022
2020
2019
22.3%
20.9%
20.1%
18.2%
17.5%
2023
2021
2022
2020
2019
Link to strategy: 1, 2, 3, 4 and 5. Link to strategy: 1, 2, 3, 4 and 5.Link to strategy: 1, 2, 3, and 5.
WE ARE DETERMINED
17
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Sales volume by region
81
%
to Europe
Sales during 2023 have been restricted due
to limited access to Ukrainian Black Sea
ports, and therefore focused on premium
European customers accessible by rail.
Located in Europe, Ferrexpo is closer to
European and MENA customers, whilst
still competitive with global peers to Asian
markets. This was demonstrated during the
Covid-19 pandemic when we successfully
pivoted sales towards China, increasing our
total sales to this market to over 50%.
2023 performance
In 2023, over three quarters of all sales were
to European customers. During this period,
we were able to strengthen our relationships
with these customers and commitments to
jointly improve efficiencies and decarbonise
together. Transporting by rail, inland waterways
and sea, provided multiple logistics channels
to reach European customers. The remaining
19% of sales were in the MENA region.
A total of over 100,000 tonnes of DR pellets
were sold from stocks during the year.
2024 outlook
Towards the end of 2023, there were examples
of others exporting via Ukrainian Black Sea
ports. Ferrexpo plans to resume exporting
via this route and start up an additional
pellet line depending on the ability to export
consistent and sufficient volumes in a safe and
cost effective manner whenever possible.
Region 2023 2022 2021
Europe 3,397 4,655 5,268
MENA 777 611 1,402
Asia 0 917 4,290
Other 0 0 389
Link to strategy: 1, 2, 3, 4 and 5.
2023
2021
2022
Across our operations there are
various kitchens and canteens
thatserve food for our workforce
and visitors. Nataliya joined
Ferrexpo in July 2012 as a chef,
and since 2016 has been valued
asthe Canteen Manager atthe
Yeristova operation.
As the war progresses, what
haschanged in how you undertake
your work?
I’ve always associated my work with
pleasure, from the positive emotions of
delicious food. After February 24, 2022,
everything changed, and at work too.
The preparation of food for banquets
turned into cooking for internally
displaced people. And the leisure time I
used to enjoy during peace time turned
to support for children and adults who
lived in temporary accommodation.
What is the biggest impact the
warhashad on your job?
The war taught me to work even when it is
difficult emotionally and physically. I go to
work because people need me, because
they need a hot meal and a friendly face
toask them: “How are you doing?”
When the war finishes, what will
bedifferent for your work?
The war has already changed my
job, Inowrealise more than ever how
importantit is. When the war ends there
will be more pleasant reasons to get
together, without the joyful moments
beinginterrupted by air raids.
Nataliya Orekhova,
Canteen Manager, FYM
Q&A
18
Ferrexpo plc Annual Reports & Accounts 2023
Operational Review
Processing activities
Reflecting reduced logistics availability,
processing volumes decreased
by 33% during 2023 to 12 million
tonnes (2022: 17 million tonnes).
In 2022, the Group produced 353,000
tonnes of DR pellets, equivalent to 6% of
total output. No DR pellets were produced
in 2023, however, sales of 100,000 tonnes
from stocks were achieved. Nevertheless,
during this challenging time for the country,
the work on DR pellets continues, in particular,
we are improving our pellet production
technology by finding a technical solution
for the coating of our pellets. This was made
possible through the initiative of internal
experts united by a common goal to enhance
the quality of final products. A temporary
solution for coating of FDP pellets has
already been implemented at Pellet Lines
1& 2. Now we are elaborating a permanent
solution for all four pelletising lines to install
the system that will coat FDP pellets with a
mixture tailored to customer requirements.
The development of design documentation
is underway. Due to these projects, steel
customers are expected to improve their
technological manufacturing processes.
As a large scale premium iron ore pellet
and concentrate exporter, access to
logistics is critical. Due to the ongoing war
in Ukraine, our activities in 2023 reduced
according to available export logistics.
Attacks on Ukraine’s electricity energy and
transport infrastructure also continued, at
times limiting our ability to import supplies,
and produce and export our products.
Health and safety
2023 was the third consecutive year that
we have reported zero fatalities at our
operations. For the year, the Group reported
a rolling 12-month LTIFR of 0.32, below the
historic five-year trailing average of 0.69.
Reserves and resources
Ferrexpo controls licences covering a
series of contiguous deposits located
along the Kremenchuk Magnetic Anomaly,
a magnetite deposit that extends for
more than 50 kilometres. The Group has
mines on three deposits and additional
licences for deposits immediately to
the north of our current operations.
Across the Group’s three active mines,
JORC-compliant Ore Reserves are estimated
to be 1,615 million tonnes of iron ore, with
an iron (“Fe”) content of 32% Fe (2022:
1,627 million tonnes grading 32% Fe).
The JORC-compliant Mineral Resource
estimate across our three mines is 5,737 million
tonnes of iron ore, with an iron (“Fe”) content
of 32% Fe (2022: 5,749 million tonnes grading
32% Fe), which is inclusive of Ore Reserves.
In addition, at a number of exploration
properties immediately north of our active
mines, we have exploration stage properties
with a combined non-JORC compliant
Mineral Resource estimate of 14 billion tonnes
of iron ore, grading 34% Fe (collectively
referred to as the “Northern Deposits”).
A table detailing the Group’s JORC-compliant
Ore Reserves and Mineral Resources as at
1 January 2024 is detailed on page 21.
Mining activities
Throughout the year, we continued to scale our
mining operations according to the processing
plant ore requirements, determined by logistics
availability. Mining activities focused on the
Poltava and Yeristovo Mines, with volumes
totalling 36 million tonnes (2022: 55 million
tonnes). Different sections of the pits were
mined depending on the concentrate and
pellet quality required by individual customers.
Viktor Lotous,
Head of Ferrexpo’s
Operations in Ukraine
(FPM
General Director)
During 2023, the Group maintained
production, operating two mines
and up to two of four pelletiser
lines, achieving production of
4.2million tonnes.
See our KPIs on pages 14
19
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Following Russian attacks on Ukraine’s energy
infrastructure during 4Q 2022, the Group
was forced to temporarily cease production
for several weeks. In preparation for similar
attacks in 4Q 2023, throughout 2Q and 3Q
2023, the Group built stocks of finished pellets
at its operations and at various staging points
across its logistics network in Ukraine and
overseas so that it would be able to continue
supplying its customers. Fortunately, there
were far fewer attacks in 4Q 2023, so the
Group was able to reduce production and
drawdown from it stocks to supply customers.
Growth programme
The Group’s expansion and decarbonisation
programmes remain longer-term objectives.
The initial Wave 1 programme to add 3 million
tonnes production capacity a year continues to
be analysed for implementation after the war
ends. Desktop work, including optimisation
studies, is ongoing, however wherever possible
investment has been deferred. Nevertheless,
despite the ongoing war, various capital
expenditure projects aimed at improving
product quality and efficiencies advanced. For
example, in July 2023 the Company installed
and implemented the first stage of modern
press filtration technology at the pellets
workshop. This technology helps to strengthen
finished pellets, whilst increasing productivity
and reducing iron losses, which results in costs
savings and a reduction in Scope 1 emissions.
Operational performance
(000’t unless otherwise stated) 2023 2022 YoY change
Production
Iron ore mined 12,112 18,837 (36%)
Strip ratio 2.0 1.9 3%
Iron ore processed 11,576 17, 375 (33%)
Concentrate production 5,314 8,025 (34%)
Pellet production 3,845 6,053 (36%)
– Direct reduction pellets (67% Fe) 0 353 (100%)
– Premium blast furnace pellets (65% Fe) 3,845 5,700 (33%)
Commercial concentrate production 307 124 148%
Iron ore sales
– Pellets 3,868 6,055 (36%)
– Concentrate 306 128 140%
– Total products sold 4,174 6,183 (32%)
Outlook
Logistics availability will continue to determine
sales and production during 2024. The Group
intends to continue the operation of two
pelletiser lines. Depending on the availability
to export through different Black Sea ports,
the opportunity to expand production further
with the restart of the third pelletiser line
remains. This will be contingent on sufficient
supply of consumables, a balanced and
skilled workforce, and logistics capacity.
During the first phase of the war in 2022,
the Group responded quickly to protect
its employees and protect the integrity of
its assets. During 2023, the Group has
become more agile and flexible, and was
able to deliver to its closest customers.
Whilst the Group cannot with any certainty
offer production and cost guidance for 2024,
there are some opportunities to enhance
efficiencies, production and sales.
20
Ferrexpo plc Annual Reports & Accounts 2023
Operational Review continued
JORC-Compliant Ore Reserves and Mineral Resources
1
Proven Probable Total
JORC-compliant Ore Reserves Mt
Fe
total
%
Fe
magnetic
% Mt
Fe
total
%
Fe
magnetic
% Mt
Fe
total
%
Fe
magnetic
%
Gorishne-Plavninske-Lavrykivske (“GPL”) 301 33 26 818 31 23 1,119 32 24
Yerystivske 208 30 25 288 33 26 496 32 26
Total 509 32 26 1,106 32 24 1,615 32 25
Measured Indicated Inferred Total
JORC-compliant Mineral Resources Mt
Fe
total
%
Fe
magnetic
% Mt
Fe
total
%
Fe
magnetic
% Mt
Fe
total
%
Fe
magnetic
% Mt
Fe
total
%
Fe
magnetic
%
Gorishne-Plavninske-
L a v r y k i v s k e ( “ G P L” ) 467 35 29 1,616 30 22 744 32 24 2,827 31 24
Yerystivske 257 35 29 569 34 27 382 33 27 1,208 34 27
Bilanivske 336 31 24 1,149 31 23 217 30 21 1,702 31 23
Total 1,060 34 27 3,334 31 23 1,343 32 24 5,737 32 24
1. The Group’s JORC-compliant Ore Reserves and Mineral Resources shown above are based on an independent review completed by Bara Consulting, and are shown on a depleted basis
as of 1 January 2024. The Group previously reported a resource estimate of 326Mt for the Galeschynske deposit.
WE ARE DETERMINED
21
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Nataliia has worked at Ferrexpo
for24 years. She joined as an
economist and ten years later
established the procurement
service where she is now the
department head.
How has the war most affected
yourwork?
We have always taken our responsibilities
seriously and worked hard to ensure the
best prices and quality of goods and
services for our enterprises in Ukraine.
Before the full-scale invasion, we had
developed procurement strategies for most
of the goods and services, which allowed us
to sign long-term contracts with suppliers
based on formula pricing. We had a
predictable, stable, and wide base of reliable
suppliers. Logistics was not a problem – we
could purchase for deliveries through ports,
railways, and any other means beneficial
for the company. With the onset of the war,
many suppliers lost their businesses due
to occupation and the destruction of their
operations. Logistics paths were interrupted,
and ports closed. Some of the foreign
and Ukrainian enterprises we worked with
fell under sanctions, and many suppliers
initially refused to deliver products due to
the dangers and a refusal to cooperate
on formula pricing. This forced us to work
on monthly contracts which significantly
increasing our administrative burden.
However, despite all the challenges, we
made every effort to continue supplying
our enterprise with everything needed
in a timely manner. I am proud that we
have been able to successfully maintain
a stable procurement process.
What has the war taught you
inprocurement work?
The war taught us flexibility. We became
more responsive to change, developed an
understanding, and significantly improved
our patience skills when urgent purchases
were needed for different divisions of
Ferrexpo. During the war, the procurement
teams at Ferrexpo reorganized into a single
and united team. Despite the somewhat
different approaches in procurement
policies we had before the war, we are glad
that we now work as a unified team with
well-coordinated systems.
How will the end of the war
affectyourwork?
Our great hope is that we can work with more
stability after the war – these are the main
changes we look forward to. We have come
to understand that we are capable of a lot if
we work as a united team. We will continue
tolook for the best suppliers, continue
negotiations, and continue to provide the
bestservice we can for our colleagues.
Nataliia Mozghova,
Head of the Department of Equipment, Raw Materials
and Materials Procurement Strategy, FPM
Q&A
Ferrexpo plc Annual Reports & Accounts 2023
22
Market Review
A clearer and more positive picture emerged
in 4Q 2023 as China asserted its pursuit of
accelerated economic growth dependent
on steel-intensive sectors. At this time,
market supply was tight with inventories at
historically low levels. Therefore, a strong
rally in prices ensued in 4Q 2023, increasing
over 20% from October 2023 to end the
year just shy of US$150 per tonne.
The price of iron ore is very dependent
on China. In 2024, government policy
supporting industrial sectors has stimulated
demand for steel. However, certain risks
remain. The margins for manufacturing
steel are still low, due to weak demand
for rebar, used in construction.
However, market commentators
are forecasting flat supply for 2024,
with limited growth from the largest
producers, Australia and Brazil.
Benchmark iron ore prices gained 15%
over the year and ended 2023 at an
18-month high. Pellet premiums, however,
remained weak throughout much of the
year, improving only in the last few months,
which bodes well for the year ahead.
Ferrexpo produces premium iron ore pellets
with a minimum 65% Fe content, which
are priced off quoted market benchmarks,
and include a pellet premium that takes
into account quality specifications.
The 65% Fe iron ore fines price opened the
year at US$131 per tonne. As China emerged
from strict pandemic related restrictions and
in anticipation of stocking ahead of the peak
Chinese construction season, prices rose
to a peak US$149 per tonne in 1Q 2023.
Actual demand, however, did not meet
expectations, and consequently prices fell
in 2Q 2023 to a low of US$110 per tonne.
Uncertainty prevailed through the remainder
of 2Q and into 3Q 2023 as the market
responded to short-term macro-economic
and construction industry signals.
Thisresulted in volatile prices, oscillating
between US$110 and US$135 per tonne.
Stronger than
forecast iron ore prices
supported reduced
sales volumes.
Yaroslavna Blonska,
Acting Chief Marketing Officer
Customer sales in 2023
4.2
MT
During the first full year of war, the
Group achieved sales of 4.2 million
tonnes. With no access to the
Ukrainian Black Sea ports, exports
were constrained to the availability
ofrail capacity for exports direct
toEurope and alternative Black
Seaports.
23
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
High grade premiums
The premium for higher grade 65% Fe
iron ore fines contracted by a third in 2023
to US$12 per tonne. This is typical when
there is weakness in the steel market as
producers prefer lower cost iron ore grades to
preserve their margins. However, premiums
improved marginally during December
2023 due to disruptions to global supply.
Longer term, as steel production is forced
to decarbonise, it is expected that margins
should widen further because higher grade
ores generate less emissions in steel making.
Iron ore pellet market
review&outlook
Iron ore pellets are preferred by steelmakers
because they can increase productivity and
lower emissions. This is mainly because with
pellets, there is no need for a coal intensive
process in steel making called sintering.
In 2023, the iron ore pellet market experienced
some volatility, though remained robust.
Overall pellet supply globally grew by
1%
1
. Brazilian producers recommissioned
capacity that was idled following tailings
disasters. The increase in exports from
Brazil offset supply disruptions from Ukraine
and Russia. Because of Chinese steel
production margins, there was less incentive
to consume pellets and, consequently, pellet
premiums deteriorated throughout the year.
1. Source: CRU
Chart: Iron ore prices (2023)
50
100
150
200
Mar 23 Apr 23 May 23Feb 23 Jun 23 Jul 23 Aug 23 Sep 23 Oct 23 Nov 23
Dec 23
Jan 23
Platts 65% Platts 62%
Chart: CISA daily crude steel production (Mt)
Chart: Chinese domestic steel margins (2023)
Jan
First Mid Last
2023 2022 2021
Feb
First Mid Last
Mar
First Mid Last
Apr
First Mid Last
May
First Mid Last
Jun
First Mid Last
Jul
First Mid Last
Aug
First Mid Last
Sept
First Mid Last
Oct
First Mid Last
Nov
First Mid Last
Dec
First Mid Last
1.50
1.75
2.00
2.25
2.50
Apr Jul Oct2023
AMVSA00 - MVS HRC China Domestic Steel Mill Margin
AMVSB00 - MVS RebarChina Domestic Steel Mill Margin
-120
-80
-40
0
40
80
120
160
200
240
260
24
Ferrexpo plc Annual Reports & Accounts 2023
Market Review continued
1. Source: S&P Global Commodity Insights.
2. Source: Baltic Exchange.
3. Source: World Steel Association.
Looking ahead to 2024, the recovery of iron
ore prices due to the Chinese government
supporting economic growth, a recovery
in European demand, and ongoing supply
constraints, market commentators are
forecasting an improvement in steel
margins and, therefore, pellet demand.
By the end of 2023, several blast furnaces
in the region had restarted, whilst a large
European producer was forced to suspend
exports due to infrastructure constraints.
Therefore, in an improving pricing
environment, an increase in demand for
Ferrexpo’s pellets is being observed.
Market development efforts
Ferrexpo has continued its market
development efforts despite the ongoing war.
In 2023, Memorandums of Understanding
were signed with several premium steel makers
in Europe and Asia for the supply of high
grade direct reduction (“DR”) pellets to help
them transition to lower carbon steel making.
DR pellet demand growth is forecast to
significantly outpace traditional pellets and
therefore one of our strategies is to focus on
this premium product. We are collaborating
with a variety of potential customers around
the world to test our product suitability
and tailor DR pellet specifications to suit
each customer’s technical requirements.
These include reducing silica content
(gangue elements), coating (to improve
physical interaction in the DR module), and
improving on pellet compression strength.
Summary of industry key statistics
(All figures US$/tonne, unless stated otherwise) 2023 2022 YoY change
Iron ore fines price (62% Fe, CFR China)
1
120 120 –
Iron ore fines price (65% Fe, CFR China)
1
132 139 (5%)
Average 65% Fe spread over 62% Fe
1
12 19 (34%)
Atlantic (blast furnace) pellet premium
1
45 72 (38%)
Direct reduction pellet premium
1
57 87 (34%)
C3 freight (Brazil – China)
2
21 24 (14%)
C2 freight (Brazil – Netherlands)
2
10 13 (20%)
Global steel production (million tonnes)
3
1,850 1,832 1%
Chart: Monthly Brazilian pellet exports (Mt)
2019 2020 2021 2022 2023 2024
WE ARE DETERMINED
25
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
FE content %
59
60
61
62
63
64
65
66
67
68
Ferrexpo
Direct
Reduction
Pellets
62 Index
(Medium
Grade
Benchmark)
65 Index
(High
Grade
Benchmark)
Ferrexpo
Premium
Pellets
Ferrexpo 2023 sales portfolio
10%
90%
Long term contracts 3.7mt
Other 0.4mt
Ferrexpo continues to sell the
majority of its products under
long-term contracts, which secures
stable offtake volume for the Group
and commands greater certainty of
supply for customers.
Based in Ferrexpo’s Dubai office,
Wallace Woo is the Marketing
Portfolio Optimisation Manager,
specialising in commodity and
freight markets and Aly Mansour is
the Regional Marketing Manager for
the Middle East.
What is the biggest impact the war
hashad on your job?
The war severely disrupted supply chains
so we had to move fast and establish
alternative export channels by sea, road
and rail to minimise any impact on our
customers. This meant a lot of travel to
ensure close cooperation with existing and
new logistics partners. This collaboration
remains vital because we want to maintain
high standards of quality control.
What has the war taught you?
Frequent communication with our
stakeholders, especially customers and
shipping partners, was key. Even in an
uncertain environment we want them
to remain confident in Ferrexpo’s ability
to deliver in a stable manner. We learnt
that through frequent and transparent
dialogue, together we were able to generate
creative solutions to overcome complex
logistics problems due to the war.
When the war finishes, what will
bedifferent for you?
We look forward to helping Ferrexpo
return to full capacity and, in particular,
growing the huge potential for our high
grade direct reduction pellets. We have the
opportunity to become a leading partner in
the decarbonisation of the steel value chain.
We are actually already working closely
with certain customers on commercial and
technical initiatives. It is exciting to think how
Ferrexpo will play a big role in green steel.
Wallace Woo and Aly Mansour
Q&A
26
Ferrexpo plc Annual Reports & Accounts 2023
Financial Review
Summary
The ongoing war in Ukraine continued to
affect the Group’s operational and financial
performance in 2023. Taking into account
logistics and energy limitations throughout
2023, production volumes were aligned
with sales potential to manage the working
capital and maintain a strong net cash
position. The general market and price
environment was favourable for iron ore
products, whilst energy prices developed
differently to 2022 (higher electricity price,
and lower gas price), the Group’s operating
cash flow generation declined compared to
the previous year, which included two months
of sales prior to Russia’s full-scale invasion.
Despite the ongoing war, we invested
US$101 million into our assets in Ukraine
in 2023 and were able to finish the year
with a net cash position of US$108
million as at 31 December 2023.
Revenue
Group revenues declined by 48% to
US$652 million in 2023 (2022: US$1,248
million), mainly due to restricted access
to export routes. Consequently, sales
volumes were 32% lower at 4.2 million
tonnes in 2023 (2022: 6.2 million tonnes).
In addition to lower sales volumes, Group
revenue in 2023 was affected by a 5% decline
in the annual average benchmark iron ore
price (65% Fe) and a 28% decline in the annual
average pellet premium. On the positive side,
lower rates for international freight improved
the Group’s net back realised prices for sales
under the International Commercial Terms
(“Incoterms”) of FOB (“Free on Board”).
However, due to lack of access to Ukrainian
Black Sea ports, the Group’s FOB sales were
lower than in 2022, which included almost
two months of access to the port of Pivdennyi
before the war began. For more information
on the market factors governing pricing of the
Group’s products, please see pages 80 to 85.
Since the beginning of the war, the Group’s
export routes have predominantly involved
either the railing of products direct to European
customers, or the railing of iron ore pellets to
the Group’s barging subsidiary on the River
Danube for delivery to specific customers in
Europe, or by barge to other non-Ukrainian
Black Sea ports, for onward sale by ship. This
incurs higher logistics costs and a longer cash
conversion cycle. More detail is provided in
the ‘Market Review’ section of this report.
C1 cash cost of production
Cost of sales in 2023 totalled US$362 million,
compared to US$582 million in 2022. The
decrease predominantly results from the lower
pellet production volume, which decreased
from 6.1 million tonnes in 2022 to 3.8 million
tonnes (-38%). The Group’s production volume
is currently aligned to accessible logistics
capacity to minimise the working capital
outflow. The C1 cash cost of production
(“C1costs”) reflects the Group’s operating
Net cash position
US$108
M
Stable net cash position in difficult
and challenging environment (2022:
US$106 million).
Net cash flows from
operating activities
US$101
M
Positive operating cash flow
generation, although lower than
previous year (2022: US$301 million),
affected by the war.
Cash positive operations
during a time of war have
allowed for continued
controlled investment whilst
maintaining a stable net
cash position.
Nikolay Kladiev,
Chief Financial Officer
US$76.5/t
(2022: US$83.3/t)
27
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
costs for the production of iron ore pellets from
its own ore, with a breakdown of the different
cost components shown in the table below.
Additionally, there was a positive effect from
the decrease of the Group’s average C1 costs,
decreasing to US$76.5 per tonne, compared
to US$83.3 per tonne in 2022 (-8%). The C1
costs per tonne also depends on the Group’s
production volumes. The change in 2023 is
predominantly driven by the effects of the
significant devaluation of the local currency
in the second half of 2022, the positive net
effect of lower gas prices and higher electricity
and additional cost saving initiatives, which
were partially offset by the negative effects
from the fixed cost absorption as the Group
operated its assets below nameplate capacity.
The main C1 costs drivers are the price of
electricity, natural gas and diesel in Ukraine
being outside of the Group’s control, which
collectively represent 48% (2022: 49%) of the
total cost base as presented in the table below.
Following a sharp increase in global energy
prices during 2022, the average Brent price
for oil in 2023 and the average price for
natural gas decreased by 17% and 68%
respectively in US dollar terms, compared
to the 18% and 67% increases recorded in
2022. The average electricity price in Ukraine
increased in 2023 by 12% in US dollar terms,
peaking at US$112 per megawatt-hour
(“MWh”) in November 2023, compared to
an average of US$83 per MWh in 2022.
Another important component of the Group’s
C1 costs that is outside of the Group’s control
are the royalties in Ukraine, which accrue and
are paid based on a tiered system, which came
into effect in January 2022. Based on this
regime, royalties are calculated based on the
benchmark index price for a medium-grade
(62% Fe) iron ore fines price and computed
based on the cost of different iron ore products.
The rate varies between 3.5%, 5.0% and 10%
depending on benchmark index price for 62%
Fe. The total royalty expense totalled US$25
million in 2023, compared to US$41 million in
2022, mainly driven by the lower production
volume, but also by the effect of lower index
prices during some periods in 2023.
Group operating costs, denominated in
Ukrainian hryvnia (“UAH”), account for
approximately two thirds of the Group’s C1
costs. Consequently, changes in hryvnia to
dollar rates can have a significant impact
on the Group’s operating costs, including
the C1 costs. The UAH depreciated in the
last quarter of 2023 from 36.569 to 37.982
to the US dollar as of 31 December 2023,
resulting in a significantly lower effect on the
Group’s C1 costs than in the previous year.
In line with previous years, the Group’s
C1 costs represent the cash cost of the
production of iron pellets from own ore
(‘to the mine gate’), divided by production
volume from own ore. This excludes non-
cash costs such as depreciation, pension
costs and inventory movements, as well as
the costs of purchased ore, concentrate
and gravel. The C1 cash cost of production
(US dollars per tonne) is regarded as an
Alternative Performance Measure (“APM”).
Breakdown of C1 costs
C1 costs in 2023 were down by 8% in 2023
to US$76.5 per tonne, with this decrease
principally related to the reduction in the
unit cost of energy such as natural gas
and fuel (principally diesel), partially offset
by higher electricity costs in Ukraine. This
change is demonstrated in the chart on the
right, with energy-related costs comprising
48% of our C1 costs (2022: 49%).
The considerable reduction of the proportion
for natural gas and sunflower husks, driven
by a significant decrease of the prices for
gas on the global markets, was offset by the
increase of the proportion for the electricity,
driven by higher prices in Ukraine. See
section “C1 cash cost of production” for
further information on price changes.
The increase of the proportion for materials
and personnel is the net effect from the
flat fixed component and the higher local
inflation, partially offset by the effects from the
devaluation of the local currency in Ukraine.
In light of the ongoing war in Ukraine
resulting in lower production activities,
the Group scaled further back on the
maintenance and repair programme for
its mining and processing equipment.
Selling and distribution costs
Total selling and distribution costs decreased
to US$161 million in 2023 (2022: US$236
million), mainly reflecting lower sales via
seaborne markets due to the unavailable
Black Sea ports in Ukraine, but also due to
the overall lower sales volume in 2023. As a
result, CFR sales volume decreased to 168
thousand tonnes, compared to 1,218 thousand
tonnes in 2022, reducing the international
freight costs from these sales by US$51
million. However, international freight costs
in 2023 were also affected by higher freight
costs for the export of some of the Group’s
products through an alternative Black Sea
ports, with some of the services provided by
the Group’s barging subsidiary First-DDSG.
Seaborne logistics routes are generally the
lowest cost and most efficient way for delivering
the Group’s products to its customers. Since
the full-scale invasion of Ukraine, the Group
has established new logistics routes and
relationships with alternative logistics providers
and port operators. These routes rely heavily
on rail, where capacity is restricted and
demand is high from other industries, and also
on river barges, which combined are more
expensive. Although the situation generally
Breakdown of C1 costs in 2023
Electricity 32%
Natural gas and sunflower husks 9%
Fuel (including diesel) 7%
Materials 8%
Personnel 11%
Maintenance and repairs 16%
Grinding media 6%
Royalties 9%
Explosives 2%
The numbers above are rounded to full decimals.
Underlying EBITDA margin
20
%
Underlying EBITDA margin remains
positive (2022: 61% boosted also by
significant foreign exchange gains
in2023).
Capital investment
US$101
M
Continued unavoidable investments
in 2023, aligned to lower cash flow
generation (2022: US$161 million).
28
Ferrexpo plc Annual Reports & Accounts 2023
Financial Review continued
improved in 2023 compared to 2022, the
Ukrainian rail network continues to be under
pressure to handle goods otherwise exported
via Ukraine’s Black Sea ports. This is further
exacerbated by the long journey time through
Ukraine’s western borders. Whilst improving,
the journey time is still slightly longer than
before the war, resulting in a negative impact
on the Group’s cash conversion cycle.
Applicable rail tariffs remained unchanged
in 2023, after a 70% increase in July 2022
for 20 types of cargo – even when using the
Group’s own rail wagons. The effect from
the higher tariffs was however partially offset
in US dollar terms due to the significant
depreciation of the local currency in July 2022.
General and administrative expenses
General, administrative and other expenses
in 2023 remained stable at US$64 million
compared to 2022. Positive impacts from
effective cost management and savings
have, however, been offset by higher legal
costs relating to Group’s ongoing legal
disputes. See Note 30 Commitments,
contingencies and legal disputes to the
Consolidated Financial Statements for further
information on the ongoing legal challenges
and disputes of the Group in Ukraine.
Other operating expenses
Other operating expenses decreased from
US$310 million in 2022 to US$29 million
in 2023, predominantly due to a non-cash
impairment loss of US$254 million recorded
in the first half of 2022 on the Group’s
non-current operating assets, including
property, plant and equipment, goodwill and
intangible assets, and other non-current
assets. The recorded impairment loss in
2022 resulted from the Group’s lower cash
flow generation and higher war-related
discount rate. The Group’s non-current
operating assets have been tested again for
impairment as at 31 December 2023 based
on the Group’s latest long-term model. The
impairment test performed did not result in
an additional impairment loss or a partial or
full reversal of the recorded impairment loss.
Currency
Ferrexpo prepares its accounts in US
dollars. The functional currency of the
Group’s operations in Ukraine is the
Ukrainian hryvnia, as approximately two
thirds of the Group’s operating costs are
historically denominated in local currency.
As a result of the significant balance in foreign
currencies currently held by the NBU, the local
currency remained relatively stable until the
end of 2023, compared to a depreciation of the
Ukrainian hryvnia by 34% during the financial
year 2022. The Ukrainian hryvnia remained
unchanged at 36.568 to the US dollar from
21 July 2022 to 3 October 2023, when the
National Bank of Ukraine (“NBU”) lifted the
peg in place since the devaluation of the
local currency from 29.255 to 36.568 (34%).
With a continuation of Martial Law during
2023, the NBU has maintained significant
currency and capital controls in Ukraine.
These measures limit the possibility to convert
balances in local currency into US dollars,
and the ability to transfer US dollars between
onshore and offshore accounts of the Group.
See Note 30 Commitments, contingencies
and legal disputes to the Consolidated
Financial Statements for further information.
Operating and non-operating foreign
exchange gains/losses
Given that the functional currency of the
Ukrainian subsidiaries is the hryvnia, a
depreciation of the hryvnia against the US
dollar results in a foreign exchange gains
on the Group’s Ukrainian subsidiaries’ US
dollar denominated receivable balances from
the sale of pellets. The operating foreign
exchange gains were US$31 million in 2023
compared to a gain of US$339 million in
2022, when the hryvnia depreciated by 34%.
As for the operating foreign exchange gains,
the non-operating foreign exchange losses are
mainly due to the depreciation of the hryvnia
against the US dollar. The non-operating
foreign exchange lossed decreased from
US$63 million in 2022 to US$8 million in 2023
and is primarily related to the translation of
US dollar denominated loan payable balances
of the Group’s Ukrainian subsidiaries.
For further information on the operating
foreign exchange gains and the non-operating
foreign exchange losses, please see Note
9 Foreign exchange gains and losses to
the Consolidated Financial Statements.
Underlying EBITDA
Despite the loss for the year, underlying EBITDA
remained positive in 2023, but decreased by
83% to US$130 million, mainly due to lower
operational performance as a result of the
war and lower operating foreign exchange
gains in 2023 compared to 2022. The effect of
US$131 million of provisions recognised as at
31 December 2023 for ongoing legal disputes
is considered as an exceptional item and is
therefore excluded from the Group’s underlying
EBITDA. In agreement with the Group’s
definition of the underlying EBITDA (see page
236 in the Alternative Performance Measures
“APMs” section), the Group’s underlying EBITDA
includes operating foreign exchange gains of
US$31 million in 2023 compared to US$339
million in 2022. These foreign exchange
differences are predominantly dependent on
the fluctuation of the exchange rate of the
Ukrainian hryvnia against the US dollar.
Additionally, the decrease of the underlying
EBITDA is also affected by a decrease of the
sales volumes by 32% and realised prices by
21%, driven by lower benchmark iron ore fines
price and pellet premiums in 2023, partially
offset by an 8% decrease in C1 costs.
Net finance expense
The Group’s finance expenses remained stable
at US$5 million compared to US$4 million
in 2022. The vast majority of the expense
is related to the calculated interest on the
Group’s pension scheme, without any cash
outflow effects, and to bank charges. With the
Ukrainian hryvnia vs. US dollar
2
UAH per USD
Spot 15.04.24
39.399
Opening rate 01.01.23
36.568
Closing rate 31.12.23
37. 98 2
Average 2023
36.574
Average 2022
32.342
Key Financial Performance Indicators
US$ million (unless stated otherwise) 2023 2022 YoY change
Total pellet production (kt) 3,845 6,053 (36%)
Sales volumes (kt) 4,174 6,183 (32%)
Iron ore price (65% Fe Index, US$/t)
1
132 139 (5%)
Revenue 652 1,248 (48%)
C1 cash cost of production (US$/t) 76.5 83.3 (8%)
Underlying EBITDA
A
130 765 (83%)
Underlying EBITDA
A
margin 20% 61% (41pp)
Debt servicing 0 42 (100%)
Capital investment
A
101 161 (37%)
Closing net cash 108 106 2%
1. Source: S&P Global Commodity Insights.
2. Source: National Bank of Ukraine.
WE ARE DETERMINED
29
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
exception of lease liabilities, the Group does
not have any outstanding interest-bearing
loans and borrowings, therefore there are no
interest expenses incurred on finance facilities.
At the same time, interest income increased
five-fold to US$5 million compared to US$1
million in 2022 as the Group invested the
available funds in deposits due to the rise in
interest rates on the global financial markets.
Further details on finance expense are
disclosed in Note 10 Net finance expense
to the Consolidated Financial Statements.
Income tax
In 2023, the Group’s income tax expense
was US$16 million (2022: US$119 million). The
effective tax rate for 2023 was 26.1% (2022:
35%). The effective tax rate for the financial
year 2023 was affected by effects from the
recognition of provisions for legal disputes in
Ukraine totalling US$131 million, which are not
tax deductible and an additional allowance of
US$10 million on deferred tax assets recognised
by the Group’s two major subsidiaries in
Ukraine. For further information see Note 30
Commitments, contingencies and legal disputes
and Note 11 Taxation. The effective tax rate
in the comparative year was predominantly
driven by an impairment loss of US$254 million
on the Group’s non-current operating assets,
which is not tax deductible in Ukraine.
In 2023, the income tax paid by the Group
totalled US$13 million (2022: US$110 million), of
which US$12 million was paid in Ukraine (2022:
US$91 million). The income tax paid includes
withholding tax considered as income tax paid.
Further details on taxation are
disclosed in Note 11 Taxation to the
Consolidated Financial Statements.
Items excluded from
underlyingearnings
The underlying EBITDA in the comparative
year was adjusted by the impairment loss
of US$254 million recorded in 2022 as a
result of a reduction in the carrying value
of the Group’s assets in Ukraine due to
the war. Theimpairment test performed
as of 31 December 2023 did not result in
an additional impairment loss or a partial
or fullreversal of the recorded impairment
loss. See Note 13 Plant, property and
equipment tothe Consolidated Financial
Statements for more information.
As announced on 29 January 2024, following
subsequent and unexpected events in Ukraine
in relation to a claim against one of the Group’s
Ukrainian subsidiaries, the Group recorded
a provision for legal disputes in the amount
of US$124 million (UAH4,727 million). The
provision is in respect of a contested sureties
claim lost in a court of appeal in Ukraine. The
Group’s subsidiary in Ukraine filed a cassation
appeal to the Supreme Court of Ukraine and
The Project Management Office
Reporting Team are part of the
finance function based at FPM.
Their work is broad, involved in
allaspects of financial and ESG
reporting and modelling. Managed
by Volodymyr and supported by
Irina, their work supports all the
functions of the business across
allour offices worldwide.
How has the war changed how you
perform your work?
On the one hand the war has reduced
our productive working hours due to
interruptions from air raids. On the other
hand, our work load has increased as we
are required to prepare more calculations
more frequently, to model changing
scenarios. To an extent, this has helped
to shift the focus from the negative news
and adapt to the new working conditions,
but also to increase personal productivity.
What is the biggest impact the
war has had on your jobs?
The war has reduced our ability to plan
with as much confidence as we used to.
Nevertheless, we realise the importance
of our work and how it contributes to
the sustainability of the Company in the
current circumstances. So we continue
working without losing optimism.
What do you look forward to most
about your job when the war ends?
During the war we’ve acquired new
knowledge and skills and learnt to be
more resourceful, all of which have
enhanced our performance. We look
forward to applying what we have learnt
to post-war scenarios as Ferrexpo regains
leadership in the industrial sector and
contributes to Ukraine’s recovery.
Volodymyr Plotnikov and Iryna Mokhtan
Q&A
30
Ferrexpo plc Annual Reports & Accounts 2023
Financial Review continued
the first hearing scheduled for 20 March 2024
did not take place as the presiding judge
recused himself. Following the appointment
of a new panel of judges, on 1 April 2024
the Supreme Court suspended the possible
enforcement of the decision of the court of
appeal. A Supreme Court hearing on 17 April
2024 considered primarily procedural matters
and the next court hearing is scheduled for
27 May 2024. Further to that, the Group also
recognised a provision in the amount of US$4
million (UAH136 million) following a negative
decision from a court of appeal in respect
of a claim made by two former minority
shareholders of one of the Group’s major
subsidiaries in Ukraine. The effect of the total
provisions recognised as at 31 December
2023 in the amount of US$131 million for the
above-mentioned legal disputes is considered
as an exceptional item and is therefore
excluded from the Group’s underlying EBITDA.
For further information see Note
30 Commitments, contingencies
and legal disputes.
Loss for the year
The Group’s result for the financial year
2023 is a loss of US$85 million, mainly
resulting from the recognition of provisions
for ongoing legal proceedings and disputes
in Ukraine totalling US$131 million as at
31 December 2023. Without the effect from
these provisions, the result for the financial
year 2023 would have been a profit of US$46
million, compared to US$220 million in 2022,
reflecting a 82% decrease in the Group’s
operating profit as a result of the ongoing
war, as well as significantly lower net foreign
exchange gains of US$23 million in 2023,
compared to US$276 million in 2022.
Cash flows and cash and
cashequivalents
Operating cash flow before changes in working
capital decreased by 76% to US$103 million
compared to US$434 million in the previous
year. The lower operating cash flow generation
is driven by the Group’s lower operating profit.
There was an overall working capital inflow
of US$13 million compared to an outflow of
US$20 million in 2022. The inflow in 2023
largely reflects the increase of the trade
receivable balance due to increased sales
volumes in the last two months of 2023, the
significant decrease of the inventories as a
result of the Group’s destocking activities
and positive effect from regular VAT refunds
received in 2023, resulting in a significant
decrease of the outstanding VAT balance
in Ukraine as at 31 December 2023.
The lower net cash flow from operating
activities of US$101 million, compared to
US$301 million in 2022, was considered by the
Group in its capital allocation, including capital
expenditure and shareholder returns, and
exceptional bail payments for four managers
of one of our subsidiaries in Ukraine in 2023.
See sections below for further information.
Despite the lower overall cash flow
generation, the Group managed to
maintain its closing balance of cash and
cash equivalents at US$115 million as of
31 December 2023, compared to US$113
million as of 31 December 2022.
The balance of cash and cash equivalents
held in Ukraine amounts to US$11 million
as at 31 December 2023 (31 December
2022: US$45 million). Following the adopted
Martial Law in Ukraine, the National Bank of
Ukraine (“NBU”) has introduced significant
currency and capital control restrictions in
Ukraine. These measures are affecting the
Group in terms of its cross-border payments
to be made, which are restricted and may
be carried out only in exceptional cases. For
further information see Note 30 Commitments,
contingencies and legal disputes to the
Consolidated Financial Statements.
Capital investment
Capital expenditure in 2023 totalled US$101
million compared to US$161 million in 2022.
Of the total amount spent in 2023, sustaining
and modernisation capital expenditure
was US$31 million (2022: US$57 million),
covering the activities at all of the Group’s
major business units. Due to the ongoing
operational and logistics constraints as
a result of the ongoing war in Ukraine,
the Group further reduced the level of its
investments in sustaining capital expenditure
projects, by reviewing and optimising the
level and timing of its repair activities.
The Group also reconsidered the timing of its
strategic development projects resulting in a
reduction of the related capital expenditure to
US$70 million, compared to US$104 million
in 2022. As such, major projects advanced in
2023 include US$22 million spent on stripping
activities for future production growth and
US$13 million spent on the enhancement of
the Group’s press filtration complex, which will
help raise pelletising capacity in the near term
once operations return to full capacity. The
Group continued to invest US$22 million in the
concentrator and pelletiser projects as part of
the Wave 1 Expansion Programme to manage
previously entered commitments and also spent
US$3 million in the development and exploration
of the Belanovo deposit, as well as US$1 million
in a hydrolysis plant for the trial of hydrogen use
as a fuel in the Group’s pelletiser. For further
information on the Group’s activities to grow
its business in 2023, please see page 19.
Considering the lower cash flow generation no
ordinary dividends were paid during the 2023
calendar year (2022 total: 13.2 US cents or
US$155 million). The Group has a shareholder
returns policy outlining the Group’s intention
to deliver up to 30% of free cash flows as
dividends in respect of a given year. The Group
has announced on 18 January 2024 an interim
dividend of 3.3 US cents for the financial year
2023, reflecting that the Group performed well
in the second half of 2023, which was due for
payment to the shareholders on 23 February
2024. Following subsequent and unexpected
events in Ukraine relating to a claim against
one of the Group’s Ukrainian subsidiaries, the
Group announced on 20 February 2024 the
decision to withdraw this interim dividend. For
further information see Note 30 Commitments,
contingencies and legal disputes.
Debt and maturity profile
Ferrexpo has maintained a strong balance
sheet in 2023, including the absence of gross
debt and the net cash position of US$108
million as at 31 December 2023 (2022: US$106
million). With the exception of lease liabilities,
the Group does not have any outstanding
interest-bearing loans and borrowings
as of 31 December 2023 and 2022.
As of 31 December 2023, the credit ratings
agency Moody’s had a long-term corporate
and debt rating for Ferrexpo of Caa3, with a
negative outlook. The credit ratings agency
Fitch maintains a CCC+ with a negative
outlook rating on the Group. While the
credit rating of Ferrexpo is capped by the
sovereign credit rating of Ukraine, the ceilings
for credit ratings ascribed to Ferrexpo by
Moody’s and Fitch are higher (one notch
above sovereign, Ca, for Moody’s and three
notches above sovereign, CC, for Fitch). In
December 2023, S&P reinstated the Credit
Rating of Ferrexpo at CCC, at the same level
with the sovereign credit rating of Ukraine.
Related party transactions
The Group enters into arm’s length transactions
with entities under the common control of
Kostyantin Zhevago and his associates.
All these transactions are considered to
be in the ordinary course of business.
During the financial year 2023, the Group
made bail payments totalling US$15
million on behalf of four members of the
top management of one of the Group’s
subsidiaries in Ukraine in respect of various
legal actions and ongoing court proceedings
initiated by certain governmental bodies
against the Group’s subsidiaries and
members of the top management in Ukraine.
See also below under Contingent liabilities
and legal disputes and Note 34 Related
party disclosures to the Consolidated
Financial Statements for further details.
Contingent liabilities and
legaldisputes
The Group is exposed to risks associated with
operating in a developing economy during a
time of war and the current circumstances
facing the Group’s controlling shareholder.
As a result, the Group is subject to various
legal actions and ongoing court proceedings
WE ARE DETERMINED
31
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
initiated by different government agencies in
Ukraine. There is a risk that the independence
of the judicial system and its immunity from
economic and political influences in Ukraine is
not upheld, consequently Ukrainian legislation
might be inconsistently applied to resolve the
same or similar disputes. As a result, the Group
is exposed to a number of higher risk areas
than those typically expected in a developed
economy, which require a significant portion
of critical judgements to be made by the
management. In respect of the contested
sureties claim, if the final Supreme Court ruling
is not in favour of FPM, the claimant may take
steps to appoint either a state or a private
bailiff and request the commencement of the
enforcement procedures, which could have
a material negative impact on the Group’s
business activities and its ability to continue
as a going concern, as the assets of FPM
could be seized or subject to a forced sale.
In addition to the afore-mentioned claim, a
supplier and related party to the Group filed by
an application to open bankruptcy proceedings
(“creditor protection proceedings”) against
the Group’s major subsidiary in Ukraine. The
possible commencement of the enforcement
of the decision of the Ukrainian court of
appeal, which is currently suspended by
a decision of the Supreme Court, and the
possible opening of creditor protection
proceedings might potentially affect the
Group’s ability to continue as a going concern.
See Note 2 Basis of preparation and Note
30 Commitments, contingencies and legal
disputes to the Consolidated Financial
Statements as well as the Principal Risks
section on pages 72 to 90 for further details.
Going concern
As at the date of the approval of these
Consolidated financial statements, the war is
still ongoing and poses a significant threat to
the Group’s mining, processing and logistics
operations within Ukraine. As a result, a
material uncertainty still remains as some of
the uncertainties remain outside of the Group
management’s control, with the duration and
the impact of the war still unable to be predicted
at this point of time. In addition to the war-
related material uncertainty, the Group is also
exposed to the risks associated with operating
in a developing economy, which may or may not
be exacerbated by the war and/or the current
circumstances facing the Group’s controlling
shareholder (see Ukraine country risk on pages
75 to 79). As a result, the Group is exposed
to a number of risk areas that are heightened
compared to those expected in a developed
economy, such as an environment of political,
fiscal and legal uncertainties, which represents
another material uncertainty as at the approval
of these consolidated financial statements.
See Note 2 Basis of preparation to the
Consolidated Financial Statements
for further information.
The translation and interpretation
team at Ferrexpo is an important
and integral part of the
organisation. The eight strong team
collectively speak six languages.
They work not only on site dealing
with technical aspects of the
business, but also travel with
management to provide support
during technical visits, events and
trainings, and critically, during
business negotiations.
As the war progresses, what has
changed in your job function?
There is a stronger sense of unity. We
are one people with one enemy, so we
should not have discord among ourselves.
Accordingly we’ve noticed that there is
more empathy and a desire to help each
other at work. We aim to complete our
work professionally and quickly, which
means that mutual assistance with
colleagues has significantly strengthened.
What is the biggest impact the war
has had on your job?
The war has hardened our characters,
like pellets in a kiln. We want to contribute
as much as possible to victory. Seeing
how the Company is facing so many
challenges, we have come to understand
the importance of our work: the correct
interpretation with foreign specialists helps
colleagues make the right decisions faster;
the correct translation of an equipment
operating manual helps with proper
maintenance and lower costs. We do
everything to be as useful as possible
for the Company and for Ukraine.
What do you look forward to most
about your job when the war ends?
When the war ends, we will welcome
the return of our employee warriors.
We relish the time when there is more
live communication in our work, so
that we can see the versatility and
application of knowledge and skills so
that the Company can grow again.
Dmitriy Kampaniets and Daria Leschenko
Q&A
32
Ferrexpo plc Annual Reports & Accounts 2023
Responsible Business Review
In this section, I would like to present the
report on the work of HSEC Committee
for 2023, having been appointed Chair of
the Committee in May 2023. The activities
of HSEC Committee include oversight of
Ferrexpo’s policies and strategic supervision
of management systems aimed at achieving
the health and safety of our employees,
supporting the communities in which we
operate and managing environmental risks.
As a responsible business, we have an
important role to play in supporting society
and the economy, and also as a trusted
environmental steward. As a public company
quoted on the London Stock Exchange,
adhering to strict international governance
and environmental standards, we are an
established example of how to operate to
global standards in a Ukrainian context.
People first
Amid wartime conditions, we continue
to prioritise safety and wellbeing
of our employees, as their lives are
the top priority for Ferrexpo.
The full-scale war has had a significant
impact on Ferrexpo people. Since February
2022, a total of 754 of our employees have
been drafted to serve in the Armed Forces
of Ukraine, while 35 tragically lost their lives
defending the country. Our approach has been
to do everything possible in the circumstances
to help our employees and their families.
We have established a comprehensive
support programme providing material,
medical, psychological and employment
assistance for both those drafted to the
Armed Forces and the returning veterans.
While no one in Ukraine, including our
employees, can be absolutely safe amid
full-scale war and frequent missile attacks on
the region, we are doing everything possible
to protect the safety of our workforce and
wider community, for example the provision
of safe childcare and bomb shelters for
employees and their children in local schools.
Such support is conducted through Ferrexpo
Humanitarian Fund, which was established
in February 2022 and has initiated over
100 projects and initiatives. Each project is
approved by the HSEC Committee to ensure
good governance in the approval process.
Examples of projects supported include
providing accommodation, meals, donating
vehicles and equipment, and providing medical
support. At the same time, we continue to
implement our critical long-term safety at
workplace initiatives, such as training to
eliminate the most common types of high-
risk incidents at the production sites.
While needs change as the war prolongs,
ourpeople want to be continuously employed
in a safe manner, and live in a community
that fosters their wellbeing. Ferrexpo Charity
Fund, which has been providing direct
Natalie Polischuk
Chair, Health, Safety,
Environment and Community
(“HSEC”) Committee
As the war in Ukraine protracts,
wecontinue to prioritise our workforce
and the communities where we operate.
However, we must also keep sight of our
broader sustainability and environmental
objectives, so that we continue to
contribute to the global steel industry’s
pathway to low emissions.
US$25
M
Total humanitarian support provided
todate, including the Ferrexpo
Humanitarian Fund and associated
CSRfunding, assisting more
than100individual projects.
support to local communities for more than
12 years now, continues to work together
with stakeholders, including local authorities,
residents and public organisations, to
develop and implement social projects.
While placing primary importance on
protecting the safety of our employees,
wealso strive more widely to foster a trust-
based work environment, exhibiting zero
tolerance for discrimination based on any
personal attributes. We remain dedicated
to safeguarding labour and human rights
throughout the business, in line with UN
Sustainable Development Goals.
33
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Advancing sustainability initiatives
and climate change
It is important that we don’t lose sight of our
sustainability commitments, however at the
same time, we must acknowledge that the war
is affecting how we will need to consider our
long-term decarbonisation roadmap. Whilst
significant investments cannot be made at
the moment and some of the initiatives and
projects are currently suspended due to war,
Ferrexpo maintains its ongoing ecological
approach and practices and continues to plan
for a greener future. It is pleasing to report
that during 2023 two significant projects were
completed with our environmental consultants
Ricardo plc: Life Cycle assessment
and Double Materiality assessment.
Through working with Ricardo, Ferrexpo
aims to further develop its forward-looking
understanding around climate change and
the Group’s pathway to net-zero emissions
and a clear picture of iron ore pellets in the
decarbonisation of the global steel industry.
The Life Cycle assessment independently
verified that when a steel manufacturer
uses Ferrexpo DR pellets, in an electric arc
furnace, to produce a tonne of steel billet,
37% less carbon is emitted compared to
traditional steel production methods.
This is significant for Ferrexpo because
it establishes the critical role that our
products play in enabling the transition to
lower carbon steel production. During the
year ahead, we plan to undertake further
studies to understand more about our other
products, and work with some of our premium
steel customers in Europe to assess other
opportunities to decarbonise further.
The Double Materiality assessment combines
impact materiality with financial materiality,
providing a more in-depth analysis of what
issues are material to us as an organisation.
The results demonstrated that topics relating
to governance and responsible business
were considered the most important by
stakeholders, closely followed by our role
in enabling the transition to green steel and
how we can ensure ongoing employment
for our workforce. Sustainability risks
cannot be considered in isolation. As
part of the project, we engaged senior
managers of the Group in the discussion
on their integrated strategies for managing
sustainability risks and opportunities.
Responsible business and
sustainability reporting
In 2023, we published our eighth
Responsible Business Report, which
can be found on our website. The report
provided a comprehensive overview of our
sustainability initiatives and performance
across many of the standards under the
framework published by the Global Reporting
Initiative. It also provided an opportunity
to highlight some of the remarkable
achievements made by our colleagues
in the most difficult of circumstances.
Our stated target is to reduce carbon Scope
1 and 2 carbon emissions by 2030 (baseline:
2019). During 2023, our emissions fell 2%
compared to the previous year, representing
a 32% reduction compared to 2019. We are
continuing to progress certain initiatives that
will contribute to significant further reductions,
for example, the implementation of trolley
assist haulage systems in our mines. However,
work on this, as for so many other projects, is
limited to desktop optimisations at this time
as the engineering and equipment suppliers
are unable to visit Ukraine. It is likely that
our carbon reduction targets will need to be
revisited as the war prolongs. Once the war
is over and its impact is assessed, we plan to
return to our decarbonisation journey in full.
The remainder of this section of the
Annual Report provides a more detailed
assessment and reporting of the most
important responsible business, climate
and sustainability topics. Whilst we
prioritise the safety and wellbeing of our
people, we have also made progress on
all fronts, demonstrating our ongoing
responsible contribution to society, the
economy and the environment.
I would like to thank all our workforce
for their resilience and for embracing
the fundamental values of sustainability
to help deliver this progress under the
most challenging circumstances.
Natalie Polischuk
Chair, HSEC Committee
34
Ferrexpo plc Annual Reports & Accounts 2023
Responsible Business: Safety
Protecting the
safety of our people
Our workforce comprises
over 8,000 employees
andcontractors. 95%
ofour workforce is based
in Ukraine, with many
currently serving in the
armed forces. During a
time of war, protecting
theirsafety and wellbeing
is paramount.
Health and safety performance
2023 2022 Change
Safety indicators (lagging)
Fatalities 0 0 –
Lost time injuries 5 9 (44%)
Lost time injury frequency rate (“LTIFR”) 0.32 0.51 (37%)
All injuries frequency rate (“AIFR”) 0.64 0.99 (35%)
Near miss events 1 1 –
Significant incidents 4 8 (50%)
Restricted work days 675 934 (28%)
Severity rate (average lost days per incident) 169 104 63%
Safety indicators (leading)
Health and safety inspections 6,282 5,413 16%
Health and safety meetings 1,466 1,388 6%
Health and safety inductions 2,897 5,332 (46%)
Training hours 7,264 6,828 5%
Hazard reports 688 740 (7%)
High visibility management tours 149 157 (5%)
Protecting our people
At Ferrexpo, we have a global workforce
comprising over 8,000 employees and
contractors, and colleagues some of whom
are currently serving in the Armed forces
of Ukraine. 95% of the workforce is based
in Ukraine, mainly at our operations in the
Poltava region, but also other colleagues
work in other functions and services in Kyiv
and another locations across Ukraine.
Given the scale of our workforce and
the nature of our activities, it was never
an option to evacuate our people during
the war. Our people wish to and need to
continue working. Being employed is critical
during a time of war. Therefore, it is our
responsibility to take extensive measures
to protect our workforce during this time,
both in the workplace, and, where possible,
in the communities where they live.
Measures taken have included remote
working for those with suitable roles, to
ensure that they were as far from the front
line as possible. Measures for our on-site
workforce have included the provision of
air-raid shelters, adjusting shift patterns
to align with night-time curfews and the
provision of free meals in light of disruption
to supply chains in local communities.
WE ARE DETERMINED
Corporate Social Responsibility
ismanaged at a local level by a
team of professionals. Olga started
working at our Belanovo operation
as a CSR Specialist in 2020,
transferring recently to FPM as
Acting CSR Manager.
As the war progresses, how has
yourjob changed?
After the initial shock I actually found
a real thirst to work more and to work
harder. I joined the team managing our
Humanitarian Fund and find the work
immensely rewarding. Time is critical, and
we’ve had to learn to work fast, which we
have achieved by being united. Despite
everything possible and impossible,
we are able to complete our work.
What has the war taught you
abouthow you do your job?
War is not the time to give in to doubt.
It is important not to let emotions get
in the way. The war taught me to be
focused and balanced, and how to make
decisions and complete actions quickly.
When the war ends, what will be
different in your work?
Work will be different not only compared to
how it is now, but also how it was before the
war. So many challenges have arisen during
this time and we have learnt to overcome
them. I think the last thing I will want to do is
to slow down. In fact, we will not have time
to rest, because after the war our workload
will likely increase as we restore Ukraine.
Olga Mokra, Acting CSR Manager, FPM
Q&A
35
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
In the early phases of the war, when
uncertainty arose over the continued provision
of social services, the Group commenced
an on-site childcare facility for the children of
employees, which was staffed by Ferrexpo
volunteers, to ensure that children could be
close by and safe during such an uncertain
period of time. As the war evolved, the
need for such facilities diminished as life
began to resume in Ukraine, with schools
opening and a ‘new normal’ beginning.
As the conflict evolved in 2022, so did our
response. We focused our efforts on the
supply of key equipment such as armoured
ambulances and food packages to towns
along the front line. In late 2023, needs shifted
again, and psychological wellbeing has
become more important as people try to deal
with the stress of living in a protracted war.
At the time of this report, 641 of our brave
colleagues are serving in the Armed Forces
of Ukraine. We are proud of their efforts to
defend Ukraine, and continue to support
them by providing personal protective
equipment and other essentials.
In 2023, 67 colleagues were demobilised from
the armed forces, 46 of whom have returned
to work. During the year, we expanded our
support for veterans to include physical
rehabilitation and psychological support.
Veterans unable to return to their previous
functions due to factors such as noise and
vibration, are offered the opportunity to train
and qualify for other more suitable roles.
In 2023, the Group recorded a third
successive year without a fatality. The
average recoded lost-time injury frequency
rate (“LTIFR”) for the year was 0.32, an
improvement on the 0.51 recorded last year
and materially below the historic average.
Zero
The Group recorded a third
successive year without a fatality.
36
Ferrexpo plc Annual Reports & Accounts 2023
Responsible Business: Environmental Stewardship
Scope 1 emissions
Scope 1 direct emissions principally relate
to three activities at our operations – diesel
consumption (primarily used in mining
activities), natural gas (primarily used in
pelletising activities) and gasoil (primarily
used in inland waterway logistics activities).
Collectively, these three sources of emissions
represented 97% of Scope 1 emissions in
2023 (2022: 97%), with emissions from the
consumption of diesel and gasoil for transport
making up 60% of Scope 1 emissions (2022:
55%) and natural gas making up 37% of
Scope 1 emissions (2022: 43%). In addition,
we track a further 15 sources of Scope 1
emissions across our operations, ensuring
that multiple aspects of our operations
are covered in our emissions estimates.
Absolute Scope 1 emissions fell by 27%
in 2023, in part reflecting lower production
due to war related constraints. Scope 1
emissions on a unit of basis rose 4%, due
to an increased utilisation of alternative
logistics channels for exports, which have
resulted in an increased consumption of
gasoil. Calculations of Scope 1 and Scope
2 emissions have been independently
assured for a third successive year.
Scope 2 emissions
Scope 2 indirect emissions relate exclusively
to our purchasing of electricity from third
parties, which is predominantly used in our
concentrator equipment. On an absolute basis,
this fell by 39%, also due to lower production.
On a unit basis, Scope 2 emissions fell
by 11% due to an increased proportion
of electricity being sourced from cleaner
sources including hydro and nuclear power.
Scope 3 emissions
For Ferrexpo Scope 3 emissions primarily
relate to the type of iron ore pellet produced,
since the downstream processing of iron ore
accounted for 96% of Scope 3 emissions
in 2023. In 2022, direct reduction (“DR”)
pellets represented 6% of all production,
resulting in lower Scope 3 emissions for
that year. However, in 2023, no DR pellets
were produced. Consequently, Scope 3
emissions in 2023 on a unit basis increased
to 1.33tCO
2
/t of pellet production from
1.24 tCO
2
/t of pellet production in 2022
respectively. Absolute Scope 3 emissions
nevertheless decreased 25% year-on-year
due to the overall lower production in 2023.
Methodology
Ferrexpo’s methodology for calculating its
GHG emissions footprint utilises, where
possible, emissions factors provided by the
Greenhouse Gas Protocol, which is in line
with reporting requirements under the Global
Reporting Initiatives (“GRI”) framework for
reporting sustainability topics. Through using
carbon factors provided by the Greenhouse
Net Zero pathway
Greenhouse gas emissions footprint and energy consumption (2023/2022)
2023 Data (% change to 2022) 2022 Data
Absolute basis
(kilotonnes CO
2
e)
Unit basis
(kg CO
2
e per
tonne)
Absolute basis
(kilotonnes CO
2
e)
Unit basis
(kg CO
2
e per
tonne)
Scope 1 emissions 247 (-27%) 57 (+4%) 341 55
Scope 2 emissions 137 (-39%) 32 (-11%) 223 36
Subtotal (S1+S2)
emissions 384 (-32%) 89 (-2%) 564 91
Scope 3 emissions 5,707 (-25%) 1,326 (+7%) 7,642 1,237
Total emissions 6,092 (-26%) 1,416 (+7%) 8,206 1,329
Biofuels emissions
(reported separately) 4 (-39%) 1 (-12%) 6 1
Energy consumption
(kWh) 2,162,913,319 (-29%) – 3,052,942,993 –
‘Unit basis’ represents the intensity ratio, aligning to requirements of SECR (Streamlined Energy and Carbon Reporting).
We recognise the importance of addressing
climate change and the need for Ferrexpo
topresent a clear and considered approach
towards reducing our emissions footprint.
37
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
WE ARE DETERMINED
Serhiy has worked at Ferrexpo for
over 20 years. He started his career
as a foreman at the FPM pellet
production workshop. He was
appointed manager of the
pelletising plant at FPM in 2017.
As the war progresses, what has
changed in your role?
After the full-scale invasion, we had to
perform our work completely differently.
Sometimes we operate with only
one pelletiser line, sometimes with
two. Sometimes we were forced to
shut down altogether. In the first few
months, planning for the future seemed
incomprehensible. Before the war we
always had planned production and for
maintenance for years ahead. All this had
to be adjusted as we changed the way
we operate at a variably reduced scale.
What has the war taught you
abouthow you do your job?
It became clear that the production and
maintenance departments had to work
closer together. Many of our colleagues
that are skilled in maintenance and
repair work have joined the armed
forces. As we prepare plans to operate
three lines, co-operation is going to
be more important than ever that we
work across our departments and help
each other out whenever necessary.
When the war ends, what will be
different for you in your job work?
When the war ends I look forward to
the safe return of our colleagues from
the pelletising plant who are currently
fighting on the battle front. As we restore
production to all four pelletiser lines, we
will need our colleagues to return so that
we can minimise any skills shortages.
Serhiy Palekha, Pelletising Plant Manager
Q&A
Gas Protocol, the Group is able to provide
carbon dioxide-equivalent emissions figures
(“CO
2
e”) that also account for emissions of
both methane (CH
4
) and nitrogen oxide (N
2
O).
Water
Our operations include multiple water cycle
interactions, from the water ingress into our
mines, to recycling water in our processing
operations, to the River Dnipro, which
flows adjacent to our operations. Testing
of water quality has continued throughout
2023, with any discharged water quality
tested across more than 12 different
chemical elements or attributes. In our
processing plant, where water is utilised in
the processing of iron ore, we once again
recycled 97% of process water (2022: 98%).
Waste generation
The Group generates solid form waste in
its mining operations (overburden in the
form of waste rock and sand), as well as
emissions of other gases and dust from
its mining and processing operations.
During 2023, waste removal from
mining activities fell by 45% due to lower
production. It is important to note that the
overburden and waste removed from our
mining operations is non-hazardous and
is stored in on-site waste dumps designed
by our mine planning department.
Aside from greenhouse gases, gaseous
emissions include those emitted from our
processing operations (NO
2
, SO
2
, and CO),
with emissions from such sources declining
by an average of 30% during the year, in line
with mining volumes. Dust emissions in 2023
increased 9% compared to the previous year.
Elsewhere in our operations, we continued
to expand our domestic waste recycling
programme with collection bins and
sorting facilities. All four of our main
operating subsidiaries in Ukraine now
have active recycling programmes.
ISO-certified systems
Ferrexpo now has an ISO-compliant
environment management system (ISO
14001:2015) at both FPM and FBM, with the
latter achieving accreditation during 2022.
This is in addition to accreditation of our
Energy Management System (ISO 50001:2018)
at the same two subsidiaries, with FBM
also acquiring this accreditation in 2022.
-2
%
Scope 1 and 2 emissions fell 2%
in 2023, in part reflecting lower
production due to war related
constraints.
38
Ferrexpo plc Annual Reports & Accounts 2023
Identification of material topics
related to sustainability matters
Ferrexpo diligently collaborated to identify
and compile a comprehensive list of 21
sub-topics encompassing Environmental,
Social and Governance (“ESG”) topics, while
considering their potential impacts, risks, and
opportunities (“IROs”). This process involved
leveraging various sources such as Ferrexpo’s
previous impact materiality assessment (using
the GRI universal standard for reporting),
European Sustainability Reporting Standards
(ESRS) 1 AR16, international and sector-
specific standards (International Financial
Reporting Standards (“IFRS”), Sustainability
Accounting Standards Board (“SASB”)), ESG
raters, regulations and competitor analysis.
This meticulous approach ensured that
our sustainability strategy is well informed,
addressing both financial and multi-
stakeholder sustainability matters that are
critical for both Ferrexpo and our stakeholders.
Responsible Business: Double Materiality Assessment
In 2023, Ferrexpo continued its sustainability
strategy on many fronts, including by proactively
initiating a Double Materiality Assessment (“DMA”).
The DMA has been conducted in collaboration
with our sustainability consultants, Ricardo
Plc, and is a process used to evaluate
and understand the impact of Ferrexpo’s
activities not only on our own financial
performance (financial materiality – outside-
in) but also the impact of the Company’s
activities on the environment and society
(impact materiality – inside-out). Our strong
commitment to sustainable business
practices is evident through our proactive
approach, ensuring compliance with
regulations while reinforcing our responsibility
to our employees and communities.
We conducted the materiality assessment
by following the guidance documents
from the European Financial Reporting
Advisory Group (“EFRAG”), which, at the
time of our assessment, were in draft form.
Additionally, we referenced the Annex
associated with the Corporate Sustainability
Reporting Directive (“CSRD”), which contains
the European Sustainability Reporting
Standards. This underscores our dedication
to staying abreast of new sustainability
standards and regulatory requirements, and
adopting best practices in sustainability.
The work involved proactively contacting
a range of stakeholders, demonstrating
our strong commitment and dedication to
fostering engagement and transparency,
even in challenging times.
Stakeholder analysis
Ferrexpo conducted a comprehensive
stakeholder mapping exercise, identifying
over 70 stakeholders categorised into
11 groups, comprising both internal and
external stakeholders. Using a matrix to
assess stakeholder importance based
on their interest and influence, Ferrexpo
identified Directors and Executives (internal),
Auditors (external), and Suppliers (external)
as having the highest interest and influence.
It is essential to emphasise that stakeholder
mapping is an iterative process, allowing
Ferrexpo to continually update and refine its
approach to ensure effective stakeholder
engagement and management.
DOUBLE
MATERIALITY
MATRIX
Materiality assessment process
Our materiality assessment process in 2023 included the following:
STAKEHOLDER
ANALYSIS
IDENTIFICATION
OF MATERIAL
TOPICS
STAKEHOLDER
ENGAGEMENT
IMPACT
MATERIALITY
FINANCIAL
MATERIALITY
39
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Stakeholder engagement
Internal and external stakeholders were invited
to complete an online materiality questionnaire.
A total of 156 internal and external responses
were captured in both English and Ukrainian.
The online questionnaire asked respondents to
rank the impact of the Ferrexpo’s activities on
the selected ESG sub-topics. The information
gathered from both internal and external
stakeholders, including their ranked impact,
directly informed the materiality of the topics.
This analysis revealed that both our internal
and external stakeholders have a profound
interest in Social and Governance issues,
specifically focusing on areas such as
Employee Health and Safety, Employee Rights
and Training, Employment and Turnover,
Responsible Business, and Corporate
Governance. Of particular note is the
internal stakeholder feedback we received,
which predominantly originated from within
Ukraine. This ‘bottom-up’ response provided
a valuable snapshot of the sentiments
and perspectives of colleagues in Ukraine
during a time of war. By understanding the
needs and experiences of our workforce
during this challenging period, we will better
adapt and respond to their concerns.
Additionally, we interviewed a total of 17
internal and external stakeholders, including
Directors and Executives from Ferrexpo,
auditors, bank institutions, brokers, customers,
NGOs, suppliers, trade associations, and
investors. These interviews helped to further
identify and validate the potential material ESG
topics from an impact perspective (external
interviews), risks and opportunities from a
financial perspective (internal interviews with
Directors and Executives), as well as provide
context on external stakeholder views and
expectations related to the ESG topics.
Impact materiality
We rigorously assessed our direct and
indirect impact on both the environment
and society, under the guidance of our
sustainability consultants, Ricardo Plc. To
ensure comprehensiveness, the results of the
stakeholder questionnaire were applied to
an impact materiality scoring assessment to
evaluate the scale of actual and/or potential
negative and positive impacts from their
perspective, considering both perceived
impact and scope (i.e. how widespread
the impact is). We further conducted an
internal assessment that considered the
extent and potential for irremediability of the
actual negative impacts. Under the EFRAG
guidance, materiality is based on the severity
of the impact, which considers scale, scope,
irremediability as it relates to actual impacts,
including likelihood for potential impacts.
Ferrexpo 2023 Double Materiality Matrix
1.1
1.5
2.7
2.3
2.8
2.1
2.2
2.5
1.4
2.4
3.2
3.1
3.3
3.4
1.3
1.8
2.6
1.7
1.2 1.6
1.9
IMPACT MATERIALITY
FINANCIAL MATERIALITY
INFORMATIVE
INFORMATIVE
SIGNIFICANT
SIGNIFICANT
CRITICAL
CRITICAL
IMPORTANT
IMPORTANT
Key
1.1 Air Quality and GHG emissions
1.2 Biodiversity
1.3 Climate Change
1.4 Energy Management and Sourcing
1.5 Green Technologies
1.6 Land Use
1.7 Pollution
1.8 Resource Management
1.9 Water and Waste Management
2.1 Community
2.2 Conflict Risk
2.3 Diversity and Inclusion
2.4 Employee Health and Safety
2.5 Employee Rights and Training
2.6 Employment and Turnover
2.7 Green Steel
2.8 Supply Chain Management
3.1 Corporate Governance
3.2 Data Privacy and Security
3.3 Responsible Business
3.4 Risk and Compliance
ENVIRONMENTAL ISSUES
SOCIAL ISSUES
GOVERNANCE ISSUES
40
Ferrexpo plc Annual Reports & Accounts 2023
Responsible Business: Double Materiality Assessment continued
To validate the accuracy and robustness
of our assessments, moderation sessions
were conducted internally, followed by
additional sessions with our stakeholders.
These sessions fostered dialogue and
ensured consensus on final scores,
culminating in a comprehensive and
reliable materiality assessment.
Financial materiality
To perform the financial materiality, we
identified and evaluated the risks and
opportunities associated with each
sustainability sub-topic. To achieve this,
an initial list of risks and opportunities was
compiled for each sustainability sub-topic,
drawing influence from internal and external
reputable sources to ensure all relevant
financial aspects were considered when
defining sustainability sub-topics. These
sources included the Capitals Coalition,
TCFD and SASB, Ferrexpo’s risk register
and internal stakeholder interviews. A final
financial materiality score for sustainability
sub-topics was derived by aggregating the
averages of likelihood of occurrence and
monetary impact (financial magnitude) scores
for each associated risk and opportunity.
These scores were then categorised
into levels such as Minimal, Informative,
Important, Significant, or Critical.
Additionally, as recommended by EFRAG,
each sub-topic was assigned a Dependencies
on Capitals, evaluating how different
forms of capital (such as financial, natural,
human, social, and manufactured) can
impact both financial and sustainability
performance. This provided valuable insights
into their interconnectedness with our
Company activities. To ensure accuracy and
comprehensiveness, these rankings were
shared and verified during a concluding
Impact and Financial Materiality Workshop.
This collaborative effort ensured that all
potential financial impacts on the Company
were adequately considered and addressed.
Double Materiality results
The results from both the impact materiality
assessment and the financial materiality
assessment have been consolidated to
form Ferrexpo’s Double Materiality Matrix.
Based on the Double Materiality Matrix, nine
material topics were identified, shown in the
upper green corner. The materiality threshold
was meticulously examined to gauge the
probability and potential financial impacts
across short-, medium-, and long- term
horizons. This evaluation was integrated with
our enterprise risk management framework
to identify, examine and agree on the
potential financial effects. The threshold
was established collectively through internal
stakeholder consensus. Moving forward,
we will continue to refine these thresholds,
particularly, as we update our risk register,
aiming to introduce suitable quantitative criteria
where applicable. These nine topics are,
therefore, considered material to Ferrexpo:
Category Topics
Environment Climate Change
Environment Green Technologies
Environment Resource Management
Social Employee Health & Safety
Social Employment & Turnover
Social Green Steel
Governance Corporate Governance
Governance Data Privacy & Security
Governance Responsible Business
We recognise the utmost importance of
prioritising our employees’ health and safety,
especially within the context of an ongoing
war. The Double Materiality Matrix reinforces
our corporate focus on these critical areas.
This assessment serves as a testament to
the determination of our team at this time,
reflecting their sentiments and expectations.
As we navigate through these challenges, we
remain strong in our commitment to ensuring
the wellbeing of our employees. We are
determined to continue providing support and
resources to safeguard their health and safety.
The insights derived from this assessment
will play a pivotal role in preparing Ferrexpo
for compliance with the CSRD and related
ESRS. We are committed to bridging any
gaps and strengthening our metrics, targets,
policies, and action plans with renewed focus
on these key material topic priorities. These
findings will inform our sustainability strategy,
guiding our efforts toward long-term value
creation and fostering positive societal impact.
WE ARE DETERMINED
41
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Yuliya’s career at Ferrexpo
startedin IT almost 30 years ago.
In 1999 she transferred to HR
working her way up to become
thedepartment head and more
recently the HR Director.
What has the war taught you
andyourcolleagues?
The war has made us adapt to different
working conditions but also unite behind
shared goals. Managers at all levels have
heightened their focus on the emotional
state of their respective team members
by introducing in-person meetings with
colleagues, supplemented by group
chats in messenger apps, fostering an
environment where employees could share
their experiences and support each other,
thus helping them adjust their approach
to work. We have also learned to work
within tighter budgets, to perform more
duties in shorter time frames, and to focus
on the safety of the entire workforce – a
paramount concern, which is even more
important in these challenging times.
One of the most interesting things we
noticed is the capacity for teams and
individuals to mobilise and self-organise.
For instance, within a single weekend,
an on-site 24/7 children’s centre was
established from scratch, with volunteers
from across the organisation, irrespective
of position or seniority. Another initiative
included employees starting a theatre
club, which provided an outlet for
channelling pent-up energy and alleviating
anxiety. These initiatives exemplify the
resourcefulness of our middle-level
managers and regular employees.
If you could do something
differentlysince the war started,
whatwould itbe?
I wouldn’t change a thing, because I know
that all decisions made were executed
promptly and with due consideration for
the welfare of all our colleagues. Amidst
the backdrop of war, our responsibilities
extend beyond our daily tasks to encompass
the preservation of our people’s mental
well-being. Despite the challenges
posted by frequent sirens signalling air
raid alerts and the constant stream of
distressing news, it is clear to us that
people want to work while their relatives
and colleagues are on the frontlines fighting
for the independence of our country.
How will the end of the war affect
youand your colleagues?
The challenge of securing skilled people
is looming, but we are already taking
proactive steps to address this. Initiatives
include conducting career guidance work
among young adults and encouraging
participation in the Ferrexpo scholarship
programme. We also offer current
employees the opportunity to expand their
skills by taking appropriate training courses
at the Center of Technical Expertise, or to
pursue higher education to advance their
careers. Another initiative involves working
with demobilised employees, who, after
physical and psychological rehabilitation,
are welcome to return to their positions,
which are being held for them during their
service in the Armed Forces. If a veteran
cannot return to his previous workplace for
health reasons, he is offered another role,
coupled with retraining if necessary. These
measures not only strengthen individuals
but also the Company as a whole.
We of course recognise the psychological
consequences of Russia’s military
aggression, resulting in many employees
suffering from PTSD, even those that have
not been mobilised. The war has severely
affected numerous aspects of our once
tranquil lives, eroding any sense of security,
while inflicting stress and trauma. It is
imperative that we begin addressing these
psychological ramifications by prioritising
the mental wellbeing of our employees
because the impact of their psychological
state directly influences their ongoing mental
health and productivity in the workplace.
Yuliya Klevova,
HR Director
Q&A
42
Ferrexpo plc Annual Reports & Accounts 2023
several iron and steel manufacturers to obtain
data for those stages outside of our control.
Where data was not available, reputable
LCA databases were used to gap fill to
ensure that all necessary impact sources
were captured. The study was carried out
using SimaPro software, using the widely
used ecoinvent database for secondary
data, and complies with ISO14040 and
ISO 14044, the key underlying standards
for LCA. Furthermore, it was independently
critically reviewed and found to be in
accordance with these standards.
What the results show
We recognise the important role Ferrexpo
plays in enabling the decarbonisation of the
steel industry and we are dedicated to driving
the industry towards greater sustainability.
It is, therefore, gratifying to see that the
modelled DRI-EAF route, which utilises our
DRpellet, offers decarbonisation opportunities
for steel manufacturers, with reductions of
almost 40% of embodied carbon emissions
compared to the more traditional sinter-
BF-BOF route, observed in the study.
Method
Embodied carbon
emissionsper kg of
SAE 1006 grade steel
Pellet-DRI-EAF route 1.35 kg CO
2
eq
Sinter-BF-BOF route 2.15 kg CO
2
eq
Responsible Business: DR pellet life cycle assessment
Life Cycle
Assessment
The Life Cycle Assessment (“LCA”)
that we completed during 2023 forms
an important part of understanding
our Net Zero pathway. This
comprehensive LCA was completed
in collaboration with environmental
consultants Ricardo Plc to evaluate
our contribution to the potential
environmental impacts related to
steel production, focusing on our
roleas iron ore pellet producers.
Scope and boundary
The scope of the LCA was to assess the
cradle-to-gate environmental footprint of
manufacturing steel billet using our DR
(direct reduction) pellets, a crucial precursor
to downstream steel production. The study
compared two distinct production methods
for SAE 1006 grade steel: a DR pellet-Direct
Reduction Iron (“DRI”)-Electric Arc Furnace
(“EAF”) route and a sinter-Blast Furnace
(“BF”)-Basic Oxygen Furnace (“BOF”) method,
the latter being the more traditional steel
making route which relies more heavily on
coal and coke usage, rather than natural
gas and electricity which can be from clean
sources. The study assessed the embodied
carbon impacts of each route using the
Global Warming Potential (“GWP”) indicator
which reports in terms of carbon dioxide
equivalents (CO
2
eq.), as well as a range of
other potential environmental impacts.
Findings
The results show that the Ferrexpo DR pellet
route can reduce 37% of embodied carbon
emissions compared to the ‘traditional fossil
based’ sinter-BF route for producing SAE
1006 grade steel. We are using this baseline
result as a starting point to build on, to
address impact hotspots and further minimise
our overall impact on climate change.
Data sources and assumptions
In terms of the underlying data used for
the study, we utilised historical activity data
from 2021 (the most recent data which
was available at the time of the study) for
our mining, beneficiation and pelletisation
operations, as well as collaborating with
Steel making Iron making Sinter /pellet making
SINTER-BF-BOF
PELLET-DRI-EAF
0 500 1,000 1,500 2,000 2,500
Breakdown for one tonne of steel from sinter-BF-BOF and pellet-DRI-EAF routes
9
%
70
%
21
%
23
%
61
%
16
%
GWP-TOTAL, KG CO
2
EQ. PER TONNE OF STEEL
-37
%
In terms of hotspots for embodied carbon,
for both routes, the iron making stage
has the largest contribution within the
study, with emissions from coal and
natural gas being the key drivers.
The associated embodied carbon value
of Ferrexpo DR pellets was calculated to
be 172kg CO
2
eq per tonne of DR pellets.
Diving down into these results showed
that energy consumption in Ferrexpo’s
beneficiation and pelletisation processes
are the hotspot contributors. The mining
stage contributes 17% to the total value per
tonne of DR pellets. Like the other stages,
this value is driven by energy usage in
excavation as well as embodied impacts
of the explosives modelled in the study.
Net Zero journey
We are using the LCA to explore how to
drive down our impacts further, engaging
with our downstream value chain but also
investigating how to address hotspots
within our own operations. The steps we
are taking include practical and impactful
initiatives targeted at the hotspots identified
in our study, engaging with our customers
to better understand and model how our
pellets are used, and implementing a process
of continual monitoring and improvement
of our own data collection to enhance the
accuracy and robustness of our results.
While embodied carbon emissions are our
main focus, our LCA approach is enabling
us to drive sustainability improvements
across a whole suite of environmental
issues including water and waste.
Our life cycle thinking highlights our
commitment to sustainability, extending
beyond our own operations to the downstream
sectors where our products play a crucial
role in catalysing positive change.
43
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Responsible Business: TCFD Disclosures
Summary disclosure against
TCFD recommendations
Ferrexpo’s 2023 climate-related
financial disclosures for the purposes
of Listing Rule 9.8.6R(8) and section
414CB of the Companies Act 2006 are
detailed below. Ferrexpo considers
that it has made climate-related
financial disclosures consistent with
the four recommendations and 11
recommended disclosures of the
TaskForce on Climate-Related
Financial Disclosures (TCFD),
coveringgovernance, strategy, risk
management, and metrics and targets.
Ferrexpo recognises the importance of regularly
updating our climate scenario analysis to ensure
relevant, accurate and insightful information about
our climate-related risks and opportunities. We
remain committed to conducting a thorough update
in the upcoming year. During this process, we will
seek to expand the relevant quantitative evaluation of
our climate-related risks and opportunities and
further expand on the cross-cutting industry metrics.
We want to assure our stakeholders that we are
dedicated to ensuring that we provide accurate and
insightful information about our climate-related risks
and opportunities.
Governance
Board oversight of climate-related
risks and opportunities.
– The Board of Directors has ultimate oversight
of the Group’s strategy, including its approach
to the effect of climate change on the Group’s
business model. The Board considers climate-
related issues as part of its decision-making,
including in relation to risk management,
annual budgets and business plans.
– Climate change was a standing
agenda item at all five scheduled Board
meetings throughout the year.
– The Health, Safety, Environment and Community
(HSEC) Committee has been delegated
management of climate-related issues by
the Board. Three members of the executive
management team serve on the HSEC Committee
and Independent Non-executive Director Natalie
Polischuk, the Director primarily responsible for
climate-related matters, serves as Chair. The
HSEC Committee met four times during the
year (2022: four) and climate change has been
a standing agenda item at all scheduled HSEC
Committee meetings throughout the year. The
HSEC Committee receives information about
climate-related issues through activities such as
internal briefings by members of the executive
management team and briefings from external
advisors. Feedback from this Committee
on the Group’s progress on climate change
related matters, including progress against
climate-related goals and targets, is provided
to the Board after each Committee meeting.
– The Audit Committee serves as a partner to the
Board, diligently monitoring the organisation’s
risk exposure and risk appetites, including in
relation to climate-related risks, to ensure they
align with established thresholds. Additionally,
the Audit Committee provides an oversight
function by reviewing the effectiveness of
implemented risk management and control
systems. The Audit Committee is assisted in
its oversight role by the Group’s internal audit
function, which undertakes both regular and ad
hoc reviews of risk management controls and
procedures, including in relation to climate-
related risks; the results of these reviews are
reported to the Audit Committee. The Chair
of the Audit Committee reports to the Board
after each meeting on all matters within its
duties and responsibilities, including any
climate-related matters that were discussed.
Management’s role in assessing
and managing climate related
risks and opportunities.
– The Executive Committee oversees
implementation of the Group’s strategy
in relation to climate change.
– In addition to the role of the HSEC
Committee described above, the Group’s
executive management team monitors and
assesses climate-related risks through
its risk monitoring activities as part of the
Group’s Finance, Risk Management and
Compliance (FRMCC) Committee, which
met ten times in 2022 (2022: ten).
– Further information on the FRMCC Committee
and how management assesses and manages
climate-related risks and opportunities is set
out in the ‘Risk Management’ disclosures
below and in the flowchart on page 73.
Strategy
Climate-related risks and opportunities
over the short, medium, and long term
– Climate change poses multifaceted
risks to the mining and steel sector and
is a Principal Risk for the Group.
– The Group has identified several specific climate-
related risks and opportunities through a series of
stakeholder interviews and desk-based research.
– This process resulted in a shortlist of key
potential risks and opportunities for Ferrexpo
within different category areas, including
transition risks associated with the transition
to a lower carbon economy and physical
risks arising from acute weather events or
longer-term chronic changes to the climate.
– Climate-related risks and opportunities were
considered over the following time horizons:
short-term (less than two years), medium-term
(more than two but less than ten years) and
long-term (greater than ten years). The definition
of each time horizon is broadly aligned to the
Group’s medium-term climate change targets
for 2030, with a ten-year window for action from
the Group’s baseline year (2019), with short-
term and long-term horizons set at either side
of this definition, including longer time horizons
to 2050 and 2100 to capture the long-term
trajectory of climate change and its potential
impacts on the Group’s operations and strategy.
– We used scenario analysis to determine which
risks and opportunities could have a material
financial impact on our business, by evaluating
the impacts on operating costs, ability to generate
revenues, business interruption, supply chain
issues and the timing of key company events and
milestones across the selected climate scenarios.
For further information, see the ‘Resilience based
on climate change scenarios’ disclosures below.
– A detailed description of the climate-related
risks and opportunities potentially arising in the
short, medium and long term that could have a
material financial impact on the Group is included
on pages 46 to 59. For each climate-related
issue we have detailed the data required to
analyse the financial impact on our business.
Impact on the Ferrexpo Business
Strategy and Financial Planning
– Consideration of topics relating to climate change
is a fundamental aspect of Ferrexpo’s business
model with the Group releasing a standalone
report on climate change in December 2022.
Through the work completed with sustainability
consultants Ricardo, the Group was able
to upgrade and broaden its suite of carbon
emissions reduction targets see pages 36 to 37.
– The climate-related risks and opportunities that
have been identified through scenario analysis
serve as the foundation for Ferrexpo’s business
strategy and financial planning across the short,
medium and long term time horizons set out
above, guiding our actions and investments to
mitigate risks and capitalize on opportunities in
alignment with our long-term sustainability goals.
– Regular review and integration of climate-
related risks and opportunities into business
strategy has led the Group to increase its
focus on direct reduction pellets, which have
a lower emissions footprint and represent
a pathway to low emissions steelmaking.
Ferrexpo continues to invest in research
and to implement new technologies that are
expected to lower Ferrexpo’s organisational
Scope 1 and 2 emissions footprint, and
following a successful trial, the Group now
has its own solar power plant capacity to
meet its minimum power requirements.
– Climate-related risks input into financial
planning processes through the consideration
of the potential carbon emissions footprint
44
Ferrexpo plc Annual Reports & Accounts 2023
Responsible Business: TCFD Disclosures continued
of existing and proposed operating projects
and capital investment projects.
– Given the current war in Ukraine and reduced
level of operating activities in Ukraine,
the Group is currently not assessing new
operational or capital investment projects.
– Climate-related factors are expected to have
a impact on the financial performance in
the short to medium term due to increased
operating costs and the need for increased
capital investment, (for details see Note 2 Basis
of preparation to the Consolidated financial
statements) but present opportunities in the
long term through the expected rise in demand
for iron ore products that are relevant for
low emissions steelmaking (Green Steel).
Resilience based on climate
changescenarios
– With support from Ricardo, we conducted climate
scenario analysis in 2022 across three wide-
ranging scenarios to examine impacts over our
selected time horizons. The climate scenarios
were selected based on their ability to capture a
wide spectrum of potential outcomes related to
the rate and severity of environmental change.
These scenarios were developed by reputable
independent climate change authorities and
reflect varying degrees of legislative ambition
expected from governments in the years ahead.
– Due to the split of transitional and physical
risks and opportunities, two publicly available,
scientifically recognised organisations were
selected to assess the business impact of
and our resilience to each material climate-
related risk and opportunity identified through
scenario analysis under different hypothetical
futures: the International Environment Agency
(IEA) and Intergovernmental Panel on Climate
Change (IPCC). In total, three scenarios were
selected across those developed by the
IEA and IPCC. The scenarios included:
– IEA Sustainable Development Scenario
(SDS): a “well below” 2°C by 2100
scenario, achieved through policies
that adhere to the Paris Agreement.
– IEA Stated Policy Scenario (STEPS): a worst
case, “business as usual scenario” (one of
two modelled here). A more conservative
benchmark whereby governments are
assumed to not reach all announced goals.
Instead, it takes a more granular, sector-by-
sector look at what has actually been put
in place to reach these and other energy-
related objectives, taking account not just of
existing policies and measures, but also a
look at those that are under development.
– IPCC SSP4: a worst case, “business as
usual scenario” (one of two modelled here),
in which a divided approach to climate
change continues to widen through unequal
investments in human capital, combined
with increasing disparities in economic
opportunity and political power, leading
to increasing inequalities and stratification
both across and within c
ountries.
– For a comprehensive understanding of our
scenario analysis, see pages 43 to 59. This
provides a detailed account of the selected
scenarios, their respective characteristics
and metrics, as well as a detailed table for
each risk and opportunity, including their
business and financial impacts, ratings
against scenarios, geographical distribution,
and potential strategic actions.
– In a time of climate uncertainty, Ferrexpo
maintains its strong commitment to sustainability,
striving for continuous improvement in our climate
change strategy and the resilience of our Group.
We are closely following the evolving risks and
opportunities stemming from climate change for
Ferrexpo, positioning ourselves to capitalise on
the increasing market demand for low carbon
emissions steel production. While regulatory shifts
in the shipping industry may raise concerns about
operating costs, our scenario analysis indicates
that short-term impacts are manageable, with
medium- and long-term risks being monitored
and solutions being investigated. Through
ongoing scenario analysis and the reinforcement
of mitigation strategies, we are confident the
resilience of our business and climate change
adaptation efforts. Our proactive actions
exemplify our strong commitment to action and
innovation, firmly embedding sustainability into our
operations and business and financial planning.
– While the climate scenario analysis was not
updated in 2023, we reviewed the risks and
opportunities as part of the Double Materiality
Assessment (see pages 38-40) and using the
enterprise risk management (ERM) tool that was
implemented in 2022 to record and monitor risks.
– We are collaborating with Ricardo to conduct a
comprehensive update and review of the analysis
during 2024, which will include an expansion
of our consideration of cross-industry metrics
and where possible, further quantifying the
financial impact of the risks and opportunities.
This process will involve incorporating the latest
data, emerging trends, and evolving legislative
and regulatory frameworks into our climate
strategy thereby strengthening our resilience.
This approach will seek to ensure that our
climate scenario analysis remains accurate
and aligns with the most recent scientific and
industry developments. It is expected that future
phases of work will require site visits to our
operations in Ukraine, which are not possible at
the current time. The Group will provide further
updates on this work stream in due course.
– We acknowledge the importance of being
transparent and accountable in our approach
to climate transition and we have been
following the development of the Transition
Plan Taskforce (TPT) Disclosure Framework
and believe this to be a valuable guide for
consistent climate transition plans. As such, we
aim to develop and communicate our strategic
climate ambitions in alignment with the TPT
and demonstrate how these are integrated
into our operational strategies, governance
mechanisms, and financial planning.
Risk management
Process for identifying and
assessing climate-related risks.
– The Board of Directors has ultimate
responsibility for the identification of emerging
and principal risks, including climate-
related risks, and associated strategies
to manage and mitigate such risks.
– The Group has an internal risk register which
considers emerging and principal risks related to
the business, including climate-related risks, and
determines their relative significance by reference
to monetary impact, probability, maximum
foreseeable loss, trend and mitigating actions. The
risk register is updated monthly and discussed by
executive management at the Group’s FRMCC
Committee, where the completeness of the
risk register is also considered and any new
identifiable risks added. The risk register is also
discussed and reviewed by the Audit Committee,
at least quarterly per year. The FRMCC
Committee ultimately reports into the Board for
further review and approval of the risk register.
– As part of its consideration of climate-related
risks, the FRMCC Committee also monitors how
existing and proposed regulatory requirements
such as the EU’s Carbon Border Adjustment
Mechanism (CBAM) may pose a risk to our
business and may impact our future strategy.
Managing climate-related Risks
– The Board monitors the Group’s risk
management and internal control systems
on an ongoing basis, supported by the
Audit Committee, Executive Committee
and HSEC Committee, as set out above.
– Where a risk is deemed to be sufficiently
significant in terms of potential impact or
likelihood, appropriate risk mitigation measures
are sought, including with the assistance
of third party specialists where relevant.
– The Chief Executive Officer, Chief Financial
Officer, Chief Operating Officer and Chief
Marketing Officer have been delegated
responsibility for managing specific risks within
the business, including climate-related risks, on
a day-to-day basis related to their functions.
– Further information on the actions taken
to manage and mitigate risks relating
to climate change is set out in the
‘Principal Risks’ section on page 74.
How processes for identifying,
assessing, and managing climate-
related risks are integrated into the
company’s overall risk management.
– The Group’s processes for identifying,
assessing, and managing climate-related risks
are fully integrated into the Group’s overall
risk governance framework, further details
of which are set out above and in the ‘Risk
Management’ section on pages 72 to 73.
Metrics and targets
Metrics used to assess climate-
related risks and opportunities
– The Group uses a wide range of climate-related
metrics including GHG emissions (Scopes 1,
2 and 3 and emissions intensity), as well as
consumption of diesel, electricity and natural gas,
water usage and waste generation and land use
including biodiversity baseline mapping. Further
information on these metrics is provided in the
‘Responsible Business’ section on pages 36 to 37.
– Ferrexpo is also monitoring various key
performance indicators (KPIs) to assess and
manage climate-related risks and opportunities.
These include steel carbon intensity, trends in
carbon pricing, data on electric arc furnace steel
production, recycling rates and volumes of scrap
steel outputs, international shipping emissions,
per tonne-kilometre efficiency, renewable energy
availability and costs, green steel market trend,
and related client preferences. These metrics
and targets were selected based on their
direct relevance to the Group’s operations and
their ability to effectively track policy, market
and technological changes. These KPIs have
remained consistent since the last disclosure,
however, Ferrexpo plans to re-evaluate these
metrics during the 2024 TCFD refresh to ensure
they continue to align with the Group’s goals
and the expectations of stakeholders. By
consistently tracking these indicators, we aim
to ensure that our strategies and actions are
aligned with climate-related targets and that
we remain responsive to the evolving market
demands and environmental imperatives.
– Metrics relating to carbon reduction progress
45
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
are incorporated into remuneration policies. Our
remuneration policy includes consideration for
sustainability-linked topics in the Short-Term
Incentive Plan for executives, such as targets
on an annual basis that are intended to help
deliver our medium-term (2030) carbon reduction
goals on Scope 1 and Scope 2 emissions, as
well as elevating the production of higher grade
direct reduction iron ore pellets, which are key
to lowering the Group’s Scope 3 emissions.
– Following a reduction in the risks associated with
the war in Ukraine, the Group expects that new
investments will be assessed using a price of
carbon that is reflective of the prevailing carbon
price within the EU Emissions Trading System,
as was the case prior to the war in Ukraine.
Greenhouse gas emission
– The Group’s Scope 1, 2 and 3 emissions in
2023 and in 2022 (to allow for trend analysis),
as well as the methodology used to calculate
GHG emissions, are set out on page 36.
– The Group engaged MHA to conduct an
independent limited assurance process in
relation to the Group’s Scope 1 and Scope
2 carbon emissions disclosures for 2022,
which was completed in March 2023 and is
available on our website at www.ferrexpo.com/
media/2bhnh3rv/independent-accountants-
limited-assurance-report-ferrexpo-plc-2022.pdf.
Targets
– Throughout 2021 and 2022, we developed our
decarbonisation pathway, outlined in our Climate
Change Report 2022, where we announced our
carbon emissions reduction targets. Using a
2019 baseline year, Ferrexpo aims to reduce its
Scope 1 (direct emissions) and Scope 2 (indirect
emissions from purchased electricity) emissions
footprint by 50% by 2030 and Net Zero by 2050,
though these targets may need to be adjusted
due to the war. We introduced a new medium-
term target of reducing Scope 3 emissions by
10% by 2030 and by 50% by 2050. Due to the war
in Ukraine, we consider emissions per tonne, not
absolute emissions, as the most representative
performance measure. Our performance
against these targets is set out on page 16.
– We have mapped our progress in terms of climate
governance maturity against the Transition
Pathway Initiative (TPI) Centre’s “Management
Quality Staircase”. Following the publication of our
Climate Change Report and Scope 3 targets in
December 2022, in addition to the independent
assurance work completed in March 2023, we
have assessed our progress to have reached
Level 4 of reporting. The TPI Centre’s Staircase
is particularly helpful for understanding the
forward-looking component of our reporting
journey that lies ahead and highlights a need
for us to develop our understanding of the
impact of climate change on our business
costs as an area of focus for future work.
1. Source: CRU. Natural gas based direct reduction without carbon capture.
Material topics
(Note: denotes key focus area for Ferrexpo.)
External factor Key focus area?
Market and technology shift
Increasing demand for low carbon emissions
steelmaking
Movement towards circular economy principles
Mineral commodity shift: From iron ore to other
minerals
Policy and legal
Shipping: Targets and regulations on carbon
emissions
Carbon pricing/tax: Targets and regulations on
carbonemissions
Energy crisis in Ukraine
Reporting: Targets and regulations on carbon
emissions
Increase in insurance costs
Reputation
Increased consumer and investor climate
consciousness
Climate action transparency: Increased demand
fromconsumer and investors
Physical risks
Water stress (chronic)
Sea level rise (chronic)
Increase in storm intensity (acute)
Climate-induced conflict
Surface temperature rise
Opportunity for increased community and host
country engagement over climate change related
issues
Risk matrix
LIKELIHOOD
Code Issue area Matrix score
Top risk areas
identified
CC Climate-induced conflict
CEP
Movement towards circular
economy principles
CP
Carbon pricing/tax: Targets and
regulations on carbon emissions
#3
CPU Energy crisis in Ukraine
IIC
Increase in consumer and
investor climate consciousness
LCS
Demand for low carbon emissions
steelmaking
#1
SCE
Shipping: Targets and regulations
on carbon emissions
#2
SI Increase in storm intensity (acute)
SR Sea level rise (chronic)
Low Low/Medium Medium/HighMedium High
SIGNIFICANCE
(Note: Bubble size denotes the scale of the potential impact on the Ferrexpo business.)
LCS
SI
CPU
CC
CEP
SCE
SR
CP
IIC
46
Ferrexpo plc Annual Reports & Accounts 2023
Responsible Business: TCFD Disclosures continued
Introduction
In reviewing the possible risks and opportunities facing Ferrexpo as a result of climate change, a series of interviews were held with a range of
our stakeholders. This process was established to determine perceptions around climate change and Ferrexpo’s business model. In turn, this
information was subsequently mapped across three climate change scenarios, to produce the conclusions shown in this section.
Through a mix of desk-based research and key stakeholder interviews, a number of shortlists have been developed of key potential risks and
opportunities for Ferrexpo within the category areas, as shown in the summary table below.
Category Description
Market and
technology
Risks Key risk areas: (1) demand for low emissions steel, and (2) movement towards circular economy
principles.
Through the scenario analysis conducted, the key risk themes across the scenarios that have been
identified include a slight decrease in profit due to a decrease in global iron ore price, and increased
demand for steel produced with a lower carbon emissions footprint (trending towards lower emissions
and ultimately zero emissions “Green Steel”). IEA SDS predicts a reduced carbon emissions footprint of
steel from 1.4tCO
2
/t steel in 2019 to 0.6tCO
2
/t steel in 2050. IEA STEPS predicts a reduction in carbon
emissions footprint of steel from 1.4tCO
2
/t steel in 2019 to 1.1tCO
2
/t steel in 2050, with both scenarios
predicting an increase in EAF’s share of global steel production to rise to c.50% by 2050.
Opportunities Potential material opportunities: (1) demand for low emissions steel, and (2) movement towards circular
economy principles.
Through the scenario analysis conducted, the key opportunity themes across the scenarios include the
strong position Ferrexpo currently holds with regards to the movement towards “Green Steel” (via direct
reduction (“DR”) pellets and EAF steelmaking), with there being potential to increase pellet premiums
and revenues.
Physical Risks Potential material opportunities: (1) Sea level rise (chronic), (2) Increase in storm intensity (acute), and (3)
Climate induced conflict.
Through the scenario analysis conducted, the key risk themes across the scenarios include an increase
in global sea level rise, an increase in global storm intensity and frequency, and a possibility for
increased global conflict (more applicable for IEA STEPS and IPCC SSP4 scenarios).
Opportunities Not applicable – through the scenario analysis, only risks have been identified.
Policy and legal Risks Key risk areas: (1) shipping targets and regulations on carbon emissions, (2) carbon pricing/tax targets
and regulations on carbon emissions, and (3) a climate change related energy crisis in Ukraine.
Through the scenario analysis, the key risk themes across the scenarios include the introduction of
global carbon prices (set global prices for IEA STEPS and IEA SDS, and regional specific carbon prices
for IPCC SSP4), a potential risk of insufficient energy access in Ukraine in IPCC SSP4, and a need for
investment in decarbonising the shipping sector across all scenarios.
Opportunities Potential material opportunities: (1) shipping: targets and regulations on carbon emissions, (2) carbon
pricing/tax: targets and regulations on carbon emissions, and (3)a climate change related energy crisis
in Ukraine.
Through the scenario analysis conducted, the key opportunity themes across the scenarios includes a
competitive advantage in the market should Ferrexpo successfully decarbonise its shipping operations,
a financial advantage should Ferrexpo decrease their emissions to below the market average (secured if
2050 net zero targets are achieved), and opportunity for Ferrexpo to diversify and become independent
of Ukraine‘s national grid through the Group producing its own renewable energy.
Reputational Risks Key risk area: (1) increase in climate consciousness amongst customers, investors and other
stakeholders.
Through the scenario analysis, the key risk themes across the scenarios include an increase in positive
sentiment towards green steel and/or iron ore from consumers and investors, resulting in potential for
financial loss from not meeting customer and investor demands.
Opportunities Potential material opportunity: (1) increase in climate consciousness amongst customers and investors.
Through the scenario analysis, the key opportunity themes across the scenarios include an opportunity
for Ferrexpo to upscale production of iron ore pellet types that are compatible with “Green Steel” to
appeal to the market before other market competitors.
TCFD Disclosures
47
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
CLIMATE RISKS AND OPPORTUNITIES: SPECIFIC TO SECTOR, GEOGRAPHY AND TIME
Transition
risks and opportunities
Physical
risks and opportunities
APPLY CLIMATE SCENARIOS
APPLY CLIMATE SCENARIOS
Evaluate business impacts:
• Operating costs
• Revenues
• Supply chain
• Business interruption
• Timing
Businesses will need to have an answer to the key question:
“What strategy is in place to transition business models to ones
that remain valuable once ambitious climate policies are in place?”
Physical climate
change
Markets and
technology shifts
Policy and
legal
Reputation
Source: Ricardo Plc.
Reputation
– Loss of trust and brand
value if not risks and
impacts are not
addressed.
– Opportunity to enhance
reputation through
responsible purpose.
– Access to finance.
Policy and legal
– Ambitious targets to
decarbonise sectors,
such as the energy and
transport sectors.
– Increased cost of
production and taxes.
– Liability risks.
Market and
technology shifts
– Reduced market
demandfor emissions
intensive products.
– Increased demand
forlowcarbon products
and services.
– Disruptive business
models.
Physical risks
– Chronic changes to
weather resulting in
fundamental shifts.
– More frequent acute
weather events,
suchasfires, storms,
andflooding.
– Supply chain disruption.
Scenario analysis aims to look at the resilience of a business against different climate change scenarios, varying in the speed and severity of climate
change over time, and the associated response by governments worldwide in terms of policy change.
As depicted in the figure opposite, climate change driven impacts on the operating environment may take the form of market and technology shifts,
reputational factors, the impact of changes (or insufficient change) to government policy and legal frameworks, and physical impacts.
Risks and opportunities may take the form of a transition risk, whereby companies do not respond quickly enough to a changing operating
environment and/or shifting stakeholder expectations. Physical risks include the more obvious, direct impacts on a business, such as flooding and
increasing storm events near a business’s operations, or more indirect impacts such as rising sea levels, and the impact that this could have on
global trade routes and access to customers.
In evaluating the impact on a business, climate change risks and opportunities may affect a wide range of factors, such as a company’s operating
costs, ability to generate revenues, supply chains, ability to operate continuously, and the timing of key company events and/or milestones.
48
Ferrexpo plc Annual Reports & Accounts 2023
1. International Energy Agency (“IEA”)
Sustainable Development Scenario
(“SDS”)
2. IEA Stated Policies Scenario (“STEPS”) 3. IPCC Shared Socioeconomic Pathway 4
(“SSP4”)
Description: a “well below” 2°C scenario,
achieved through policies that adhere to
the Paris Agreement.
Description: a worst case, “business as
usual scenario” (one of two modelled here).
A more conservative benchmark whereby
governments are assumed to not reach all
announced goals.
Description: a worst case, “business as
usual scenario” (one of two modelled here).
Divided approach to climate change
continues to widen through unequal
investments in human capital.
Summary:
This path sets out a plausible path to concurrently
achieveuniversal access to energy, the objectives of
theParis Agreement, and a reduction in air pollution.
Summary:
The STEPS scenario provides a more conservative
benchmark for the future, because it does not take it for
granted that governments will reach all announced goals.
Instead, it takes a more granular, sector-by-sector look
at what has actually been put in place to reach these and
other energy-related objectives, taking account not just of
existing policies and measures, but also a look at those
that are under development.
Summary:
Inequality (A Road Divided). Highly unequal investments
in human capital, combined with increasing disparities
in economic opportunity and political power, lead to
increasing inequalities and stratification both across
andwithin countries.
Characteristics:
– A well below 2°C pathway.
– Surge in clean energy policies and green investment.
– All existing net zero pledges achieved in full.
– Extensive efforts to realise near-term emissions
reductions.
– Number of western economies to reach net zero
emissions by 2050, China by 2060, and a number
ofother countries by 2070 latest.
– In alignment with the United Nations Sustainable
Development Goals.
Characteristics:
– Sector-by-sector look at what has actually been put in
place to reach goals and other energy-related objectives.
– Takes into account not just existing policies and
measures but also those under development.
– Includes “Fit for 55” measures announced by the
European Commission in July 2021 (55% reduction in
emissions by 2030 compared with 1990 baseline).
Characteristics:
– A gap widens between an internationally connected
society that contributes to knowledge and capital
intensive sectors of the global economy, and a
fragmented collection of lower income, poorly
educatedsocieties that work in a labour intensive,
low-tech economy.
– Social cohesion degrades, and conflict and unrest
become increasingly common.
– Technology development is high in the high-tech
economy and sectors.
– Globally connected energy sector diversifies, with
investments in both intensive fuels like coal and
unconventional oil, but also low carbon sources.
Scenario metric
IEA SDS (Sustainable Development Scenario) IEA STEPS (Stated Policies Scenario) IPCC SSP4 (Shared Socioeconomic Pathway 4)
Average global temperature increase (°C) by 2050 1.7°C 2.0°C 2.2°C
Average global temperature increase (°C) by 2100 1.6°C 2.6°C 3.7°C
Policy intervention
Increased policy beyond what has already
beencommittedto, from 2021
Only policies that are active in 2021, including what has
been committed to and what has been proposed
Increased policy after 2030, demonstrating
arapidtransition to decarbonisation
Time horizon Present day to 2100 Present day to 2100 Present day to 2100
Transition risks
(as a function of carbon price, with pricing correct as of
studies completed in June 2022)
HIGH
(US$95/t) in 2050
Global carbon price
MEDIUM
(US$90/t) in 2050
Global carbon price
MEDIUM
Regional carbon price in the short term,
globalcarbonpricein the long term
Transition risks
(as a function of carbon intensity of steel production)
HIGH
(0.6tCO
2
/t) by 2050
MEDIUM
(1.1tCO
2
/t) by 2050
N/A
Orderly or disorderly transition Orderly Potential for orderly or disorderly Disorderly
In undertaking our modelling exercise,
climate scenarios were selected on the
basis of giving a range of outcomes (rate
ofenvironmental change and severity of
change) as a result of different levels of
legislative ambition taken by governments
in the coming years. Scenarios were also
selected on the basis of being produced
by a range of reputable independent
authorities on climate change.
Source: Ricardo Plc.
Low Medium High
Potential overall impact on Ferrexpo (determined via stakeholder
interviews and desktop studies, categorised on basis of
occurrence and likelihood, see risk matrix on page 45 for more).
“Well below” 2.0°C scenario (Paris Agreement aligned)
Climate
scenario
analysis
Responsible Business: TCFD Disclosures continued
49
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
1. International Energy Agency (“IEA”)
Sustainable Development Scenario
(“SDS”)
2. IEA Stated Policies Scenario (“STEPS”) 3. IPCC Shared Socioeconomic Pathway 4
(“SSP4”)
Description: a “well below” 2°C scenario,
achieved through policies that adhere to
the Paris Agreement.
Description: a worst case, “business as
usual scenario” (one of two modelled here).
A more conservative benchmark whereby
governments are assumed to not reach all
announced goals.
Description: a worst case, “business as
usual scenario” (one of two modelled here).
Divided approach to climate change
continues to widen through unequal
investments in human capital.
Summary:
This path sets out a plausible path to concurrently
achieveuniversal access to energy, the objectives of
theParis Agreement, and a reduction in air pollution.
Summary:
The STEPS scenario provides a more conservative
benchmark for the future, because it does not take it for
granted that governments will reach all announced goals.
Instead, it takes a more granular, sector-by-sector look
at what has actually been put in place to reach these and
other energy-related objectives, taking account not just of
existing policies and measures, but also a look at those
that are under development.
Summary:
Inequality (A Road Divided). Highly unequal investments
in human capital, combined with increasing disparities
in economic opportunity and political power, lead to
increasing inequalities and stratification both across
andwithin countries.
Characteristics:
– A well below 2°C pathway.
– Surge in clean energy policies and green investment.
– All existing net zero pledges achieved in full.
– Extensive efforts to realise near-term emissions
reductions.
– Number of western economies to reach net zero
emissions by 2050, China by 2060, and a number
ofother countries by 2070 latest.
– In alignment with the United Nations Sustainable
Development Goals.
Characteristics:
– Sector-by-sector look at what has actually been put in
place to reach goals and other energy-related objectives.
– Takes into account not just existing policies and
measures but also those under development.
– Includes “Fit for 55” measures announced by the
European Commission in July 2021 (55% reduction in
emissions by 2030 compared with 1990 baseline).
Characteristics:
– A gap widens between an internationally connected
society that contributes to knowledge and capital
intensive sectors of the global economy, and a
fragmented collection of lower income, poorly
educatedsocieties that work in a labour intensive,
low-tech economy.
– Social cohesion degrades, and conflict and unrest
become increasingly common.
– Technology development is high in the high-tech
economy and sectors.
– Globally connected energy sector diversifies, with
investments in both intensive fuels like coal and
unconventional oil, but also low carbon sources.
Scenario metric
IEA SDS (Sustainable Development Scenario) IEA STEPS (Stated Policies Scenario) IPCC SSP4 (Shared Socioeconomic Pathway 4)
Average global temperature increase (°C) by 2050 1.7°C 2.0°C 2.2°C
Average global temperature increase (°C) by 2100 1.6°C 2.6°C 3.7°C
Policy intervention
Increased policy beyond what has already
beencommittedto, from 2021
Only policies that are active in 2021, including what has
been committed to and what has been proposed
Increased policy after 2030, demonstrating
arapidtransition to decarbonisation
Time horizon Present day to 2100 Present day to 2100 Present day to 2100
Transition risks
(as a function of carbon price, with pricing correct as of
studies completed in June 2022)
HIGH
(US$95/t) in 2050
Global carbon price
MEDIUM
(US$90/t) in 2050
Global carbon price
MEDIUM
Regional carbon price in the short term,
globalcarbonpricein the long term
Transition risks
(as a function of carbon intensity of steel production)
HIGH
(0.6tCO
2
/t) by 2050
MEDIUM
(1.1tCO
2
/t) by 2050
N/A
Orderly or disorderly transition Orderly Potential for orderly or disorderly Disorderly
Worst case, “business as usual” scenarios
50
Ferrexpo plc Annual Reports & Accounts 2023
Responsible Business: TCFD Disclosures continued
Key topic:
Low carbon emissions steelmaking.
Summary:
Increasing market demand for low carbon
emissions steelmaking, which in turn
will affect demand for the various raw
materials required for the production
of steel. In the short term, this shift
presents an opportunity to Ferrexpo
as the drive towards Green Steel will
increase demand for direct reduction
(“DR”) pellets, which are a form of iron
ore that can be used in direct reduced
iron-electric arc furnace (“DRI-EAF”)
steelmaking. Through this opportunity,
Ferrexpo can increase the premium paid
for its products by customers, potentially
increasing revenues as a result.
In the long term (2050 to 2100), the
movement towards green steel presents
a risk to the Group as other market
competitors will begin to supply green
steel producers, resulting in an increase
in competitor products, such as DR
pellets for use in DRI-EAF steelmaking.
In this scenario, Ferrexpo would lose
its competitive advantage to be a
market leader that it currently has.
This topic is assessed to be a medium
to high risk across all three climate
change scenarios for 2050-2100.
Key topic:
Shipping targets and regulations on
carbon emissions.
Summary:
Increasing regulations on the shipping
industry as carbon emissions targets
are introduced, with measures
similar to the EU’s Carbon Border
Adjustment Mechanism (“CBAM”),
will likely increase costs.
Given the current regulatory landscape,
this factor is unlikely to impact the Group
in the short term (0 to 5 years), but over
the medium to long term will likely pose
a risk, as it will increase the Group’s cost
base as technology to aid decarbonisation
is implemented. However, this topic may
present an opportunity to the Group if
Ferrexpo is successful in decarbonising
its shipping operations, potentially
providing a competitive advantage.
This topic is assessed to be a medium
to high risk across all three climate
change scenarios for 2050 to 2100.
Key topic:
Carbon pricing and taxes.
Summary:
Mandatory pricing and taxes of carbon
emissions, increasing the operating costs
for those consuming fossil fuels and/
or generating industrial emissions.
In the medium to long term, carbon
pricing will negatively impact profitability
through increasing operating costs. This
risk will be exacerbated if the Group fails
to adequately reduce emissions over
time. If the Group does, however, reduce
its emissions, then this will present the
Group with an opportunity as it will have a
competitive advantage over its peer group.
Significant opportunity lies in achieving
net zero targets, ahead of others.
This topic is assessed to be a medium
to high risk across all three climate
change scenarios for 2050 to 2100.
Materiality assessment
51
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
04. SCENARIO RISK/
OPPORTUNITY RATING
Date
2050 2100
IEA SDS
IEA STEPS
IPCC SSP4
05. POTENTIAL STRATEGIC ACTIONS TO MANAGE RISK AND TIMEFRAME
Establish manufacturing capability for technology and equipment required to
integrate into market shift to green steel. The sooner Ferrexpo can integrate
technologies that aid the reduction of carbon emissions, such as use of green
hydrogen in the pelletising process, the further Ferrexpo will be ahead of other
market competitors.
Short–medium
term
Monitor Ferrexpo product carbon emissions intensity compared to other
market competitors to ensure Ferrexpo can stay ahead as market leaders in
this transition, ensuring increased premium and revenue.
Medium–long
term
Incorporate continuous monitoring of global steel carbon emissions intensity
requirements and incorporate into the Ferrexpo business strategy. Decisions
on diversification and development of low energy intensive steel can thereby
be influenced.
Continuous
Low Medium High
Source: Ricardo Plc.
Overall impact
on the business:
Scenario analysis: in detail
DEMAND FOR LOW CARBON EMISSIONS STEELMAKING | MARKET AND TECHNOLOGY SHIFTS
02. SUGGESTED KPIS TO MONITOR THE RISK
The carbon intensity of steel:
– IEA SDS: assumes a decrease in steel
carbon intensity from 1.4tCO
2
/t in 2019
to0.6 tCO
2
/t by 2050.
– IEA STEPS: assumes a decrease in steel
carbon intensity from 1.4tCO
2
/t in 2019
to1.1 tCO
2
/t by 2050.
Electric arc furnace (EAF) uptake:
– IEA SDS: assumes an increase in EAF
share of steel production from 29% in
2019 to 57.5% by 2050.
– IEA STEPS: assumes an increase in EAF
share of steel production from 29% in
2019 to 47.4% by 2050.
Revenues
01. DESCRIPTION
Outline
To meet national, international and
industrial climate targets, the general
market is required to shift towards lower
carbon emissions steelmaking.
Opportunity for Ferrexpo:
short term
Ferrexpo is in a strong position to support
this shift through producing more green
steel, increasing the premium and revenue
as a result.
?
Risk to Ferrexpo: long term
Other competitors in the market may start
to produce green steel too, including direct
reduction (“DR”) pellets for use in electric
arc furnaces. Potential for Ferrexpo no
longer to be seen as “market leaders”
in the transition.
POTENTIAL IMPACTS ON THE FOLLOWING AREAS
03. DATA REQUIRED TO ANALYSE IMPACTS
Financial impacts
– Any correlation between changes in
revenue/market price and any change
inglobal steel carbon intensity due to
carbon policy impacts.
Performance against competitors
– The carbon intensity of Ferrexpo
products compared to competitors.
Geographical spread of
marketchanges
– Any change in global steel production
methods due to technology
development and consumer preference.
– Any trends in these KPIs geographically,
compared to the location of Ferrexpo
market base.
Capital and
financing
Assets and
liabilities
Expenditures
52
Ferrexpo plc Annual Reports & Accounts 2023
Responsible Business: TCFD Disclosures continued
04. SCENARIO RISK/
OPPORTUNITY RATING
Date
2050 2100
IEA SDS
IEA STEPS
IPCC SSP4
05. POTENTIAL STRATEGIC ACTIONS TO MANAGE RISK AND TIMEFRAME
Map out the existing and potential client base to develop an understanding of
key markets and clients.
Short–medium
term
Incorporate into Ferrexpo business strategy: continuous monitoring of
globalscrap steel recycling rates, including identification of main countries
where a shift to a circular economy is increasing. Decisions on investment,
diversification, and development of new products can therefore be influenced.
Continuous
Low Medium High
Source: Ricardo Plc.
Overall impact
on the business:
MOVEMENT TOWARDS CIRCULAR ECONOMY PRINCIPLES | MARKET AND TECHNOLOGY SHIFT
02. SUGGESTED KPIS TO MONITOR THE RISK
The repurposing rates, recycling rates
and volume of scrap steel output:
– IEA SDS: assumes an increase in metallic
scrap input from 32.1% in 2019 to 45.3%
by 2050.
– IEA STEPS: assumes an increase in
metallic scrap input from 32.1% in 2019 to
44.7% by 2050.
Revenues
01. DESCRIPTION
Outline
Global movement towards circular
economy principles, driving an increase in
scrap steel recycling and repurposing rates.
?
Risk to Ferrexpo:
medium–long term
Reduced demand for virgin iron ore,
resulting in a decrease in Ferrexpo sales
and growth.
POTENTIAL IMPACTS ON THE FOLLOWING AREAS
03. DATA REQUIRED TO ANALYSE IMPACTS
Financial impacts
– Any correlation between changes in
revenue/market price and global scrap
steel recycling rates.
Geographical spread of market/
technology changes
– Identify potential methods /
technologies / equipment which can
beutilised to repurpose / recycle
scrapsteel.
– Identify main countries where circular
economy shift is increasing, and
companies that are adopting the scrap
steel recycling method.
– Identify markets for repurposed and
recycled steel to establish client base
for products.
Capital and
financing
Assets and
liabilities
Expenditures
53
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
04. SCENARIO RISK/
OPPORTUNITY RATING
Date
2050 2100
IEA SDS
IEA STEPS
IPCC SSP4
05. POTENTIAL STRATEGIC ACTIONS TO MANAGE RISK AND TIMEFRAME
Assess technologies that are available to decarbonise Ferrexpo shipping
operations, and if these are plausible solutions that could support Ferrexpo
inaligning with potential future shipping regulations and targets.
Short–medium
term
Invest in the technology required to meet any shipping targets and regulations.
This is dependent on the scale and boundary of policies introduced, when and
where they are introduced, and the technology that is available at the time.
Medium–long
term
Monitor the targets and regulations that are introduced to the shipping sector
in different regions whereby Ferrexpo operates. Assess the quantitative
financial risks of these scenarios and incorporate this risk into all business
plans and decision-making.
Continuous
Low Medium High
Source: Ricardo Plc.
Overall impact
on the business:
SHIPPING: TARGETS AND REGULATIONS ON CARBON EMISSIONS | POLICY AND LEGAL
02. SUGGESTED KPIS TO MONITOR THE RISK
The intensity of shipping sector targets
introduced:
– IEA SDS: assumes international shipping
emission trajectory consistent with a 50%
reduction by 2050 from a 2008 baseline.
Ban of trucks with internal combustion
engines by 2035.
– IEA STEPS: 30% improvement in energy
efficiency per tonne-kilometre in new ships
and policies to aid the decarbonisation of
shipping.
Revenues
01. DESCRIPTION
Outline
Carbon emission targets and regulation
onthe shipping sector are introduced.
Thismay include the EU’s Carbon Border
Adjustment Mechanism (“CBAM”), making
more energy intensive shipping methods
more expensive.
Opportunity for Ferrexpo:
medium-long term
If Ferrexpo is successful at decarbonising
its shipping operations, it may provide a
competitive advantage, should regulations
and additional CBAM legislation be
introduced.
?
Risk to Ferrexpo:
medium-long term
Increased costs on Ferrexpo from shipping
decarbonisation technology requirements.
POTENTIAL IMPACTS ON THE FOLLOWING AREAS
03. DATA REQUIRED TO ANALYSE IMPACTS
Financial impacts
– Any revenue and/or market price
changes influenced by the need
forinvestment in decarbonisation
technologies to achieve any shipping
targets implemented.
Performance against competitors
– The cost of CBAM for Ferrexpo,
compared to competitors. There could
also be positive reputational impacts if
Ferrexpo is seen as a market leader in
the area and vice versa.
Distribution of policy changes
– The financial impact on Ferrexpo is
dependent on the nature of shipping
policy implemented. If financial policies
to support any technology transition
areavailable, the impact on industry
isreduced.
Capital and
financing
Assets and
liabilities
Expenditures
54
Ferrexpo plc Annual Reports & Accounts 2023
Responsible Business: TCFD Disclosures continued
04. SCENARIO RISK/
OPPORTUNITY RATING
Date
2050 2100
IEA SDS
IEA STEPS
IPCC SSP4
05. POTENTIAL STRATEGIC ACTIONS TO MANAGE RISK AND TIMEFRAME
Understand the capacity for technology, equipment and offsetting required
totransition Ferrexpo to a net zero business by 2050.
Short–medium
term
Monitor Ferrexpo product carbon intensity and carbon footprint compared
toother market competitors to ensure Ferrexpo can stay ahead of market
leaders, ensuring increased revenue in comparison. Carbon tax boundaries
and scope should be monitored as this will determine if Ferrexpo products
cansupport the market in reducing the carbon tax burden.
Medium–long
term
Incorporate net zero roadmap and continuous monitoring of global carbon
prices into Ferrexpo business strategy. Decisions on diversification and
development of carbon reduction technology/processes can thereby be
directly influenced. Emission reduction performance against targets should
beregularly monitored to asses exposure and vulnerability to risk.
Continuous
Low Medium High
Source: Ricardo Plc.
Overall impact
on the business:
CARBON PRICING/TAX: TARGETS AND REGULATIONS ON CARBON EMISSIONS | POLICY AND LEGAL
02. SUGGESTED KPIS TO MONITOR THE RISK
Global mandatory carbon price
(USD/tCO
2
):
– IEA SDS: assumes 35 by 2040, 95 by
2050
1
.
– IEA STEPS: assumes 65 by 2030, 75 by
2040, 90 by 2050
1
.
– IPCC SSP4: assumes regional carbon
price in the short term, global carbon price
in the long term.
Increases beyond this expected to 2100.
IEAscenario carbon price assumes that
Ferrexpo operates in emerging and
developing economies. Carbon price for
operating in advanced economies is larger.
Revenues
01. DESCRIPTION
Outline
A mandatory (increasing) global carbon
price for fossil fuel and industrial emissions.
Opportunity for Ferrexpo:
short–medium term
Financial advantage compared to market
competitors if emissions are reduced to
levels below the market average. If2050
net zero target is achieved, then this may
present and opportunity for Ferrexpo.
?
Risk to Ferrexpo:
medium–long term
Decrease in profits due to increase in
carbon tax, if Ferrexpo does not sufficiently
reduce it’s carbon emissions.
POTENTIAL IMPACTS ON THE FOLLOWING AREAS
03. DATA REQUIRED TO ANALYSE IMPACTS
Financial impacts
– Any correlation between changes in
revenue/market price and any change
inmandatory carbon price.
Performance against competitors
– Progress in emission reductions
achieved compared to targets.
– Ferrexpo emissions and carbon tax
compared to competitors.
Distribution of policy changes
– Any difference in carbon price
geographically and the relevance
toFerrexpo operations.
– Any difference in carbon price,
boundary and scope based on
markets/industries and the relevance
toFerrexpo operations.
Capital and
financing
Assets and
liabilities
Expenditures
1. Carbon pricing correct as of timing of studies completed (June 2022).
55
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
04. SCENARIO RISK/
OPPORTUNITY RATING
Date
2050 2100
IEA SDS
IEA STEPS
IPCC SSP4
05. POTENTIAL STRATEGIC ACTIONS TO MANAGE RISK AND TIMEFRAME
Assess the cost/benefit of investing in a private renewable energy supply,
independent of the Ukrainian grid.
Short–medium
term
Monitor the political instability of Ukraine, mitigation options/influence to
overcome this, and integrate the impacts of this risk on Ferrexpo operations
and reputation into business decisions and long-term plans.
Continuous
Low Medium High
Source: Ricardo Plc.
Overall impact
on the business:
ENERGY CRISIS IN UKRAINE | POLICY AND LEGAL
02. SUGGESTED KPIS TO MONITOR THE RISK
Energy policy: access and renewable
make-up:
– IEA SDS: assumes fair access to clean
energy for all, globally, meaning impact
ofrisk is minimal.
– IEA STEPS: assumes not all governments
will reach announced goals*.
– IPCC SSP4: assumes uncertainty in the
fossil fuel market*.
* Ukraine’s climate and energy policy has been rated
ashighly insufficient by the Climate Action Tracker,
suggesting a vulnerability of Ferrexpo to this risk.
Revenues
01. DESCRIPTION
Outline
Climate change related natural,
economicor political events, which
couldleave Ukraine’s energy system
vulnerable to crises.
Opportunity for Ferrexpo:
continuous
Ferrexpo’s mining operations are located
inUkraine and are highly energy intensive,
with Ferrexpo very sensitive to changes
inenergy provision.
?
Risk to Ferrexpo:
short–medium term
Opportunity for Ferrexpo to diversify and
become independent of the Ukraine energy
grid through producing their own renewable
energy.
POTENTIAL IMPACTS ON THE FOLLOWING AREAS
03. DATA REQUIRED TO ANALYSE IMPACTS
Financial impacts
– Increased energy costs due to instability
in Ukraine’s energy market and the
impact of this on revenue.
Performance against competitors
– Monitoring of competitor risk to similar
constraints.
– Access to clean and sufficient energy in
Ukraine, compared to other countries.
Composition of Ukraine energy
– Renewable composition of the grid,
compared to Ferrexpo renewable and
emission targets.
– The cost/benefits of private renewable
generation compared to grid supply.
Capital and
financing
Assets and
liabilities
Expenditures
56
Ferrexpo plc Annual Reports & Accounts 2023
Responsible Business: TCFD Disclosures continued
04. SCENARIO RISK/
OPPORTUNITY RATING
Date
2050 2100
IEA SDS
IEA STEPS
IPCC SSP4
05. POTENTIAL STRATEGIC ACTIONS TO MANAGE RISK AND TIMEFRAME
Benchmarking exercise of Ferrexpo sustainability and climate action
achievements, and communication and reputation performance against
competitors. A particularly beneficial aspect of this will be understanding
bothconsumer and investor opinions of Ferrexpo, including in its recent
roadmap to net zero.
Short–medium
term
Consideration should be given to the communication of any climate and
sustainability action. As we move closer towards carbon budgets and net zero
targets, focus will be on those who can not only achieve sustainability, but
demonstrate and communicate it effectively. Consumers and investors are
likely to become more scrutinous of greenwashing.
Medium–long
term
Climate and sustainability action should be taken, taking into account the
benchmarking previously completed. Foresight will be needed to stay ahead
of competitors.
Continuous
Low Medium High
Source: Ricardo Plc.
Overall impact
on the business:
CONSUMER AND INVESTOR CONSCIOUSNESS | REPUTATION
02. SUGGESTED KPIS TO MONITOR THE RISK
Consumer and investor demand for
climate action:
– IEA SDS: Not specified. This scenario
models a world that achieves sustainable
development, and in such a scenario,
Ferrexpo would have to outperform current
targets to compete with its competitors.
This is more likely a risk than an opportunity.
– IEA STEPS: Not specified. Assumes
extensive change but not all government
and industry targets are met, suggesting
Ferrexpo has an opportunity to become a
market leader.
– IPCC SSP4: Not specified. In a disorderly
transition, it is likely this is more an
opportunity than a risk to Ferrexpo.
Revenues
01. DESCRIPTION
Outline
An increase in positive sentiment towards
Green Steel (and associated sources of iron
ore) from both consumers and investors.
Assumes an associated increase in
demand for climate action transparency.
Opportunity for Ferrexpo:
short-medium term
Ferrexpo are moving towards the scaled
production of iron ore for the Green Steel
market. There is an opportunity to upscale
this production and become a key player in
the market.
?
Risk to Ferrexpo:
medium–long term
Risk of reputational loss if net zero targets
are not met, and/or competitors perform
better in the sector than Ferrexpo,
potentially leading to financial losses.
POTENTIAL IMPACTS ON THE FOLLOWING AREAS
03. DATA REQUIRED TO ANALYSE IMPACTS
Financial impacts
– Any changes in revenue/market price,
correlated to Ferrexpo’s reputation on
climate action and sustainability.
– Understanding consumer and investor
opinions on Ferrexpo and climate action
would be beneficial for this risk/
opportunity.
Performance against competitors
– Benchmarking sustainability
performance, communication and
reputation against competitors.
Capital and
financing
Assets and
liabilities
Expenditures
57
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
04. SCENARIO RISK/
OPPORTUNITY RATING
Date
2050 2100
IEA SDS
IEA STEPS
IPCC SSP4
05. POTENTIAL STRATEGIC ACTIONS TO MANAGE RISK AND TIMEFRAME
Assess climate-induced conflict and political instability by likelihood, Ferrexpo
operating and trading locations and Ferrexpo business plan timeframes.
Short–medium
term
Incorporate the risks identified in the short–medium term into decision
making.The likelihood of climate-induced political instability and/or conflict
isincreased by the physical impacts of climate change, the climate change
policy implemented and where these both occur. This risk is difficult to
distinguish from non climate-induced instabilities but should still be
recognised where possible.
Continuous
Low Medium High
Source: Ricardo Plc.
Overall impact
on the business:
CLIMATE-INDUCED CONFLICT | PHYSICAL RISKS
02. SUGGESTED KPIS TO MONITOR THE RISK
The frequency of climate-induced
political instability:
– IEA SDS: assumes sustainable
development is achieved, reducing the
likelihood of climate-induced conflict.
– IEA STEPS: assume sustainable
development is not achieved, and covers
the possibility of policies, commitments
and targets not being reached. Climate-
induced conflict is therefore plausible in
this scenario.
– IPCC SSP4: physical impacts most
extreme in a 3.7°C scenario, and transition
is more disorderly, therefore climate-
induced conflict is likely.
Revenues
01. DESCRIPTION
Outline
Climate change related natural, economic
or political events create political instability
and/or conflict that impacts on Ferrexpo
operations and trade.
?
Risk to Ferrexpo: continuous
In a world of climate induced political
instability, there is an increased potential
that Ferrexpo operations, employees or
supply chain will be negatively impacted,
potentially leading to deceased profits,
sales, funding and reputation.
POTENTIAL IMPACTS ON THE FOLLOWING AREAS
03. DATA REQUIRED TO ANALYSE IMPACTS
Revenue changes
– Any correlation between climate-
induced conflict or instability and
revenue.
Performance against competitors
– Benchmarking against competitors on
climate conflict mitigation, and support
provided for employees impacted.
Potential reputational impacts from this.
Distribution of instability
– The impact of this risk is heavily
determined by the location of any
climate-induced political instability
compared to Ferrexpo operations.
– Indirect impacts may encompass
Ferrexpo trade routes (e.g. shipping
ofproducts) and so these should be
closely monitored.
Capital and
financing
Assets and
liabilities
Expenditures
58
Ferrexpo plc Annual Reports & Accounts 2023
Responsible Business: TCFD Disclosures continued
04. SCENARIO RISK/
OPPORTUNITY RATING
Date
2050 2100
IEA SDS
IEA STEPS
IPCC SSP4
05. POTENTIAL STRATEGIC ACTIONS TO MANAGE RISK AND TIMEFRAME
Assess the quantitative risk of sea level rise to Ferrexpo’s supply chain and
shipping operations, including the most vulnerable shipping routes, ports,
customers and employees. Incorporate this risk into decision making.
Short–medium
term
Research mitigation and adaptation options for those areas of Ferrexpo
operations, supply chain and workforce identified as at risk from sea level rise.
If those identified are outside of Ferrexpo’s direct operations, consider
engaging with those third parties to increase resilience to sea level rise.
Medium–long
term
Low Medium High
Source: Ricardo Plc.
Overall impact
on the business:
SEA LEVEL RISE (CHRONIC) | PHYSICAL RISKS
02. SUGGESTED KPIS TO MONITOR THE RISK
Sea level rise along distribution routes
and ports:
– IEA SDS: Not specified. Under a 1.5°C
scenario, the IPCC SSP2 suggests an
average global sea level rise of 0.2m by
2050 and 0.4m by 2100, exposing
128–139 million people.
– IEA STEPS and IPCC SSP4: Not
specified. Under a >2°C scenario, sea
levelrise is modelled between 0.32–0.63m
by 2100*.
* Comparable scenario: IPCC’s Relative Concentration
Pathway (“RC”) 4.6-6.
Revenues
01. DESCRIPTION
Outline
Global sea level rise increase, leading to
direct or indirect impacts on Ferrexpo
operations, employees or supply chain.
?
Risk to Ferrexpo: continuous
Disruption to ports and navigation routes,
particularly from the port of Pivdennyi in
Southern Ukraine and in receiving ports.
Disruption also to employees and the
Ferrexpo general supply chain.
POTENTIAL IMPACTS ON THE FOLLOWING AREAS
03. DATA REQUIRED TO ANALYSE IMPACTS
Financial impact
– Any revenue/market price changes
correlated to an increase in sea level
rise. This could be indirect e.g. port/
distribution disruption from sea level
rise.
– Impacts of sea level rise on assets,
andinsurance for assets.
Employees and reputation
– There is also a reputation risk here,
dependent on how Ferrexpo responds
to employees, operational facilities and
supply chains facing disruption due to
sea level rise.
Capital and
financing
Assets and
liabilities
Expenditures
59
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
04. SCENARIO RISK/
OPPORTUNITY RATING
Date
2050 2100
IEA SDS
IEA STEPS
IPCC SSP4
05. POTENTIAL STRATEGIC ACTIONS TO MANAGE RISK AND TIMEFRAME
Assess the quantitative risk of an increase in storm frequency and intensity
toFerrexpo’s supply chain and shipping operations, including the most
vulnerable shipping routes, ports, customers and employees. Incorporate
thisrisk into decision making.
Short–medium
term
Research mitigation and adaptation options for those areas of Ferrexpo’s
operations, supply chain and workforce that have been identified as being at
risk from an increase in storm frequency and intensity. If those identified are
outside of Ferrexpo’s directly-owned operations, Ferrexpo should consider
engaging with those third parties to increase resilience to these storms.
Medium–long
term
Low Medium High
Source: Ricardo Plc.
Overall impact
on the business:
INCREASE IN STORM FREQUENCY AND INTENSITY (ACUTE) | PHYSICAL RISKS
02. SUGGESTED KPIS TO MONITOR THE RISK
Sea level rise along distribution routes
and ports:
– IEA SDS: Not specified. Under a 1.5°C
scenario, storm intensity and frequency
are likely to increase.
– IEA STEPS: Not specified. Under a >2°C
scenario, storm intensity and frequency
are likely to increase. The magnitude of
this impact is likely to be larger than the
IEA’s SDS scenario.
– IPCC SSP4: Not specified. Under a >2°C
scenario, storm intensity and frequency
are likely to increase. The magnitude of
this impact is likely to be larger than the
IEA’s SDS scenario.
Revenues
01. DESCRIPTION
Outline
Increase in storm frequency and intensity,
leading to direct or indirect impacts on
Ferrexpo’s operations, employees or
supplychains.
?
Risk to Ferrexpo: continuous
Disruption to ports and navigation routes,
and in receiving ports. Disruption also to
employees and Ferrexpo’s general supply
chain.
POTENTIAL IMPACTS ON THE FOLLOWING AREAS
03. DATA REQUIRED TO ANALYSE IMPACTS
Financial impact
– Any revenue/market price changes
correlated to an increase in storm
frequency and intensity. This could
bedirect (e.g. damage to Ferrexpo
infrastructure, product and employees),
or indirect (e.g. port/distribution
disruption and widescale economic
impacts).
Employees and reputation
– There is also a reputational risk here,
dependent on how Ferrexpo responds
to employees and facilities facing storm
disruption.
Capital and
financing
Assets and
liabilities
Expenditures
60
Ferrexpo plc Annual Reports & Accounts 2023
Responsible Business: Diversity, Equity and Inclusion
Ferrexpo places great importance on creating
a workplace culture in which all contributions
are valued, different perspectives are
embraced, and biases are acknowledged
and mitigated. This commitment is set out in
the Company’s Diversity, Equity and Inclusion
(“DEI”) Policy which was adopted by the Board
in 2019. This policy is designed to prohibit all
forms of unfair discrimination (on the basis of
disability, pregnancy and parenthood, race,
national or ethnic origin, age, gender, sexual
orientation, political opinion, and social origin).
In support of the Policy, the Company’s
diversity initiatives are focused on helping
us to develop a diverse workforce that
embraces difference and an inclusive
working environment where all employees
regardless of their background, marital
status, age, ethnicity, sexual orientation
or gender can realise their full potential.
DEI progress in 2023
Our DEI efforts have increased significantly
in recent years, with increased stakeholder
focus and a greater emphasis on companies
having a sustainable, inclusive culture. Our
DEI efforts continued in 2023, but some
planned internal events could not be held
due to disruption arising from the war in
Ukraine and were held over to 2024.
Activities that were progressed included
an inaugural ‘school for clerks’, involving
32 employees with disabilities, with the
aim of equipping these employees with
appropriate practical life skills to support
their inclusion and equal participation
in the ‘normal’ life of the company.
Fe_munity Teens programme was also
offered online to 54 teenagers drawn from
the local community surrounding the Group’s
operations. This new programme is part of
Ferrexpo’s Corporate Social Responsibility
work within the local communities surrounding
our operations and is built around the themes
of self-discovery, self-directed learning and
personal growth. The programme, in keeping
with the broader Fe_munity programme, aims
to accelerate the development of participants as
they navigate the challenges and gender biases
that might hinder their personal progression
at secondary or at tertiary education level
or generally within broader society. It is
particularly noteworthy that this programme
was conceptualised and run by the alumni of
the previous three Fe_munity programmes.
In 2023, DEI sensitivity and unconscious bias
training was also provided to students who
are attending the local technical college as
well as students that are enrolled in a special
maths and science class in one of the schools
in Horishni Plavni, that is sponsored annually
by Ferrexpo. The proportion of managerial
roles held by women rose from 20.9% in 2022
(81 female managers) to 22.3% in 2023 (87
female managers), with this upward trend
expected to continue into 2024, despite the
war in Ukraine. This trend means that the
Group is tracking well to achieve its stated
3 0.9
%
Positions held by women accounted
for 30.9% of our total employee
workforce in 2023 (2022: 28.7%)
1
.
22.3
%
Women in management roles
acrossthe Group increased to
22.3%in 2023 (2022: 20.9%)
2
.
25
%
Target of 25% of management
positions to be held by women by
2030. Progress to date has seen an
increase from 18% in 2019 to 22.3%
in2023.
Ferrexpo places great
importance on creating a
workplace culture in which
allcontributions are valued,
different perspectives are
embraced, and biases are
acknowledged and mitigated.
Greg Nortje,
Chief Human Resources Officer
1. Of the total employee workforce in 2023 (6,889) (2022:
7,983), 2,130 positions were held by women and 4,759
held by men.
2. Of the total number of management roles in 2023 (391), 87
positions were held by women and 304 were held by men.
WE ARE DETERMINED
61
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
target of at least 25% of managerial roles
to be held by women by 2030. The overall
number of women in the workforce also
improved in 2023 to 30.9% (2022: 28.7%).
Our Inclusion School, which is a training
programme for our employees in Ukraine,
began in 2021, and restarted in late 2022
flowing into the early part of 2023. Topics
covered in this programme are aimed at
fostering inclusiveness and diversity, and
howthis can help Ferrexpo’s business model.
More than 200 of Ferrexpo’s employees
completed this course by the end of 1Q
2023. Online learning covers topics such as
identifying different forms of discrimination,
why it is important to eliminate prejudice
and how tolerance can help Ukraine
to tackle its wartime challenges. Our
Inclusion School was also extended at the
beginning of 2023 to include local authority
employees who are keen to learn more about
challenging prejudice and discrimination.
The activities in 2023 helped to generate
a positive working environment that
supports people’s mental health
and wellbeing, regardless of age,
gender or other characteristics.
Additionally, the Group’s 2022 Responsible
Business Report is available on our website
at https://www.ferrexpo.com/responsibility/
responsible-business-reports/
Gender diversity targets for 2030
At Ferrexpo, we have a gender diversity
target of ensuring 25% of managerial roles
are filled by women by 2030. To date, our
diversity efforts have enabled us to progress
the level of women in management roles
from 18% in 2019 to 22.3% in 2023, which
has been possible through a range of
diversity initiatives in Ukraine and across
the Group, as well as sustainability-linked
incentives within the Group’s Remuneration
Policy (see page 143 for more details).
We are specifically targeting diversity at the
managerial level, rather than total diversity, as
this helps to encourage career progression
and opportunities for women, which may
not otherwise be available. Our workforce
does, however, include a higher proportion of
women (2023: 30.9%) than our mining-sector
peers that operate in the developing world
1
.
External recognition in 2023
Our DEI efforts are not going unnoticed, with
external recognition of the forward thinking
that Ferrexpo is introducing to its business.
In 2023, the Group’s multi-component
Fe_munity programme, covering corporate,
all Ukraine and teenagers, won first prize
at the all Ukrainian HR PRO Awards in
the Diversity and Inclusion category.
1. Comprising mining companies in the FTSE 350 Index
where the main focus of mining is outside of Australia
and Canada.
Victoria and Tamara work as
administrators at Ferrexpo’s
Kyiv office, where they contribute
to creating a comfortable and
positive work environment for
their colleagues.
How has the war changed your
approach to work?
We have learnt to adapt and sometimes
learn on the fly. We cannot halt life and
stop planning due to the war. What’s our
plan b, our plan c? Imagine driving a car
and the satellite navigation charts a route,
but suddenly the road is blocked. The tech
doesn’t complain, it provides an immediate
alternative route. The ability to navigate
in uncharted territories has become a
new skill.
What has the war taught you about
how you perform your job?
Two things: make it a priority to replenish
your mental and emotional reserves, and
always have backup external batteries!
Simple and disciplined self-care methods
are mandatory, this includes getting
sufficient sleep, outdoor walks, cultivating
positive emotions, and incorporating
humour into everyday life. Tackling
significant challenges becomes more
manageable by breaking them down
into simple and comprehensible steps.
When the war is over, what will be
different for you in your job function?
After the war concludes our focus will shift
from crisis response to building out strategic
initiatives. The end of the war marks a
transition from reactive roles to proactive
engagement. And we will be armed with the
resilience that we have developed during
war time. Resilience is a choice to live, a
choice that embodies the enduring hope
that will guide us through reconstruction.
Victoria Shcherbak and Tamara Shvets
Q&A
62
Ferrexpo plc Annual Reports & Accounts 2023
Responsible Business: Governance
Governance:
Building trust
20
%
Female representation on the
Group’s Executive Committee
(oneout of five members).
33
%
Female representation on the
Group’s Board of Directors
(twooutof six Directors).
40
%
Target for gender diversity
atBoardlevel, as set by the
FTSEWomen Leaders Review.
3
Three of the Group’s six Directors
appointed in the past four years.
With good corporate governance, companies are able
tobuild trust with their stakeholders. Through trust,
companies can enjoy the benefits of a strong brand
thatstakeholders can associate with.
Board composition
Effective corporate governance starts with the
Board of Directors (“Board”). As of the date of
this document, Ferrexpo’s Board comprises
six Directors – including two Executive
Directors and four Independent Non-
executive Directors. For more details of the
Board composition and activities during the
year, please see the Corporate Governance
section of this report (page 93).
Board changes and
positionappointments
During the year, in February 2023, Natalie
Polischuk was appointed a member of the
Committee of Independent Directors.
Following the Annual General Meeting, in
May2023, Jim North resigned as an Executive
Director and Nikolay Kladiev was appointed as
an Executive Director. Ann-Christin Andersen
resigned as an independent Non-executive
Director and Natalie Polischuk was appointed
as Chair ofthe Group HSEC’s Committee.
At the end of June 2023, Jim North resigned
as Chief Executive Officer. Following his
resignation as Chief Executive Officer, the
decision was taken to combine the roles
of the Chair and Chief Executive Officer on
an interim basis as with the ongoing war in
Ukraine and the need for business continuity
it was not considered the right time to
commence an external search process for a
new Chief Executive Officer. To this end, in
July 2023, Lucio Genovese was appointed
toact as Executive Chair on an interim basis
andassume leadership of the Group.
In October 2023, Stuart Brown was appointed
as an independent Non-executive Director and
a member of the Audit Committee. Following
an orderly handover process, Graeme
Dacomb resigned at the end of December
2023 as an independent Non-executive
Director and Chair of the AuditCommittee. In
January 2024, Stuart Brown was appointed
as Chair of the Audit Committee and a
member of the Remuneration Committee.
Most recently inFebruary 2024, Stuart
Brown was appointedamember of the
Committee ofIndependentDirectors.
FTSE Women Leaders Review
The FTSE Women Leaders Review is an
independent, business-led framework
supported by the Government, which sets
recommendations for Britain’s largest
companies to improve the representation
ofWomen on Boards and in Leadership
positions. As a result of this work, the FTSE
Women Leaders Review recommends
that companies listed within the FTSE 350
have atleast 40% female representation
at Board level by the end of 2025, as
well as at least one woman appointed as
chair, senior independent director (“SID”),
CEO or CFO bythe end of 2025.
As of the date of this report, Ferrexpo’s
Board is 33% female (31 December 2022:
43%), meaning that although Ferrexpo
met the requirement for a female in one of
the stated roles, with Fiona MacAulay as
the Group’s SID, due to Board changes
the recommendation for Board gender
diversity set by the FTSE Women Leaders
Review was unfortunately not met.
The Group is also focusing on increasing
diversity further down its organisational
structure; details of this work can be found
onpages 60 to 61, and in the Corporate
Governance Report on page 93.
63
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Parker Review
The Parker Review was an independent
review in 2021 led by Sir John Parker, which
considered how to improve the ethnic and
cultural diversity of UK Boards to better reflect
their employee base and the communities
they serve. In order to encourage progress
inethnic diversity, the Parker Review
proposed a target of one Director from an
ethnic minority group on the Boards of
FTSE250 companies by December 2024.
The search for an independent Non-executive
Director from a minority ethnic group has
been launched and is ongoing.
Corporate governance controls
The Group’s financial advisors are Liberum
Capital Limited (“Liberum”), which also
provide broking services to the Group. As a
London-listed company, it is best practice for
the Company to have a Sponsor to provide
advice and guidance on certain corporate
matters, with BDO LLP appointed in this role.
Stakeholder engagement
As a responsible, modern company, we aimto
engage with our shareholders, to understand
their concerns and priorities. Shareholder
engagement is conducted via arange of
methods – from various reports published on
an annual basis (Annual Report and Accounts
and Responsible Business Report), to our
corporate website and social media channels.
We also endeavour to engage with
stakeholders located within Ukraine and
overseas, with this made possible through
communications in both Ukrainian and English.
In 2023, we communicated in both languages
across the majority of our social media
channels and the 2022 Responsible Business
Report, as well as selected pressreleases.
Please see page 48 for more details of howwe
engage with each of our stakeholdergroups.
Related party matters
The Group has a controlling shareholder that
also has a number of different businesses with
which the Group has a commercial relationship.
In order to maintain strong levels of corporate
governance, and to ensure that these
business relationships are conducted on
anarm’s length basis, the Group has both the
Committee of Independent Directors at the
Board level and the Executive Related Party
Matters Committee at the management level.
Reporting requirements Reports, policies and standards Additional information Risks
Environmental
Climate Change Report
Tailings Management
Greenhouse gas emissions (pages 36 to 37)
Energy consumption (page 36)
www.ferrexpo.com/responsibility/protecting-environments
Principal Risks, pages 74
to 90
Employees
Ethics and Responsible Business Policy
Code of Conduct
Health and Safety Policy
Health and safety (pages 34 to 35)
Diversity, equity and inclusion (pages 60 to 61)
www.ferrexpo.com/responsibility/workforce-development
www.ferrexpo.com/responsibility/safety-performance
Principal Risks, pages 74
to 90
Human rights
Human Rights Policy
Data Privacy Policy
Anti-Slavery and Trafficking Statement
Information Security
Diversity, equity and inclusion (page 60)
Ferrexpo Code of Conduct
www.ferrexpo.com/about-ferrexpo/corporate-governance/
policies-and-standards
Principal Risks, pages 74
to 90
Social matters
Donations Policy
Community Policy
Operating during a time of war (pages 6-7)
Social engagement (page 64)
www.ferrexpo.com/responsibility/supporting-communities
Principal Risks, pages 74
to 90
Anti-corruption
andanti-bribery
Anti-Bribery Policy
Anti-Money Laundering and
Counter Terrorist Financing Policy
Fraud Risk Management
Whistleblowing Policy
Internal controls (page 119)
Governance (page 62)
Governance Report (pages 93 to 157)
www.ferrexpo.com/about-ferrexpo/corporate-governance/
policies-and-standards
www.ferrexpo.com/whistleblowing
Principal Risks, pages 74
to 90
Principal risks and
impact on business
activities
Business Model (page 8)
Risk Management (page 72)
Viability Statement (page 91)
Going Concern Statement (page 155)
Principal Risks, pages 74
to 90
Non-financial KPIs
Key Performance Indicators (page 14)
Non-financial information statement
The Ferrexpo Group complies with the non-financial reporting requirements contained in Sections 414CA and 414CB of the Companies Act
2006. The table below, and information it refers to, is intended to help stakeholders understand the Company’s position on key non-financial
matters. This builds on existing reporting that the Company already does under the following frameworks: Global Reporting Initiative, Guidance
on the Strategic Report (UK Financial Reporting Council), UN Global Compact, UN Sustainable Development Goals and UN Guiding Principles.
In addition to its Annual Reports, Ferrexpo also publishes a standalone report covering its Responsible Business activities, with the report for
2022 available on the Group’s website and the report for 2023 expected to be released during the course of 2024.
64
Ferrexpo plc Annual Reports & Accounts 2023
Stakeholder Engagement – Section 172
Further details on the Group’s approach to the matters outlined in Section 172 can be found in the following sections of this report:
Section 172 factor Key examples Page
Employees and wider
workforce
– Operating during a time of war
– Responsible Business: Safety
– Responsible Business: Diversity, equity and inclusion
– Operating during a time of war: Q&As with various functions and colleagues
– Case study: Double materiality
06
32
32
45
Suppliers and
customers
– Market Review
– Strategic Framework
– Case study: Double Materiality
22
12
Local communities
– Operating during a time of war 06
Environment
– Responsible Business: Net Zero pathway
– Case study: DR pellet life cycle assessment
– Case study: Double materiality
– Scenario analysis selection and TCFD disclosures
36
42
38
43
High standards of business
– Business Model
– Responsible Business Review
– Responsible Business: Governance
– Risk Management
08
32
62
72
Investors
– Executive Chair’s Statement
– CFO’s Review
– Business Model
– Value Proposition
02
04
08
10
Ongoing engagement with all stakeholders is
important so that we can understand what is
important to them, and how we can generate
value together.
65
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
In addition, throughout this report are 12
Q&As with colleagues in various functions
across the business discussing how the war
is affecting how they work, what has changed
and impacts on our various stakeholders, and
how they anticipate that they will adapt to
working life when the war is over. The
purpose of these Q&A-style case studies are
to convey a deeper insight into the people
and culture of Ferrexpo, and the determined
spirit they collectively demonstrate.
The Board of Directors acts to promote
thelong-term sustainable success of the
Company for the benefit of shareholders as a
whole. This long-term sustainable success
includes governing the business in the short
term during a time of war and more broadly
the challenging operating environment in
Ukraine. In doing so the importance of having
due regard to the matters set out in Section
172(1)(a) to (f) of the Companies Act 2006 is
recognised, notably:
– the likely consequences of any decision in
the long term;
– the interests of the Company’s employees;
– the need to foster the Company’s business
relationships with suppliers, customers
and others;
– the impact of the Company’s operations
on the community and the environment;
– the desirability of the Company
maintaining a reputation for high standards
of business conduct; and
– the need to act fairly as between members
of the Company.
The Board receives regular training and
briefings on directors’ duties and updates
inrelation to corporate governance
developments and stakeholder engagement.
New directors appointed to the Board receive
tailored, individual briefings on their duties
and obligations as part of their induction.
The following section outlines the Group’s
different stakeholder groups, engagement
activities conducted in 2023 and feedback
that was received as part of this work. Each
section provides an overview of the work
completed to date in response to this
feedback, and any further plans that the
Board has for the year ahead.
How considering stakeholders in
decision making works in practice
The Group engages regularly with
stakeholders, with interactions largely led
bythe day-to-day management team with
Board-level interactions where appropriate.
Where management-level engagement has
taken place, feedback is provided to the
Board by way of regular reporting and
updates at meetings to help inform decision
making and ensure stakeholder views and
considerations are taken into account.
During Board discussions, the Board
considers as appropriate the various
stakeholders’ interests and the potential
impact of decisions on relevant stakeholder
groups for the purposes of Section 172 of the
Companies Act 2006. This includes
considering competing stakeholder interests
and the differential impact certain decisions
may have on different constituencies.
The Group considers its
stakeholders to include:
1. Workforce
2. Customers
3. Suppliers
4. Communities
5. The Environment
6. Government
and its agencies
7. Investors
See page 66
See page 67
See page 68
See page 69
See page 69
See page 70
See page 70
66
Ferrexpo plc Annual Reports & Accounts 2023
Section 172 continued
In normal circumstances, Directors frequently
visit our operations in Ukraine, however this is
difficult during a war. But, in December 2023,
over two days, Ukrainian resident Independent
Non-executive Director Mr Lisovenko,
also Non-executive Director Designate
for workforce engagement, visited our
operations in Ukraine and hosted a number
of engagement sessions with a cross section
representing a range of stakeholder groups
within our workforce, including operations
personnel, a selection of middle managers
from all three business units, senior female
leaders, alumni of our Fe_munity Women in
Leadership programmes and people with
disabilities and community stakeholders.
During the engagement sessions, members
of the workforce made comments and
suggestions on a range of matters and
posed questions for subsequent response
by the Board. In February 2024, the Board
considered the comments, concerns,
suggestions and questions and will provide
feedback to the workforce via established
communication channels. For example,
members of the workforce requested more
detail in respect of the current approach
of running one and sometimes two pellet
lines, in response to logistics constraints
caused by the war and that the quality of
personal protective clothing be improved.
In addition to direct engagement, such as
face-to-face meetings in the workplace, the
Group utilises its website, public reports and
social media channels. As of February 2023,
the Group had over 20,000 followers across
Facebook, Instagram and LinkedIn, with
the majority of subscribers being located in
Ukraine. The Group typically issues 20 to 30
posts on social media a month, with each post
1. Workforce
Ferrexpo’s talented and engaged
workforce is a core strength of
Ferrexpo’s business, on which we
continue to rely during a time of war.
Through a close working relationship
between employer and employees,
company and contractors, we are
able to respond to the evolving needs
of our workforce.
Our engagement activities in 2023
Ferrexpo aims to communicate with its
workforce, which is based in a number
ofgeographic locations and a range of
settings,in a variety of ways to communicate
effectively with different individuals and
groups in multiple languages. The type
ofcommunication channels used to
communicate with members of the workforce
varies. We use a range of methods including
electronic communications tools (such as
email, online learning, electronic bulletins,
corporate websites and messaging
platforms), social media channels and
traditional print media, both our own company
newspaper in addition to local and national
media at our operations in Ukraine, and also
our corporate offices, including Switzerland
and the United Kingdom.
We engage throughout the calendar year.
Given that more than 95% of our workforce
is located in Ukraine, it is important that
where possible the Board maintains a
strong presence in the country, both in Kyiv
and in the region in which we operate.
representing an opportunity to convey topics
of interest to stakeholders. These posts not
only cover corporate news, but also topics of
important local and national interest and news
about local personalities, including for example
a video series about veteran rehabilitation.
Workforce engagement occurs across
multiple languages, to ensure that the Group
communicates with both its Ukrainian and
international stakeholders. The Group has
communicated on social media platforms
in both English and Ukrainian for several
years, and in 2022 published its Responsible
Business Report in Ukrainian for the first time,
helping to keep local stakeholders informed
of the Group’s sustainability initiatives.
Further details on our engagement with
the workforce can be found in the section
‘Operating during a time of war’ on pages
6 to 7, in the sections on ‘Responsible
business: safety’ on page 34 and ‘Responsible
business: diversity, equity and inclusion’
from page 60, the case study ‘Double
materiality’ on pages 38 to 40, and in the
various employee Q&As listed on page 5.
Our response to feedback
The Board understands the importance of
Ferrexpo having a strong presence within
Ukraine, where more than 95% of our
employees and contractors are based, to
ensure effective engagement. As such, the
Board includes two Ukrainian Independent
Non-executive Directors and one Ukrainian
Executive Director. Through this presence,
Vitalii Lisovenko, the Board’s nominated
representative for workforce engagement,
was able to visit our operations during 2023.
The Board regularly interacts with the
Group’s executive management team
through its various committees, and the
Health, Safety, Environment and Community
(“HSEC”) Committee comprises three
Directors of the Group and one member
of the executive management team.
Plans for engagement in 2024
Engagement activities will continue into
2024 to understand the evolving concerns
and requirements of our workforce.
Mr Lisovenko, independent Non-
executive Director Designate for workforce
engagement, will visit our operations in
Ukraine and host a number of engagement
sessions with a cross section representing
a range of stakeholder groups within our
workforce and community stakeholders.
The Group typically conducts an employee
engagement survey every year and intends
to complete such an exercise during 2024.
WE ARE DETERMINED
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Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ralf and Sandra work at
First-DDSG, our Danube barging
business. Balázs manages logistics
and commercial matters, and
Sandra HR related matters,
including crewing activities.
As the war progresses, what has
changed for you?
We had to shift operations from the
Upper Danube region and long distance
routes to the Lower Danube shuttling to
alternative Black Sea ports, rethinking
our strategy and operations, in particular
how we manage our fleet of 220 vessels
and barges. We redirected many barges
to support increased Ukrainian demand
there. There were difficulties initially, for
example crews could not simply leave
Ukraine; so we had to bring the vessels
to the people, not the other way around.
We are proud we stepped up to the
challenge and supported Ukraine.
What has the war taught you about
how you do your job?
It’s shown us the need to act swiftly,
even how to anticipate the next move
and stay ahead. It’s not enough to simply
’react’ to a change, one has to adopt a
strategic manner. For example, there was
a period when good crews were hard to
come by and retain so we kept in close
contact with our crewing companies
to really understand the needs of the
crews and respond accordingly. It’s been
challenging, but also rewarding to see
what we can achieve in uncertain times.
How will the end of the war affect
yourwork?
There will be more change, but we feel
ready for it. We’ll be taking everything we’ve
learned during this period and use it in
the future. I’m confident that the lessons
we have learnt will guide us through the
post-war adjustments. We know now that
we can deal with whatever comes our way.
Ralf Jina and Sandra Groher
Q&A
2. Customers
Our customers are important to the
business, with investments in high
grade and high quality forms of iron
ore designed to meet their needs.
Through constructive, long-term
customer relationships, the Group
aims to generate value for all
stakeholder groups.
Our engagement activities in 2023
The Group continues to experience
material disruption to its logistics network
following Russia’s full-scale invasion
of Ukraine in February 2022, which
resulted in limited access to Ukrainian
Black Sea ports and reduced access
to the Ukrainian railway network.
As a result, our ability to deliver our products
to customers in 2023 was limited to 4.2 million
tonnes sold during the year (2022: 6.2 million
tonnes). In the early stages of the war, our
marketing team held extensive discussions
with customers, and through strong, long-
standing relationships the Group was able
to redirect sales to European customers
by rail and later via alternative Black Sea
ports to the MENA region and Europe.
Further details of the restrictions imposed as
a consequence of the conflict are provided
in the section ‘Operating during a time of
war’ on pages 6 to 7 and in the section
‘Market Review’ on pages 22 to 25.
Our response to feedback
Customers are increasingly focused on climate
change and sustainability, particularly in
Europe due to legislative or other requirements
for steel producers to reduce their carbon
emissions. To provide clarity to customers,
the Board was proud to issue the Group’s
first standalone Climate Change Report in
December 2022 and later accelerate its carbon
reduction targets. Changes included an
increase to the medium-term (2030) emissions
reduction target to 50% (from 30%) and
inclusion of Scope 3 emissions targets within
the Group’s suite of forward-facing targets.
WE ARE DETERMINED
68
Ferrexpo plc Annual Reports & Accounts 2023
Section 172 continued
3. Suppliers
The Group’s suppliers are
importantfor sustainable
operations,especially during a
timeof war. Suppliers represent
aprincipal aspect of the local
andglobal footprint that the Group
creates through its day-to-day
business activities, which helps
develop a positive local presence
anda brand that is identifiable to
other stakeholder groups such as
potential investors and customers.
Through conducting ourselves in a
clear and transparent fashion, we
hope to also promote Ukraine as a
destination for other businesses.
Our engagement activities in 2023
The Group’s operations paid a total of
US$514 million to suppliers in 2023 (2022:
US$912 million). Given the location of our
operations and the situation in Ukraine, the
Group has continued to engage extensively
with its suppliers – many of whom are facing
similar challenges to Ferrexpo. It has been
important to seek clarification on the status
of their operations during the war and where
necessary identify alternative suppliers
where disruptions have occurred or the
risk of disruption is perceived to be high.
Through engagement, the Group has
continued to raise awareness of the need for
humanitarian support caused by the invasion
and encouraged customers to make donations
directly to various relief funds. We are grateful
for these acts of kindness. The Group is
proud to have long-standing relationships
with a number of local and international
suppliers, which have helped to support the
Group during the ongoing war in Ukraine.
Further details on our engagement with
suppliers can be found in the section
‘Operating during a time of war’ on
pages6to7.
Our response to feedback
The Group is an important player in the
local economy in the Poltava Region, and
therefore it is important that it maintains
constructive relationships with suppliers,
for example by paying suppliers promptly.
By imposing a Code of Conduct and engaging
with suppliers, the Group aims to reduce
the risks associated to it through issues
in the supply chain such as environmental
concerns and modern slavery.
Petro’s driving career spans 23
years, though he only joined
Ferrexpo ten years ago. He started
at Ferrexpo driving mining trucks,
before he changed to driving cars
in 2016.
What is the biggest impact the war
hashad on your job?
After the full-scale invasion, not much
has changed in my work. I always check
the vehicle several times before the trip,
its technical condition and the availability
of all documents. I’m steadfast; I make
sure to reach the destination on time.
What has the war taught you about
how you do your job?
Under martial law conditions, I pay particular
attention to the route, especially if I am on
a business trip to populated areas that are
close to the battle front. I need to think, in
advance, of several options for the route,
taking into account the weather conditions
and focusing on safety of both my
passengers and myself. For me, the main
thing is to be optimistic about every trip!
What do you look forward to most
about your job when the war ends?
After the Victory, I want to travel around
Ukraine to hero-cities and settlements that
were most affected by enemy attacks.
It will be important to always remember,
and tell the next generations about
what happened. Of course, there will be
more business trips, and the emotional
state of my passengers will be better.
Petro Tsektor, Road Vehicle Driver, FPM
Q&A
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Engagement helps suppliers improve
their services, as well as gaining a better
perception of the Ferrexpo business, in turn
facilitating the Group’s ability to operate.
Plans for engagement in 2024
Supplier engagement is expected to
continue into 2024 with a similar focus as
in previous years – seeking local goods
and services where possible, to support
the Ukrainian economy, and engaging to
ensure supplier governance throughout
Ferrexpo’s supply chain. In addition, the
Group is increasingly engaging to understand
the greenhouse gas emissions footprint
of suppliers, as this is directly relevant
to Ferrexpo’s Scope 3 emissions.
Plans for engagement in 2024
The Group is in regular contact with its
customers. This includes regular meetings
with actual or potential customers and also
visits to their operations around the world.
One area of focus for the Group is the DR
pellet market, which is forecast to outpace
other iron ore products in terms of demand,
especially in Europe and the MENA region.
4. Communities
Our social licence to operate is
earned by successful engagement
with the communities where we
operate and broader society.
Ferrexpo has established close
relationships with its local
communities and continues
to work hard to maintain their respect.
Our engagement activities in 2023
The Group has developed strong ties with
local communities. Ferrexpo is a large local
and economic contributor in the Poltava
Region. We also understand the connection
between our workforce in Ukraine and
the communities, many of whom rely on
Ferrexpo for their socio-economic stability.
Our deep relationships with local stakeholders
enabled us to engage quickly and
meaningfully at the start of the full-scale
invasion in February 2022 to understand the
immediate material issues and risks facing
communities and how we could effectively
respond with humanitarian support.
We also published our Responsible Business
Report in Ukrainian to foster engagement
with local audiences on sustainability topics,
which are particularly relevant to them.
The Group regularly engages with communities
through traditional forms of communication
(for example, printed media and local television
channels), and electronic media such as
the Group’s websites, public reports and
dual-language social media channels.
Further details on our engagement with
communities can be found in the section
‘Operating during a time of war’ on pages
6to7.
Our response to feedback
The Group regularly provides direct support
to local communities through the Ferrexpo
Humanitarian Fund which has been in place
since the start of the war and the Ferrexpo
Charity Fund, which has been in operation
since 2011. During exceptional times, such as
Russia’s invasion of Ukraine in 2022 and the
global Covid-19 pandemic, the Board has
sought to provide additional support, to
respond to extraordinary situations.
Ferrexpo has spent US$25 million on over 100
projects and initiatives. Projects are individually
reviewed and approved by members of the
HSEC Committee, to ensure that governance
standards are maintained. Many projects are
proposed by local community leaders and
groups. The Group will continue to support
Ukraine and communities throughout the
country through the Ferrexpo Humanitarian
Fund, the Ferrexpo Charity Fund and
associated CSR funds during this difficult time.
Plans for engagement in 2024
As the war prolongs, the needs of our
workforce, local communities and Ukrainian
society are changing. The original focus on the
immediate need to provide accommodation,
food and medical services has lessened and
the focus is shifting to longer-term issues such
as veteran rehabilitation and mental health.
The HSEC Committee is reviewing how best
to respond to the evolving needs and provide
targeted support in the appropriate manner.
5. The
Environment
The natural environment is important
to the Group as it demonstrates the
present day success of our business
with multiple stakeholder groups and
also that of future generations. The
natural environment encompasses
many factors, from greenhouse gas
emissions and emissions of other
gases into the air, to our interactions
with the water cycle, land
rehabilitation and biodiversity around
our operations, amongst others.
Our engagement activities in 2023
Climate change is a key focus area
for a number of stakeholder groups,
with rising pressure to act to limit
the effects of climate change.
Engagement on the natural environment
occurs with local and national government
bodies to ensure compliance with local
legislation and best practice. Engagement
with local communities is conducted through
regular meetings with community leaders
and representatives. The Group interacts
with its workforce through regular staff
meetings and internal communications,
which includes feedback mechanisms
to ensure local voices are heard.
70
Ferrexpo plc Annual Reports & Accounts 2023
Section 172 continued
Further details on our environmental
approach can be found in the responsible
business sections of this report, including
‘Net Zero pathway’ on page 36, TCFD
disclosures from page 43 and Climate
scenario analysis from page 48. Two case
studies on DR pellet life cycle analysis on
page 42 and double materiality on pages 38
to 40 also provide context on the activities
weconcluded in 2023.
Our response to feedback
The Board approved the publication of the
inaugural Climate Change Report in December
2022. This report represented the output of
our collaboration work with environmental
consultants Ricardo Plc (“Ricardo”). Through
this work stream, the Group has developed
a potential pathway to net zero iron ore
pellet production, as well as climate scenario
modelling to determine risks and opportunities
related to Ferrexpo’s business and industry
sector. For more information, please see
the Group’s website (www.ferrexpo.com).
In 2022, the Group also set revised, more
ambitious greenhouse gas emissions
reduction targets. The Group is now
targeting a 50% reduction in its Scope 1
and 2 emissions by 2030 (on a combined
basis per unit of production).
In addition, the Board maintains climate
change as a standing agenda item for all
scheduled Board meetings and HSEC
Committee maintains climate change as a
standing item on the agenda for all meetings,
with meetings held on a quarterly basis.
Executive remuneration is also aligned
to the Group’s climate change goals,
with performance targets relating
to climate-related matters.
Plans for engagement in 2024
The Group continued to maintain reporting
of its environmental footprint in 2023.
This included the completion of the life
cycle analysis of the Group’s DR pellets
toproduce steel in an electric arc furnace.
The outcomes of this work are highlighted
in this report. The Group has plans to
undertake a further life cycle analysis of
certain other products during 2024.
6. Government
and its agencies
Ferrexpo engages with governments
in the countries in which the Group
operates through dialogue with
representatives of host governments
and local authorities. In each
jurisdiction, the Group aims to
develop long-term, positive
relationships through regular
andtransparent interactions.
Our engagement activities in 2023
The Group has a number of legal permits
and licences required to operate in host
countries, which are administered by the
Group’s internal legal and government
liaison teams, as well as external advisors.
Engagement with the Ukrainian government
agencies is critical due to the ongoing
war in Ukraine. Lines of communication
are necessary to allow the Board and
management to understand the numerous
changes to the operating environment, which
has changed significantly throughout the war.
This includes information sharing to keep
our workforce safe, updates on the supply of
power and access to transport and logistics
infrastructure from port closures, limitations
to rail access and the availability of electricity,
amongst other effects. Additionally, we have
kept in constant contact with the government
to understand the needs of communities
across Ukraine as the war evolves.
Further details on our engagement
with government and its agencies are
discussed in the Executive Chair’s
Review on pages 2 and 3.
Our response to feedback
Through engagement, the Group aims to
establish a constructive line of communication
with host governments, to facilitate further
investment and continued operations in
each country. The Group has operations
and corporate offices across seven different
countries, in addition to marketing offices in
a further three countries, ensuring the Group
has a global presence in a global marketplace.
Plans for engagement in 2024
The Group aims to continue to proactively
engage with government stakeholders in the
jurisdictions where it operates, in line with
previous years.
7. Investors
As a company quoted on the London
Stock Exchange, global investors are
important to Ferrexpo, especially
our international shareholder base.
Through developing close ties with
investors of all sizes, the Group
can promote itself as well as raise
awareness of Ukraine’s potential.
Our engagement activities in 2023
The Group has maintained a premium
listing on the London Stock Exchange
since June 2007 and as a result has a
large investor base, comprising more
than 500 institutions or organisations
and private shareholders as of January
WE ARE DETERMINED
71
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
2024, located in more than 30 countries
or jurisdictions. The Group’s independent
shareholders range from international
investment funds managing billions of
dollars, to individual private shareholders.
The Group regularly meets in person with
investors in London, Europe and North
America, and regularly speaks to investors
located around the world. Direct engagement
with investors can take the form of ad hoc
meetings, video calls or telephone calls, as
well as results calls following either the full
year or interim results in March and August,
respectively. Following each set of financial
results, the Group will liaise with the sales
team at its broker Liberum to arrange a
series of investor meetings, referred to as an
investor roadshow. Additionally, the Group
regularly speaks to the analyst community
at a number of investment banks and events
that they host. Through this interaction, the
Group is able to assist its analyst following
to produce accurate and considered
investment research on Ferrexpo.
In addition to the above activities, the Group
also hosts its Annual General Meeting
(“AGM”) usually held in May each year, which
represents an opportunity for all investors to
meet and engage meaningfully with the Board.
Further details on engagement with
investors can be found in our value
proposition on pages 10 and 11.
Our response to feedback
The Group aims to communicate with all
shareholders and uses a range of methods
to do so. In 2023, we have published two
formal reports for our stakeholders – an
Annual Report and Accounts in April and a
Responsible Business Report in December.
Given investors’ increasing reliance on
sustainability data in making investment
decisions, it is evident that there is a need
to ensure the quality of this information is
high. As such, we have sought to undertake
an independent assurance process of our
safety and carbon emissions data for 2023.
Plans for engagement in 2024
The Group has a regular schedule of
engagement activities throughout the calendar
year, including the Group’s annual reporting
suite, investor roadshows associated with
financial results, quarterly production reports
and attendance at investor conferences. In
addition, the Group provides numerous press
releases, presentations and social media
postings, which are produced as required for
company news and events or otherwise.
Nick and Vladyslav manage the
communications function for the
business. They are responsible
for investor relations, external
and internal communications,
including social media.
As the war has progressed, what
haschanged?
We are more focussed on our employees
than ever, aiming to keep them informed
and as positive as possible. We have
broadened our social media activities,
improved frequency and formats,
launched monthly updates so that we can
communicate directly and more frequently.
As the business is right-sized we must
work harder with a smaller budget.
We maintain our regulatory reporting,
focus on select opportunities, and use
social media more. We produce most
of our own content, and are proud of
our video work, especially a series we
produced about veteran rehabilitation.
What has the war taught you?
Being quiet is not an option. We have
learnt that we have plenty to say and
contribute. We know that the realities on
the ground are often different from what
is reported, so our role must be to help
broaden awareness, and share our real-life
perspectives. Everything we do requires
consideration because there are so many
complex issues and sensitivities to balance.
When the war is over, what will be
different for you?
It is currently our responsibility to report
internally and externally about colleagues
killed serving in the Armed Forces of
Ukraine. We look forward to the day
when we do not have to do this and
gladly refocus internal communications
to supporting the rehabilitation of veterans
back into the workforce and the restart
of production capacity.
We recognise that interest in Ferrexpo
will be intense when the war ends. We
are curiously sensitive because interest
has been limited during a time of war,
however, we are already preparing.
Nick Bias and Vladyslav Mortikov
Q&A
72
Ferrexpo plc Annual Reports & Accounts 2023
Risk Management
Assessing and
managing risk
Ferrexpo identifies and assesses risks based on each
risk’s probability of occurrence and the severity of any
event. The Group aims to mitigate the potential impact of
each risk through its management of day-to-day activities,
taking a prudent approach to risk where possible.
Risk identification
Ferrexpo aims to manage risks across its
business through the early identification
of potential risks before they emerge,
with senior managers and the Group’s
executive management team responsible
for maintaining risk registers for each area
of the Ferrexpo business. Risk registers
are regularly reviewed and updated,
with local risk owners reporting to senior
management teams on a regular basis.
The Group risk register records risks on the
basis of the likelihood of occurrence and
level of potential impact on the Ferrexpo
business. A total of 49 risks were included
on the Group risk register as of December
2023, with risks ranging from the war in
Ukraine (both direct and indirect), risks
relating to operating in Ukraine, operational
risks such as the risk of a pit wall failure,
health and safety-related risks, and risks
relating to information technology and climate
change. Further to the Group risk register,
which records the risks with the most serious
potential impact and likelihood of occurrence,
operating entities maintain their own local
risk registers, which feed into the Group
risk register. In 2023, the Group continued
to develop and operate an enterprise
risk management (“ERM”) tool that was
implemented in 2022 to record and monitor
risks, which is the platform for the reporting
and assessment of risks within the Group.
The Group considers emerging risks to
be risks that are newly developing, or
increasing in potential severity of impact, or
changing risks that are difficult to quantify.
The risks that are assessed by the
Group’s management to be Principal
Risks are presented on pages 74 to 90.
Risk mitigation
Risks are inherent in operating a business
and it is through effective risk identification,
risk management, prudent decision making
and other risk mitigation measures that the
Group can understand and mitigate the
risks that the business faces. The Group’s
management team, however, understands
that it cannot eliminate all risk. The Group’s
approach to risk mitigation for each of the
Group’s Principal Risks is presented opposite.
Risk governance framework
Risks are reported internally on a monthly
basis, as part of the Finance, Risk
Management and Compliance (“FRMC”)
Committee, with the Group’s senior leadership
team reviewing the Group-level risk matrix,
which plots the likelihood of occurrence
against the potential severity of impact, and
identifying material changes in either variable
to all of the risks listed. Risks are reported on
the Group risk register to the FRMC Committee
on a monthly basis, with each risk attributed
a potential monetary impact should an event
occur. The FRMC Committee reports to the
Group’s Executive Committee, which in turn
reports to the Board, which has the ultimate
responsibility for the Group’s approach to
risk management. The Audit Committee, a
sub-committee of the Board, assists the Board
in its regular monitoring of the risks faced by
the Group. The Group’s internal audit function
assists with the process of risk review, and
conducts ad hoc reviews of risk management
controls and procedures. For more information
on the Audit Committee’s monitoring and
assessment of the effectiveness of the risk
management and internal control systems,
seethe Audit Committee Report on page 114.
Risk assessment for 2023
The risk matrix opposite depicts the
Principal Risks facing the Group.
Russia’s full-scale invasion of Ukraine in
February 2022, has had a significant impact
on the Group’s ability to operate. Further
details on the conflict risk facing the Group
are provided on page 75 of this report.
In addition to the war in Ukraine, a secondary
effect of the conflict is the increased political
alignment within Ukraine. It is unclear as to
the eventual impact of this change on the
Group, which in turn creates a potential
risk for the Group should the political
landscape shift adversely. Further details
of the risks associated with operating
in Ukraine are provided on page 76.
Climate change is a rising Principal Risk,
and the Group is facing both physical
and transitional risks, which requires
increased reporting requirements. This
topic is covered on pages 36 to 37 and
90 of this report, with particular reference
to climate change related risk reporting
under the Task Force on Climate-related
Financial Disclosures (“TCFD”) framework.
Risk management process
73
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Key
1.1 Conflict risk
1.2 Ukraine country risk
1.3 Counterparty risk
2. Global demand for steel
3.1 Changes in pricing methodology
3.2 Iron ore prices
3.3 Pellet premiums
3.4 Seaborne freight rates
4.1 Risks relating toproducing our products
4.2 Risks relating tothe delivery of our products
4.3 Risks relating tohealth andsafety
4.4 Risks relating tooperatingcosts
4.5 Risks relating to information technology
andcybersecurity
5. Risks relating toclimate change
Principal risks materiality matrix
1.2
1.1
2.
5.
4.1
1.3
3.2
4.2
3.4
3.1
3.3
4.3
4.44.5
The Principal Risks identified in the heat map
to the right highlight which risks could have
the greatest severity of impact on the Group’s
operations and viability.
LIKELIHOOD
LEVEL OF IMPACT
Ferrexpo Board
– Takes overall responsibility for maintaining
sound risk management and internal
control systems.
– Sets strategic objectives and defines
risk appetite.
– Monitors the nature and extent of risk
exposure, which includes principal and
emerging risks.
Audit Committee
– Supports the Board in monitoring risk
exposure and risk appetites.
– Reviews effectiveness of risk management
and control systems.
Executive Committee
– Assesses and mitigates Group-wide risk.
– Monitors internal controls.
Health, Safety, Environment and
Community (“HSEC”) Committee
– Oversees corporate social responsibility
related matters and performance.
– Has specific focus on safety and climate
change related risks.
Finance, Risk Management
andCompliance (“FRMC”) Committee
– Monitors centralised financial
risk management structures.
– Monitors Group compliance.
Internal audit function
– Supports the Audit Committee in reviewing
the effectiveness of risk management.
– Tests internal control systems and
recommends improvements.
Operational level
– Risk management processes and internal
controls embedded across all Ferrexpo
operations.
Please see pages 74 to 90
of this report for a full
summary of Principal Risks
74
Ferrexpo plc Annual Reports & Accounts 2023
Principal Risks
Understanding
risks and our
business model
Principal Risks are those considered to
have the greatest potential impact on
Ferrexpo’s business, assessed on the
bases of impact and probability.
Introduction
This section outlines the Principal Risks facing
the Group in 2023, each of which have the
ability to negatively affect the Group, either
in isolation or in combination with other risk
areas. Principal Risks are defined as factors
that may negatively affect the Group’s ability
to operate in its normal course of business,
and may be internal, in the form of risks
derived through the Group’s own operations
and activities, or external, such as political
risks, market risks or climate change related
risks. The Principal Risks listed here are
neither exhaustive, nor are they mutually
exclusive, and therefore one risk area may
negatively impact another risk area.
Principal Risks include, but are not necessarily
limited to, those that could result in events
or circumstances that might threaten the
Group’s business model, future performance,
solvency or liquidity and reputation.
Risks are inherently unpredictable, and,
therefore, the risks outlined in this report are
considered the main risks facing the Group.
New risks may emerge during the course of
the coming year, and existing risks may also
increase or decrease in severity of impact
and/or likelihood of occurrence, and this is
why it is important to conduct regular reviews
of the Group’s risk register throughout the
year. The Group maintains a more extensive
list of risks, covering over 40 different risks
at the Group level, with additional risks
considered in local risk registers at each
operating entity. The Group risk register is
reviewed on a monthly basis for completeness
and relevance by the Group’s Finance, Risk
Management and Compliance (“FRMC”)
Committee, which ultimately reports into the
Board for further review and approval of the
risk register. The Group risk register is also
reviewed by the Audit Committee at least four
times a year. The members of the Executive
Committee manage risk within the business
on a day-to-day basis. The Committee
includes the Chief Executive Officer, Chief
Financial Officer, Chief Marketing Officer,
Group Chief Human Resources Officer and
General Director of Ferrexpo Poltava Mining.
The Group’s management team continually
reviews and updates its view on, and approach
to, risks facing the Group. This section of the
Annual Report and Accounts primarily covers
risks facing the Group in 2023, but also early
2024, up until the publication date of this
report. A further update on the Principal Risks
will be provided in the Interim Financial Results,
which is due to be published in August 2024.
Key themes
Ongoing war in Ukraine since the
full-scale invasion in February 2022
On 24 February 2022, Russia launched a
full-scale military invasion of Ukraine, with
the conflict continuing into its third year
as of the date of this report. This event
has significantly changed the operating
environment for businesses in Ukraine on
an unprecedented scale. Please see page
75 for more information on this risk area.
Ukraine country risk
This area has been listed as a Principal Risk
facing the Group since listing in 2007, and
the Group has successfully operated amid
challenging circumstances for more than
16 years. The war in Ukraine has served
to escalate a number of risks relating to
Ukraine, including risks relating to the
political environment and the independence
of the judicial system. Please see page 76
for more information on this risk area.
Climate change
An important topic for any modern business,
with discussions with multiple stakeholder
groups centring on the Group’s efforts to
reduce emissions both in the Ferrexpo
business, but also in the Group’s value chain
(Scope 3 emissions). As a consequence of
rising stakeholder focus on this topic, the
Group published its first standalone report on
climate change in December 2022. Please see
page 90 for more information on this risk area.
Cybersecurity
As a business seeking to modernise, the
Group is increasingly reliant on electronic
software for the management of key
operational and administrative activities.
As a business primarily operating in
Ukraine, the Group has faced heightened
cybersecurity threats from malicious parties
since 2014, coinciding with Russia’s initial
invasion of Ukraine. Please see page 89
for more information on this risk area.
Each Principal Risk is linked to the
aspects of the Group’s strategy that
could be impacted if an event were
tooccur.
1. Produce high quality pellets.
2. Achieve low cost production.
3. Maintain strong relationships
with anetwork of premium
customers.
4. Conduct business in a safe
and sustainable manner.
5. Retain a balanced approach
to capital allocation.
Risk currently considered
tobematerially increasing
insignificance to the
Group’sactivities.
Risk currently considered to
beneither materially increasing
nor materially decreasing
insignificance to the
Group’sactivities.
Risk currently considered
tobematerially decreasing
insignificance to the
Group’sactivities.
75
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
1. Country risk
It is over two years since Russia’s full-scale
invasion of Ukraine on 24 February 2022.
Ferrexpo’s main operations are in the Poltava
region of central Ukraine, which has not
seen any direct combat between Russian
and Ukrainian forces. Ukraine has, however,
faced numerous missile and drone strikes,
including the Poltava region. The Group’s
facilities have not been directly targeted
by Russian missile strikes, but a number
of neighbouring third party facilities such
as the Kremenchuk oil refinery and state
owned electricity infrastructure have been
damaged by such attacks. Such damage can
affect the Group’s ability to source various
inputs needed for ongoing production.
The war in Ukraine is placing a strain on
the economy of Ukraine, with a number of
businesses closing, unemployment, and lower
tax revenues. At the same time, spending
on the military and social programmes have
increased. Consequently, the government
of Ukraine has sought to increase revenues
through changes to its fiscal policies, such
as increases to railway tariffs, as well as
implementing measures to stabilise the
economy, such as enacting laws for the
repatriation of funds and currency controls. A
number of these measures have the potential
to either directly or indirectly affect Ferrexpo
negatively through consequences such
as lower revenues and a more restrictive
operating environment. Due to the strain
placed on the Ukrainian economy, the
exchange rate for the Ukrainian hryvnia
depreciated significantly at the start of the
full-scale invasion in 2022. The government
immediately responded with the introduction
a peg for the hryvnia to the US dollar set at
UAH 29.25 per US dollar, however, it was
forced to devalue the currency to was 36.5 per
US dollar in July 2022. In October 2023, the
government announced that it would allow for
limited fluctuations of its currency, scrapping
the peg that had been in place since Russia’s
invasion 20 months earlier, with the central
bank stating a shift to a “managed flexible
exchange rate”. This new policy resulted in
short term volatility. Fluctuation in the Hryvnia
can have a significant impact on the Group’s
costs, assets and shareholders’ equity. For
more information, please see page 28.
Due to the war, a proportion of the Group’s
workforce in Ukraine are serving or have
served in the Armed Forces of Ukraine.
Some have relocated to safer locations. As
such, the Group faces potential risks around
being able to adequately skill its operations
and the associated ancillary services.
Additional risks related to the war in
Ukraine include, but are not limited to,
restrictions related to the cost effective and
timely transport of the Group’s products,
restrictions in accessing markets, rising
costs related to reduced output and
alternative supply arrangements and the
impact on employee safety and wellbeing.
A summary of the war’s impacts is
provided on pages 6 to 7 of this report.
Responsibility
Board of Directors including Executive Chair
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
1.1. Conflict risk (external risk)
Risk mitigation
The health and safety of the workforce
is the Group’s primary concern.
Whilst it is difficult for a company such
as Ferrexpo to defend itself from direct
military activities since Russia’s full-scale
invasion, the Group has taken multiple
measures to keep its workforce, their
families and local communities safe from
the threats posed by Russian aggression.
Measures have included remote working
for those able to do so, timing of shift
patterns to fit with curfew hours, the
provision of on-site childcare facilities to
ensure children are close and employees
are not having to travel unnecessarily,
construction of new and renovation of
older bomb shelters and the provision of
protective equipment such as armoured
vests and helmets for employees serving
in the Armed Forces of Ukraine. The
Group has also engaged in extensive
discussions with local authorities, and has
stepped up to provide financial assistance
through the Ferrexpo Humanitarian
Fund, with oversight by the Board of
Directors of Ferrexpo to ensure good
governance in all support activities. Please
see page 7 for more on this subject.
The Group will continue to take
measures as required to protect its
workforce, and their families and local
communities, for the duration of the
war, and during the post-war period
where continued support is required.
76
Ferrexpo plc Annual Reports & Accounts 2023
Principal Risks continued
1. Country risk (continued)
The considerations outlined here are
separate to the risks relating to the
ongoing war in Ukraine, but some or all of
them may be exacerbated by the current
conflict (see page 75 for risks relating
specifically to the conflict in Ukraine).
Ferrexpo’s main operations are in Ukraine,
which is considered to be a lower middle
income economy, under the classifications
provided by the World Bank
1
. Ukraine is a
country that placed at rank 77 in the United
Nations’ Development Programme’s (“UNDP”)
Human Development Index (as published in
the latest report on 8 September 2022)
2
, and
is therefore classified as having a “high” level
of human development (based on factors such
as life expectancy and levels of education).
This ranking places it in a similar bracket to
China (79) and Sri Lanka (73), other countries
considered to be developing economies.
As a result of operating in a developing
economy, the Group is subject to a number of
elevated risks, such as the fiscal and political
stability of Ukraine, independence of the
judiciary, access to key inputs and capital,
exposure to monopolies and other influential
businesses (particularly those that are related
parties to the government of Ukraine), in
addition to a range of other factors. As a
result of being a business in a developing
economy, the Group is exposed to heightened
risks around corruption, with Ukraine
placing 116 in Transparency International’s
Corruption Perceptions Index (“CPI”)
3
.
Through the Group’s exposure to an operating
environment in a developing economy,
Ferrexpo has been subject to a number of
risk areas that are heightened relative to
those expected of a developed economy.
Risks associated with the war in Ukraine are
covered on page 75 of this report, but there
are indirect risks associated with the war, such
as the increasing political unity within Ukraine
and determination to drive political, fiscal or
economic change, the latter often associated
with financial and military agreements struck
with western governments and organisations.
This change can be exhibited in a number
of practical applications, which can
include, but are not limited to, changes
to the regulatory environment, potential
increases to tax and royalty rates, increased
disclosure requirements or operational
restrictions. Changes may be made as a
result of government decision making, a
third party international partner, lender, or
another party within Ukraine, and therefore
the rationale for changes may not correlate
with the official agenda of the government
of Ukraine. As a result of this local instability,
which is amplified by the war in Ukraine,
sources of capital for businesses deriving
their revenues from Ukraine are limited at
the present time, which in turn may reduce
the operational flexibility of the Group.
The independence of the judiciary system
in Ukraine has been frequently referenced
in the Principal Risks section of the Group’s
Annual Report and Accounts, and this is
a consideration that remains particularly
relevant for the Group today. As described
in Note 30 (Commitments, contingencies
and legal disputes) to the Consolidated
Financial Statements, the Group is currently
subject to several legal proceedings in
Ukraine that are similar in part to previously
heard legal proceedings, and it cannot be
guaranteed that the Ukrainian legal system
will always provide a ruling in line with the
laws of Ukraine or international law.
On 7 December 2022, Ferrexpo Poltava
Mining (“FPM”) received a claim in the amount
of UAH4,727 million (US$124 million as at
31 December 2023) in respect of contested
sureties. These contested sureties relate
to Bank Finance & Credit which the Group
previously used as its main transactional
bank in Ukraine. Bank Finance & Credit is
still going through the liquidation process
after having been declared insolvent by the
National Bank of Ukraine and put under
temporary administration on 18 September
2015. The counterparty in this claim alleges
that it acquired rights under certain loan
agreements originally concluded between
the Bank Finance & Credit and various
borrowers by entering into the assignment
agreement with the State Guarantee Fund on
6 November 2020. The counterparty further
claims that FPM provided sureties to Bank
F&C to ensure the performance of obligations
under these loan agreements. On 26 January
2024, the Ukrainian court of appeal has
confirmed a claim against FPM in the amount
of UAH4,727 million (US$124 million as at
31 December 2023). On 30 January 2024,
FPM filed an appeal to the Supreme Court
in Ukraine and the first hearing scheduled
for 20 March 2024 did not take place.
Following the appointment of a new panel of
judges, on 1 April 2024 the Supreme Court
suspended the possible enforcement of the
decision of the court of appeal. A Supreme
Court hearing on 17 April 2024 considered
primarily procedural matters and the next
court hearing is scheduled for 27 May 2024.
Although the Group remains of the view that
FPM has compelling arguments to defend
its positions, the Group has recognised a
full provision totalling US$124 million for
this ongoing legal dispute. As at the date
of approval of these consolidated financial
statements, no enforcement procedures have
commenced and on 1 April 2024 the Supreme
Court suspended the possible enforcement
of the decision of the Ukrainian court of
appeal, so that such enforcement procedures
cannot be initiated by the claimant until a final
decision is made by the Supreme Court, or
the Supreme Court’s suspension order is
otherwise lifted. If the final Supreme Court
ruling is not in favour of FPM, the claimant
may take steps to appoint either a state or a
private bailiff and request the commencement
of the enforcement procedures, which could
have a material negative impact on the Group’s
business activities and its ability to continue
as a going concern, as the assets of FPM
could be seized or subject to a forced sale.
In addition to the afore-mentioned claim, a
supplier and related party to the Group filed an
application to open bankruptcy proceedings
(“creditor protection proceedings”) against
the Group’s major subsidiary in Ukraine. The
possible commencement of the enforcement
of the decision of the Ukrainian court of
appeal, which is currently suspended by
a decision of the Supreme Court, and the
possible opening of creditor protection
proceedings might potentially affect the
Group’s ability to continue as a going concern
and, as a consequence, its viability.
The contested sureties claim and decision
of the court of appeal are other examples
of the risk of operating in a dynamic and
adverse political landscape in Ukraine,
which creates additional challenges
for both the Group’s subsidiaries in
Ukraine and also for the Group itself.
As referenced in the Group’s previous public
reporting, including in the Group’s Interim
Results published in August 2023, there are
outstanding allegations relating to the Group’s
controlling shareholder, Kostyantin Zhevago,
that remain unresolved, and there is a risk
that assets owned or controlled (or alleged
to be owned or controlled) by the Group’s
Responsibility
Board of Directors including Executive Chair
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
1.2. Ukraine country risk (external risk)
77
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
1. Country risk (continued)
controlling shareholder may be subject to
restrictions, in Ukraine or elsewhere, or that
the Group may be impacted by, or become
involved in, legal proceedings relating to
these matters, in Ukraine or elsewhere.
As disclosed in 2022 annual report and
accounts, subsequent to the detention of
Mr Zhevago in France on 27 December 2022
at the request of the authorities in Ukraine,
the Supreme Court of France rejected the
appeal in November 2023 and ruled that
Mr Zhevago should not be extradited to
Ukraine. The legal case relates to the potential
extradition of Mr Zhevago, and associated
legal claims being made in Ukraine, and
remains outstanding as of the date of this
report. The risks relating to the Group as
a result of this legal action, and potential
further legal action, cannot be accurately
estimated at the present time, nor can the
potential timeline for resolving any matters.
As a consequence of recent events relating to
the Group’s controlling shareholder, as outlined
above, the Group may experience adverse
effects, such as negative media attention, a
reduced ability to operate within Ukraine and
overseas due to negative perceptions of the
Group, and a restricted operating environment
for aspects of the Group’s business, such
as closure (or suspension) of relationships
with stakeholder groups such as banking
services. The Group’s relationships both
upstream and downstream may also be
negatively impacted by events related to the
Group’s controlling shareholder, such that
the Group is limited or impaired in its ability
to do business overseas in a specific country
or region. In addition, restrictions imposed
on the Group’s controlling shareholder (or
negative perceptions of the Group’s controlling
shareholder) may potentially have an adverse
effects on the Group within Ukraine, with a
restriction on the Group’s ability to successfully
operate its business model. A number of legal
claims or legislative actions within Ukraine
are known as of today – as detailed in this
section, and further actions to restrict the
Group’s ability to operate may arise in the
future. It is difficult for the Group to predict
the scale or nature of such restrictions, and
therefore the Group is limited in its ability to
pre-empt and mitigate risks in this area.
The Group is subject to a number of
actions by the government of Ukraine that
threaten to destabilise, or have the effect
of destabilising, the operating environment
in which the Group exists. For example, in
previous years, the government of Ukraine
has cancelled exploration licences by
Presidential decree, providing minimal detail
in terms of an explanation or rationale.
As previously referenced in the Group’s
2021 Annual Report and Accounts, in June
2021, the government of Ukraine cancelled a
mining licence for an early-stage exploration
project known as Galeschynske, which is a
licence held by Ferrexpo Belanovo Mining
and located to the north of the Belanovo mine
(without forming part of this mine). This matter
remains outstanding, and there remains a
risk that this dispute may increase in scale
or severity for the Group. The Group has
been informed of other licence disputes by
the government, which are similar in scale
to the licence dispute discussed above. It is
difficult for the Group to predict the outcome
of existing licence disputes, and whether
new claims and/or disputes may arise in
relation to the Group’s operating licences.
In March 2023 restrictions were placed on
shares held by Ferrexpo AG (“FAG”), the
Group’s Swiss subsidiary, in three main
operating subsidiaries of the Group in
Ukraine, covering 50.3% of the shares held
in each subsidiary. The Kyiv Commercial
Court ordered the arrest (freeze) of 50.3%
of FAG’s shareholding in each of Ferrexpo
Poltava Mining (“FPM”), Ferrexpo Yeristovo
Mining (“FYM”) and Ferrexpo Belanovo Mining
(“FBM”). This court order was issued by the
Kyiv Commercial Court during a hearing in
the commercial litigation between the Deposit
Guarantee Fund and Mr. Zhevago, the Group’s
controlling shareholder, in relation to the
liquidation of Bank Finance & Credit in 2015.
The Group’s subsidiaries affected by this court
order, including FAG, filed appeals in Ukraine
to remove the restrictions. The court of appeal
refused on 26 July 2023 to satisfy the appeals
of FAG, FPM, FYM and FBM in relation to the
restriction covering 50.3% of corporate rights in
FPM, FYM and FBM. The Group’s subsidiaries
filed cassation appeals to the Supreme Court
of Ukraine. On 10 January 2024, the Supreme
Court in Ukraine rejected the cassation appeals
and the restrictions in the Deposit Guarantee
Fund case remain effective. For more details of
this case please see Note 30 Commitments,
contingencies and legal disputes.
Also in relation to the commercial litigation
between the National Bank of Ukraine
(the “NBU”) and Mr. Zhevago, the Group’s
controlling shareholder, in relation to the
personal surety of Mr. Zhevago for the loan
provided by the NBU to the Bank Finance &
Credit, the Chief State Bailiff of the Ministry
of Justice of Ukraine issued a resolution
on arrest of debtor’s property as part of
intended enforcement proceedings. The
state bailiff has imposed an arrest on part of
the corporate rights of 50.3% of the issued
share capital of FYM and FBM, assuming
that these rights are owned by Mr. Zhevago.
FAG filed lawsuits in October 2023 to cancel
the arrest and to block the enforcement
procedure. On 30 November 2023, a court
of first instance suspended the enforcement
proceeding to forcefully sell Ferrexpo AG’s
corporate rights in FYM and FBM. The state
bailiff filed an appeal. For more details of this
case please see Note 30 (Commitments,
contingencies and legal disputes).
As previously referenced in the Group’s 2022
Annual Report and Accounts, a number of the
Group’s subsidiaries in Ukraine received letters
from the Office of the Prosecutor General,
notifying them of an ongoing investigation
into a potential underpayment of royalties
between 2018 and 2021 (the “Investigation”).
On 3 February 2023, one of the Group’s senior
managers in Ukraine received a notice of
suspicion in relation to this Investigation. On
6 February 2023, as part of the Investigation,
a court order was issued in Ukraine freezing
the bank accounts of Ferrexpo Poltava Mining
(“FPM”). These actions by the government
of Ukraine mirror actions taken in similar
investigations into other metals and mining
companies in Ukraine, and therefore represent
a scenario that the Group was aware of and
able to partially mitigate the associated risks. It
is important to note that the Group may not be
able to successfully challenge this court order
to freeze FPM’s bank accounts and may not
be able to successfully challenge the claims
being made as part of the Investigation. The
Group has managed to get certain aspects
of this court order to be repealed, enabling
the Group to pay certain amounts such as
salaries and taxes (but other restrictions
remain in place).On 31 October 2023, a notice
of suspicion was delivered to another top
manager. On 13 November 2023, the court
approved the bail in the amount of close to
UAH 800 million. An appeal was filed, and
after several court dates were postponed, the
next hearing is scheduled for 29 April 2024.
1.2. Ukraine country risk (external risk) (continued)
1. Source: World Bank, https://blogs.worldbank.org/
opendata/new-world-bank-country-classifications-
income-level-2022-2023. (Accessed 24 February 2024)
2. Source: UNDP, https://hdr.undp.org/data-center/
human-development-index#/indicies/HDI. (Accessed
23 February 2024)
3. Source: Transparency International, https://www.
transparency.org/en/cpi/2023/index/ukr. (Accessed
26 February 2024)
78
Ferrexpo plc Annual Reports & Accounts 2023
Principal Risks continued
1. Country risk (continued)
1.2. Ukraine country risk (external risk) (continued)
Risk mitigation
Ferrexpo operates in accordance with
relevant laws and utilises internal legal
counsel and external legal advisors
as required to monitor and adapt to
legislative changes or challenges.
The Group maintains a premium listing
on the London Stock Exchange and is
subject to high standards of corporate
governance, including the UK Corporate
Governance Code and UK Market Abuse
Regulation. Ferrexpo has a relationship
agreement in place with Kostyantin
Zhevago, which stipulates that the
majority of the Board of Directors must
be independent of Mr Zhevago and his
associates. For all related party transactions,
appropriate procedures, systems and
controls are in place and adhered to.
Ferrexpo prioritises a strong internal control
framework including high standards of
compliance and ethics. The Group operates
a centralised compliance structure that
is supported and resourced locally at
the Group’s operations. Ferrexpo has
implemented policies and procedures
throughout the Group including regular
training. Ferrexpo prioritises sufficient total
liquidity levels and strong credit metrics
to ensure smooth operations should
geopolitical or economic weakness disrupt
the financial system of Ukraine. Ferrexpo
looks to maintain a talented workforce
through skills training and competitive
wages, taking into account movements
of the Ukrainian hryvnia against the
US dollar and local inflation levels.
Ferrexpo has a high profile given its
international client base and London listing,
and it is important that Ferrexpo’s Board of
Directors and relevant senior management
continue to engage with the Group’s
stakeholders to effectively communicate
the economic contribution that Ferrexpo
makes to Ukraine and to show that it
operates to high international standards.
As set out in detail in the risk description, the
Group is involved in a number of ongoing
legal proceedings, some of which may
potentially lead to attempted seizures of the
Group’s funds, movable and immovable
assets and corporate rights in Ukrainian
subsidiaries. In case of the commencement
of enforcement procedures for any ongoing
legal disputes, the Group will challenge
every order and action of claimants or
bailiffs in the court, which is expected to
delay for a reasonably long period of time
and block the seizure of funds and assets
In addition to the royalties investigation,
on 10 January 2023 the State Bureau of
Investigations (“SBI”) in Ukraine and on
17 January 2023 The National Police of
Ukraine performed several searches in respect
of investigations on alleged illegal extraction
of minerals (“rubble”). FPM’s position is that
the minerals in question are not a separate
mineral resource, but that it is a waste product
resulting from the crushing of iron ore during
the technical process for the production of
iron ore pellets. The sales of the rubble were
subject to inspections by the State Service
for Geology and Subsoil of Ukraine for many
years and were suspended by the Group
in September 2021. The outcome of such
investigations are the notices of suspicion
issued to the management of FPM by the
SBI on 29 June 2023 and by the National
Policy of Ukraine on 22 September 2023 with
subsequent payments of bails totalling UAH122
million (US$3 million at this point of time) and
UAH400 million (US$11 million at this point
in time), respectively, that were approved by
the court. In the pre-trial investigation of the
rubble case and following an application from
the prosecutor to arrest (freeze) all rail wagons
and railway access tracks owned by FPM,
a court of first instance issued the order to
do so. FPM filed an appeal and a hearing of
the court of appeal on 30 October 2023 the
court of appeal confirmed the arrest of assets
(freeze), but refused to provide clarifications
on the exact scope of the order which created
an alleged restriction on the use of one type of
FPM’s rail cars. Since that time FPM has not
been using this type of rail cars (totalling 1,339
units), but continues to use another type of
its rail cars (totalling 1,043 units). The Group
is engaging with the authorities in Ukraine
and intends to appeal the claims issued as
part of these investigations. Stakeholders
should note that the Group may not be able
to successfully challenge the claims being
made as part of these pre-trail investigations.
For more details of these cases see
Note 30 Commitments, contingencies
andlegal disputes.
The Group’s exposure to operating in Ukraine
can result in high velocity risks. Risk velocity
relates to how fast a risk may escalate in
scale and affect an organisation, with high
velocity risks considered to be those that move
rapidly from a starting point of having a low
likelihood and scale of impact, to having a high
likelihood and scale of impact. Examples of
high velocity risks would be natural disasters
and armed conflict, both of which could
be difficult to predict in advance and could
have a significant impact on a business.
The risk factors discussed here in this section,
either individually or in combination, have
the ability to materially adversely affect the
Group’s ability to operate its production
and other facilities, ability to export its iron
ore products, access to new debt facilities
and ability to repay debt, ability to reinvest
in the Group’s asset base, either in the form
of sustaining capital investment (to maintain
production or expansion), capital investment
for future growth, or the Group’s ability to
pay dividends, could result in a material
financial loss for the Group and could result
in a loss of control of the Group’s assets.
79
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
1. Country risk (continued)
As a business operating in a lower middle
income economy, and also as a business
operating in a country that is currently
engaged in an armed conflict, there are
significant risks in respect of the Group’s
business interactions with third party suppliers
of goods and services. Risks may relate to a
number of subject areas, including (but not
limited to) governance and corruption risks,
risk of collapse, risks relating to monopolies
and situations whereby alternative suppliers
may not be available, and counterparty risks
relating to the conflict in Ukraine whereby
counterparties may be exposed to Russia
(with such relationships potentially not
being known to the Group). The full-scale
Russian invasion of Ukraine in 2022 has
imposed a significant strain on the economy
of Ukraine and has therefore heightened
the counterparty risks facing the Group.
A secondary effect of the ongoing war in
Ukraine is that the Group may be affected in
its ability to conduct effective due diligence
on counterparties given the imposition
of martial law in Ukraine, and other war-
related restrictions. The Group has had
to change a number of key suppliers in
since February 2022, and in doing so,
has had to conduct due diligence checks
as part of each new relationship, which
carries inherent risk to the Group.
Counterparty risks may result in direct
consequences for the Group such as
financial harm and operational issues in
sourcing material, and also include indirect
consequences such as damage to the
Group’s reputation either within Ukraine
or with international stakeholders, such
as investors, lenders and customers.
Additionally, as outlined on page 76 (Ukraine
Country Risk), recent events relating to the
controlling shareholder of the Group have
resulted in secondary effects on a number
of business relationships of the Group.
The Group is currently managing these
risks either through existing relationships
or through new relationships, and it should
be noted that any new (or change of
existing) business relationship carries an
inherent counterparty risk to the Group.
Responsibility
Board of Directors including Executive Chair
Risk appetite
Low
Link to strategy
4
1.3. Counterparty risk (external risk)
Risk mitigation
In terms of supplier governance, the
Compliance team conducts regular checks
on all suppliers, screening entities for a
number of risks and elevating those deemed
to be higher risk for further consideration by
FRMC Committee as to their eligibility. For
entities that the Group conducts business
with, the Group has developed a Code of
Conduct for Suppliers, which as of 2023
is referenced in 90% of all contracts equal
to approximately 2,000 due diligence
checks completed on potential third parties
(2022: 90% and 1,300 checks).The Group’s
exposure to the failure of a counterparty, or
the failure of a party to provide its contracted
goods and services, is managed through the
Group engaging with a range of suppliers,
where possible, in addition to sufficient
cash reserves to maintain the Group’s
overall liquidity. Where it is not possible or
practical to source goods and services from
multiple providers, the Group considers
alternative goods and services to meet its
needs and to reduce single party risk.
With regard to the structures in place to
monitor and manage counterparty risk, the
Finance, Risk Management and Compliance
(“FRMC”) Committee, is an executive
sub-committee of the Board charged with
ensuring that systems and procedures
are in place for the Group to comply with
laws, regulations and ethical standards.
The FRMC Committee met ten times in 2023
(2022: ten) and is attended by the Group
Compliance Officer and, as necessary,
by the local compliance officers from the
operations, who present regular reports and
ensure that the FRMC Committee is given
prior warning of regulatory changes and
their implications for the Group. The FRMC
Committee enquires into the ownership of
potential suppliers deemed to be “high risk”,
and oversees the management of conflicts
of interests below Board level and general
compliance activities (including under the
UK Bribery Act 2010, the Modern Slavery
Act, the Criminal Finances Act, and the
EU General Data Protection Regulation).
The Group aims to minimise risk around
the timely provision of goods and
services through maintaining sufficient
cash reserves and liquidity, as well
as maintaining alternative suppliers
should one counterparty fail.
The Board aims to ensure adherence
to the highest standards of diligence,
oversight, governance and reporting with all
charitable donations, with the Health, Safety,
Environment and Community (“HSEC”)
Committee required to provide approval
for community support expenditures.
80
Ferrexpo plc Annual Reports & Accounts 2023
Principal Risks continued
2. Market related risks
The Group is a part of the global steel
value chain, which is a sector that is
heavily reliant on global connectivity, and
global factors that affect the supply and
demand balance of both steel and the
raw materials required for making steel.
Steel is typically made using processes
that involve iron ore, a portion of scrap steel
(depending on the process method) and
energy (which can include coal, natural gas
and electricity). Prices for these key inputs
can be volatile, and are factors that will move
independently of any single steel producer’s
control, and will therefore have the ability to
significantly affect the profitability of individual
steel producers. Additional factors governing
the input costs, and therefore profitability,
of steelmakers include: the availability and
cost of labour, requirements for capital
investments to sustain or grow output, the
availability of raw materials and energy (in
addition to unit costs), the cost and availability
of logistics routes and the presence of
lower cost competitors in key markets.
Global steel demand varies considerably
and can be significantly influenced by factors
outside of the control of a steel producer,
such as political instability (e.g. the war
in Ukraine), global energy prices, and the
macro outlook for the global economy.
In addition to these macro-economic
environment factors, individual steel producing
facilities and regions may be affected by
national, regional and local factors such
as political instability, political intervention,
weather events, cybersecurity events, and
climate change, amongst other factors.
Given that the factors listed here have the
potential to materially affect the profitability
of steel mills, individual companies and
facilities may respond to cyclically higher
costs or weaker market conditions by
reducing or halting steel production, until
more favourable market conditions resume.
This in turn could have a material effect on
suppliers to such businesses, including
iron ore producers such as Ferrexpo.
A more recent trend has seen a surge in
awareness of climate change related issues,
which is driving increased changes within
various levels of the operating environment
for steel companies – from local and regional
government enacting legislation related to
climate change, to customers and local
communities demanding that steel production
involve lower emissions. Efforts to counter the
effects of climate change in the steel industry,
which typically focus on the reduction of
carbon emissions in the production of steel,
could generate higher operating costs in
the near term, and higher requirements for
capital investment over the medium to long
term. Whilst operating costs for steelmakers
could increase in the near term as a result
of emissions reduction measures, end
users of steel may not agree to higher steel
prices, and therefore profit margins could
decrease until such costs are lowered or
successfully passed through to end users.
The structure of the global steel industry
relies on a consistent supply of materials
to steel mills and a consistent offtake of
finished steel by customers. As a consumer
of bulk commodities, such as iron ore and
coal, the timely and reliable delivery of
these materials is required for stable steel
prices, since any disruption in the delivery
process can create short and medium-term
spikes in steel prices. Equally, a scenario
whereby global markets encounter an
excessive supply of steel, either through an
unforeseen downturn in end-user demand,
or disruptive increases in steel supply, could
have a negative effect on steel prices.
Global steel markets also rely on the consistent
availability of logistics pathways, and events
such as the ongoing attacks on shipping in
the Red Sea since October 2023, serve to
demonstrate the possibility of short-term
pricing fluctuations in shipping freight rates
(both positive and negative) when global
logistics chains are not functioning optimally.
Responsibility
Board of Directors
including Executive Chair
Risk appetite
Medium
Link to strategy
3 and 5
2. Risks relating to the global demand for steel
Risk mitigation
Under normal circumstances, the Group
has the ability to mitigate risks around
demand for steel through its global
customer base, with the Group having
the ability to geographically arbitrage
its products. During 2023, the Group
had no access to Ukrainian Black Sea
ports, resulting in a shift to European
customers accessible by rail. When the
Group has been able to access alternative
Black Sea ports, the size of shipments
have been lower at higher costs.
Other risk mitigation activities include
the Group’s ability to produce high
quality forms of iron ore, which typically
command higher premiums with
customers and also tend to be more in
demand throughout the economic cycle.
Ferrexpo operates in a country whereby
the local currency, the Ukrainian hryvnia,
is a currency which is correlated to the
performance of commodity prices, and
historically the Group has experienced
depreciation in the hryvnia at times of lower
commodity prices, which in turn reduces
the Group’s dollar-denominated cost base.
Movements in the hryvnia-dollar exchange
rate can, however, be influenced by other
factors and may not necessarily reduce
costs at times of low iron ore prices.
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3. Risks related to realised pricing
Pricing formulas for iron ore pellets are
governed by multiple factors, including the
iron ore fines prices, a premium for additional
ferrum content, pellet premiums, freight rates
and additional quality premiums and discounts
depending on the type of iron ore pellet or
concentrate supplied and its chemistry.
Industry-wide factors, which are outside
of the Group’s control, can influence the
methodology for pricing iron ore products,
in addition to the various premiums and
discounts that are applied by individual
customers and regions. Premiums or
discounts paid for specific characteristics
may change and adversely affect the
Group’s ability to market specific products.
Should the standard industry pricing
methodology change in the future, it could
have a positive or negative impact on
the Group in the form of realised prices
for iron ore pellets and concentrates,
and therefore affect the Group’s financial
performance. Additional potential impacts
of changing perceptions around pricing
methodology could include a restriction in
the Group’s ability to sell its products to
specific customers and geographic regions,
should such stakeholders elect to pursue
a different pricing methodology with an
alternative of iron ore products suppliers.
As a producer of high grade forms of iron
ore (grading 65% Fe and above), over time,
the Group has developed customer pricing
agreements with customers on the basis of
high grade benchmark fines indices (grading
65% Fe). Such agreements enable the Group
to realise the value of the iron content in its
products, with high grade (65% Fe) fines
index trading an average of US$12 per tonne
above the medium grade (62% Fe) in 2023
(2022: US$19 per tonne)
1
. The premiums
paid for material priced using the high grade
benchmark index reflect the more restricted
supply of higher grade iron ores into the
global market, with the majority of supply
being either low or medium grade iron ores.
Premiums paid for higher grade iron ores
(referred to as the “ferrum premium”) also
reflect the operational benefits to steel mills
through higher blast furnace productivity
and lower emissions profiles associated
with higher grade input materials.
The Group also relies on pricing structures for
its pellets to include a pellet premium, which
reflects the high quality, pelletised nature of
the iron ore delivered to customers. Given
the benefits of pellets to steelmakers (namely
improved furnace productivity and lower
greenhouse gas emissions), it is accepted
practice that steelmakers pay an additional
premium for iron ore pellets (referred to as the
“pellet premium”). Pellet premiums have varied
significantly in recent years, which reflects both
supply and demand-related factors. Given
the scale of the pellet premium relative to
the iron ore fines index and pelletising costs,
significant shifts in pellet premiums would have
a significant impact on profitability and product
differentiation. A number of pellet premiums
are quoted by third parties, which are
computed in a variety of ways. Any switch from
using one specified pellet premium to another
quoted pellet premium, could also result in a
difference in realised pricing for the Group.
Responsibility
Executive Chair and
Chief Marketing Officer
Risk appetite
Medium
Link to strategy
1, 3 and 5
3.1. Changes in pricing methodology (external risk)
1. Bloomberg
Risk mitigation
The Group aims to price its products
through clear and consistent engagement
with customers, with the Group seeking
to develop mutually beneficial long-term
relationships. Through consistent supply
and consistent high quality of the Group’s
products, Ferrexpo aims to maintain
strong relationships with its customers.
Through strong customer relationships, the
Group aims to ensure that the net realised
prices received for its iron ore products are
in line with the international benchmarks
for pricing of similar products, in addition
to premiums paid for the quality and
specification of the product being sold.
Ferrexpo endeavours to achieve the
prevailing market price at all times,
and the Group aims to be a low cost
producer and therefore cash flow positive
throughout the commodities cycle.
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Ferrexpo plc Annual Reports & Accounts 2023
Principal Risks continued
3. Risks related to realised pricing (continued)
This factor is one that is connected to risks
related to the global demand for steel (see
page 80), since demand for steel directly
impacts the pricing of raw materials used
to produce steel, such as iron ore.
As a company that derives the majority
of its revenues from iron ore products,
Ferrexpo is inherently exposed to iron ore
prices, either in the form of benchmark
iron ore fines prices, or pellet premiums.
Variations in iron ore prices come in a
number of forms, from the underlying iron
ore price, the ferrum and pellet premium in
addition to discounts and premiums applied
for the naturally occurring trace elements
in ores such as silica and alumina.
The iron ore fines price is the largest
component of pricing for the Group’s
products, which averaged US$132 per
tonne in 2023 (65%Fe
1
, 2022: US$139 per
tonne). As discussed in the Market Review
section (see page 22, iron ore fines prices are
predominantly affected by Chinese demand,
which is the largest import market globally.
The quoted price for iron ore fines is called
the benchmark index, and is applicable
for forms of iron ore that have a specified
chemistry that is amenable for steelmaking,
such as the percentage of each trace
element contained (e.g. silica, alumina
and phosphorus). The Group’s products
typically conform to the requirements of the
benchmark index, and therefore tend not to
have penalties applied. Iron ores that do not
comply with the benchmark index, however,
will be subject to a range of penalties,
which may vary significantly depending on
a range of market factors and technical
requirements of each steel mill. Any variation
in the quality and chemistry of the Group’s
iron ore that is sold in any given period could
therefore result in penalties being incurred.
A secondary component of the pricing
structure of the Group’s products is the pellet
premium, which is applied to the sale of iron
ore pellets. This premium is significant to the
Group, and historically can represent up to
an additional 50% on top of the benchmark
iron ore fines index. This component of the
pricing structure of the Group’s products
is discussed in detail on page 23.
Should reputational issues concerning the
Group and its UBO affect existing or potential
relationships in steelmaking regions that
demand Ferrexpo’s high-grade product
offerings, the Group may no longer be
able to realise the same level of product
pricing as previously experienced.
The Group aims to mitigate price risk through
producing high grade, low impurity iron ore
products, which receive premiums when
sold to customers, rather than penalties
or discounts. Through such products, the
Group has been able to build a higher-margin
business, which in turn enables further
investment in the Group’s production facilities.
In addition, the Group aims to be a low
cost producer of iron ore products.
Through operating with a lower cost base
than the Group’s peers, particularly when
the premiums paid for pellet quality and
specification are considered, Ferrexpo aims
to remain competitive on a global basis.
Ferrexpo’s operating costs are partly
correlated with commodity prices. When
the commodities cycle is in a downward
phase, Ferrexpo typically receives a lower
selling price, but the Group’s cost base
also tends to decline as a result of local
currency devaluation. The Ukrainian hryvnia
is a commodity-related currency and has
historically depreciated during periods of
low commodity prices, although movements
of the Ukrainian hryvnia against the US
dollar can also be influenced by short-
term geo-political and other factors.
Ferrexpo regularly reviews its options in
respect of hedging sales. The Group’s
current strategy is to not enter into such
hedging agreements due to the relatively
low liquidity of this market and high
costs involved. The Group will continue
to review this strategy as the market for
hedging iron ore pellets evolves, which may
increase the attractiveness of hedging.
Responsibility
This risk cannot be controlled
howeveritismonitored
Risk appetite
Medium
Link to strategy
1, 3 and 5
3.2. Iron ore prices (external risk)
1. Source: S&P Global Commodity Insights.
Risk mitigation
The Group aims to mitigate price risk
through producing high grade, low
impurity iron ore products, which receive
premiums when sold to customers,
rather than penalties and/or discounts.
Through such products, the Group has
been able to build a high-margin business,
which in turn enables further investment
in the Group’s production facilities.
In addition, the Group aims to be a low
cost producer of iron ore products.
Through operating with a lower cost base
than the Group’s peers, particularly when
the premiums paid for grade and form
(pellets) are considered, Ferrexpo aims
to remain competitive on a global basis.
Furthermore, Ferrexpo’s operating costs
are partly correlated with commodity
prices. When the commodities cycle is
in a downward phase, Ferrexpo typically
receives a lower selling price, but the
Group’s cost base also tends to decline as
a result of local currency devaluation. The
Ukrainian hryvnia is a commodity-related
currency and historically over the long-term
it has depreciated during periods of low
commodity prices, although movements
of the Ukrainian hryvnia against the US
dollar can also be influenced by short-term
political factors, in addition to other factors.
Ferrexpo regularly reviews its options in
respect of hedging the price of its output.
The Group’s current strategy is to not
enter into such hedging agreements
due to the relatively low liquidity of this
market and high cost of entering into such
arrangements. The Group will continue
to review this strategy as the market for
hedging iron ore pellets develops over
time, which may eventually reduce the
effective cost of such arrangements.
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3. Risks related to realised pricing (continued)
The pricing of the Group’s products includes a
pellet premium. This references the pelletised
nature of Ferrexpo’s products and the benefits
they offer in the steel making process.
Consequently iron ore pellets customers will
pay a premium over and above the prevailing
iron ore fines price. The pellet premium is
one of the principal factors that enables
the Group to generate higher-margins.
Factors governing the pellet premium in
any given year include supply and demand
for iron ore pellets. Demand factors can be
related to the global macro-economy and
steelmakers desire to optimise their production
and productivity, which tends to result in
demand from steelmakers. Pellet demand
can also be affected by emissions reduction
legislation. Iron ore pellets remove the need
for sintering in steel making, a process that
typically uses coal. Steelmakers that utilise a
greater proportion of pellets in a blast furnace
can therefore reduce the overall emissions
footprint of steel production. See the section
on Ferrexpo DR pellets in electric arc furnaces
in this report for an example on pages 42.
The overall supply of iron ore pellets is relatively
constrained, with existing producers typically
producing at their nameplate capacity and
the construction of new pelletiser capacity
usually requiring significant capital investment
to establish production facilities and the
associated infrastructure required to support
the production and transportation of bulk
commodities to customers. Consequently,
there has been limited new pelletising
capacity come on line in the past five years.
Supply-side disruption has been prominent
factor in recent years, with the failure of two
tailings dams in Brazil resulting in significant
volatility in supply from two of the largest
pellets exporters to the global steel industry.
Both of the companies involved in these
incidents have now resumed production
from the affected production facilities, and
therefore the market is absorbing the return
of this production at increasing rates.
Should reputational concerns over the Group
and its UBO affect existing or potential
relationships, the Group may no longer
be able to realise the same level of pellet
premiums as previously experienced.
Responsibility
Executive Chair and
Chief Marketing Officer
Risk appetite
Medium
Link to strategy
1, 3 and 5
3.3. Pellet premiums
Risk mitigation
Despite being one of the largest iron
ore pellet exporters, the Group’s market
share is not sufficient to be a price setter.
Consequently, therefore the Group
realised pellet premiums tend to follow the
level set by larger market participants.
To mitigate this, the Group’s strategy is
to be a low cost producer. Historically,
the Group has operated as one of the
lower costs pelletising operators, and
therefore swing producers have tended
to moderate the pellet premium at times
of low pricing by withdrawing from the
market supporting a floor in prices due
to a tightening in supply. The Group
has had to operate below its nameplate
capacity during 2023 due to the ongoing
war in Ukraine. As such, pelletising costs
marginally increased to US$30 per tonne
in 2023 (2022: US$29 per tonne). Despite
this increase, the Group has managed
to keep pelletising costs below the
prevailing pellet premium for the year.
The strategy of targeting low cost
production is enhanced through Ferrexpo’s
location in Ukraine, with the Ukrainian
hryvnia having a close correlation to
commodity pricing, which therefore tends
to devalue at times of low commodity
pricing, reducing the Group’s cost base.
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Ferrexpo plc Annual Reports & Accounts 2023
Principal Risks continued
3. Risks related to realised pricing (continued)
The pricing of a bulk commodity, such
as Ferrexpo’s iron ore products, typically
includes a component of the net realised
pricing that considers the cost of transporting
material to the customer. For Ferrexpo, this
pricing typically refers to either the C3 or
C2 freight indices (published by the Baltic
Exchange), as these are reflective of the
shipping cost for accessing either the Asian
or European market (respectively). Freight
rates are a deduction from the pricing
received from the pellet, and therefore higher
freight rates will result in lower net realised
pricing for the Group, and vice versa.
The factors driving freight rates include the
prevailing fuel cost for ships, the availability of
vessels at a given point in time, and insurance
policies required for ships to service the
required route (the latter being a significant
factor for chartering parties looking to ship
via the Black Sea during the present time).
As a guide, the C3 freight index (representing
a seaborne Brazil-China trade route on
a capesize vessel) was US$24.99 per
tonne at the end of 2023 compared to
US$20.07 per tonne at the end of 2022
1
.
Additionally, the war in Ukraine has had an
impact on the Group’s ability to charter vessels
with ship owners, as the limited availability
of Ukrainian Black Sea ports has reduced
the Group’s access to the seaborne market.
Whilst the increased costs associated with
trading within the Black Sea have been
reflected in Black Sea freight rates since
the outset of the war, the Group has on
occasion chartered vessels from alternative
Black Sea ports due to the Group’s strong
relationships with ship owners. Only recently,
since January 2024, the Group has resumed
shipments from the Port Pivdenniy in Ukraine,
while continuing to closely monitor the risk of
access to the Black Sea ports in Ukraine.
Further freight-related realised effects, or
potential risks, of the war in Ukraine include
an increase in the insurance premiums
required for vessels travelling to Black Sea
ports (Ukrainian ports or otherwise), and the
delayed loading and unloading times which
can result in increased demurrage costs.
The Group is also aware of potential risks
that relate to recent events with the Group’s
UBO (see pages 76 to 78), which may affect
Ferrexpo’s ability to conduct business
relationships with freight providers. Should
third party concerns relating to these
matters prevent Ferrexpo from engaging in
business relationships with specific freight
providers, then the Group may incur higher
freight rates and a smaller pool of ship
owners prepared to work with the Group.
Responsibility
Executive Chair and
Chief Marketing Officer
Risk appetite
Low
Link to strategy
2, 3 and 5
3.4. Seaborne freight rates (external risk)
Risk mitigation
The Group has its own in-house freight
specialist, which helps the Group to
receive a competitive rate for freight
cargoes. The Group’s management team
regularly visit and speak with ship owners
around world and it is therefore possible to
maintain a detailed understanding of both
the global freight market and ship owners.
As a result of the Group’s operations
being located in Ukraine, seaborne
freight chartering has been reduced in
2023 (following Russia’s closure of the
Black Sea to Ukrainian ports), and as
such the Group has increasingly relied
on its European customer network for
sales. Despite this, the international
freight rate is still relevant for the
business, as many contracts reference
a quoted freight rate and the Group has
maintained some seaborne sales.
The Group currently does not enter into
hedging arrangements for freight rates,
which is an approach consistent with
the Group’s strategy on other forms of
hedging. This approach is continually
reviewed by the Group’s management
team, and such arrangements may
be entered into if it is deemed to
be beneficial to the Group.
The Group’s freight department
regularly monitors freight-related risks
associated with the war in Ukraine,
or otherwise, with an aim of ensuring
effective decision making in light of
changes to the operating landscape.
1. Source: Baltic Index / S&P Global
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4. Operating risks
The Group’s operations involve the mining of
iron ore, which requires detailed planning of
blasting, excavation and haulage activities,
to deliver sufficient quantities of iron ore in
a timely manner to the Group’s processing
plant, which crushes, grinds and beneficiates
the material from in-situ iron ore grades
(ranging approximately 25-30% Fe) to high
grade concentrate (either 65% or 67% Fe)
for Ferrexpo’s direct sale or pelletising. In
the pelletising facilities, the concentrate is
converted into pellets via a series of kilns,
operating at approximately 1,300oC. The
above processes are complex and carry
inherent risks as a result. The Group is
able to mitigate such risks through a range
of activities and the collective experience
of the Group’s executive management
and operating teams, but it may not be
possible to eliminate all risk factors.
As a business with its main operating assets
located in Ukraine, the Group has faced
significant risks relating to the ongoing war
in Ukraine, which are summarised in the
Principal Risks shown on page 73 of this
report. The Group has also faced a number
of indirect consequences of the war in its
operations, such as a number of skilled
personnel departing Ferrexpo’s operations
to either serve in the Armed Forces of
Ukraine or relocating away from the conflict,
the Ukrainian authorities requiring the
delivery of specific equipment for military
use (typically light vehicles), interruptions in
the availability of specific materials relevant
for the conflict such as detonators, niter,
fuel and restrictions on operating practices,
such as scheduled blasting in the pits.
Outside of risks that directly relate to the war
in Ukraine, the Group faces material risks
relating to its mining operations that include
(but are not limited to) health and safety-
related risks, the risk of a pit wall failure or
fall of ground incident in the Group’s mines,
equipment failure (either due to operator
oversight, failures in maintenance practices
or failure despite acceptable levels of
maintenance), weather events preventing
access to the Group’s operations, poor
planning processes resulting in a lack of
high grade iron ore for processing, or the
failure of drilling to optimise face availability
or identify the correct location of ore and
waste material. Risks in the processing plant,
covering the beneficiation and pelletisation of
material, also include (but are not limited to)
equipment failure and unscheduled equipment
downtime, a lack of spare parts, a lack of
key input materials, unsuitable equipment for
processing of certain ore types, operating
restrictions and extreme weather events (or
other events potentially related to climate
change) that may impact the ability to produce
or store the Group’s products. As operations
continue to be modernised, the Group also
faces cybersecurity-related risks from cyber
threats and other factors that may impair
the Group’s ability to operate its electronic
equipment – see page 89 for more details.
The risks described above are typically
short-term events and the Group also faces
longer-term risks, such as climate change
(see page 90) and country risks related to
Ukraine (see page 76). Potential risks related to
climate change are also detailed on pages 48
to 59 of this report, and have been identified
through the Group’s recent collaboration with
environmental consultants Ricardo Plc.
The Group is also aware of potential risks
that relate to recent events with the Group’s
UBO (see pages 76 to 78), which may affect
Ferrexpo’s ability to source key input materials
and labour either within Ukraine or overseas.
Should third party concerns relating to these
matters prevent Ferrexpo from engaging
in business relationships with specific
providers of materials and labour, then the
Group may have challenges in its ability to
produce, or incur higher costs relating to the
sourcing of the same inputs from a smaller
group of providers or group of people.
Despite the current limitations, the Group
continues to maintain production and retains
the ability to increase production depending
on logistics availability. The availability of
skills however, is becoming more challenging
due to conscription and emigration.
Responsibility
Executive Chair, Chief Operating Officer
andChief Marketing Officer
Risk appetite
Medium
Link to strategy
2, 3 and 5
4.1. Risks relating to producing our products
Risk mitigation
The Group employs an experienced
management team and has a management
structure in place to monitor, and where
necessary, manage risks as and when
these risks escalate. The Group’s business
model is in a sector that has inherent risk
in the mining and processing of materials,
with these risks being manageable and,
where possible, mitigation measures
are utilised to ensure the safe operation
of the Group’s facilities to ensure the
efficient production of the Group’s iron
ore products. The Group maintains a
risk register of more than 40 risk areas,
which is monitored on a frequent basis
by the Group’s operational teams and
reported to the relevant management
committees. Where an operational risk
is deemed to be sufficiently significant in
terms of potential impact or likelihood,
appropriate risk mitigation measures
are sought, often with the assistance of
third party specialists, where relevant.
Efforts aimed at maintaining equipment
include ongoing repairs, keeping stocks
of replacement parts and materials, and
supporting contractors. To ensure stable
energy supply, the Group cooperates
with governmental organisations through
joint projects to upgrade of the energy
structure. The Group also has its own
solar power plant capacity to meet
its minimum power requirements.
To manage the availability of skills,
the Group has expanded it’s
recruitment and training programmes
to attract and train more people.
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Ferrexpo plc Annual Reports & Accounts 2023
Principal Risks continued
4. Operating risks (continued)
The Group is a producer of a bulk commodity,
meaning that its business model relies on
timely and consistent access to a logistics
network with sufficient capacity to transfer
a large volume of material to the Group’s
customer base around the world. Any
interruption to the scale, availability or reliability
of this logistics network has the potential
to significantly affect the Group’s ability to
operate its business model and generate
cash flow. The nature of being a producer
of a bulk commodity means that should an
interruption of logistics occur, there may be
limited time or sufficient funding available to
efficiently remedy the situation or stockpile
excess material, potentially resulting in
a temporary suspension of the Group’s
production facilities and an associated effect
on the Group’s ability to generate revenues
and maintain a strong balance sheet.
The Group’s logistics network is multi-
nodal, including the Group’s use of the
railway network in Ukraine and further
afield across Europe, a stake in a berth
at a port facility in south west Ukraine
(used for loading vessels for the seaborne
market), and an inland waterway logistics
business along inland waterways.
Examples of risks relating to the Group’s
logistics network, aside from those specifically
relating to the ongoing Russian invasion of
Ukraine (covered on pages 76 to 78), range
from those potentially affecting railway
logistics, which include (but are not limited
to) the unexpected closure or suspension of
sections of the railway network in Ukraine or
Europe required for deliveries, a reduction
in rail capacity related to the phasing out
of outdated equipment and insufficient
investment in replacement equipment,
potential political interference in the Group’s
ability to book railway access and wagons
(including the restriction on the use of one
type of FPM’s rail cars noted in Note 30).
Extreme weather events (either related to
climate change or otherwise) and a lack of
personnel to operate rail locomotives and
infrastructure effectively. The Group faces
similar risks relating to its use of inland
waterway logistics, including on the River
Danube, and in addition includes risks relating
to abnormally high and low water levels,
which may impede passage of vessels. Such
risks are expected to be exacerbated in
the future by the potential impact of climate
change. Similar risks are posed to the Group
and its ability to access seaborne markets
should extreme weather events (either
climate change related or otherwise) affect
operations at the Port of Pivdennyi or other
ports used by the Group, or shipping routes
such as the Suez Canal and Red Sea.
The Group is also aware of potential risks
that relate to recent events with the Group’s
UBO (see page 76 to 78), which may affect
Ferrexpo’s ability to secure bookings on
key logistics routes either within Ukraine or
overseas. Should third party concerns relating
to these matters prevent Ferrexpo from
engaging in business relationships with specific
logistics providers, then the Group may incur
difficulties in its ability to ship products, or
may incur higher costs relating to the sourcing
of logistics options along alternative routes.
It should be noted that during 2023 the
Group benefited from more stable rail
transportation within Ukraine. Also, the Group
operated from its own pellet transshipment
site on the Ukrainian border, in addition
to various warehouses in Ukraine and
in other countries to endure the stable
supply of its goods to its customers.
Responsibility
Executive Chair, Chief Operating Officer
andChief Marketing Officer
Risk appetite
Medium
Link to strategy
2, 3 and 5
4.2. Risks relating to delivering our products to customers
Risk mitigation
Since listing in 2007, the Group has sought
to invest in its logistics capabilities and
overall capacity, to ensure cost effective
and sufficient access to a logistics
network. This has involved the purchase
of railcars, including a fleet of over 3,000
wagons, which helps ensure availability,
despite the freeze of part of own wagons
(as disclosed in Note 30),, reduce
operating costs and ensure product quality
whilst pellets are in transit to customers.
Similarly, the Group owns a 49.9% stake
in a berth at the Port of Pivdennyi in south
west Ukraine, along with a trans-shipment
vessel (“Iron Destiny”), which permits the
Group to load trans-shipment vessels for
the seaborne market. Iron Destiny was
outside of Ukrainian waters undergoing
routine maintenance at the time of Russia’s
invasion of Ukraine on 24 February 2022,
ensuring safe ownership. The Group also
owns its inland waterway logistics provider
(First-DDSG), which is based in Vienna,
Austria, and has locations along the River
Danube and other inland waterways.
To maintain timely access to its logistics
network, the Group maintains close
working relationships with logistics
providers and related parties that are key
players in the Group’s logistics operations.
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4. Operating risks (continued)
Effective management of health and
safety related risks is important due to
the inherent risks involved in the nature
of mining and processing operations.
The processes involved in the mining
and processing of metalliferous rock has
progressed significantly in recent years,
but risks remain if policies and procedures
are not followed correctly, or if equipment
is not maintained and used correctly.
Mining activities involve the use of large
scale heavy equipment, such as haul trucks,
excavators and bulldozers, with each item
of equipment weighing a considerable
number of tonnes and which are expected
to regularly move around to a number of
locations throughout a shift. The operation
of mining equipment is inherently dangerous
if operators are not correctly trained, or
if due care and attention are not applied
when operating each item of equipment.
Activities within a mine include the drilling and
blasting of rock, excavation and transport of
ore to either the processing plant or waste
dumps, watering of surfaces to reduce dust
emissions and the construction of waste
dumps to a specified design. Activities are
typically conducted 24 hours a day, at which
during certain time, poor weather and low
light conditions are a risk for operators,
even though the Group has extensive
lighting on equipment during dark hours.
Responsibility
Executive Chair, Chief Operating Officer
andChief Human Resources Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
4.3. Risks relating to health and safety
1. Source: Reuters, https://www.reuters.com/markets/
europe/ukraines-2023-annual-inflation-slows-129-
statistics-service-2024-01-10/. (Accessed 23 February
2024)
2. Source: Reuters, https://www.reuters.com/world/
europe/ukraines-2022-inflation-hits-266-lower-than-
forecast-2023-01-10/. (Accessed 23 February 2024)
Risk mitigation
The Group’s approach to mitigating safety
risks is to understand the causal factors
of safety incidents, through creating
risk registers for each activity being
undertaken or area within the Group’s
main operations. The Group also records
leading indicators of safety, with an aim
to monitor and improve these factors, to
reduce the risk of a safety-related incident
occurring. Examples of leading indicators
include the number of training courses
undertaken, high visibility safety tours by
senior managers, safety inspections and
hazard reports completed. In the instance
of a safety-related event occurring, the
Group aims to learn from each event, to
reduce the risk of a repeat occurrence.
Lagging indicators of safety help the
Group’s management team to record
the effectiveness of safety measures
being implemented, and the main
indicators used to track performance are
the Group’s lost time injury frequency
rate (“LTIFR”), total recordable injury
frequency rate and fatalities.
Throughout its operations, the Group
is seeking to implement modern
forms of technology, including
autonomous equipment, which
help to remove operators from
hazardous working environments.
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Principal Risks continued
4. Operating risks (continued)
The Group’s business comprises a number of
open-pit mining operations, an iron ore
processing complex and a range of ancillary
activities that support the safe production of
the Company’s products, which requires a
range of input goods and services. The
Group’s costs are subject to a range of
factors, some of which are controlled by the
Group, whilst others are outside of the
Group’s control, meaning that resulting
profitability may fluctuate.
The Group operates in an energy intensive
industry, and therefore requires a range of
commodity-based inputs such as diesel and
natural gas, as well as electricity, which are
subject to market factors outside of
Ferrexpo’s control and can influence the
Group’s overall profitability. Examples include
natural gas prices which increased
significantly during 2022, though have abated
in 2023.
Further to energy costs, inflationary pressures
continued to be absorbed during 2023. Cost
inflation has the potential to affect a wide
range of the Group’s input costs at its
operations, with the Group potentially not able
to effectively counter such pressures due to
the benchmark pricing of the Group’s
products.
A primary cause of cost inflation has been the
Group’s inability to operate at its nameplate
capacity due to the war in Ukraine, resulting
in the absorption of fixed cost on lower
production, i.e. increasing unit costs.
Additionally, inflationary pressures have been
seen on a global basis since 2022, a reflection
in energy prices, though in turn equipment
and maintenance costs, salaries and wages.
Consumer price inflation in Ukraine in 2023 is
estimated to have slowed to 12.9%
1
(2022:
26.6%
2
), reflecting the exceptional
circumstances experienced since 2022 in
Ukraine, but also globally. Given that the
Russian invasion of Ukraine remains ongoing,
it is expected that the negative impacts of the
war will continue to be experienced by the
Group, such as lower production and higher
unit costs.
The use of natural gas is a key component of
the Group’s pelletising operations and its use
is therefore essential for the production of iron
ore pellets.
The Group is also aware of potential risks that
relate to recent events with the Group’s UBO
(see pages 76 to 78), which may affect
Ferrexpo’s ability to source key input materials
and labour either within Ukraine or overseas.
Should third party concerns relating to these
matters prevent Ferrexpo from engaging in
business relationships with specific providers
of materials and skills, then the Group may
incur difficulties in its ability to produce, or
incur higher costs relating to the sourcing of
the same inputs from a smaller group of
providers or people.
The Group benefits open access to the
energy market, allowing it to obtain energy
resources at market prices. Additionally, the
cost of production is supported by the
depreciation of the national currency and
long-term relationships with suppliers of key
standardised materials.
Responsibility
Executive Chair and
Chief Financial Officer
Risk appetite
Low
Link to strategy
2 and 5
4.4. Risks relating to operating costs
Risk mitigation
The Group has operated through a
number of commodity cycles and the
Group’s operations have been in
production for over 50 years, and through
this experience of operating, the Group’s
management team has developed an
understanding of cost effective production
and the required level of goods and
services to optimise the Group’s
profitability at any given level of
production.
The Group has a number of measures in
place to reduce and minimise operating
costs, where possible, to maintain
profitability throughout any given
commodity cycle. For input goods that
are a requirement of the production of
pellets, the Group aims to minimise use
and develop substitutes for use in the
Group’s operations, which may help
reduce reliance on a single input (or
limited number of inputs), and thereby
reduce risks relating to the cost and
supply of individual inputs. As an
example, a partial substitute would be the
use of sunflower husks in the Group’s
pelletiser, which is used to fuel the
pelletiser. In 2023, the Group successfully
sourced 32% of the pelletiser’s heating
energy from sunflower husks (2022: 21%).
Other examples of substitution of goods
within the Group’s operations include the
use of different manufacturers of mining
equipment, with different suppliers of
spare parts, which reduces operational
risks and can reduce operational costs.
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
4. Operating risks (continued)
The Group is increasingly adapting to modern
technologies for the safe, efficient and cost
effective production of its products and the
associated ancillary services. With IT systems
becoming increasingly important to the
Group’s business activities, the risks
associated with IT security and the continued
availability of IT systems have increased in
recent years, particularly in light of the
increased complexity of cyberattacks on IT
systems. Cybersecurity threats may take the
form of, but are not limited to malware,
ransomware, phishing, denial-of-service
attacks, and password attacks.
Cyberattacks, such as malware and
ransomware, are often unreported in the
mainstream media by companies and
governments wishing to avoid negative
publicity. It is therefore difficult to ascertain
the full extent to which the Group is facing
cybersecurity risks. In the past, published
cyberattacks affecting companies and
governments have closed or limited a
company’s ability to produce, or have
withheld or disclosed confidential information,
and have withheld access to key operational
infrastructure.
A consequence of the war is a shortage of IT
personnel due to conscription. The availability
of skilled IT people is becoming a challenge in
Ukraine and replacing people can take longer
than before the war.
The Group is exposed to heightened risks
related to cybersecurity at the present. The
war takes place in a number of environments,
including attacks on IT systems in Ukraine.
Attacks can be expected on any IT system in
Ukraine as a result of the war, and therefore,
organisations such as Ferrexpo may be the
target of an attack due to its location, or as
part of a hybrid war to damage the economy
of Ukraine. Consequently, it is difficult for the
Group to predict the source, scale or nature
of any cyberattack.
Responsibility
Executive Chair
Risk appetite
Low
Link to strategy
1, 2 and 3
4.5. Risks relating to information technology (“IT”)
systems and cybersecurity
Risk mitigation
The Group’s IT department conducts
regular reviews of the general IT
landscape and provides regular cyber
awareness training for employees as well
as ad hoc notification when new threats
are identified. The Group also regularly
reviews requirements on data protection,
with email security bulletins circulated to
ensure internal IT users are provided with
up-to-date information on cybersecurity.
The Group has also implemented a
dynamic approach to anti-malware
policies, to ensure an adaptive approach
for new threats as they emerge.
In 2023, the Group’s IT infrastructure was
adapted to meet the needs of longer war.
The Group invested resources and efforts
in strengthening cross-backup
infrastructure to meet updated Group
disaster recovery policies.
Following a series of cyberattacks on
different corporate networks this year, the
Group’s IT department initiated a project
to upgrade the Group’s global network
connectivity links and their underlying
technology. As a result of these efforts,
the Group was able to withstand a DoS
attack this year with minimal disruption to
its production and communication
processes. Additionally, the IT department
,together with the executive committee,
constantly assess the need of ISO 2700x
compliance audits on bi-quarterly or
quarterly term. In parallel, the Group must
respond to the possibility of cyberwarfare
and conventional warfare tactics, for
example by commissioning of additional
IT infrastructure in bomb shelters. Other
examples of vigilance include the
deployment of extensive power control
systems, and urgent upgrades and
migrations due to vulnerabilities.
Further to existing practices and
protocols, the Group regularly updates
the software and hardware in use
throughout its business, to reduce the
Group’s exposure to known weaknesses
in cybersecurity.
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Ferrexpo plc Annual Reports & Accounts 2023
Principal Risks continued
5. Risks relating to climate change
Climate change represents a challenge for
the modern world, with multiple stakeholders
seeking to adapt to a low-emissions future.
Climate change poses a number of physical
and transition risks as the world seeks
to reduce emissions and its reliance on
technologies and activities that are relatively
intensive for the emission of greenhouse
gases. See Note 2 Basis of preparation for
details on potential impact on the consolidated
financial statements. Physical risks are those
that affect the physical environment – such as
increased heat events, prolonged droughts
and low water levels, dust emissions, and
the increased severity of precipitation
events. Transition risks are those that relate
to society’s shift to a low emissions future,
such as reputational risks and the risk of
technologies becoming redundant in a low-
emissions future.. A review of potential climate
change related risks was conducted as part
of the work carried out with environmental
consultants Ricardo Plc in 2022, with this work
detailed in the Group’s Climate Change Report.
A materiality assessment as part of this work
identified the following as the main risk areas
facing Ferrexpo: (a) demand for low carbon
emissions steelmaking, (b) shipping: targets
and regulations on carbon emissions and (c)
carbon pricing/tax: targets and regulations
on carbon emissions. Further details of
the work completed in collaboration with
Ricardo Plc are available in Ferrexpo’s Climate
Change Report on the Group’s website.
At this stage in the global development
curve on climate change science and
decarbonisation efforts, there is a
heightened degree of stakeholder focus
on decarbonisation efforts. Given this
focus, there is an associated expectation of
progress being made that may not match
the availability of relevant technology and
equipment, or the financial viability of any
technology, and therefore there is a risk of
rising stakeholder concern if a company’s
decarbonisation plans and targets are not
effectively communicated, or are deemed
insufficient. Should stakeholders require
further action or increased efforts for
decarbonisation of a business, this may
create additional financial, operational
and reputational risks for the business.
Responsibility
Board of Directors including Executive Chair
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Risk mitigation
The Group understands the importance of
climate change, both in its impact on the
business, as well as the Group’s potential
impact on climate change. The Group
aims to reduce its emissions over time and
has set a series of reduction targets for
its greenhouse gases (principally carbon
dioxide) for the medium and long term
(2030 and 2050, respectively). In December
2022, the Group published its inaugural
standalone Climate Change Report, which
represents the first phase of work completed
with environmental specialists Ricardo Plc.
This report details a number of measures
that the Group is either utilising today to
reduce emissions, or plans to use in the
future, in order to achieve these emissions
targets. The full report is available on the
Group’s website https://www.ferrexpo.
com/news-media/press-releases/2022/
publication-of-climate-change-report/).
The Group has a streamlined approach to
reducing emissions, focusing where possible
on activities that generate the greatest
emissions, as well as identifying low cost
solutions that may reduce the impacts of the
Group’s activities. The main source of the
Group’s overall emissions (being Scopes
1, 2 and 3 collectively) is the downstream
use of iron ore pellets in steelmaking, which
accounted for 85% of total emissions in the
Group’s baseline year of 2019. In order to
reduce this aspect of emissions, one of the
Group’s objectives is to increase its focus
on production of direct reduction (“DR”)
pellets, which are used in an alternative
method of steelmaking (the direct reduced
iron – electric arc furnace process), which
results in DR pellets generating 37%
lower emissions when converted to steel,
compared to the Group’s blast furnace
pellets, as assessed by Ricardo plc. More on
this can be seen on page 42 in this report.
With regard to Scope 1 and 2 emissions,
the Group has initiated a number of projects
to reduce these categories of emissions,
including a clean power purchasing strategy.
Further information on the Group’s Scope 1,
2 and 3 emissions can be found on pages
36 to 37. The Group is continuing to study
options to reduce diesel consumption
by installing clean electricity powered
pantograph-trolley-assist technology to
haul trucks out of the open pit mines.
Through these projects, the Group stated
objective was to produce iron ore pellets on
a net zero basis by 2050. For further details
of the net zero pathway identified through
working with Ricardo Plc, as well as the
Group’s carbon emissions reduction targets,
please see the Group’s Climate Change
Report for 2022 on the Group’s website here.
The Board and management team
understand that further reductions in these
emissions are possible in the coming
years, however, due to a protracted war
there is no certainty that these can be fully
achieved. This means that the Board will
need to assess its targets and possibly
restate the Group’s Net Zero pathway.
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Viability Statement
Review of planning process and outlook
Assessing the Principal Risks to ourbusiness
model and potential financial impact of an event
occurring, protecting the equity valueof our
business for the benefitof all our stakeholders.
The Board monitors the Group’s risk
management and internal control systems on
an ongoing basis, and confirms that during the
year it carried out a robust assessment of the
principal and emerging risks facing the Group,
their potential impact and the mitigating strategies
in place, as described on pages 74 to 90.
Time horizon
The Board has reviewed the long-term prospects
of the business, which remain aligned with
Ferrexpo’s life of mine assumptions. For the
purposes of assessing the Group’s viability,
the Board has elected to look at the Ferrexpo
business on a five year time horizon, with a
particular focus on the short-term time horizon
of 12 to 18 months, in light of the ongoing
war in Ukraine and the material uncertainties
operating in developing economy that this poses
to the Group in terms of its going concern and
viability. The Group has historically reviewed the
viability of its business model over a five year
time period given the long life nature of mining
assets, including the period required to invest
in such assets and taking into account the cash
flows generated by those assets, as well as the
cyclical nature of the commodities industry. As
such, a five year time period was considered
an appropriate length for the Board’s strategic
planning period, with a heightened focus on
additional risks in the coming 12 to 18 months.
Factors associated with
thewarinUkraine
Due to the significance, scale and unpredictable
nature of the ongoing war in Ukraine, specific
attention has been applied in the Group’s
approach to assessing its viability. The war
in Ukraine has represented, and will continue
to represent, a significant risk to the Group’s
ability to continue its operations in future
periods. Since the full-scale Russian invasion
of Ukraine on 24 February 2022, the Group has
demonstrated a resilience that has enabled
it to operate with a high degree of flexibility,
and to adapt its operations to changing
circumstances, albeit at lower capacity.
Emerging and existing risks related to the
ongoing war are reported to the Executive
Committee, available risk mitigation procedures
are discussed, and the results are regularly
reported to the Group’s Board of Directors. Risks
that have been identified as a consequence of
the war in Ukraine include risks to the health,
safety and wellbeing of the Group’s workforce,
the Group’s ability to operate its assets, including
the availability of logistics capacity required
for the delivery of the Group’s products to
customers and the supply of key input materials
required for the production process. For more
information, please see the Principal Risks
disclosed on pages 74 to 90 of this report.
Factors associated with operating
ina developing economy
In addition to the war-related material uncertainty,
the Group is also exposed to the risks associated
with operating in a developing economy, which
may or may not be exacerbated by the war or
the current circumstances facing the Group’s
controlling shareholder (see Ukraine country
risk on pages 76 to 78). As a result, the Group
is exposed to a number of risk areas that are
heightened compared to those expected in a
developed economy, including political, legal
and fiscal uncertainties, which represent other
material uncertainties at the time of the approval
of the consolidated financial statements.
As disclosed in Note 30 Commitments,
contingencies and legal disputes, several
circumstances facing the Group have led to an
escalation of certain risks, including risks relating
to the political environment and the independence
of the legal system, which could have a material
negative impact on the Group’s business activity
and reputation and as a result its viability. The
main risks relate to a contested sureties claim in
the amount of UAH4,727 million (US$124 million
as at 31 December 2023), which was confirmed
on 26 January 2024 by a Ukrainian court of
appeal, and the application to open bankruptcy
proceedings (“creditor protection proceedings”)
against the Group’s major subsidiary in Ukraine
filed by a supplier and related party to the
Group for an amount of UAH4.6 million (US$117
thousand as at 15 April 2024. The possible
commencement of the enforcement of the
decision of the Ukrainian court of appeal, which
is currently suspended by the decision of the
Supreme Court of Ukraine, and the possible
opening of creditor protection proceedings
might affect the Group’s ability to continue
as a going concern and, as a consequence,
its viability. See Note 2 Basis of preparation
and Note 30 Commitments, contingencies
and legal disputes to the consolidated
financial statements for further information.
Factors associated with
climatechange
The Group has considered a range of physical
and transition risks, as outlined on page 45 of
this report and depicted in detail in the Group’s
Climate Change Report. This process has
identified that the transition to a low carbon
economy and demand for low emissions
steelmaking as being the main climate-related
risk facing Ferrexpo and its business model.
A range of additional transition and physical
risks were considered as part of this review.
Previously, the Group has announced a range
of climate-related emissions reduction targets
for the years 2030 and 2050. In achieving these
targets, so far a 32% reduction achieved since
2019 for Scope 1 and 2 emissions (combined
basis, per tonne of production). The Board
understands that further reductions in these
emissions are possible in the coming years,
however, due to a prolonged war there is no
certainty that these can be fully achieved. This
means that the Board will need to consider its
targets and possibly restate the Group’s Net
Zero pathway at some point in the future.
Business planning process
In response to the ongoing war in Ukraine, the
Group has temporarily revised its approach
to its business activities and investments
from its business model shown on pages 8
to 9. This approach has been implemented
to concentrate on the Group’s ability to
continue to generate cash in the challenging
operating environment, which will enable the
Group to employ its workforce, preserve its
assets and sustain its business. As a result,
investments are currently focused on settlement
commitments related to expenditure on growth
capital projects, affordable sustaining capital
expenditure and modernisation of existing
equipment and other development projects.
Prior to the beginning of the war, in order
to maintain a clear strategic direction, the
Group’s management team regularly assessed
the risks faced by the Group against the
ability of the Group to conduct business in
accordance with its business model.
This review is conducted regularly to maintain
a clear understanding of the risks faced by the
business and how these factors may influence
the business. Following the start of the full-scale
invasion of Ukraine, the Group’s management
team has also focused on constantly assessing
the risks that may directly, or indirectly, impair
the Group’s ability to manage the Ferrexpo
business in light of the impact of the war on the
business and operating environment in Ukraine.
Modelling process
In the normal course of business, the Group
operates a detailed financial model of its
business. Recently, this work stream has focused
on the potential impacts arising from the ongoing
war in Ukraine, in addition to the more traditional
input factors such as the market factors that
influence the price of the Group’s products, and
operational factors that influence the Group’s
ability to produce the required volume and quality
of iron ore pellets demanded by the market,
as determined in the Group’s forward-looking
sales plan. As a result of the continued restricted
access to the logistics network in Ukraine, the
level of the Group’s production remains aligned
to currently possible sales to minimise working
capital outflow and maintain a solid net cash
position. As a result, the production capacity
used for the base-case cash flow projection
is expected to be approximately 45% of the
pre-war level for the financial year 2024, before
an increase to approximately 80% in 2025 and
an expected recovery to pre-war levels in 2026.
In addition to the impact of the available logistics
network, the Group’s management team has also
assessed the risks associated with the potential
disruption of the supply of key consumables, such
as natural gas, electricity and diesel fuel, in addition
to the supply of critical pieces of equipment. The
Group has also considered external and internal
analysis of the short-term and longer-term supply
92
Ferrexpo plc Annual Reports & Accounts 2023
Viability Statement continued
and demand dynamics on the international market
for iron ore products as well as more specific
local supply and demand balances affecting its
major customers to assess the expected pricing
of the Group’s iron ore products for the period
covered by the Group’s long term model.
Stress testing
In determining the viability of the business, the
Directors have stress tested the individual risks
and combination of risks that could materially
affect the future viability of the Ferrexpo business.
At the present time, the risk that the Group
is primarily exposed to is the ongoing war in
Ukraine and current circumstances facing the
Group’s controlling shareholder in Ukraine
(see the Principal Risks section, pages 74 to
90). Historically, Ferrexpo’s business model
has also faced risks relating to the volatility
of iron ore fines prices, pellet premiums and
cost inflation in Ukraine, which are factors that
continue to govern the Group’s profitability.
As mentioned above, it is currently expected that
the Group will only produce again at full capacity
in 2026 which will be contingent on the ongoing
war in Ukraine, its effects on the Group’s ability
to operate its assets in Ukraine, and the ability
to deliver its products to the Group’s customers.
For a summary of the various war related impacts
on the Group, please see pages 6 and 7.
The Group’s long-term financial model is adjusted
to primarily reflect below full capacity production
due to limited logistics access. The Group’s sales
volumes in future periods will depend on the
potential to expand seaborne sales to the Group’s
customers beyond Europe. The Group’s financial
model anticipates some optionality for seaborne
sales when it is considered safe to do so.
Assuming no mitigating actions, the
Group’s financial modelling indicates
the following sensitivities:
– A 10% reduction in the received price in 2024
would reduce the Group’s Underlying EBITDA
by US$11.0 per tonne.
– A general 10% increase in the cost of
production would decrease Group Underlying
EBITDA by US$6.1 per tonne,
– A 10% decrease in production volumes and
associated 5% increase in production costs,
would decrease Underlying EBITDA by
US$7.6 per tonne.
Sensitivities beyond 2024 will depend
on the underlying sales and production
volumes, realised prices and production
costs during each period, in addition to
other unknown macro-economic factors.
As a result of the remaining material uncertainty
outside of the Group’s control, the Group has
also prepared stress tests with more severe
adverse changes, such as a combination of
various sensitivities, which is however less
likely to incur due to a natural hedge between
iron prices and prices for key input material,
and a prolonged period of lower production
and sales volumes as seen during the months
December 2022 to February 2023. The stress
test for the most severe adverse changes, such
as a combination of all reasonably possible
or plausible adverse changes, shows that the
Group would deplete its available cash balance
by November 2024, without making use of any
available mitigating actions within its control. It
is however management’s position that such
a combination is unlikely to happen as a result
of the historical natural hedge between iron
ore prices and prices for key input materials.
Following a negative decision from the court
of appeal in respect of a contested sureties
claim received, the Group recognised a full
provision in the amount of UAH4,727 million
(US$124 million as at 31 December 2023) for
this claim. A potential future cash outflow,
which also depends on the details of a possible
enforcement in the event of a negative decision
by the Supreme Court, is likely to have a
significant impact on the Group’s future cash
flow generation and available liquidity and its
viability. See also Note 2 Basis of preparation
and Note 30 Commitments, contingencies
and legal disputes for further details.
In addition to stress testing associated with the
ongoing conflict in Ukraine, the additional stress
test scenarios performed include the following:
– Operational incidents that could have a
significant impact on production volumes;
– A deterioration in the Group’s long-term cost
position on the industry cost curve; and
– Operating constraints due to Ukrainian
country risk.
In respect of mitigating actions in response to
the conflict in Ukraine, please see page 75 for
more detail. In more general areas, mitigating
actions implemented by the Group may include,
but are not limited to, a reduction or cancellation
of discretionary expenditure such as dividends,
non-essential capital investment and repairs
and maintenance, or other operating costs,
adjusting capital allocation, reducing working
capital requirements, altering mining schedules
and accessing additional funding. The Directors
take comfort in both the Group’s historical
cash generation ability, particularly in 2015 and
2016 at a time when the iron ore price traded at
historically low prices, and the Group’s ability to
repay its debt facilities, with the early repayment
of the Group’s principal debt facility in June 2021.
This ability to repay debt facilities is derived from
the operational flexibility of the Group and level
of cash generation, as demonstrated through
the Group’s ability to continued shipment of
products in 2022, despite the war in Ukraine.
As a result of the Group’s flexibility and resilience,
the Group’s net cash position increased by a
relatively small amount during 2023. Since the
end of 2020, the Group has moved into a net
cash position, and had a net cash position of
US$108 million as at 31 December 2023 (as of
31 December 2022: US$106 million). As at the
date of the approval of the Group’s Consolidated
Financial Statements, the Group is in a net cash
position of approximately US$91 million and
has an available cash balance of approximately
US$96 million. Based on the assessment
performed, the Directors have a reasonable
expectation that the Group will be able to
continue to operate and meet its liabilities as they
fall due over the period of their assessment. This
is, however, dependent on significant factors
that are outside of the Group’s control, and the
Directors have assumed the following when
assessing the Group’s resilience to the potential
threat from the war in Ukraine and its viability:
– the continued ability to operate in Ukraine;
– the ability to redesign the Group’s mining and
processing plans in order to align them to
changing circumstances;
– the continued availability of stable electricity
supply at the required level;
– the ability to secure supplies of key
consumables and equipment; and
– the ability to use the Group’s currently
available logistics network or make use of
alternative options, if needed.
As disclosed in Note 2 Basis of preparation in
the Group’s Consolidated Financial Statements
on page 176, although the Group has managed
to continue its operations since the beginning
of the war in a volatile and developing economy
in Ukraine, this continues to pose a significant
threat to the Group’s operations. The risks
of operating in a dynamic and adverse legal
system in Ukraine have been increased in 2023
and early 2024 and, as a result, the Group
recognised provisions totalling US$128 million
for ongoing legal disputes that represent another
material uncertainty resulting in its ability to
continue as a going concern (see Note 30
Commitments, contingencies and legal disputes
to the Consolidated Financial Statements
Having assessed the current situation of the
war in Ukraine and increase of certain risks,
including the political environment and the
independence of the legal system in Ukraine,
all identified available mitigating actions and the
results of management’s assessment of the
Group’s going concern and long-term viability,
a material uncertainty still remains as some
of the uncertainties are outside of the Group
management’s control, such as the duration
and the impact of the war and/or political,
legal and fiscal environment in Ukraine, which
is currently not predictable. An unfavourable
outcome in a contested sureties claim and the
application to open bankruptcy proceedings
(“creditor protection proceedings”) against the
Group’s major subsidiary in Ukraine filed by a
supplier and related party to the Group might
have an adverse impact on the Group’s cash
flow generation, profitability and liquidity.
In performing this assessment, the Directors
have also considered the Group’s resilience
to climate change risks (covering a range
of physical risks and transition risks).
The Strategic Report was approved
by the Board on 17 April 2024 and
signed on behalf of the Board by:
Lucio Genovese
Executive Chair
93
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Corporate Governance
A strong core
helps guide us
Strategic Report 01
Corporate Governance 93
Executive Chair’s Introduction 94
Governance at a Glance 96
Board of Directors 98
Executive Committee 100
Corporate Governance Compliance 101
Diversity 103
Corporate Governance Report 104
Audit Committee Report 114
Nominations Committee Report 121
Remuneration Report 126
Directors’ Report 152
Statement of Directors’ Responsibilities 157
Financial Statements 158
Additional Disclosures 235
Alternative Performance Measures 236
Glossary 238
Governance
at a Glance
Committee
Reports
96
114-151
94
Ferrexpo plc Annual Reports & Accounts 2023
Executive Chair’s Introduction
Committed to upholding high
standards of corporate governance
during exceptionally challenging times
and delivering on our promises.
Dear Shareholder
At the time of writing, the war in Ukraine
has been ongoing for more than two years,
and so before reflecting on the progress
made during 2023, it is important to
acknowledge the devastating impacts which
the Russian invasion of Ukraine is having on
Ukraine and the people, local communities,
businesses operating within the country
and the day-to-day lives of Ukrainians.
Now more than ever strong governance is
essential to help see Ferrexpo through these
exceptionally challenging times. As you
would expect, the Board has been meeting
regularly to discuss the ongoing situation
in Ukraine, receiving regular updates from
the management team as to the Group’s
response and scenario planning for different
eventualities that may impact the business.
Protecting the Group’s workforce remains a
key priority, as well as taking steps to protect
the business and thereby the stakeholders of
the business. This will remain a key priority
during 2024 and the Board will continue to
focus on exercising strong governance during
these unprecedented and difficult times.
I am pleased to present the Corporate
Governance Report, which sets out an
overview of the means by which the Company
is directed and controlled, our governance
structure, and highlights the governance
activities of the Board and its principal
committees during the course of the year.
The Board remains fully committed to
maintaining good corporate governance
practices throughout the Group which
underpin all of its actions. The structure,
policies and procedures we have adopted,
which are described in this report, the
Directors’ Report and reports from each of the
Board Committees, reflect our commitment.
We recognise the need to keep them under
review and make changes where necessary
to ensure that standards are maintained
and reflect ever-evolving best practice. This
report also explains how we have complied
with the principles of the UK Corporate
Governance Code during the year.
The Board’s role includes managing the
risks facing the business. This includes
taking into account the risks associated with
the country of operation, counterparties,
operational and financial risks including
health, safety, environmental and climate
change risks, together with market volatility
and commodity pricing, financing and
refinancing exposures. As new risks emerge
our approach to evaluating risk appetite is
reassessed. The Board’s role is also to support
and challenge management and to ensure
that the way we operate promotes the long-
term sustainable success of Ferrexpo plc.
Operation of the Board during the
war in Ukraine and governance
framework
Against the backdrop of the continuing war in
Ukraine, we remained focused on the health,
safety and wellbeing of our people globally,
who have continued to deliver for the Group,
our shareholders and stakeholders through the
testing times over the last couple of years. Our
people have helped ensure business continuity
and have safeguarded our operations, whilst
maintaining good corporate governance
practices and our system of internal control.
During the year, the Board has continued to
operate effectively and without disruption
notwithstanding the ongoing challenges
facing the Group. Some Board members
attended Board meetings virtually due to
travel restrictions. All scheduled Board
meetings were held and the Board continued
to uphold and maintain good corporate
governance, the corporate agenda and the
flow of information across the Group.
We have also ensured Directors’ on-boarding
programmes continued as planned. The
format of hybrid (combination of physical
and virtual) Board meetings provided the
Board with greater opportunities to engage
with each other, management and members
of the workforce. During 2023, the Board
site visit to our operations in Horishni Plavni
was cancelled due to the Russian invasion
of Ukraine as was the case in the previous
three years due to the Russian invasion of
Lucio Genovese,
Executive Chair
95
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Key highlights in 2023 and
early 2024:
– supporting our workforce and the
operations throughout the Russian
invasion of Ukraine;
– health and safety and employee wellbeing;
– zero fatalities;
– continued with the search for a Director
from an ethnic minority group;
– appointment of interim Executive Chair;
– appointment of Independent Non-
executive Director;
– appointment of Executive Director;
– appointment of Audit Committee Chair;
– appointment of female Independent
Non-executive Director to Chair HSEC
Committee;
– succession planning at Board and
management level;
– strengthened cyber security; and
– focus on shareholder and key stakeholder
engagement.
Key priorities for 2024:
– supporting our workforce and the
operations through the Russian invasion of
Ukraine;
– health and safety and employee wellbeing;
– prepare for changes to 2024 Corporate
Governance Code;
– recruit a Director from an ethnic minority
group;
– aim to improve Board diversity and meet
targets;
– succession planning at Board and diversity
at management level;
– continue focus on shareholder and key
stakeholder engagement; and
– continue to strengthen and broaden cyber
security.
I hope you find this report useful and
informative. I look forward to engaging with as
many of you as possible at our 2024 Annual
General Meeting in person and would like to
encourage you to vote your shares even if you
cannot attend in person, so that we gain a
better understanding of the views of our
shareholders as a whole.
Lucio Genovese
Executive Chair
17 April 2024
the Board keeps its balance of skills,
knowledge, experience, independence and
diversity under review, which is beneficial in
bringing new perspectives to the Board.
– On 25 May 2023, Jim North resigned as an
Executive Director and Nikolay Kladiev was
appointed as an Executive Director.
Ann-Christin Andersen resigned as an
independent Non-executive Director and
Natalie Polischuk was appointed as Chair
of the Group HSEC’s Committee.
– On 30 June 2023, Jim North resigned as
Chief Executive Officer. On behalf of the
Board and everyone at Ferrexpo, I would
like to thank Jim for his significant and
outstanding contribution to the Group to
modernise and optimise operational
efficiency and exemplary leadership while
transforming the entire business and
establishing the foundations for Ferrexpo’s
growth strategy in Ukraine.
– On 1 July 2023, I was appointed to act as
Executive Chair on an interim basis and
assume leadership of the Group.
– On 22 October 2023, Stuart Brown was
appointed as an independent Non-
executive Director and a member of the
Audit Committee.
– On 31 December 2023, Graeme Dacomb
resigned as an independent Non-executive
Director and Chair of the Audit Committee.
– Since the end of the reporting year, on
1 January 2024, Stuart Brown was
appointed as Chair of the Audit
Committee.
Throughout the year, the Board continued
to search for an Independent Non-executive
Director from an ethnic minority group,
led by the Nominations Committee and
supported by external consultants.
Until May 2023, there were three female
Directors further strengthening Board
independence and diversity. Due to Board
changes, by the end of the year female
representation unfortunately dropped down
to 29% but currently stands at 33%.
Board performance review
In line with the UK Corporate Governance
Code, Board performance was assessed
externally in 2021 and internally in 2022.
Therefore, during the year, an internally
assessed review of the performance and
effectiveness of the Board, its Committees
and each of the Directors was undertaken.
A report on the process, activities, findings
and actions of the evaluation can be found
on pages 110 to 112. An external Board
performance evaluation will take place in 2024.
Ukraine and the global Covid-19 pandemic.
The Board site visit was replaced with a
Board Strategy Day followed by a regulatory
and legal upskilling and training Day.
We continued to enhance our shareholder
and stakeholder engagement and we
place their interests at the centre of our
considerations for key decisions. Our
Section 172 Statement set out on pages
64 to 71 provides further details on how
the Board complied throughout the year.
The Russian invasion of Ukraine has
not adversely impacted the operation
of the Board or its Committees.
Supporting local communities
during the war in Ukraine
During the year, in addition to our continued
support for communities locally, the Ferrexpo
Humanitarian Fund which was set up as
a dedicated fund, initially in the amount of
US$1.5 million and increased to US$15million,
continued to support the communities in
Ukraine. This funding enabled the purchase
of personal protective equipment and
equipment for local hospitals amongst other
things (see the Responsible Business section
of the Strategic Report on pages 32 to 63.
In addition to the Ferrexpo Humanitarian
Fund, regular community support activities
took place largely in Ukraine and donations
were made within a Board-approved
framework agreed annually at the time of
setting the budget. All such community
support and donations are subject to internal
control and approval limits applicable
within the individual subsidiaries of the
Group, which are set by the Board.
The Board exercises control of the Ferrexpo
Humanitarian Fund and local charitable
spending via its Health, Safety, Environment
and Community (“HSEC”) Committee,
which oversees and directs these activities
and receives reports detailing the spend.
Board changes
The issue of diversity, both in the Boardroom
and throughout the entire Group, is taken
very seriously by the Board as we believe
this improves effectiveness, encourages
constructive debate, delivers strong
performance and enhances the success
of the business. Ensuring that we have a
culture which promotes and values diversity,
and one which is maintained throughout the
business, is a continual prime focus and is
underpinned by our Diversity, Equity and
Inclusion Policy, which sets our objectives.
Further to significant Board changes and
commitments made last year, we announced
further changes to the Board and Board
Committee roles during the year. In
accordance with best practice requirements
of the UK Corporate Governance Code,
96
Ferrexpo plc Annual Reports & Accounts 2023
Governance at a Glance
Group structure
SHAREHOLDERS
BOARD
AUDIT
COMMITTEE
Responsibilities include:
– Monitoring integrity of financial statements.
– Reviewing internal control and risk
management systems.
– Relationship with external auditor.
Read the Audit
Committee Report
on page 114
REMUNERATION
COMMITTEE
Responsibilities include:
– Reviewing and approving all aspects of
remuneration for Executive Directors and
members of the Executive Committee.
– Aligning remuneration policy and practices
to support strategy.
– Engaging with shareholders to receive
feedback on remuneration policy and
outcomes.
Read the Directors’
Remuneration Report
on page 126
NOMINATIONS
COMMITTEE
Responsibilities include:
– Considering and approving the knowledge,
skills and experience mix required for the
Board to best deliver the Company’s
objectives.
– Identifying and nominating (for Board
approval) candidates to fill Board vacancies,
having due regard to the need to satisfy the
Board’s skills requirements.
Read the Nominations
Committee Report
on page 121
COMMITTEE OF INDEPENDENT
DIRECTORS (“CID”)
Responsibilities include:
– Ensuring compliance with related party
transaction rules and the Relationship
Agreement.
– Authorising (if appropriate) related party
transactions on behalf of the Board.
– Conflicts of interest procedure under the
Companies Act 2006.
Find out more
on page 106
HEALTH, SAFETY, ENVIRONMENT
ANDCOMMUNITY (“HSEC”) COMMITTEE
Responsibilities include:
– Formulating and monitoring the
implementation of the Group’s policy on
issues relating to health and safety,
environment and community as they affect
operations.
– Specific focus on safety and climate change
impacts.
Find out more in the
Responsible Business section
on page 32
EXECUTIVE CHAIR AND
EXECUTIVE COMMITTEE
1
Responsibilities include:
– Execution of Board-approved strategies.
– Delegated authority levels for senior
management.
– Development and implementation of Group
policies.
– All material matters not reserved for the
entire Board.
Find out more
on page 102
1. The Finance, Risk Management and Compliance Committee, Investment Committee and the Executive Related Party Matters Committee all report to the Executive Committee.
97
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Board balance
Independent: 4
Non-independent: 0
Executive Chair: 1
Executive: 1
40-49: 1
50-59: 2
60+: 3
Board diversity – Gender
Board tenure
Board diversity – Ethnic group
Board diversity – Age
Board diversity, tenure and balance
Skills matrix
Female: 2
Male: 4
0-5 years: 4
5-9 years: 1
9+ years: 1
White: 6
Mixed/Multiple
Ethnic Group: 0
Expertise 100%
% of Board
members
Mining, Global Resource Industry 63%
Business leadership and strategy 71%
Corporate governance 67%
ESG/Sustainability 71%
Financial, Audit & Risk 92%
CIS geographical experience 88%
Government and international relations 67%
HSEC 71%
Human capital management/Remuneration 75%
Investor relations management 79%
Risk management 92%
2023
2023
2023
2023
2023
98
Ferrexpo plc Annual Reports & Accounts 2023
Board of Directors
An experienced Board
Raffaele (Lucio) Genovese
Executive Chair
Nikolay Kladiev
Executive Director
Chief Financial Officer
Fiona MacAulay
Senior Independent
Non-executive Director
Date of appointment
1 July 2023 as Acting Executive Chair
24 August 2020 as Chair
13 February 2019 as Non-independent
Non-executive Director
Current external appointments
Currently, he serves as chair of CoTec
Holdings, listed on NEX Board of the TSVX,
since 2021; and chief executive officer of
Nage Capital Management AG, a Swiss based
investment and advisory firm, since 2004.
Previous appointments
Previously, he was non-executive director of
Nevada Copper Inc 2016–2023; non-executive
director of Mantos Copper SA, 2015–2022;
independent non-executive director of Ferrous
Resources Limited, 2014–2019; chair of Firestone
Diamonds Plc, 2012–2020; an Independent Non-
executive Director of Ferrexpo plc, 2007–2014;
senior executive officer, Copper Division, Glencore
International, 1996–1999 and chief executive officer,
CIS Operations, Glencore International, 1992–1998.
Skills, expertise and contribution
Lucio contributes to Ferrexpo plc over 35
years of commercial experience in the metals
and mining industry. He worked at Glencore
International AG where he held several senior
positions including the CEO of the CIS region.
Lucio brings a deep knowledge across the Ferrous
and Non-Ferrous Mining sector, including in iron
ore. He has extensive experience of operating in
emerging markets, specifically in the CIS states.
As a previous Board member (from 2007 to 2014)
and as a Board member of Ferrexpo AG, Lucio
has in-depth knowledge of the Group which is
extremely valuable to the Company at a Board level.
Date of appointment
25 May 2023 as Executive Director
Nikolay was appointed Group Chief
Financial Officer on 4 August 2021.
Current external appointments
N/A
Previous appointments
Nikolay joined the Group in 2005, and contributed
significantly to the Group’s IPO. Since 2007,
Nikolay has served on the Board of FPM as CFO.
During his 18 years with Ferrexpo, Nikolay has
overseen FPM’s finance function, and has been
directly responsible for maintaining the Group’s
position as a low cost pellet producer during this
time. Prior to Ferrexpo, Nikolay held a number
of audit positions with Arthur Andersen and
Ernst & Young in Ukraine and Eastern Europe.
Skills, expertise and contribution
Nikolay is a Chartered Accountant (UK) and has
a Masters in International Economic Relations
from Kyiv National Economic University.
Date of appointment
12 August 2019
10 February 2022 as Senior Independent Director
Current external appointments
Non-executive director of Dowlais Group plc
since April 2023; Non-executive director of
Costain Group Plc since April 2022; non-executive
director of Chemring Group plc since 2020.
Previous appointments
Previously, she was non-executive chair of IOG Plc
2019–2023; non-executive director of AIM listed
Coro Energy, 2017–2022; chief executive officer
of Echo Energy plc, 2017–2018; non-executive
director, 2018–2019 and chief operating officer
of Rockhopper Exploration plc, 2013–2017.
Skills, expertise and contribution
Fiona contributes to Ferrexpo plc over 35 years’
experience in the upstream oil and gas sector
including key roles in a number of leading oil
and gas firms across the large, mid and small
cap space including Mobil, BG Group, Amerada
Hess, Echo Energy and Rockhopper.
Fiona brings a strong focus on health, safety,
climate change and culture with a deep
understanding of the factors influencing the
management for safe, efficient and commercial
operations. In 2022, she completed a Diligent
Climate Leadership Certification programme.
She has extensive operational experience in
emerging energy which enables her to bring
positive insight on a broad range of issues
to Board and Committee discussions.
Committee membership
C
Committee membership
N/A
Committee membership
C
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Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Gender breakdown Key to committee membership
Male 67%
Female 33%
Audit Committee
Remuneration Committee
Nominations Committee
Committee of Independent
Directors (“CID”)
Health, Safety, Environment and
Community (“HSEC”) Committee
Executive Chair and Executive
Committee
C Committee Chair
Vitalii Lisovenko
Independent
Non-executive Director
Natalie Polischuk
Independent
Non-executive Director
Stuart Brown
Independent
Non-executive Director
Date of appointment
28 November 2016
Current external appointments
Currently, he serves as a non-executive advisor
to the Minister of Finance of Ukraine, having
previously served as an executive counsellor
to the Minister of Finance. He also serves as a
non-executive director of the Supervisory Board
of National Depositary of Ukraine since 2014.
Previous appointments
Previously, he was an executive director of
Ukreximbank (Ukraine), 2006–2010; an executive
director of Alfa Bank Ukraine, 2010–2014; a
non-executive director of Amsterdam Trade
Bank, 2013–2014; and a non-executive alternate
director, Black Sea Trade and Development
Bank (Greece), 2014–2019; and since 1994
held various positions in the Finance Ministry of
Ukraine. He also was an Associate Professor of
Finance at the Kyiv State Economic University.
Skills, expertise and contribution
Vitalii contributes to Ferrexpo plc over 25
years’ experience in government finance. In
2005, he served as the head of the Trade and
Economic Mission at the Ukrainian Embassy
in London. He was an Associate Professor of
Finance at the Kyiv State Economic University.
Vitalii brings extensive experience in the field of
Ukrainian government finance together with a
deep understanding of geopolitical developments
in Ukraine, which is valuable to the Group.
Date of appointment
29 December 2021
Current external appointments
Currently, she serves as non-executive
director of Dobrobut (Ukraine), since 2018.
Previous appointments
Previously, she was non-executive
director and treasurer of Lycée Français
Anne de Kyiv, 2014–2020.
Skills, expertise and contribution
Natalie brings over 25 years of private equity
experience in Eastern Europe, having held
a number of senior roles at private equity
funds in the region and having acted as an
independent advisor on a number of M&A
and due diligence projects in Ukraine.
Date of appointment
22 October 2023
Current external appointments
Currently, he serves as Non-executive Chairman of
Lucapa Diamond Company Limited, since 2024.
Previous appointments
Previously, he was president and CEO of Mountain
Province Diamonds Inc 2018–2021; CEO of
Firestone Diamonds Plc 2013–2018; Group CFO
and Acting Joint CEO De Beers Group 2006–2011
Skills, expertise and contribution
Stuart is a seasoned mining executive with
extensive board-level experience. He previously held
both CFO and CEO roles at De Beers and its various
subsidiaries, where he played a central role in
reshaping the group and positioning it for the future.
Most recently, Stuart served as President and CEO
at Mountain Province Diamonds Inc., a company
listed on the Toronto Stock Exchange, and as CEO
of Firestone Diamonds Plc, formerly listed on AIM
where he established a track record of building
teams and leading business transformation to
develop lean, agile, high-performing organisations.
Committee membership
C
Non-executive Director designate
for workforceengagement.
Committee membership
C
Natalie was appointed as a member of the
Committee of Independent Directors in
February 2023. She was appointed Chair
of the HSEC Committee in May2023.
Committee membership
C
Stuart was appointed Chair of Audit
Committee and a member of the Remuneration
Committee inJanuary 2024. He was
appointed a member oftheCommittee of
Independent Directors in February 2024.
100
Ferrexpo plc Annual Reports & Accounts 2023
Executive Committee
An experienced and focused
Management Team
Greg Nortje
Chief Human Resources Officer
Yaroslavna Blonska
Acting Chief Marketing Officer
Greg joined Ferrexpo in January 2014.
He previously held a variety of international
Human Resources leadership positions with Anglo
American and BHP Billiton before establishing
his own human resources consultancy firm
to a range of clients across the UK. Particular
specialisms include project management and
business change execution, organisational
effectiveness, talent management, governance
and compliance, and leadership development.
Skills and experience
He has Advanced Management qualifications
from the University of Stellenbosch Business
School and the Gordon Institute of Business
Science, a Bachelor of Arts degree and a
postgraduate Diploma in Education from
the University of the Witwatersrand.
Yaroslavna was appointed the Acting Chief
Marketing Officer on 22 August 2022.
Yaroslavna joined Ferrexpo in 2002.
Since joining Ferrexpo Yaroslavna has held a
number of key roles within the Group’s Marketing
team, including Head of Sales for customers in
Europe and Turkey, management of the Group’s
Asian and European customers, membership
of the representative board for the Group’s port
loading subsidiary, TIS-Ruda. Yaroslavna has been
acting as a focal point for the Group’s government
and public relations within Ukraine. She has also
been managing Ferrexpo’s office in Kyiv since
2006. Yaroslavna has been helping to facilitate
the Group’s Fe_munity Women in Leadership
programme as a speaker and a mentor.
Skills and experience
She holds a Master of Business Administration
degree from Kyiv State Economic University
and a post graduate Diploma in Law from
Taras Shevchenko National University, Kyiv.
Raffaele (Lucio) Genovese
Executive Chair
Nikolay Kladiev
Chief Financial Officer
Viktor Lotous
FPM General Director and the Chair of
FPM Supervisory Board
For more information see page 98 for details. For more information see page 98 for details. Viktor brings to the Executive Committee
more than 35 years of mining and processing
experience as well as deep understanding
of Ferrexpo, its culture and context.
Skills and experience
Viktor began his career with FPM in 1986. In 1997,
he assumed the role of Chief Engineer and in
2007 was appointed General Director and Chair
of the Supervisory Board of FPM. In this role, he
is charged with leading and ensuring safe and
responsible operations, optimising performance,
executing future growth options and delivering
commercial value across the company’s operational
footprint in Ukraine. In 2023, Viktor additionally
assumed the position of Chief Operating Officer, on
an interim basis, with operational oversight of the
Group’s assets in Ukraine. He is a graduate of Kryvyi
Rih Mining and Ore Institute, and of the Kyiv National
Economic University, specialising in Finance.
101
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Corporate Governance Compliance
As a premium listed company on the London Stock Exchange, the Company is
subject to the 2018 Corporate Governance Code. This section explains how we
applied the principles of the 2018 Corporate Governance Code. A copy of the
Corporate Governance Code can be found at frc.org.uk.
Statement of Compliance (in accordance with Listing Rule 9.8.6R(5))
The Board considers the Company has complied throughout the year ended 31 December 2023 with all the provisions of the 2018 Corporate
Governance Code except as set out below:
– Provision 9: The Chair was not independent on appointment and the role of Chief Executive and Chairman is undertaken by one person –
Lucio Genovese, the Company’s Executive Chair.
– Provision 19: The Chair has remained in post for more than nine years since his first appointment to the Board in June 2007. Mr Genovese’s
tenure ran from 12 June 2007 to 1 August 2014, and he rejoined the Board on 13 February 2019. Therefore, whilst the total tenure exceeds
nine years there was a significant break in Mr Genovese’s tenure between 2014 and 2019.
Explanations for not complying with provisions 9 and 19 of the Corporate Governance Code as the Chair was not independent on appointment,
the role of Chief Executive and Chairman should not be undertaken by the same person and his tenure exceeds the recommended nine-year
term are provided below. The Corporate Governance Code sets out the governance principles and provisions that applied to the Company
during 2023. The Corporate Governance Code is not a rigid set of rules, and consists of principles and provisions. The Company complied with
all the principles and detailed provisions of the Corporate Governance Code in 2023 except for Provisions 9 and 19. Provision 9 recommends
that the Chair be independent on appointment and the role of the Chair and Chief Executive should not be undertaken by the same person.
Provision 19 recommends that the Chair should not remain in post beyond nine years from the date of first appointment to the Board.
Explanations for non-compliance with Provision 9 and 19:
As explained in previous annual reports the Chair was not independent on appointment, however, the Board was satisfied that Mr Genovese
isfully independent from all the Company’s shareholders and has been during his entire tenure as a Non-executive Director. Additionally, upon
his appointment as Chair the members of the Nominations Committee were comfortable based on their own experiences that Mr Genovese
conducts himself with professional and personal integrity with an independent mindset and brings valuable challenge to the Board based on
hisin-depth understanding of the key drivers and challenges faced by the Group.
Following the resignation of the Chief Executive Officer, the decision was taken to combine the roles of the Chair and Chief Executive Officer on
an interim basis as with the ongoing war in Ukraine and the need for business continuity it was not considered the right time to commence an
external search process for a new Chief Executive Officer.
Although the role of the Chair and Chief Executive are undertaken by the same person, the Board believes that there is sufficient separation of
responsibilities of the roles usually undertaken by the Chair and the Chief Executive Officer amongst the Executive Chair, the Chief Financial
Officer, the Senior Independent Director, the Committee of Independent Directors, the Group Company Secretary and the Company’s Senior
Management team. The Board, with assistance from the Nomination Committee, keeps this temporary arrangement under review.
Mr Genovese was first appointed to the Board as a Director in June 2007 and retired in August 2014. After a near five-year break, he re-joined
the Board in February 2019 as a non-Independent Non-executive Director. In August 2020 he was appointed as Chair of the Board and most
recently in July 2023 he was appointed interim Executive Chair.
Mr Genovese has led the Board through the continuing Russian invasion of Ukraine, ensuring continuity of the Board agenda and meetings
together with ongoing corporate initiatives whilst operating at a time of war.
The Board believes Mr Genovese is the right person to chair the Board and exercise executive leadership of the Group at this time. To provide
continuity of his sound leadership, the Board requests your support to re-elect Mr Genovese at the 2024 AGM.
Further details on the composition of the Board and its Committees are set out on page 104 and further details of the role of the Senior
Independent Director are set out on page 106.
The Board confirms that at the date of this report, unless otherwise explained above, the Company fully complied with all relevant provisions of
the Corporate Governance Code. Further information on the Company’s compliance with the Principles of the Corporate Governance Code can
be found on the following pages:
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Ferrexpo plc Annual Reports & Accounts 2023
Corporate Governance Compliance continued
Board leadership and
Company purpose
Principle A: Executive Chair’s Statement page 2, Stakeholder Engagement – Section 172 Statement pages 64 to 71,
Skills Matrix page 97
Principle B: Executive Chair’s Statement page 2, Our Business Model pages 8 to 10, Understanding our Strategic
Direction pages 12 to 14, Stakeholder Engagement – Section 172 Statement pages 64 to 71
Principle C: Key Performance Indicators pages 14 to 17, Risk Management pages 72 to 73, Principal risks pages 74
to 90, Internal Controls page 119
Principle D: Executive Chair’s Review page 2, Our Stakeholders page 65, Responsible Business: Safety and our
People page 34, Operating during a time of war: Local communities page 6, Responsible Business:
Governance pages 62 to 63, Stakeholder Engagement – Section 172 pages 64 to 71
Principle E: Non-Financial Information Statement page 63, Our engagement activities in 2023 page 64, Stakeholder
and workforce engagement page 108, Whistleblowing Policy page 120
Division of
responsibilities
Principle F: Executive Chair’s Introduction page 2, Statement of Compliance page 101, Role Descriptions page 106,
Board Leadership pages 107 to 109, Board Evaluation pages 110 to 112
Principle G: Group Structure page 96, Board of Directors pages 98 to 99, Role Descriptions page 106
Principle H: Corporate Governance At a Glance page 96, Board of Directors pages 98 to 99, Time Commitment page
105, Role Descriptions page 106
Principle I: Skills Matrix page 97, Time commitment and Non-executive Director external appointments during 2023
page 105, Board Leadership pages 107 to 109
Composition,
succession,
evaluation
Principle J: Diversity page 97, Nominations Committee Report page 121
Principle K: Board Diversity, tenure and balance page 97, Board Composition page 104 Skills Matrix page 97,
Succession Planning and Recruitment page 122
Principle L: Board Evaluation pages 110 to 112
Audit, risk,
internalcontrol
Principle M: External Audit page 120, Internal Audit page 119
Principle N: Audit Committee Report pages 114 to 120, Responsibility statement of the Directors in respect of the
Annual Reports and Accounts page 157
Principle O: Risk Management pages 72 to 73, Principal Risks pages 74 to 90, Internal Control and Risk Management
page 119
Remuneration Principle P: Remuneration policy pages 126 to 151
Principle Q: Our approach to remuneration page 126, Performance and Reward pages 126 to 127, Implementation of
the remuneration policy in 2024 page 128
Principle R: Remuneration Report pages 126 to 151
Disclosure Guidance and Transparency Rules
By virtue of the information included in this Corporate Governance Report and the Directors’ Report, the Company complied with the corporate
governance statement requirements of the FCA’s Disclosure Guidance and Transparency Rules.
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Diversity
We report our Board and executive management diversity data as at 31 December 2023 in accordance with the new UK Listing Rules disclosure
requirements and our progress in meeting the new UK Listing Rules board diversity targets.
As at 31 December 2023, following director changes during the year, women represented 29% of the Board see page 95 and accordingly the
target of 40% females on the Board has not been met. A male director resigned on 31 December 2023 which increased the percentage of
females on the board to 33% as at 1 January 2024. Fiona MacAulay is the Senior Independent Director, see page 98 and therefore one of the
senior Board positions was occupied by a woman; however, so far a Director from an ethnic minority background has not yet been appointed.
The Board remains committed to enhancing its gender and ethnic diversity and during the year, actively continued the search for a further
Independent Non-executive Director from an ethnic minority background, led by the Nominations Committee and supported by external
consultants, see page 124.
The gender diversity of the Board and executive management as at 31 December 2023:
Number of Board
members
Percentage of the
Board
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)*
Number in
executive
management
Percentage of
executive
management
Men 5 71% 2 5 83%
Women 2 29% 1 1 17%
Other categories – – – – –
Not specified/prefer not to say – – – – –
* The role of Chair and CEO were combined on 1 July 2023 and counted as one position in order not to double count.
The ethnic diversity of the Board and executive management as at 31 December 2023:
Number of Board
members
Percentage of the
Board
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number in
executive
management
Percentage of
executive
management
White British or other White (including minority-white groups) 7 100% 3 6 100%
Mixed/Multiple Ethnic Groups – – – - -
Asian/Asian British – – – – –
Black/African/Caribbean/Black British – – – – –
Other ethnic group, including Arab – – – – –
Not specified/prefer not to say – – – – –
* The role of Chair and CEO were combined on 1 July 2023 and counted as one position in order not to double count.
Notes:
– Executive management for these purposes includes the Group Company Secretary but excludes administrative and support staff (as defined by theUK Listing Rules).
– The Company confirms that the approach to collecting data forming the basis of the gender and ethnic diversity of the Board and senior management of the Company was consistent
forthe purposes of reporting under both LR 9.8.6R(9) and (10) and was consistent across all individuals in relation to whom data was reported. Board members, members of executive
management and the Group Company Secretary were provided with a standard form questionnaire on a strictly confidential and voluntary basis to allow the individual to self-report on
their gender and ethnicity (or to specify that they do not wish to report such data). The questionnaire was fully aligned to the definitions set out in the UK Listing Rules, with individuals
asked to specify:
i. self-reported gender identity – selection from (a) male, (b) female, (c) other category/please specify and (d) not specified/prefer not to say; and
ii. self-reported ethnic background – selection from (a) White British or other White (including minority-white groups), (b) Mixed/Multiple Ethnic Groups, (c) Asian/Asian British, (d) Black/
African/Caribbean/Black British, (e) Other ethnic group, including Arab and (f) not specified/prefer not to say.
– The Executive Committee includes the Group Company Secretary. For the purposes of the UK Corporate Governance Code, the gender balance of those in senior management (i.e. the
Executive Committee and their direct reports) was 68.2% male and 31.8% female.
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Corporate Governance Report
Controlling shareholder – Relationship Agreement
The Company’s largest shareholder is Fevamotinico S.a.r.l., which as at date of this report holds 49.3% of the voting rights in Ferrexpo plc.
Fevamotinico S.a.r.l. is wholly owned by The Minco Trust. The Minco Trust is a discretionary trust that has three beneficiaries, consisting of
Kostyantin Zhevago and two other members of his family. Mr Zhevago is therefore considered a controlling shareholder of the Company. In
accordance with the UK Listing Rules, Mr Zhevago, The Minco Trust and Fevamotinico S.a.r.l. have entered into a Relationship Agreement with
the Company (the “Relationship Agreement”) to ensure that the Group is capable of carrying on its business independently, that transactions and
arrangements between the Group, Fevamotinico S.a.r.l., The Minco Trust and Mr Zhevago (and each of their associates) are at arm’s length and
on normal commercial terms, and that at all times a majority of the Directors of the Company shall be independent of Fevamotinico S.a.r.l., The
Minco Trustand Mr Zhevago. Under the Relationship Agreement, Mr Zhevago is entitled to appoint himself as a Director or another person as his
representative Director, in each case in a non-executive capacity. During the year, Mr Zhevago has not exercised this right. The Relationship
Agreement terminates if, inter alia, the shareholding of Mr Zhevago and his associates in the Company falls below 24.9%.
Statement of Compliance with UK Listing Rules, Rule 9.8.4 (14)
– Ferrexpo has complied with the independence provisions contained in UK Listing Rule 9.2.2ADR(1) during 2023.
– So far as Ferrexpo is aware, each of Mr Zhevago and Fevamotinico S.a.r.l. and their associates have also complied with the independence
provisions contained in UK Listing Rule 9.2.2ADR(1) during 2023.
– So far as Ferrexpo is aware, the procurement obligation set out in LR 9.2.2B(2)(a) (which requires Mr Zhevago and Fevamotinico S.a.r.l. to
procure that The Minco Trust, the non-signing controlling shareholders (being the beneficiaries of The Minco Trust other than Mr Zhevago)
and their associates comply with the independence provisions contained in UK Listing Rule 9.2.2ADR(1)) has also been complied with
during2023.
The Board
The Board is responsible for setting the Group’s objectives and policies, providing effective leadership within the framework of prudent and
effective controls required for a public company. The Board has a formal schedule setting out the matters requiring Board approval and
specifically reserved to it for decision. These include:
– approving the Group strategy and budget;
– annual and long-term capital expenditure plans;
– approving contracts for more than a certain monetary amount;
– monitoring financial performance and critical business issues;
– approval of major projects and contract awards;
– approval of key policies and procedures including for dividends, treasury, charitable donations and corporate social responsibility;
– approval of procedures for the prevention of fraud and bribery; and
– through the CID, monitoring and authorising related party transactions.
Certain aspects of the Board’s responsibilities have been delegated to the Committees shown in the chart on page 96 to ensure compliance
with the Companies Act 2006, FCA Listing Rules and Disclosure Guidance and Transparency Rules and the UK Corporate Governance Code.
The terms of reference for each of the Audit Committee, Nominations Committee, Remuneration Committee and HSEC Committee are available
on the Company’s website at www.ferrexpo.com/about-ferrexpo/corporate-governance/board-committees.
It is the responsibility of the Executive Chair and Executive Committee to manage the day-to-day running of the Group.
Board composition and independence
As of 31 December 2023, the Board comprised two Executive Directors and five Independent Non-executive Directors whoare considered by
the Board to be independent in accordance with the UK Corporate Governance Code. This structure ensures that the Executive Directors are
subject to appropriate independent and constructive challenge by the Non-executive Directors, and that no single Director can dominate or
unduly influence decision-making.
Composition of the Board and Committees as of 31 December 2023 is presented in the table below:
Board member Role Audit Remuneration Nominations CID HSEC
1
R L Genovese Executive Chair ••
F MacAulay Senior Independent Non-executive Director •• • •
N Kladiev Executive Director/Chief Financial Officer
V Lisovenko Independent Non-executive Director and
Designate for Employee engagement • • • ••
G Dacomb
2
Independent Non-executive Director •• • • •
N Polischuk Independent Non-executive Director • •
S Brown Independent Non-executive Director •
1. The HSEC Committee also includes some members of senior management.
2. Resigned as a Director on 31 December 2023.
• Committee member.
•• Committee Chair.
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The Board considers that it is of a sufficient size to ensure that the requirements of the business are met without placing undue reliance on any
one Director.
Biographical details of the Directors at the date of this report are set out on pages 98 and 99.
Time commitment
It is expected that a Non-executive Director of the Company will normally spend at least two and a half days a month, on average, on Ferrexpo’s
affairs. The expected time commitment for the Senior Independent Director, the Committee Chairs and, in particular, the Executive Chair is
considerably more than that. The Non-executive Directors are required to confirm at least annually that they are able to commit sufficient time to
the affairs of the Company, and all of our Non-executive Directors have given this confirmation in respect of 2023.
All of the Non-executive Directors have been able to make themselves available for the majority of the ad hoc Board and Committee meetings
and update calls held during the year, notwithstanding their external commitments. The attendance of the Directors at Board and Committee
meetings during 2023 is shown in the table below.
Non-executive Director external appointments during 2023
During 2023, Ms MacAulay was appointed as non-executive director of Dowlais Group PLC, a company listed on the London Stock Exchange.
This appointment was considered a significant appointment for Ms MacAulay for the purposes of the UK Corporate Governance Code, and, in
advance of the appointment, Ms MacAulay sought the prior approval of the Board. As part of approving this additional appointment, the Board
considered a range of factors, including the existing appointments of Ms MacAulay, the time commitment expected in the role as a Ferrexpo
Director, attendance records at Ferrexpo Board and committee meetings, institutional investor guidance on the number of board roles in respect
of over-boarding and the additional time commitment from the new role. The Board was satisfied having regard to these matters that the
additional role would not adversely impact the ability of Ms MacAulay to perform her existing role on the Ferrexpo Board and its committees.
Board and Committee meeting attendance in 2023
Attended/Eligible to attend
Director
Board Audit
Remuneration
Nominations
CID HSEC
4
Scheduled Ad hoc Scheduled Ad hoc Scheduled Ad hoc Scheduled Ad hoc Scheduled Ad hoc Scheduled Ad hoc
AC Andersen
1
3/3 1/3 2/2 2/2 3/2 1/2 2/2
G Dacomb
2
5/5 5/10 5/5 4/4 4/4 5/5 5/5
R L Genovese 5/5 9/10 4/4
N Kladiev
3
2/2 5/7
V Lisovenko 5/5 7/10 5/5 4/4 4/4 5/5 4/5
F MacAulay
4
5/5 6/10 4/4 4/4 4/4 5/5 5/5
J North
5
3/3 2/3 2/2
N Polischuk
6
5/5 6/10 5/5 4/4 3/4 4/4
S Brown
7
1/1 1/1 1/1
1. Ms Andersen resigned on 25 May 2023.
2. Mr Dacomb resigned on 31 December 2023.
3. Mr Kaldiev was appointed as an Executive Director on 25 May 2023.
4. Ms MacAulay stepped down as a member of the Audit Committee on 1 August 2023.
5. Mr North resigned as Executive Director on 25 May 2023.
6. Ms Polischuk was appointed as a member of the Committee of Independent Directors 9 February 2023.
7. Mr Brown was appointed as an independent Non-executive Director and a member of the Audit Committee on 22 October 2023.
During the year, there were a number of ad hoc Board and Committee meetings at short notice or update calls which dealt with (amongst other
things) the Russian invasion ofUkraine and other developments in Ukraine involving or impacting the Group.
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Corporate Governance Report continued
Role descriptions
A summary of the roles of the Chair, the CEO, the Executive Chair, the Senior Independent Director, the Non-executive Directors and the
Company Secretary is set out in the following table. The table also includes an overview of the role of the Executive Committee and of the
Committee of Independent Directors. The roles of the Audit and Nominations Committees are set out later in this Corporate Governance Report,
the role of the HSEC Committee in the Strategic Report on page 30, and the role of the Remuneration Committee in the Remuneration Report on
page 126.
Role Description
Chair The Chair is responsible for leadership of the Board, ensuring its effectiveness, setting its agenda, ensuring that it receives
accurate, clear and timely information, and ensuring effective communication with shareholders. The Chair also ensures that
there is a constructive relationship between the Executive and Non-executive Directors. At least once annually the Chair
holds meetings with the Non-executive Directors without the Executive Director present. Mr Genovese’s other current
responsibilities are set out in the biographical notes on page 98. Due to the complexity of the jurisdictions in which the Group
operates and in light of Russia’s current invasion of Ukraine, the time commitment of the role significantly increased during
the reporting period especially with the need to engage proactively with the broad range of stakeholders.
CEO The role of the CEO is to provide leadership of the executive team, implement Group strategy through executive committees,
chair the Executive Committee, and oversee and implement Board-approved actions.
Executive
Chair
With effect from 1 July 2023 the roles of Chair and Chief Executive Officer as described above have been combined on an
interim basis.
Senior
Independent
Director
The Senior Independent Director, in conjunction with the other Independent Non-executive Directors, assists in
communications and meetings with shareholders and other stakeholders concerning corporate governance matters. At least
once a year, the Senior Independent Director meets the Non-executive Directors, without the Chair present, to evaluate the
Chair’s performance. The Senior Independent Director is also available to discuss with shareholders any issues that the Chair
has been unable to resolve to shareholders’ satisfaction.
Non-executive
Directors
The Non-executive Directors provide an independent and objective viewpoint to Board discussions and bring experience
from a variety of industry backgrounds. Their role is to provide constructive support and challenge to executive management.
Acting either as the Board or as members of its Committees, the Non-executive Directors approve budgets; discuss and
contribute to strategic proposals and agree on corporate strategy; monitor the integrity, consistency and effectiveness of
financial information, internal controls and risk management systems; monitor management’s execution of strategy against
agreed targets and determine their remuneration accordingly (see the Remuneration Report on page 126); and monitor
executive succession planning (for Board succession planning, see the Nominations Committee Report on page 122). From
time to time, where delegated by the Board, individual Non-executive Directors may take on additional functions in areas in
which they have particular knowledge or expertise.
Company
Secretary
The Company Secretary is responsible for ensuring that Board procedures are followed and that applicable rules and
regulations are complied with. The Company Secretary is also responsible for advising the Board on all governance matters
and for ensuring, with the Chair, that information reaches Board members in a timely fashion, so that they are alerted to
issues and have time to reflect on them properly before deciding how to address them. All Directors have access to the
advice and services of the Company Secretary.
Executive
Committee
The Executive Committee is a key decision-making body of the Group, responsible for managing and taking all material
decisions relating to the Group, apart from those set out in the Schedule of Matters Reserved for the Board. It has delegated
responsibility from the Board for the execution of Board-approved strategies for the Group, for ensuring that appropriate
levels of authority are delegated to senior management, for the review of organisational structures and for the development
and implementation of Group policies. The Executive Committee meets regularly during the year.
Committee of
Independent
Directors
(“CID”)
The CID is composed of the Senior Independent Director and three other Independent Non-executive Directors. The CID
considers and, if appropriate, authorises on behalf of the Board, related party transactions and otherwise ensures
compliance with the related party transaction rules and the Relationship Agreement entered into between Fevamotinico
S.a.r.l., Mr Zhevago, The Minco Trust and the Company. The CID holds delegated authority to consider and, if appropriate,
approve situations which give rise to an actual or potential conflict of interest for any member of the Board in accordance
with the Companies Act 2006. The CID keeps under review the authorisation and approval process relating to related party
transactions (which are also reviewed in detail by the Executive Related Party Matters Committee (“ERPMC”)) and satisfies
itself that, as required under the Relationship Agreement, transactions with the Group’s controlling shareholders or their
associates are conducted at an arm’s length basis and on normal commercial terms.
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Before setting out the Board’s activities in
2023, it is important to note that since the
Russian invasion of Ukraine, the Board has
continued to meet regularly to discuss the
ongoing situation in Ukraine, the execution
of the Group’s business continuity plans,
planning for different eventualities and
adjustments to the corporate calendar.
The Board receives regular updates from
the management team as to the Group’s
response and scenario planning for different
eventualities. Protecting the Group’s workforce
is a key priority, as well as taking steps
to protect the business and thereby the
stakeholders of the business. This will remain
a key priority for the Board during 2024.
Board activity in 2023
Five scheduled Board meetings were held
in 2023 (supplemented by other ad hoc
meetings, telephone or video conferences
and written resolutions as required from
time to time). Although all scheduled Board
meetings were held in person, some ad
hoc meetings and Board calls were held
via video conference with management
team members and other Group personnel
joining to discuss matters as appropriate.
The Board intends to continue to hold its
scheduled meetings in person during 2024.
The Board’s programme of meetings allows
key areas of focus to be established and
reviewed on a regular basis. A review of the
Board forward agenda was undertaken earlyin
the year to align key focus areas withstrategy.
Rolling agendas have been developed within
the Board forward agenda for the Board, Audit,
Nominations and Remuneration Committees
to ensure the necessary standing items
are covered during the course of the year,
and sufficient time is allocated to strategic
discussions, with extra time factored in for ad
hoc and additional items. Agendas are agreed
with the Chair (orwith the Chair of the relevant
Committee) and timeframes set in advance for
the various meetings, thereby ensuring that the
full agenda can be covered in the time allotted.
Board and Committee meeting packs are
prepared by management following input
onthe agendas formulated by the Company
Secretary and the respective Chairs, and
made available electronically prior to the
meeting via a secure online Board portal,
thereby allowing the Directors adequate
timeto consider the variety of issues
to be presented and discussed. In the
minutes of the meetings, issues identified
for follow-up are set out, ensuring that
matters raised by the Directors are actioned
and reported back in a timely manner.
Board Leadership
At each scheduled Board meeting, the
Directors receive a report from each of the
Executive Chair and the Chief Financial
Officer and will review and approve the
minutes from previous Board meetings and
note Board Committee minutes. There is
also an oral report from the Chair of each
Board Committee, providing an overview
of the matters discussed at the Committee
meetings which are held before the scheduled
Board meetings. The Board may also
receive a report from the Chief Marketing
Officer relating to updates on the Group’s
marketing strategy, product development and
relationships with the Group’s customers.
The Executive Chair’s report will include
matters relating to production and operations,
safety measures and performance against
targets, iron ore market conditions, growth
projects, implementation of diversity and
inclusion policies and updates on the position
in Ukraine. The Chief Financial Officer’s report
covers financial performance as compared
to budget, financial forecasts and cash
flow position, with a particular focus during
2023 on the going concern assessment
given the situation in Ukraine. The Executive
Chair will report on developments relating
to investor and stakeholder engagement
(including shareholder feedback), relevant
corporate governance matters and Board
refreshment and succession planning.
In addition to formal Board and Committee
meetings, the Senior Independent Director
holds meetings with the Independent
Non-executive Directors as required,
enabling open discussions without
the Executives Director present.
The following sets out an overview of the key
areas of focus for the Board during the year.
Russian invasion of Ukraine
The impact of the Russian invasion of Ukraine
remained the key area of focus during the
year, with the Board undertaking regular
reviews of the Group’s response to the
invasion. The Board received regular updates
from the management team on the Group’s
response to the invasion, including the safety,
protection and wellbeing of the workforce and
details of the support provided to those
affected by the invasion and their families.
Updates on safety measures put in place at
the mine sites and other locations to protect
the Group’s workforce and assets were also
provided. The Board also continued the
Ferrexpo Humanitarian Fund to support
communities across Ukraine. For further
details see page 32.
More information can be found throughout
this Annual Report and Accounts.
Legal and other actions against the
Group in Ukraine
Throughout the year the Board had to address
an increasing number of legal and other
actions being taken against the Group in
Ukraine, many of which related to matters not
directly involving the Group. These actions
included a freeze (“arrest”) being placed on
50.3% of the shares which Ferrexpo owns in
three of its Ukrainian operating subsidiaries,
the blocking of bank accounts of Ferrexpo’s
main operating subsidiary in Ukraine, Ferrexpo
Poltava Mining (“FPM”), and the arrest of senior
management personnel in FPM in connection
with the alleged illegal sale of waste products.
This latter action resulted in Ferrexpo
having to make bail payments in Ukraine of
approximately US$15 million. Furthermore, the
Board had to address and assess the risks
related to the contested surities claim in the
amount of UAH4.7 billion (US$124 million as
at 31 December 2023) and the application
to open bankruptcy proceedings (“creditor
protection proceedings”) against the Group’s
major subsidiary in Ukraine filed by a supplier
and a related party of the Group because an
unfavourable outcome in these two cases
would have an adverse impact on the Group’s
cash flow generation, profitability and liquidity.
Further details can be found in Note 2 Basis
of preparation and Note 30 Commitments,
contingencies and legal disputes to the
Consolidated Financial Statements.
The Board has taken or overseen a number
of actions intended to protect the interests
and assets of the Group and all of its
shareholders, including commencing legal
actions in Ukraine where possible and making
appropriate representations to Government
officials both in Ukraine and elsewhere
about the need to protect Ferrexpo’s
interests and ensure that any private
matters relating to the Group’s controlling
shareholder do not adversely impact the
Group. This has included emphasising
that as a Company with a premium listing
on the London Stock Exchange the
Company is required to, and does, operate
independently of its controlling shareholder.
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Ferrexpo plc Annual Reports & Accounts 2023
Corporate Governance Report continued
Climate change and decarbonisation
Climate change has been a standing
agenda item at all scheduled Board
meetings and meetings of the HSEC
Committee throughout the year and will
continue to be a standing agenda item.
During the year, the Board approved a
second phase of work to be undertaken by
Riccardo Plc. This work involved a double-
materiality assessment of the Company’s
impact on climate change and the impact
of climate change on the Company.
The risks and opportunities relating to climate
change that are specific to Ferrexpo are
summarised in the Task Force for Climate-
related Financial Disclosures (“TCFD”) on
pages 43 to 59 of the Strategic Report.
Financial position and liquidity
The Board continuously reviews the
financial position of the Group, including
performance against targets, balance
sheet strength and liquidity.
During the year, the Group has maintained
a strong balance sheet, including low levels
of gross debt and had a positive net cash
position of US$108 million as at 31 December
2023 (2022: US$106 million). The Group has
no debt facilities as at 31 December 2023.
The Company’s Preliminary and
Interim results and Annual Report were
scrutinised and approved by the Board.
Cyber security strategy
In light of heightened cyber security risks
facing the business due to the ongoing war in
Ukraine and the rise in cyber security attacks
globally, maximum protection against cyber
security attack is a top priority for the Group.
Stakeholders and workforce
engagement
Stakeholder considerations and culture
are an important part of the Board’s
discussions and decision making. The
information on pages 64 to 71 provides a
review of stakeholder engagement activities
during the year and explains how the Board
considers stakeholders in decision making.
In December 2023, over two days,
Mr Lisovenko, Non-executive Director
Designate for workforce engagement,
visited our operations in Ukraine and hosted
a number of engagement sessions with
a cross section representing a range of
stakeholder groups within our workforce,
including operations personnel, a selection
of middle managers from all three business
units, senior female leaders, alumni of
our “Fe_munity” women in leadership
programmes and people with disabilities.
Board Leadership (continued)
During the engagement sessions, members
of the workforce made comments and
suggestions on a range of matters and
posed questions for subsequent response
by the Board. In February 2024, the Board
considered the comments, concerns,
suggestions and questions and will provide
feedback to the workforce via established
communication channels. For example,
members of the workforce requested more
detail in respect of the current approach
of running one and sometimes two pellet
lines, in response to logistics constraints
caused by the war and that the quality of
personal protective clothing be improved. For
further details see page 66 Employees and
wider workforce, Section 172 Statement.
The Group also engages with its workforce
through the biennial employee engagement
survey, which was last conducted in 2021. The
survey unfortunately could not be carried out
in 2023 due to variable staffing of operations
imposed by constraints brought about
by the ongoing war, where approximately
one third of all employees who manually
complete the survey using tablets are on
furlough. The Group has employed other
ways of listening to the workforce, such as
holding discussions in crib rooms prior to
shift and including questions and answers
functionally on the Company’s intranet site and
eliciting employee feedback via the Rakuten
Viber social media app. These workforce
listening channels are an integral aspect of
understanding the priorities and concerns
of our people, and help to set priorities for
the coming period. The Board considers the
results of the employee listening programme
and discusses feedback with the Executive
Chair and the Chief Human Resources Officer,
including plans for further engagement by
functional heads with their teams to better
understand the feedback and to develop joint
action points focusing on areas of strength
and areas for improvement. Investigations are
underway to find a way to conduct a global
Employee Engagement Survey in 2024.
Board balance and independence
Ensuring the appropriate balance of skills,
independence and diversity on the Board
remains a key priority of the Group.
In line with best practice requirements of the
UK Corporate Governance Code, during the
year, the Board reviewed the balance of skills,
knowledge, experience, independence and
diversity and focused on improving and
rebalancing Independent Non-executive
Director Board and Board Committee roles.
To that end:
– Stuart Brown was appointed as an
independent Non-executive Director and
amember of the Audit Committee on
22 October 2023.
– Natalie Polischuk was appointed as Chair
of the Group’s Health, Safety, Environment
and Community (“HSEC”) Committee on
25 May 2023.
For further details see pages 121 to 124 of the
Nominations Committee Report.
Governance and risk
Following on from the governance
improvement work carried out in 2020,
during the year the Board carried out
a review of the Articals of Association.
Proposed updates to relfect current best
practice will be put to a shareholder
vote at the Annual General Meeting.
At each of its scheduled meetings the Board
considered any updates to the principal
and emerging risks of the Group, and in
particular during 2023 considered the new
risks facing the Group as a result of the
ongoing Russian invasion and also changes
to country-related risks. For further details,
see pages 74 to 90 of the Strategic Report.
The Board is supported by the Executive
Committee, which meets approximately
monthly. All information submitted to the Board
by management is reviewed and approved by
the Executive Committee prior to submission.
Modern Slavery Act Statement
During the year, the Board reviewed and
approved the Group’s Modern Slavery
ActStatement for the year ended
31 December 2022 (a copy of which
isavailable at www.ferrexpo.com).
Executive appointments and
succession planning
Nikolay Kladiev was appointed as an
Executive Director on 25 May 2023.
Lucio Genovese was appointed as Executive
Chair on an interim basis on 1 July 2023.
For further details see page 123 of the
Nominations Committee Report.
Other matters discussed were:
– oral reports from the Chair of Board
Committee meetings held before the
Board meeting;
– diversity and inclusion;
– internal succession planning – talent
review;
– succession planning for Non-executive
Director recruitment and appointments;
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
– review of agenda and approval of minutes
from previous Board meeting and note
Board Committee minutes;
– interactions with auditors;
– Executive Chair’s report including
production and operations, iron ore market
conditions, and updates on the Russian
invasion of Ukraine and the position in
Ukraine;
– logistics update;
– update on DR growth markets;
– Chief Financial Officer’s report including
status vs. budget, forecasts, cash flow
position, and funding update;
– related party matters (including Directors’
interests/conflicts);
– investor relations report (including
shareholder feedback);
– strategy, business plan and budget;
– formal risk review;
– compliance matters;
– HSEC Committee matters, including
Health and Safety, carbon reduction and
community spending; and
– Board refreshment, succession planning,
Director independence and Committee
composition.
Matters reviewed as required included:
– the Group’s continued response to the
Russian invasion of Ukraine and actions
taken to protect the Group and its
workforce;
– review of half-year or annual results, going
concern and viability, dividend policy and
recommendations, investor presentation;
– geopolitical matters;
– internal evaluation of the performance of
the Board, Executive Chair, Directors and
Company Secretary;
– review of the AGM statement, and proxy
agency comments and recommendations;
– annual review of bank relationships with
the Group within and outside Ukraine;
– annual review of the Treasury Policy;
– approval of the 2022 Modern Slavery
Statement; and
– the CSR budget.
During 2023, the Board also held sessions
atwhich the relevant executive heads of
department led detailed presentations on
operations, finance, HR and management
succession planning, sales and marketing,
investor relations and communications.
Board virtual site visit and
Strategy Day
Due to travel restrictions resulting from the
Russian invasion of Ukraine, the Board
was unable to conduct the planned visit of
the Group’s operations in Horishni Plavni,
Ukraine. The alternative arrangement was
a Board virtual site visit and Strategy Day.
The Board received a progress update on
actions taken from 2022 and noted the
achievements and completion of all 2022
actions during the year.
The Board received presentations from
executive management on:
Day 1
– expected results and plan for 2024;
– scenario planning for extended war and
post-war preparation for Plant and Mining
operations;
– marketing scenario planning and
alternative logistics;
– organisational structure and Base Erosion
and Profit Sharing requirements for 2024;
– ESG – Decarbonisation projects and
Green Mining Electrification project
update; and
– Investor Relations – market engagement
plans for 2023/24 given context of
extended war.
Day 2
– legal training for Directors from Legal
advisers Herbert Smith Freehills.
The Board had a dedicated training session
with its legal adviser Herbert Smith Freehills.
This training session was held on Day 2
of the Board Strategy Days in September
2023 and covered key areas relevant to the
Directors in responding to events facing
the Group in Ukraine, including the seven
statutory directors’ duties and actions which
the Board may be able to take to protect the
Group’s interest in Ukraine. Case studies
of other mining and non-mining entities
operating in a country at war or during a
time of war were examined in detail.
All matters discussed aligned with the Ferrexpo
strategic pillars: Health and Safety, Financial
Strength, Technology and Innovation, Product
Quality, Growth and Licence to Operate.
The actions from the Strategy Day were
collated and disseminated to the relevant
executives for execution during the year.
Post AGM engagement
During the year, we consulted with
shareholders in person and in writing on a
number of important corporate governance
issues, three of which were following
significant votes against Resolutions 7, 11
and 12 at the 2023 AGM (re-election of Vitalii
Lisovenko, to authorise the directors to allot
shares and to empower the directors to
disapply pre-emption rights). Based on the
feedback received, the Board understands
that the votes against Vitalii Lisovenko arose
as a result of concerns regarding certain
historic corporate governance issues and
the votes against resolutions 11 and 12 were
primarily as a result of the Company’s largest
shareholder not wanting to incur further
dilution to its voting interest in the Company.
The Company has since the AGM continued
to engage with its largest shareholder in the
ordinary course on a range of issues and
will consult with the largest shareholder
ahead of the 2024 AGM as to its position
on the share allotment and disapplication
of pre-emption rights resolutions.
Board evaluation cycle
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Corporate Governance Report continued
Board Evaluation
Board performance evaluation
Under the UK Corporate Governance Code, the Board is required to undertake annually a formal
and rigorous evaluation of its own performance and that of its Committees and individual Directors.
This evaluation should be externally facilitated every three years.
Review of 2022 internal Board performance
The Board and its Committees consider their effectiveness regularly and the outcome and findings
from the 2022 internal review were progressed throughout the year with the following actions taken:
Action to be taken Actions taken
Board composition The Board, with support from the Nominations Committee, continued its search for a Director
from an ethnic minority background. Search agents were appointed and a number of candidates
were selected for interview. The search continues.
Appointment of female Chair of HSEC Committee.
Due to Board changes, unfortunately female representation on the Board reduced from 43% in
2022 to 29% as at 31 December 2023, although increased to 33% on 1 January 2024 following
the resignation of a male director.
Succession planning within
thebusiness and senior management
including diversity
More females have been promoted during the year. To that end, the number of females in
management roles (defined as roles that are grade 10 and above based on the Group’s internal
grading system) increased by 1.4%, from 20.9% in 2022 to 22.3% in 2023.
Overall, the number of females employed increased by 2.2%, from 28.7% in 2022 to 30.9% in
2023.
The above outcomes are a result of the Group’s diversity programme targeting female
representation and the lead programme for promoting gender diversity in management known
as “Fe_munity” and the development of specific programmes designed to retain and promote
females within the business, all of which are fully supported by the Board and senior
management.
Balanced skill set
Ensure Non-executive Directors
continue tobring the right skill set
and tobalance the workload of the
BoardCommittees
Following on from a wholesale refresh of the Board skills matrix in 2022, during the year the
Board undertook a thorough review of the refreshed Board skills matrix and agreed that for the
time being it is satisfactory and fit for purpose. A further review of the Board skills matrix will be
undertaken in early 2024 to re-assess and address the skills matrix required particularly in light
of the ongoing Board succession planning and the search for a director from an ethnic minority
background.
During the year, the workload of the Board Committees was rebalanced with Ms MacAulay
stepping down as a member of the Audit Committee on 1 August 2023 and the appointment of
Ms Polischuk as Chair of the Health, Safety, Environment and Community Committee. Therefore,
of the five Board Committees, 40% are chaired by females.
Explore ways to enhance workforce
engagement and bring findings to the
Boardroom
The Board reviewed and changed the format of workforce engagement from large town hall
sessions into smaller more intimate groups where individuals felt more comfortable to open up
and raise matters. Members of the workforce welcomed the change in format which was
reflected in their feedback of the event. Mr Lisovenko, Non-executive Director designate for
workforce engagement, being resident in Ukraine, visited the workforce in December 2023 and
provided feedback at the following scheduled Board meeting.
Continue to improve Board reporting,
particularly management report
writing
Board reporting has improved significantly with some key management reports streamlined.
Externally facilitated training among all report writers was not carried out due to other priorities
arising from the Russian invasion of Ukraine, but will be carried out in 2024, if possible.
Corporate resourcing Increased resourcing in Secretariat needs to be completed.
2021: External
2022: Internal
2023: Internal
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
2023 Internal Board performance
During 2023, the annual performance evaluation of the Board and its Committees was carried out internally using a questionnaire led by the
Group Company Secretary with external input from Clare Chalmers Ltd. The purpose was to build on the recommendations and areas identified
from the externally facilitated evaluation in 2021.
The evaluation process involved the completion of questionnaires by Board and Committee members, with responses collated anonymously
andanalysed by Clare Chalmers Ltd together with the Group Company Secretary.
The thematic evaluation focus areas included:
– Board composition, including Executive Chair transition, succession, development, leadership and dynamics;
– Board oversight: Strategy, performance, risk, people and culture;
– stakeholders and decision making;
– Board efficiency including secretarial support;
– leadership and succession decision making;
– Board planning; and
– the effectiveness of Board Committees.
Preparation, questionnaire design and content, formal interviews and reporting:
PREPARATION
– Executive Chair and Group Company Secretary reviewed the 2022 recommendations and outcomes to set the
scene for 2023.
– Executive Chair and Group Company Secretary held a scoping meeting to understand context and priorities.
– Review of Board and Board Committee papers and other relevant documentation, including Strategy papers and
the Board and Board Committee Forward Agenda Planner to identify key areas of focus.
– Individual interviews were scheduled with the Senior Independent Director and all the Non-executive Directors.
QUESTIONNAIRE
DESIGN AND
CONTENT
A comprehensive questionnaire was designed covering:
– Board: Constitution and Commitment, Leadership, Efficiency of Board Process, Board’s role, Development,
Stakeholders, of which there were 40 questions.
– Audit Committee: Constitution and Commitment, Leadership, Efficiency of Committee Process, Committee’s role,
Relationships, Development, of which there were 21 questions.
– Remuneration Committee: Constitution and Commitment, Leadership, Efficiency of Committee Process,
Committee’s role, Development, of which there were 20 questions.
– Progress/Achievement of 2022 internal evaluation recommendations, of which there were six questions.
FORMAL
INTERVIEWS
– Led by the Senior Independent Director, the other Directors also met without the Executive Chair present to
evaluate the Executive Chair’s performance and, separately, the Senior Independent Director also evaluated the
performance of the Directors.
REPORTING
– The completed questionnaires were collated anonymously and analysed externally by Clare Chalmers Ltd together
with the Group Company Secretary.
– Key findings and recommendations were shared with the Executive Chair, Senior Independent Director and Group
Company Secretary, and a draft report was prepared for review.
– The report was circulated to the Board and the feedback and comments from the questionnaires were discussed
at a Board meeting, before deciding which recommendations to take forward.
The review also included feedback on individual performance. This informed the annual process of individual Director evaluation, led by the
Senior Independent Director in place of the Executive Chair, which included one-to-one discussions with each Director on their performance,
contribution and any additional training and development needs. The Senior Independent Director led the annual review of the Executive Chair,
holding a one-to-one discussion to provide feedback on his performance. This was informed by a closed session of the Non-executive Directors,
excluding the Executive Chair, led by the Senior Independent Director. The Senior Independent Director also engaged the Chief Financial Officer
and Group Company Secretary to obtain their views on the Executive Chair’s performance.
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Ferrexpo plc Annual Reports & Accounts 2023
Corporate Governance Report continued
Board Evaluation (continued)
Feedback and report findings
The report was circulated to the Board and the feedback and comments from the questionnaires were discussed at a Board meeting, before
deciding which recommendations to take forward. Led by the Senior Independent Director, the other Directors also met without the Executive
Chair present to evaluate the Executive Chair’s performance and Senior Independent Director evaluated the performance of the Directors.
The questionnaire results demonstrated, despite the challenges associated with the war in Ukraine, progress has been made. Board members
agreed that the transition from Chair to Executive Chair was well managed, the Board is working effectively with the correct skills and experience
to support and to deal with challenges faced by the business; and that there is an open culture which responds well to constructive challenge.
The Board has made progress over the past year, and there are some ideas on areas for development to ensure the Board works even more
effectively. The evaluation process identified these development areas for focus in 2024. The Board will continue to consider and reflect on its
composition and what may be required for a future Non-executive Director hire to include future roles, skills and Board diversity including gender
and ethnicity. Issues are discussed and debated with full and frank discussions encouraged, and as the Board continues to develop, even further
input to Board discussions would be welcome. More one-to-one meetings with the Executive Chair, Senior Independent Director and Board
members could be used to discuss tailored individual development plans. The Executive Chair and Group Company Secretary will ensure
appropriate time is allocated to all agenda topics.
The Board has considered the findings of the evaluation and, overall, the review concluded that the Board is well balanced in terms of Board
dynamics but a further independent Non-executive Director would improve Board diversity. The Board is well led by a proactive and fully
engaged Executive Chair. The environment in the boardroom encourages appropriate challenge and debate with no one voice dominating
discussions. The Board and its Committees are well chaired and, except for the Nominations Committee which is run by the Executive Chair, run
by committed Independent Non-executive Directors.
In response to the main recommendations of the evaluation report, the Board has agreed the following key areas for focus in 2024:
Key areas for focus in 2024
Area Actions to be taken
Board composition – Continue to improve Board diversity in terms of ethnicity and gender.
Succession planning – Embed sound succession planning within the business and senior management including
diversity requirements.
Balanced skill set – Ensure Non-executive Directors continue to bring the right skill set and to balance the
workload of the Board Committees, planning early for future skills and experience for Board
succession.
Enhance workforce engagement – Continue to explore different ways to further enhance workforce engagement and bring
findings into the Boardroom and to monitor culture and values in the organisation.
Board efficiency and processes – Continue to plan the agenda allowing appropriate time for the most important topics.
– Consider an agenda slot at the end of some Board meetings for a wash-up session
focusing on what went well and what could have gone better.
– Consider a lessons learned exercise for the Board as well as a deep dive.
Corporate resourcing – Ensure bolstered resourcing for Secretariat.
Long-term Incentive Plans – Continue to work on the LTIP measures and appropriateness.
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Training and professional
development
The Executive Chair is responsible for agreeing
training and development requirements
with each Director to ensure they have the
necessary skills and knowledge to continue
to contribute effectively to the Board’s
discussions. All Directors receive updates
given to the Board as a whole on changes and
proposed changes in laws and regulations
affecting the Group, as and when necessary.
During 2023, the Board had a dedicated
training session with its legal adviser Herbert
Smith Freehills. This training session was
held on Day 2 of the Board Strategy Days
in September 2023 and covered key areas
relevant to the Directors in responding to
events facing the Group in Ukraine, including
the seven statutory directors’ duties and
actions which the Board may be able to take
to protect the Group’s interest in Ukraine.
Case studies of other mining and non-mining
entities operating in a country at war or during
a time of war were examined in detail.
Board Training and Development
Usually, site visits are held for the whole Board
annually, so as to ensure that all Directors
are familiar with the Group’s operations, and
Directors may also visit the operations of
the Group independently to the extent they
feel this is necessary. Due to the ongoing
conflict in Ukraine, the physical Board site
visit was cancelled and replaced with a
virtual site visit, as set out on page 109.
All Directors may take independent
professional advice at the expense of the
Company in the furtherance of their duties.
Induction
Following appointment, all Directors are
advised of their duties, responsibilities and
liabilities as a director of a public listed
company. In addition, an appropriate
induction programme is provided to each
Director upon appointment, taking into
consideration the individual qualifications,
experience and knowledge of the Director.
Induction training includes meeting senior
executives of the Executive Committee,
a detailed and structured site visit (or
alternative arrangements, where required
as a result of the ongoing conflict in
Ukraine), meeting the Company Secretary,
necessary training on corporate governance
aspects, and receiving various key
Company documentation and reports.
Mr Brown, who was appointed on 22 October
2023, received director induction training
in October 2023 and followed a tailored
induction programme covering a range of
key areas of the business. He met with the
Company Secretary, who provided a Board
Induction pack containing Company and
Board information to assist with building an
understanding of the nature and structure
of the Group, its business and markets. The
Board Induction pack also included information
to help facilitate a thorough understanding
of the role of a Director, the framework in
which the Board operates, Group policies
and procedures, constitutional documents
and regulatory codes and guidelines. He
also met with the Group’s external auditors,
MHA, and with the Group’s legal advisers,
Herbert Smith Freehills (HSF), to apprise him
of some of the risks and legal challenges
currently facing the Company. Mr Brown was
also briefed by the Chief Financial Officer
and Chief Human Resources Officer on the
financial position of the Company and the
Group’s risk management framework, as well
as key issues related to the management
of people and remuneration schemes.
In 2021, Ferrexpo introduced a Buddy
programme for newly appointed Directors.
The role of a Buddy is to provide mentoring
for the first three months during orientation
with the Company and its business.
During the year, Mr Dacomb completed
his Buddy duties for Mr Brown.
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Ferrexpo plc Annual Reports & Accounts 2023
Audit Committee Report
February
– Considered assumptions used for the going
concern and viability assessments and
impairment testing, including sensitivities and
reverse stress tests.
– Received an update on the progress of the
2022audit and analysed further work required.
– Considered the draft Annual Report and
Accounts for 2022.
– Reviewed the questionnaire to be used to
assess the external auditor’s performance.
– Reviewed Compliance Report including
whistleblowing cases.
– Reviewed the Group’s risk matrix and register.
– Reviewed an update on the Directors’ Interests
list and transactions with Related Parties.
– Reviewed the Audit Committee 2023
ForwardPlanner.
– Received an update on Audit Reform.
– Received an update on the FRC’s
AuditCommittee Minimum Standard
consultation.
– Held a private meeting with the auditors.
March
– Received the Report of the auditors to the
Committee.
– Reviewed letters of representation.
– Reviewed the Audit opinion.
– Reviewed the auditor’s Letter of Independence.
– Reviewed the 2022 Annual Report and Financial
Statements.
– Reviewed the going concern assessment and
impairment test.
– Considered the going concern and viability
statements.
– Discussed identified material uncertainties
andassessment of mitigating actions.
– Reviewed the Audit Committee Report.
– Reviewed the auditors 2022 performance
(StatutoryAudit Service Order) – analysis
ofscores.
– Reviewed the Compliance Report including
whistleblowing cases.
– Reviewed the Group’s risk matrix and register.
– Held a private meeting with the auditors.
May
– Received an update on 2022 audit follow up
matters – Management letter points
– Reviewed the auditors 2022 performance
(StatutoryAudit Service Order) – analysis
offinaldetailed scores.
– Reviewed 2023 audit planning, key dates and
preliminary audit plan.
– Reviewed an update on 2022 recommendations
from Internal Audit.
– Received an update on Cyber Security trends
and proposed actions approved.
– Received an update on Audit Reform.
– Discussed the risk assurance map and new
riskassurance platform
– Reviewed a Compliance Report including
whistleblowing cases.
– Reviewed the Group’s risk matrix and register.
– Reviewed an update on Directors’ Interests list
and transactions with Related Parties.
– Reviewed the Audit Committee 2023
ForwardPlanner.
– A private meeting with the auditors was held.
Key activities of the Committee in 2023
Key activities of the Audit Committee during 2023 are set out below.
Focused on management’s going concern
assessment while continuing to monitor the
integrity of the financial results.
Dear Shareholder,
On behalf of the Board, I am pleased to
present the Audit Committee Report for
the financial year ending 31 December
2023. The aim of this report is to provide
shareholders with insight into key areas that
have been considered, how the Committee
has discharged its responsibilities and lastly
provide assurance on the integrity ofthe
2023 Annual Report and Accounts.
The situation for the Group during the
financial year 2023 continued to be strongly
influenced by the ongoing war in Ukraine,
which also led to a significantly increased
involvement of the Committee to timely
identify and analyse the additional risks in
this unprecedented period for the Group.
The matters requiring increased involvement of
the Committee were primarily the assessment
of the Group’s going concern and viability
in light of the material uncertainties, but
also the considerations required when
preparing the Group’s impairment test for
its non-current operating assets as well as
the escalation of a number of legal matters
to be considered as a result of the change
of the political environment in Ukraine.
The Committee agenda focuses on audit,
compliance and risk management within the
Group, working closely with finance, external
audit, internal audit and management. Duringthe
year, the Committee has robustly assessed the
principal and emerging risks facing the business.
The Committee throughoutthe year took into
account the regular financial and internal audit
reports madeavailable to the Board, as well as
discussing issues with management and the
external auditors at intervals throughout the year.
As already disclosed for the Group Annual
Report and Accounts for the financial years
2022 and 2021, a critical area of focus for
the Committee has been the going concern
assessment itself and consequently the
consideration of the preparation of the
consolidated accounts on a going concern
basis, considering the ongoing war in Ukraine
and the circumstances under which the
Group has to operate, including the political
environment and the independence of the legal
system in Ukraine. As at the date of the approval
of these Consolidated Financial Statements,
the war in Ukraine is still ongoing. Although the
Group continued to demonstrate a high level
of commitment and resilience enabling it to
operate at a steady, but much lower capacity,
the war continues to pose a significant threat
to the Group’s mining, processing and logistics
operations within Ukraine and represents a
material uncertainty in terms of the Group’s
ability to continue as a going concern.
Scheduled meetings
Committee member
Eligible
to attend Attended
Graeme Dacomb 5 5
Vitalii Lisovenko 5 5
Fiona MacAulay 4 4
Natalie Polischuk 5 5
Stuart Brown 1 1
Membership and
meeting attendance
Stuart Brown
Chair of the Audit Committee
115
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
In addition to the war-related material
uncertainty, the Group is also exposed
tothe risks associated with operating in a
developing economy, which may or may not
be exacerbated by the war and/or the current
circumstances facing the Group’s controlling
shareholder (see Ukraine country risk on pages
76 to 78). As a result, the Group is exposed
to a number of risk areas that are heightened
compared to those expected in a developed
economy, such as an environment of political,
fiscal and legal uncertainties, which represents
another material uncertainty as at the date of
the approval of these consolidated financial
statements. The Committee had to address
and assess also the risks related to a contested
sureties claim in the amount of UAH4,727 million
(US$124 million as at 31 December 2023) and
the application to open bankruptcy proceedings
(“creditor protection proceedings”) against the
Group’s major subsidiary in Ukraine filed by
a supplier and related party to the Group as
an unfavourable outcome in these two cases
might affect the Group’s ability to continue as a
going concern. See Note 2 Basis of preparation
and Note 30 Commitments, contingencies
and legal disputes for further information.
As a result of the war, the local audit team in
Ukraine could not be on-site and the required
audit procedures have been performed
remotely as it was done already for the 2022
year-end audit. In terms of the audits on
Group level, our external auditor MHA was
on-site at our office in Baar and was able to
complete its annual audit procedures for the
preliminary and year-end audits as planned.
Likewise, the Committee has been able to
physically meet with both management and
the auditors. The current situation in Ukraine
required additional work from our external
auditors, primarily in terms of the material
uncertainty surrounding the Group’s going
concern and viability assessment in light of
the ongoing war, but also in relation to the
escalation of the number of legal proceedings
and disputes mainly as a result of the change
of the political environment in Ukraine.
In addition to the war-related material
uncertainty, the Group is also exposed
tothe risks associated with operating in
adeveloping economy, which may or may
not be exacerbated by the war and/or the
current circumstances facing the Group’s
controlling shareholder (see Ukraine country
risk on pages 76 to 78). As a result, the
Group is exposed to a number of risk areas
that are heightened compared to those
expected in a developed economy.
During the year, the Committee continued
to consider the status of the proposed
regulatory change of the UK Government
Consultation on ‘Restoring trust in audit
and corporate governance: proposals on
reforms’. The Committee reviewed the future
potential impacts this could have on the
Group as well as on the Committee in order
to understand the latest developments and
plan potential implications in a timely manner.
Increased TCFD disclosure requirements
were also a focus for the Committee and
environmental consultants Ricardo plc were
involved to assist in enhancing the Group’s
existing climate change reporting, scenario
analysis and potential pathways to net zero
iron ore pellet production. Through this
work, Ricardo plc’s analysis has helped
to enhance the Group’s carbon reduction
targets, as announced in the Group’s
Climate Change Report in December
2023. However, considering the current
situation in Ukraine and the challenging
circumstances that are both outside of our
control, we may also need to adjust our net
zero targets and the way we report them.
During 2023 a life cycle analysis was completed
on Ferrexpo DR pellets. The results show that
the Ferrexpo DR pellet route (EAF) can reduce
37% of embodied carbon emissions compared
to the ‘traditional fossil based’ sinter-BF route
for producing SAE 1006 grade steel. We are
using this baseline result as a starting point
to build on and address impact hotspots
and further minimise our overall impact on
climate change. This assessment was largely
theoretical, so in 2024 the intention is to use this
initial work for a more real scenario, namely, to
model the emissions for blast furnace pellets
sold to and processed to a large German
customer. The Group was not required to do
a follow up Climate Change Report in 2023,
though the intention is to do one towards the
end of 2024. This report will need to consider
any changes in decarbonisation targets
due to the ongoing war and in the inability
to plan longer term at the current time.
Detailed below is further information on the role,
structure and key activities of the Committee
and significant judgements it has considered in
2023. I hope this additional information about
the Committee and its activities is useful.
Stuart Brown
Chair of the Audit Committee
Key activities of the Committee in 2023
Key activities of the Audit Committee during 2023 are set out below.
July
– Presentation and review of half-year accounts.
– Reviewed the going concern assessment and
impairment test.
– Considered the going concern statement.
– Received auditor’s Review Report to the Audit
Committee.
– Received an update on Cyber Security and IT
Security audit.
– Received an update on the ESG Disclosure
Audit.
– Received an update on proposed Audit Reform.
– Reviewed the Group’s risk matrix and register.
– Reviewed the Director’s Interests list and
transactions with Related Parties.
Reviewed a Compliance Report, including
whistleblowing cases.
December
– Received an update on TCFD and ESG double
materiality reporting.
– Received a report on the outcome of the
2022Internal Audit plan and progress update
on2023.
– Reviewed the preliminary Internal Audit plan
for2024.
– Considered the Group’s work plan for the
2023year end.
– Considered a report from the external auditors
on progress of the preliminary audit for 2023.
– Reviewed an external audit planning report.
– Received an update on the 2024 internal
auditplan.
– Received a progress update on the 2023 internal
audit matters.
– Received an update on the planned process
forthe viability and going concern assessment.
– Received an update on proposed Audit Reform.
– Reviewed a Compliance Report including
whistleblowing cases.
– Reviewed the Directors’ Interests list and
transactions with Related Parties.
– Reviewed the Group’s risk matrix and register.
– Reviewed the Audit Committee 2024 Forward
Planner.
116
Ferrexpo plc Annual Reports & Accounts 2023
Audit Committee Report continued
Significant issues and judgements
The significant issues and judgements considered by the Committee in respect of the 2023 Annual Report and Accounts are set out below:
Judgements/actions taken
The ongoing war in Ukraine continues to pose a significant threat to the Group’s mining, processing and logistics operations, despite the fact that continued
todemonstrate a high level of commitment and resilience enabling it to operate at a steady, but at a much lower capacity
The war related material uncertainty is predominantly related to the provision and availability of logistics capacity required for the production and delivery of the
Group’s products to customers in its key markets, subject to the availability of Black Sea ports in Ukraine. As in the previous financial year, the Group had to
adjust during the financial year 2023 its production level to the sales currently possible, which continues to have an impact on the Group’s cash flow generation
and profitability.
Despite the unprecedented and challenging situation, the Group’s net cash position has remained stable at US$108 million, compared to US$106 million
asat31 December 2022. As at the date of the approval of these Consolidated Financial Statements, the Group is in a net cash position of approximately
US$91million with an available cash balance of approximately US$96 million. In addition to the available cash balance, the Group has an outstanding trade
receivable balance of approximately US$49 million from its pellet and concentrate sales in January and February 2024, which are expected to be collected
inthe next few months.
As mentioned above, the Group is exposed to a number of risk areas that are heightened compared to those expected in a developed economy, such as
anenvironment of political, fiscal and legal uncertainties, which require a significant portion of critical judgements to be made by the management, mainly in
respect of a contested sureties claim in the amount of UAH4,727 million (US$124 million as at 31 December 2023, which required specific consideration also
from a going concern perspective. See Note 30 Commitments, contingencies and legal disputes for further details, also in respect of the high degree of
management judgement required, in respect of the potential impact of seizure of assets in respect of the contested sureties claim.
The Audit Committee has reviewed the key assumptions used for the Group’ long-term model, which forms the basis for the management’s going concern
assessment. The key assumptions have been adjusted to reflect the latest developments in terms of currently possible sales volumes as well as latest market
prices and production costs, which are adversely affected by lower production volumes. As in the previous long-term model in 2022, the production volume is
currently aligned to the possible sales volume in order to maintain a solid net cash position. The latest base case of the long-term model shows that the Group
has sufficient liquidity to continue its operations at a reduced level for the entire period of the management’s going concern assessment, even allowing for
reasonably possible or plausible adverse changes in respect of realised prices, lower production and sales volumes as well as higher production costs.
However, as mentioned above, the production and sales volumes are heavily dependent on the logistics network available to the Group and the determination
of the key assumptions requires a significant level of management estimation.
The Audit Committee has also reviewed the Group’s reverse stress tests reflecting more severe adverse changes, such as a combination of all reasonably
possible or plausible adverse changes in respect of realised prices, lower production and sales volumes as well as higher production costs, which is unlikely to
happen in combination as a result of the natural hedge of iron ore prices and prices for key input materials. Based on the stress tests performed, it is expected
that the Group would have sufficient liquidity for up to 12 months before making use of any available mitigating actions within its control, such as further
reductions of uncommitted development capital expenditures and operating costs.
Role of the Committee
The Committee’s objectives and
responsibilities are set out in its terms of
reference which are available to view on the
Company’s website at ferrexpo.com. The
Committee’s main responsibilities are:
– Monitoring the integrity of the annual and
interim financial statements and the
accompanying reports to shareholders.
– Making recommendations to the Board
concerning the approval of the annual and
interim financial statements.
– Reviewing and monitoring the adequacy
and effectiveness of the Group’s risk
management and internal control
mechanisms as well as in terms of the
disclosures on the Group’s Principal Risks
as contained on pages 74 to 90.
– Approving the terms of reference of the
internal audit function and assessing its
effectiveness.
– Approving the Internal Audit plan and
receiving regular reports from the Group’s
Head of Internal Audit.
– Overseeing the Group’s relations with the
external auditor, including an assessment
of their independence, effectiveness and
objectivity.
– Overseeing completion of the Group’s
going concern and viability assessment
and statements thereon.
– Reviewing and monitoring the Group’s
whistleblowing procedures and the
Group’s systems and controls for the
prevention of bribery and corruption.
During the year ended 31 December 2023,
the Committee has ensured that it has had
oversight of all these areas listed. The Board
also asked theCommittee to advise it as to
whether the Annual Report and Accounts are
fair, balanced and understandable and
provide the information necessary for
shareholders to assess the Group’sposition,
performance, business modeland strategy.
Committee membership
andattendance
On 1 August 2023 Fiona MacAulay stepped
down as a member of the Committee.
As at the year end, the Committee comprised
four Independent Non-executive Directors:
– Graeme Dacomb (Chair of the Committee);
– Vitalii Lisovenko;
– Natalie Polischuk; and
– Stuart Brown
Stuart Brown joined the Committee in
October 2023 and was appointed Chair of the
Committee with effect from 1 January 2024.
In addition to the five meetings held in 2023,
the Audit Committee has met twice to date
in 2024. All members of the Committee are
considered to possess appropriate knowledge
and skills relevant to the activities of the
Group, and Stuart Brown has recent and
relevant financial experience. See page 99 of
the Corporate Governance section regarding
his skills, expertise and contributions.
In addition to its members, other individuals
and external advisers, and the Executive
Chair of the Board, may be invited to
attend meetings of the Committee at the
request of the Committee Chair. Regular
attendees at meetings include the Chief
Financial Officer, Group Financial Controller,
Group Company Secretary and audit
partners of our external auditor MHA. The
Committee has an opportunity to meet
with the external auditors at the end of its
scheduled meetings, without the Executive
Director or management being present.
117
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Judgements/actions taken
However, as at the date of the approval of these Consolidated Financial Statements, the Group has assessed that, taking into account:
– its available cash and cash equivalents;
– its cash flow projections, adjusted for the effects caused by the war in Ukraine, for the period of the management’s going concern assessment covering
aperiod of 18 months from the date of the approval of these Consolidated Financial Statements;
– the feasibility and effectiveness of all available mitigating actions within the Group management’s control for identified uncertainties; and
– the legal merits in terms of the ongoing legal disputes mentioned above and potential future actions available to protect the interests of the Group in case
ofa negative decision from the Supreme Court of Ukraine and other courts in Ukraine;
there is a material uncertainty in respect of the ongoing war and the legal disputes, as some of the uncertainties remain outside of the Group management’s
control, with the duration and the impact of the war still unable to be predicted, and the uncertainty remains in relation to independence of the judicial system
and its immunity from economic and political influences in Ukraine.
In respect of the contested sureties claim mentioned above, no enforcement procedures have commenced as at the date of the approval of these consolidated
financial statements, however the commencement of such procedures may be initiated by the claimant anytime between this approval and the date of the
expected hearing by the Supreme Court. The commencement of the enforcement procedures could have a material negative impact on the Group’s business
activities and its ability to continue as a going concern.
The Group’s Principal Risks section on pages 74 to 90 provided further information on the Ukrainian country risk to which the Group is seriously exposed,
including the conflict risk and the risks related to operating in a developing economy.
Considering the current situation of the war in Ukraine, the Group’s ability to swiftly adapt to the changing circumstances caused by the war, as demonstrated
during the financial years 2023 and 2022, and the results of the management’s going concern assessment, the Group continues to prepare its consolidated
financial statements on a going concern basis. However, many of the identified uncertainties are outside of the Group management’s control, such as the
duration and severity of potential threats, and are unpredictable, which may cast significant doubt upon the Group’s ability to continue as a going concern.
See Note 2 Basis of preparation to the Consolidated Financial Statements on page 176 for further information.
The Committee also considered management’s analysis of the impact of the war in Ukraine on the Group’s viability. Although the Group has managed to
continue its operations since the beginning of the war, the war continues to pose a significant threat to the Group’s mining, processing and logistics operations
within Ukraine. The Committee concurs with management’s conclusion that, notwithstanding all of the available mitigating actions, a material uncertainty still
remains as some of the identified uncertainties are outside of Group Management’s control. See Viability Statement on pages 91 to 92 for further information.
Impairment considerations of the Group’s non-current operating assets as a result of the war (Note 13 to the Consolidated
FinancialStatements)
The ongoing war continues to have an adverse impact on the Group’s production and cash flow generation and it is expected that this will continue to be the
case until the war comes to an end. Throughout 2023, the continued unavailability of the Port of Pivdennyi in Ukraine had a significant adverse impact on the
Group’s seaborne sales and consequently on its cash flow generation.
A number of significant judgements and estimates are used when preparing the Group’s financial long-term model, which are, together with the key
assumptions used, reviewed by the Audit Committee. The Group’s long-term model is based on management’s best estimate of reasonably conservative key
assumptions, taking also into account the current circumstances the Group has to operate in. Due to the continued restriction of the logistics network in
Ukraine, the production volume is aligned to the possible sales volume. Further information on the key assumptions used are disclosed in Note 13 Property,
plant and equipment.
Based on the base case of the Group’s impairment test prepared for the 2023 year-end accounts, there is no additional impairment loss on the Group’s single
cash generating unit’s operating non-current assets, including property, plant and equipment as well as other intangibles assets and other non-current assets,
to be recognised as at 31 December 2023.
The Committee is aware that the level of judgement significantly increased, compared to the years before the war commenced. Beside the normal judgement
in terms of production and sales volumes, anticipated prices for iron ore products and costs for input material, the outcome of the impairment test is also
heavily dependent on when the war is expected to end. The production capacity used for the base-case cash flow projection is expected to be approximately
45% of the pre-war level for the financial year 2024, before an increase to approximately 80% in 2025 and an expected recovery to pre-war levels in 2026.
As mentioned above, the preparation of the long-term model and the impairment testing in these unprecedented times involves a high degree of judgement
and any adverse changes in key assumptions would further reduce the value in use of the Group’s operating non-current assets. Based on the sensitivities
prepared, a delay of the recovery of the production and sales volumes to a pre-war level by another year, with all other assumptions remaining unchanged,
would reduce the value in use of the Group’s non-current operating assets by approximately another US$326 million A reduction of the realised price by
US$5per tonne for each year until 2048 would increase the impairment loss by approximately US$171.6 million and a decrease of the production and sales
volume by 10%, combined with an increase of the production costs by 5%, again for the entire period, would increase the impairment loss by approximately
US$196.8 million whereas every 1.0% increase of the nominal pre-tax discount rate would increase the impairment loss by approximately US$52.6 million, with
all other assumptions remaining unchanged. The recorded impairment during the financial year 2022 is to be reassessed at the end of any future reporting
periods. Ifthere are positive developments in the Group’s future cash flow generation and the relevant macro-economic data, a portion of the impairment loss
might reverse in future periods. As at 31 December 2023, there is no partial or full reversal of the impairment loss recognised during the financial year 2022 to
be recorded.
118
Ferrexpo plc Annual Reports & Accounts 2023
Audit Committee Report continued
Judgements/actions taken
Taxation in general and tax legislation in Ukraine (Note 11 to the Consolidated Financial Statements)
The Group operates across a number of jurisdictions through its value chain and prices its sales between its subsidiaries using international benchmark
pricesfor comparable products covering product quality and applicable freight costs. The Group judges these to be on terms which comply with applicable
legislation in the jurisdictions in which the Group operates. The pricing of cross-border transactions is an inherent risk for any multinational group and regular
audits are to be expected. On 18 February 2020, the State Tax Service of Ukraine (“STS”), formerly known as SFS, commenced two tax audits for cross-border
transactions between the Group’s major subsidiary in Ukraine and two subsidiaries of the Group outside of Ukraine in relation to the sale of iron ore products
during the financial years 2015 to 2017. Further to that, on 14 June 2021, the STS commenced another tax audit for the financial years 2015 to 2017 for
cross-border transactions of another Ukrainian subsidiary with the same two subsidiaries of the Group outside of Ukraine.
The tax audits have been completed in the second half of the financial year 2023 and the Group’s two major subsidiaries in Ukraine received the tax audit
reports on stating potential claims for underpayment of corporate profit taxes in Ukraine of UAH2,162 million (US$56.9 million as at 31 December 2023),
including fines and penalties, and UAH259 million (US$6.8 million as at 31 December 2023), including fines and penalties, respectively. Both subsidiaries
filedthe objections against the potential claims stated in the tax audit reports received.
Despite the two claims received, it is still management’s view that the Group has complied with the applicable legal provisions in all its cross-border
transactions based on the relevant technical grounds, including those during the financial years 2015 to 2017 for which substantial claims have been received.
Having considered the background of the claims the Committee shares management’s view that the Group has complied with applicable legislation for its
cross-border transactions based on the relevant technical grounds. As a consequence, no provision has been recognised as at 31 December 2023 for the
twospecific claims received as these claims will have to be heard by the courts in Ukraine. However, the Committee is aware that there is a risk that the
independence of the judicial system and its immunity from economic and political influences in Ukraine is not upheld and if so the Group could be subject to
material financial exposures relating to the tax audits.
Completeness of contingencies and legal disputes (Note 30 to the Consolidated Financial Statements)
The Committee is aware that the Group is, in addition to the war-related uncertainties described under Assessment of the Group’s going concern and viability
statements on page 91, also exposed to the risks associated with operating in a developing economy, which may or may not be exacerbated by the war and/or
the current circumstances facing the Group’s controlling shareholder. As a result, the Group is exposed to a number of risk areas that are heightened
compared to those expected in a developed economy, including an environment of political, fiscal and legal uncertainties.
As disclosed in the 2022 Annual Report and Accounts and 2023 Interim Results, one of the Group’s major subsidiaries in Ukraine, Ferrexpo Poltava Mining
(“FPM”), received in December 2022 a claim in the amount of UAH4,727 million (US$124 million as at 31 December 2023) in respected of contested sureties.
Inrespect of this claim, the Group announced on 29 January 2024 that a Ukrainian court of appeal has confirmed the afore-mentioned claim against FPM in
full (see Note 30 Commitments, contingencies and legal disputes for further details). The claim and court decision received is another example of operating in
adynamic and adverse political landscape in Ukraine, which creates additional challenges for the Group’s subsidiaries in Ukraine, but also for the Group itself.
In accordance with the requirements of IAS 37 Provisions, contingent liabilities and contingent assets, the management proposed to record a full provision for
the contested sureties claim in the amount of US$124 million. The Committee reviewed the position paper of management addressing possible accounting
implications, such as the recognition of a provision under the relevant accounting standard, but also on the Group’s going concern assessment. Considering
the magnitude of this specific claim, the Committee concurred with management that a full provision for this ongoing legal dispute is to be recognised as at
31 December 2023 and that this dispute represents another material uncertainty in terms of the Group’s ability to continue as a going concern.
A provision for the full amount is to be recognised as at 31 December 2023 as the decision of the court of appeal constitutes a legal obligation in accordance
with the relevant accounting standard, despite the fact that FPM filed on 30 January 2024 a cassation appeal to the Supreme Court of Ukraine, and that the
probability of a potential future outflow of resources is outside of the Group’s control. It is still management’s view that FPM has compelling arguments to
defend its position in the Supreme Court of Ukraine as this claim is without substance and legal merits, but there is a risk that the independence of the judicial
system and its immunity from economic and political influences in Ukraine is not upheld. See Note 30 Commitments, contingencies and legal disputes for
further details, also in respect of the high degree of management judgement required, in respect of the potential impact of seizure of assets in respect of the
contested sureties claim.
In addition to the contested sureties claim, the Group recognised also a provision over UAH136 million (US$4 million) for a challenge from two minority
shareholders of FPM in respect of a challenge of squeeze-out procedures of minority shareholders commenced and completed during the financial year 2019.
The Group is currently involved in the following other ongoing legal proceedings and disputes, which are disclosed in full detail in Note 30 Commitments,
contingencies and legal disputes to the Consolidated Financial Statements:
– share dispute related to the Group’s major subsidiary in Ukraine;
– royalty-related investigation and claim;
– investigations on use of waste product;
– currency control measures imposed in Ukraine;
– ecological claims; and
– cancellation of licence for Galeschynske deposit.
As mentioned above, the Group is operating in a developing economy and most of the matters to be considered by the Committee are seen to be a result
ofoperating in such an environment. As at the date of the approval of these consolidated financial statements, no enforcement procedures have been
commenced and on 1 April 2024 the Supreme Court of Ukraine suspended the possible enforcement of the decision of the Ukrainian court of appeal, so
thatsuch enforcement procedures cannot be initiated by the claimant until a final decision is made by the Supreme Court of Ukraine, or the Supreme Court’s
suspension order is otherwise lifted. If the final ruling of the Supreme Court is not in favour of the FPM, the claimant may take steps to appoint either a state
ora private bailiff and request the commencement of the enforcement procedures, which could have a material negative impact on the Group’s business
activities and its ability to continue as a going concern, as the assets of FPM could be seized or subject to a forced sale.
Following the thorough review of management’s position and legal advice received for the matters listed above, the Committee concluded that the disclosures
made in Note 30 Commitments, contingencies and legal disputes to the Consolidated Financial Statements provide an adequate level of detail to allow the
reader of the accounts to understand the potential consequences and the related exposure. The Committee also concurs with management’s view that no
additional provisions have to be recognised for other ongoing legal proceedings and disputes in the consolidated statement of financial position as at
31 December 2023.
Events after the reporting period (Note 35 to the Consolidated Financial Statements)
The following two events after the reporting period are summarised below.
As disclosed in Note 30 Commitments, contingencies and legal disputes, the Group received two negative decisions from courts of appeal
inUkraine in respect of ongoing legal proceedings and disputes that commenced already during the financial year 2023. As a result of these
negative court decisions, the Group recognised provisions in the amount of US$124 million for a contested sureties claim and US$3.7 million in
relation to a claim from two former shareholders of one of the Group’s Ukrainian subsidiaries in respect of a squeeze-out of minority shareholders.
119
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Internal control and risk
management
Internal controls – general
The Board, with assistance from the
Committee, regularly reviews the policies
and procedures making up the internal
control and risk management system, and
any significant matters reported by the
Executive Committee. The risk register is
considered at every scheduled Board and
Committee meeting, with specific risks
discussed in detail as and when required.
The Board has delegated its responsibility
forreviewing the effectiveness of the internal
control and risk management system to
the Committee. In making its assessment,
the Committee considers the reporting
provided to it during the year in relation to
internal control systems and procedures,
including the risk matrix and register, and
mayrequest more detailed investigations
intospecific areas of concern if appropriate.
Key elements of the internal control and
risk management system include:
– The Group has in place a series of policies,
practices and controls in relation to the
financial reporting and consolidation
processes, which are designed to address
key financial reporting risks, including risks
arising from changes in the business or
accounting standards and to provide
assurance of the completeness and
accuracy of the content of the Annual
Report and Accounts.
– Regular review of risk and identification
ofkey risks at the Executive Committee
which are reviewed by the Committee and
by the Board.
– The FRMCC, an executive sub-committee,
is charged, on behalf of the Executive
Committee or Committee, as appropriate,
with ensuring that, inter alia, systems and
procedures are in place to comply with
laws, regulations and ethical standards.
The Group Compliance Officer attends
FRMCC meetings, and, as necessary,
local compliance officers from the Group’s
operations, attend and present regular
reports to ensure that the FRMCC is given
prior warning of regulatory changes and
their implications. The FRMCC enquires
into the ownership of potential suppliers
deemed to be “high risk”, and oversees
the management of conflicts of interests
below Board level andgeneral compliance
activities (including under the UK Bribery
Act, the Modern Slavery Act, the Criminal
Finances Act, and the EU General Data
Protection Regulation). The FRMCC also
reviews financial information, management
accounts, taxation, cash management,
risk including counterparty risk, the risk
register and third party risks. The FRMCC
met ten times in 2023.
– Clearly defined organisational and
reporting structure and limits of authority
for transaction and investment decisions,
including any with related parties.
– Clearly defined processes for the review
and approval of related party listings and
transactions and appropriate review and
approval from the Committee of
Independent Directors and the Executive
Related Party Matters Committee
(“ERPMC”). Additional procedures are in
place locally to ensure the completeness
and the arm’s length nature of related
party transactions, such as background
checks and tender processes. The
ERPMC met nine times in 2023.
– Clearly defined information and financial
reporting systems, including regular
forecasts and an annual budgeting
process with reporting against key
financial and operational milestones.
– Investment appraisal underpinned by
thebudgetary process, where capital
expenditure limits are applied to delegated
authority limits.
– The Investment Committee (an executive
sub-committee) meets as required in order
to consider and approve capital
expenditures within limits delegated by the
Executive Committee and the Board. The
Investment Committee did not meet in
2023 as no investment decisions were
required since the onset of the war.
– A budgetary process and authorisation
levels to regulate capital expenditure.
Forexpenditure beyond specified levels,
detailed written proposals are submitted to
the Investment Committee and Executive
Committee and then, if necessary, to the
Board for approval.
– Clearly defined Treasury Policy (details of
which are given in Note 27 Financial
instruments to the Consolidated Financial
Statements on pages 211 and 212), which
is monitored and applied in accordance
withpre-set limits for investment and
management of the Group’s liquid
resources, including a separate treasury
function.
– Internal audit by our in-house audit team
based in Ukraine (see below), which
monitors, tests and improves internal
controls operating within the Group at all
levels and reports directly to the Chair of
the Committee, and to the Group CFO for
line management purposes.
– A standard accounting manual is used by
the finance teams throughout the Group,
which ensures that information is gathered
and presented in a consistent way that
facilitates the production of the
Consolidated Financial Statements.
– A framework of transaction and entity-level
controls to prevent and detect material
error and loss.
– Anti-fraud measures through an internal
security department operating in the
Company’s key operating subsidiaries.
– A whistleblowing policy is in place under
which staff may in confidence, via an
independent, secure website, raise
concerns about financial or other
impropriety, which are followed up
byInternal Audit and reported on to
theBoard.
The Committee and the Board continued
toreview ongoing litigation affecting the
Group throughout the year (see Note 30
Commitments, contingencies and legal
disputes to the Consolidated Financial
Statements on pages 217 to 223),
andreceived regular update reports and
presentations from legal counsel.
Full details of the Group’s policy on credit,
liquidity and market risks and associated
uncertainties are set out in Note 27 Financial
instruments to the Consolidated Financial
Statements on pages 211 to 215. See also the
Principal Risks section of the Strategic Report
on page 72.
Internal audit
The internal audit function has a Group-wide
remit, and the Head of Internal Audit (who has
mining experience) reports directly to the Chair
of the Committee and to the Group CFO.
The Committee reviews at least annually the
effectiveness of the internal audit function by
assessing outcomes against plan targets, and
is satisfied, following its 2023 assessment,
with the rigour of the internal audits and with
management’s response to the audit findings
and recommendations. The resources of
internal audit are also monitored to ensure
appropriate expertise and experience. An
Internal Audit plan for 2024 was approved
by the Committee in December 2023.
The Internal Audit plan for 2023 was approved
by the Audit Committee. The full scope
audits focused on the operations cycle,
Griding bodies for FPM, procurement cycle
for FYM, operational risks relating to Group
sales for FAG, FME and FBM, Treasury cycle
(financial controls) for FAG, FME and FBM,
FPM Purchasing and Inventory Management
– RM and MRO, DP Ferrotrans and First
DDSG Logistics Holding GmbH. A limited
scope review of the Ferrexpo Humanitarian
Fund in Ukraine. The Committee received a
report from the Head of Internal Audit twice
during the year, and reviewed the progress
of the Internal Audit plan with the external
auditors and the Head of Internal Audit.
The reports include the Head of Internal
Audit’s assessment of the operation and
effectiveness of relevant elements of the
Company’s internal control systems, and
formed part of the Committee’s ongoing
monitoring and assessment of such systems.
120
Ferrexpo plc Annual Reports & Accounts 2023
Audit Committee Report continued
External audit
Auditor independence and assessment
of audit process effectiveness
The Audit Committee and the Board place
great emphasis on the independence
and objectivity of the Company’s external
auditors when performing their role in the
Company’s reporting to shareholders.
The effectiveness of the audit process and
the overall performance, independence
and objectivity of the external auditors are
reviewed annually at the end of the annual
reporting cycle by the Committee, taking
into account the views of management. This
review is undertaken through a structured
questionnaire, assessing the auditor’s
performance under various headings: the
robustness of the audit, the quality of delivery,
the calibre of the audit team and value added
advice. The results of the survey indicated that,
overall, the external auditor’s performance
was considered very good by the respondees
with significant improvement in the scores
from respondees in Ukraine. A couple of
areas for improvement were noted but none
impacted on the effectiveness of the audit.
The outcome of the 2023 review in respect of
the 2022 Annual Report and Accounts was
discussed with the relevant partners of MHA.
The auditors also provide to the Committee
information about policies and processes for
maintaining independence and monitoring
compliance with relevant current requirements,
including those regarding the rotation of
audit partners and staff, and the level of
fees that the Company pays in proportion
to the overall fee income of the firm. The
Committee concluded that the auditors are
providing the required quality inrelation to
the audit and that they have constructively
challenged management whereappropriate.
Taking into account the review of
independence and performance of the external
auditor, the Committee has recommended
to the Board the reappointment of MHA.
Resolutions reappointing MHA as external
auditor and authorising the Directors to set
the auditor’s remuneration will be proposed
at the 2024 AGM. The Company notes that
as of the end of the financial year 2023, the
Company has engaged MHA as external
auditor for five consecutive financial years. In
light of the material uncertainty related to the
ongoing war in Ukraine, the Committee does
not consider it to be the right time, or in the
best interests of the Company’s shareholders,
to conduct a competitive tender process for
the external audit. The Company proposes
that it will next complete a competitive
tender process during financial year 2027,
subject to the situation in Ukraine having
stabilised by that time. The Committee will
continue to keep this position under review.
The Company has complied with the
Statutory Audit Services Order issued by
the UK Competition and Markets Authority
Authority and with the Audit Committees
and the External Audit: Minimum Standard
published by the FRC in May 2023 for the
financial year ended 31 December 2023.
There is regular open communication
between the Committee and the external
auditor, and the Committee met five times
during the year. The Committee meets
at least once a year with the external
auditors without any representation
from management beingpresent.
Non-audit services
The Committee operates policies in respect
of the provision of non-audit services and
the employment of former employees of
the auditors. These policies ensure that the
external auditors are restricted to providing
only those services which do not compromise
their independence under applicable
guidance and the FRC’s Ethical Standards.
The policy on the provision of non-audit
services prohibits the use of the auditors
for the provision of transaction or payroll
accounting, outsourcing of internal audit
and valuation of material financial statement
amounts. Any assignment that is proposed
tobe given to the auditors above a value
of US$20,000 must first be approved by
the Committee (and the Committee is
routinely notified ofall non-audit services).
Fees for audit-related and non-audit-related
services performed by the external auditors
during 2022 are shown in Note 7 Operating
expenses to the Consolidated Financial
Statements on page 184. For 2023, no material
non-audit services were performed by MHA.
Audit-related assurance services as at
31 December 2023 include US$63 thousand
regarding ESG-related disclosures in
the Annual Report and Accounts under
International Standard on Assurance
Engagements ISAE (UK) 3000 (Revised)
in respect of the process for reporting of
selected safety and emissions data.
Financial reporting
The Board has asked the Committee to
advise whether it considers the 2023 Annual
Report and Accounts, taken as a whole,
to be fair, balanced and understandable
and that it provides the information
necessary for shareholders to assess
the Company’s position, performance,
business model and strategy.
In providing its advice, the Committee noted
that the factual content of the Annual Report
and Accounts has been carefully checked
internally, and that the document has been
reviewed by senior management in order
to ensure consistency and overall balance.
The Committee has also conducted its own
detailed review of the disclosures in the Annual
Report and Accounts, taking into account
its own knowledge of Group’s strategy and
performance, the consistency between
different sections of the report, the accessibility
of the structure and narrative of the report,
and the use of key performance indicators.
The Committee is satisfied that, taken
as a whole, the 2023 Annual Report
and Accounts is fair, balanced and
understandable and that it provides the
information necessary for shareholders
to assess the Company’s position,
performance, business model and strategy,
and has advised the Board accordingly.
The Committee has also advised the Board
on the process which has been undertaken
in the year to support the longer-term
Viability Statement required under the UK
Corporate Governance Code. The Viability
Statement is set out in the Strategic Report
on page 91 and a statement setting out
the Board’s assessment of the Company
as a going concern is contained in the
Directors’ Report on page 155 and Note 2
Basis of preparation to the Consolidated
Financial Statements on page 176.
Whistleblowing policy
In accordance with the UK Corporate
Governance Code, the Board is
responsible for reviewing the Company’s
whistleblowing arrangements, and
receives regular reports from the Audit
Committee and the Head of Internal Audit
which detail any new whistleblowing
incidents and, where appropriate, steps
taken to investigate suchincidents.
Stuart Brown
Chair of the Audit Committee
17 April 2024
121
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Nominations Committee Report
Dear Shareholder,
I am pleased to present the Nominations
Committee Report for 2023 and provide a
summary of the work that the Committee
completed in the reporting year. The role of
the Nominations Committee is to assist the
Board in regularly reviewing its composition
and those of its Committees, to lead the
process for Board appointments, and ensure
effective succession planning for the Board
and senior management. The key activities
undertaken in the year are described in more
detail in this report. The Committee’s terms of
reference are available to view online on the
Company’s website (www.ferrexpo.com).
In 2023, the Committee was formally
convened four times (2022: three) where the
following was considered:
– the composition and refreshment of the
Board;
– training and developing needs to ensure
Board effectiveness;
– reviewing and making recommendations
as to the composition of the Board and its
Committees in order to maintain a diverse
Board with the appropriate mix of skills,
experience, independence and
knowledge;
– the criteria for Non-executive and
Executive Director appointments;
– reviewing and making recommendations
as to the composition and diversity of the
Board, Executive Committee and direct
reports to Executive Committee members;
– the engagement of executive search
agencies to assist with Board
appointments;
– reviewing candidates and making
recommendations to the Board for the
appointment of Nikolay Kladiev as an
Executive Director, and the appointment of
Stuart Brown as independent Non-
executive Director;
– approving actions to be taken in 2023 in
support of the achievement of the Group’s
diversity and inclusion goals; and
– reviewing the results of the Group’s annual
talent review and succession plans for
business critical roles.
The Committee also agreed to undertake an
internal performance evaluation for the year to
31 December 2023 (for further information
see the Board’s Performance Evaluation on
pages 110 to 112). The Company will conduct
an external performance evaluation in 2024.
On 25 May 2023, Ann-Christin Andersen
stood down from the Board as an independent
Non-executive Director and as a member
of the Committee. I would like to take this
opportunity to acknowledge and thank her
for the contribution she made to the work
of the Board and the Committee while she
served on both. Following her departure,
a decision was taken to not replace her
on the Committee in view of the workload
already being undertaken by other Board
members. The composition of the Committee
will be revisited in the course of 2024.
The leadership of the Company was also
restructured during 2023. Jim North, the
Chief Executive Officer, resigned and left the
Company at the end of June 2023. As a result
of Mr North’s departure, Lucio Genovese
assumed the role of Interim Executive Chair
from 1 July 2023 and Nikolay Kladiev was
promoted to the Board in the role of Chief
Financial Officer with effect from the 2023
AGM. These leadership changes ensured
business continuity within an operating
structure that enables timely decision making
in what is a dynamic operating environment.
The Board places great importance on
creating a workplace culture in which
all contributions are valued, different
perspectives are embraced, and so far as
possible biases are acknowledged and
mitigated. This commitment is set out in the
Company’s Diversity, Equity and Inclusion
policy, which was adopted by the Board in
2019. The Committee therefore continued
to make recommendations to the Board
on appointments to the Board and the
Executive Committee as well as monitor
senior appointments below the Executive
Committee. The execution of these plans will
remain a focus for the Committee to eliminate
gender imbalances below the Board.
The Committee is chaired by Lucio
Genovese. The Committee consists of
four Independent Non-executive Directors
and, by invitation, is also attended by the
Chief Human Resources Officer.
Read the Committee’s full objectives
and responsibilities online: www.
ferrexpo.com/about-ferrexpo/corporate-
governance/board-committees/
Scheduled meetings
Committee member
Eligible
to attend Attended
Lucio Genovese 4 4
Ann-Christin Andersen 2 2
Graeme Dacomb 4 4
Vitalii Lisovenko 4 4
Fiona MacAulay 4 4
Membership and
meeting attendance
Lucio Genevese
Chair of the Nominations Committee
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Ferrexpo plc Annual Reports & Accounts 2023
Nominations Committee Report continued
As a result of Ms Andersen stepping down
from the Board in May 2023, the composition
of the Board dropped below the gender
diversity target of 40% set by the FTSE
Women Leaders Review. The Board remains
committed to ensuring that the composition of
the Board meets this ratio but considering the
challenges faced by the Group arising from the
war in Ukraine, it was decided to not increase
the number of Board Directors in 2023. This
decision will be revisited in 2024 with a view
to also meeting the ethnic minority target
set by the Parker Review at the same time.
Aligned with the goals of the Parker Review,
the Committee is committed to ensuring that
the Board’s composition reflects the Group’s
workforce and the communities where the
Group operates. At the end of 2022, the
Committee commissioned external search
consultancy, Wilbury Stratton, to conduct
research into how comparable organisations
are responding to the Parker Review. The
outcome of this study enabled the Board
to chart a course to ensure a sustainable,
diverse and ethnically representative Board.
The Committee therefore progressed
recruitment in 2023 but has not yet identified
a suitable candidate for appointment given
the challenges faced by the Company and
constraints imposed on it by the war in
Ukraine. The Board is nevertheless committed
to making an appointment from an ethnic
minority group to the Board ahead of the
Parker Review deadline of December 2024.
The Group has formal policies in place to
promote equality of opportunity across the
whole organisation, regardless of gender,
ethnicity, religion, disability, age or sexual
orientation. The Group also operates a
Fe_munity programme which aims to
enhance and accelerate the development of
our senior female managers and to support
them as they navigate the challenges and
gender biases that might hinder their career
progression in the workplace and within
broader society. The Group also hosts regular
talks by senior female leaders from inside and
outside our business, along with a mentoring
scheme as part of this same programme.
Since the inception of the “Fe_munity”
programme three years ago, more than 200
women have been through the programme
and the Committee was pleased to note that
in 2023, progress continued to be made
towards achieving gender balance across
the Group. The proportion of managerial
roles held by women has risen from 17.5%
in 2019 (62 female managers) to 22.3% in
2023 (87 female managers), with this upward
trend expected to continue into 2024, despite
the war in Ukraine. This trend means that
the Group is tracking well to achieve its
published target of at least 25% of managerial
roles to be held by women by 2030.
The Committee was also pleased to note
that below the managerial level, the overall
percentage of women in the workforce
improved from 28.7% in 2022 to 30.9% in
2023. However, it was noted that the overall
number of employees had declined as a
result of the war in Ukraine. In 2022, the
number of females in the workforce stood
at 2,290 but had declined to 2,130 females
in the workforce in 2023. This decline is due
to some employees leaving the Group due
to the current circumstances in Ukraine.
As at 31 December 2023, the Committee
was composed of three Independent
Non-executive Directors, Graeme Dacomb,
Vitalii Lisovenko and Fiona MacAulay.
Graeme Dacomb stepped down from the
Committee at the year end. I would like
to thank the members of the Committee
for all their work during the year.
Lucio Genovese
Chair of the Nominations Committee
17 April 2024
Membership and meetings
The Committee is chaired by Lucio
Genovese and as at 31 December 2023
its other members were Vitalii Lisovenko,
Fiona MacAulay and Graeme Dacomb.
Ms Ann-Christin Andersen stepped down
from the Board on 25 May 2023, having
also served as a member of the Committee
until this date. Following a review of the
workload of the others directors, a decision
was taken not to replace Ms Andersen on
the Committee at that time. Mr Dacomb
stepped down from the Board and the
Committee on 31 December 2023. A
further review of Committee membership
will be conducted in the course of 2024.
The Committee is required by its terms of
reference to meet at least once a year and
met on four scheduled occasions in 2023.
All meetings were held face-to-face. All
Non-executive Directors have a standing
invitation to attend all Committee meetings,
with the consent of the Committee Chair.
In practice, most Directors generally attend
all meetings. Discussions at the meetings
covered the responsibilities outlined
earlier, with particular focus on Board skills
development and Non-executive and Executive
succession planning and recruitment.
Succession planning
andrecruitment
The Committee is responsible for the
composition, structure and size of the Board
and its Committees, the appointment of
Directors and executive management, and for
ensuring effective succession planning for the
Board and other business critical roles to fulfil
the leadership needs of the organisation. The
Committee also plays a vital role in ensuring
that the Group continues to adhere to the
high standards of corporate governance that
our stakeholders rightly expect. It, therefore,
works to ensure that the Board has the right
members both now and in the future to deliver
the Group’s strategy and ensure its long-term
success. The Committee plans ahead for
future recruitment to make sure that the
Board continues to have the diversity, skills
and experience it needs. The roles of all
Directors are summarised on page 106.
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
In 2023, the Committee revisited the training
and development needs of the Board. As a
result one director attended formal training
with the UK Governance Institute and the
full Board received briefings on ESG and
corporate governance topics. The Committee
also asked the Chief Human Resources
Officer to refresh the Board’s Skills matrix to
ensure that the matrix remains up to date to
inform the recruitment and development of
Board directors (for further information see the
Board’s skills matrix on page 97). This work
will be progressed in the course of 2024.
The Committee also participated in the
process to appoint Lucio Genovese as
Executive Chair, following the resignation
of the Chief Executive Officer (“CEO”), Jim
North. The Committee considered that
attracting suitable external candidates for
the CEO role would be impacted by the
ongoing war in Ukraine, and therefore took
a decision to postpone conducting a formal
search until the war ends. As an interim
measure, the Committee recommended
that Mr Genovese assume leadership of the
Group, on an interim basis, until a formal
market search can be undertaken.
In 2023, the Committee also recommended
the appointment of the CFO, Mr Nikolay
Kladiev as an Executive Director of the
Company. This appointment underscores
the Company’s robust talent management
process which identifies individuals with
high potential for inclusion in succession
plans for business critical roles.
Ms Ann-Christen Andersen stepped down
as an independent Non-executive Director
in May 2023. As a consequence, a search
was progressed to find a replacement and
Stonehaven International, a global search firm,
was retained by the Committee to assist with
the search. Stonehaven is accredited under the
UK Government’s Enhanced Code of Conduct
for Executive Search Firms and the Voluntary
Code of Conduct on diversity best practice.
The firm has no other connection with the
Company. Prior to the search commencing,
the Committee agreed the skills and
experience it considered necessary for the role
and also stipulated that candidates needed
audit experience in order to provide further
bench strength in relation to financial and risk
management oversight of the Board. Lists of
potential candidates were then identified by
Stonehaven and discussed with Committee
members to agree shortlists to be interviewed.
Shortlisted candidates were interviewed
by members of the Committee and, where
practical, other Directors. Following these
interviews, the Committee recommended
the appointment of Mr Stuart Brown who
joined the Board on 22 October 2023.
When progressing recruitment, the Board
seeks to ensure that a broad range of diverse
candidates are taken into account including
when drawing up shortlists of candidates for
appointment to the Board, and the Board will
only engage executive search consultants
who have signed up to the Voluntary Code
of Conduct for executive search firms. The
final decision to make appointments to the
Board is, however, made on merit against
objective criteria, so as to ensure that the
strongest possible candidate for the role
is recruited. However, the Committee will
continue to ensure that the Diversity, Equity
and Inclusion policy is considered when
conducting all searches for Board positions,
and will take account of the recommendations.
Election and re-election
In accordance with the UK Corporate
Governance Code, Stuart Brown and Nikolay
Kladiev will stand for election and all other
Directors for re-election by shareholders at the
Company’s AGM scheduled for May 2024. The
range of skills and experience offered by the
current Board is mentioned in this report and
is set out on pages 98 to 99. The Committee
and the Board consider the performance of
each of the Directors standing for election or
re-election to be fully satisfactory and have
demonstrated commitment to their respective
roles. The Board, therefore, strongly supports
the election and re-election of all Directors
and recommends that shareholders vote in
favour of the relevant resolutions at the AGM.
Board diversity policy
The Board places great importance on having
an inclusive and diverse Board and workforce
and recognises the important leadership
role that the Board needs to play in creating
an environment in which all contributions
are valued, different perspectives are
embraced, and so far as possible biases are
acknowledged and mitigated. In support of this
goal, the Board adopted a Diversity, Equity and
Inclusion policy (“DEI Policy”) in 2019 which is
kept under review by the Committee. The DEI
Policy aims to promote equality of opportunity
across the whole organisation, regardless of
gender, ethnicity, religion, disability, age or
sexual orientation as well as address gender
diversity imbalances in the workforce while
also delivering sustainable talent pipelines for
succession to senior leadership roles. The
Board shares ownership with the Executive
Committee of the DEI Policy and progress
updates are presented to the Board for
review every six months to assess progress
against the targets and enable adjustments
to be made to the programme where
necessary. A summary of the Board’s diversity
information can be found on page 103.
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Ferrexpo plc Annual Reports & Accounts 2023
Nominations Committee Report continued
In support of its DEI goals, the Group has
formal policies in place to promote equality
of opportunity across the whole organisation,
regardless of gender, ethnicity, religion,
disability, age or sexual orientation. The
Group also operates a Fe_munity programme
which aims to enhance and accelerate the
development of our senior female talent and to
support them as they navigate the challenges
and gender biases that might hinder their
career progression in the workplace and
within broader society. In 2023, running this
programme for a fourth time was disrupted
and postponed as external facilitators involved
in the delivery of the programme were unable
to travel to Ukraine because of the war. Instead
a mentorship programme was initiated using
alumni from previous programmes to mentor
women within the workforce identified to
attend the fourth Fe_munity programme.
This mentorship programme will continue
alongside the Fe_munity programme and
other DEI related activities in 2024.
In 2023, the Group was able to hold
regular talks by senior female leaders from
inside and outside the business and host
a Fe_teens programme which followed a
similar format to the full-scale Fe_munity
programme. This programme is aimed at
young women in the surrounding community
and is part of the Group’s broader corporate
social responsibility initiative to support
the overall development of Ukrainian
society as well as interest young people to
consider a career in the mining industry.
In 2023, the Committee was pleased to
note that the proportion of managerial roles
held by women rose from 20.9% in 2022 (81
female managers) to 22.3% in 2023 (87 female
managers), with this upward trend expected
to continue into 2024, despite the war in
Ukraine. This trend means that the Group is
tracking well to achieve its stated target of at
least 25% of managerial roles to be held by
women by 2030. The Committee was also
pleased to note that the overall number of
women in the workforce for 2023 improved
from 28.7% in 2022 to 30.9% in 2023.
The Committee places high importance
on having a diverse, inclusive and
sustainable Board and workforce and,
to this end, the Committee reviews and
approves succession plans each year for
business critical roles, including reviewing
succession plans for the Board.
Following the resignations of Ms Ann-Christin
Andersen and Mr Graeme Dacomb in the
year, and the appointment of Mr Stuart
Brown, the Committee is satisfied that the
present composition of the Board provides an
appropriate mix of skills, experience, diversity
and perspectives on the Board. However,
the Committee has noted that following
Ms Andersen’s departure that the Board’s
composition no longer meets the gender
ratio set by the Hampton Alexander Review
of 33% women on boards nor the increased
target of 40% by the FTSE Women Leaders
Review. The Board takes account of this
ratio and expects to meet this target again
through an appointment to the Board in 2024.
During the course of the year, the Committee
also reviewed the talent pipeline and
succession plans for business-critical roles
at the Group and at Operational levels and
confirmed development plans for identified
high potentials which included actions to
mitigate identified knowledge and skills gaps
over the short to medium term. The Committee
noted that specific focus and attention was
needed to ensure adequate succession
coverage for the Group Chief Financial
Officer, Group Chief Marketing Officer, Group
Treasurer at the corporate level and Production
Director, Capital Construction Director and IT
Director at the operations level. The Committee
requested the Chief Human Resources
Officer to develop strategies in the first half
of 2024 for execution in the second half of
2024 that will enhance succession coverage
of these business critical roles and assure
business continuity in 2024 and beyond.
The Board is committed to ensuring that
the Board is not only composed of an
appropriate mix of skills and experience but
that it is also representative of the broader
society within which the Group operates
and reflects a sustainable, diverse and
ethnically representative Board. In support
of this objective, the Company retained
Wilbury Stratton, an external search and
research consultancy, to conduct recruitment
in 2023 for a minority ethnic director as
defined by the Parker Review. Arising from
this search, the Committee interviewed a
number of candidates presented but did
not find an appropriate candidate with
the necessary experience profile and skill
set to augment the existing skills of the
Board. The search will continue in 2024
and despite the added complexity imposed
by the war in Ukraine, the Board remains
committed to making an appointment
ahead of the Parker Review deadline for
FTSE 250 companies of December 2024.
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Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Board diversity policy update
Board objective Progress in 2023
Foster a diverse and
inclusive workplace
culture aligned with
theCompany’s Values,
Purpose and Strategy
– Upgrading of facilities and access points continued at operations to enable accommodation of people with
disabilities.
– Fe_munity teens programme was run in the local community to foster the recruitment of women into the
workforce.
– Assessment of workforce technical skills in the plant continued and training conducted to ensure workforce
capability supports business requirements.
– Unconscious bias training implemented for junior and middle managers at operations to enhance diversity
awareness at leadership levels.
Increase Board gender
diversity and women
inmanagement below
theBoard
– An update of the Board’s skills matrix was initiated which will be further progressed in 2024.
– Formal search launched for an additional Non-executive Director from a minority ethnic group to meet the
requirements of the Parker Review.
– Initiatives in 2023 advanced women in leadership to 22.3% (87 female managers) (2022: 20.9% (81 female
managers)); target for 2024 (towards target of 25% by 2030) set at 22.8% by the end of 2024.
– Total female representation as percentage of the workforce currently at 30.9% (2,130 female employees)
(2022: 28.7% (2,290 female employees)).
– Board review conducted of the Group’s talent pipeline and succession plans for senior business critical
leadership roles, including identification of female candidates for accelerated development.
– Undergraduate bursary programme targeting women continued in 2023.
Monitor diversity
programme outcomes
andmake adjustments
toensure overall
objectives are met
New and repeat activities planned for 2024, subject to any restrictions imposed by the war in Ukraine, will include:
– Workforce Diversity and Inclusion education.
– Unconscious bias training for senior management.
– Science, technology, engineering and mathematics (“STEM”) ambassador visits to local schools and colleges.
– STEM streamers competition run online with students from local schools.
– Fe_munity programme for potential women leaders at operations.
– Selection of bursary award school leavers.
Workforce diversity
Ferrexpo’s policy is to employ a diverse
workforce and thought is given to recruit
as widely as possible, taking into account,
amongst other things, gender, race, social
background, education and disability. In
2019, the Board set a diversity target of 25%
women in leadership to be achieved by 2030.
Achieving this target remains a challenge in
view of there being historically a very limited
number of female applicants for technical
jobs in the natural resources sector.
During the year, the Committee reviewed the
progress made towards the Group’s target
and although the overall number of women
in the workforce increased to 30.9% (2,130
female employees) (2022: 28.7% (2,290
female employees)), the number of women in
leadership positions advanced to 22.3% (87
female managers (2021: 20.9% (81 female
managers)). The Committee was gratified with
this result and in order to sustain this upward
trend, the Committee approved diversity and
inclusion actions for execution in 2024.
Gender diversity targets were included in
the Executive Business Scorecard for the
first time in 2021 to provide additional focus
and attention on the achievement of this
strategic imperative. A diversity target has
again been included in the scorecard for
2024 of 23.3%. This target represents the
appointment of an additional four women in
senior leadership positions by the end of 2024.
Disability
Ferrexpo is proud to employ registered
disabled staff representing more than 4%
of our Ukrainian workforce. This helps us
to reflect the diversity in wider society as
well as deliver on our legal obligations.
The Corporate Governance Report was
approved by the Board on 17 April 2024.
Lucio Genovese
Chair of the Nominations Committee
17 April 2024
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Ferrexpo plc Annual Reports & Accounts 2023
Remuneration Report
Main objective
To establish and maintain on behalf of the
Board a policy on executive remuneration
to deliver the Company’s strategy and
value for shareholders; to agree, monitor
and report on the remuneration of
Directors and senior executives; and to
review wider workforce remuneration and
other policies in accordance with the UK
Corporate Governance Code.
A statement to shareholders
fromthe Chair of the
RemunerationCommittee
As Chair of the Remuneration Committee,
Iam pleased to present the Directors’
Remuneration Report
1
for the year ended
31 December 2023.
This report is split into the following sections:
1. this Statement to shareholders from the
Chair of the Remuneration Committee
– summarising the decisions taken by the
Committee;
2. an “At a glance” overview of
remuneration;
3. the proposed new Directors’
Remuneration Policy for which
shareholder approval is being sought at
the 2024 AGM;
4. the Annual Report on Remuneration,
setting out how we have paid Directors in
2023 and how we intend to operate the
policy in 2024.
Our approach to remuneration
The Committee strives to align the interests
of the executives with shareholders, and the
Board keeps under review the structure and
level of remuneration afforded through short
and long-term incentive schemes. It is the
policy of the Board to align executive and
shareholder interests by linking a substantial
proportion of executive remuneration to
performance, basing short-term rewards on
a balanced portfolio of financial, operational,
ESG and strategic performance targets with
long-term alignment with shareholders through
the operation of multi-year share-based plans.
Our policy is purposefully weighted
towards short-term performance targets
given the Company’s focus on operational
excellence and the fact that Ferrexpo does
not control the price of iron ore, which is
dictated by market conditions. As a result,
setting performance targets that align to
the factors directly within the control of the
executive team is considered appropriate.
We ensure that remuneration packages are
competitive through assessing remuneration
packages against the relevant market
comparables to ensure that Ferrexpo
can attract, motivate and retain talented
executives. We align remuneration with
shareholders through the performance
conditions we set, share-based pay delivered
through partial deferral of annual bonus into
shares and the operation of annual awards
under a share plan and through market
consistent share ownership guidelines.
This approach applies across the executive
leadership team and has resulted in a robust
link between pay and performance to date.
Board changes during 2023
On 25 May 2023, Ann-Christin Andersen
stood down from the Board as a Non-
executive Director and as a member of the
Remuneration Committee. She has served on
the Committee since July 2021. I would like
to thank her for her contribution to the work
of the Committee while she was a member.
The leadership of the Company was
restructured during the 2023 financial
year following our former Chief Executive
Officer, Jim North, leaving at the end of
June 2023. The treatment of the former
CEO’s remuneration on cessation was in
line with the Policy and applicable legal
requirements with full details, including in
respect of the exercise of discretion by the
Committee, provided on pages 149 to 150.
As part of the leadership changes, Lucio
Genovese assumed the role of Interim
Executive Chair (“Executive Chair”) from 1 July
2023 and Nikolay Kladiev was promoted
to the Board in the role of Chief Financial
Officer with effect from the 2023 AGM.
The Committee is chaired by Fiona MacAulay. The
Committee consists of three independent Non-executive
Directors as required by the UK Corporate Governance
Code and is also attended by the Chair of the Board
and, by invitation, the Executive Chair, the Chief Human
Resources Officer, and a representative from Korn Ferry,
the Committee’s independent advisor.
Scheduled
meetings
Ad hoc meetings
Committee
member
Eligible
to attend Attended
Eligible
to attend Attended
Fiona
MacAulay 4 4 2 2
Graeme
Dacomb 4 4 2 2
Vitalii
Lisovenko 4 4 2 2
Ann-
Christin
Andersen 2 2 1 1
Membership and
meeting attendance
Fiona MacAulay
Chair of the Remuneration Committee
1. This report has been prepared by the Remuneration Committee (the “Committee”) on behalf of the Board in accordance
with the requirements of the Listing Rules of the UK Listing Authority, Schedule 8 of the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008 (as amended in 2013, 2018 and 2019) and the UK
Corporate Governance Code. The elements subject to audit are highlighted throughout.
Read the Committee’s
full objectives and
responsibilities online:
https://www.ferrexpo.com/
about-ferrexpo/corporate-
governance/board-
committees/
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Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
and higher inflation impacted households
worldwide. Given these inflationary pressures,
the Committee agreed adjustments in
base salaries for all employees aligned with
prevailing CPI in the Group’s various locations.
2023 Executive remuneration
As detailed above, the ongoing impact of
the Russian invasion of Ukraine resulted in
a number of operational challenges which
contributed to lower production volumes
and profitability than was the case in 2022.
This meant our financial and operational
performance was generally below the
threshold targets set in our annual bonus
for 2023 albeit we continued production
throughout the year and delivered a Group
cash EBITDA of US$63 million. Outside of
the financial and operational targets set for
2023, due to the dedication of our colleagues
in challenging circumcentres, we delivered
strongly against our safety, diversity and
carbon reduction targets in addition to
efficiently managing our pellet stockpiles. We
also made progress against a number of key
strategic objectives set for the bonus at the
start of 2023, including in the areas of business
optimisation and compliance. Outside of the
strategic targets set at the start of 2023, we
also responded to the dynamic environment
that we were operating in, including opening
new shipping routes to market to enable
continued supply to our customers. In this
context based on performance against the
targets set at the start of the year, the CFO
achieved a bonus at 49.6% of the maximum
(74.4% of salary) for the year under review. This
payment was consistent with the wider bonus
awards in the Company and the Committee
was comfortable that this bonus award
reflected the challenging year for the Group
and the wider stakeholder experience, and
therefore did not apply discretion. Full details
of the performance assessment are set out
on page 144. The former CEO and Executive
Chair were not eligible for the 2023 STIP.
With regard to the 2021 LTIP, vesting was
based on the TSR outperformance of a
tailored comparator group (75% weighting),
Production of 67% Fe pellets (12.5% weighting)
and carbon emissions reductions (12.5%
weighting) over a three-year vesting period
to 31 December 2023. The Committee
assessed the performance of the Company
over the full three-year performance period
and noted that the Russian invasion of Ukraine
on 24 February 2022 had weighed heavily on
the Company’s share price, resulting in TSR
being below the bespoke Index of comparable
Iron Ore and Composite Miners and therefore
there was no vesting under this element.
However, with regards to the proportion of
67% Fe pellets produced as a percentage of
total pellet production, we delivered 3.71%
which exceeded the lower end of the target
range set for the 2021 award of 3% and so
These leadership changes ensured business
continuity within an operating structure
that enables timely decision taking in what
is a dynamic operating environment.
On assuming the role of Executive Chair in
July 2023, it was agreed Lucio Genovese
would receive an additional fixed fee on an
interim basis whilst he serves in the role.
The total fixed fee was set at US$1,000,000,
split between the rate in his former role as
Non-executive Chair of US$525,000 and an
additional interim fee of US$475,000. This
additional fee reflects his increased time
commitment in role and non-participation
in the Company’s incentive plans.
Mr Kladiev, the Chief Financial Officer
(“CFO”), was appointed to the Board with
effect from the 2023 AGM. His salary was
set at CHF450,000 and, in line with the
Policy, he continues to participate in the
annual bonus scheme and remain eligible
for annual awards under the LTIP. Full details
of his pay are included within this report.
Business context and 2023
employee remuneration
The second year of war in Ukraine continued
to impact the Group’s operations in
Ukraine, creating a high level of operational
variability which impacted the Company’s
remuneration schemes. This necessitated
the Company to adopt an agile approach
to remuneration in 2023 to ensure that the
Group’s remuneration practices fulfilled
their original intent. The Committee spent
time overseeing Group-wide pay decisions
in our exceptional circumstances.
Despite the rigours of war, management
worked tirelessly to protect the Group’s
workforce and preserve the integrity of
our assets to enable us to continue to
produce and sell our high-grade pellets.
The strategy to right-size our business
quickly, to enable us to be more responsive
to unpredictable circumstances has proved
successful. The workforce likewise showed
incredible resilience and commitment in very
challenging circumstances. The Group also
made unprecedented contributions from
its Humanitarian Fund, focusing its efforts
on the support for employees called up to
serve in the military, a variety of humanitarian
initiatives, including providing food and
accommodation for internally displaced
people and assistance to surrounding
communities and healthcare aid, including the
provision of medicines, medical equipment
and vehicles throughout the country.
Employees remain the bedrock of Ferrexpo’s
operations and we are unwavering in our
determination to support our people and
to safeguard them and their families. Amid
the prevailing circumstances, the Group
implemented a rehabilitation programme
for employees returning from serving in the
military to support their reintegration into
the workplace. The programme includes
medical care and physical rehabilitation,
the provision of prosthetics, as well as
psychological counselling and support
for employees and their families.
As was the case in 2022, the lack of access to
Black Sea export routes in 2023 constrained
our export capacity, sharply reducing
opportunities to export product volumes to
some customers in the Middle East and Asia.
This forced us to curb production levels and
only operate one, and sometimes two, of our
four pellet lines to match the reduced export
capacity available. As a result of the Group’s
variable production profile, it was necessary
to adjust the Group’s remuneration schemes.
The variable rate of production throughout the
year meant that the deployment of operational
employees had to be constantly scaled up or
down to align with the required production
profile each week. While the majority of
production-related personnel remained on
full pay, their production-related variable
monthly pay was impacted. Production staff
in excess of requirements were placed on
furlough on two-thirds pay, and administrative
staff and some support staff were placed
on a shorter shift roster of seven instead of
eight hours per day and paid commensurately
to align with the lower production profile.
Although the Group’s operations only
operated at around half capacity, a decision
was taken to maintain employment levels
and not to lay off excess staff to reciprocate
the unwavering commitment shown by
employees to work despite the perilous
environment within which the Company was
forced to operate in 2023. To minimise the
impact on earnings and alleviate some of the
effects of the cost of living crisis, the Group
took a decision to pay a special bonus at
the end of the year, to staff at operations, of
between 10% and 50% of salary dependent
on organisational level and to award a general
salary increase of 10% from April 2024.
The Group’s collective agreements include
provisions designed to provide equal
remuneration for men and women performing
the same job. This approach helps to ensure
that salaries, incentives, benefits and other
forms of compensation – both monetary
and non-monetary – remain free from
discrimination based on gender, race, religion
or trade union membership. These principles
are also enshrined in the Group’s Code of
Conduct, and approach to remuneration,
which ensures an equitable approach to
salary adjustments for employees returning
from extended absences, such as paternity
and maternity leaves or military service.
The economic consequences of the war and
the general downturn in the global economy
were also felt by employees in other Group
office locations as soaring energy prices
128
Ferrexpo plc Annual Reports & Accounts 2023
Remuneration Report continued
achieved vesting at 4.28% of the possible
12.5% for this part of award. Over the same
period, our carbon emissions intensity,
which takes into account emissions relative
to the production delivered reduced by 6.1%
which was above the maximum target set
for the 2021 award of 5% and so the 12.5%
of the total award available for this part of
the award vested in full. Taken as a whole,
the Committee therefore determined that the
2021 LTIP vested at 16.78% of maximum.
With remuneration outcomes aligned across
the executive leadership of the Group
and after considering wider stakeholder
experience through the year, and the additional
achievements that were delivered outside of
the bonus plan targets, the Committee was
comfortable with remuneration outcomes and
that the policy was operating as intended.
Remuneration Policy review and
2024 implementation
With our current Directors’ Remuneration
Policy due to expire at the 2024 AGM, the
Committee undertook a review of the operation
of the Policy during 2023. The conclusion of
the review was that all aspects of the Policy
remained appropriate with the exception of the
long-term incentive plan given the challenges
noted above in terms of long-term target
setting and the operation of the shareholding
requirements given the effect of the Russian
invasion of Ukraine on the Company’s
share price and the modest level of awards
made under the long-term incentive plan.
For completeness, our pay model to date has
been to provide a market competitive total
remuneration opportunity through a market
consistent base salary, an annual bonus
(using a balanced scorecard of financial,
operational, ESG and non-financial targets),
pension and benefits all provided at the same
time as operating a minimum share ownership
expectation. Our long-term incentive has
been modest grants of Performance Shares
Awards linked to relative total shareholder
return and sustainability targets.
The Russian invasion has caused volatility in
our share price as well as constraining our
production and so the continued use of our
current long-term incentive performance
metrics (relative TSR versus industry peers
and production of more efficient DR pellets
at 67%+ Fe) is no longer appropriate as our
ability to achieve the targets, specifically the
total shareholder return target, is likely to be
as much impacted by external factors as
management actions. As a result, while we
intend to return to Performance Shares over
the longer term, we are to seek approval
to grant Restricted Shares to facilitate the
retention and motivation of the leadership
team in the most challenging of external
circumstances. However, our up-dated Policy
will retain the ability to grant Performance
Share awards within it. This flexibility is only
being retained so that in the event that the
Russian invasion of Ukraine comes to an
end, the Committee has the option to return
to Performance Shares if the operating
environment is sufficiently robust to enable
the Company to do so. Any move to grant
Performance Shares would only take place
following appropriate dialogue with the
Company’s shareholders and the Company
does not intend to grant Restricted Shares
and Performance Shares in combination.
For the purposes of consistency between
the short and long-term incentive plans, the
revised Policy has also been updated with
some modest changes to the wording such
that the discretions afforded to the Committee
in the annual bonus an long-term incentive
plans have been aligned and this is consistent
with the updated long-term incentive plan
rules being presented at the 2024 AGM.
2024 Remuneration Policy change:
Introduction of Restricted Shares
In designing our revised Policy, we took into
consideration the Investment Association’s
guidance in moving from Performance to
Restricted Share Awards. The key features of
our proposed long-term incentive provision
are as follows:
– Annual Award Limit: a 50% discount in
moving from Performance to Restricted
Share Awards;
– Restricted Share Awards: 100% of
salary;
– Performance Share Awards: 200% of
salary (as above, current Policy limit
and not expected to be used during the
ongoing Russian invasion of Ukraine).
– Vesting: three years after grant, subject
to continued service, with any shares
vesting subject to a two-year holding
period;
– Performance underpin: the Committee
will consider the Company’s performance
relative to its mid to long-term financial,
operational and sustainability plans as well
as individual performance and may reduce
the vesting level, including to zero, if
performance is not considered consistent
with the Board’s plans. This assessment
will take into account the dynamic
operating environment that currently
prevails as a result of the Russian invasion
of Ukraine.
– FY2024 Proposed Award to the CFO:
– Restricted Share Awards: 25% of salary.
– The proposed award level has been
setin relation to Nikolay Kladiev’s
appointment to the PLC Board having
had regard to (i) his importance to the
Company (ii) historic awards to the
Executive Directors at Ferrexpo (iii)
ourcurrent share price and (iv) wider
market practice where grants of
Performance Share Awards are typically
in the region of 150% of salary to 200%
of salary for a FTSE 250 company CFO.
The use of Restricted Share Awards will
provide alignment with the Company and
shareholders, whilst the simplicity and greater
certainty provides a key retention tool for the
senior management in these difficult and
uncertain operating conditions.
The CFO, Nikolay Kladiev, will be the only
Director receiving Restricted Share Awards,
however, the Policy will also be applied to the
wider Executive Committee on the same
terms albeit at different award levels. Lucio
Genovese, as Interim Executive Chair, will not
participate in this or any incentive plans.
February
– Consulting on FY 2022 remuneration outcomes
with both shareholders and advisory bodies.
– Planning stakeholder engagement for 2023.
– Determining the 2022 bonus outturn.
– Determining vesting of the 2020 Long-term
Incentive Plan awards.
– Setting 2023 annual bonus targets.
– Reviewing 2023 Long-term Incentive Plan TSR
peer group constituents.
March
– Considering the impact of the war in Ukraine on
2023 remuneration.
– Approving the application of the Remuneration
Policy for 2023.
– Determining the size of 2023 Long-term
Incentive Plan awards and the performance
conditions.
– Approving awards under the Company’s share
plans.
– Signing off the 2022 Remuneration Report.
May
– Approving exit payments for the CEO.
Key activities of the Committee in 2023
The Committee’s key activities during the 2023 financial year were:
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Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
2024 Remuneration Policy application
Subject to the approval of the Policy at the
2024 AGM, it is our intention to apply the
Policy as set out below:
– The CFO’s salary, consistent with other
members of the Executive Committee in
the UK and Switzerland, was increased
by 4% with effect from 1 January 2024.
The Committee was comfortable with
increasing his salary at 4% as part of a
process of moving his salary, and total
remuneration package, into line with market
practice for the role of a FTSE 250 CFO.
Across the Company, salary budgets
were set taking into account the rates of
inflation in the locations in which Ferrexpo
operates and ranged from 1.5% to 10%.
– The annual bonus opportunity for the
CFO will be 150% of salary. Performance
will be measured against a balanced
scorecard of financial, operational and
ESG targets as summarised on page 146.
In the current circumstances, reflecting
the Committee’s objective of incentivising
and rewarding on a collective basis given
the challenges presented by the Russian
invasion of Ukraine, there will be no tailored
strategic targets set at Group executive
level in the annual bonus plan for 2024
(previously strategic targets accounted for
40% of the total bonus). The performance
targets set for the 2024 STIP have been
agreed to reflect the current operating
environment, and the Committee adopted
a revised framework under which it will
determine bonuses for 2024. This revised
framework continues to include targets
set with reference to the Company’s
budget each year but provides greater
flexibility to take account of the dynamic
external environment caused by the
ongoing Russian invasion of Ukraine. Full
details are included on page 145. One
quarter of any bonus earned after tax
is deferred into shares for two years.
– The Committee intends to grant the CFO a
Restricted Share award with a face value of
25% of his salary, i.e. at the lower end of the
award possible under the Policy. The award
will vest three years after grant, subject
to continued service, with any shares
vesting subject to a two-year holding
period. The award will also be subject to
a performance underpin detailed above.
Consideration of shareholders
andemployees
We consulted with shareholders in 2023
in relation to the renewal of the Directors’
Remuneration Policy and shareholders
were understanding of the rationale for the
proposed changes and so were supportive
of the proposal. The Committee welcomes
feedback provided by shareholders and
considers it in full prior to taking final decisions.
The Committee was also grateful for the
shareholder and advisory body input into
the treatment of our 2020 LTIP award on
vesting in light of the Russian invasion of
Ukraine. Full details of the treatment of this
award were set out in the 2022 Directors’
Remuneration Report following a short
consultation in late 2022 and early 2023.
The 2022 Directors’ Remuneration Report
received over 97% support at the 2023 AGM.
The Committee also noted feedback on
remuneration provided by the Employee
Engagement Non-executive Director, Vitalii
Lisovenko, which was elicited directly from
employees during a series of employee
engagement sessions held with all levels of
employees in late 2023. These sessions tested
a range of employee engagement elements
including the effectiveness of remuneration
and benefits policies and the understanding
of the alignment between executive
remuneration and wider company pay policy.
Understandably, employees raised concerns
about the impact on pay resulting from
the decrease in the level of production.
The reasons for the current situation were
explained with more frequent communication
sessions planned throughout 2024 with the
timing dependent on market developments.
The announcement of a general salary
increase of 10% planned for April 2024
was welcomed and employees were
appreciative that there had been no layoffs
as has been the case at other companies
in Ukraine that are operating within the
same challenging business environment.
It was also noted that, while the approach to
remuneration is understood and is generally
considered to be working effectively, work
remains ongoing to improve the alignment
between remuneration with individual
performance to ensure differentiated
outcomes. The progress made to date will
be progressed further in 2024 by the Chief
Human Resources Officer (“CHRO”). The
CHRO will also work with the designated
Employee Engagement Non-executive
Director, Vitalii Lisovenko, to further
develop two-way feedback in relation to
remuneration policies and practices.
I hope you are able to support the rationale for
the decisions we have taken during the year
and support the resolution for the approval
of the Policy and Remuneration Report at
the 2024 AGM. If you have any questions
or comments, please feel free to reach
out through the Chief Human Resources
Officer (email: g.nortje@ferrexpo.ch).
Fiona MacAulay
Chair of the Remuneration Committee
17 April 2024
Key activities of the Committee in 2023
The Committee’s key activities during the 2023 financial year were:
July
– Consideration of 2023 AGM feedback.
– Reviewing market developments and institutional
investor issues raised during the 2023 AGM
season.
– Considering the treatment of share awards for
departing executives.
– Reviewing Remuneration Policy.
– Approving supplementary fee for the interim
Executive Chair.
November
– Reviewing shareholder and advisory body
feedback in relation to the 2024 Remuneration
Policy.
– Reviewing market pay benchmarking data and
approving any proposed salary increases for
members of the Executive Committee.
– Considering performance to date against 2023
annual bonus targets.
– Reviewing shareholder advisory body guideline
updates for 2024 AGM season.
– Approving amendments to the Long-term
Incentive Plan rules ahead of 2024 AGM.
– Approving the 2024 Remuneration Committee
Planner.
Anticipated key activities of the
Committeein2024
– Consider 2024 AGM feedback.
– Confirm the application of the new 2024
Remuneration Policy supports the Company’s
strategy.
– Implementing the new 2024 Remuneration
Policy.
– Consider the evolution of performance targets in
line with the implementation of the business
strategy through the current challenging
operating environment.
– Monitor senior management remuneration.
– Ensure remuneration decisions are taken in the
context of the wider stakeholder experience
through the period.
— Ferrexpo — 2023 LTIP Index
— FTSE 250 Index
—
FTSE All-Share Index
0
50
100
150
31 Dec
2020
31 Dec
2021
31 Dec
2023
31 Dec
2022
Value (£)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Group
EBITDA
Safety –
LTIFR
Diversity
ratio
Carbon
spend
Full cash
costs
reported
Production
volume
FYM Total
Movement
Pellet
stockpile
Total
Bonus payment (% of salary)
130
Ferrexpo plc Annual Reports & Accounts 2023
Remuneration Report continued
Summary of 2023 STIP Business scorecard outcomes
(60% of bonus)
Total Shareholder Return
Ferrexpo 2023 LTIP Index FTSE 250 Index FTSE All-Share Index
At a glance (not subject to audit)
Element Operation Time-horizon
2024 2025 2026 2027 2028
Salary:
To attract and retain
talent by ensuring
base salaries are
competitive in the
market in which the
individual is employed
– Annual review by the Committee
– Increases typically in line with wider workforce
Pension and
benefits:
To provide market
competitive benefits
– Aligned with pension and benefits offered to local workforce
Short-term
Incentive Plan
(“STIP”):
To focus management
on delivery of annual
business priorities
which tie into the
long-term strategic
objectives of the
business
– Maximum opportunity of 150% of salary
– Target opportunity of 75% of salary
– Performance conditions based on a scorecard of financial,
operational and ESG targets
– Targets set to reflect the Company’s 2024 budget with Committee
judgement to be used to assess the extent of under or over
performance so that there is flexibility to take into account the
dynamic environment caused by the ongoing war in Ukraine
– Safety underpin
– 25% of bonus deferred into shares for two years
131
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Element Operation Time-horizon
2024 2025 2026 2027 2028
Long-term
Incentive Plan
(“LTIP”):
To motivate
participants to deliver
appropriate longer-
term returns to
shareholders by
encouraging them to
see themselves not
just as managers, but
as part-owners of the
business
To reflect the current exceptional circumstances of the Company (and
in particular the challenge of setting long-term performance
conditions), it is expected that the LTIP will be used to grant
Restricted Share awards from 2024 that will normally be eligible to
vest subject to continued employment on the following basis:
– Policy maximum: 100% of salary (150% in exceptional
circumstances)
– Vesting period of three years with a two-year post-vesting holding
period
– Performance underpin: the Committee will consider the
Company’s performance relative to its mid to long-term financial,
operational and sustainability plans as well as individual
performance and may reduce the vesting level, including to zero, if
performance is not considered consistent with the Board’s plans.
This assessment will take into account the dynamic operating
environment that currently prevails as a result of the Russian
invasion of Ukraine.
The current LTIP also enables performance-related share awards to
be made on the following basis:
– Policy maximum: 200% of salary (300% in exceptional
circumstances)
– Performance based typically on relative TSR (75% weighting) in
conjunction with, for example, production (12.5% weighting) and
carbon emissions (12.5% weighting)
– Performance measured over three years with two-year post
vesting holding period
It is not expected that performance-related share awards will be
made to Executive Directors during the 2024 to 2026 financial years
unless the current Russian invasion of Ukraine ends. A return to
performance-related share awards would follow appropriate dialogue
with shareholders. The limits set out above for restricted share
awards are set at 50% of the equivalent limits for performance-related
share awards, in line with Investment Association guidance although
awards in practice are expected to be materially below the maximum
levels included in the Policy.
Share ownership
guideline:
To provide alignment
of interests between
Executive Directors
and shareholders
– Executive Directors are required to build and maintain a
shareholding of 200% of salary.
– Applies for two years post-cessation of employment.
200% of salary
132
Ferrexpo plc Annual Reports & Accounts 2023
Remuneration Report continued
Part A: policy section (not subject to audit)
This part of the Directors’ Remuneration Report sets out the Remuneration Policy for the Directors of the Company, which will be put
to a binding shareholder vote and become formally effective from the 2024 Annual General Meeting, and is intended to apply for three
years from that date, unless shareholder approval is sought for earlier changes.
Committee
The terms of reference for the Committee were updated during 2020 to comply with changes made to the UK Corporate Governance Code. The
revised terms of reference were approved by the Board and its duties include the determination of the policy for the remuneration of the Chair of
the Board, Executive Directors, the members of the Executive Committee, and the Company Secretary as well as their specific remuneration
packages, including pension rights and, where applicable, any compensation payments. In determining such policy, the Committee is expected
to take into account all factors which it deems necessary to ensure that members of the senior executive management of the Group are provided
with appropriate incentives to encourage strong performance and are, in a fair and responsible manner, rewarded for their individual
contributions to the success of the Group.
The composition of the Committee and its terms of reference comply with the provisions of the UK Corporate Governance Code and are
available for inspection on the Group’s website at www.ferrexpo.com.
Key principles of the remuneration policy
Ferrexpo’s remuneration policy is designed to help attract, motivate and retain talented executives to help drive the future growth and
performance of the business. The policy aims to:
– align executive and shareholder interests;
– link an appropriate proportion of remuneration to performance;
– reward based on a balanced portfolio of performance conditions, where appropriate (e.g. annual business priorities, financial and operational
targets and individual performance); and
– provide rewards that are competitive in the relevant markets to help attract, motivate and retain talented executives.
In determining the Company’s Remuneration Policy, the Committee takes into account the particular business context of the Group, the industry
segment, the geography of its operations, the relevant talent market for each executive, the location of the executive and remuneration in that
local market and best practice guidelines set by institutional shareholder bodies. The Committee will continue to give full consideration to the
principles set out in the UK Corporate Governance Code in relation to Directors’ remuneration and to the guidance of investor relations bodies.
From the policy review undertaken, the Committee is satisfied that the remuneration policy and its application take due account of the six factors
listed in the UK Corporate Governance Code:
– Clarity – our policy is well understood by our management team and has been clearly articulated to our shareholders. A key part of our Chief
Human Resources Officer’s role is engaging with our wider employee base on all our people matters (including remuneration) and we monitor the
effectiveness of this process through the feedback received. The Board is comfortable that our remuneration policy is clearly understood by our
employees.
– Simplicity – the Committee is very mindful of the need to avoid overly complex remuneration structures which can be misunderstood and deliver
unintended outcomes. Therefore, one of the Committee’s objectives is to ensure that our executive remuneration policies and practices are as
simple to communicate and operate as possible, while also supporting our strategy.
– Risk – For Executive Directors, our remuneration policy is designed to ensure that inappropriate risk-taking is not encouraged and will not be
rewarded via: (i) the use of a balanced scorecard in the short-term incentive plan which employs a blend of financial, operational and non-
financial metrics; (ii) the use of equity via our LTIP (together with shareholding requirements); and (iii) malus/clawback provisions which the
Executive Directors are required to accept to receive payments under the STIP and awards under the LTIP and which would normally be
enforced by reducing the number of shares and/or cash subject to outstanding and unvested awards in the first instance. For the Executive
Chair, given the interim nature of the role, our remuneration policy is designed to ensure that inappropriate risk-taking is not encouraged and
willnot be rewarded by making the Executive Chair ineligible to receive variable remuneration.
– Predictability – our incentive plans are subject to individual caps, with our share plans also subject to market standard dilution limits. The
scenario charts on page 138 illustrate how the rewards potentially receivable by our executives vary based on performance delivered and share
price growth.
– Proportionality – there is a clear link between individual awards, delivery of strategy and our long-term performance. In addition, the significant
role played by incentive/at-risk pay, together with the structure of Executive Directors’ service contracts, ensures that poor performance is not
rewarded.
– Alignment to culture – Ferrexpo has a strong operational focus which is reflected in its incentives with safety at the heart of its activities and this
is supported through the use of a specific safety measure in the annual bonus and the ability to reduce the formula-based outcomes based on
safety performance. Similarly, incentives may also include climate-related performance targets (as primary targets or as underpins) linked to the
Company’s strategic climate goals.
133
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Changes from the previous Remuneration Policy
The key changes to this Remuneration Policy, from the previous policy approved by shareholders at the 2020 AGM, and as described in the
Chair’s introductory statement, are as follows:
– the introduction of non-performance related restricted share awards under the LTIP to better support the Company’s strategy;
– aligning the wording in relation to the Committee’s potential use of discretion so that the provisions in the LTIP are consistent with the short-term
incentive plan. As detailed above, while it is not expected that performance-related LTIP awards will be granted to Executive Directors during the
operation of the 2024 Remuneration Policy, the policy and LTIP rules will be updated so the discretion provisions are consistent with the
short-term incentive plan in the event that future performance-related awards are granted. Within the LTIP this would enable the Committee to
adjust formulaic outcomes (upwards and downwards) as appropriate, taking into account such factors as it determines to be relevant, including
the broader performance of the Group, individual performance and/or the operating environment of the Group; and
– a change to the share ownership guidelines so that Executive Directors are only required to retain 50% of the net of tax shares vesting under the
LTIP (from both performance share awards and restricted share awards) or received under their deferred bonus until the share ownership
guidelines are met (rather than, as at present, 100% of the net of tax shares vesting).
Executive Director policy table
This section of our report summarises the policy for each component of Executive Director remuneration. The principles below also apply where
appropriate to the members of the Executive Committee.
Purpose and link to strategy Operation Opportunity Performance metrics
Fixed pay
Base salary
To attract and retain talent
by ensuring base salaries
are competitive in the
market in which the
individual is employed.
Base salaries are typically reviewed annually,
with reference to: the individual’s role, experience
and performance; business performance; salary
levels for equivalent posts at relevant
comparators; cost of living and inflation (taking
account of the location of the executive); and the
range of salary increases applying across the
Group.
Base salary increases are applied
in line with the outcome of
reviews, which will not exceed 5%
p.a. (or, if higher, the applicable
inflation rate) on an annualised
basis over the period over which
this policy applies. Increases
above this level may be applied
where appropriate to reflect
changes in the scale, scope and
responsibility attaching to the role
and market comparability
(including following appointment
to the Board on a on a below
market base salary).
Business and, where
relevant for current
Executive Directors,
individual performance
are considerations in
setting base salary.
Pension
To provide retirement
benefits.
Executive Directors will, as appropriate, be
offered membership of a scheme which complies
with relevant legislation (where necessary,
additional pension entitlements will be provided)
or cash in lieu of pension.
For information, pension for UK-based
employees is currently set at a maximum of
5%of salary withpension for Swiss-based
employees is differentiated by age and is also
setat up to 5% ofsalary.
Statutory lump sums and/or end of service
gratuities may be accrued each year and may be
payable on termination in line with the relevant
legislation where this exists.
Executive Directors will receive a
pension that is aligned with the
typical (i.e. most common)
practice for employees in the
location that the executive is
based.
The employer contribution will
normally be limited to a
percentage of base salary.
Associated benefits and variable
pay will only be included where
there is a statutory requirement to
do so.
The employer contribution will be
limited to 10% of salary or higher
subject to compliance with local
statutory requirements to reflect
actual practice in the Company.
Not performance
related.
Benefits
Competitive in the market
inwhich the individual is
employed.
Benefits are paid to comply with local statutory
requirements and as applicable to attract or
retain executives of a suitable calibre. They
include life insurance, personal accident, travel
and medical insurance. Where appropriate,
additional benefits may be offered, including, but
not limited to, accommodation allowances,
travel, enhanced sick pay, relocation/expatriate
relocation benefits, tax and legal advice.
Benefits’ values vary by role and
eligibility and costs are reviewed
periodically. Increases to the
existing benefits will not normally
exceed applicable inflation.
Increases above this level may be
applied, where appropriate, to
reflect changes in role, scope,
location and responsibility.
Not performance
related.
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Remuneration Report continued
Purpose and link to strategy Operation Opportunity Performance metrics
Variable pay
Short-term Incentive Plan
(“STIP”)
To focus management on
delivery of annual business
priorities which tie into the
long-term strategic
objectives of the business,
which include, but are not
limited to, developing the
reserve base, increasing
production, reducing costs,
reducing the risk profile of
the business, expanding
the customer portfolio, and
expanding geographically.
Targets are set at the start of the year against
which performance is measured. The Committee
determines the extent to which these have been
achieved. The Committee can exercise judgment
in determining an appropriate outcome at
performance levels both below and above the
target level of performance for each performance
measure. The Committee also has the ability to
adjust bonus outcomes based on its assessment
of individual contribution. Furthermore, the
Committee can exercise discretion to adjust the
formulaic outcome or amount of bonus payable
(upwards and downwards), taking into account
such factors as it determines to be relevant,
including factors outside of management control
or where it believes the outcome is not truly
reflective of individual performance or in line with
overall Company performance.
Normally paid as a mixture of cash and deferred
shares with the cash portion paid following the
publication of the audited results. The deferred
share portion will normally be a minimum of 25%
of the total bonus (with after tax bonus used to
acquire shares or the deferral taking place
through a deferred share award) with the shares
eligible for release after a period of two years.
Dividend equivalents may accrue on deferred
bonus shares.
Malus and clawback provisions will apply in the
case of individual gross misconduct, an error in
assessing performance against the condition,
corporate failure (for which the individual was
partly or wholly responsible) and/or in the event
that the individual is found legally responsible
for:
– a material misstatement of the Annual
Accounts; or
– a failure of risk management or reputational
damage to the Company.
Maximum opportunity of 150% of
salary.
The target opportunity is 50% of
maximum and the threshold
opportunity is up to one-third of
maximum.
Performance related.
Performance targets
can include financial,
non-financial and
personal achievement
criteria measured over
one financial year.
The Committee has
discretion to make
changes in future years
to reflect the evolving
nature of the strategic
imperatives that may be
facing the Company.
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Purpose and link to strategy Operation Opportunity Performance metrics
Long-term Incentive Plan
(“LTIP”)
To motivate participants to
deliver appropriate
longer-term returns to
shareholders by
encouraging them to see
themselves not just as
managers, but as part-
owners of the business.
The LTIP framework was originally approved by
shareholders at the 2018 AGM to enable the
grant of performance share awards
(“Performance Share Awards”) and will be
amended at the 2024 AGM to enable the grant of
restricted share awards (“Restricted Share
Awards”). It is not expected that Performance
Share Awards will be granted to Executive
Directors during the 2024 to 2026 policy period
but the Committee reserves the right to revisit
this position should the Russian invasion of
Ukraine end.
To the extent that an LTIP award vests, this will
include the applicable dividends on the shares
earned during the vesting period. Subsequent
dividends on shares held by participants are paid
in shares.
Vesting of Restricted Share awards is normally
subject to a three-year continued employment
requirement and consideration of a performance
underpin.
Vesting of Performance Share Awards is subject
to performance measured over a period of at
least three years. The Committee can exercise
discretion to adjust the extent of vesting
(upwards and downwards), taking into account
such factors as it determines to be relevant,
including the broader performance of the Group,
individual performance and/or the operating
environment of the Group.
A two-year holding period applies to shares
vesting under the LTIP.
Malus and clawback provisions will apply in the
case of individual gross misconduct, an error in
assessing performance against the condition or
underpin, corporate failure (for which the
individual was partly or wholly responsible) and/
or in the event that the individual is found legally
responsible for:
– a material misstatement of the Annual
Accounts; or
– a failure of risk management or reputational
damage to the Company.
The LTIP provides for:
– annual Restricted Share
Awards up to an aggregate
limit of 100% of salary in
normal circumstances. This
limit may be exceeded in
exceptional circumstances but
will not exceed 150% of salary;
and
– annual Performance Share
Awards up to an aggregate
limit of 200% of salary in
normal circumstances. This
limit may be exceeded in
exceptional circumstances but
will not exceed 300% of salary.
The threshold opportunity is
20% of maximum.
The above LTIP limits are
cumulative, with value of shares
subject to Restricted Share
Awards counting double vis-à-vis
the Performance Share Award
limits. It that it is not envisaged
that an Executive Director would
receive both types of an award in
the same financial year.
– Restricted Share
Awards are subject
to a performance
underpin. The
Committee will
consider the
Company’s
performance relative
to its mid to
long-term financial,
operational and
sustainability plans
as well as individual
performance and
may reduce the
vesting level,
including to zero, if
performance is not
considered
consistent with the
Board’s plans. This
assessment will take
into account the
dynamic operating
environment that
currently prevails as
a result of the
Russian invasion of
Ukraine.
Should Performance
Share Awards be
granted, the Committee
would determine
appropriate performance
conditions, in advance
of granting each award.
It is expected that
relative TSR would
remain the primary
performance condition
for Performance Share
Awards. Other
performance conditions
may, however, be used
in combination with
relative TSR.
136
Ferrexpo plc Annual Reports & Accounts 2023
Remuneration Report continued
Purpose and link to strategy Operation Opportunity Performance metrics
Share ownership guideline
To provide alignment of
interests between
Executive Directors and
shareholders.
The Company operates a shareholding
requirement which is subject to periodic review.
As a minimum, Executive Directors are expected
to retain 50% of the post-tax shares vesting
under the LTIP and shares deferred under the
annual bonus (on an after tax basis) until the
shareholding requirement is met.
Following cessation of employment, Executive
Directors are expected to hold the lower of 200%
of salary and the value of shares held on
cessation for two years.
The Committee maintains discretion to disapply
the policy as it considers appropriate in
exceptional circumstances (e.g. death). The
post-cessation guideline will apply to shares
deferred under the annual bonus (on an after tax
basis) and shares which vest under existing and
future LTIP awards (after tax) during the
Executive Director’s tenure.
Executive Directors are required
to build and maintain a
shareholding to the value of at
least 200% of salary.
Executive Directors are required
to hold the lower of 200% of
salary and the value of shares
held on cessation for two years
post cessation.
The share ownership guideline
does not apply to the Executive
Chair.
Not performance related.
Rationale for performance targets
The STIP is based on performance categories that are key to delivering on our long-term strategy. Performance targets are set at the beginning
of the financial year to reflect business priorities and other corporate objectives, and can include financial, non-financial and personal
achievement criteria.
Performance targets are set at such a level as to be stretching but achievable, with regard to the particular strategic priorities and economic
environment in a given performance period. The STIP target is set with reference to the annual budget approved by the Board and the
Committee uses its judgement to determine appropriate stretch in targets from threshold to maximum performance levels. The Committee
believes that using multiple targets for the purposes of the STIP provides for a balanced assessment of performance over the year.
For Restricted Share Awards granted under the LTIP, while the Committee intends to return to the grant of Performance Share Awards over the
longer term (e.g. subject to relative TSR and sustainability targets), the grant of non-performance related Restricted Share Awards will facilitate
the retention and motivation of the leadership team in the most challenging of external circumstances. However, Restricted Share Awards for
Executive Directors will be subject to an underpin whereby the Committee will consider the Company’s performance relative to its mid to
long-term financial, operation and sustainability plans as well as individual performance and may reduce the vesting level, including to zero, if
performance is not considered consistent with the Board’s plans. This assessment will take into account the dynamic operating environment that
currently prevails as a result of the Russian invasion of Ukraine and will consider the extent to which the value delivered on vesting is as a result
of windfall gains.
Rationale for Executive Chair not receiving variable pay
Given the interim nature of the Executive Chair role, and the expectation that the Executive Chair will return to his position as Non-executive
Chair following the end of his tenure, the Committee has determined that it would not currently be appropriate for the Executive Chair to receive
variable remuneration.
Remuneration of senior executives below the Board
The policy and practice with regard to the remuneration of senior executives below the Board is broadly aligned with that of the Executive
Directors.
Payments resulting from existing awards
Executive Directors are eligible to receive payment resulting from the vesting of any award made prior to the approval and implementation of the
remuneration policy detailed in this report.
137
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Non-executive Director policy table
This section of our report summarises the policy for each component of Non-executive Director remuneration.
Purpose and link to strategy Operation Opportunity Performance metrics
Fees
To attract and retain talent
by ensuring fees are market
competitive and reflect the
time commitment required
of Non-executive Directors
in different roles.
Annual fee for the Chair.
Annual base fee for Non-executive Directors.
Additional fees are paid for additional
responsibilities including to the Senior
Independent Director and the Chairs of the
Committees and/or in relation to the Non-
executive Director who will be a representative
ofemployees as well as for representation on
subsidiary Boards, where appropriate.
Fees are reviewed from time to time, taking into
account the time commitment, responsibilities
and fees paid by comparable companies, and
also taking into consideration geography and
riskprofile.
Changes to Non-executive
Director fees are applied in line
with the outcome of the review
undertaken by the Chair and
Executive Directors.
Additional remuneration may
beprovided in connection with
fulfilling the Company’s business
(e.g. any expenses incurred
fulfilling Company business may
be reimbursed including any
associated tax).
The maximum aggregate fees,
per annum, for all Non-executive
Directors allowed by the
Company’s Articles of
Association is £5 million.
For the avoidance of doubt,
additional remuneration received
by the Chair by way of salary
under his service contract while
he serves as Executive Chair shall
not count towards these limits.
Not performance related.
138
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Remuneration Report continued
Pay-for-performance: scenario analysis
The graph below illustrates estimates of the potential future reward opportunity and the potential split between the different elements of
remuneration under four different performance scenarios: “Below threshold”, “On-target” and “Maximum” and “Maximum assuming 50% share
price growth”. The Executive Chair only receives a fixed fee in respect of his duties and therefore receives the same remuneration in all scenarios.
The assumptions for the CFO are summarised in the table below.
Scenario Fixed pay STIP LTIP
Below threshold Base salary, pension
and benefits as
applicable for 2024
financial year
1
No STIP (0% of salary) Full vesting of the RSP Award – assumed
normal maximum policy of 100% of salary,
although in practice awards to Executive
Directors are significantly lower
On-target On-target STIP (75% of salary)
Maximum Maximum STIP (150% of salary)
Maximum, assuming 50%
share price growth
Maximum STIP (150% of salary) As above, but modelling the impact of a 50%
increase to share price
1. Benefits have been included at US$19,534 based on the annualised 2023 benefit provision to the CFO.
Executive Chair US$ (' 000)
0
Maximum
Target
Minimum
500 1,000 1,500 2,000 2,500
Fixed Pay STIP LTIP LTIP value with 50% share price growth
1,000
1,000
100%
100%
100%
1,000
Maximum
with 50%
share price
growth
100%
1,000
CFO US$ ('000)
0
Maximum
Target
Minimum
Fixed Pay STIP LTIP LTIP value with 50% share price growth
1,454
1,063
51% 49%
37% 27% 36%
28% 42.4% 28.2%
1,845
Maximum
with 50%
share price
growth
26% 37% 25% 12%
2,106
500 1,000 1,500 2,000 2,500
139
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Remuneration policy for new appointments
The Committee’s approach to setting remuneration for new Executive Directors is to ensure that the Company’s pay arrangements are in the
best interests of Ferrexpo and its shareholders. To do this, the Company takes into account internal pay levels, the external market, location of
the executive and remuneration received at the previous employer. The Committee reserves discretion to offer appropriate benefit arrangements,
which may include the continuation of benefits received in a previous role. Variable pay awards (excluding any potential “buy-out” awards,
described below) for a newly appointed Executive Director will be as described in the policy table, subject to the same maximum opportunities.
Different performance targets and conditions may be set initially for incentives in the first year of appointment to recognise the timing of their
appointment during the year. The rationale will be clearly explained in each case.
In addition, the Committee may make an award in respect of a new appointment to “buy out” existing incentive awards forfeited on leaving a
previous employer. In such cases, the compensatory award would typically be on a like-for-like basis with similar time to vesting, performance
conditions and likelihood of the targets being met. The fair value of the buy-out award would not be greater than the awards being replaced.
Tofacilitate such a buy-out, the Committee may grant a bespoke award under the Listing Rules exemption available for this purpose.
In cases of appointing a new Executive Director by way of internal promotion, the Group will honour any contractual commitments made prior
tohis or her promotion to Executive Director.
In every case, the Board will pay both the appropriate, but also the necessary, rate of pay to attract an executive who in the view of the Board will
contribute to shareholder value.
The approach to setting Non-executive Director fees on appointment is in line with the approach taken for the fee review set out in the Non-
executive Director policy table earlier in this report and will also take into account fee levels for existing Non-executive Directors.
Details of Executive Directors service contracts
The Chief Financial Officer, Nikolay Kladiev is employed under a contract of employment with Ferrexpo AG, a Group company (the “employer”),
as is Lucio Genovese in respect of the executive function of his role. The principal terms of their service contracts not otherwise set out in this
report are as follows: save in circumstances justifying summary termination, Mr Kladiev’s service contract with the employer is terminable on not
less than six months’ notice to be given by the employer or not less than six months’ notice to be given by Mr Kladiev. Given the interim nature of
Mr Genovese’s role, these periods are three months respectively and the contract is for a fixed-term of twelve months, which can be extended by
mutual agreement. Neither contract has any special provisions in the event of a change of control.
Notice period
Executive Director Position Date of contract Length of current contract From employer From employee
Lucio Genovese Executive Chair 1 July 2023 12 months 3 months 3 months
Nikolay Kladiev CFO 7 July 2021 Indefinite 6 months 6 months
Under their service contracts, Mr Genovese and Mr Kladiev are entitled to 25 working days’ paid holiday per year plus public holidays and other
forms of leave in accordance with applicable legislation. The Executive Director’s service contracts contain a provision exercisable at the option
of the employer to pay an amount on early termination of employment equal to the respective notice period. If the employer elects to make such
a payment (which in practice it will do if the speed and certainty afforded by this provision are thought to be in the best interests of shareholders),
the Executive Directors will be entitled under their contracts to receive all components of their base salaries, and accrued but untaken holiday
where applicable and required under law for the extent of the notice period. In addition to the contractual rights to a payment on loss of office,
any employee, including the Executive Directors, may have additional statutory and/or common law rights to certain additional payments, for
example, in a redundancy situation.
Policy for loss of office payments
The following principles apply when determining payments for loss of office for the Executive Directors and any new Executive Directors.
The employer will take account of all relevant circumstances on a case-by-case basis including (but not limited to): the sums stipulated in the
service contract (including base salary during his or her notice period, accrued but untaken holiday, and allowances/benefits); whether the
Executive Director has presided over an orderly handover; the contribution of the Executive Director to the success of the Company during his
orher tenure; and the need to compromise any claims that the Executive Director may have. The Company may, for example, if the Committee
considers it to be appropriate:
– enter into agreements with Executive Directors which may include the provision of legal fees or the settlement of liabilities in return for a single
one-off payment or subsequent payments subject to appropriate conditions;
– reimburse reasonable relocation costs where an Executive Director (and, where relevant, their family) had originally relocated to take up the
appointment;
– terminate employment other than in accordance with the terms of the contract (bearing in mind the potential consequences of doing so); or
– enter into new arrangements with the departing Executive Director (for example, confidentiality, restrictive covenants and/or consultancy
arrangements).
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Remuneration Report continued
If the individual is considered a “good” leaver (e.g. for reasons of death, ill-health, injury or disability, retirement, redundancy, their employing
company ceasing to be a member of the Group, the business (or part) of the business in which they are employed being transferred to a
transferee which is not a member of the Group, or any other reason which the Committee in its absolute discretion permits) any outstanding LTIP
awards will, except in the case of death, be pro-rated for time and any performance conditions will be measured (in the case of Performance
Share Awards) and any performance underpins considered (in the case of Restricted Share Awards). The Committee retains discretion to alter
these provisions (as permitted by the relevant plan rules) on a case-by-case basis following a review of circumstances, in order to ensure fairness
to both shareholders and participants with any amended conditions to be similarly challenging having had regard to the relevant circumstances.
In considering the exercise of discretion as set out above, the Committee will take into account all relevant circumstances which it considers are
in the best interests of the Company, for example, ensuring an orderly handover, performance of the executive during his or her tenure as
Director, performance of the Company as a whole and perception of the payment amongst the shareholders, general public and employee
base. The Committee has discretion to determine that an annual bonus should remain payable under the STIP notwithstanding termination of
office or employment.
In the event of a change of control, the vesting period under the LTIP ends and awards may be exercised or released to the extent to which the
performance conditions attaching to Performance Share Awards and any conditions under any performance underpin attaching to Restricted
Share Awards have, in the Committee’s opinion, been achieved up to that time. Pro-rating for time applies but the Committee has discretion to
allow awards to be exercised or released to a greater extent if it considers it appropriate having regard to the circumstances of the transaction
and the Company’s performance up to the date of the transaction.
It is the Committee’s policy to review contractual arrangements prior to new appointments in light of developments in best practice. The
Executive Director’s service contracts are available to view at the Company’s registered office.
External appointments
It is the Board’s policy to allow the Executive Directors to accept directorships of other quoted companies, provided that they have obtained
theconsent of both the CEO and Chair of the Board (i.e. the Executive Chair only while he remains in post) and which should be notified to the
Board. No external directorships of quoted companies are currently held by the Executive Directors.
Details of Non-executive Directors’ letters of appointment
The Chair and Non-executive Directors have each entered into a letter of appointment with the Company. The Non-executive Directors are each
appointed subject to their election and annual re-election by shareholders. Their appointments may be terminated by either party giving not less
than three months’ notice. The key terms of current letters of appointment are as follows:
Non-executive Director Position Date of first appointment Date of election/re-election
L Genovese
1
Chair 12 February 2019 2024 AGM
S Brown Non-executive Director 22 October 2023 2024 AGM
V Lisovenko Non-executive Director 28 November 2016 2024 AGM
F MacAulay Non-executive Director 12 August 2019 2024 AGM
N Polischuk Non-executive Director 29 December 2021 2024 AGM
1. Details of the service contract which governs the additional services which Mr Genovese has agreed to provide while he serves as Executive Chair are set out in the section headed
‘Details of Executive Directors service contracts’ above.
Employee context
In making remuneration decisions, the Committee also considers the pay and employment conditions throughout the Group. Prior to the
annualpay review and throughout the year, the Committee receives reports from the CEO, or Executive Chair, setting out the circumstances
surrounding, and potential changes to, broader employee pay. The CEO, or Executive Chair, consults as appropriate with key employees and
therelevant professionals throughout the Group. This forms part of the basis for determining changes in Executive Director and senior executive
remuneration which also takes into consideration factors detailed earlier in this report.
Consideration of shareholder views
The Committee takes into consideration views expressed by shareholders and their proxy advisers regarding remuneration, either at the AGM,
orby correspondence, or at one-to-one or Group meetings and shareholder events or otherwise by considering these views at the relevant
Committee meetings which are subsequently reported to and considered by the Board as a whole. The Committee takes shareholder and their
proxy adviser’s feedback into careful consideration when reviewing remuneration and regularly reviews the Directors’ remuneration policy in the
context of key institutional shareholder guidelines and best practice. It is the Committee’s policy to consult with major shareholders prior to
making any major changes to its executive remuneration structure.
141
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Part B: Annual Report on Remuneration (audited)
The following section provides details of how the remuneration policy was implemented during the year. Throughout this report, the
remuneration of Directors who are paid in foreign currencies are disclosed in local currencies to facilitate year-on-year comparisons,
uninfluenced by exchange rate fluctuations.
Committee membership in 2023
The Committee currently comprises three Independent Non-executive Directors. Fiona MacAulay is Chair of the Remuneration Committee, with
the other members of the Committee being Stuart Brown and Vitalii Lisovenko. During the year, Ann-Christin Andersen and Graeme Dacomb
stepped down from the Board and Committee in May and December 2023 respectively, with Stuart Brown being appointed to the Committee in
February 2024.
The Committee met on four scheduled occasions and on two ad hoc occasions in 2023. Attendance at meetings by individual members,
together with a summary of the topics discussed at meetings in 2023 is set out in the Chair’s Introductory Statement on pages 126 to 129.
The Executive Chair, Jim North (while CEO) and the Chief Human Resources Officer (the “CHRO”) attended meetings of the Committee at the
invitation of the Chair of the Committee, and the Company Secretary acts as secretary to the Committee. The other Non-executive Directors and
other members of management may also attend meetings by invitation where appropriate. No Director is present when their own remuneration is
being discussed.
Advisors
Following a competitive tender, the Committee appointed Korn Ferry in October 2019 to provide advice to the Committee. Korn Ferry is a
member of the Remuneration Consultants Group and adheres to its code of conduct.
Korn Ferry’s fees for services provided to the Committee in 2023 totalled £90,366 which were charged based on the time spent advising the
Committee. Korn Ferry also provides general remuneration advice to management in respect of remuneration elsewhere in the Group. The
Committee evaluates the support provided by its advisors periodically and is satisfied that the advice received is independent and objective and
that the advisors did not have any connections with Ferrexpo which may impair their independence.
The CEO, or the Executive Chair, and the CHRO provide guidance to the Committee on remuneration packages of senior executives employed
by the Group (but not in respect of their own remuneration).
Single total figure of remuneration – audited
The table below sets out in a single figure for each currency of payment the total remuneration received by each Executive Director during the
year ending 31 December 2023 and the prior year. Mr North was the CEO in the period from 1 January to 30 June 2023 at which point he
stepped down from the role and the Board. Mr Genovese assumed the role of Executive Chair from 1 July 2023. Mr Kladiev, the CFO, was
appointed to the Board with effect from the 2023 AGM on 25 May 2023.
Salary / fee
1
Benefits
2
STIP
3
LTIP
4
Pension
5
Total
(single figure)
6
Total fixed
remuneration
(single figure)
6
Total variable
remuneration
(single figure)
6
Executive Directors
N Kladiev (2023)
7
CHF283,862 – CHF335,000 CHF4,648 CHF11,354 CHF634,864 CHF295,216 CHF339,648
N Kladiev (2022) – – – – – – – –
J North (2023)
8
US$ 489,120 US$18,657 – US$32,520 – US$540,297 US$507,777 US$32,520
J North (2022) US$959,050 US$221,183 US$720,000 US$246,618 – US$2,146,851 US $1,180, 233 US$966,618
Executive Chair
L Genovese (2023)
9
US$237,50 0 – – – US$11,819 US$249,319 US$249,319 –
L Genovese (2022) See Non-executive Director table below
The figures have been calculated as follows:
1. Base salary: amount earned for the year. Mr Kladiev salary is from 25 May 2023 when he joined the Board.
2. Benefits: the taxable value of benefits received in the year (accommodation allowance/provision and healthcare).
3. STIP: the total bonus earned based on performance during the year. Further details are provided on pages 143 to 145.
4. LTIP: the market value of shares that vested based on performance to 31 December of the relevant year (2023: 16.78% vested and 2022: 71.6% vested). For 2021, LTIP value for J North
includes dividends of US$17,331, and for N Kladiev CHF2,477 over the performance period from 1 January 2021 to 31 December 2023 (2022: J North – US$89,845).
5. Pension: N Kladiev receives an employer pension contribution of 4% of salary which is in line with the Swiss employee pension arrangement which is differentiated by age in Switzerland.
Mr North did not participate in a pension scheme in line with normal practice in Dubai. Whilst working in Dubai, under local legislation he accrued a lump-sum gratuity payment which is
paid on leaving employment and is equivalent to c.8.33% of salary per year of his service. Within the reporting period an amount of US$68,208 (2022: US$80,088) was accrued towards
the statutory gratuity. Following J North’s cessation of employment this amount has been paid to him. Mr Genovese receives an employer pension contribution of 5% of his salary as
Executive Chair which is in line with the Swiss employee pension arrangement in Switzerland.
6. Average exchange rates: 2023 – £1=US$1.2440 and £1=CHF1.1169; 2022 – £1=US$1.2105.
7. Mr Kladiev was appointed to the Board with effect from the 2023 AGM on 25 May 2023. The remuneration included in the table reflects the period 25 May to 31 December 2023.
8. Mr North assumed the role of Acting CEO from the 2020 AGM on 28 May 2020 and was appointed CEO on 14 February 2022. Mr North was appointed to the Board on 5 July 2020.
Remuneration for 2022 is in respect of the period as Acting CEO from 1 January to 13 February 2022 and as CEO from 14 February 2022 to 31 December 2023. Remuneration for 2023 is
in respect of the period as CEO from 1 January 2023 to 30 June 2023, when Mr North stepped down as CEO and remained on garden leave, leaving the Company on 31 October 2023.
Full details of his leaving arrangements are set out on pages 149 to 150.
9. Mr Genovese assumed the role of Executive Chair on 1 July 2023 following Mr North stepping down as CEO. The remuneration included in the table above reflects the amounts paid in
respect of this role. Remuneration earned prior to this date and currently in respect of his role as Non-executive Chair of the Company is detailed in the table below.
142
Ferrexpo plc Annual Reports & Accounts 2023
Remuneration Report continued
The table below sets out in a single figure for each currency of payment the total remuneration received by each Non-executive Director for the
year ending 31 December 2023 and the prior year.
All figures shown in currency of payment, US$000
2023 2022
Fees Benefits Pension Total Fees Benefits Pension Total
Non-executive Directors
L Genovese (Chair)
1
578 – – 578 500 – – 500
V Lisovenko
2
196 – – 196 190 – – 190
F MacAulay (Senior Independent Director)
2,3
200 – – 200 188 – – 188
AC Andersen
3
80 – – 80 153 – – 153
S Brown 27 – – 27 – – – –
G Dacomb
4
176 – – 176 161 – – 161
N Polischuk 153 – – 153 136 – – 136
K Zhevago
5
– – – – 135 135
1. Mr Genovese retired from the Ferrexpo plc Board on 1 August 2014 and was subsequently reappointed on 12 February 2019. He was appointed Chair of Ferrexpo plc on 25 August 2020
and assumed the role of Executive Chair from 1 July 2023. The above table reflects his fee as Board Chair. The portion of remuneration earned for his role as Executive Chair is disclosed
in the Executive Director table above. In addition to his base fee, Mr Genovese received a one-off payment of US$57,292 for additional time spent on Board matters in the first quarter of
2023. This payment was in relation to the exceptional time commitment required as a result of the ongoing impact of the Russian invasion of Ukraine. Mr Genovese also serves as a
Non-executive Director of Ferrexpo AG and, in 2023, received a fee of US$80,000 p.a. (2022: US$80,000).
2. Mr Lisovenko served as the SID until 10 February 2022, and the post was then assumed by Ms MacAulay with effect from 10 February 2022.
3. Ms MacAulay served as Chair of the HSEC Committee until 9 February 2022, the post was then assumed by Ms Andersen with effect from 9 February 2022 and subsequently, assumed
by Ms Polischuk on 25 May 2023.
4. In addition to his base fee, as disclosed in last year’s Directors’ Remuneration Repot, Mr Dacomb received a one off payment in 2022 of US$30,000 for additional time spent overseeing
the preparation of the Group’s financial accounts and dealing with the Group’s external auditors.
5. Mr Zhevago received a fee in 2022 in line with other Non-executive Directors (i.e. US$135,000). He resigned from his role of Non-executive Director with effect from 29 December 2022.
Mr Zhevago maintains a consultancy arrangement with the company to provide strategic advice and manage relationships with key stakeholders. This consultancy arrangement was
suspended in January 2023 following his resignation as a Non-executive Director and stepping down from the Board on 29 December 2022. He did not receive any payments in 2023 under
this consultancy arrangement.
Implementation of remuneration policy
Salary
Base salaries are reviewed annually with reference to the individual’s role, experience and performance; business performance; salary levels at
relevant comparators; and the range of salary increases applying across the Group.
Lucio Genovese receives a fixed fee for his role as Executive Chair set on appointment at US$1,000,000 made up of his current fee of
US$525,000 as Board Chair and an additional US$475,000 on an interim basis while he serves as Executive Chair. This fee reflects his increased
time commitment in role and non participation in the Company’s incentive plans.
On his being appointed to the Board in May 2023, Mr Kladiev’s base salary was CHF450,000. Following the Company’s annual pay review, with
budgets varying between 1.5% and 10% of payroll, the CFO’s salary was increased by 4% with effect from 1 January 2024 after having regard to
his location and increase awarded to the wider workforce.
Mr North’s salary as CEO for 2023 was US$978,240 prior to his departure.
Base salary at:
Executive Director Position 1 January 2024 25 May 20231
N Kladiev CFO
CHF468,000
CHF450,000
1. From appointment to the Board on 25 May 2023.
2. Based on average exchange rates: 2023 – US$1=CHF0.8979; 2022 – CHF1=US$0.9244.
Pensions and other benefits – audited
The Group does not operate a separate pension scheme for Executive Directors. In line with other employees, under the rules of the Zurich
pension scheme that is mandatory as a condition of service for employees in Switzerland, Mr Kladiev receives a Company pension contribution
of 4% of salary and Mr Genovese receives a 5% pension contribution in respect of the salary he receives in relation to the executive function of
his role.
In line with standard company practice in Dubai, Mr North did not participate in a pension scheme. Whilst working in Dubai, under local
legislation he accrued a lump-sum gratuity payment which is paid on leaving employment in the country and is accrued at a rate equivalent to
c.8.33% of salary per year of his service. In the 2023 reporting period, an amount of US$68,208 was accrued towards the statutory gratuity
(2022: US$80,089).
Mr North was also eligible for other benefits whilst he was an Executive Director as set out in the Executive Director Remuneration Policy earlier
in the report. This included an allowance toward the cost of accommodation, schooling for his dependent children and use of a car in Dubai up
to a maximum of US$225,000 p.a. In 2023, Mr North did not make use of this allowance (2022: US$204,687).
143
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
2023 STIP outcome – audited
The Company, as a single product producer of iron ore pellets with a focused customer portfolio, sets its performance targets to ensure that the
Directors and senior executives are motivated to enhance shareholder value both in the short term and over the longer term.
Key performance targets based on the budget and the Company’s key strategic priorities for 2023 were set for the Directors and senior
executives. Targets during the year related to financial performance, ESG and operational performance, as well as strategic targets relating to
enhancing female diversity in leadership positions. Safety (behavioural safety initiatives and improvements in risk management) was included as
a modifier, decreasing the total result in the event of a fatality.
The targets and performance against these for 2023 are shown in the table below. Financial and operational targets are normalised, as in
previous years, to take account of actual iron ore prices and sales pricing outside of a 5% band, operating forex losses or gains, and other major
raw material cost price items such as gas, electricity and fuel prices as appropriate, to the extent that these were not under the direct control of
management. These adjustments ensure that the targets fulfil their original intent and are no more or less challenging than when set in light of the
adjustments made. No adjustments were made to ESG, sales or production indicators such as volumes and costs.
The Committee has discretion to manage bonus outcomes retrospectively; it can confirm, increase, reduce or cancel bonus payments to reflect
current market conditions and affordability.
In 2023, the threshold performance equated to a bonus potential of 50% of salary, on-target performance to a bonus potential of 75% of salary
and stretch performance to a bonus potential of 150% of salary.
The level of achievement against each of the targets for 2023, as determined by the Committee for Mr Kladiev as CFO, is summarised below. The
Executive Chair is not eligible to participate in the STIP and the former CEO, J North, became ineligible to receive a payment under the STIP for
2023 as a result of his cessation of employment.
Business scorecard (60% of STIP)
KPI Measure/target
Weighting
%
Threshold
50%
Target
75%
Stretch
150%
Scorecard
outcome Assessment
Max
as a %
of salary
Bonus
awarded
as a %
of salary
Financial Group EBITDA (US$, million) 15.0% 138 151 163 63 Below threshold 22.5% 0.0%
ESG LTIFR <WA Mines trailing 5yr
average (%) 5.0% -15.0% -25.0% -35.0% -54.0% Stretch 7.5% 7.5%
Diversity Ratio (% Women in
leadership (grade 10+)) 5.0% 20.5% 21.5% 22.0% 22.3% Stretch 7.5% 7.5%
Capex spend on carbon reduction
(% of budget) 5.0% 1.0% 2.0% 3.0% 1.1% Above threshold 7.5% 2.6%
Operational Production from own ore
(GPL+Yeristovo) (kt) 10.0% 6,847 7, 207 7,279 3,845 Below threshold 15.0% 0.0%
Full Cash Costs reported
(C1 costs GPL+Yeristovo) (US$/
tonne) 5.0% 84.0 83.0 81.5 84.6 Below threshold 7.5% 0.0%
FYM Total Movement
Cost (US$/tonne) 5.0% 2.9 2.8 2.7 3.2 Below threshold 7.5% 0.0%
Sales &
Marketing FPM pellet stockpile (kt) 10.0% 400 200 100 293
Between threshold
and target 15.0% 6.4%
Total 60.0% 90.0% 24.0%
Scorecard outcome 24.0%
In determining the outcome for the business scorecard, the Committee reflected that 2023 had been an even more challenging year for the
business as compared with 2022. The constraints imposed on the business by a second year of war in Ukraine, together with lagging demand
by steel makers for the Group’s products had impacted the Group’s ability to achieve a number of scorecard targets set at the start of the year.
The continued limited access to Black Sea export routes, had served to constrain the Group’s ability to ship to customer markets outside of
Europe. This had caused the Group to curb production and to only operate one, or sometimes two, out of four pellet lines. The lower production
requirement meant that mining volumes also had to be cut which led to the pellet volume, mining movement and the EBITDA targets being
missed. At the same time, rising world-wide energy prices, exacerbated by the war in Ukraine, and global inflation had impacted input costs,
resulting in this target also being missed.
The Committee was pleased to note that, despite the disruption caused by the war, most ESG targets had been achieved at stretch which
evidenced that the focus on achieving gender balance had continued unabated. The Committee considered that this was a particularly
significant achievement in light of the complexity caused by the need for ongoing variable staffing at operations. This presented the potential to
derail the Group’s diversity and talent management strategy. The record LTIFR score was similarly viewed positively as it evidenced an
unwavering determination by senior management to safeguard the workforce, being cognisant of people’s potentially disrupted mental health,
arising from the perilous environment in the country which could cause people to be distracted whilst working, leading to accidents.
144
Ferrexpo plc Annual Reports & Accounts 2023
Remuneration Report continued
Aside from the scorecard result, the Committee also noted that despite the rigours of war, management had worked tirelessly to preserve the
integrity of the Group’s assets, which had enabled the Group to continue to produce and sell our high-grade pellets despite the challenging
circumstances. The strategy to right-size the business quickly had also enabled the Company to be more responsive to unpredictable
circumstances. Disruption had been minimised through optimising the available logistics capacity to ensure continuous supply to the Group’s
European customers, whilst safeguarding the long-term interests of the business, ensuring it remained cash flow positive, with a strong cash
balance and no financial debt.
Strong leadership at operations had also inspired a high level of engagement and trust by the workforce who demonstrated incredible resilience
and commitment to the Company, in the very challenging circumstances caused by Russia’s invasion of Ukraine. It was evident that people had
remained a primary focus, with support provided through equipping those serving in the military with basic needs such as warm clothing, first
aid kits, body armour, helmets and boots. Employee support programmes had also been established, offering counselling for employees and
family members, where needed. A rehabilitation programme for employees returning from serving at the front had also been established, which
included the provision of medical assistance, physical rehabilitation, access to prosthetics and psychological counselling where needed, with the
aim of reintegrating veterans back into the workforce and civil society.
The Committee did not adjust the overall scorecard result and confirmed an outcome of 24.0% of salary (against a maximum of 90%) for all
participants.
Strategic objectives (40% of STIP)
The following strategic targets applied to the CFO during 2023:
Objective Weighting
Threshold
50%
Target
75%
Stretch
150% Outcome Assessment
Max
as a %
of salary
Bonus
awarded
as a %
of salary
Compliance with
Ukrainian foreign
currency rules for
intercompany
operations
10.0% FPM
Compliance
assured
FYM
Compliance
assured
Compliance at
both FPM and
FYM
Stretch Compliance assured
at both operations.
15.0% 15.0%
Banking Relationships 10.0% Existing
banking
relationships
maintained
Additional
banking
relationships
secured for
mainentities
Adequate
banking
operational
providing
security for
theGroup
Above
target
New banking
relationships
established in
November 2023
15.0% 10.4%
IFS Implementation 10.0% Risks module
operational by
end the end of
June 2023
Warehouse
Module
implemented
atFYM and
commenced at
FPM before year
end
Repair Module
implemented at
FPM and
capturing
materials/
spare parts
expenses;
Mobile
Equipment
extension
added for FYM
by year end
Target IFS Risk module
operational;
Warehouse and
Repair modules in
advanced stages
15.0% 10.0%
BEPS 2.0 and Group
international structure
10.0% Approval of
Phase 1 and
implementation
Revised
Company
structure with
allchanges
completed by
year end
Assessment of
business
model
optimisation to
investigate
relocation of
functions to
lower cost
jurisdictions
Stretch Strategy presented
to Board including
business model
optimization,
enhanced
operational flexibility
and cost base
analysis
15.0% 15.0%
Total 40.0% 60.0% 50.4%
Total STIP (Composite result of business scorecard and personal objectives achievement) 150.0% 74.4%
Outcome as a percentage of salary 74.4%
The Committee considered Mr Kladiev’s personal performance against his strategic targets during 2023 and confirmed that the CFO had made
asignificant contribution to the performance of the Group in 2023, despite the outcome of the overall business result which was outside of the
CFO’s control and attributable to the war in Ukraine.
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
The Committee noted that a number of projects had been successfully led and executed by the CFO in 2023. The Company faced a myriad of
challenges against the backdrop of the second year of the war in Ukraine but despite this very challenging environment, Mr Kladiev’s personal
leadership had been evident and his impact and presence since joining the Board was noteworthy.
With regards to compliance with foreign currency rules in Ukraine, the Committee was particularly satisfied that the CFO had made a significant
contribution in preserving the Group’s on-shore liquidity in 2023. The Committee noted that exchange control regulations had become
considerably more restrictive, as a result of the proclamation of Martial Law in Ukraine. These tighter restrictions required that the CFO
implement a range of measures to ensure that the Group did not breach exchange control regulations. In this respect, it was considered that the
CFO had taken appropriate steps to not only ensure that there was sufficient liquidity to operate the Group but also that it did not incur any
financial penalties as a result of cross border transactions.
Similarly, the finance team under Mr Kladiev’s leadership, had also provided a clear blueprint for the international structure of the Group to
mitigate the impact of BEPS 2.0 that was now being implemented in a number of the Group’s jurisdictions. This would be executed following
Board approval and when the Group’s capital programme could be fully reinstated, potentially only when the war in Ukraine ends.
It was also noted that despite the backdrop of a very difficult business operating environment, where the Group was dealing with a myriad of
challenges, the CFO had also successfully secured the services of additional banks to support the Group. However, the Committee confirmed
that further work was still needed to secure additional banking support for the Group’s financial transactions. This will continue to be progressed
in 2024.
Considering the CFO’s personal performance in 2023, the Committee was comfortable with confirming a bonus payment for the CFO at 74.4% of
salary in respect of his personal strategic objectives and did not use any discretion.
In light of the performance delivered against the targets set both from the business scorecard and from his personal strategic objectives, the
Committee determined that a bonus of 49.6% of the maximum (74.4% of salary) was earned by the CFO. In determining that the final bonus
amount was appropriate, the Committee had regard to the wider stakeholder experience during the year, including the returns generated for
shareholders and the bonus awards made across the executive leadership team which were calculated on the same basis.
In line with the policy, 25% of the bonus (net of tax) will be deferred into shares which will be released after two years.
STIP framework for 2024
The CFO’s 2024 STIP opportunity will remain at 150% of salary for maximum performance, calculated as a percentage of salary earned during
the year. Given the dynamic nature of operating during a war, the Committee is adjusting its approach to setting bonus targets for the current
financial year. As in prior years, the bonus targets will be set to align with the budgeted levels of performance. However, given the challenges
presented by the war, we will not set defined performance ranges around budget. Instead, above target bonuses (i.e. earning above 50% of
themaximum bonus for each part of the scorecard) will only be achieved once the budget set for that measure has been exceeded. If budget
numbers are missed, only a below target bonus will be payable. The precise size of the bonuses under both scenarios will then be determined
based on the Committee’s assessment of the factors contributing to the over or under performance (i.e. do these relate to genuine
outperformance or external factors being better or worse than planned). Additionally, the Committee has determined that for 2024, as a
consequence of the war, that it is not appropriate to set personal strategic targets for the CFO (or Group employees more generally) as any
strategic personal targets set are likely to be as much impacted by external factors as actions taken by the CFO. Strategic targets will therefore
not be set and, instead, performance will only be measured against financial, operational and ESG targets to determine a 100% of any bonus
award in 2024. This revised approach to bonuses will operate across the Group executive. Furthermore, the Committee will retain discretion
across all Group employees to recognise exceptional personal contribution by making a positive adjustment to formulaic outcomes (e.g. by a
factor of 1.2) and also in the event of under performance by making a negative adjustment (e.g. by a factor of 0.8) to ensure there is clear
alignment between performance and reward. Any such adjustment would not result in bonuses exceeding the maximum opportunities set at the
start of the financial year. Whilst this is a non-standard approach and includes greater Committee judgment than has been the case in prior
years, it will enable the Committee to achieve a fair relationship between performance and reward given it will enable a more holistic assessment
of performance albeit anchored within a defined framework. The Committee does not consider it appropriate to set up a bonus structure that
has the potential to pay maximum or no bonuses in the event that, for example, power outages or labour availability materially change through
the year.
The Committee has also reduced the number of metrics and rebalanced their weightings to better reflect current strategic priorities. In addition,
it has reduced the number of adjustments to budgeted numbers that will be made for external factors (e.g. adjustments will be limited to restating
the underlying cash EBITDA target if prices are outside of the normal +/-5% band of budgeted prices but not for changes to input costs versus
budgeted levels). This simplifies the assessment of performance and enables the Committee to take a broader view. The key change to metrics
is an increased weighting on underlying cash EBITDA (from 15% to 20%) with a view to both reflecting the near-term priorities and better aligning
costs with performance and reward. A summary of the 2024 scorecard is set out below for completeness. Due to commercial sensitivity, details
of performance targets will be disclosed retrospectively and in certain instances may be aggregated.
25% of any bonus earned, net of any tax, will either be required to be deferred into shares for two years, or alternatively, the Committee may
determine that 25% of any bonus earned is deferred into a share award which will be released after two years.
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Ferrexpo plc Annual Reports & Accounts 2023
Remuneration Report continued
KPI Weighting
Financial
Underlying cash EBITDA 30.0%
ESG
Safety
Diversity
Environmental compliance 30.0%
Operational
Production
Total mining movement tonnes 25.0%
Sales and Marketing
Sales volume 15.0%
Total 100.0%
LTIP award vesting (audited)
The performance period for the 2021 LTIP awards ended on 31 December 2023. The 2021 LTIP rewarded TSR outperformance of a tailored
comparator group (75% weighting), Production of 67% Fe pellets (12.5% weighting) and Carbon emissions reductions (12.5% weighting).
As detailed in the Chair’s Introductory Statement, the Russian invasion of Ukraine weighed heavily on the Company’s share price resulting in TSR
being below the bespoke Index of comparable Iron Ore and Composite Miners and therefore there was no score for this element.
With regards to the proportion of 67% Fe pellets produced as percentage of total pellet production over the three year performance period
ending 31 December 2023, this was calculated in line with the original target at 3.71% over the period, delivering a vesting outcome of 4.28% out
of a possible 12.5%.
Over the same three-year period, Scope 1 and Scope 2 carbon emissions as a proportion of total production (i.e. emissions intensity per
thousand tonnes) fell by 6.1% resulting in full score of 12.5% for this element. The target was tested on the basis it was originally set with the use
of an intensity target taking account of the reduced production through the period. Taken as a whole, the Committee therefore determined that
the 2021 LTIP vested at 16.78%.
Performance condition Weighting
Threshold target
(20% vests)
Maximum target
(100% vests) Result
Straight line vesting
takes place between
performance points
TSR
1
75.0% Index Index + 8.0% p.a. 0% out of 75%
Production of 67% Fe pellets
2
12.5% 3.0% over period 7.0% over period
3.71% over the
period, so vesting at
4.28% out of 12.5%
Carbon emissions reduction 12.5% 3.0% p.a. 5.0% p.a.
Reduction of 6.1%
over the period, so
vesting at 12.5% out
of 12.5%
1. TSR is measured against an index of iron ore and diversified miners.
2. Subject to the cessation of the war in Ukraine and the re-opening of export port facilities enabling delivery to DR-pellet customers.
Mr North was granted the 2021 LTIP award in respect of his role as Chief Operating Officer. Following Mr North stepping down from the Board
and leaving the Company in June 2023, his 2021 Award was pro-rated, as set out on pages 149 to 150. Details of the number of shares under
the 2021 Award vesting are set out in the table below.
Date of grant
Number of
shares
Award share
price
2
Value awarded
based on
grantprice
Vesting
percentage
Number of
shares vesting
Value vesting
based on
grantprice
Share price
atdate
ofvesting
3
Value based
onvesting
price
4
Impact of
share price
appreciation
J North 25.03.21 82,922
1
216.40p £179,443 16.78% 13,914 £30,111 76.9p £10,696 (94%)
N Kladiev 25.03.21 13,200 216.40p £28,565 16.78% 2,215 £4,793 76.9p £1,703 (94%)
1. Original number of shares granted was 87,800 which has been pro-rated based on the time employed in the Group.
2. Based on the average share price over the three-month period from 1 October to 31 December 2020 preceding the start of the performance period.
3. Based on the three-month average share price to 31 December 2023 of 76.9 pence. Value figures exclude dividends received over the vesting period of US$15,189 and CHF2,171 to
Mr North and Mr Kladiev respectively.
4. Excludes value of shares in lieu of dividends (2023: nil) in the reporting year.
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Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
LTIP granted in 2023 (audited)
Mr North was granted a 2023 LTIP award in respect of 224,800 shares. Following his stepping down from the Board and leaving the Company in
June 2023, his 2023 Award was pro-rated for time, reducing his original award to 62,444 shares which had a face value of 40% of salary based
on the share price on the date of grant of 136.8 pence.
Prior to joining the Board, Mr Kladiev was granted a 2023 LTIP award in respect of 64,600 shares as shown in the table below.
Executive Director Date of grant Number of shares Face value2
Face value
(% of salary)
Vesting for minimum
performance
(% of maximum)
End of
performance
period
N Kladiev 09.03.23 64,600 £88,373 22% 20% 31.12.25
J North 09.03.23 224,800
1
£3 07,526 40% 20% 31.12.25
1. Reduced to 62,444 shares as a result of pro-rating based on the time employed in the Group.
2. Based on the average share price over the three-month period preceding the start of the performance period from 1 October to 31 December 2022 of 136.8 pence.
The 2023 LTIP award will vest to the extent that the performance conditions set out below are met. The TSR and Production targets are aligned
with those used for the 2022 award but the weightings have been increased from 75% and 12.5%, respectively. The carbon reduction targets
used in 2022 have been removed for 2023. Given the impact of the Russian invasion on the Company’s energy usage and ability to invest in
new technologies, the Committee considers it more appropriate to retain discretion to reduce vesting if satisfactory progress in delivering the
Board’s carbon reduction objectives is not achieved, allowing for the dynamic circumstances in place as a result of the Russian invasion.
Consistent with the inclusion of the windfall gain provision, and the Committee’s broader discretion, at the time of vesting the Committee will
consider whether any adjustments to the awards are required for example to ensure that the formulaic outcome is in line with underlying intent
ofthe performance conditions.
A two-year holding period will apply to any shares that vest and in line with the policy, malus and clawback provisions also apply to the award.
Performance condition Weighting
Threshold target
(20% vests)
Maximum target
(100% vests)
Straight line vesting
takes place between
performance points
TSR
1
85.0% Index Index + 8.0% p.a.
Production of 67% Fe pellets
2
15.0% 3.0% over period 7.0% over period
1. TSR is measured against an index of iron ore and diversified miners. The constituents of the index for the recent awards are summarised in the table below.
2. Subject to the re-opening of export port facilities enabling delivery to DR-pellet customers.
2019 2020 2021 2022 2023
Focused iron ore miners Weighting 60% 60% 60% 60% 60%
Cleveland-Cliffs
Fortescue Metals
Kumba Iron Ore
Mount Gibson
Mineral Resources1 – –
Global diversified miners Weighting 40% 40% 40% 40% 40%
Anglo American
1
– –
BHP
Rio Tinto
Vale
Glencore
1. The Committee reviewed the constituents of the comparator index in 2021 and included Mineral Resources in the Focused iron ore miners and Anglo American in the Global diversified
miners given the nature and scale of their operations and considered that the above constituents remained appropriate for awards granted in 2023.
TSR is calculated on a common currency basis to ensure that comparisons with international comparators listed overseas are fair, with a TSR
share price averaging period of three months for the 2023 award to ensure short-term movements in Ferrexpo’s share price or the share price of
comparator companies does not unduly impact the performance assessment.
Dividend equivalents accrue on shares over the vesting period and are paid in cash on shares that vest. Subsequent dividends that arise post
vesting are paid to participants in shares.
LTIP framework for 2024
This Directors’ Remuneration Report is published prior to the grant date of awards. Subject to the Policy being approved at the 2024 AGM, the
Committee intends to grant Mr Kladiev a Restricted Share Award which is expected to have a face value of 25% of his salary, which sits at the
lower end of the award possible under the policy.
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Ferrexpo plc Annual Reports & Accounts 2023
Remuneration Report continued
The number of shares under the award will be based on the average share price over such period as the Committee determines is appropriate prior
to grant and the Committee will retain the ability to adjust the number of shares vesting in the event that there is to be a perceived windfall gain.
The award will vest three years after grant, subject to continued service, with any shares vesting subject to a two-year holding period. An
underpin will also apply. The Committee will consider the Company’s performance relative to its mid to long-term financial, operational and
sustainability plans as well as individual performance and may reduce the vesting level, including to zero, if performance is not considered
consistent with the Board’s plans. This assessment will take into account the dynamic operating environment that currently prevails as a result
ofthe Russian invasion of Ukraine.
Any shares vesting from these awards will be subject to recovery provisions (as detailed in the Remuneration Policy on page 135).
Non-executive Directors (including the Chair)
Since assuming the role of Executive Chair in July 2023, Lucio Genovese receives only a fixed fee for his role which was set at US$1,000,000
p.a., and is split between his Non-executive Board Chair fee of US$525,000 and an additional US$475,000 on an interim basis while he serves
as Executive Chair. This fee reflects his increased time commitment in role and non-participation in the Company’s incentive plans.
The Non-executive Directors’ fees were also reviewed in light of the workload and time commitment increasing and taking into account all
relevant factors including external market levels and considering the level of involvement that Non-executive Directors are required to devote to
the activities of the Board and its Committees. For 2024, the Board (excluding the Non-executive Directors) determined that all Non-executive
Directors should receive a base fee of US$148,000 p.a. Given the time commitment involved, the Board was comfortable this was an appropriate
base fee for all Non-executive Directors.
Role Current fee levels Change
Chair fee US$525,000 +0%
Non-executive Director base fee US$148,000 +4%
Committee Chair fee
1
US$20,000 +0%
Senior Independent Director fee US$35,000 +0%
Audit Chair fee US$30,000 +0%
Remuneration Chair fee2 US$25,000 +0%
Employee Engagement Director fee US$35,000 +0%
1. The fee applies to the Chairs of Committee of Independent Directors, Health, Safety, Environment and Community Committee and Nominations Committee.
2. Remuneration Chair fee increased from US$20,000 to US$25,000 with effect from 1 March 2023.
In addition to his fee as Executive Chair of the Board, Mr Genovese serves as a Non-executive Director of Ferrexpo AG for which he receives a
fee of US$80,000 p.a.
Directors’ shareholdings (audited)
Total interests of the Directors in office (and connected persons) as at 31 December 2023:
At 31 December
2023
At 31 December
2022
AC Andersen
1
– –
G Dacomb – –
L Genovese 233,651 233,651
N Kladiev
2
127,574 –
V Lisovenko – –
F MacAulay 3,536 3,536
J North
3
650,005 566,233
N Polischuk – –
K Zhevago
4
294,993,686 296,077,944
1. AC Andersen stood down as a Non-executive Director on 25 May 2023.
2. N Kladiev joined the Board on 25 May 2023.
3. J North’s shareholding reflects his current holding. He stepped down as CEO on 30 June 2023.
4. K Zhevago has interest in these shares as a beneficiary of The Minco Trust, which is the ultimate shareholder of Fevamotinico S.a.r.l., which owns 294,993,686 shares in the Company.
Mr Zhevago resigned from the Board on 29 December 2022.
Executive Directors are subject to shareholding requirements under which they are required to build up a holding of shares of equivalent value to
200% of salary. Executive Directors will be expected to retain half their vested LTIP shares on an after-tax basis, along with half of shares
deferred under the annual bonus following the end of their holding period, until the required level is achieved. Shares deferred under the annual
bonus and shares that have vested under the LTIP but which are still subject to the two-year holding period will also count towards the guideline,
on a net of tax basis, if applicable.
149
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
A post-employment share ownership guideline applies under which departing Executive Directors will be expected to retain the lower of their
share ownership at cessation of employment and 200% of salary for a minimum period of two years. Only shares deferred under the annual
bonus (from 2022, on an after-tax basis) and all shares which vest under existing and future long-term incentive plan awards (after tax) during
anExecutive Director’s tenure will count for the purposes of the post-cessation guideline. The Committee will retain discretion to disapply the
guideline in exceptional circumstances (e.g. death).
In accordance with the post-cessation shareholding requirement introduced at the 2021 AGM, Mr North is required to hold, for two years
following his cessation of employment, shares which vested under LTIP awards following the date of the 2021 AGM or which were acquired as
deferred bonus shares in 2022 or later years, in each case on an after-tax basis.
As at cessation of employment, Mr North held 650,005 shares worth 62.4% of his salary, of which 278,101 shares, worth 0.27% of his salary as
at the date of cessation, count towards the post-cessation shareholding requirement. Mr North needs the permission of the Executive Chair and
the Remuneration Committee to sell any of these shares.
Mr Kladiev’s shareholding against the guideline as at 31 December 2023 was as follows:
Shareholding
requirement
(% salary)
Owned
outright
Subject to
performance
1
Current
shareholding
2
(% salary)
Requirement
met?
N Kladiev 200% 127,574 102,040 29% In progress
1. Performance awards are conditional awards. Further details of shares subject to performance are provided below.
2. Based only on shares owned outright at 31 December 2023 and a share price of 90.3 pence on 29 December 2023 and an exchange rate of £1=CHF1.1169.
Details of LTIP awards held by Mr North, which are subject to performance, and pro rating following his cessation of employment with the
Company, are provided below.
Award
At 1 January
2023
Granted
(2023 award) Vested Lapsed
Total at
31 December
2023
Award share
price
(pence)
1
End of
performance
period
J North 2021 Award2 87, 8 0 0 13,914 73,8863 0 216.4 01.01.24
2022 Award 152,400 – – 59,267 93,133 247.1 30.05.25
2023 Award – 224,800 – 162,356 62,444 136.8 31.12.25
Total 240,200 224,800 13,914 295,509 155,577
N Kladiev 2021 Award 13,200 2,215 10,985 0 216.4 01.01.24
2022 Award 37,440 37,4 40 247.1 30.05.25
2023 Award 64,600 64,600 136.8 31.12. 25
Total 50,640 64,600 2,215 10,985 102,040
1. Based on the average share price over the three-month period preceding the start of the performance period. For the 2023 Award, based on the three-month volume weighted average
price prior to 3 January 2023 of 136.8 pence.
2. The vesting of the 2021 Award is set out on page 146.
3. The number of lapsed shares included in the table above for Mr North relate to the application of a pro-rata reduction for the proportion of each relevant period that Mr North was
employed relative to three years. In relation to the 2021 award, part of the lapsed number of shares also relates to the application of the performance conditions as detailed on page 146.
His entitlement to the pro-rata number of shares noted for the 2022 and 2023 awards remains subject to the application of the relevant performance conditions.
There have been no changes in the interests of the Directors from the end of the period under review to 17 April 2024 being a date not more than
one month prior to the date of notice of the AGM. Total outstanding (i.e. awarded but not yet vested) awards granted under the LTIP as at the end
of 2023 are equivalent to 0.044% of issued share capital.
Payments to past Directors and for loss of office (audited)
Mr Genovese serves as a Non-executive Director of Ferrexpo AG and, in 2023, received a fee of US$80,000 p.a. Wolfram Kuoni retired from the
Ferrexpo plc Board on 28 November 2016 and serves as the Chair of Ferrexpo AG, for which he received a fee of US$100,000 p.a. in 2023.
As set out in the information which has been available on the Company’s website from 24 May 2023 until the date on which this Directors’
Remuneration Report was first made available in accordance with section 430(2B) of the Companies Act 2006, following his stepping down from
the Board on 25 May 2023 and the signing of a settlement agreement, Mr North left his position as CEO with effect from 30 June 2023 and his
employment terminated on 31 October 2023.
Mr North’s remuneration payments were in line with his entitlements under his service contract and the Directors’ Remuneration Policy. As
disclosed in the 2022 Directors’ Remuneration Report, given changes to UAE employment law (with this being Mr North’s location of employment),
he was in the process of transitioning from a service contract with a six-month notice period to a five-year fixed-term service contract with a
three-month notice period. Given the status of the transition at the time of his termination, he continued to receive his salary and contractual
entitlements (save for his entitlement to location allowance and provision of a car which ceased on 30 June 2023) in line with a six-month notice
period to 31 October 2023, with an aggregate amount of US$422,592 paid for the period from 25 May 2023 to 31 October 2023.
150
Ferrexpo plc Annual Reports & Accounts 2023
Remuneration Report continued
In the context of the changed circumstances of Ferrexpo since the appointment as CEO of Mr North, with the focus changing following the
Russian invasion of Ukraine from accelerating growth, decarbonisation and cultural development to business continuity and operational
resilience, the role of CEO changed. With this background, it was mutually agreed that Mr North should step down. In the context of a mutually
agreed departure, and in accordance with the discretions included in the relevant plan rules, he was treated as a good leaver in relation to his
outstanding long-term incentive awards. Accordingly, the LTIP awards granted on 25 March 2021 over 87,800 shares, 1 June 2022 over 152,400
shares and 1 January 2023 over 224,800 shares remain outstanding and will be capable of assessment at the normal vesting date of each
award, subject to performance and time pro-rating to reflect the proportion of the relevant periods for which Mr North was in employment as
detailed above. It was agreed with Mr North that notwithstanding his treatment as a good leaver, he would not be entitled to a pro-rata STIP for
the financial year ending 31 December 2023.
In addition to the above, Mr North was paid a sum of US$154,991 in respect of accrued but untaken annual leave and, in accordance with the
laws of the United Arab Emirates, a statutory end of service gratuity payment of US$529,322 which had been accrued during his employment in
lieu of pension contributions.
Furthermore, the Company also made additional payments to Mr North of US$550,000 in respect of him entering into new and extended
restrictive covenant arrangements to protect the business of the Group and US$60,000 in respect of the settlement of any claims and/or
entitlements against the Group. These payments reflected the exceptional circumstances at the Company. The additional restrictive covenants
ensured that the Company was protected for a total period of 12 months in relation to key commercial relationships which remain critical in the
context of the current commercial circumstances at the Company and reflect standard 12-month restrictive covenants in UK Plc CEO contracts.
The payment of US$60,000 followed advice from the Company’s lawyers to ensure there are no potential claims against the Company as a result
of the change to the nature of the role of CEO at Ferrexpo and the process followed in relation to Mr North stepping down from the role.
In aggregate, the Board was comfortable with the total payments in light of the additional protection the payments provide to the Company and
in recognition of the exceptional circumstances that have been created by the Russian invasion of Ukraine.
No other payments were made to past Directors in the year.
Percentage change in Directors’ remuneration compared to employees
The table below sets out the percentage change in salary, taxable benefits and annual bonus between 2023 and 2022, and prior periods for the
Directors of the Company and the average for an all-employee population.
2022 vs 2023 2021 vs 2022 2020 vs 2021 2019 vs 2020
Change in
salary/
fees
Change in
benefits
Change in
bonus
Change in
salary/fees
Change in
benefits
Change in
bonus
Change in
salary/fees
Change in
benefits
Change in
bonus
Change in
salary/fees
Change in
benefits
Change in
bonus
All employee average
1
7.6% 0% -29.7% 3.0% 0% -16.8% 13.4% 0% 37.1% 24.0% 0% 2.9%
J North (former CEO)
2
-15% -91.6% N/A 0% 9.8% -25.5% 0% 1,703.4% -0.5% 11.6% 0% 12.8%
N Kladiev (CFO)
3
N/A N/A N/A – – – – – – – – –
L Genovese (Exec.
Chair)
4
90% 0% 0% 0% 0% 0% 0% 0% 0% 400.0% 0% 0%
V Lisovenko (EED)
5
5% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
AC Andersen
6
5% 0% 0% 0% 0% 0% – – – – – –
S Brown
7
– – – – – – – – – – – –
G Dacomb
8
5% 0% 0% 9.7% 0% 0% 0% 0% 0% 35.0% 0% 0%
F MacAulay
9
(SID) 5% 0% 0% 0% 0% 0% 0% 0% 0% 35.0% 0% 0%
N Polischuk
10
5% 0% 0% 0% 0% 0% – – – – – –
1. The All Employee population is based on the remuneration for the Executive Committee excluding the CEO. This population is being used as Ferrexpo plc does not have any employees.
The chosen population is considered the most relevant employee comparative group given the Group-wide nature of roles performed by incumbents.
2. Mr North, the CEO, was appointed to the Board in July 2020 and stepped down from the Board on 25 May 2023. In 2023, Mr North received Company-provided healthcare but did not
utilise an available location allowance totalling US$225,00 per year. Mr North did not receive a bonus in respect of 2023.
3. N Kladiev was appointed to the Board as CFO with effect from 25 May 2023.
4. Mr Genovese was appointed to the Board in February 2019 and appointed Chair in August 2020. He assumed the role of Executive Chair with effect from 1 July 2023.
5. Mr Lisovenko served as SID from August 2019 until February 2022 when he was appointed Employee Engagement Director (“EED”) and received the same additional fee as when he
served as SID.
6. Ms Andersen was appointed to the Board in March 2021 and stood down as a Non-executive Director on 25 May 2023.
7. Mr Brown was appointed to the Board on 22 October 2023.
8. Mr Dacomb was appointed to the Board on 10 June 2019. In August 2022, his fee was increased as a Chair of the Audit Committee. Mr Dacomb resigned as a Non-executive Director on
31 December 2023.
9. Ms MacAulay was appointed to the Board in August 2019, and was appointed SID in February 2022.
10. Ms Polischuk was appointed to the Board on 29 December 2021.
Relative importance of spending on pay
The table below shows Ferrexpo’s dividend and total employee pay expenditure (this includes pension and variable pay, including STIP and fair
value of LTIP, but not social security) for the financial years ended 31 December 2022 and 31 December 2023, and the percentage change.
151
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
US$ million 2023 2022
Year-on-year
change
All-employee remuneration
68 84 -18.4%
Distributions to shareholders
1
0.46 155 -99.7%
1. Includes dividends and share buy-backs.
Comparison of Company performance and Executive Director pay
The graph shows the value, at 31 December 2023, of £100 invested in Ferrexpo’s shares on 31 December 2013 compared with the current value
of the same amount invested in the FTSE 250 and All-Share indices and in the shares of the LTIP comparator group. The FTSE 250 and All-Share
indices are chosen because Ferrexpo was a constituent member of the FTSE 250 for the majority of the period.
— Ferrexpo — 2023 LTIP Index — FTSE 250 Index — FTSE All-Share Index
0
100
200
400
300
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
31 Dec
2018
31 Dec
2019
31 Dec
2023
31 Dec
2020
31 Dec
2021
31 Dec
2022
Value (£)
Historical TSR performance
Growth in the value of a hypothetical £100 holding over the ten years to 31 December 2023.
Chief Executive Officer’s pay
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
KZ KZ KZ KZ KZ KZ CM/JN JN JN JN/LG
Single figure total remuneration
(US$000)
1
243 243 243 255 251 257 595/1,147 2,473 2,147 540/249
STIP vesting (% max) K Zhevago did not participate in the STIP 36/67 67 50 0/ N/A
LTIP vesting (% max) K Zhevago did not participate in the LTIP 0/0 100 72 17/ N/A
1. 2020 single figure remuneration total based on the total for Mr Mawe in the period from 1 January to 28 May 2020 and for Mr North in the period between 28 May and 31 December 2020.
2. 2023 single figure remuneration total based on the total for Mr North as CEO in the period from 1 January to 30 June 2023 and for Mr Genovese as Executive Chair in the period from
1 July to 31 December 2023.
Statement of shareholder voting
The following table shows the results of the binding vote on the Remuneration Policy and the advisory vote on the 2022 Remuneration Report at
the 2021 and 2023 AGMs, respectively.
For Against Withheld
Shares
(millions) %
Shares
(millions) %
Shares
(millions)
Remuneration Policy (at 2021 AGM) 499 98.1% 10 1.9% 0
2022 Remuneration Report (at 2023 AGM) 456 97.5% 12 2.6% 8
This report was approved by the Board on 17 April 2024.
Signed on behalf of the Board
Fiona MacAulay
Chair of the Remuneration Committee
17 April 2024
152
Ferrexpo plc Annual Reports & Accounts 2023
Directors’ Report
Introduction
The Company was incorporated under the name Ferrexpo plc as a public company limited by shares on 22 April 2005. Ferrexpo plc listed on the
London Stock Exchange in June 2007 and is a member of the FTSE 250 Index.
The Directors present their Annual Report and Accounts on the affairs of the Group, together with the financial statements and auditor’s report,
for the year ended 31 December 2023.
The ongoing war in Ukraine continues to have an adverse impact on the Group’s cash flow generation and profitability as the access to logistics
network required for the Group’s seaborne sales is still restricted. The war poses a material uncertainty in respect of the Group’s going concern
assessment (see Note 2 Basis of preparation to the Consolidated Financial Statements on page 176 for further details).
The Group is also exposed to the risks associated with operating in a developing economy, which may or may not be exacerbated by the war
and/or the current circumstances facing the Group’s controlling shareholder (see Ukraine country risk on pages 76 and 78). As a result, the
Group is exposed to a number of risk areas that are heightened compared to those expected in a developed economy, such as an environment
of political, fiscal and legal uncertainties, which represents another material uncertainty as at the approval of these consolidated financial
statements. Note 30 Commitments, contingencies and legal disputes provides further information on ongoing legal proceedings and disputes,
including a contested sureties claim in the amount of UAH4,727 million (US$124 million as at 31 December 2023), for which the Group
recognised a full provision in accordance with the relevant accounting standard.
Information about the use of financial instruments by the Group is given in Note 27 Financial instruments to the Consolidated Financial
Statements on page 209.
Dividends
Results for the year are set out in the Consolidated Income Statement on page 171.
The Group did not make any dividend payments during the financial year 2023, compared to US$155 million during the financial year 2022.
The Group announced on 18 January 2024 an Interim Dividend of 3.3 US cents, which was due for payment to the shareholders on 23 February
2024. Following subsequent and unexpected events in Ukraine relating to a claim against one of the Group’s Ukrainian subsidiaries (see Note 30
Commitments, contingencies and legal disputes for further information), the Group announced on 20 February 2024 that the Board has
reconsidered the Interim Dividend and decided to withdraw it.
In view of Russia’s invasion of Ukraine, the Board has decided not to declare an interim dividend in conjunction with the Group’s full year results
for 2023. The Board will continue to assess the situation and, when appropriate, will make a decision in relation to shareholder returns.
Directors
The Directors of the Company who served during the year and up to the date of approval were:
– Ann-Christin Andersen (resigned 25 May 2023)
– Graeme Dacomb (resigned 31 December 2023)
– Lucio Genovese
– Nikolay Kladiev (appointed 25 May 2023)
– Vitalii Lisovenko
– Fiona MacAulay
– Jim North (resigned 25 May 2023)
– Natalie Polischuk
– Stuart Brown (appointed 22 October 2023)
All of the Directors will retire at the forthcoming AGM and, being eligible, will offer themselves for election or re-election.
Further details about the Directors and their roles within the Group are set out in the Directors’ biographies on pages 98 to 99. Details of the
remuneration of the Directors, their interests in shares of the Company and their service contracts or letters of appointment are contained in the
Remuneration Report on pages 126 to 151.
Appointment and replacement of Directors
Directors may be elected by the shareholders (by ordinary resolution) or appointed by the Board. A Director appointed by the Board holds office
only until the next AGM and is then eligible for election by the shareholders.
Powers of the Directors
Subject to the Articles, the Act and any directions given by special resolution, the business of the Company will be managed by the Board which
may exercise all the powers of the Company.
Directors’ and officers’ insurance
The Company maintains Directors’ and Officers’ Liability Insurance in respect of legal action that may be brought against its Directors
andOfficers.
Directors’ indemnity provision
During the period under review, the Group had in force a qualifying third party indemnity provision in favour of each of the Directors of Ferrexpo
plc against liability in respect of proceedings brought by third parties, subject to the conditions set out in the Act.
153
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Additional disclosures
Additional disclosures which are incorporated by reference into this Directors’ Report, including any information required in accordance with
Listing Rule 9.8.4R of the FCA’s Listing Rules or the Act can be located as set out in the following table:
Page
Capitalised interest (LR 9.8.4R (1)) See Note 10 Net finance expense to the Consolidated Financial
Statements
186
Details of long-term incentive schemes (LR 9.8.4R (4)) Remuneration Report 126
Contracts of significance (LR 9.8.4R (10)) See Note 30 Commitments, contingencies and legal disputes and
Note 34 Related party disclosures to the Consolidated Financial
Statements. Transactions with FC Vorskla are considered to be
contracts of significance under the Listing Rules
217
225
Contracts for the provision of services by a controlling
shareholder (LR 9.8.4R(11))
See Remuneration Report for details of the consultancy
agreement entered into with Mr Zhevago
142
Details of waivers of dividends by shareholders
(LR 9.8.4R (12) and (13))
As at 16 April 2024, the Employee Benefit Trusts contain
9,766,759 Ferrexpo Ordinary Shares for satisfying existing
andfuture awards under management incentive schemes.
Adividend waiver is in place in respect of these shares.
–
Relationship Agreement with controlling shareholder
(LR 9.8.4R (14)). Also see Note 34 Related party disclosures
Corporate Governance Report 93
Disclosures concerning greenhouse gas emissions Strategic Report 36
Engagement with suppliers, customers and others Strategic Report and pages 64 to 71
Financial instruments The Group does not hold any derivative financial instruments.
Group policy on financial instruments is set out in Note 27
Financial instruments to the Consolidated Financial Statements
209
Events since the balance sheet date See Note 35 Events after the reporting period to the
Consolidated Financial Statements
228
Likely future developments in the business Strategic Report 11
Statement of Directors’ responsibilities in respect of the
Annual Report and Accounts
Corporate Governance Report 157
Information that fulfils the requirements of DTR 7.2
(other than DTR 7.2.6)
Corporate Governance Report 94
Disclosures required by statute
Employees
Information on the Group’s employment policies can be found in the Strategic Report on pages 60 to 61. Employee numbers are stated in Note
29 Employees to the Consolidated Financial Statements on page 217. The Group employs fewer than 250 staff in the United Kingdom and
therefore it does not disclose its policies on employee involvement or employing disabled people. However, the Group gives fair consideration
toapplications for employment from disabled people.
Political donations
The Group made no political donations, political expenditure or political contributions during the year.
Energy consumption and greenhouse gas emissions reporting
In the UK, our energy consumption is less than 40,000kWh, which is below the threshold for energy and greenhouse gas emissions disclosure.
The Group does report on its global energy consumption and greenhouse gas emissions and this information can be found in the Strategic
Report on page 36. UK energy consumption was the equivalent of less than 0.001% (2022: 0.001%) of the Group’s energy consumption in 2023
and UK greenhouse gas emissions were the equivalent of less than 0.001% (2022: 0.001%) of the Group’s greenhouse gas emissions in 2023.
Share capital and rights attaching to the Company’s shares
The Company has a single class of Ordinary Shares of 10 pence each.
Subject to applicable statutes and other shareholders’ rights, shares may be issued with such rights and restrictions as the Company may by
ordinary resolution decide, or (if there is no such resolution or so far as it does not make specific provision) as the Board may decide. At each
AGM, the Board proposes to put in place annual shareholder authority for the Company’s Directors to allot new shares in accordance with
relevant institutional investor guidelines.
Details of the issued share capital of the Company are shown in Note 31 Share capital and reserves to the Consolidated Financial Statements on
page 223.
154
Ferrexpo plc Annual Reports & Accounts 2023
Directors’ Report continued
Variation of rights
Subject to the provisions of the Act, the rights attached to a class of shares may be varied or abrogated either with the consent in writing of the
holders of at least three-quarters of the nominal amount of the issued shares of that class (excluding any shares of that class held as treasury
shares) or with the sanction of a special resolution passed at a separate meeting of the holders of the issued shares of that class validly held in
accordance with the Articles.
Transfer of shares
Any share in the Company may be held in uncertificated form and, subject to the Articles, title to uncertificated shares may be transferred by
means of a relevant system. Registration of a transfer of an uncertificated share may be refused in the circumstances set out in the Uncertificated
Securities Regulations 2001 and where, in the case of a transfer to joint holders, the number of joint holders to whom the uncertificated share is
to be transferred exceeds four.
Subject to the Articles, any member may transfer all or any of their certificated shares by an instrument of transfer in any usual form or in any
other form which the Board may approve. The Board may decline to register a transfer of a certificated share if it is not in the approved form. The
Board may also decline to register any transfer of any share which is not a fully paid share. The Board may decline to register a transfer of any of
the Company’s certificated shares by a person with a 0.25% or greater interest if such a person has been served with a notice and has failed
within 14 days to provide the Company with information concerning interests in those shares required to be provided under the Act, unless the
transfer is shown to the Board to be pursuant to an arm’s length sale.
The Company is not aware of any agreements between holders of securities that may result in restrictions on the transfer of securities or that
may result in restrictions on voting rights.
Repurchase of shares
Subject to authorisation by shareholder resolution, the Company may purchase its own shares in accordance with the Act. Any shares which
have been bought back may be held as treasury shares or cancelled immediately upon completion of the purchase.
The Company was given authority to make market purchases of up to approximately 10% of its existing Ordinary Share capital by a resolution
passed on 25 May 2023. This authority will expire at the conclusion of the Company’s 2024 AGM. A special resolution to renew the authority
willbe proposed at the forthcoming AGM. Details of the resolution renewing the authority to purchase Ordinary Shares will be set out in the
Notice of AGM.
The Company did not make use of the authority mentioned above during 2023.
Dividends and distributions
Subject to the provisions of the Act, the shareholders may by ordinary resolution, from time to time, declare dividends not exceeding the amount
recommended by the Board. The Board may pay interim dividends and also any fixed rate dividends whenever the financial position of the
Group, in the opinion of the Board, justifies their payment.
Under the Company’s Articles, the Board may withhold payment of all or any part of any dividends or other monies payable in respect of the
Company’s shares from a person with a 0.25% or greater interest (as defined in the Articles) if such person has been served with a notice under
Section 793 of the Act and has failed within 14 days to provide the Company with information concerning interests in those shares required to
beprovided under the Act.
Voting
At a general meeting of the Company, every member has one vote on a show of hands and, on a poll, one vote for each share held. Under
theAct, members are entitled to appoint a proxy or proxies to exercise all or any of their rights to attend, speak and vote at a general meeting.
Amember that is a corporation may appoint one or more individuals to act on its behalf at a general meeting as a corporate representative.
Restrictions on voting
No member is entitled to vote at any general meeting in respect of any shares held by them if any call or other sum outstanding in respect of that
share remains unpaid. Currently, all issued shares are fully paid. In addition, subject to the Articles, no member shall be entitled to vote if they
have failed to provide the Company with information concerning interests in those shares required to be provided under the Act.
Shares held in the Employee Benefit Trust (“EBT”)
The trustees of the Company’s EBT may vote or abstain from voting on shares held in the EBT as they think fit and in doing so may take into
account both financial and non-financial interests of the beneficiaries of the EBT or their dependants.
Deadline for voting rights
The Articles provide a deadline for submission of proxy forms of not less than 48 hours before the meeting. The Directors will also specify in the
notice of any general meeting a time, being not more than 48 hours before the meeting, by which a person must be entered in the register of
members in order to have the right to attend and vote at the meeting. The Directors may decide, at their discretion, that no account should be
taken of any day that is not a working day when calculating the 48-hour period.
155
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Substantial shareholdings
As at 31 December 2023, the Company had been advised, in accordance with the Disclosure Guidance and Transparency Rules, of the following
notifiable interests in its voting rights.
Name of shareholder Ordinary Shares Number of voting rights
% of the Company’s total
voting rights at date of notification
Fevamotinico S.a.r.l.1 294,993,686 294,993,686 49.32%
BlackRock, Inc. 45,018,700 45,018,700 7.5 3%
Schroder Investment Management 39,077,468 39,077,468 6.53%
As at 12 April 2024, the latest practicable date prior to publication of the Annual Report and Accounts, the following interests in voting rights
had been notified to the Company.
Name of shareholder Ordinary Shares Number of voting rights
% of the Company’s total
voting rights at date of notification
Fevamotinico S.a.r.l.1 294,993,686 294,993,686 49.32%
BlackRock, Inc 29,331,096 29,331,096 4.90%
Schroder Investment Management 28,281,771 28,281,771 4.73%
1. Fevamotinico S.a.r.l. is a wholly owned subsidiary of The Minco Trust of which Kostyantin Zhevago and two other members of his family are the beneficiaries.
Significant agreements – change of control
The Company does not have any agreements with Directors or employees that would provide for compensation for loss of office or employment
resulting from a takeover. There are no circumstances connected with any other significant agreements to which the Company is a party that
would take effect, alter or terminate upon a change of control following a takeover bid, except those referred to below:
LTIP
The rules of the Company’s LTIP set out the consequences of a change of control of the Company on employee rights under the plan. Generally,
such rights will vest on a change of control to the extent that the performance conditions have been satisfied and on a time pro-rated basis,
subject to the discretion of the Remuneration Committee. Participants will become entitled to acquire shares in the Company, or in some cases,
to the payment of a cash sum of equivalent basis.
Relationship Agreement
Details of the Relationship Agreement entered into between Fevamotinico S.a.r.l., Kostyantin Zhevago, The Minco Trust and the Company
canbefound in the Corporate Governance Report on page 104. The Relationship Agreement ceases to apply if Ferrexpo’s shares cease to
belistedand traded on the London Stock Exchange, or if the holding of Fevamotinico S.a.r.l., The Minco Trust or Mr Zhevago individually or
collectively falls below 24.9% of the issued share capital of the Company and they are no longer a controlling shareholder for the purposes
oftheUK Listing Rules.
Going concern
As at the date of the approval of these consolidated financial statements, the war in Ukraine is still ongoing and the duration is difficult to predict.
During the year, the Group continued to demonstrate a high level of commitment and resilience that enabled it to operate at a constant, but lower
capacity, with a high degree of flexibility to adapt its operations to such changing circumstances.
The ongoing war and the situation in the country continues to represent a material uncertainty in terms of the Group’s ability to continue as
agoing concern. In addition to the war-related material uncertainty, the Group is also exposed to the risks associated with operating in a
developing economy, which may or may not be exacerbated by the war and/or the current circumstances facing the Group’s controlling
shareholder (see Ukraine country risk on pages 76 to 78). As a result, the Group is exposed to a number of risk areas that are heightened
compared to those expected in a developed economy, such as an environment of political, fiscal and legal uncertainties, which represents
another material uncertainty as at the date of approval of these consolidated financial statements.
As part of management’s going concern assessment, the Group continuously adjusts its long-term model in order to reflect the latest
developments mainly related to the provision and availability of logistics capacity required for the delivery of the Group’s products to customers
in its key markets, subject to the availability of Black Sea ports in Ukraine. During the year, as was the case in 2022, the Group had to adjust its
production level to the sales currently possible, which continued to have an impact on the Group’s cash flow generation and profitability.
However, throughout the year, the Group continued to adapt within the difficult environment by proactively planning how to manage existing
uncertainties in order to ensure production of the committed volumes to customers were met.
Considering the threats caused by the ongoing war, the Group also prepared sensitivities for reasonably possible or plausible adverse changes,
but also reverse stress tests for more severe adverse changes. See Note 2 Basis of preparation to the Consolidated Financial Statements for
further information.
156
Ferrexpo plc Annual Reports & Accounts 2023
Directors’ Report continued
As disclosed in the Group’s 2022 Annual Report & Accounts, the ongoing war in Ukraine and other circumstances facing the Group have led
toan escalation of a number of risks, including risks relating to the political environment and the independence of the legal system in Ukraine,
which could have a material negative impact on the Group’s business and reputation. The Group announced on 29 January 2024 that a
Ukrainian court of appeal has confirmed a claim against Ferrexpo Poltava Mining (“FPM”) in the amount of UAH4,727 million (approximately
US$124 million as at 31 December 2023), in respect of contested sureties (see Note 30 Commitments, contingencies and legal disputes for
further details). The claim and court decision are other examples of the risk of operating in a dynamic and adverse political landscape in Ukraine,
which creates additional challenges for both the Group’s subsidiaries in Ukraine and also for the Group. Although the Group’s management is of
the opinion that this claim is without substance and legal merit and FPM has appealed this decision to the Supreme Court of Ukraine, the
magnitude of this specific claim and the risks associated with judicial system in Ukraine, the outcome of this ongoing legal dispute represents a
material uncertainty in terms of the Group’s ability to continue as a going concern. In accordance with the requirements of IAS 37 Provisions,
contingent liabilities and contingent assets, the Group recorded a full provision for this claim as at 31 December 2023, with a consequent
significant impact on the Group’s result for the financial year 2023.
As at the date of the approval of these Consolidated Financial Statements, the Group has assessed that, taking into account:
i) its available cash and cash equivalents;
ii) its cash flow projections, adjusted for the effects caused by the war in Ukraine, for the period of management’s going concern assessment
covering a period of 18 months from the date of the approval of these Consolidated Financial Statements;
iii) the feasibility and effectiveness of all available mitigating actions within the Group management’s control for identified uncertainties; and
iv) the legal merits in terms of the ongoing legal dispute mentioned above and potential future actions available to protect the interests of the
Group in case of a negative decision from the Supreme Court of Ukraine,
there remains a material uncertainty in respect of the ongoing war and the legal dispute, which is outside of the Group management’s control,
with the duration and the impact of the war still unable to be predicted, and uncertainty in relation to the independence of the judicial system and
its immunity from economic and political influences in Ukraine.
In respect of the contested sureties claim mentioned above, no enforcement procedures have been commenced as at the date of the approval of
these consolidated financial statements, however the commencement of such procedures may be initiated by the claimant anytime between this
approval and the date of the expected hearing by the Supreme Court of Ukraine. The commencement of the enforcement procedures could
have a material negative impact on the Group’s business activities and its ability to continue as a going concern
Considering the current situation of the war in Ukraine, the Group’s ability to swiftly adapt to the changing circumstances caused by the war, as
demonstrated during the financial years 2023 and 2022, and the results of the management’s going concern assessment, the Group continues
to prepare its consolidated financial statements on a going concern basis. However, as explained above, many of the identified uncertainties are
outside of the Group management’s control and are unpredictable, which may cast significant doubt upon the Group’s ability to continue as a
going concern.
The ongoing legal disputes, mainly in respect of the potential impact of seizure of assets in respect of the contested sureties claim, requires a
high degree of management judgement. For more information on critical judgements made by management in preparing these consolidated
financial statements, see also Note 30 Commitments, contingencies and legal disputes.
Statement on disclosure of information to auditors
The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no relevant
audit information (as defined in the Act) of which the Group’s auditors are unaware, and that each Director has taken all steps that they ought to
have taken as a Director in order to make themselves aware of any relevant audit information (as defined) and to establish that the Group’s
auditors are aware of that information.
Following a rebranding exercise on 15 May 2023 the trading name of the company’s independent auditor changed from MHA MacIntyre Hudson
to MHA. A resolution to reappoint MHA as independent auditor will be proposed at the next Annual General Meeting.
Amendments to Articles of Association
The Articles may be amended by special resolution in accordance with the Act.
AGM
The Board intends to hold the AGM of the Company on Thursday 23 May 2024 at 11.00am. Further information will be sent to shareholders in a
separate letter from the Chair summarising the business of the meeting together with the Notice convening the AGM.
The Strategic Report on pages 2 to 92 and this Directors’ Report have been drawn up and presented in accordance with, and in reliance upon,
applicable English company law, and any liability of the Directors in connection with these reports shall be subject to the limitations and
restrictions provided by such law.
The Directors’ Report was approved by the Board on 17 April 2024.
For and on behalf of the Board
Lucio Genovese
Executive Chair
17 April 2024
157
Ferrexpo plc Annual Reports & Accounts 2023
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Statement of Directors’ Responsibilities
Statement by the Directors under the UK Corporate Governance Code
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare such financial statements for each financial year that give a true and fair view of the state of affairs
of the Group and the Company as at the end of the financial year, and of the profit or loss of the Group for the financial year. Under that law the
Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted in
the United Kingdom (“UKadopted IFRS”) and have also chosen to prepare the Parent Company financial statements in accordance with the
United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 Reduced Disclosure
Framework, andapplicable law).
Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the
state of affairs of the Group and the Parent Company and of their profit or loss for that period.
In preparing the financial statements, the Directors are required to:
– select suitable accounting policies and apply them consistently;
– make judgements and estimates that are reasonable and prudent;
– state whether applicable UK adopted IFRS have been followed for the Group financial statements and United Kingdom Accounting
Standards, comprising FRS 101 Reduced Disclosure Framework have been followed, subject to any material departures disclosed and
explained in the financial statements; and
– prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and Parent
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and enable
them to ensure that its financial statements and Directors’ Remuneration Report comply with the Companies Act 2006. The Directors are also
responsible for safeguarding the assets of the Group and Parent Company and for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
Responsibility Statement of the Directors in respect of the Annual Report and Accounts
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s and Company’s position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed on pages 98 to 99 of the Corporate Governance Report, confirms that to the best
oftheir knowledge:
(a) the Group financial statements, prepared in accordance with UK adopted IFRS, give a true and fair view of the assets, liabilities, financial
position and profit of the Company and the subsidiary undertakings included in the consolidation taken as a whole and attention is drawn
tothe material uncertainty in terms of the Group’s ability to continue as a going concern on page 155 of the Directors’ Report and Note 2
Basis of preparation of the Consolidated Financial Statements on page 176;
(b) the Parent company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards,
comprisingFRS 101 Reduced Disclosure Framework, give a true and fair view of the Company’s assets, liabilities and financial position
oftheParent Company;
(c) the Strategic Report and Directors’ Report includes a fair review of the development and performance of the business and the position of the
Company and the subsidiary undertakings included in the consolidation taken as a whole, together with a description of the Principal Risks
and uncertainties that they face; and
(d) the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable, and provides the information necessary
for shareholders to assess the Group’s and Company’s position, performance, business model and strategy.
The Directors’ Report (including Corporate Governance Report) comprises the information on pages 93 to 157.
This responsibility statement was approved by the Board of Directors on 17 April 2024 and is signed on its behalf by:
Lucio Genovese
Executive Chair
Nikolay Kladiev
Executive Director/Chief Financial Officer
17 April 2024
158
Ferrexpo plc Annual Reports & Accounts 2023
Independent
Auditor’s Report 159
Primary Statements 171
Consolidated Income Statement 171
Consolidated Statement of
Comprehensive Income 172
Consolidated Statement
of FinancialPosition 173
Consolidated Statement
of Cash Flows 174
Consolidated Statement
of Changes in Equity 175
Notes to the Consolidated
Financial Statements 176
Notes
Section 1: Basis of Preparation
Corporate information 1 176
Basis of preparation 2 176
New accounting policies 3 179
Use of critical estimates
and judgements 4 179
Notes
Section 2: Results for the Year
Segment information 5 180
Revenue 6 181
Operating expenses 7 183
Other income 8 184
Foreign exchange gains and losses 9 184
Net finance expense 10 185
Taxation 11 18 6
Earnings per share and
dividends paid and proposed 12 191
Section 3: Assets and Liabilities
Property, plant and equipment 13 192
Leases 14 196
Goodwill and other
intangible assets 15 197
Other non-current assets 16 199
Inventories 17 199
Trade and other receivables 18 200
Prepayments and other
current assets 19 201
Other taxes recoverable
and payable 20 201
Trade and other payables 21 204
Pension and post-employment
obligations 22 204
Provisions 23 208
Accrued and contract liabilities 24 208
Notes
Section 4: Financial Instruments
and Financial Risk Management
Cash and cash equivalents 25 209
Interest-bearing loans
and borrowings 26 209
Financial instruments 27 210
Section 5: Other
Share-based payments 28 217
Employees 29 218
Commitments, contingencies
and legal disputes 30 218
Share capital and reserves 31 223
Consolidated subsidiaries 32 224
Investments in associates 33 225
Related party disclosures 34 225
Events after the reporting period 35 228
Parent Company
Financial Statements 229
Additional Disclosures 235
Alternative Performance Measures 236
Glossary 238
Financial contents
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
159
Ferrexpo plc Annual Reports & Accounts 2023
For the purpose of this report, the terms “we” and “our” denote MHA in relation to UK legal, professional and regulatory responsibilities and
reporting obligations to the members of Ferrexpo plc. For the purposes of the table on pages 161 to 164 that sets out the key audit matters and
how our audit addressed the key audit matters, the terms “we” and “our” refer to MHA. The Group financial statements, as defined below,
consolidate the accounts of Ferrexpo plc and its subsidiaries (the “Group”) and include the Group’s share of associates. The “Parent Company”
is defined as Ferrexpo plc, as an individual entity. The relevant legislation governing the Parent Company is the United Kingdom Companies Act
2006 (“Companies Act 2006”).
Opinion
We have audited the financial statements of Ferrexpo plc for the year ended 31 December 2023 which comprise:
– the consolidated income statement;
– the consolidated statement of comprehensive income;
– the consolidated statement of financial position;
– the consolidated statement of cash flows;
– the consolidated statement of changes in equity;
– the notes to the consolidated financial statements, including significant accounting policies;
– the parent company statement of financial position;
– the parent company statement of changes in equity; and
– the notes to the parent company financial statements, including significant accounting policies.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International
Financial Reporting Standards adopted for use in the United Kingdom (“UK adopted IFRS”). The financial reporting framework that has been
applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including
FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
In our opinion:
– the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2023 and
of the Group’s loss for the year then ended;
– the Group financial statements have been properly prepared in accordance with UK adopted IFRS;
– the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice; and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under
those standards are further described in the auditor responsibilities for the audit of the financial statements section of our report. We are
independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Material uncertainty relating to going concern
We draw your attention to Note 2 of the Group financial statements on page 176 and Note 2 of the Parent Company financial statements on
page231, which indicates that the ongoing war in Ukraine poses a threat to the Group’s mining, processing and logistics operations within
Ukraine and may cast significant doubt on the ability of the Group to continue as a going concern. As stated in Note 2, management has
assessed that the unpredictable duration and severity of the impact of the war in Ukraine indicate that a material uncertainty exists as some of
the uncertainties identified are outside of the Group management’s control.
In addition, there is a further uncertainty as disclosed in Note 2, due to the uncertainty in the application of local legislation in Ukraine in respect
of the outcome of the proceedings in which the Group is involved. The award in favour of the claimants by the Ukraine Court of Appeal in the
contested sureties claim. This has imposed potential increased demand on the Group’s current and future cash resources, the timing of which is
outside of Group management’s control. Furthermore, the possible opening of the creditor protection proceedings might potentially affect FPM’s
ability to continue as a going concern and, as a result, also the Group’s. These circumstances indicate the existence of a material uncertainty
that may cast significant doubt upon the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Independent Auditor’s Report
To the members of Ferrexpo plc
160
Ferrexpo plc Annual Reports & Accounts 2023
Independent Auditor’s Report continued
To the members of Ferrexpo plc
Our evaluation of the Directors’ assessment of the Group’s and the Parent Company’s ability to continue to adopt the going concern basis of
accounting, having considered the impact of the war and of the general risks related to the political, fiscal and legal uncertainties of operating in
Ukraine, included:
– Challenging management’s assessment of the potential risks and uncertainties relevant to the Group as a result of the ongoing war;
– Challenging whether the Group’s further mitigating actions are reasonable and within the Group’s control;
– Assessing for reasonableness the assumptions applied in the going concern assessment cash flow forecast, evaluating the potential future
impact of the war on the cash available to the Group, including the ability to continue its operations in case of disruption to supplies and to its
logistics network, as well as assessing management’s downside scenarios;
– Reviewing recent production and trading activity to verify the operational results following the year end, to verify the underlying data on which
the going concern assessment is based;
– Testing the mathematical accuracy and appropriateness of the model used to prepare the forecasts;
– Evaluating management’s assessment on the expected outcome of the contested sureties claim and the assumptions regarding the impact of
various scenarios relating to the timing and quantum of economic outflows and any consequences of potential actions that may be taken by
the claimant, in conjunction with the feasibility and impact of mitigating actions planned by the Group;;
– Considering the impact on available cash resource under sensitised and stress tested models together with consideration of potential cash
outflows in respect of contingency matters and challenge of management’s plans to mitigate any impact;
– Evaluating management’s assessment of the legal proceedings in which the Group is involved, including the probability of outflows of
resources, as detailed in the key audit matter “Contingencies and completeness of litigations and claims”. With regards to the creditor
protection proceedings, the evaluation extended the Group’s management intent, ability and impact of potential mitigating actions;
– We have used an internal legal expert in respect of certain legal proceedings to help us in evaluating management’s assessment of the
impact and potential outcome of those cases; and
– Assessing the Group’s going concern related financial statement disclosures.
In relation to the Group’s reporting on how it has applied the UK Corporate Governance Code, we have nothing material to add or draw attention
to in relation to the Directors’ Statement in the financial statements about whether the Directors considered it appropriate to adopt the going
concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
Overview of our audit approach
Scope We directed and supervised Baker Tilly member firms (“Component Auditors”) to report on the operations of the two
main mining and processing entities in Ukraine and we directly performed work over the two other material subsidiaries
being the Swiss and Middle East sales and marketing companies and we also performed the work over the Parent
Company.
Material subsidiaries were determined based on:
– financial significance of the component to the Group as a whole; and
– assessment of the risk of material misstatements applicable to each component.
Our audit scope results in all major operations of the Group being subject to audit work, covering 99% of the Group’s
revenue, 98% of the Group’s loss and 98% of the net assets.
Materiality The materiality that we used for the Group financial statements was US$15.6 million (2022: US$35.7 million). This
represents 3.2% of the three-year average of adjusted profit before tax and 1.4% of net assets (2022: 5% of a three-year
average of profit before tax) in accordance with our revised approach to determine materiality that now also includes the
net assets balance sheet metric.
The materiality used for the Parent Company financial statements was US$8.8 million (2022: US$8.2 million), which was
determined as 2% of the Company’s net assets (2022: 2%).
Performance materiality was set at 60% of materiality for both the Group and Company financial statements (2022: 60%).
Key audit matters The key audit matters that we identified in the current year relating to the Group are:
Recurring:
– Treatment and likelihood of contingencies and litigations & claims (Group and parent Company)
– Taxation – IFRIC 23 and critical judgements of transfer pricing and the international structure (Group only)
– Impairment of PPE and other intangible assets (Group only)
– Management override of controls (Group and parent Company)
– Completeness of related party transactions (Group and parent Company)
Our assessment of the Group’s key audit matters is consistent with 2022.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
161
Ferrexpo plc Annual Reports & Accounts 2023
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on:
– the overall audit strategy;
– the allocation of resources in the audit; and
– directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be
communicated in our report.
Treatment and likelihood of contingencies and litigation & claims
Key audit matter
description
As indicated in Note 30, the Group is subject to a number of legal proceedings. Management has assessed the
probability of an outflow of resources in the various proceedings and considered how to account and/or disclose the
claims in accordance with IAS 37.
The Group has disclosed the legal cases for which it has provided amounts in the financial statements. Our procedures
have focused on managements assessment of these claims in line with IAS37 to conclude as to whether these are
deemed probable rather than possible. The two key cases provided for by management are the contested sureties claim
and the squeeze-out of minority shareholders which we have directed our attention to.
The Group has disclosed the contingencies which exist as a result of past transactions or events in Note 30. Our audit
has given particular consideration to the three main claims in which the Group is involved, being the FPM share dispute,
the royalty related investigation and the currency control measures imposed in Ukraine.
Management judgement is involved in assessing the accounting for contingencies and claims. Particular judgement is
required in considering the probability of any claim against the Group being successful and we have accordingly
designated this as a key audit matter of the audit.
The key risk related to the claims and contingencies is mainly associated with the completeness of the disclosure and
provisions in the financial statements.
We draw attention to Note 30 to the consolidated financial statements which describes the uncertainty in the application
of local legislation in Ukraine in respect of the outcome of the proceedings in which the Group is involved. Our opinion is
not modified in respect of this matter.
How the scope
ofour audit
responded to the
key audit matter
We enquired directly and obtained documentation from the Group’s internal and external legal advisors and counsel
about their assessment of the various claims to evaluate the appropriateness of management’s judgements and
subsequent conclusions.
We discussed the cases with management, and reviewed correspondence and other documents exchanged between the
Group and the other parties involved.
We considered and assessed the likelihood of an outflow of resources arising as a result of each individual claim on the
basis of the information obtained.
We used the component auditor’s internal legal expert to review certain cases and conclude on the likelihood of the
claims’ outcome.
We read the minutes of the board meetings and inspected the Group’s legal expenses, in order to ensure all cases have
been identified.
We discussed and challenged the disclosures for completeness and accuracy of any financial impact based on our
procedures detailed above.
Key observations The results of our audit procedures regarding the treatment and likelihood of contingencies and litigation & claims were
satisfactory, and we concur that the disclosures are materially appropriate.
162
Ferrexpo plc Annual Reports & Accounts 2023
Independent Auditor’s Report continued
To the members of Ferrexpo plc
Taxation – IFRIC 23 and critical judgements of transfer pricing and the international structure
Key audit matter
description
A key area in which the Group has applied critical judgement is transfer pricing and international taxation.
The Group conducts significant business across the globe through a complex value chain and prices its sales between
its subsidiaries using international benchmark prices for comparable products covering product quality and applicable
freight costs. The Group judges these to be on terms, that comply with applicable legislation.
The STS launched two additional tax audits on 18 February 2020 into the cross-border pricing arrangements with other
Group subsidiaries for periods from 2013 to 2017. In addition to the above cases, the State Bureau of Investigations
(“SBI”) has launched a pre-trial investigation into the sale of iron ore products between Group subsidiaries for the
financial years 2013 to 2017.
The STS made formal claims for US$45.5million and US$6.8m, against two of the Ukrainian subsidiaries, excluding fines
and penalties.
Due to the adverse Supreme Court ruling in 2022 regarding the 2015 period, significant judgement is required in applying
the transfer pricing and international taxation rules, with the interpretation of the taxpayer differing from that of the tax
authorities which leads to uncertainty in the correct tax treatment. It is therefore necessary to determine the probability
of any loss particularly in connection with the Ukrainian tax audits in accordance with the IFRIC 23 reporting standard.
This matter is described in Note 11 to the financial statements and considered by the Audit Committee on page 118 of the
Annual Report.
The IFRIC 23 framework can be challenging to apply in the context of international taxation and contentious transfer
pricing matters, in particular regarding the fact that the treatment of transfer pricing cases will typically shift from matters
of policy and application in an enquiry to matters of evidence and jurisprudence in an adjudication by a court.
In an enquiry, a tax authority has the disadvantage of not knowing the full facts and circumstances upfront in the same
way as a taxpayer. The framework therefore asks the taxpayer to equalise this dynamic by basing any IFRIC 23 analysis
on the assumption that there is no information asymmetry as between the taxpayer and the tax authority. Further, in an
enquiry, it is accepted that any disagreement will likely be settled by a negotiation in the first instance. There will be many
factors to account for in predicting the outcome of a negotiation such as the nature of the dispute as well as wider
commercial and policy pressures. The nature of court proceedings is that there is a need for clear adjudication on
matters of law and jurisprudence.
This means that negotiation does not come into it at all, albeit the parties are free to settle the dispute at any time. Rather
the court process is an impartial evidence-based process that involves judges applying the law to the facts. The lower
courts will usually resolve points of fact and the higher courts will usually address points of law. Adjudication of points of
law tends to be a more technically involved process whose outcome is extremely difficult to predict. Consequently, the
higher the level of court hearing a matter, the more difficult it becomes to apply the IFRIC 23 framework. This is because
the highest courts operate at the highest levels of discretion.
How the scope
ofour audit
responded to the
key audit matter
We have involved transfer pricing and international tax specialists to assess appropriateness of various international
matters potentially impacting the Group. In particular, this included the key risk regarding the transfer pricing policies and
documentation in place prepared by management.
We have reviewed key correspondence and calculation of the assessed risk with assistance from international tax and
transfer pricing specialists. In addition, we have reviewed recent similar cases in Ukraine and the results of the court
proceedings. We have relied on experts to assess the risk of an adverse ruling taking place based on their knowledge of
the Ukrainian legal system.
The consideration of IFRIC 23 requires the Group to consider the position at each financial year end based upon the
information as at that date. We have challenged management and considered a sensitivity analysis upon the application
of IFRIC 23 to consider the significant judgements made in relation to both transfer pricing and international taxation
matters impacting the Group. This included a detailed IFRIC 23 assessment for the inherent risks in relation to the
transfer pricing claims and the international structure.
Key observations The results of our audit regarding transfer pricing and international taxation were satisfactory, and we concur that the
recorded tax provisions and disclosures are materially appropriate.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
163
Ferrexpo plc Annual Reports & Accounts 2023
Impairment of PPE and intangible assets
Key audit matter
description
Due to the ongoing war in Ukraine, management does not expect the Group to be operating and trading at full capacity
for an uncertain period in the future, resulting in reduced expected cash flows from the Group’s assets over the period of
uncertainty.
The calculation of the value in use to assess the recoverable amount of the Group’s cash generating unit (“CGU”) as at
the year-end date is derived from management long-term model and is driven by a number of key inputs which are
obtained either from external sources or management’s best estimates. Therefore, this is an area subject to a high level
of estimation uncertainty and judgement.
We draw attention to Note 13 to the consolidated financial statements which describes the uncertainty related to the
estimate of the recoverable amount of the Group’s Cash Generating Unit. Our opinion is not modified in respect of this
matter.
How the scope
ofour audit
responded to the
key audit matter
Reviewed the mathematical accuracy of the value in use calculation to identify any computational errors that may have
fed into the forecasts.
We have challenged management as to the source and selection of the data used in the Group’s forecasts to ensure that
these are relevant and reasonable in light of the Group’s circumstances and the ongoing war in Ukraine.
We have challenged the key judgements and assumptions underpinning the forecasts to ensure that these are
appropriate and reasonable based on our understanding of the Group’s circumstances and the ongoing war in Ukraine.
We have reviewed, with the help of our external valuation expert, the determination of the discount rate applied in the
value in use calculation and considered whether it is reasonable in the Group’s circumstances.
We have considered whether the value in use calculation has considered all available relevant information and verified
whether it is mathematically accurate.
We have considered whether the assets included in the carrying amount of the GCU were accurate and verified the
amount of the impairment loss. We have considered whether, in light of the current situation in Ukraine, whether any of
the previously recorded impairment loss should be reversed in line with IAS 36.
We have reviewed the disclosures in respect of the impairment assessment including the appropriateness of the
sensitivities detailed and the accuracy of their financial impact.
Key observations The results of our audit regarding the Impairment of PPE and other intangibles were satisfactory, and we concur with
managements conclusions that neither an impairment nor impairment reversal should be recorded in the consolidated
financial statements and that disclosures in the consolidated financial statements are materially appropriate.
164
Ferrexpo plc Annual Reports & Accounts 2023
Independent Auditor’s Report continued
To the members of Ferrexpo plc
Management override of controls
Key audit matter
description
In accordance with ISA 240 (UK) management override is presumed to be a significant risk. The ability to override
controls puts management in a unique position to perpetrate or conceal the effects of fraud. This may take a number of
forms, such as falsifying accounting entries in order to conceal misappropriation of assets or other manipulation of
accounting entries intended to result in the production of financial statements which give a misleading view of the entity’s
financial position or performance.
How the scope
ofour audit
responded to the
key audit matter
We have performed the following procedures (in addition to other specific procedures performed which are outlined in
the other key audit matters and basis of opinion section of this report):
We held discussions with a broader range of senior management, being the Executive Chair and Acting Chief Marketing
Officer, Group legal counsel and with lower-level operational management throughout the organisation and at different
levels and in different functions to identify if they are aware of any instances of override of controls.
We evaluated the design and implementation of key controls including, in particular, high-level management review
controls and controls over purchase-to-pay procurement processes, as part of our risk assessment.
We reviewed internal audit reports to help identify significant control deficiencies for any actual or suspected non-
compliance with controls.
We tested the appropriateness of journal entries and other adjustments recorded in the general ledger and other
adjustments in the preparation of the financial statements at both the Parent Company and consolidated Group level.
We evaluated whether the judgments and decisions made in determining the accounting estimates included in the
financial statements, even if they are individually reasonable, indicate a possible bias on the part of the entity’s
management that may represent a risk of material misstatement due to fraud.
We evaluated the business rationale for significant transactions that are outside the normal course of the business for the
entity.
We held discussions with the Audit Committee, senior management and internal audit regarding the risk of fraud,
effectiveness of key oversight controls and any fraud or suspected fraud identified during the year.
Key observations From the audit procedures we have undertaken we did not identify any instances of management override of controls.
Completeness of related party relationships and transactions
Key audit matter
description
The Group enters into a number of related party transactions and has reported an expense of US$17.2 million (2022:
US$29.1 million) and other income of US$0.3 million (2022: US$0.6 million) in 2023.
Our risk assessment and audit approach reflected the identification of a significant risk in respect of the existence of
unidentified or undisclosed related parties and transactions, including the risk relating to significant transactions outside
the normal course of business that could involve related parties.
We therefore considered completeness of related party transactions to be a key audit matter in light of the potential for
unidentified or undisclosed related party transactions. This risk was considered greatest in respect of transactions
outside the normal course of business.
The related party disclosures are set out in Note 34 to the Financial Statements and the Group’s controls are described in
the Report of the Audit Committee on page 119.
How the scope
ofour audit
responded to the
key audit matter
We reviewed and evaluated management’s process for identifying and recording related parties into its register and
recording transactions with those related parties.
We reviewed the minutes of meetings of the Board of Directors and relevant sub-committees to assess whether there are
new related party transactions entered into in 2023 that are significant or outside the normal course of business.
We used our data analytics tool to search for transactions with related parties which had not been included in the related
party disclosures.
We completed a reconciliation of related party transactions extracted from management’s system for the related party
disclosures to ensure that it was complete.
We tested a sample of suppliers in Ukraine to establish whether they are genuine businesses against information held on
public record.
We performed independent searches of the Board of Directors’ other appointments and shareholdings and to identify
any counterparties on the list which were not included in the related party disclosures.
Obtained representation from the Board of Directors as to the completeness of the list of related parties and transactions
with those related parties.
Reviewed the Related Party disclosures in the Financial Statements against the relevant reporting requirements and the
results of our work.
Key observations We are satisfied that the related party transactions and balances are appropriately disclosed in the financial statements.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
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Ferrexpo plc Annual Reports & Accounts 2023
How we tailored the audit scope
Our Group audit was scoped by obtaining an understanding of the Group and the Parent Company and their environments, including internal
control, and assessing the risks of material misstatement. The Group’s Parent entity and finance companies are in the UK, while the head office
and marketing companies are based in Switzerland and the primary mining operations are located in Ukraine.
Considering operational and financial performance and risk factors, we focused our assessment on the significant components and performed
full scope audits of the Ukrainian Ferrexpo Poltava Mining and Ferrexpo Yeristovo Mining components; the sales and marketing entities Ferrexpo
AG and Ferrexpo Middle East; Ferrexpo Finance plc; and Ferrexpo plc entity; along with specified Group-level audit procedures over the assets
of the non-operating Ukrainian Ferrexpo Belanovo component; the assets of the Hungarian Helogistics Asset Leasing entity including the
vessels; and revenue of the Hungarian DDSG Mahart entity. Our full scope and specified audit procedures cover revenue (99% of Group total),
profit before tax (98% of Group total) and net assets (98% of Group total).
The remaining 21 components represent 2% of the Group’s loss before tax and individually do not represent more than 1% of the Group’s loss
before tax. The work performed by the component audit teams is guided by the Group audit team and is executed at levels of materiality
applicable to each individual entity, which were lower than Group materiality and ranged from US$1.1 million to US$5.5 million (2022: US$1.4
million to US$7 million).
93
6
1
2
2
96
4
94
2
Full scope
Specified audit procedures
Analytical procedures
Revenue (%) Profit before tax (%) Net assets (%)
The Group audit team was involved in the audit work performed by the component auditor in Ukraine through a combination of our Group
planning meetings and calls, provision of Group instructions (including detailed supplemented procedures), review and challenge of related
component interoffice reporting and of findings from their work (which included the audit procedures performed to respond to risks of material
misstatement), attendance at component audit closing conference calls and weekly interaction on audit and accounting matters which arose. As
a visit to the Ukrainian team was not practicable due to the ongoing war in Ukraine, the Group audit team intensified the interaction with that
local team through video conferences to review and direct the audit approach taken in respect of significant risks and a number of other relevant
risks of material misstatement.
Ferrexpo plc and Ferrexpo Finance plc are registered in the UK; hence the audits were carried out by the Group audit team.
The Swiss and Middle East sales and marketing entities have a common finance function with the Group finance team and as such the audits of
these components were carried out by the Group audit team.
At the Parent entity level, we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there
were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit or
audit of specified account balances.
Our application of materiality
The scope of our audit was influenced by our application of materiality. Our definition of materiality considers the value of error or omission on
the financial statements that, individually or in aggregate, would change or influence the economic decision of a reasonably knowledgeable user
of those financial statements. Misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the
nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements
as a whole. Materiality is used in planning the scope of our work, executing that work and evaluating the results.
166
Ferrexpo plc Annual Reports & Accounts 2023
Independent Auditor’s Report continued
To the members of Ferrexpo plc
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Parent Company financial statements
Overall
materiality
Group materiality
(US$ Million)
0
10
20
30
40
2023 2022
15.6 35.7
Overall Materiality amounting to US$15.6 million
(2022: US$35.7 million)
Parent Company materiality
(US$ Million)
7.5
8.0
8.5
9.0
2023 2022
8.8 8.2
Overall Materiality amounting to US$8.8 million
(2022: US$8.2 million)
Performance
materiality
We set our 2023 performance materiality at 60% of overall
materiality (2022: 60%), amounting to US$9.4 million (2022:
US$21.4 million) to reduce the probability that, in aggregate,
uncorrected and undetected misstatements exceed the
materiality for the financial statements as a whole. In
determining performance materiality, we considered a
number of factors – the history of misstatements, our risk
assessment and the strength and robustness of the control
environment.
We set our 2023 performance materiality at 60% of overall
materiality (2022: 60%), amounting to US$5.3 million (2022:
US$4.9 million) to reduce the probability that, in aggregate,
uncorrected and undetected misstatements exceed the
materiality for the financial statements as a whole. In
determining performance materiality, we considered a number
of factors – the history of misstatements, our risk assessment
and the strength and robustness of the control environment.
How we
determined it
We have applied our revised approach to determining
materiality that, alongside the previous metric of three-year
average of adjusted profit before tax, now includes the net
assets balance sheet metric. We have determined
materiality of US$15.6 million on the basis of our
professional judgement which represents:
– 3.2% of three-year average of adjusted profit before tax
– 1.4% of net assets
– (2022: 5% of a three-year average of adjusted profit
before tax)
2% of Parent Company’s net assets (2022: 2%)
Rationale for
the
benchmark
applied
Range approach to determining materiality
In determining materiality we have adopted a range
approach which considers both the upper and lower
bounds of a reasonable materiality level and which
incorporates both of the above benchmarks. We have
selected a point within that range that, in our professional
judgement, appropriately reflects the sensitivity of the users
of the financial statements to Ferrexpo’s current year
performance and financial position.
Three-year average of adjusted profit before tax
We consider the approach of using a three-year average of
adjusted profit before tax as a benchmark to continue to be
appropriate given the nature of the mining industry which is
exposed to cyclical commodity price fluctuations and to
therefore provide a normalised metric reflective of the scale
of the Group’s size and operations.
The profit before tax metric is adjusted to remove items
which, due to their nature and variable financial impact and/
or the infrequency of the underlying events, are not
considered to be representative of the normalised
operations of the Group. If these items were included, they
would distort materiality year-on-year and make it volatile.
We consider the chosen benchmark to be appropriate due to
the nature of Parent Company’s operations being a holding
company of the Group.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
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Ferrexpo plc Annual Reports & Accounts 2023
Group financial statements Parent Company financial statements
Rationale for
the
benchmark
applied
continued
Net Assets additional benchmark
The war in Ukraine has produced an overall reduction of the
Group’s activity and profitability. The Group’s assets are
scaled on business levels that the Group consistently
achieved before the war and the focus of stakeholders will
also have turned to long-term profitability and related
recoverability and valuation of the Group’s assets, which is
not reflected in the above short-term profit benchmark. The
resumption of a higher normal level of activity in the future is
also likely to require strategic decisions in respect of the
access to further capital (be it short-term or long-term).
In that respect, the inclusion of the net assets metric in our
approach to determining materiality increases consistency
with the stakeholders’ focus and the expected scale of the
Group’s business.
Revised approach to materiality determination
In determining materiality, we have considered both
benchmarks and calculated a range of reasonable levels
where the upper and lower points were based on the
application of our audit methodology for each benchmark.
We then used our professional judgement to select a point
within the range that would suitably represent the sensitivity
of the users to misstatements in the Group’s results and
financial position.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them all audit differences in excess of US$0.8 million (2022: US$1.8 million) for the
Group as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. All differences in excess of
US$0.4 million (2022: US$0.4 million) are reported for the Parent Company.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial
statements.
The control environment
We evaluated the design and implementation of those internal controls of the Company which are relevant to our audit, such as those relating to
the financial reporting cycle. We also tested operating effectiveness, but did not place reliance on certain controls over several of the key
business cycles.
We deployed our internal IT audit specialists to gain an understanding of general IT controls and perform walkthroughs of the key operating
cycles.
Climate-related risks
In planning our audit and gaining an understanding of the Group, we considered the potential impact of climate-related risks on the business and
its financial statements. We obtained management’s climate-related risk assessment, along with relevant documentation and reports relating to
management’s assessment and held discussions with management to understand its process for identifying and assessing the related risks.
We engaged internal specialists to assess, amongst other factors, the benchmarks used by management, the nature of the Group’s business
activities, its processes and the geographic distribution of its activities.
We critically reviewed management’s assessment and challenged the assumptions underlying its assessment. We made enquiries to understand
the extent of the potential impact of climate change risks on the Group’s financial statements. This has included a review of critical accounting
estimates and judgements, and the effect on the MHA audit approach. We also considered the ongoing viability of the business in respect both
direct physical climate risks and transition risks, such as changes in legislation, as nations grapple with their commitments to reduce emissions.
168
Ferrexpo plc Annual Reports & Accounts 2023
Independent Auditor’s Report continued
To the members of Ferrexpo plc
Reporting on other information
The other information comprises the information included in the Annual Report and Accounts other than the financial statements and our
auditor’s report thereon. The Directors are responsible for the other information contained within the Annual Report and Accounts. Our opinion
on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not
express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements, or our knowledge obtained in the course of the audit, or otherwise
appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006.
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
– the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the audit,
we have not identified material misstatements in the Strategic Report or the Directors’ Report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our
opinion:
– adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
– the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
– certain disclosures of Directors’ Remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit; or
– a corporate governance statement has not been prepared by the Parent Company.
Corporate governance statement
We have reviewed the Directors’ Statement in relation to going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the entity’s compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing
Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
– Directors’ statement with regard to the appropriateness of adopting the going concern basis of accounting and any material uncertainties
identified set out on pages 155 and 156;
– Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why they period is appropriate
set out on page 91;
– Directors’ statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities
set out on page 92;
– Directors’ statement on fair, balanced and understandable set out on page 157;
– Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 91;
– Section of the Annual Report and Accounts that describes the review of effectiveness of risk management and internal control systems set
out on page 119; and
– Section describing the work of the Audit Committee set out on pages 114-116.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 157, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing
the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either
intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
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Ferrexpo plc Annual Reports & Accounts 2023
Auditor responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud.
These audit procedures were designed to provide reasonable assurance that the financial statements were free from fraud or error. The risk of
not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error and detecting irregularities that
result from fraud is inherently more difficult than detecting those that result from error, as fraud may involve collusion, deliberate concealment,
forgery or intentional misrepresentations. Also, the further removed non-compliance with laws and regulations is from events and transactions
reflected in the financial statements, the less likely we would become aware of it.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud.
These audit procedures were designed to provide reasonable assurance that the financial statements were free from fraud or error. The risk of
not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error and detecting irregularities that
result from fraud is inherently more difficult than detecting those that result from error, as fraud may involve collusion, deliberate concealment,
forgery or intentional misrepresentations. Also, the further removed non-compliance with laws and regulations is from events and transactions
reflected in the financial statements, the less likely we would become aware of it.
Identifying and assessing potential risks arising from irregularities, including fraud
The extent of the procedures undertaken to identify and assess the risks of material misstatement in respect of irregularities, including fraud,
included the following:
– We considered the nature of the mining industry and sector on the control environment, business performance including remuneration
policies and the Company’s own risk assessment that irregularities might occur as a result of fraud or error. From our sector experience and
through discussion with the Directors and legal advisors, we obtained an understanding of the legal and regulatory frameworks applicable to
the Company focusing on laws and regulations that could reasonably be expected to have a direct material effect on the financial statements,
such as provisions of the Companies Act 2006, Listing Rules, Corporate Law in Ukraine and international tax legislation. In addition, we
considered compliance with the UK Bribery Act, employee legislation, terms of the Group’s mining licences and environmental regulations as
fundamental to the Group’s operations;
– We enquired of the Directors and management, including the in-house legal counsel and Audit Committee concerning the Company’s policies
and procedures relating to:
– identifying, evaluating and complying with the laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they had any knowledge of actual or suspected fraud; and
– the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations.
– We assessed the susceptibility of the financial statements to material misstatement, including how fraud might occur by evaluating
management’s incentives and opportunities for manipulation of the financial statements. This included utilising the spectrum of inherent risk
and an evaluation of the risk of management override of controls. We determined that the principal risks were related to posting inappropriate
journal entries to increase revenue or reduce costs, creating fictitious transactions to hide losses or to improve financial performance, and
management bias in accounting estimates, particularly in the value in use calculation for the Group’s assets, and in significant accounting
judgements in respect of the assessment of contingencies and legal claims and uncertain tax treatments. The Group engagement team
shared this risk assessment with the significant subsidiaries auditors so that they could include appropriate audit procedures in response to
such risks in their work.
170
Ferrexpo plc Annual Reports & Accounts 2023
Independent Auditor’s Report continued
To the members of Ferrexpo plc
Audit response to risks identified
In respect of the above procedures:
– We corroborated the results of our enquiries through our review of the minutes of the Company’s board, Finance and Risk Committee and
Audit Committee meetings;
– Audit procedures performed by the engagement team in connection with the risks identified included:
– reviewing legal correspondence and documentation from the Group’s lawyers in addition to discussions on the ongoing legal matters;
– reviewing financial statement disclosures and testing supporting documentation to assess compliance with applicable laws and
regulations expected to have a direct impact on the financial statements;
– testing journal entries, including those processed late for financial statements preparation, and those posted by infrequent or unexpected
users, those posted to unusual account combinations;
– evaluating the business rationale of significant transactions outside the normal course of business, and reviewing accounting estimates for
bias;
– enquiry of management and legal advisors around actual and potential litigation and claims;
– challenging the assumptions made by management in measuring significant accounting estimates, in particular those included in the
Group’s value in use calculation, and the going concern long-term model, as well as the judgments made in respect of contingencies and
legal claims and IFRIC 23 assessment of tax liabilities;
– obtaining confirmations from third parties to confirm existence of a sample of transactions and balances;
– the audit team in Ukraine visiting the mines in December 2023 and observing the progress of key capital projects, the mining operations,
and physical verification of the inventory; and
– the use of data analytics software to interrogate the journals posted in the year and to review areas where the incentive to override controls
may be greatest. We also used our data analytics tool to identify potential transactions with related parties.
– The Group operates in a specialised mining industry. As such, the Senior Statutory Auditor considered the experience and expertise of the
engagement team to ensure that the team had the appropriate competence and capabilities; and
– We communicated relevant laws and regulations and potential fraud risks to all engagement team members, including experts, and remained
alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Other matters which we are required to address
Following the recommendation of the Audit Committee, we were appointed by the members of the Company by ordinary resolution at the Annual
General Meeting held on 25 May 2023 to audit the financial statements for the year ending 31 December 2023. Our total uninterrupted
engagement is five years, covering the years ending 31 December 2019 to 31 December 2023.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain
independent of the Group and the Parent Company in conducting our audit.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than
the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As required by the Financial Conduct Authority (“FCA”) Disclosure Guidance and Transparency Rule (“DTR”) 4.1.14R, these financial statements
form part of the European Single Electronic Format (“ESEF”) prepared Annual Financial Report filed on the National Storage Mechanism of the
UK FCA in accordance with the ESEF Regulatory Technical Standard ((“ESEF RTS”). This auditor’s report provides no assurance over whether
the annual financial report has been prepared using the single electronic format specified in the ESEF RTS.
Rakesh Shaunak FCA
Senior Statutory Auditor
For and on behalf of MHA MacIntyre Hudson
Statutory Auditor
London, United Kingdom
17 April 2024
MHA is the trading name of MacIntyre Hudson LLP, a limited liability partnership in England and Wales (registered number OC312313)
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
171
Ferrexpo plc Annual Reports & Accounts 2023
Consolidated Income Statement
US$000
Notes
Year ended Year ended
31.12.2331.12. 22
Revenue
6
6 51,7 9 5
1 , 248, 49 0
Operating expenses
5/7
(6 1 6 ,1 0 7)
(1 ,1 9 2 , 0 4 6)
Other operating income
8
4,0 67
9,23 3
Operating foreign exchange gains
9
3 1, 37 1
339,439
Operating profit
7 1 ,1 2 6
4 0 5 ,11 6
Recognition of provisions for legal disputes
30
(1 3 1 ,11 7)
−
Share of (loss)/profit from associates
33
(372)
557
(Loss)/profit before tax and finance
(6 0,36 3)
40 5,673
Net finance expense
10
(10 4)
(3 , 5 17)
Non-operating foreign losses
9
(7, 9 3 4)
(6 3 ,4 97)
(Loss)/profit before tax
(6 8 , 4 0 1)
338,659
Income tax expense
11
(16 , 3 5 2)
(118 , 6 6 2)
(Loss)/profit for the year
(84,7 53)
2 19 , 9 97
(Loss)/profit attributable to:
Equity shareholders of Ferrexpo plc
(84,7 75)
2 19 , 9 9 5
Non-controlling interests
22
2
(Loss)/profit for the year
(84,7 53)
2 19 , 9 97
(Loss)/earnings per share:
Basic (US cents)
12
(14 . 41)
3 7. 4 1
Diluted (US cents)
12
(14 . 41)
37 .35
172
Ferrexpo plc Annual Reports & Accounts 2023
Consolidated Statement of Comprehensive Income
US$000
Notes
Year ended Year ended
31.12.2331.12. 22
(Loss)/profit for the year
(84,7 53)
219 , 9 9 7
Items that may subsequently be reclassified to profit or loss:
Exchange differences on translating foreign operations
(54, 855)
(66 4,2 96)
Income tax effect
11
1,47 9
13 , 0 3 6
Net other comprehensive loss that may be reclassified to profit or loss in subsequent
periods
(5 3 ,376)
(6 51, 2 6 0)
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains on defined benefit pension liability
22
899
5,33 6
Net other comprehensive income not being reclassified to profit or loss in subsequent
periods
899
5, 336
Other comprehensive loss for the year, net of tax
(52,477)
(6 4 5 , 9 24)
Total comprehensive loss for the year, net of tax
(13 7, 2 3 0)
(4 25, 9 27)
Total comprehensive loss attributable to:
Equity shareholders of Ferrexpo plc
(1 3 7, 2 4 4)
(4 2 5 , 919)
Non-controlling interests
14
(8)
(13 7, 2 3 0)
(425 ,9 27)
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
173
Ferrexpo plc Annual Reports & Accounts 2023
Consolidated Statement of Financial Position
US$000
Notes
As at As at
31.12.2331.12. 22
Assets
Property, plant and equipment13
826, 034
8 0 7, 8 6 1
Right-of-use assets
14
6 ,8 52
6,342
Goodwill and other intangible assets 15
6, 36 8
8,249
Investments in associates33
4 ,6 16
5 ,1 6 7
Inventories17
5, 88 3
6,277
Other non-current assets
16
3 8 ,10 4
3 7, 4 51
Deferred tax assets11
1 0 ,14 9
1 4,47 1
Total non-current assets
898,006
8 8 5 , 818
Inventories17
20 1 ,429
224,454
Trade and other receivables
18
8 2 ,3 21
24,699
Prepayments and other current assets19
21, 3 8 0
13 ,352
Income taxes recoverable and prepaid 11
2 ,4 32
4,67 4
Other taxes recoverable and prepaid
20
2 6, 2 91
8 8,7 6 2
Cash and cash equivalents
25
11 5 , 2 4 1
11 2 , 9 4 5
Total current assets
44 9,0 94
4 68,886
Total assets
1,3 47,10 0
1 ,354, 704
Equity and liabilities
Issued capital
31
121, 6 2 8
12 1, 6 2 8
Share premium
1 8 5 ,11 2
18 5 ,11 2
Other reserves
31
(2 ,676,2 94)
(2,636,891)
Retained earnings
3,482,8 83
3,58 0,329
Equity attributable to equity shareholders of Ferrexpo plc1 ,11 3 , 3 2 9 1,250,178
Non-controlling interests
81
67
Total equity
1 ,11 3 , 4 1 0
1 ,2 50,2 45
Interest-bearing loans and borrowings
5/26
1, 0 0 9
1 ,354
Defined benefit pension liability22
16 , 518
16,456
Provision for site restoration
23
2 ,7 8 0
4, 28 4
Deferred tax liabilities11
2 ,72 9
1, 3 47
Total non-current liabilities
23 ,0 36
2 3 , 4 41
Interest-bearing loans and borrowings
5/26
5,9 39
5 ,1 9 4
Trade and other payables
21
3 5 , 310
30,50 9
Provisions
30
1 28,050
−
Accrued and contract liabilities2417,328 19, 5 9 3
Income taxes payable
11
15 , 2 0 2
20, 564
Other taxes payable20
8,825
5 ,1 5 8
Total current liabilities
210,654
81, 0 18
Total liabilities
233,690
104,459
Total equity and liabilities
1,3 47,10 0
1 ,354, 704
The financial statements were approved by the Board of Directors and authorised for issue on 17 April 2024 and signed on behalf of the Board.
Lucio Genovese Nikolay Kladiev
Executive Chair Chief Financial Officer and Executive Director
174
Ferrexpo plc Annual Reports & Accounts 2023
Consolidated Statement of Cash Flows
US$000
Notes
Year ended Year ended
31.12.2331.12. 22
(Loss)/profit before tax
(6 8 , 4 0 1)
338,65 9
Adjustments for:
Depreciation of property, plant and equipment, right-of-use assets and amortisation of intangible assets
7
5 7, 6 6 9
9 6 ,97 7
Net finance (income)/expense
10
(2 ,5 36)
74 6
Losses on disposal and liquidation of property, plant and equipment
7
11
1, 6 6 5
Write-offs and impairments
7
978
26 0,30 8
Share of loss/(profit) from associates
33
372
(557)
Movement in allowance for doubtful receivables
18
4,4 03
6 ,72 9
Movement in site restoration provision
23
(1, 37 7)
1, 5 7 8
Employee benefits
22
3 , 518
3 , 74 5
Share-based payments
28
830
490
Recognition of provisions for legal disputes
30
13 1 ,117
−
Operating foreign exchange gains
9
(31, 37 1)
(339,439)
Non-operating foreign exchange losses
9
7, 9 3 4
6 3 ,4 97
Operating cash flow before working capital changes
1 0 3 ,1 4 7
434,398
Changes in working capital:
(Increase)/decrease in trade and other receivables
(7 1, 946)
210 , 2 67
Decrease/(increase) in inventories
15,930
(90, 385)
Increase/(decrease) in trade and other payables (including accrued and contract liabilities)
6 ,72 4
(55, 529)
Decrease/(increase) in other taxes recoverable and payable (including VAT)
20
62,5 54
(8 4 , 11 0)
Cash generated from operating activities
11 6 , 4 0 9
414 , 6 41
Interest paid
(22 3)
(9 18)
Income tax paid
11
(12 ,7 7 9)
(11 0 , 2 4 3)
Post-employment benefits paid
(2 ,2 38)
(2, 220)
Net cash flows from operating activities
1 0 1 ,1 6 9
3 0 1, 2 6 0
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets
13/15
(10 1, 247)
(161, 010)
Proceeds from disposal of property, plant and equipment and intangible assets
91
10 3
Interest received
4,6 08
894
Dividends from associates
−
7 11
Net cash flows used in investing activities
(96,54 8)
(15 9 , 3 0 2)
Cash flows used in financing activities
Repayment of loans and borrowings
26
−
(42,209)
Principal elements of lease payments
26
(5 , 410)
(5, 786)
Dividends paid to equity shareholders of Ferrexpo plc
12
(4 5 6)
(15 5 , 0 9 5)
Net cash flows used in financing activities
(5,8 66)
(203,0 9 0)
Net decrease in cash and cash equivalents
(1, 2 4 5)
(61 , 132)
Cash and cash equivalents at the beginning of the year
11 2 , 9 4 5
16 7, 2 9 1
Currency translation differences
3 , 5 41
6,7 8 6
Cash and cash equivalents at the end of the year
25
11 5 , 2 4 1
11 2 , 9 4 5
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
175
Ferrexpo plc Annual Reports & Accounts 2023
Consolidated Statement of Changes in Equity
Attributable to equity shareholders of Ferrexpo plc
Total Non-controlling
Issued capital Share premium Other reserves Retained capital and interests Total
US$000(Note 31)(Note 31)(Note 31)earnings reserves(Note 32)equity
At 1 January 2022
1 21, 6 2 8
1 8 5 ,11 2
(1,986,131)
3 , 510 , 7 9 3
1, 8 3 1, 4 0 2
75
1, 8 3 1, 47 7
Profit for the year
−
−
−
219 , 9 9 5
219 , 9 9 5
2
2 19, 9 9 7
Other comprehensive (loss)/
income
−
−
(6 51, 2 5 0)
5, 336
(6 4 5 , 9 14)
(10)
(6 4 5 , 9 24)
Total comprehensive (loss)/
income for theyear
−
−
(6 51, 2 5 0)
2 25 , 3 31
(4 25 , 9 19)
(8)
(425, 92 7)
Share-based payments (Note 28)
−
−
490
−
490
−
490
Equity dividends to shareholders
of Ferrexpoplc
−
−
−
(15 5 ,7 9 5)
(15 5 ,7 9 5)
−
(15 5 ,7 9 5)
At 31 December 2022
121, 6 2 8
1 8 5 ,11 2
(2 , 6 3 6 , 8 9 1)
3,580,329
1,250,178
67
1 ,2 50,2 45
Loss for the year
−
−
−
(8 4 ,775)
(8 4 ,775)
2 2
(8 4 ,75 3)
Other comprehensive loss
−
−
(53 , 3 68)
899
(52 ,469)
(8)
(52 ,47 7)
Total comprehensive loss
fortheyear
−
−
(5 3 ,3 6 8)
(8 3 ,8 76)
(1 3 7, 2 4 4)
14
(1 3 7, 2 3 0)
Share-based payments (Note 28)
−
−
830
−
830
−
830
Equity dividends to shareholders
of Ferrexpoplc (Note 12)
−
−
−
(43 5)
(4 35)
−
(4 35)
Effect from transfer of treasury
shares (Note 31)
−
−
13 ,13 5
(13 , 13 5)
−
−
−
At 31 December 2023
12 1, 6 2 8
1 8 5 ,11 2
(2,676, 2 94)
3, 48 2 , 8 8 3
1 ,11 3 , 3 2 9
81
1 ,11 3 , 4 1 0
Although accounts are published in US dollars and dividends are declared in US dollars, the shares are denominated in UK pounds sterling and
dividends are therefore paid in UK pounds sterling. See Note 12 Earnings per share and dividends paid and proposed for dividends paid during
theyear.
176
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements
Note 1: Corporate information
Ferrexpo plc (the “Company”) is incorporated and registered in England, which is considered to be the country of domicile, with its registered
office at 55 St James’s Street, London SW1A 1LA, UK. The Company is listed on the London Stock Exchange and is a member of the
FTSE 250 Index. Ferrexpo plc and its subsidiaries (the “Group”) operate two mines and a processing plant near Kremenchuk in Ukraine,
have an interest in a port in Odessa and sales and marketing activities around the world including offices in Switzerland, Dubai, Japan,
China, Singapore and Ukraine. The Group also owns logistics assets in Austria, which operate a fleet of vessels operating on the Rhine and
Danube waterways and an ocean-going vessel, which provides top-off services. The Group’s operations are vertically integrated from iron
ore mining through to iron ore concentrate and pellet production and subsequent logistics. The Group’s mineral properties lie within the
Kremenchuk Magnetic Anomaly and are currently being extracted at the Gorishne-Plavninske-Lavrykivske (“GPL”) and Yerystivske deposits.
The ongoing war in Ukraine continued to have a serious impact on the Group’s activities in the 2023 financial year, as the Ukrainian Black
Sea ports were unavailable for a large part of the year. Following Russia’s withdrawal from the Black Sea Grain Agreement, a new alternative
corridor for shipments from the Ukrainian Black Sea ports was established, which was also used for non-grain shipments. Although it does
have a significant impact on the Group’s revenue and its ability to commit to sales volumes to customers in other markets than Europe, the
Group has refrained from using this new corridor during the financial year 2023. The Group has managed to continue its operations throughout
the 2023 financial year, albeit at a significantly lower level, and had to align its mining and processing plans with the logistics network available
for sales to its customers in the various markets as it was done during the financial year 2022. The power supply stabilised in the second
quarter of the financial year 2023 and no longer had an adverse effect on the Group’s production. As at the date of the approval of these
consolidated financial statements, the war is still ongoing and poses a significant threat to the Group’s mining, processing and logistics operations
within Ukraine. See Note 2 Basis of preparation, Note 6 Revenue and Note 13 Property, plant and equipment for further information.
The largest shareholder of the Group is Fevamotinico S.a.r.l. (“Fevamotinico”), a company incorporated in Luxembourg. Fevamotinico is ultimately
wholly owned by The Minco Trust, of which Kostyantin Zhevago and two other members of his family are the beneficiaries. At the time this report
was published, Fevamotinico held 49.3% (49.5% as at the time of publication of the 2022 Annual Report and Accounts) of Ferrexpo plc’s issued
voting share capital (excluding treasury shares).
Note 2: Basis of preparation
The consolidated financial statements of Ferrexpo plc and its subsidiaries have been prepared in accordance with International Financial
Reporting Standards adopted for use in the United Kingdom (“UK adopted IFRS”) and with the Companies Act 2006, as applicable to companies
reporting under international accounting standards. Entities are included in the consolidated financial statements from the date of obtaining
control and the inclusion in the consolidated financial statements is consequently ceased when the control over an entity is lost. For the definition
of control see Note 32 Consolidated subsidiaries.
The consolidated financial statements have been prepared on a historical cost basis, except for post-employment benefits measured in
accordance with IAS 19 revised Employee benefits and revenues related to provisionally priced sales recognised in accordance with IFRS 15
Contracts with customers. The consolidated financial statements are presented in thousands of US dollars and all values are rounded to
the nearest thousand except where otherwise indicated.
The material accounting policy information are included in the disclosure notes to the specific financial statement accounts.
Going concern
As at the date of the approval of these consolidated financial statements, the war in Ukraine is still ongoing and the duration is difficult to predict.
During the financial year 2023, the Group continued to demonstrate a high level of commitment and resilience that enabled it to operate at a
constant, but lower capacity, with a high degree of flexibility to adapt its operations to such changing circumstances.
The ongoing war and the situation in the country continues to represent a material uncertainty in terms of the Group’s ability to continue as
a going concern. In addition to the war-related material uncertainty, the Group is also exposed to the risks associated with operating in a
developing economy, which may or may not be exacerbated by the war and/or the current circumstances facing the Group’s controlling
shareholder (see Ukraine country risk on pages 76 to 78). As a result, the Group is exposed to a number of risk areas that are heightened
compared to those expected in a developed economy, such as an environment of political, fiscal and legal uncertainties, which represents
another material uncertainty as at the date of the approval of these consolidated financial statements.
The war related material uncertainty is predominantly related to the provision and availability of logistics capacity required for the delivery of the
Group’s products to customers in its key markets, subject to the availability of Black Sea ports in Ukraine. As in the previous financial year, the
Group had to adjust during the financial year 2023 its production level to the sales currently possible, which continues to have an impact on the
Group’s cash flow generation and profitability. However, the Group continued to adapt within the difficult environment by proactively planning
how to manage existing uncertainties throughout the year in order to ensure the production of the volumes committed to the Group’s customers.
The Group’s ability to operate its assets also depends on sufficient supply of key input materials required for the mining and production process
as well as maintaining an adequate number of experienced and skilled members of the workforce in Ukraine. Further details are outlined in the
Principal Risks on pages 74 to 84 and in the Viability Statement on pages 91 and 92.
The adverse impact on the Group’s cash flow generation from the ongoing war is reflected in the periods covered by the Group’s long-term
model used for the going concern assessment. As mentioned above, the level of the Group’s production remains predominantly dependent on
the access to logistic routes within Ukraine as production volume needs to be aligned to possible sales to minimise working capital outflow and
maintain a solid net cash position.
As at 31 December 2023, the Group had produced 3,845 thousand tonnes of iron ore pellets, representing a decrease of 36% compared to the
year ended 31 December 2022, and sold 4,174 thousand tonnes of its products, compared to 6,183 thousand tonnes during the financial year
2022, which included two months of operations at pre-war levels.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
177
Ferrexpo plc Annual Reports & Accounts 2023
Note 2: Basis of preparation continued
Despite the challenging situation during the financial year 2023, the Group’s net cash position increased from US$106,397 thousand at the
beginning of the year to US$108,293 thousand as at 31 December 2023, demonstrating the Group’s capability to adjust its business operation
to the changed environment in order to preserve the available liquidity as much as possible. As at the date of the approval of these consolidated
financial statements, the Group is in a net cash position of approximately US$91,300 thousand with an available cash balance of approximately
US$96,200 thousand. The decrease of the net cash position is driven by the increase of the Group’s production during the first quarter of 2024 to
benefit from favourable market conditions and the available alternative shipping corridor in the Black Sea. In addition to the available cash balance,
the Group has an outstanding trade receivable balance of approximately US$48,900 thousand from its pellet and concentrate sales in the first
quarter of 2024, which are expected to be collected in the next few months, and finished goods already stockpiled at different ports or storage
locations other than the plant of 668 thousand tonnes.
The Group’s volume of finished goods inventory is expected to reduce over the next few months, but is dependent on the number of shipments
using the alternative shipping corridor.
As part of management’s going concern assessment, the Group continuously adjusts its long-term model in order to reflect the latest
developments in terms of possible production and sales volumes as well as latest market prices and production costs, which are adversely
affected by the lower production volumes. This long-term model is also used for the impairment test of the Group’s non-current operating assets
and the key assumptions used when preparing this model are disclosed in Note 13 Property, plant and equipment on pages 194 and 195.
The latest base case of the long-term model shows that the Group has sufficient liquidity to continue its operations at a reduced level for the
entire period of the management’s going concern assessment, covering a period of 18 months from the date of the approval of these
consolidated financial statements, even allowing for reasonably possible or plausible adverse changes in respect of realised prices, lower
production and sales volumes as well as higher production costs. This base case assumes a production volume of 45% of the pre-war level for
the financial year 2024, before an increase to approximately 80% in 2025 and an expected recovery to pre-war levels in 2026. However, as
mentioned above, the production and sales volumes are dependent on the logistics network available to the Group and other potential adverse
effects on the Group’s operation as a result of the ongoing war. The sensitivities prepared for reasonable adverse changes show tighter available
liquidity under some scenarios, but sufficient available liquidity to operate as planned for the next 18 months.
The Group also prepared reverse stress tests for more severe adverse changes, such as a combination of all reasonably possible or plausible
adverse changes in respect of realised prices and production costs, which is unlikely to happen in combination as a result of the historical
natural hedge between iron ore prices and prices for key input materials, as well as lower production and sales volumes, but also for a further
delay of the full recovery by another year. The stress test for the most severe adverse changes shows that the Group would deplete its available
cash balance by September 2024, without making use of any available mitigating actions within its control, such as further reductions of
uncommitted development capital expenditure and operating costs.
As disclosed in the Group’s 2022 Annual Report & Accounts, the ongoing war in Ukraine and other circumstances facing the Group have led to an
escalation of a number of risks, including risks relating to the political environment and the independence of the legal system in Ukraine, which could
have a material negative impact on the Group’s business activities and reputation, although the financial impact cannot be reasonably quantified. The
Group announced on 29 January 2024 that a Ukrainian court of appeal has confirmed a claim against Ferrexpo Poltava Mining (“FPM”) in the amount
of UAH4,727 million (US$124,450 thousand as at 31 December 2023), in respect of contested sureties (see Note 30 Commitments, contingencies
and legal disputes for further details). The claim and court decision are another example of the risk of operating in a dynamic and adverse political
landscape in Ukraine, which creates additional challenges for both the Group’s subsidiaries in Ukraine and, also for the Group itself. Although the
Group’s management is of the opinion that this claim is without merit and FPM has appealed this decision to the Supreme Court of Ukraine,
considering the magnitude of this specific claim and the risks associated with the judicial system in Ukraine, the outcome of this ongoing legal
dispute represents a material uncertainty in terms of the Group’s ability to continue as a going concern. In accordance with the requirements of
IAS 37 Provisions, contingent liabilities and contingent assets, the Group recorded a full provision for this claim as at 31 December 2023, with a
consequent significant impact on the Group’s result for the financial year 2023. A future cash outflow, which also depends on the details and
technicalities of a possible enforcement in the event of a negative decision by the Supreme Court, is likely to have a significant impact on the
Group’s future cash flow generation and available liquidity.
The Group has assessed that, taking into account:
i) its available cash and cash equivalents;
ii) its cash flow projections, adjusted for the effects caused by the war in Ukraine, for the period of management’s going concern assessment
covering a period of 18 months from the date of the approval of these consolidated financial statements;
iii) the feasibility and effectiveness of all available mitigating actions within the Group management’s control for identified uncertainties; and
iv) the legal merits in terms of the ongoing legal dispute mentioned above and potential future actions available to protect the interests of the
Group in case of a negative decision from the Supreme Court,
there remains a material uncertainty in respect of the ongoing war and the legal dispute in Ukraine, which are outside of the Group
management’s control, with the duration and the impact of the war still unable to be predicted, and the uncertainty in relation to the
independence of the judicial system and its immunity from economic and political influences in Ukraine.
In respect of the contested sureties claim mentioned above, no enforcement procedures have commenced as at the date of the approval of
these consolidated financial statements. Furthermore, on 1 April 2024 the Supreme Court suspended the possible enforcement of the decision
of the Ukrainian court of appeal, so that such enforcement procedures cannot be initiated by the claimant until a final decision is made by the
Supreme Court, or the Supreme Court’s suspension order is otherwise lifted. As at the date of the approval of these consolidated financial
statements, no decision has been made by the Supreme Court in the contested sureties claim and the next hearing is scheduled for 27 May
2024. The commencement of the enforcement procedures could potentially have a material negative impact on the Group’s business activities
and its ability to continue as a going concern. See Note 30 Commitments, contingencies and legal disputes for further information,
178
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 2: Basis of preparation continued
which should be read in conjunction with this note.
A supplier and related party to the Group filed in February 2024 an application to open bankruptcy proceedings (“creditor protection
proceedings”) against FPM for an amount of UAH2.2 million, which subsequently increased to UAH4.6 million (c. US$117 thousand as at 15 April
2024). It is the Group’s intention to settle this debt or seek to extend the payment terms, but noting a previous extension request has been
refused by the supplier prior, to avoid the opening of such creditor protection proceedings. However, a possible opening of the creditor
protection proceedings might affect FPM’s ability to continue as a going concern and, as a consequence, also the Group. See Note 30
Commitments, contingencies and legal disputes for further information, which should be read in conjunction with this note.
As at the date of the approval of these consolidated financial statements, the Group’s operations, located adjacent to the city of Horishni Plavni,
have not been directly affected by the ongoing war, but this remains a risk. Should the area surrounding the Group’s operations become subject
to the armed conflict, there would be a significant risk posed to the safety of the Group’s workforce and the local community, as well as a
significant risk to key assets and the infrastructure required for the Group to operate effectively. See the update on the Group’s Principal Risks
section on pages 74 to 84 for further information.
Considering the current situation of the ongoing war and legal disputes in Ukraine, mainly the contested sureties claim, the Group’s ability to
swiftly adapt to the changing circumstances caused by the war, as demonstrated during the financial years 2023 and 2022, and the results of the
management’s going concern assessment, the Group continues to prepare its consolidated financial statements on a going concern basis. However,
as explained above, many of the identified uncertainties in respect of the ongoing war and legal disputes are outside of the Group management’s
control, and are unpredictable, which may cast significant doubt upon the Group’s ability to continue as a going concern, including a potential seizure
or forced sale of the Group’s assets in Ukraine, including movable, immovable and financial assets, in respect of the contested sureties claim. See
Note 13 Property, plant and equipment and Note 17 Inventories for further information.
For more information on critical judgements made by management in preparing these consolidated financial statements, see also Note 30
Commitments, contingencies and legal disputes in respect of other ongoing legal proceedings and disputes.
If the Group is unable to continue to realise assets and discharge liabilities in the normal course of business, it would be necessary to adjust the
amounts in the statement of financial position in the future to reflect these circumstances, which may materially change the measurement and
classification of certain figures contained in these consolidated financial statements.
Impact of climate change on the Group’s financial statements
The Group acknowledges the potential impact of climate change on its operations and understands that there are potential direct and indirect
financial implications from the climate change in future periods.
As published in the Group’s Responsible Business Reports, the Group has committed to reduce its Scope 1 and Scope 2 carbon emissions by
50% by 2030, compared to the baseline year of 2019, and is targeting a net zero production for Scope 1 and Scope 2 carbon emissions by 2050.
Despite the ongoing war in Ukraine, the Group remains committed to its net zero pathway, however, it is important to acknowledge that the
Group is operating in a challenging environment, which requires the fast adaption to new circumstances and uncertainties that are outside of the
Group’s control. As a result, there is a risk that the Group may also need to adapt its carbon emission reduction and net zero targets, depending
on the duration and impact of the ongoing war in Ukraine. See Going concern on pages 176 to 178 for further information.
The ongoing war in Ukraine continues to have an impact on the Group’s cash flow generation and profitability. As a result, certain projects
related to the Group’s Scope 1 and Scope 2 carbon emission targets and the net zero pathway have been halted at the start of the war in
February 2022 and, as a consequence, the Group has not entered into any significant commitments for the renewal and replacement of its
processing and mining equipment at Ukrainian operations.
Physical risks
The Group is aware of the potential increased risks that climate change could pose to its assets in Ukraine. However, there is no immediate
risk at this time and the Group will continue to monitor and consider these risks when planning the renewal and replacement of its existing
non-current operating assets.
Transition risks
The Group is aware of a potential shift towards a low-carbon economy and the potential implications for its business models, which could affect
market demand for its iron ore products in the medium to long term. The Group is already in the position to produce Direct Reduction (“DR”)
pellets and continues to monitor the market and invests in customer relationships in order to secure fixed supply volumes in the short, medium
and long term. The shift does not affect the Group’s finished goods on stock as at 31 December 2023 as these are still in demand and expected
to be sold in the coming months.
The transition risks as well as the Group’s Scope 1 and Scope 2 carbon emission targets and the net zero pathway could also have an impact
on the Group’s processing and mining equipment required in the future. In absence of any significant commitments for processing and mining
equipment as at 31 December 2023, there is no significant impact on the expected remaining useful lives of the Group’s non-current operating
assets at this time. Furthermore, the Group assumes that its critical non-current operating assets will continue to be an essential part of the
Group’s business activities in the future. The Group will continue to monitor and consider these risks when planning the renewal and
replacement of its existing non-current operating assets.
At the time of approval of these consolidated financial statements, no significant changes to the Group’s mine plan are expected that could have
a material impact on the Group’s non-current operating assets, which are amortised using the unit of production method, or on the recognised
site restoration provisions.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
179
Ferrexpo plc Annual Reports & Accounts 2023
Note 2: Basis of preparation continued
There are a number of work streams underway to develop the Group’s decarbonisation pathway and creating a structure on which to plan and
prioritise future investments. This pathway is however also dependent on the duration and impact of the ongoing war in Ukraine. The Group’s
business model will be updated as soon as there is more clarity about the current situation in Ukraine and the exact path of the Group’s
decarbonisation pathway, including commitments made for the renewal and replacement of processing and mining equipment.
For further information see Risks relating to climate change in the Group’s Principal Risk section on page 90.
Basis of consolidation
The consolidated financial statements comprise the financial statements for Ferrexpo plc and its subsidiaries as at 31 December each year.
The financial statements of the subsidiaries are prepared as at the same reporting date as Ferrexpo plc’s, using consistent accounting policies.
Subsidiaries are fully consolidated from the date the Group obtains control, which exists from the point of time when the Group is exposed to,
or has rights to, variable returns from an entity and the Group has the ability to affect those returns through its power to direct the activities of
an entity. Similarly, subsidiaries disposed of are deconsolidated from the date on which the Group ceases to hold control. A change in the
ownership interest of an entity without obtaining or losing control is accounted for as an equity transaction.
All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.
Unrealised losses are eliminated unless costs cannot be recovered.
Business combinations
On the acquisition of a subsidiary, the business combination is accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregated amount of the fair value of the consideration transferred, measured at the date of acquisition. The consideration
paid is allocated to the assets acquired and liabilities (including contingent liabilities) assumed on the basis of fair values at the date of acquisition.
Acquisition costs are expensed when incurred and included in general and administrative expenses.
Functional and presentational currencies
Based on the economic substance of the underlying business transactions and circumstances relevant to the parent, the functional currency of the
parent has been determined to be the US dollar, with each subsidiary determining its own functional currency based on its own circumstances. The
Group has chosen the US dollar as its presentational currency. The functional currency of Ukrainian subsidiaries, which is where the Group’s main
operations are based, is the Ukrainian hryvnia.
Foreign currency translation
For individual subsidiary company accounts, transactions in foreign currencies (i.e. other than the functional currency) are recorded at the rate
ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at
the rate of exchange ruling at the reporting date and non-monetary assets and liabilities at the historic rate. Foreign exchange differences arising
on translation are recognised in the consolidated income statement.
For presentation of the Group’s consolidated accounts, if the functional currency of a subsidiary is different to the presentational currency as
at the reporting date, the assets and liabilities of this entity are translated into the presentational currency at the rate ruling at the reporting date
and the consolidated income statement is translated using the average exchange rate for the year based on the officially published rates by the
National Bank of Ukraine (“NBU”). The foreign exchange differences arising are recognised in other comprehensive income and taken directly to
a separate component of equity. On disposal of a foreign entity the deferred cumulative amount of exchange differences recognised in equity
relating to the particular foreign operation is recognised in the consolidated income statement.
Note 3: New accounting policies
New standards and interpretations adopted
The accounting policies and methods of computation adopted in the preparation of the consolidated financial statements are consistent with
those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2022 except for the adoption of
new standards, interpretations and amendments to UK adopted IFRS effective as at 1 January 2023.
New standards, interpretations and amendments adopted without an impact on the Group’s consolidated financial statements
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies require the
disclosures of material accounting policies rather than significant accounting policies.
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates replace the
definition of change in accounting estimates with the definition of accounting estimates as monetary amounts subject to measurement
uncertainty following accounting policies requirements.
Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction clarify that the
recognition exemption in paragraphs 15 and 24 of IAS 12 does not apply to transactions that, on initial recognition, give rise to equal taxable and
deductible temporary differences.
Amendments to IAS 12 International Tax Reform – Pillar Two Model Rules introduce disclosure requirements related to pillar two income taxes.
New standards, interpretations and amendments not yet adopted
The Group has elected not to adopt early any revised and amended standards or interpretations that are not yet mandatory in the UK.
The standards and interpretations below could have an impact on the consolidated financial statements of the Group in future periods.
180
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 3: New accounting policies continued
Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current were issued in January
2020 and effective for the financial year beginning on 1 January 2024. The amendments clarify that the classification of liabilities as current or
non-current should be based on the rights to defer the settlement of a liability by at least 12 months in existence at the end of the reporting
period and not on future expectations about whether these rights will be exercised. Furthermore, the amendments clarify that settlement refers
to the transfer to the counterparty of cash, equity instruments, other assets or services. The Group does not expect a material impact in its
consolidated financial statements as a consequence of these amendments.
The Group expects that all other standards, interpretations and amendments issued at the reporting date, but not yet to be adopted for these
financial statements, are not relevant to the Group as they do not have a material impact on its consolidated financial statements and are
therefore not listed above.
Note 4: Use of critical estimates and judgements
The preparation of consolidated financial statements in conformity with IFRSs requires management to make estimates and judgements that
affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates and judgements are based on
information available as at the date of authorising the consolidated financial statements for issue. Actual results could therefore differ from those
estimates and judgements. The Group identified a number of areas involving the use of critical estimates and judgements made by management
in preparing the consolidated financial statements and supporting information is embedded within the following disclosure notes:
Critical estimates
– Note 13 Property, plant and equipment – impairment consideration as a result of the ongoing war in Ukraine
The most critical estimate made by the management is in respect of the timing when the Group’s operation is expected recover to pre-war levels.
As disclosed in Note 13 Property, plant and equipment, there is a risk of material adjustments in future periods in case of a delay of the recovery
to pre-war levels. In addition, the duration and impact of the ongoing war in Ukraine could pose a further risk for significant adjustments in future
periods.
Critical judgements
– Note 2 Basis of preparation – going concern assumption
– Note 11 Taxation – transfer pricing claims, tax legislation in Ukraine and development in international tax environment
– Note 30 Commitments, contingencies and legal disputes – assessment of matters in an environment of political, fiscal and legal uncertainties
The consideration of the impact of climate change on the Group’s financial statements did not require critical estimates and judgements when
preparing the consolidated financial statements as at 31 December 2023. See Note 2 Basis of preparation for further details.
Note 5: Segment information
The Group is managed as a single segment, which produces, develops and markets its principal product, iron ore pellets, for sale to the
metallurgical industry. While the revenue generated by the Group is monitored at a more detailed level, there are no separate measures of profit
reported to the Group’s Chief Operating Decision-Maker (“CODM”). In accordance with IFRS 8 Operating segments, the Group presents its
results in a single segment, which are disclosed in the consolidated income statement for the Group.
Management monitors the operating result of the Group based on a number of measures, including underlying EBITDA, gross profit and net cash.
Underlying EBITDA and gross profit
The Group presents the underlying EBITDA as it is a useful measure for evaluating its ability to generate cash and its operating performance.
The Group’s full definition of underlying EBITDA is disclosed in the Glossary on page 240.
US$000
Notes
Year ended Year ended
31.12.23 31.12. 22
(Loss)/profit before tax and finance
(60,363)
405,673
Losses on disposal and liquidation of property, plant and equipment
11
1,665
Share-based payments
28
830
490
Write-offs and impairments
7
978
260,308
Recognition of provisions for legal disputes
30
131,117
−
Depreciation and amortisation
57,6 69
96,977
Underlying EBITDA
130,242
765,113
In agreement with the Group’s definition of the underlying EBITDA (see page 236 in the Alternative Performance Measures “APMs“ section), the
Group’s underlying EBITDA includes operating foreign exchange gains of US$31,371 thousand as of 31 December 2023 (2022: US$339,439
thousand). These foreign exchange differences are predominantly dependent on the fluctuation of the exchange rate of the Ukrainian hryvnia against
the US dollar. See Note 9 Foreign exchanges losses and gains for further information.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
181
Ferrexpo plc Annual Reports & Accounts 2023
Note 5: Segment information continued
US$000
Notes
Year ended Year ended
31.12.23 31.12. 22
Revenue
6
651,795
1,248,490
Cost of sales
7
(362,495)
(582,445)
Gross profit
289,300
666,045
Net cash
Net cash as defined by the Group comprises cash and cash equivalents less interest-bearing loans and borrowings.
US$000
Notes
As at As at
31.12.23 31.12. 22
Cash and cash equivalents
25
115,241
112,945
Interest-bearing loans and borrowings – current
26
(5,939)
(5,194)
Interest-bearing loans and borrowings – non-current
26
(1,009)
(1,354)
Net cash
108,293
106,397
Net cash is an APM. Further information on the APMs used by the Group, including the definitions, is provided on pages 236 and 237.
Disclosure of revenue and non-current assets
The Group does not generate significant revenues from external customers attributable to the UK, the Company’s country of domicile. The
information on the revenues from external customers attributed to the individual foreign countries is given in Note 6 Revenue. The Group does
not have any significant non-current assets that are located in the country of domicile of the Company. The vast majority of the non-current
assets are located in Ukraine.
Note 6: Revenue
Accounting policy
Revenue recognition
Revenue is recognised to the extent that it is probable that the Group will collect the consideration to which it expects to be entitled in exchange
for transferring promised goods or services to a customer. The following specific recognition criteria are to be met before revenue is recognised.
Sale of goods including sales of pellets and fuel from bunker business
Revenue is recognised when the control of the goods has passed to the buyer and can be reliably measured.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the
normal course of business, net of discounts, customs duties and sales taxes. The Group does not have any material variable considerations,
such as retrospective volume rebates and rights of returns, in the contracts with its customers. Revenues related to provisionally priced sales are
initially recognised at the estimated fair value of the consideration receivable based on the forward price at each reporting date for the relevant
period outlined in the different contracts. In terms of the associated commodity risk, see Note 27 Financial instruments for further information.
The control of goods passes when title for the goods passes to the customer as determined by the contractual sales terms based on the
International Commercial Terms (“Incoterms”). The sales are typically made under CIF (“Cost Insurance and Freight”), CFR (“Cost and Freight”,
DAP (“Delivery At Place”) and FOB (“Free on Board”) terms.
Under DAP Incoterms, revenue is recognised when goods arrive at the agreed destination or at the border crossing, whereas under the other
above-mentioned terms the title passes on the date of the bill of lading. If the sales agreement allows for adjustment of the sales prices based
on survey of the goods by the customer (e.g. ore content) the revenue is recognised based on the most recent determined product specification.
The Group enters into long-term contracts with some of its customers, which become subject to either renewal or extension when about to
expire. As the performance obligations under the old contracts are not affected by the renewal or extension, the new modified contracts are
accounted for as separate contracts.
The Group has no unsatisfied or partially unsatisfied performance obligations relating to contracts with customers with original expected duration
of more than one year. The Group has therefore taken advantage of the practical expedient provided in IFRS 15 and needs not disclose the
transaction price allocated to the remaining performance obligations.
Freight services related to sales of pellets and concentrate
For CIF and CFR contracts the Group must contract for and pay the freight necessary to bring the goods to the named port of destination.
Consequently, the freight services under CIF and CFR Incoterms meet the criteria of a separate performance obligation and the corresponding
revenue is shown separate from the revenue from sales of iron ore pellets and concentrate.
Freight revenue is recognised over time, as the obligation to perform freight services is fulfilled, along with the associated costs.
For the separate presentation of the freight revenue as required under IFRS 15 Revenue from contracts with customers, the Group measures
freight revenue based on the average freight rates of the relevant pricing period for specific shipments as outlined in the contracts with its
customers. In case the relevant pricing period is after the end of the reporting period (normally within 60 days), revenue is measured based on
forward freight rates at the reporting date.
182
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 6: Revenue continued
Actual freight costs recognised for specific shipments might differ from the presented freight revenue due to movements in market rates between
the timing of fixture of vessels and the relevant pricing periods outlined in the contracts with customers.
Logistic services
Revenue from logistic services rendered is measured at the transaction price contractually agreed between the parties based on applicable
market rates for the specific freight services to be provided. The timing of satisfaction of the performance obligation is over time as services are
completed. Where services are invoiced in advance of discharge, amounts attributable to the time between the end of the reporting period and
the discharge date are deferred as contract liabilities.
Other sales
Other sales and services provided include predominantly the revenue generated from the sale of other materials and repair and maintenance
works provided to third parties. The revenues are recognised when the title passes for material sold or services provided are completed.
Revenue for the year ended 31 December 2023 consisted of the following:
US$000
Year ended Year ended
31.12.23 31.12. 22
Revenue from sales of iron ore pellets and concentrate
598,909
1,144,079
Freight revenue related to sales of iron ore pellets and concentrate
652
43,557
Total revenue from sales of iron ore pellets and concentrate
599,561
1,187, 6 3 6
Revenue from logistics and bunker business
45,343
54,491
Revenue from other sales and services provided
6,891
6,363
Total revenue
651,795
1,248,490
The sales through the Black Sea port of Pivdennyi to the markets outside of Europe have represented approximately half of the Group’s sales prior
to the Russian invasion into Ukraine in February 2022. As a result of the ongoing war in Ukraine, the Group’s seaborne sales through the port of
Pivdennyi have still been suspended as the port was unavailable for a large part of the year. The Group continued to divert its iron ore pellet sales
during the financial year 2023 to the European market through the available railway network and its barging operations on the Danube. The market
in Europe was, however, not able to absorb all the volumes that would have been sold to other markets with ocean-going vessels. Following Russia’s
withdrawal from the Black Sea Grain Agreement, a new alternative corridor for shipments from the Ukrainian Black Sea ports was established, which
was also used for non-grain shipments. Although it does have a significant impact on the Group’s revenue and its ability to commit to sales volumes to
customers in other markets than Europe, the Group has refrained from using this new corridor during the financial year 2023 due to the associated risks.
Revenue for the year ended 31 December 2023 includes the effect from the derecognition of contract liabilities of US$75 thousand (2022:
US$7,648 thousand) deferred as revenue in the comparative year ended 31 December 2022 as the performance obligations were not fulfilled
and were included in the balance of the contract liabilities. There was no deferral of freight related revenue for the year ended 31 December 2023
due to the absence of sales under the Incoterms CFR. See Note 24 Accrued and contract liabilities for further information.
Total sales of iron ore pellets and concentrate by geographical destination showing separately countries that individually represented 10%
or more of total sales in either the current or prior year were as follows:
US$000
Year ended Year ended
31.12.23 31.12. 22
Europe, including Turkey
599,869
944,859
Austria
258,853
460,492
Czech Republic
115,873
148,128
Slovakia
−
138,302
Turkey
122,556
86,640
Germany
64,981
38,195
Others
37,606
73,102
China & South East Asia
(83)
164,397
North East Asia
−
47,49
6
Middle East & North Africa
(225)
29,982
North America
−
902
Total sales of iron ore pellets and concentrate
599,561
1,187,6 3 6
The Group markets its products across various regions. The disclosure of the segmentation reflects how the Group makes its business decisions and
monitors its sales. Information about the composition of the regions is provided in the Glossary on pages 238 and 239. The Group’s sales of iron ore
pellets and concentrate were significantly impacted by the ongoing war in Ukraine during the financial years 2023 and 2022. Due to the start of the
war at the end of February 2022, the Group’s operations in the financial year 2022 include two months at pre-war levels, as the Group’s seaborne
sales through the port of Pivdennyi have been suspended and sales had to be diverted to the market in Europe at the point of time of the Russian
invasion into Ukraine.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
183
Ferrexpo plc Annual Reports & Accounts 2023
Note 6: Revenue continued
During the year ended 31 December 2023, sales made to four customers accounted for 81% of the revenues from sales of iron ore pellets and
concentrate (2022: 70%).
Sales to customers that individually represented more than 10% of total sales in either current or prior year are as follows:
US$000
Year ended Year ended
31.12.23 31.12. 22
Customer A
258,853
461,394
Customer B
115,873
148,128
Customer C
−
138,302
Customer D
109,661
86,633
Considering the constraints imposed by the ongoing war, the Group was not able to fulfil the demands from all its customers since the beginning
of the war in Ukraine in February 2022 and sales volumes were therefore allocated to markets and customers based on logistics and market
considerations. Relationships with long-standing customers are maintained and the Group expects to be able to meet their demand again as soon
as the geopolitical situation in Ukraine improves.
Note 7: Operating expenses
Accounting policy
Operating expenses arise in the course of the ordinary activities of the Group and are recognised in the consolidated income statement when
a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably.
Expenses are recognised in the consolidated income statement on the basis of a direct association between costs incurred and specific items
of income. When economic benefits are expected to arise over several accounting periods and the association with income can only be broadly
or indirectly determined, expenses are systematically allocated to the accounting period in which the economic benefits are expected to arise.
Royalties are outflows of resources embodying economic benefits and imposed by governments on entities, in accordance with legislation.
The obligating event that gives rise to a liability to pay royalties is the activity, identified by the legislation, that triggers the payment of royalties.
The liability to pay royalties is recognised as the obligating event occurs. Mining royalties payable are presented within operating expenses.
Operating expenses for the year ended 31 December 2023 consisted of the following:
US$000
Year ended Year ended
31.12.23 31.12. 22
Cost of sales
362,495
582,445
Selling and distribution expenses
161,315
236,085
General and administrative expenses
63,509
63,847
Other operating expenses
28,788
309,669
Total operating expenses
616,107
1,192,0 46
Total operating expenses include:
US$000
Year ended Year ended
31.12.23 31.12. 22
Inventories recognised as an expense upon sale of goods
339,349
540,010
Employee costs (excl. logistics and bunker business)
73,924
92,144
Inventory movements
3,910
(52,953)
Depreciation of property, plant and equipment and right-of-use assets
56,294
95,127
Amortisation of intangible assets
1,375
1,851
Royalties
24,693
43,461
Costs of logistics and bunker business
57,739
55,916
Audit and non-audit services
1,924
2,073
Community support donations
3,781
14,536
Write-offs and impairments
978
260,308
Losses on disposal and liquidation of property, plant and equipment
11
1,665
184
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 7: Operating expenses continued
US$000
Notes
As at As at
31.12.23 31.12. 22
Write-off of inventories
177
269
Write-off of property, plant and equipment
13
606
5,562
Write-off of receivables and prepayments
195
−
Total write-offs
978
5,831
Impairment of property, plant and equipment
13
−
219,931
Impairment of goodwill and other intangible assets
15
−
29,103
Impairment of other non-current assets
16
−
5,443
Total impairments
−
254,477
Total write-offs and impairments
978
260,308
Impairment of property, plant and equipment, goodwill and other intangible assets as well as of other non-current assets for the comparative year
ended 31 December 2022 are caused by the Russian invasion into Ukraine in February 2022. See Note 13 Property, plant and equipment, Note 15
Goodwill and other intangible assets and Note 16 Other non-current assets for further information.
Auditor remuneration
US$000
Year ended Year ended
31.12.23 31.12. 22
Audit services
Ferrexpo plc Annual Report and Accounts
1,334
1,631
Subsidiary entities
317
185
Total audit services
1,651
1,816
Audit-related assurance services
273
255
Total audit and audit-related assurance services
1,924
2,071
Non-audit services
Other services
−
2
Total non-audit services
−
2
Total auditor remuneration
1,924
2,073
Auditor remuneration paid is in respect of the audit of the financial statements of the Group and its subsidiary companies and, when applicable,
for the provision of other services not in connection with the audit. Audit services for the comparative year ended 31 December 2022 include US$242
thousand relating to year-end audit for the financial year 2021 for additional costs incurred as a result of the war in Ukraine.
Note 8: Other income
Accounting policy
Other income mainly includes lease income generated from rail cars, mining equipment and premises, and the proceeds from the sale of spare
parts, scrap metal and fuel and compensations received from insurance companies. Lease income is recognised based on the underlying
contractual basis over the term of the lease. Other income from the sale of consumable materials is recognised as revenue when the title passes.
Other income for the year ended 31 December 2023 consisted of the following:
US$000
Year ended Year ended
31.12.23 31.12. 22
Lease income
637
704
Other income
3,430
8,529
Total other income
4,067
9,233
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
185
Ferrexpo plc Annual Reports & Accounts 2023
Note 9: Foreign exchange gains and losses
Accounting policy
Foreign exchange gains and losses are reported on a net basis. Operating foreign exchange gains and losses are those resulting directly from
the Group’s operating activities. Non-operating gains and losses are predominantly those associated with the Group’s financing and treasury
activities, including the translation of interest-bearing loans and borrowings denominated in currencies different from the respective functional
currencies and transactional gains and losses from the conversion of cash balances in currencies different from the local functional currencies
at exchange rates different from those at the initial recognition date.
Foreign exchange gains and losses for the year ended 31 December 2023 consisted of the following:
US$000
Year ended Year ended
31.12.23 31.12. 22
Operating foreign exchange gains
Conversion of trade receivables
31,685
340,189
Conversion of trade payables
(177)
(623)
Other
(137)
(127)
Total operating foreign exchange gains
31,371
339,439
Non-operating foreign exchange losses
Conversion of interest-bearing loans
(11,740)
(77,678)
Conversion of cash and cash equivalents
1,895
9,711
Other
1,911
4,470
Total non-operating foreign exchange losses
(7,934)
(63,497)
Total foreign exchange gains
23,437
275,942
The translation differences and foreign exchange gains and losses were in the past predominantly dependent on the fluctuation of the exchange
rate of the Ukrainian hryvnia against the US dollar and the outstanding US dollar denominated receivable balances in Ukraine. A devaluation of the
local currency has generally a positive effect on the Group’s production costs and results in operating foreign exchange gains on the conversion
of the Ukrainian subsidiaries’ trade receivables denominated in US dollar. The effect arising on the translation of non-US dollar functional currency
operations, mainly in Ukrainian hryvnia, are included in the translation reserve.
The Ukrainian hryvnia remained unchanged at 36.568 to the US dollar from 21 July 2022 to 30 September 2023, when the National Bank of
Ukraine (“NBU”) lifted the peg that had been in place since the devaluation of the local currency from 29.255 to 36.568 (34%). As a result of the
significant balance in foreign currencies currently held by the NBU, the local currency remained relatively stable until the end of the financial year
2023, compared to a depreciation of the Ukrainian hryvnia of c. 34% during the financial year 2022 resulting in significant foreign exchange gains
and reduction of the Group’s net assets as assets and liabilities of the Ukrainian subsidiaries are denominated in the local currency. See Note 31
Share capital and reserves for further details on the effects reflected in the translation reserve.
The table below shows the closing and average rates of the most relevant currencies of the Group compared to the US dollar.
Average exchange rates
Closing exchange rates
As at As at Year ended Year ended
Against US$ 31.12.23 31.12. 22 31.12.23 31.12. 22
UAH
36.574
32.342
37.982
36.569
EUR
0.925
0.951
0.906
0.934
Note 10: Net finance expense
Accounting policy
Finance expense
Finance expense is expensed as incurred with the exception of interest on loans and borrowings measured at amortised cost, which is
recognised in the consolidated income statement using the effective interest method. Finance expense includes interest on defined benefit plans.
Borrowing costs incurred in respect of the financing of construction or production of a qualifying asset are capitalised up to the date when the
asset is ready for its intended use. See also Note 13 Property, plant and equipment for further details.
Finance income
Finance income comprises interest income on funds invested and the effect of unwinding discounts recorded in previous years. Interest income
is recognised as it accrues using the effective interest method.
186
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 10: Net finance expense continued
Finance expense and income for the year ended 31 December 2023 consisted of the following:
US$000
Notes
Year ended Year ended
31.12.23 31.12. 22
Finance expense
Interest expense on loans and borrowings
−
(479)
Less capitalised borrowing costs
−
479
Net interest on defined benefit plans
22
(2,640)
(2,678)
Bank charges
(1,118)
(871)
Interest expense on lease liabilities
(85)
(233)
Other finance costs
(859)
(664)
Total finance expense
(4,702)
(4,446)
Finance income
Interest income
4,602
888
Other finance income
(4)
41
Total finance income
4,598
929
Net finance expense
(104)
(3,517)
With the exception of lease liabilities, the Group does not have any outstanding interest-bearing loans and borrowings and borrowing costs are
therefore no longer capitalised.
Note 11: Taxation
Accounting policy
Current income tax
Current income taxes are computed based on enacted or substantively enacted local tax rates and laws at the reporting date and the expected
taxable income of the entities of the Group for the respective period.
Current income taxes are recognised as an expense or income in the consolidated income statement unless related to items directly recognised
in other comprehensive income or equity or if related to the initial accounting for a business combination.
Deferred income tax
Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are generally recognised for taxable temporary differences that will become taxable. Deferred income tax assets are
generally recognised for deductible temporary differences, carry forwards of available unused tax credits and tax losses, to the extent that it
is more likely than not that they will be recovered in a future period against taxable profit.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability
is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
No deferred assets or liabilities are recognised if the temporary differences arise from the initial recognition of assets and liabilities in
a transaction, other than in a business combination, which affects neither the accounting profit nor taxable profit or loss.
Deferred tax liabilities are recognised in respect of taxable temporary differences associated with investments in subsidiaries, associates
and interests in joint ventures, except where the Group is able to control the reversal of the temporary differences and it is probable that the
temporary difference will not reverse in the foreseeable future. Deferred tax assets in relation to temporary differences on such investments
and interests are recognised to the extent that it is probable that there are sufficient taxable profits available against which the benefits of the
temporary differences can be utilised and that they are expected to reverse in the foreseeable future.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow the deferred income tax assets to be utilised. Additionally, unrecognised deferred income
tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will
allow the deferred tax assets to be recovered.
Income tax effects on items directly recognised in other comprehensive income or equity are also recognised in other comprehensive income
or equity, respectively.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax
liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority .
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
187
Ferrexpo plc Annual Reports & Accounts 2023
Note 11: Taxation continued
Critical judgements
Tax legislation
The Group operates across a number of jurisdictions through its value chain and prices its sales between its subsidiaries using international
benchmark prices for comparable products covering product quality and applicable freight costs. The Group judges these to be on terms which
comply with applicable legislation in the jurisdictions in which the Group operates.
Two audits were initiated by the State Tax Service of Ukraine (“STS”), formerly known as State Fiscal Service of Ukraine (“SFS”), on 18 February 2020
in relation to the sale of iron ore products by the Group’s major subsidiary in Ukraine during the financial years 2015 to 2017. On 14 June 2021, the
STS commenced another tax audit for the financial years 2015 to 2017 for cross-border transactions of another Ukrainian subsidiary with the same
two subsidiaries of the Group outside of Ukraine. The Group’s two major subsidiaries in Ukraine received the tax audit reports on 13 September 2023
and 8 November 2023, stating potential claims for underpayment of corporate profit taxes in Ukraine of UAH2,162 million (US$56,921 thousand as at
31 December 2023), including fines and penalties, and UAH259 million (US$6,819 thousand as at 31 December 2023), without fines and penalties,
respectively. Both subsidiaries filed the objections against the potential claims stated in the tax audit reports received. The amount stated in one of the
tax audit reports is excluding potential fines and penalties and the magnitude of fines and penalties for this specific claim will be known only once the
final tax reports are issued by the tax authorities.
Based on past experience, it is to be expected that no agreements will be reached with the tax authorities and that the claims will be heard by the
courts in Ukraine.
In relation to claims made by the SFS regarding a tax audit of cross-border transactions for the period from 1 September 2013 to 31 December 2015
at the Group’s major subsidiary in Ukraine, the Supreme Court of Ukraine ruled on 27 June 2022 partially in favour of the SFS, despite two favourable
verdicts received by the Group’s subsidiary from lower courts. As a result of this court decision, an amount of UAH234 million (US$7,999 thousand)
became a legally binding obligation and was paid in July 2022.
Despite the partially negative verdict of the Supreme Court mentioned above, the Group continues to believe that it has complied with the applicable
legal provisions in all its cross-border transactions based on the relevant technical grounds, including those during the financial years 2015 to 2017 for
which substantial claims have been received. It is the Group’s position that the STS used the previous verdict of the Supreme Court as a precedent
for the claims made, although the court did not appropriately consider relevant technical grounds and the applicable legislation when ruling on this
specific case.
In terms of the new claims received, the Group will continue to defend its methodology applied to determine the prices between its subsidiaries in the
Ukrainian courts, but there is a risk that the independence of the judicial system and its immunity from economic and political influences in Ukraine is
not upheld. As at the date of the approval of these consolidated financial statements, no final court decisions have been made for the claims received
by two of the Group’s Ukrainian subsidiaries totalling UAH2,162 million (US$56,921 thousand as at 31 December 2023) and UAH259 million
(US$6,819 thousand as at 31 December 2023) and, as a consequence, no provisions have been recorded as at 31 December 2023, neither for the
claims received nor for any subsequent years, which might also be material, as it is impossible to reasonably quantify the potential exposure. See
Note 30 Commitments, contingencies and legal disputes on page 223 for further information.
Separate from the cases mentioned above, on 23 June 2020 Ferrexpo Poltava Mining (“FPM”) received a court ruling, which grants access to
information and documents to the State Bureau of Investigation in Ukraine (“SBI”) in relation to the sale of iron ore products to two subsidiaries of the
Group outside of Ukraine during the years 2013 to 2019. FPM cooperated with the SBI and provided the requested information as per the court ruling
in order to support these investigations. There had been no actions or any new requests from the SBI until 20 October 2023, when the SBI raided the
offices of FPM with the intention to collect documents and information for ongoing transfer pricing investigations.
As required by IFRIC 23 Uncertainty over income tax treatments, the Group reviewed and reassessed its exposure in respect of all uncertain tax
positions, including the claims received and for cross-border transactions in subsequent years under the provisions of this interpretation. The
Ukrainian legislation and regulations on taxation are not always clearly written and are therefore subject to varying interpretations and inconsistent
enforcement by local, regional and national tax authorities. Considering the uncertainties of the legal and tax framework in Ukraine, the Group will
defend its pricing methodology applied during all the years in the courts in Ukraine. An unfavourable outcome of any future court proceedings would
have an adverse impact on the Group’s total income tax expense and effective tax rate in future periods, as it was the case during the financial year
2022 in respect of the legally binding decision of the Supreme Court. See also the Principal Risks section on pages 76 to 78 for further information on
the Ukraine country risk.
Except for the matters in Ukraine mentioned above, the Group is not aware of any significant challenges by local tax authorities in any jurisdictions in
which the Group operates. However, the application of international and local tax legislation and regulations can be complex and requires judgement
to assess possible associated risks, particularly in relation to the Group’s cross-border operations and transactions.
188
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 11: Taxation continued
The income tax expense for the year ended 31 December 2023 consisted of the following:
US$000
Year ended Year ended
31.12.23 31.12. 22
Current income tax
Current income tax charge
12,672
100,064
Amounts related to previous years
(1,601)
6,389
Total current income tax
11,071
106,453
Deferred income tax
Origination and reversal of temporary differences
5,281
12,209
Total deferred income tax
5,281
12,209
Total income tax expense
16,352
118,662
Tax effects on items recognised in other comprehensive income consisted of the following for the year ended 31 December 2023:
US$000
Notes
Year ended Year ended
31.12.23 31.12. 22
Tax effect of exchange differences arising on translating foreign operations
31
(1,479)
(13,036)
Total income tax effects recognised in other comprehensive (credit)/charge
(1,479)
(13,036)
The weighted average statutory corporate income tax rate is calculated as the average of the statutory tax rates applicable in the countries in which
the Group operates, weighted by the profits and losses before tax of the subsidiaries in the respective countries, as included in the consolidated
financial information. The weighted average statutory corporate income tax rate for the financial year 2023 was 11.7%, before the effect of the
recognised provisions for legal disputes in the amount of US$131,177 thousand in the consolidated income statement (2022: 13.8%). A reconciliation
between the income tax charged in the accompanying financial information and income before taxes multiplied by the weighted average statutory tax
rate for the year ended 31 December 2023 is as follows:
US$000
Year ended Year ended
31.12.23 31.12. 22
(Loss)/profit before tax
(68,401)
338,659
Notional tax (credit)/charge computed at the weighted average statutory tax rate of 11.7% (2022: 13.8%)
(8,031)
46,769
Derecognition of deferred tax assets
10,505
14,757
Expenses not deductible for local tax purposes
1,721
4,615
Income exempted for local tax purposes
(1,560)
(158)
Effect from non-recognition of deferred taxes
23,601
34,882
Effect from non-recognition of deferred taxes on current year losses
732
2,884
Effect of different tax rates on local profit streams
(425)
(3,412)
Withholding tax on dividends and interests
7
−
11,540
Prior year adjustments to current tax
(1,601)
6,389
Effect from share of profit from associates
67
(100)
Other (including translation differences)
(518)
496
Total income tax expense
16,352
118,662
1
2
3
4
5
6
8
9
1. The majority of the derecognition in 2023 and 2022 is related to an additional allowances of US$10,145 thousand and US$10,749 thousand, respectively, on deferred tax assets
recognised by two of the Group’s subsidiaries in Ukraine as a result of uncertainties as some of the temporary differences are not expected to unwind in the near future. Considering the
material uncertainty in terms of the Group’s going concern, the relevant period for the recovery of the recognised net balance of deferred tax assets has to be aligned to the period of the
going concern assessment. The remaining amounts in 2022 are primarily related to the derecognition of deferred tax assets recognised in 2019 in light of the change of the tax law in
Switzerland and the available transitional measures for companies losing the special tax status. The recognised deferred tax assets are utilised on a straight-line basis with a potential
positive effect from the amortisation of the step-up goodwill for tax purposes, depending on the profitability of the subsidiaries. Whilst the initial recognition is considered of a non-
recurring nature, the utilisation will occur for the last time during the financial year 2024.
2
.
The effects predominantly relate to expenses not deductible in Ukraine. This effect is expected to be of a recurring nature as a portion of operating expenses in Ukraine is historically not
deductible for tax purposes according to the enacted local tax legislation.
3
.
The effects in 2023 and 2022 relate to income expected to be tax exempted in the United Kingdom as primarily related to the adoption of IFRS 9. This effect is considered to be of a
recurring nature.
4
.
The effect in 2023 relates to the recognition of provisions totalling US$128,050 thousand for legal disputes in Ukraine and the effect in 2022 predominantly relates to the impairment loss
of US$254,477 thousand on the Group’s non-current operating assets as a result of the war in Ukraine, net of the effect from the changed depreciation pattern for the impaired assets.
The effect in 2023 is considered to be of a non-recurring nature whereas the one in 2022 could be of a recurring nature, also depending on the situation in Ukraine. In the case that the
situation in Ukraine will significantly improve, there is a chance that the recorded impairment losses will reverse in a future period. Such potential positive effects are expected to be tax
exempted.
5
.
The effect relates mainly to a subsidiary in Ukraine. Due to the uncertainty in respect of the timing of the subsidiary becoming profitable for local tax purposes, no deferred tax asset has
been recognised. This effect was considered to be of a recurring nature until this subsidiary becomes operative and profitable.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
189
Ferrexpo plc Annual Reports & Accounts 2023
Note 11: Taxation continued
6
.
The effects relate to the different tax rates applying to different income streams in Swiss subsidiaries as a result of their specific tax status. The effect is of a recurring nature.
7
.
The effect in 2022 relates to effects of dividends paid by one subsidiary in Ukraine, which are subject to withholding tax, whereas the dividend income was not subject to income taxes
under the participation exemption regime in place in Switzerland. The effect in future years depends on the level of dividend payments made.
8
.
The effect in 2023 primarily relates to the reversal of a tax provision recorded in the accounts of one of the Swiss subsidiaries, which was not required as a result of an impairment loss
recorded on the Ukrainian subsidiaries in the statutory accounts and the tax treatment was not confirmed at the time of the approval of the Group’s consolidated financial statements.
This effect is partially offset by withholding tax on dividend paid by one subsidiary in 2023, which were declared already in 2022. The effect in 2022 primarily relates to a negative decision
received in respect of the transfer pricing claim for the financial year 2015, for which a final decision was received from the relevant court instance in 2022. Similar effects, irrespective of
the jurisdiction, can also occur in future years.
9
.
Share of loss or profit from associates is generally recognised net of taxes of the associates. This effect is of a recurring nature.
10
.
Effective 1 April 2023, the applicable corporate tax rate in the United Kingdom increased from 19.0% to 25.0%. Similar effects, irrespective of the jurisdiction, can also occur in future
years.
The Group operates across a number of jurisdictions and its effective tax rate is subject to various factors outside of the Group’s control. This
includes the volatility in the global iron ore pellet market and foreign exchange rate movements, primarily between the Ukrainian hryvnia and the
US dollar. The effective tax rate of the financial year 2023 was 26.1%, before the effect of the recognised provisions for legal disputes in the amount
of US$131,177 thousand in the consolidated income statement, compared to 35.0% for the comparative year ended 31 December 2022.
The effective tax rate for the financial year 2023, before the effect of the recognised provisions for legal disputes, was affected by the release of
a tax provision for a previous year of US$7,174 thousand, an additional allowance on deferred tax assets of US$10,145 thousand and withholding
tax expense on intercompany dividends of US$3,943 thousand to be included in the corporate profit tax expense of the financial year 2023.
Without these effects, the effective tax rate for the financial year 2023 would have been 15.1%. The effective tax rate for the comparative year
ended 31 December 2022 was affected by the fact that no deferred tax asset was recognised for the temporary differences resulting from a
recorded impairment loss of US$254,477 thousand on the Group’s non-current operating assets, which is not tax deductible in Ukraine. Further
to that, the Group recorded an allowance of US$10,749 thousand on deferred tax assets recognised by two of the Group’s subsidiaries in
Ukraine. Without these two effects, the effective tax rate for the financial year 2022 would have been 18.2%.
The net balance of income tax payable changed as follows during the financial year 2023:
US$000
Year ended Year ended
31.12.23 31.12. 22
Opening balance
(15,890)
(36,502)
Charge in the consolidated income statement
(11,071)
(106,453)
Booked through other comprehensive (loss)/income
1,479
13,036
Tax paid
12,779
110, 243
Translation differences
(67)
3,786
Closing balance
(12,770)
(15,890)
The net income tax payable as at 31 December 2023 consisted of the following:
US$000
As at As at
31.12.23 31.12. 22
Income tax receivable balance
2,432
4,674
Income tax payable balance
(15,202)
(20,564)
Net income tax payable
(12,770)
(15,890)
190
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 11: Taxation continued
Temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes and the recognition of available tax loss carry forwards result in the following deferred income tax assets and liabilities at
31 December 2023:
Consolidated statement Consolidated
of financial position income statement
As at As at Year ended Year ended
US$000 31.12.23 31.12. 22 31.12.23 31.12. 22
Property, plant and equipment
6,720
13,474
(4,747)
(4,10
6)
Right-of-use assets
−
526
(519)
129
Intangible assets
2,050
3,956
(1,905)
(1,944)
Inventories
648
205
462
(152)
Allowance for restricted cash and deposits
−
–
−
(2,862)
Defined benefit pension liability
608
459
149
(77)
Other
2,439
1,325
1,292
177
Tax losses recognised
262
255
7
(1,901)
Total deferred tax assets/change
12,727
20,200
(5,261)
(10,736)
Thereof netted against deferred tax liabilities
(2,578)
(5,729)
Total deferred tax assets as per the statement of financial position
10,149
14,471
Property, plant and equipment
(327)
(320)
(1,717)
239
Intangible assets
(415)
(384)
(47)
(33)
Financial assets
(4,127)
(4,076)
(50)
56
Inventories
−
(1,334)
1,315
(1,334)
Lease obligations
−
(503)
592
(305)
Other
(437)
(459)
(113)
(96)
Total deferred tax liabilities/change
(5,306)
( 7,076)
(20)
(1,473)
Thereof netted against deferred tax assets
2,577
5,729
Total deferred tax liabilities as per the statement of financial position
(2,729)
(1,347)
Net deferred tax assets/net change
7,420
13,124
(5,281)
(12,209)
The movement in the deferred income tax balance is as follows:
US$000
Year ended Year ended
31.12.23 31.12. 22
Opening balance
13,124
32,805
Charge in consolidated income statement
(5,281)
(12,209)
Translation differences
(423)
( 7,472)
Closing balance
7,42
0
13,124
The net deferred tax asset balance of US$7,420 thousand (2022: US$13,124 thousand) includes net deferred tax assets totalling US$9,524 thousand
(2022: US$14,448 thousand) related to temporary differences of the Group’s two major subsidiaries in Ukraine, with the remaining balance reflecting
deferred tax liabilities of subsidiaries outside of Ukraine. The recoverability of these deferred tax assets depends on the level of taxable profits realised
by the two subsidiaries in future periods and the duration of the unwind of the temporary differences. Considering the material uncertainty in terms of
the Group’s going concern, the relevant period for the recovery of the recognised net balance of deferred tax assets has been aligned to the period
of the going concern assessment. Considering the expected taxable profits of the Ukrainian subsidiaries for the period covered by the going concern
assessment, additional allowances of US$10,145 thousand were booked during the financial year 2023 as a result of uncertainties in terms of the
timing of the unwind of some of the temporary differences. The level of taxable profits in Ukraine depends on many factors, such as the volatility in
the global iron pellet market and foreign exchange rate changes, but also on the implications of the ongoing war in Ukraine, mainly in terms of the
available logistics network.
As at 31 December 2023, the Group had available tax loss carry forwards in the amount of US$86,883 thousand (2022: US$83,105 thousand)
for which no deferred tax assets were recognised. US$41,614 thousand (2022: US$39,585 thousand) of those losses do not expire and are
related to losses incurred in Ukraine and Hungary. US$38,406 thousand (2022: US$30,252 thousand) expires after seven years or more and are
related to losses incurred in Hungary and Ukraine. The remaining balance of US$6,863 thousand (2022: US$13,268 thousand) expires in less
than seven years and is primarily related to losses incurred in Hungary.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
191
Ferrexpo plc Annual Reports & Accounts 2023
Note 11: Taxation continued
No deferred tax liabilities have been recognised on temporary differences in the amount of US$517,838 thousand (2022: US$663,536 thousand)
arising from undistributed profits from subsidiaries as no distributions are planned. Other temporary differences of US$442,192 thousand have
not been recognised as at 31 December 2023 (2022: US$270,939 thousand). The vast majority relates to provisions for legal disputes totalling
US$128,050 thousand recognised as at 31 December 2023 in Ukraine and to an impairment loss of US$254,477 thousand recorded during the
comparative year ended 31 December 2022, mainly in Ukraine, on property, plant and equipment.
BEPS – Pillar Two
Whilst the Group’s consolidated revenues are less than EUR750 million for the financial year 2023, it is considered to be in the scope of the BEPS
Pillar Two Model Rules as the consolidated revenues for the financial years 2022 and 2021 were well above the threshold set.
The Group makes use of the temporary exception issued by the IASB in May 2023 in respect of the accounting requirements for deferred taxes
under IAS 12. As a result, the Group does neither recognise nor disclose any information on deferred tax assets and liabilities related to Pillar
Two income taxes in its consolidated financial statements for the financial year 2023.
Although the Group’s effective tax rate for the financial year 2023 is well above the minimum tax rate of 15.0%, there are still some jurisdictions
with enacted statutory tax rates where the Group is operating below the minimum tax rate set under the BEPS Pillar Two Model Rules. The
Group currently operates in two key jurisdictions with relevant statutory income tax rates below 15.0%. On 22 December 2023, the Swiss
government, where Ferrexpo plc, the parent company of the Group, has its tax domicile, enacted the Pillar Two income taxes legislation effective
from 1 January 2024. The legislation in Switzerland currently only provides for the Qualifying Domestic Minimum Top-up Tax (“QDMTT”) and the
implementation of the other elements of the BEPS Pillar Two Rules, including the Income Inclusion Rule (“IIR”) and the Undertaxed Profits Rule
(“UTPR”) is postponed.
As a result of the legislation enacted in Switzerland, the Group’s subsidiaries in Switzerland will become subject to the QDMTT for the taxable
profits from the financial year 2024 onwards. Based on the BEPS Pillar Two Global Anti-Base Erosion (“GloBE”) Model Rules, the parent company
of the Group, Ferrexpo plc with its tax domicile in Switzerland, is considered to be the Ultimate Parent Entity (“UPE”). Considering the fact that
Switzerland postponed the implementation of the IIR, profits generated in jurisdictions with tax rates below the global minimum tax rate of 15.0%
are expected to be taxed by another jurisdiction in which the Group operates, until the IIR is also implemented by Switzerland. Considering the
circumstances under which the Group has to operate due to the ongoing war in Ukraine, it is currently impossible to reasonably forecast the
profit split by jurisdiction for the financial year 2024 and beyond.
Based on the profit split for the financial year 2023 and considering the effects from the QDMTT and the IIR under the BEPS Pillar Two GloBE
Model Rules, the impact on the Group’s income tax expense is expected to be insignificant.
The Group’s future effective tax rate, before any special items included in the profit before tax for the period and the income tax expense, is
expected to be in a range of 16.0% to 19.0%. The Group’s effective tax rate is also dependent on the volatility in the global iron ore pellet market
and on foreign exchange rate movements, primarily between the Ukrainian hryvnia and the US dollar, and any one-off events, such as
impairment losses that might not be tax deductible in some jurisdictions.
Note 12: Earnings per share and dividends paid and proposed
Accounting policy
Basic number of Ordinary Shares outstanding
The basic number of Ordinary Shares is calculated by reducing the total number of Ordinary Shares in issue by the weighted average of shares
held in treasury and employee benefit trust reserve. The basic earnings per share (“EPS”) are calculated by dividing the net profit for the year
attributable to ordinary equity shareholders of Ferrexpo plc by the weighted average number of Ordinary Shares.
Dilutive potential Ordinary Shares
The dilutive potential Ordinary Shares outstanding are calculated by adjusting the weighted average number of Ordinary Shares in issue on the
assumption of conversion of all potentially dilutive Ordinary Shares. All share awards that are potentially dilutive are considered in the calculation
of diluted earnings per share.
Distributable reserves
Ferrexpo plc (the “Company”) is the Group’s holding company, with no direct operating business, so its ability to make distributions to its
shareholders is dependent on its ability to access profits held in the subsidiaries. The Group’s consolidated retained earnings shown in the
consolidated statement of changes in equity do not reflect the profits available for distribution in the Group as at 31 December 2023.
Year ended Year ended
31.12.23 31.12. 22
(Loss)/earnings for the year attributable to equity shareholders – per share in US cents
Basic
(14.41)
37.41
Diluted
(14.41)
37.35
(Loss)/profit for the year attributable to equity shareholders – US$000
Basic and diluted (loss)/earnings
(84,753)
219,997
Weighted average number of shares – thousands
Basic number of Ordinary Shares outstanding
588,274
588,017
Effect of dilutive potential Ordinary Shares
8,847
931
Diluted number of Ordinary Shares outstanding
597,121
588,948
192
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 12: Earnings per share and dividends paid and proposed continued
Dividends proposed and paid
The Group announced on 18 January 2024 an interim dividend of 3.3 US cents, which was due for payment to the shareholders on 23 February
2024. Following subsequent and unexpected events in Ukraine relating to a claim against one of the Group’s Ukrainian subsidiaries (see Note 30
Commitments, contingencies and legal disputes for further information), the Group announced on 20 February 2024 the decision to withdraw the
interim dividend. Taking into account the provisions of the Companies Act 2006 and relevant thin capitalisation rules, the total available
distributable reserves of Ferrexpo plc is US$119,520 thousand as at 31 December 2023 (2022: US$118,624 thousand).
Future distributable reserves at the Ferrexpo plc level are also dependent on the payment of dividends by the subsidiaries to the respective parent
companies within the Group. Distributable profits at subsidiaries’ level are also subject to potential impairment losses to be or already recorded in the
respective stand-alone statutory financial statements as a result of war-related uncertainties. Certain Group companies are currently restricted from
paying dividends outside of Ukraine as a result of Ukrainian currency control measures imposed under Martial Law. Furthermore, the uncertainties
related to the political environment and the independence of the legal system and other circumstances facing the Group (see Note 30 Commitments,
contingencies and legal disputes) could also have a negative impact on Ferrexpo plc’s ability and potential for future dividend payments. As at
31 December 2023, one of the Group’s subsidiaries in Ukraine recognised provisions for legal disputes totalling US$128,050 thousand reducing the
distributable profits of this subsidiary by this amount. Although this subsidiary still has a considerable amount of distributable profits, an outflow of
funds in this amount would have an adverse impact on the Group’s available liquidity for potential future dividend payments.
US$000
Year ended
31.12.23
Dividends paid during the year
Dividends on vested awards
456
Total dividends paid during the year
456
Dividends paid during the financial year 2023 totalled US$456 thousand and related to the Group’s share-based scheme. Further information is
provided in the remuneration report.
Although accounts are published in US dollars and dividends are declared in US dollars, the shares are denominated in UK pounds sterling and
dividends are therefore paid in UK pounds sterling.
US$000
Year ended
31.12. 22
Dividends paid during the year
Final dividend for 2021: 6 .6 US cents per Ordinary Share
38,679
Interim dividend for 2022: 13.2 US cents per Ordinary Share
76,899
Interim dividend for 2021: 6.6 US cents per Ordinary Share
39,517
Total dividends paid during the year
155,095
Note 13: Property, plant and equipment
Accounting policy
Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses. Such cost includes the
cost of replacing part of the property, plant and equipment and borrowing costs for qualifying assets (see below) if the recognition criteria are
met. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads.
Major spare parts, stand-by and servicing equipment qualify as property, plant and equipment when they are expected to be used during more
than one period. Expenditure incurred after the assets have been put into operation, such as repairs and maintenance and overhaul costs, are
charged to the consolidated income statement in the period the costs are incurred unless it can be demonstrated that the expenditure results in
future economic benefits, when the expenditure is capitalised as an additional cost.
Upon recognition, items of property, plant and equipment are divided into components, which represent items with a significant value that have
different useful lives. Assets included in property, plant and equipment are depreciated over their estimated useful life taking into account their
own physical life limitations and the present assessment of economically recoverable reserves of the mine property at which the assets are
located. The remaining useful lives for major assets are reassessed on a regular basis. Mining assets are depreciated using the unit of production
method. Changes in expected resources, which affect the unit of production calculations, are accounted for prospectively.
Except for mining assets, which are depreciated using the unit of production method, depreciation is calculated on a straight-line basis over
the estimated useful life of the asset, as follows:
– Buildings: 20–50 years
– Vessels: 8–40 years
– Plant and equipment: 3–15 years
– Vehicles: 7–15 years
– Fixtures and fittings: 2.5–10 years
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
193
Ferrexpo plc Annual Reports & Accounts 2023
Note 13: Property, plant and equipment continued
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from
the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in the consolidated income statement in the period the item is derecognised.
Assets in the course of construction are initially recognised in assets under construction. Assets under construction are not depreciated.
On completion of the asset and when available for use, the cost of construction is transferred to the appropriate asset category in property,
plant and equipment and depreciation commences.
Freehold land is not depreciated.
Deferred and capitalised stripping costs
Rock, soil and other waste materials are typically to be removed to access an ore body, which is known as stripping activity. Stripping work
comprises overburden removal at pre-production, mine extension and production stages.
Stripping costs are deferred and capitalised if related to gaining improved access to an identified component of an ore body to be mined in
future periods. The capitalised amount is determined based on the volume of waste extracted, compared with expected ore volume in the
identified component of the ore body.
Pre-production stripping costs incurred in the development of a component of a mine before commercial production commences are capitalised
as part of assets under construction. After the commencement of commercial production, the respective capitalised pre-production stripping
costs are transferred to mining assets and depreciated over the life of the respective component of the ore body on a unit of production
(“UOP”) basis.
Production stripping costs are generally charged to the consolidated income statement as variable production costs unless these costs are
related to gaining improved access to an identified component of the ore body to be mined in future periods. Such production stripping costs
are capitalised within mining assets provided all the following conditions are met:
– it is probable that the future economic benefit associated with the stripping activity will be realised;
– the component of the ore body for which access has been improved can be identified; and
– the costs relating to the stripping activity associated with the improved access can be reliably measured.
Once the commercial production of the specific component of the ore body commences, the capitalised production stripping costs are
depreciated on a UOP basis over the life of the respective identified component.
Mining assets
Any capitalised stripping activities, either of a pre-production or production nature, are reclassified to mining assets at the point of time when
the extraction of the ore body of the specific component starts. Mining assets are depreciated using the UOP method based on the estimated
economically recoverable reserves to which they relate.
Exploration and evaluation assets
Costs incurred in relation to the exploration and evaluation of potential iron ore deposits are capitalised and classified as tangible or intangible
assets depending on the nature of the expenditures. Costs associated with exploratory drilling, researching and analysing of exploration data
and costs of pre-feasibility studies are included in tangible assets whereas those associated with the acquisition of licences are included
in intangible assets.
Capitalised exploration and evaluation expenditures are carried forward as an asset as long as these costs are expected to be recouped in full
through successful development and exploration in a future period.
Exploration and evaluation assets are measured at cost and are neither amortised nor depreciated, but monitored for indications of impairment.
To the extent that the capitalised expenditures are not expected to be recouped, the excess is fully provided for in the financial year in which this
is determined.
Upon reaching the development stage, exploration and evaluation assets are either transferred to assets under construction or other intangible
assets, if those costs were associated with the acquisition of licences.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time
to get ready for its intended use or sale (“qualifying asset”) are capitalised as part of the cost of the respective asset. All other borrowing costs
are expensed in the period they occur. Borrowing costs consist of interest and other costs incurred in connection with the borrowing of the
funds. In the case of general borrowings used to fund the acquisition or construction of a qualifying asset, the borrowing costs to be capitalised
are calculated based on a weighted average interest rate applicable to the relevant general borrowings of the Group during a specific period.
Impairment testing
Property, plant and equipment is considered to be part of a single cash-generating unit (“CGU”). The recoverable amount of the CGU is
determined to be the fair value less cost of disposal. The Group assesses at each reporting date whether there are indications that assets may
be impaired or previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group
estimates the assets’ recoverable amounts. If the carrying amount of an asset exceeds its recoverable amount, the asset is considered to be
impaired and is written down to its recoverable amount. Impairment losses are recognised in the consolidated income statement.
A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognised. In this case, the carrying amount of the asset is increased to its recoverable amount, but
not exceeding the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset
in prior years. Such reversal is recognised in the consolidated income statement and the basis for future depreciation is adjusted accordingly.
194
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 13: Property, plant and equipment continued
Critical estimates
As at the date of the approval of these consolidated financial statements, the war in Ukraine is still ongoing and the duration is difficult to predict.
During the financial year 2023, the Group continued to demonstrate a high level of commitment and resilience that enabled it to operate at a
constant, but lower capacity, with a high degree of flexibility to adapt its operations to changing circumstances.
The ongoing war continues to have an adverse impact on the Group’s production volume and cash flow generation and it is expected that this
will continue to be the case until the war comes to an end. The unavailability of the Port of Pivdennyi in Ukraine had a significant adverse impact
on the Group’s seaborne sales and consequently on its cash flow generation during the financial year 2023.
The Group’s impairment test is based on cash flow projections over the remaining estimated lives of the GPL and the Yerystivske deposits, which
are expected to expire in 2058 and 2048, respectively, according to the current approved mine plans. The cash flow projection is based on a
financial long-term model approved by senior management and the estimated future production volumes do not take into account the effects of
expected future mine life extension programmes. Several significant judgements and estimates are used when preparing the financial long-term
model of the Group, which are, together with the key assumptions used, reviewed by the Audit Committee with specific consideration given to
the realistically plausible production volumes in light of the current situation in the country, sales price and production cost forecasts as well as
the discount rate used to discount the cash flows.
The long-term model was updated in January 2024 using management’s best estimate of reasonably conservative key assumptions, taking also
into account the current circumstances the Group has to operate in. In terms of the key assumptions used, an average iron ore price of US$105
per tonne of 65% Fe fines CFR North China was used in the assumptions for the cash flow projection for the next five years. When assessing
its expected future long-term selling price, the Group considers external and internal analysis of the short-term and longer-term supply and
demand dynamics on the international market for iron ore products as well as more specific local supply and demand balances affecting its
major customers. The level of the Group’s production remains predominantly dependent on the access to logistic routes within Ukraine as the
production volume is still to be aligned to currently possible sales to minimise working capital outflow and maintain a solid net cash position.
As a result, the production capacity used for the base-case cash flow projection is expected to be approximately 45% of the pre-war level for
the financial year 2024, before an increase to approximately 80% in 2025 and an expected recovery to pre-war levels in 2026. The increase of
the future production capacity planned for years covered by the long-term model before the war started has been adversely affected as the
work on certain growth projects had to be slowed down or even halted to preserve the Group’s available liquidity in light of the lower cash flow
generation. There is no perpetual growth rate applied for the cash flow projections beyond the last year covered by the Group’s long-term model.
Expected production and shipping costs are determined by considering local inflationary pressures, major exchange rate developments between
the Ukrainian hryvnia and the US dollar, the short-term and longer-term trends in energy supply and demand and the expected movements in
steel-related commodity prices, which affect the cost of certain production input materials. An average devaluation of the hryvnia of 6.5% per
year was assumed over the next five years in the Group’s cash flow projection, with the expected local inflation having an offsetting effect.
The key assumptions used for the preparation of the Group’s long-term model are:
Key assumptions
Basis
Future sales and production
Proved and probable reserves and available logistics capacity and power
supply
Commodity prices
Contract prices and longer-term price estimates
Capital expenditures
Future sustaining capital expenditures
Cost of raw materials and other production/distribution costs
Expected future cost of production
Exchange rates
Longer-term predictions of market exchange rates
Nominal pre-tax discount rate
Cost of capital risk adjusted for the resource concerned
The outcome of the Group’s impairment test is predominantly dependent on the forecasted cash flow generation and the nominal pre-tax discount
rate to be applied. The WACC of 23.0% (31 December 2022: 23.4%) is still significantly higher than the pre-war WACC of 13.8% as at 31 December
2021 and reflects the current situation in the country as underlying macro-economic data is still adversely affected by the war in Ukraine. Based
on the base case of the Group’s impairment test prepared for the 2023 year-end accounts, there is no additional impairment loss on the Group’s
single cash-generating unit’s operating non-current assets, including property, plant and equipment as well as other intangibles assets and other
non-current assets, to be recognised as at 31 December 2023. The key assumptions in respect of production and sales volumes, and of production
costs, are largely dependent on the easing of the war-related risks facing the Group’s business in Ukraine, and therefore a wide range of alternative
outcomes are possible, reflecting a high level of uncertainty.
A delay of the recovery of the production and sales volumes to a pre-war level by another year, with all other assumptions remaining unchanged,
would reduce the value in use of the Group’s non-current operating assets by approximately US$393,500 thousand. A reduction of the realised
price by 10% in 2024 and 5% for each year until 2048 would reduce the value in use by approximately US$227,100 thousand and a decrease
of the production and sales volume by 10%, combined with an increase of the production costs by 5%, again for the entire period of the
assessment, would would reduce the value in use by approximately US$274,300 thousand whereas every 1.0% increase of the nominal pre-tax
discount rate would impact the value in use by approximately US$52,600 thousand, with all other assumptions remaining unchanged.
As at the end of the comparative year ended 31 December 2022, the Group recorded an impairment loss of US$254,477 thousand, reflecting
the difference between the computed value in use of the Group’s non-current operating assets and the carrying value as at this date. Of the total
impairment loss recorded, US$219,931 thousand was allocated to various asset categories within property, plant and equipment, US$29,103
thousand to Goodwill and other intangible assets (see Note 15 Goodwill and intangible assets) and US$5,443 thousand to other non-current
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
195
Ferrexpo plc Annual Reports & Accounts 2023
Note 13: Property, plant and equipment continued
assets (see Note 16 Other non-current assets). The impairment losses recorded during the financial year 2022 will be re-assessed again
at the end of any future reporting periods. If there are positive developments in the Group’s future cash flow generation and the relevant
macro-economic data, the impairment loss or a portion of it might reverse in future periods. Conversely, an adverse change in the above
key assumptions might further reduce the value in use of the Group’s operating non-current assets. As at 31 December 2023, there is no
partial or full reversal of the impairment loss recognised during the financial year 2022 to be recorded.
As disclosed in Note 2 Basis of preparation and Note 30 Commitments, contingencies and legal disputes, the Group announced on
29 January 2024 that a Ukrainian court of appeal has confirmed a claim against Ferrexpo Poltava Mining (“FPM”) in the amount of UAH4,727
million (US$124,450 thousand as at 31 December 2023), in respect of contested sureties. Despite the fact that it is management’s view that
FPM has compelling arguments to defend its position in the Supreme Court of Ukraine, given the magnitude of this specific claim and the
underdeveloped and fragile judicial system in Ukraine, the Group recorded a full provision for this claim as at 31 December 2023 in accordance
with IAS 37 Provisions, contingent liabilities and contingent assets. If the ruling of the Supreme Court is not in favour of FPM, there is a risk that
some of the Group’s property, plant and equipment will be seized or subject to a forced sales process as part of the enforcement proceedings.
Although the Group has recognised a provision for the full amount of the contested sureties claim, there is a risk that any assets subject to
seizure or a forced sales process are valued at an amount which is different than their current carrying values as at 31 December 2023. Note 2
Basis of preparation provides further information in terms of the possible implications on the Group’s ability to continue as a going concern.
As at 31 December 2023, property, plant and equipment comprised:
Exploration Buildings Assets
and Mining and tailings Plant and Fixtures under
US$000
evaluation
Land
assets
dam
Vessels
equipment
Vehicles
and fittings
construction
Total
Cost:
At 1 January 2022
1,665
10,530
276,560
269,900
131,501
443,491
264,822
10,881
458,086
1,867,4 36
Additions
258
155
1,316
19
6,334
179
217
9
191,842
200,329
Transfers
–
77
–
17,147
83
55,498
17,147
880
(90,832)
–
Disposals
–
–
–
(635)
(1)
(778)
(1,208)
(679)
(22, 274)
(25,575)
Translation differences
(424)
(2,694)
(70,261)
(69,225)
(5,340)
(111,360)
(55,115)
(2,223)
(123,629)
(440,271)
At 31 December 2022
1,499
8,068
207,615
217, 20 6
132,577
3 87,0 3 0
225,863
8,868
413,19
3
1,601,919
Additions
−
171
−
118
−
1,416
2,901
48
107,439
112 ,093
Transfers
−
73
121,058
49,253
2,439
2 9,168
2,749
174
(204,914)
−
Disposals
−
−
(2,453)
(1,714)
5
(1,000)
(162)
(94)
(1,366)
(6,784)
Translation differences
(56)
(306)
(12,329)
(9,240)
2,870
(13,577)
(6,484)
(233)
(12,237)
(51,592)
At 31 December 2023
1,443
8,006
313,891
255,623
137,8 91
403,037
224,867
8,763
302 ,115
1,655,636
Accumulated depreciation and impairment:
At 1 January 2022
–
17
79,035
110, 26 4
77,715
218,229
152,478
6,138
6,867
650,743
Depreciation charge
–
19
4,030
17,276
4,242
40,949
26,714
932
–
94,162
Disposals
–
–
–
(253)
–
(949)
(986)
(365)
(223)
(2,776)
(Write-backs)/write-offs and
impairments
–
–
34,320
24,398
9,881
46,439
21,037
16
91,054
2
27,145
Transfers of impairments
–
–
−
2,020
−
877
1,022
33
(3,952)
−
Translation differences
–
–
(27,807)
(35,112)
(2,708)
(58,317)
(32,10
9)
(1,104)
(18,059)
(175,216)
At 31 December 2022
–
36
89,578
118,593
89,130
247,228
168,156
5,650
75,687
794,058
Depreciation charge
−
3
1,554
9,271
4,433
28,302
14,509
816
−
58,888
Disposals
−
(16)
−
(1,593)
−
(733)
(132)
(90)
(4)
(2,568)
(Write-backs)/write-offs and
impairments
−
−
−
262
−
28
248
(2)
1,361
1,897
Transfers of impairments
−
−
21,576
8,951
−
5,388
532
35
(36,482)
−
Translation differences
−
−
(3,890)
(4,891)
1,614
(8,766)
(4,712)
(144)
(1,884)
(22,673)
At 31 December 2023
−
23
108,818
130,593
95,177
271,447
178,601
6,265
38,678
829,602
Net book value:
At 31 December 2022
1,499
8,032
118,037
98,613
43,447
139,802
57,707
3,218
337, 5 0 6
807,861
At 31 December 2023
1,443
7,983
205,073
125,030
42,714
131,590
46,266
2,498
263,437
826,034
19 6
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 13: Property, plant and equipment continued
Assets under construction consist of ongoing capital projects amounting to US$227,206 thousand (2022: US$225,885 thousand) and capitalised
pre-production stripping costs of US$36,231 thousand (2022: US$111,621 thousand) for components of ore bodies expected to be put into
operation in future periods only. Once the extraction of ore commences in relation to these ore bodies, the capitalised stripping costs are
transferred to mining assets and the depreciation commences.
As at the end of the comparative year ended 31 December 2022, the Group recorded an impairment loss within property, plant and equipment
of US$219,931 thousand, of which US$84,624 thousand was allocated to assets under construction. On completion of the assets and when put
into operation, the costs of constructions are transferred to the appropriate asset categories in property, plant and equipment along with the
associated impairment losses.
Deferred pre-production stripping costs in the amount of US$243,767 thousand relate to components of the ore bodies put into operation and
are included in mining assets (2022: US$111,608 thousand). No production stripping costs are capitalised as of this point in time.
Property, plant and equipment includes a total of capitalised borrowing costs on qualifying assets of US$32,110 thousand (2022: US$35,694
thousand). With the exception of lease liabilities, the Group does not have any outstanding interest-bearing loans and borrowings and borrowing
costs are therefore no longer capitalised.
The gross value of fully depreciated property, plant and equipment that is still in use is US$146,917 thousand (2022: US$103,553 thousand).
See Note 2 Basis of preparation in respect of the impact of climate change on the Group’s financial statements.
Note 14: Leases
Accounting policy
The Group leases buildings, equipment and land not used for the direct extraction of ore. The leases for land used for the extraction of ore are
not within the scope of IFRS 16 according to the scope exemptions set out in the standard.
The right-of-use assets and corresponding lease liabilities recognised as at 31 December 2023 primarily refer to long-term rental contracts for
several of the Group’s office premises with rental periods of five to ten years, leased equipment and land not used for the direct extraction of ore.
The lease agreements for land in Ukraine are with the Ukrainian government and have typically a duration of up to 49 years requiring land lease
payments in the form of rental taxes based on annually determined rates by the government. Consequently, related right-of-use assets and lease
liabilities are recognised over a lease term of 12 months only, reflecting the period over which substantially fixed lease payments are expected.
Beyond this period, payments are subject to non-market driven changes in either the normative value of land and/or in the rental tax rate and are
disclosed as commitments as they cannot be considered in-substance fixed payments or as variable lease payments that depend on an index
or a rate.
Right-of-use assets
The right-of-use asset is recognised at the commencement date of the lease (when the asset is ready for use) and initially measured at cost.
The cost includes the balance of the lease liability recognised, initial direct costs and lease payments made at or before the commencement
date.
In subsequent periods, the value of the right-of-use assets is adjusted for accumulated depreciation, impairment losses and remeasurement
of the lease liability, if any. The depreciation is on a straight-line basis over the shorter of the estimated useful life of the underlying asset and
the lease term.
Payments for short-term leases or leases for assets of a low value are recognised as an expense on a systematic basis over the lease term.
Lease liabilities
At the commencement date, lease liabilities are measured at the net present value of the remaining lease payments, discounted using the
interest rate implicit in the lease or, when not available, the incremental borrowing rate computed for a group of leases with similar characteristics
as regards to type of asset, lease term, contract currency and economic environment.
The carrying amount of the lease liabilities is subsequently increased to reflect the interest on the lease liability and decreased by the lease
payments made during the period. Lease payments are split between principal elements and interest and are allocated to net cash flows from
financing activities and operating activities, respectively. The carrying amount is subject to remeasurement in subsequent periods to reflect any
lease modifications.
Commitments
Future minimum rental payments
These commitments relate to leases under the scope of IFRS 16 to which the lessee is committed, but not commenced.
Future commitments for contingent rental payments
These commitments include future cash flows dependent on non-fixed rates related to the long-term portion of leases of land not used for the
direct extraction of ore and accounted for under IFRS 16, whereas the short-term portion is recognised as a lease liability in the statement of
financial position.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
197
Ferrexpo plc Annual Reports & Accounts 2023
Note 14: Leases continued
As at 31 December 2023, the net book value of the right-of-use assets included in the consolidated statement of financial position and the
associated depreciation charge included in the consolidated income statement comprised:
Exploration Buildings Assets
and Mining and tailings Plant and Fixtures under
US$000
evaluation
Land
assets
dam
Vessels
equipment
Vehicles
and fittings
construction
Total
Net book value:
At 31 December 2022
–
4,375
–
1,967
–
–
–
–
−
6,342
At 31 December 2023
–
4,975
–
1,877
–
–
–
–
–
6,852
Depreciation charge:
Year ended 31 December 2022
–
3,633
–
1,093
–
708
–
2
−
5,436
Year ended 31 December 2023
–
4,400
–
728
–
–
–
–
–
5,128
During the year ended 31 December 2023, the additions to right-of-use assets totalled US$5,824 thousand (2022: US$5,034 thousand).
Leased assets and assets under hire purchase contracts are pledged as security for the related finance leases and hire purchase liabilities.
As at 31 December 2023, the carrying amount of the lease liabilities consisted of the following:
US$000
Year ended Year ended
Notes 31.12.23 31.12. 22
Non-current
26
1,009
1,354
Current
26
5,939
5,194
The total cash outflow for leases falling under the scope of IFRS 16 Leases during the year ended 31 December 2023 was US$5,562 thousand
(2022: US$6,103 thousand). During the year ended 31 December 2023, US$740 thousand was recognised as an expense in the consolidated
income statement in respect of short-term leases with a corresponding impact on the net cash flows from operating activities (2022: US$576
thousand). Furthermore, interest expense on lease liabilities in the amount of US$85 thousand was recognised in the consolidated income
statement during the year ended 31 December 2023 (2022: US$233 thousand).
Lease-related commitments for future contingent rental payments were US$118,124 thousand as at 31 December 2023 (2022: US$88,910
thousand).
Note 15: Goodwill and other intangible assets
Accounting policy
Goodwill
If the cost of acquisition in a business combination exceeds the identifiable net assets attributable to the Group, the difference is considered
as purchased goodwill, which is not amortised. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
For the detailed accounting policy on impairment testing see Note 13 Property, plant and equipment.
Impairment testing
The goodwill acquired through business combinations in previous periods has been allocated for impairment purposes to a single cash-
generating unit, as the Group only has one operating segment, being the production and sale of iron ore products. This represents the lowest
level within the Group at which goodwill is monitored for internal management purposes. See Note 13 Property, plant and equipment for
information on key assumptions used when preparing the Group’s long-term model used for the impairment test.
Goodwill is subject to an annual impairment review and a further review is made when indicators of impairment arise following the initial review.
An impairment loss recognised for goodwill is never reversed in a subsequent period. In the case that the identifiable net assets attributable to
the Group exceed the cost of acquisition, the difference is recognised in profit and loss as a gain on bargain purchase. For each business
combination, the Group measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s
identifiable net assets. If the initial accounting for a business combination cannot be completed by the end of the reporting period in which the
combination occurs, only provisional amounts are reported, which can be adjusted during the measurement period of 12 months after
acquisition date.
Exploration and evaluation assets
See the policy disclosed in Note 13 Property, plant and equipment.
Patents and licenses, computer software and other intangible assets
Patents and licenses, computer software and other intangible assets acquired separately are measured on initial recognition at cost and the
useful lives are assessed as either finite or indefinite. Following the initial recognition, the intangible assets are carried at cost less accumulated
amortisation and accumulated impairment losses. If amortised, the intangible assets are amortised on a straight-line basis over the estimated
useful life of the asset, ranging between one and three years. Capitalised mineral licences are amortised on a unit of production basis.
The cost of other intangible assets acquired in a business combination is its fair value as at the date of acquisition.
198
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 15: Goodwill and other intangible assets continued
As at 31 December 2023, goodwill and other intangible assets comprised:
Exploration Patents and Computer Other
US$000 Goodwill and evaluation licences software
intangible assets
Total
Cost:
At 1 January 2022
29,248
4,900
4,804
12,532
514
51,998
Additions
–
–
–
6
542
548
Disposals
–
–
(6)
(5)
(11)
(22)
Transfers
–
–
352
56
(408)
–
Translation differences
(1,908)
(1,266)
(1,216)
(2,906)
(140)
( 7,436)
At 31 December 2022
27, 3 4 0
3,634
3,934
9,683
497
45,088
Additions
–
–
–
5
116
121
Disposals
–
–
(11)
(21)
(386)
(418)
Transfers
–
–
8
47
(55)
–
Translation differences
(782)
(138)
(124)
(268)
(10)
(1,322)
At 31 December 2023
26,558
3,496
3,807
9,446
162
43,469
Accumulated amortisation and impairment:
At 1 January 2022
–
932
1,821
5,647
12
8,412
Amortisation charge
–
–
308
1,543
–
1,851
Write-offs and impairments
27, 3 40
709
–
1,054
–
29,10
3
Disposals
–
–
(6)
(96)
(11)
(113)
Translation differences
–
(399)
(406)
(1,608)
(1)
(2,414)
At 31 December 2022
27, 3 4 0
1,242
1,717
6,540
–
36,839
Amortisation charge
–
–
284
1,091
–
1,375
Write-offs and impairments
–
–
–
–
–
–
Disposals
–
–
(13)
(26)
–
(39)
Translation differences
(782)
(50)
(52)
(190)
–
(1,074)
At 31 December 2023
26,558
1,192
1,936
7,415
–
37,101
Net book value:
At 31 December 2022
–
2,392
2,217
3,143
497
8,249
At 31 December 2023
–
2,304
1,871
2,031
162
6,368
Impairment testing
The impairment test performed as at 31 December 2023 did not result in an additional impairment loss compared to an impairment loss of
US$254,477 thousand recorded on the Group’s operating non-current assets as at 31 December 2022. Of this impairment loss, US$27,340
thousand was allocated to the goodwill, which was fully impaired at this point of time, and US$1,763 thousand to various asset categories
within intangible assets. See Note 13 Property, plant and equipment for detailed information on the Group’s impairment test performed as
at 31 December 2023.
Sensitivity to changes in assumptions
The goodwill was fully impaired as of the end of the comparative year ended 31 December 2022 and, under the relevant accounting standard,
this impairment loss will not reverse in a future period. See Note 13 Property, plant and equipment on pages 194 and 195 in terms of the impact
of changes in key assumptions on the impairment in future periods.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
199
Ferrexpo plc Annual Reports & Accounts 2023
Note 16: Other non-current assets
As at 31 December 2023, other non-current assets comprised:
US$000
As at As at
31.12.23 31.12. 22
Prepayments for property, plant and equipment
32,871
32,184
Other non-current assets
5,233
5,267
Total other non-current assets
38,104
37,4 51
Prepayments for property, plant and equipment net of a total impairment loss of US$5,443 thousand, which is the result of a proportional allocation
of the total impairment loss to this asset category during the comparative year 2022. This impairment is caused by the Russian invasion into Ukraine
in February 2022, resulting in a significant lower cash flow generation of the Group. The impairment test performed as at 31 December 2023 did not
result in an additional impairment loss. See Note 13 Property, plant and equipment for further information.
Other non-current assets include a prepayment of US$5,000 thousand in relation to an investment in a joint venture with an expected closing
date of the transaction once Martial Law is lifted in Ukraine.
Note 17: Inventories
Accounting policy
Inventories are stated at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and condition are accounted for as follows:
– Raw materials – at cost on a first-in, first-out basis.
– Finished goods and work in progress – at cost of direct materials and labour and a proportion of manufacturing overheads based on normal
operating capacity, but excluding borrowing costs.
– Low-grade and weathered ore – at cost, if lower than net realisable value.
The net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion (conversion into
pellets or concentrate) and the estimated costs necessary to sell the product or goods.
Major spare parts and servicing equipment that meet the definition of property, plant and equipment are, in accordance with IAS 16, included
in property, plant and equipment and not in inventory.
At 31 December 2023, inventories comprised:
US$000
As at As at
31.12.23 31.12. 22
Raw materials and consumables
47,302
51,437
Spare parts
88,000
91,334
Finished ore pellets
45,040
52,625
Work in progress
18,844
25,832
Other
2,243
3,226
Total inventories – current
201,429
224,454
Weathered ore
5,883
6,277
Total inventories – non-current
5,883
6,277
Total inventories
207,312
230,731
Inventories classified as non-current comprised low-grade and weathered ore that were, based on the Group’s processing plans, not planned
to be processed within the next 12 months. The balances of weathered ore as at 31 December 2023 and 2022 are net of impairment losses of
US$231,111 thousand recorded as at 31 December 2021, as it could not be reliably predicted when additional processing capabilities will be available
to specifically process the stockpiled low-grade and weathered ore. The stockpiled low-grade ore is still considered as an asset for the Group and
some or all of the impairment losses might reverse in the future, once changed facts and circumstances can be considered in the net realisable
value test of this asset. However, the ongoing war in Ukraine makes it currently difficult to accelerate the commenced engineering studies for the
exploration of possible options for new processing capabilities for the specific purpose of processing low-grade ore, so that there are no changes
in facts and circumstances to be considered as at 31 December 2023.
During the comparative year ended 31 December 2022, low-grade ore totalling US$9,690 thousand was extracted and directly recognised in
the consolidated income statement, included in the cost of sales. No such ore was extracted during the year ended 31 December 2023, also
a result of the lower mining activity due to the ongoing war and the reduced operating activity.
As disclosed in Note 2 Basis of preparation and Note 30 Commitments, contingencies and legal disputes and, there is a risk that some of
the Group’s inventories are seized or subject to a forced sales process, if enforcement procedures in respect of an ongoing legal dispute
commence. Although the Group has recognised a provision for the full amount of the contested sureties claim, there is a risk that the future
net realisable value of potentially seized finished goods subject to any potential seizure or forced sales process is different than the value
recognised at cost in the consolidated financial statements as at 31 December 2023.
200
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 18: Trade and other receivables
Accounting policy
Trade receivables are non-derivative financial assets initially measured at fair value. Due to their short maturity, the fair value of trade receivables
approximates their carrying amount, which is stated at original invoice amount less an allowance for expected credit losses. The Group
measures the loss allowance at an amount equal to the lifetime expected credit losses of its customers based on publicly available default risk
ratings adjusted for current observable circumstances, forecast information and past history of credit losses. All of the Group’s receivable
balances are classified as current based on the agreed terms and conditions and the Group has no history of credit losses. Therefore, the Group
measures the lifetime expected credit losses of its customers as the 12-month expected credit losses. Individual balances are written off when
management deems that there is no possibility of recovery.
Trade receivables include provisionally priced sales, which are open at the end of the reporting period. Certain contracts have embedded
provisional pricing mechanisms, which have the character of commodity derivatives that are carried at fair value through profit and loss. For
further information on the Group’s contracts with customers see Note 6 Revenue. Revenues on these contracts are initially recognised at the
estimated fair value of consideration receivable, based on the contractual price, and adjusted at the end of each subsequent reporting period on
the basis of changes in iron ore prices and the specific underlying contract terms. Final prices based on the relevant index are normally known
within 60 days after the reporting period. Further information on the fair value of the embedded provisional pricing mechanism at 31 December
2023 is disclosed in Note 27 Financial instruments.
At 31 December 2023, trade and other receivables comprised:
US$000
As at As at
31.12.23 31.12. 22
Trade receivables
76,586
28,838
Other receivables
18,765
4,559
Expected credit loss allowance
(13,030)
(8,698)
Total trade and other receivables
82,321
24,699
As trade receivables are non-interest bearing and final invoices are generally settled within 90 days after delivery, contracts with customers are not
deemed to contain a significant financing component.
Trade receivables at 31 December 2023 include US$3,196 thousand (2022: US$3,284 thousand) owed by related parties. The detailed related
party disclosures are made in Note 34 Related party disclosures.
The movement in the expected credit loss allowance for trade and other receivables during the year under review was:
US$000
Year ended Year ended
31.12.23 31.12. 22
Opening balance
8,698
3,031
Increase
4,585
7, 20 5
Release
(182)
(987)
Translation differences
(71)
(551)
Closing balance
13,030
8,698
During the financial year 2023 and the comparative year 2022, there was no movement in the expected credit loss allowance for trade and other
receivables relating to lifetime expected credit losses and credit impaired assets.
The following table shows the Group’s receivables at the reporting date that are subject to credit risk using a provision matrix:
Days past due
As at 31.12.23 Less than 45 to 90 Over 90
US$000 Current 45 days days
days
Total
Expected loss rate
0.8%
1.6%
3.3%
76.7%
13.7%
Trade receivables – gross carrying amount
52,014
11,542
1,808
11,222
76,586
Other receivables – gross carrying amount
3,815
2
10,533
4,415
18,765
Expected credit loss allowance
442
179
408
12,001
13,030
Despite the higher outstanding balance of trade receivables as at 31 December 2023, the expected credit loss rate decreased due to the lower
default risk ratings of the Group’s customers, but is still affected by the heightened Ukraine country risk. The rate as at the end of the comparative
year ended 31 December 2022 was primarily affected by the heightened Ukraine country risk as a consequence of the war in the country.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
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Ferrexpo plc Annual Reports & Accounts 2023
Note 18: Trade and other receivables continued
Days past due
As at 31.12.22 Less than 45 to 90 Over 90
US$000 Current 45 days days
days
Total
Expected loss rate
2.5%
16.8%
25.3%
87. 2%
26.0%
Trade receivables – gross carrying amount
17,056
2,541
1,359
7,882
28,838
Other receivables – gross carrying amount
3,943
1
1
614
4,559
Expected credit loss allowance
519
426
344
7,4 0 9
8,698
The change of the balance of impairment losses on trade receivables recognised in the consolidated income statement as at 31 December 2023
and during the comparative year ended 31 December 2022 was not material and therefore not disclosed separately in the consolidated income
statement. For further information see the table above.
The Group’s exposures to credit, currency and commodity risks are disclosed in Note 27 Financial instruments.
Note 19: Prepayments and other current assets
As at 31 December 2023, prepayments and other current assets comprised:
US$000
As at As at
31.12.23 31.12. 22
Prepayments to suppliers:
Electricity and gas
6,013
2,387
Materials and spare parts
4,385
939
Services
7,075
7,442
Other prepayments
185
211
Prepaid expenses
3,598
2,312
Other
124
61
Total prepayments and other current assets
21,380
13,352
Prepayments at 31 December 2023 include US$513 thousand (2022: US$865 thousand) made to related parties. The detailed related party
disclosures are made in Note 34 Related party disclosures.
Freight costs in the amount of US$169 thousand were included in the balance of prepaid expenses at the beginning of the year and recognised
in the consolidated income statement during the year ended 31 December 2023 (2022: US$7,443 thousand).
Note 20: Other taxes recoverable and payable
Accounting policy
Value added tax
Revenues, expenses and assets are recognised net of the amount of value added tax (“VAT”), except:
– where VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case VAT is recognised
as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
– receivables and payables are stated with the amount of VAT included.
VAT receivable balances are not discounted unless the overdue balances are expected to be received after more than 12 months following the
year end.
As at 31 December 2023, other taxes recoverable comprised:
US$000
As at As at
31.12.23 31.12. 22
VAT receivable
25,639
79,064
Other taxes prepaid
652
9,698
Total other taxes recoverable and prepaid
26,291
88,762
202
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 20: Other taxes recoverable and payable continued
The table below provides a reconciliation of the VAT receivable balance in Ukraine:
US$000
Year ended Year ended
31.12.23 31.12. 22
Opening balance, gross
76,387
46,963
Net VAT incurred
66,987
121,369
VAT refunds received in cash
(115,348)
(65,149)
Translation differences
(922)
(26,796)
Closing balance, gross
27,104
76,387
Allowance
(3,18
8)
(499)
Closing balance, net
23,916
75,888
There were no VAT balances overdue as at 31 December 2023 (2022: 47,149 thousand). The vast majority of the outstanding VAT balance as of
31 December 2023 was collected in full in January and February 2024. Regular refunds in future period do also depend on the situation in Ukraine
and how the country is going to cope with the state budget constraints as a result of the ongoing war.
The Group’s subsidiaries in Ukraine received generally regular refunds during the financial year 2023 after the automated VAT refund regime
resumed again in October 2022. Following the Russian invasion into Ukraine in February 2022, the VAT refunds were suspended and the Group’s
outstanding VAT balance peaked at US$108,846 thousand as at 31 October 2022. From the total VAT refunds of US$115,348 thousand received
during the financial year 2023, US$54,180 thousand related to the financial year 2022.
The recorded allowance of US$3,188 thousand (2022: US$499 thousand) is related to uncertainties in terms of the timing of the recovery of VAT
receivable balances for the Group’s Ukrainian subsidiaries.
As at 31 December 2023, other taxes payable comprised:
US$000
As at As at
31.12.23 31.12. 22
Environmental tax
341
269
Royalties
3,695
951
VAT payable
253
146
Other taxes
4,536
3,792
Total other taxes payable
8,825
5,158
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
203
Ferrexpo plc Annual Reports & Accounts 2023
Note 21: Trade and other payables
Accounting policy
Trade and other payables are not interest-bearing, being generally short-term, and are stated at their original invoice amount.
As at 31 December 2023, trade and other payables comprised:
US$000
As at As at
31.12.23 31.12. 22
Materials and services
25,898
18,856
Payables for equipment
9,182
11,441
Other
230
212
Total current trade and other payables
35,310
30,509
Trade and other payables at 31 December 2023 include US$1,219 thousand (2022: US$2,301 thousand) due to related parties (see Note 34
Related party disclosures).
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 27 Financial instruments.
Note 22: Pension and post-employment obligations
Accounting policy
The defined benefit costs relating to the plans operated by the Group in the different countries are determined and accrued in the consolidated
financial statements using the projected unit credit method for those employees entitled to such payments. The underlying assumptions are
defined by management and the defined benefit pension liability is calculated by independent actuaries at the end of each annual reporting
period.
Remeasurements, comprising actuarial gains and losses, are immediately reflected in the statement of financial position. The corresponding
charge or credit is recognised in the other comprehensive income of the period in which it occurred and immediately reflected in retained
earnings as not reclassified to the consolidated income statement in subsequent periods.
The costs of managing plan assets are deducted from the return on plan assets reflected in other comprehensive income. All other scheme
administration costs are charged to the consolidated income statement. The net interest is calculated by applying the discount rate to the net
defined benefit pension liability or plan assets. Any past service costs are recognised in the consolidated income statement at the earlier of
when the plan amendment occurs or when related restructuring costs are recognised.
The service costs (including current and past) are included in cost of sales, selling and distribution expenses and general and administrative
expenses in the consolidated income statement whereas the net finance expenses are included in finance expenses. The effects from
remeasurements are recognised in other comprehensive income.
The defined benefit pension liability is the aggregate of the defined benefit obligation less plan assets of funded schemes. The Group operates
funded and unfunded schemes.
The Group’s expenses in relation to defined contribution plans are charged directly to the consolidated income statement.
The Group mainly operates defined benefit plans for qualifying employees of its subsidiaries in Ukraine and Switzerland. All local defined benefit
pension liabilities are calculated by independent actuaries applying accepted actuarial techniques. In addition to the aforementioned schemes,
the Group operates a defined benefit scheme in Austria and contribution plans for qualifying employees in the UK and in Singapore.
Details of the major defined benefit schemes in Ukraine and Switzerland are provided below:
Ukraine
The Group’s subsidiaries in Ukraine make defined contributions to the Ukrainian State Pension Scheme at statutory rates based on the gross
salary payments made to the employees. PJSC Ferrexpo Poltava Mining (“FPM”) and LLC Ferrexpo Yeristovo Mining (“FYM”) also have a legal
obligation to compensate the Ukrainian State Pension Fund for additional pensions paid to certain categories of its current and former
employees. All pension schemes in Ukraine are unfunded.
At 31 December 2023, the pension schemes in Ukraine covered 2,743 current employees (2022: 2,820 people) and there are 681 former
employees currently in receipt of pensions (2022: 707 people).
Switzerland
The employees of the Group’s Swiss operations are covered under a collective pension plan (multi-employer plan), which is governed in
accordance with the requirements of Swiss law. The funding, of which two-thirds is contributed by the employer and one-third by the employees,
is based on the regulations of the pension scheme and Swiss law. The pension scheme in Switzerland is funded and the assets of the pension
scheme are held separately from those of the Group and are invested with an insurance company. The accumulated capital of the employees is
subject to interests determined by the local legislation and defined in the regulations of the pension scheme.
204
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 22: Pension and post-employment obligations continued
On retirement, employees are entitled to receive either a lump sum or an annual proportion of their accumulated capital as a pension
underpinned by certain guarantees. The Group and the employees make contributions to the pension scheme as a percentage of the
insured salaries depending on the age of the employees.
At 31 December 2023, the Swiss pension scheme covered 20 people (2022: 19 people).
The principal assumptions used in determining the defined benefit obligation are shown below:
Year ended 31.12.23
Year ended 31.12.22
Ukrainian Swiss Ukrainian Swiss
schemes scheme schemes scheme
Discount rate
18.0%
1.5%
18.0%
2.3%
Retail price inflation
8.7%
1.5%
8.7%
1.5%
Expected future salary increase
8.5%
2.0%
7.3%
2.0%
Expected future benefit increase
8.5%
−
7. 3%
–
Female life expectancy (years)
79.8
89.6
79.8
89.5
Male life expectancy (years)
75.6
87.8
75.6
87.7
US$000
As at As at
31.12.23 31.12. 22
Present value of funded defined benefit obligation
5,011
3,754
Fair value of plan assets
(3,697)
(2,870)
Funded status
1,314
884
Present value of unfunded defined benefit obligation
15,204
15,572
Defined benefit pension liability
16,518
16,456
Thereof for Ukrainian schemes
15,064
15,463
Thereof for Swiss scheme
1,314
884
Thereof for schemes in other jurisdictions
140
109
Amounts recognised in the consolidated income statement or in other comprehensive income are as follows:
US$000
Year ended Year ended
31.12.23 31.12. 22
Defined benefit cost charged in the consolidated income statement:
Current service cost
887
1,098
Past service cost
(26)
(40)
Interest cost on defined benefit obligation
2,711
2,685
Interest income on plan assets
(71)
(7)
Administration cost
17
10
Total defined benefit costs charged in the consolidated income statement
3,518
3,746
Remeasurement (gains)/costs in consolidated statement of other comprehensive income:
Remeasurement effect from demographic assumptions
43
(137)
Remeasurement effect from financial assumptions
1,469
( 7,139)
Experience adjustment
(2,346)
1,528
Return on plan assets
(65)
412
Total remeasurement gains in other comprehensive income
(899)
(5,336)
Total defined benefit losses/(gains)
2,619
(1,590)
Thereof for Ukrainian schemes
1,980
(1,397)
Thereof for Swiss scheme
627
(201)
Thereof for schemes in other jurisdictions
12
8
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
205
Ferrexpo plc Annual Reports & Accounts 2023
Note 22: Pension and post-employment obligations continued
The remeasurement gains are primarily the net effect from the remeasurement of financial assumptions and experience adjustments, with
opposite and lower effects than in the comparative year ended 31 December 2022. The remeasurement losses from financial assumptions
as at 31 December 2023 are driven by the increase of the inflation rate and the future salary increase assumption in Ukraine whereas the
remeasurement gains as at the end of the comparative year ended 31 December 2022 were mainly related to the increase of the discount
rate for the Ukrainian pension schemes as a result of the situation in the country. As at 31 December 2023, the discount rate for the Ukrainian
pension schemes remained unchanged at 18.0% with no such effects. The gains from experience adjustments as at 31 December 2023 result
from a lower effective salary increase in Ukraine than expected as at the end of the comparative year ended 31 December 2022, with the
opposite effect as at 31 December 2022, and the higher than expected turnover.
Changes in the present value of the defined benefit obligation are as follows:
US$000
Year ended Year ended
31.12.23 31.12. 22
Opening defined benefit obligation
19,326
29,119
Current service cost
886
1,098
Interest cost on defined benefit obligation
2,711
2,685
Remeasurement gains
(834)
(5,748)
Contributions paid by employer
(1,798)
(1,874)
Contributions paid by employees
134
102
Benefits paid and net transfers through pension assets
(50)
(63)
Plan amendments
(26)
(40)
Translation differences
(150)
(5,953)
Closing defined benefit obligation
20,199
19,326
Thereof for Ukrainian schemes
15,064
15,463
Thereof for Swiss scheme
5,011
3,754
Thereof for schemes in other jurisdictions
124
109
Thereof for active employees
10,060
8,757
Thereof for vested terminations
5,264
6,105
Thereof for pensioners
4,875
4,464
The durations of the defined benefit obligation for the different schemes as at 31 December 2023 are 8.9 years in Ukraine (2022: 8.5 years)
and 19.6 years in Switzerland (2022: 18.7 years).
Contributions to the defined benefit plans, including benefits paid by employer and employee contributions, are expected to be US$1,860
thousand for the schemes in Ukraine and US$207 thousand in Switzerland in the next financial year.
The expenses in relation to the defined contribution plan in the UK and Singapore totalled US$47 thousand (2022: US$49 thousand).
Changes in the fair values of the plan assets are as follows:
US$000
Year ended Year ended
31.12.23 31.12. 22
Opening fair value of plan assets
2,870
3,045
Interest income
71
7
Contributions paid by employer
305
244
Contributions paid by employees
134
102
Benefits paid and net transfers through pension assets
(50)
(63)
Return on plan assets
65
(412)
Administration cost
(16)
(10)
Translation differences
318
(43)
Closing fair value of plan assets
3,697
2,870
Thereof for Swiss scheme
3,697
2,870
206
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 22: Pension and post-employment obligations continued
The asset allocation of the plan assets of the Swiss scheme is as follows:
%/US$000
As at As at As at As at
31.12.23 31.12.23 31.12. 22 31.12. 22
Scheme assets at fair value
Equities
32.0
1,182
27. 9
802
Bonds
28.7
1,061
3 0.1
863
Properties
17.9
661
17.7
508
Other
21.4
793
24.3
697
Fair value of scheme assets
100.0
3,697
100.0
2,870
The pension assets are included in a multi-employer plan and no information in respect of the split of the investments into quoted and
non-quoted assets is available. Taking into account the requirements of Swiss law, it is assumed that equities and bonds reflect investments
into quoted assets with a portion of the other assets in the portfolio assumed to be investments into non-quoted assets.
Changes to interest rates and future salary increases in Ukraine are considered to be the main pension-related risks for the Group, as such
changes are likely to affect the balance of the Group’s defined benefit obligation. The percentage used to calculate the sensitivities was set under
consideration of the volatility for these assumptions for the Ukrainian schemes and has also been applied for the Group’s less material schemes
in other jurisdictions.
Changes to the significant assumptions would have the following effects on the defined benefit obligation in the different jurisdictions:
Year ended 31.12.23
Ukrainian Swiss Other Ukrainian Swiss Other
US$000 schemes scheme jurisdictions schemes scheme jurisdictions
Increase by Decrease by
1.0% or 1.0% or 1.0% or 1.0% or 1.0% or 1.0% or
Change 1 year 1 year 1 year 1 year 1 year 1 year
Discount rate (%)
(956)
(751)
(7)
1,072
1,047
4
Future salary increases (%)
543
158
6
(500)
(137)
(6)
Local inflation (%)
22
4
n/a
(33)
–
n/a
Indexation of pension (%)
n/a
403
n/a
n/a
n/a
n/a
Life expectancy (years)
257
57
n/a
(309)
(55)
n/a
Year ended 31.12.22
Ukrainian Swiss Other Ukrainian Swiss Other
US$000 schemes scheme jurisdictions schemes scheme jurisdictions
Increase by Decrease by
1.0% or 1.0% or 1.0% or 1.0% or 1.0% or 1.0% or
Change 1 year 1 year 1 year 1 year 1 year 1 year
Discount rate (%)
(995)
(526)
(5)
1,116
727
7
Future salary increases (%)
582
114
6
(531)
(103)
(5)
Local inflation (%)
11
–
n/a
(15)
(1)
n/a
Indexation of pension (%)
n/a
264
n/a
n/a
n/a
n/a
Life expectancy (years)
265
35
n/a
(318)
(35)
n/a
Based on the Ukrainian pension legislation, the pension indexation is defined by the future salary increases and the local inflation rate. As a result
of this, no sensitivity for the indexation of pension is calculated for the Ukrainian schemes, but the sensitivity for local inflation is used instead.
For the presentation of the effects of the changes of the significant assumptions shown in the table above, the present value of the defined
benefit obligation has been calculated based on the projected unit credit method at the end of the reporting period, which is the same as the
one applied for the calculation of the defined benefit obligation recognised in the statement of financial position as at the end of the respective
reporting period. The methods and assumptions used for the sensitivity analysis for the prior year are unchanged.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
207
Ferrexpo plc Annual Reports & Accounts 2023
Note 23: Provisions
Accounting policy
General
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount
of the obligation.
The provisions are classified in the Group’s consolidated financial statements either as non-current or current, depending on the expected timing
of the outflow of resources.
Site restoration
Site restoration provisions are made in respect of the estimated future costs of closure and restoration and for environmental rehabilitation costs
(determined by an independent expert) in the accounting period when the related environmental disturbance occurs. The provision is discounted,
if material, and the unwinding of the discount is included in finance costs. At the time of establishing the provision, a corresponding asset is
capitalised where it gives rise to a future benefit and depreciated over future production from the mine to which it relates. The provision is
reviewed on an annual basis for changes in cost estimates, discount rates or the life of operations .
The provision for site restoration are classified as non-current and changed as follows during the financial year 2023:
US$000
Year ended Year ended
31.12.23 31.12. 22
Opening balance
4,284
3,873
Unwind of the discount
771
382
Charge to the consolidated income statement
(2,148)
1,033
Translation differences
(127)
(1,004)
Closing balance
2,780
4,284
The costs of restoration of the different deposits in the Group’s open pit mines are based on amounts determined by an independent and
credited institute taking into account the codes of practice and laws applicable in Ukraine. The useful lives of the different pits and mines are
determined by the same institute based on expected annual stripping and production volumes having taken into account the expected timing
and effect of future mine-life extension programmes. It is expected that the restoration works of the GPL mine will start after the years 2050,
2055 and 2065 for the different areas within the mine. The first minor restoration work of the Yerystivske mine is expected to start for some
dump areas after 2026, whereas the removal of equipment and the flooding of the pit will only begin at the end of the mine’s life in 2048.
The provision represents the discounted value of the estimated costs of decommissioning and restoring the mines at the dates when
the deposits are expected to be depleted in the relevant areas within the mine. The present value of the provision has been calculated
in Ukrainian hryvnia using nominal pre-tax discount rates taking into account the beginning of the restoration work in the different areas
of the mines, averaging at 17.24% (2022: 18.24%).
Uncertainties in estimating the provision include potential changes in regulatory requirements, decommissioning and reclamation alternatives
and the discount and inflation rates to be used in the calculations.
Further to that, the Group is subject to various ongoing legal proceedings and disputes, which require management to make significant
estimates and judgements. See Note 30 Commitments, contingencies and legal disputes in respect of provisions for ongoing legal proceedings
and disputes, which are classified as current.
See Note 2 Basis of preparation in respect of the impact of climate change on the Group’s financial statements.
Note 24: Accrued and contract liabilities
Accounting policy
Accrued expenses are recognised for amounts to be paid in a future period for goods or services received, which have not been billed to the
Group as at the end of the reporting period.
Contract liabilities consist of the portion of freight revenues under CIF and CFR Incoterms, which is deferred and recognised over time as the
performance obligation is fulfilled, and released at the point of time when the freight services are completed. Contract liabilities are normally
derecognised within 60 days after the reporting period.
As at 31 December 2023, accrued and contract liabilities comprised:
US$000
As at As at
31.12.23 31.12. 22
Accrued expenses
2,800
2,033
Accrued employee costs
12,580
15,048
Contract liabilities
1,915
2,438
Other
33
74
Total accrued and contract liabilities
17,328
19,593
For further information on the change in contract liabilities during the year ended 31 December 2023 see Note 6 Revenue.
208
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 25: Cash and cash equivalents
Accounting policy
Cash and cash equivalents include cash at bank and on hand and short-term deposits with original maturity of 90 days or less from inception.
Cash at bank and on hand and short-term deposits are recorded at their nominal amount as these present an insignificant risk of changes in value.
As at 31 December 2023, cash and cash equivalents comprised:
US$000
As at As at
31.12.23 31.12. 22
Cash at bank and on hand
115, 241
112,945
Total cash and cash equivalents
115,241
112,945
The debt repayments net of proceeds during the period ended 31 December 2023 totalled US$5,562 thousand (31 December 2022: US$48,249
thousand) affecting the balance of cash and cash equivalents.
Further information on the Group’s gross debt is provided in Note 26 Interest-bearing loans and borrowings.
The balance of cash and cash equivalents held in Ukraine amounts to US$11,175 thousand as at 31 December 2023 (31 December 2022:
US$45,229 thousand). Despite the foreign exchange control measures imposed under Martial Law in Ukraine (see Note 30 Commitments,
contingencies and legal disputes), this balance is fully available to the Group for its operations in Ukraine and is therefore not considered restricted.
Note 26: Interest-bearing loans and borrowings
Accounting policy
Interest-bearing loans and borrowings (excluding lease liabilities) are measured at amortised cost. All loans are in US dollars. See also Note 27
Financial instruments for more details in respect of the accounting policies applied. This note provides information about the contractual terms
of the Group’s major finance facilities.
US$000
Notes
As at As at
31.12.23 31.12. 22
Current
Lease liabilities
14
5,939
5,194
Total current interest-bearing loans and borrowings
5,939
5,194
Non-current
Lease liabilities
14
1,009
1,354
Total non-current interest-bearing loans and borrowings
1,009
1,354
Total interest-bearing loans and borrowings
27
6,948
6,548
The table below shows the movements in the interest-bearing loans and borrowings:
US$000
Year ended Year ended
31.12.23 31.12. 22
Opening balance of interest-bearing loans and borrowings
6,548
50,349
Cash movements:
Principal and interest elements of lease payments
(5,562)
(6,103)
Change of trade finance facilities, net
–
(42,146)
Total cash movements
(5,562)
(48,249)
Non-cash movements:
Additions to lease liabilities
5,812
5,340
Others (incl. translation differences)
150
(892)
Total non-cash movements
5,962
4,448
Closing balance of interest-bearing loans and borrowings
6,948
6,548
The interest elements of lease payments are included in the cash flows from operating activities and not in the cash flows used in financing
activities.
Further information on the Group’s exposure to interest rate, foreign currency and liquidity risk is provided in Note 27 Financial instruments.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
209
Ferrexpo plc Annual Reports & Accounts 2023
Note 27: Financial instruments
Accounting policy
Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings (including lease
liabilities) and trade and other payables.
Derivative financial instruments
Except for the provisionally priced receivables disclosed in Note 18 Trade and other receivables, the Group does not hold any derivative financial
instruments.
Initial measurement
Non-derivative financial instruments
Financial assets and financial liabilities (excluding lease liabilities) are initially measured at fair value. Any transaction costs that are directly
attributable to the acquisition or issue of financial assets or financial liabilities are added or deducted from its fair value except for financial assets
and financial liabilities at fair value through the consolidated income statement. For those financial assets and financial liabilities, the transaction
costs are recognised immediately in the consolidated income statement.
All regular way purchases and sales of financial assets are recognised on the trade date (i.e. the date that the Group commits to purchase or
sell the asset). Regular way purchases or sales are those that require delivery of assets within the period generally established by regulation or
convention in the marketplace.
The subsequent measurement is based on the classification of the financial instruments.
Subsequent measurement
Financial assets
Financial assets measured at amortised cost
Except for the provisionally priced receivables disclosed in Note 18 Trade and other receivables, the Group’s financial assets are non-derivative
with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective
interest method. Gains and losses are recognised in the consolidated income statement when the financial assets are derecognised or impaired
along with the amortisation process.
Financial liabilities
Trade and other payables
Trade and other payables are subsequently measured at amortised cost using the effective interest method.
Interest-bearing loans and borrowings
Interest-bearing loans and borrowings (excluding lease liabilities) are subsequently measured at amortised cost using the effective interest
method. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the
amortisation process. For the accounting policy of lease liabilities see Note 14 Leases.
Impairment of financial assets
In addition to the individual assessment at each reporting date whether a financial asset or group of financial assets is impaired, the Group
also assesses the expected credit losses on financial assets carried at amortised cost. As all of the Group’s financial assets carried at amortised
cost are classified as current based on the agreed terms and conditions, the loss allowance is measured at an amount equal to the 12-month
expected credit losses based on publicly available credit default ratings adjusted for current observable circumstances, forecast information and
past history of credit losses. This assessment is performed individually for all financial assets that are individually significant and collectively for
those that are not individually significant and have similar credit risk characteristics. The carrying amount of the financial assets is reduced by an
allowance account with the change of the allowance being recognised in the consolidated income statement.
Individual balances are written off when management deems that there is no possibility of recovery .
210
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 27: Financial instruments continued
The accounting classification of each category of financial instruments and their carrying amounts are set out below:
As at 31.12.23
Financial Financial
assets liabilities
measured at measured at Lease
US$000 Notes amortised cost amortised cost
liabilities
Total
Financial assets
Cash and cash equivalents
25
115,241
–
–
115,241
Trade and other receivables
18
82,321
–
–
82,321
Other financial assets
5,245
–
–
5,245
Total financial assets
202,807
–
–
202,807
Financial liabilities
Trade and other payables
21
–
35,310
–
35,310
Accrued liabilities
24
–
15,387
–
15,387
Interest-bearing loans and borrowings
26
–
–
6,948
6,948
Total financial liabilities
–
50,697
6,948
57,645
As at 31.12.22
Financial Financial
assets liabilities
measured at measured at Lease
US$000 Notes amortised cost amortised cost
liabilities
Total
Financial assets
Cash and cash equivalents
25
112,945
–
–
112,94
5
Trade and other receivables
18
24,699
–
–
24,699
Other financial assets
5,443
–
–
5,443
Total financial assets
143,087
–
–
143,087
Financial liabilities
Trade and other payables
21
–
30,509
–
30,509
Accrued liabilities
24
–
17,0 99
–
17,0 99
Interest-bearing loans and borrowings
26
–
–
6,548
6,548
Total financial liabilities
–
47,
60 8
6,548
54,156
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
211
Ferrexpo plc Annual Reports & Accounts 2023
Note 27: Financial instruments continued
Fair values and impairment testing
Financial assets and other financial liabilities
The fair values of cash and cash equivalents, trade and other receivables and payables are approximately equal to their carrying amounts due
to their short maturity.
Interest-bearing loans and borrowings
The fair values of interest-bearing loans and borrowings are based on the discounted cash flows using market interest rates (Level 2) and are
approximately equal to their carrying amounts.
Fair value measurements recognised in the statement of financial position
Except for the provisionally priced trade receivables (Level 2) disclosed in Note 18 Trade and other receivables, the Group does not have any
financial instruments that are measured subsequent to initial recognition at fair value, grouped into Level 1 to Level 3 based on the degree to
which the fair value is observable. There were no transfers between Level 1 and Level 2 during the financial year 2023 and the comparative year
ended 31 December 2022.
Financial risk management
Overview
The Group has exposure to the following risks from its use of financial instruments:
– credit risk;
– liquidity risk; and
– market risk – including currency and commodity risk.
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring
and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial
statements. The Board has overall responsibility for the establishment and oversight of the Group’s risk management framework.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and
controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in
market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a
disciplined and constructive control environment in which all employees understand their roles and obligations.
The Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews
the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role
by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which
are reported to the Audit Committee and the CFO.
The Group operates a centralised financial risk management structure under the management of the Executive Committee, accountable to
the Board.
The Executive Committee delegates certain responsibilities to the CFO. The CFO’s responsibilities include authority for approving all new
physical, commercial or financial transactions that create a financial risk for the Group. Additionally, the CFO controls the management of
treasury risks within each of the business units in accordance with a Board-approved treasury policy.
Financial instrument risk exposure and management
Natural hedges that can be identified and their effectiveness quantified are used in preference to financial risk management instruments.
Derivative transactions may be executed for risk mitigation purposes only – speculation is not permitted under the approved treasury policy –
and are designed to have the effect of reducing risk on underlying market or credit exposures. Appropriate operational controls ensure
operational risks are not increased disproportionately to the reduction in market or credit risk.
The Group has not used any financial risk management instruments that are derivative in nature, or other hedging instruments, in this or the
comparative year.
Credit risk
Trade and other receivables
The Group, through its trading operations, enters into binding contracts, which contain obligations that create exposure to credit, counterparty
and country risks. It is the primary objective of the Group to manage such risks to reduce uncertainty of collection from buyers. A secondary
objective is to minimise the cost of reducing risks within acceptable parameters.
Credit risk is the risk associated with the possibility that a buyer will default, by failing to make required payments in a timely manner or to comply
with other conditions of an obligation or agreement. Where appropriate, the Group uses letters of credit to assist in mitigating such risks.
Counterparty risk crystallises when a party to an agreement defaults. Where letters of credit are used to minimise this risk, the Group uses a
confirming bank with a similar or higher credit rating to mitigate country and/or credit risk of the issuing bank.
212
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 27: Financial instruments continued
Country risk is the potential volatility of foreign assets, whether receivables or investments, that is due to political and/or financial events
in a given country.
Group Treasury monitors the concentration of all outstanding risks associated with any entity or country, and reports to the Group CFO
on a timely basis.
Investment securities
Outside Ukraine the Group limits its cash exposure to credit, counterparty and country risk by only investing in liquid securities and with
counterparties that are incorporated in an A+ or better “S&P” rated OECD country. A ratings approach is used to determine maximum exposure
to each counterparty. Cash not required for production, distribution and capital expenditures is invested with counterparties rated by S&P or
Moody’s at a level of long-term B “S&P” or short-term A3 “S&P” or better with any exceptions subject to approval by the Board.
Recognising that the principal activities of the Group are predominantly in Ukraine, special consideration is given to Ukrainian transactional
banking counterparties where the sector is small and constrained by the sovereign credit rating. Exceptions may be made under the following
conditions:
– the counterparty is resident in Ukraine; and
– the counterparty is included in the top 15 financial institutions in Ukraine based on the Group’s assessment of the financial institution.
Irrespective of the counterparty risk assessment above, the Group only uses subsidiaries of Western banks for transactional purposes unless
required differently by law.
The Group is currently working with three banks in Ukraine, two of which are subsidiaries of Western banks, and is therefore exposed to Ukraine
country and banking sector risk in this respect.
Guarantees
The Group’s policy is to provide financial guarantees under limited circumstances only for the benefit of wholly owned or substantially wholly
owned subsidiaries.
Exposure to credit risk
The carrying amount of financial assets at 31 December 2023 was US$202,807 thousand (2022: US$143,087 thousand) and represents the
maximum credit exposure. See page 210 for further information.
Of the total maximum exposure to credit risk, US$34,635 thousand (2022: US$56,131 thousand) related to Ukraine.
The total receivables balance relating to the Group’s top three customers was US$24,030 thousand (2022: US$6,700 thousand), making up 42%
of the total amounts receivable (2022: 56%). The top three customers are considered to be crisis-resistant top-class steel mills and sales are
made under long-term contracts.
The Group’s credit risk related to its customers depends primarily on the state of the global steel industry. In times of lower prices for steel
products, the margins and cash flows of steel producers also fall, which could have an adverse impact on the Group’s credit risk. The Group
has not had any significant bad debts in the past and outstanding amounts are thoroughly reviewed and evaluated to mitigate the risk for such
losses. The credit risk related to suppliers of equipment and services in Ukraine is still impacted by the heightened Ukrainian country risk due
to the ongoing war. See the Principal Risks section on page 79 for additional information on the counterparty risks.
Impairment profile
The Group’s exposure to credit risk relating to trade and other receivables is disclosed in Note 18 Trade and other receivables.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach is to ensure that
it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring losses for the
different counter parties or risking damage to the Group’s reputation by holding a adequate balance of cash and cash equivalents. As at the date
of the approval of these consolidated financial statements, the Group does not have any drawn or undrawn committed credit facilities, mainly
due to the current situation in Ukraine. The ongoing war in Ukraine has had a significant impact on the cash flow generation of the Group during
the financial years 2022 and 2023 and the war is expected to continue during the financial year 2024 and to adversely affect the Group’s cash
flow generation. For further information see also the Group’s going concern statement in Note 2 Basis of preparation.
The Group prepares detailed rolling cash flow forecasts, which assist it in monitoring cash flow requirements and planning the allocation of cash.
Typically, the Group intends to ensure that it has sufficient cash on demand to meet expected operational expenses. In normal times, the Group
also makes use of uncommitted trade finance facilities to manage its short-term liquidity requirements. Trade finance generally refers to the
financing of individual transactions or a series of revolving transactions and is often self-liquidating, whereby the lending bank stipulates that all
sales proceeds to be collected are applied to settle the loan, with the remainder returned to the Group. Trade finance transactions are approved
by the Group Treasurer and Group CFO. As at 31 December 2023, no trade finance facilities are available to the Group as a result of the ongoing
war in Ukraine.
For further information see Note 26 Interest-bearing loans and borrowings and the Group’s Viability Statement on pages 91 and 92.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
213
Ferrexpo plc Annual Reports & Accounts 2023
Note 27: Financial instruments continued
The following are the contractual maturities of financial liabilities:
As at 31.12.23
Less than Between Between Between Between More than
US$000 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years
5 years
Total
Interest-bearing
Lease liabilities
6,092
832
245
5
–
–
7,174
Total interest-bearing
6,092
832
245
5
–
–
7,174
Non-interest-bearing
Trade and other payables
35,310
–
–
–
–
–
35,310
Accrued liabilities
15,387
–
–
–
–
–
15,387
Future interest payable
–
–
–
–
–
–
–
Total non-interest-bearing
50,697
–
–
–
–
–
50,697
Total financial liabilities
56,789
832
245
5
–
–
57,871
As at 31.12.22
Less than Between Between Between Between More than
US$000 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years
5 years
Total
Interest-bearing
Lease liabilities
5,355
880
579
9
6
–
6,829
Total interest-bearing
5,355
880
579
9
6
–
6,829
Non-interest-bearing
Trade and other payables
30,509
–
–
–
–
–
30,509
Accrued liabilities
17,092
–
–
–
–
–
17,0 9 2
Future interest payable
18
–
–
–
–
–
18
Total non-interest-bearing
47,619
–
–
–
–
–
47, 619
Total financial liabilities
52,974
880
579
9
6
–
54,448
Currency risk
The Group is exposed to currency risk on financial assets and financial liabilities resulting from sales, purchases and borrowings that are
denominated in a currency other than the respective functional currencies of the Group’s subsidiaries. The functional currencies of the
Group’s subsidiaries are primarily the Ukrainian hryvnia, US dollars, euro and Swiss francs. The Group’s reporting currency is the US dollar.
The Group’s sales are denominated in US dollars as well as its major lines of borrowings in the past, with costs of local Ukrainian production
mainly in hryvnia. The value of the hryvnia is published by the NBU. The Ukrainian hryvnia remained unchanged at 36.568 to the US dollar from
21 July 2022 to 30 September 2023, when the National Bank of Ukraine (“NBU”) lifted the peg that had been in place since the devaluation of
the local currency from 29.255 to 36.568 (34%). As a result of the significant balance in foreign currencies currently held by the NBU, the local
currency remained relatively stable at around 37.982 to the US dollar until the end of the financial year 2023, compared to a depreciation of the
Ukrainian hryvnia of c. 34% during the financial year 2022.
A depreciation of the Ukrainian hryvnia decreases the operating costs of the production unit in US dollar terms and the value of hryvnia payables
recorded in the statement of financial position at the year end in US dollars, with the opposite effect in case of an appreciation of the Ukrainian
hryvnia. As the majority of sales and receivables are denominated in US dollars, a change in the local currency will result in operating exchange
differences recorded in the consolidated income statement. See Note 9 Foreign exchange gains and losses for further information.
In case of a change of the local currency compared to the US dollar, US dollar-denominated loans held by the Ukrainian subsidiaries result in
non-operating exchange differences to the extent these are not matched by US dollar-denominated assets. Fixed assets of the Group’s major
and asset intensive subsidiaries in Ukraine are denominated in the local currency and a change in the local functional currency different to the
US dollar results in a change of the Group’s net assets as these effect are recorded in the translation reserve.
As mentioned above, the NBU manages and determines the official exchange rates. An interbank market for the exchange of currencies exists
in Ukraine and is monitored by the NBU. The Group, through financial institutions, exchanges currencies at bank offered market rates.
214
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 27: Financial instruments continued
Trade receivables are predominantly in US dollars and are not hedged. Trade payables denominated in US dollars are also not hedged on the
market but are matched against US dollar currency receipts. This includes the interest expense, which is principally payable in US dollars. Trade
receivables and trade payables in Ukrainian hryvnia are not hedged as a forward market for the currency is generally not available.
Other Group monetary assets and liabilities denominated in foreign currencies are considered immaterial as the exposure to currency risk mainly
relates to corporate costs within Switzerland and the UK.
The Group’s exposure to foreign currency risk was as follows as of 31 December 2023:
US$000
As at As at
31.12.23 31.12. 22
Total financial assets
202,807
143,087
Thereof exposed to Ukrainian hryvnia
–
–
Thereof exposed to US dollar
255
1,742
Thereof exposed to euro
2,737
1,846
Thereof exposed to Swiss franc
1,124
921
Thereof exposed to other currencies
1,170
416
Total exposures to currencies other than local functional currencies
5,286
4,925
Total financial liabilities
(57,645)
(54,149)
Thereof exposed to Ukrainian hryvnia
–
–
Thereof exposed to US dollar
(631)
(815)
Thereof exposed to euro
(7,6 26 )
(7,09
4)
Thereof exposed to Swiss franc
(461)
(192)
Thereof exposed to other currencies
(682)
(145)
Total exposures to currencies other than local functional currencies
(9,400)
(8,246)
No other subsidiaries of the Group, apart from the Ukrainian subsidiaries, have financial assets and liabilities denominated in the Ukrainian
hryvnia. The functional currency of the Ukrainian subsidiaries is the Ukrainian hryvnia and the translation of financial assets and financial liabilities
denominated in the Ukrainian hryvnia does therefore not pose a foreign currency risk exposure in the consolidated income statement of the
Group as translation differences are reflected in the translation reserve (see Note 31 Share capital and reserves).
Interest rate risk
Historically, the Group predominantly has borrowed bank funds that were predominantly at floating interest rates and was therefore exposed to
interest rate movements. As at 31 December 2023, the Group does not have any significant balances of interest-bearing loans and borrowings.
No interest rate swaps have been entered into in the current and prior years.
Commodity risk
Revenues related to provisionally priced sales are initially recognised at the estimated fair value of the consideration receivable based on the
forward price at each reporting date for the relevant period outlined in the different contracts. As a consequence, the receivable balance may
change in a future period when final invoices can be issued based on final iron ore prices to be applied according to the specific underlying
contract terms. There were no provisionally priced sales as at 31 December 2023 and 2022.
Where pricing terms deviate from the index-based pricing model, derivative commodity contracts may be used to swap the pricing terms to the
iron ore index price.
Finished goods are held at cost without revaluation to a spot price for iron ore pellets at the end of the reporting period, as long as the
recoverable amount exceeds the cost basis.
Sensitivity analysis
A 20% weakening of the US dollar against the following currencies at 31 December would have (decreased)/increased the consolidated result
and equity by the amounts shown below. The percentage applied to the sensitivity analysis of the Group’s foreign currency exposure is based on
the average change of the Ukrainian hryvnia, the Group’s most relevant foreign currency, compared to the US dollar in past years, which might
repeat again in the near future. This percentage was also applied for the Group’s less relevant foreign currencies and does not have a significant
effect on the total effect of this sensitivity analysis. This assumes that all other variables, in particular interest rates, remain constant.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
215
Ferrexpo plc Annual Reports & Accounts 2023
Note 27: Financial instruments continued
US$000
Year ended Year ended
31.12.23 31.12. 22
Income Income
statement/ statement/
equity equity
Ukrainian hryvnia
(63)
154
Euro
(815)
(875)
Swiss franc
111
122
Other
81
45
Total
(686)
(554)
A 20% strengthening of the US dollar against the above currencies would have an opposite effect totalling US$1,028 thousand on the
consolidated result and equity, on the basis that all the other variables remain constant.
US dollar denominated intercompany receivable and payable balances are not considered in the Group’s sensitivity analysis as eliminated in
the Group’s consolidated financial statements. However, the possible exposure on these US dollar denominated balances held by the Ukrainian
subsidiaries can be material, depending on the change of the Ukrainian hryvnia to the US dollar. Based on these net intercompany balances
outstanding as at 31 December 2023, a 20% weakening of the Ukrainian hryvnia against the US dollar would have a positive impact of
approximately US$90,000 thousand (2022: approximately US$89,000 thousand) on the consolidated result and equity. A 20% strengthening
would have a negative impact of approximately US$60,000 thousand (2022: approximately US$59,000 thousand) on the consolidated result
and equity. Further information on the actual foreign exchange gains and losses during the financial years 2022 and 2023, including those on
US dollar denominated intercompany balances, are provided in Note 9 Foreign exchange gains and losses.
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss and the Group does not
hold any derivatives (e.g. interest rate swaps). Therefore, a change in interest rates at the reporting date would not affect the consolidated
income statement.
Cash flow sensitivity for variable rate instruments
An increase of 100 basis points (“bps”) in interest rates would have increased equity and the consolidated result by the amounts shown below.
The possible change applied to the cash flow sensitivity represents a plausible scenario taking into account the average movement of variable
interest rates in the last years and possible changes in the near future. This analysis assumes that all other variables, in particular foreign
currency rates, remain constant.
US$000
Year ended Year ended
31.12.23 31.12. 22
Net finance charge
1,152
1,129
A decrease of 100bps would decrease equity and profit by US$3,112 thousand for the year ended 31 December 2023 (2022: US$328 thousand).
This is on the basis that all the other variables remain constant.
Capital management
The Board’s policy is to maintain a strong capital base. The Board of Directors monitors both the demographic spread of shareholders, as well
as the return on capital, which the Group defines as the level of dividends to ordinary shareholders over the total shareholders’ equity, excluding
non-controlling interests. Please refer to the statement of changes in equity for details of the capital position of the Group.
A key measure in respect of the Group’s capital management is the level of net cash/(debt). The net cash position has increased from
US$106,397 thousand at the beginning of the year to US$108,293 thousand as at 31 December 2023. The slightly higher net cash position
reflects the Group’s resilience through these unprecedented and challenging times, demonstrating the Group’s management ability to focus on
adequately balancing the available liquidity, working capital requirements and overall business operation.
The capital base of the Group can be adversely affected by falls in the price of iron ore reducing reported revenues and profitability. The price
that the industry earns for iron ore products is cyclical in nature and the Board of Directors continues to review its capital base in line with
industry trends. The Board seeks to maintain a balance between the higher net returns that might be achievable through leverage and
advantages and security provided by a low gearing and strong capital position.
Growth projects are approved under consideration of potential future market constraints, liabilities management across the Group’s balance
sheet and expected returns to shareholders.
The Board maintains a dividend policy consistent with the Group’s profile, reflecting the investment activities the Group has made supporting
current and future production growth and the cash generated by existing operations, while maintaining a prudent level of dividend distributions
after an appropriate level of liquidity is ensured on an ongoing basis.
The Group has been subject to the currency control measures implemented by the National Bank of Ukraine (“NBU”) under Martial Law since
24 February 2022, which limits the ability of the local Group companies to convert local currency into US dollars and settle cash flows between
onshore and offshore accounts of the Group. The Group has implemented various measures to reduce the risk of fines that may arise from the
currency control measures, but there exists legal uncertainty in the application of the currency control regulations during Martial Law in Ukraine.
See Note 30 Commitments, contingencies and legal disputes for further information.
216
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 27: Financial instruments continued
The Company is the Group’s holding company, with no direct operating business, so its ability to make distributions to its shareholders is
dependent on its ability to access profits held in the subsidiaries and on the available liquidity above the minimum ongoing buffer requirements
determined by management and the Board. The Group’s consolidated retained earnings shown in the consolidated statement of changes in
equity do not reflect the profits immediately available for distribution in the Group as of 31 December 2023. See Note 12 Earnings per share
and dividends paid and proposed for further information.
For more information about the Group’s interest-bearing loans and borrowings see Note 26 Interest-bearing loans and borrowings.
Note 28: Share-based payments
Accounting policy
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value of the award at the grant date using modelling
techniques consistent with the mathematics underlying the Black-Scholes option pricing model extended to allow for the performance
conditions. The fair value is determined by reference to the quoted closing share price on the grant date. The cost is recognised as an expense
over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. In valuing equity-settled
transactions, no account is taken of any vesting conditions, except for market conditions, such as the relative Total Shareholder Return (“TSR”).
Where the vesting of awards is subject to the satisfaction of certain market conditions, a vesting charge is recognised irrespective of whether
or not the market condition is satisfied, provided that all other performance conditions are satisfied. Where awards terminate before the
performance period is complete, any unamortised expense is recognised immediately.
At each reporting date, the cumulative expense of outstanding awards is calculated, representing the extent to which the vesting period has
expired and management’s best estimate of the achievement or otherwise of non-market conditions and of the number of equity instruments
that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognised in the consolidated income
statement, with a corresponding entry in the employee benefit trust reserve in equity.
Long-term incentive plan (“LTIP”)
The LTIP is a share-based scheme whereby certain senior management and executives receive rewards based on the relative TSR. The LTIP
is subject to a performance condition based on the TSR compared to a comparator group, which operates in a similar environment, measured
over the vesting period. Further description is provided in the Remuneration Report. The cost of equity-settled awards is measured as described
above together with an estimate of future social security contributions payable in respect of this value.
The following number of share awards were granted under the LTIP in the previous financial years. The LTIP vesting period is three years.
Thousand
20 23 LTIP
2022
LTIP
2021
LTIP
Total
Year ended 31.12.23
595
–
–
595
Year ended 31.12.22
–
453
–
453
Year ended 31.12.21
–
–
295
295
The following expenses have been recognised in 2023 and 2022 in respect of the LTIP:
US$000
20 23 LTIP
2022
LTIP
2021
LTIP
2020
LTIP
Total
Year ended 31.12.23
203
48
103
476
830
Year ended 31.12.22
–
129
282
55
466
The expenses recognised in 2023 and in the comparative year 2022 include the effect of lapsed awards resulting from the departure of one
member of the key management (2022: one).
Year ended Year ended Year ended Year ended
31.12.23 31.12. 22 31.12.23 31.12. 22
WAFV (US$) WAFV (US$) No. (000) No. (000)
LTIP
Beginning of the year
1.98
2.22
1,040
1,046
Awards granted during the year
1.12
1.54
595
453
Awards vested during the year
2.38
2.40
(289)
(347)
Awards lapsed during the year
1.40
2.22
(405)
(112)
Outstanding unvested awards at 31 December
1.80
1.98
941
1,040
The main inputs to the valuation of the 2023 LTIP awards were the share price at date of grant of US$1.65 (2022 LTIP awards: US$2.33), the
volatility of the share price of 68% p.a. (2022 LTIP awards: 65% p.a.) and a risk-free interest rate of 5.1% p.a. (2022 LTIP awards: 2.7% p.a.).
The assumptions have been based on historical volatility and correlation of the relevant stocks over a period based on the expected term of
the awards.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
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Ferrexpo plc Annual Reports & Accounts 2023
Note 28: Share-based payments continued
As at 31 December 2022, 71.6% of the 2020 awards under the LTIP vested as the vesting conditions were partially met (31 December 2021:
100% of the 2019 awards). As a result, the beneficiaries of this plan at the date of exercise received 288,727 shares for the 2020 awards during
the financial year 2023 (2022: 347,529 shares for the 2019 awards under the LTIP). The share price at the date of exercise of these awards was
US$1.44 (2022: US$3.29). As at the date of authorising the consolidated financial statements for issue, all awards from previous years have been
exercised.
Note 29: Employees
Employee benefits expenses for the year ended 31 December 2023 consisted of the following:
US$000
Notes
Year ended Year ended
31.12.23 31.12. 22
Wages and salaries
63,577
77, 8 3 0
Social security costs
11,346
14,211
Post-employment benefits
22
887
1,098
Other employee costs
3,087
4,391
Share-based payments
28
830
490
Total employee benefits expenses
79,727
98,020
The table above includes compensation for Non-executive Directors, Executive Directors and other key management personnel as outlined
below:
Year ended 31.12.23
Year ended 31.12.22
Non-executive Non-executive
and Executive Other key and Executive Other key
US$000 Directors
management
Total
Directors
management
Total
Wages and salaries
3,769
2,068
5,837
3,438
2,455
5,893
Social security costs
122
48
170
94
57
151
Post-employment benefits
91
48
139
80
64
144
Other employee costs
155
−
155
315
32
347
Share-based payments
107
264
371
225
370
595
Total compensation for key management
4,244
2,428
6,672
4,152
2,978
7,130
The totals of shared-based payments for employees and for key management recognised in 2023 and in the comparative year 2022 include the
effect of lapsed awards resulting from the departure of one (2022: one) member of the key management.
The average number of employees during the financial year 2023 is detailed in the table below:
Average number of employees
Year ended Year ended
31.12.23 31.12. 22
Production
4,939
5,873
Marketing and distribution
409
439
Administration
1,214
1,303
Other
328
363
Total average number of employees
6,890
7,978
Note 30: Commitments, contingencies and legal disputes
Accounting policy
Contingencies
Contingent liabilities are not recognised in the consolidated financial statements. They are disclosed unless the possibility of an outflow of
resources embodying economic benefits is remote. A contingent asset is not recognised in the consolidated financial statements but disclosed
when an inflow of economic benefits is probable.
Commitments for the lease of mining land
These commitments relate to the agreements for the use of mining land, which fall out of the scope of IFRS 16 Leases.
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Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 30: Commitments, contingencies and legal disputes continued
Commitments
Commitments as at 31 December 2023 consisted of the following:
US$000
Year ended Year ended
31.12.23 31.12. 22
Total commitments for the lease of mining land (out of the scope of IFRS 16)
52,739
50,963
Total capital commitments on purchase of property, plant and equipment
128,934
134,842
Commitments for investment in a joint venture
6,064
6,064
For further information on lease-related commitments see Note 14 Leases.
Legal
In the ordinary course of business, the Group is subject to various legal actions and ongoing court proceedings. There is a risk that the
independence of the judicial system and its immunity from economic and political influences in Ukraine is not upheld, and consequently
Ukrainian legislation might be inconsistently applied to resolve the same or similar disputes. See also the Principal Risks section on pages 76 to
78 for further information on the Ukraine country risk and Note 35 Events after the reporting period in terms of another court order received.
Critical judgements
The Group is exposed to the risks associated with operating in a developing economy, which may or may not be exacerbated by the war and/or the
current circumstances facing the Group’s controlling shareholder (see Ukraine country risk on pages 76 to 78). As a result, the Group is exposed to
a number of risk areas that are heightened compared to those expected in a developed economy, such as an environment of political, fiscal and
legal uncertainties, which require a significant portion of critical judgements to be made by the management team, mainly in respect of the
contested sureties claim, for which a provision was recorded as at 31 December 2023, and the other matters listed under critical judgements
below.
Critical judgements for ongoing legal proceedings and disputes with corresponding provisions
Contested sureties claim
On 7 December 2022, FPM received a claim in the amount of UAH4,727 million (US$124,450 thousand as at 31 December 2023) in respect
of contested sureties. These contested sureties relate to Bank F&C, a Ukrainian bank owned by the Group’s controlling shareholder and which
the Group previously used as its main transactional bank in Ukraine. Bank F&C is still going through the liquidation process after having been
declared insolvent by the National Bank of Ukraine and put under temporary administration on 18 September 2015.
The counterparty in this claim alleges that it acquired rights under certain loan agreements originally concluded between Bank F&C and various
borrowers, some of which are associated entities of the Group’s controlling shareholder, by entering into the assignment agreement with the
State Guarantee Fund on 6 November 2020. The counterparty further claims that Ferrexpo Poltava Mining (“FPM”) provided sureties to Bank
F&C to ensure the performance of obligations under these loan agreements. On 9 August 2023, the court of first instance ruled in favour of the
claimant and FPM filed an appeal in September 2023. On 26 January 2024 a Ukrainian court of appeal confirmed the claim against FPM in the
amount of UAH4,727 million (US$124,450 thousand as at 31 December 2023). On 30 January 2024, FPM filed a cassation appeal to the
Supreme Court of Ukraine and the first hearing was scheduled for 20 March 2024, but the hearing did not take place as the presiding judge
recused himself. Following the appointment of a new panel of judges, on 1 April 2024 the Supreme Court suspended the possible enforcement
of the decision of the court of appeal. A Supreme Court hearing on 17 April 2024 considered primarily procedural matters and the next hearing
is scheduled for 27 May 2024.
Notwithstanding the two negative court decisions of the lower courts and based on legal advice obtained, management remains of the view
that these claims are without merit and FPM has compelling arguments to defend its position in the Supreme Court. However, considering
the magnitude of this claim and the risks associated with the judicial system in Ukraine as further described above, the Group recorded a
full provision for this claim as at 31 December 2023, in accordance with the requirements of IAS 37 Provisions, contingent liabilities and
contingent assets.
As at the date of the approval of these consolidated financial statements, no enforcement procedures have commenced and, further to the
Supreme Court’s order of 1 April 2024 suspending possible enforcement of the decision of the court of appeal, such procedures cannot be
initiated by the claimant until a final decision is made by the Supreme Court, or the current suspension order is otherwise lifted. If the final
ruling of the Supreme Court is not in favour of FPM, the claimant may take steps to appoint either a state or a private bailiff and request the
commencement of the enforcement procedures, which could have a material negative impact on the Group’s business activities and its ability
to continue as a going concern, as the assets of FPM could be seized or subject to a forced sale. The potential seizure or forced sale of FPM’s
assets, including moveable, immovable and financial assets, may have a material adverse impact on the Group’s cash flow generation,
profitability and available liquidity in future periods. As at the date of the approval of these consolidated financial statements, it is not possible
reasonably to assess the implications of a potential seizure or forced sale of assets on the Group’s business activities, as the timing, scope and
impact are unknown and outside of the Group’s control. However, the Group is considering and preparing a number of mitigating actions and
responses within its control in order to seek to ensure continuation of production and generation of revenue streams. Beyond that, in case of an
enforcement, FPM will challenge orders and actions of the bailiff in the court, which will allow the Group to continue to trade and generate
resources to meet its other liabilities as they fall due. See Note 2 Basis of preparation, Note 13 Property, plant and equipment and Note 17
Inventories for further information.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
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Ferrexpo plc Annual Reports & Accounts 2023
Note 30: Commitments, contingencies and legal disputes continued
Critical judgements for ongoing legal proceedings and disputes without corresponding provisions
Creditor protection application against Ferrexpo Poltava Mining (“FPM”)
In February 2024, a supplier and related party to the Group filed an application to open bankruptcy proceedings (“creditor protection
proceedings”) against FPM, which was accepted by the relevant court for further consideration. The amount of debt claimed by the supplier
of FPM was initially UAH2.2 million. The operation of FPM is not affected by this application and the supplier continued to provide its services
to FPM. The amount of debt claimed by the supplier subsequently increased to UAH4.6 million (c. US$117 thousand as at 15 April 2024).
A preparatory court hearing was scheduled by the court for 12 March 2024. This hearing did not take place and a further hearing scheduled
for 9 April 2024 was also postponed. A new hearing is scheduled for 30 April 2024. The creditor protection proceedings are a lengthy process,
which is not expected to limit the Group to continue to trade and generate resources to meet its other liabilities as they fall due. Furthermore,
it is the Group’s intention to settle this debt or seek to extend the payment terms, but noting a previous extension request has been refused
by the supplier, to avoid the opening of such creditor protection proceedings. See Note 2 Basis of preparation for further information.
Shares freeze in relation to claim from the Ukrainian Deposit Guarantee Fund (“DGF”)
As announced on 7 March 2023 on the Regulatory News Service of the London Stock Exchange, the Group became aware of a press release
by the DGF suggesting that a restriction has been placed on shares held by Ferrexpo AG (“FAG”), the Group’s Swiss subsidiary, in three main
operating subsidiaries of the Group in Ukraine, covering 50.3% of the shares held in each subsidiary. According to the subsequently published
court order in the Ukrainian official register of court decisions, the Kyiv Commercial Court ordered the arrest (freeze) of 50.3% of FAG’s
shareholding in each of Ferrexpo Poltava Mining (“FPM”), Ferrexpo Yeristovo Mining (“FYM”) and Ferrexpo Belanovo Mining (“FBM”). The court
order also prohibits each of FPM, FYM and FBM from making changes to the amount of its authorised capital. The court order does not affect
ownership of the shares in these three subsidiaries of the Group in Ukraine, but prohibits the disposal by FAG of 50.3% of its shareholding in
each named subsidiary. This court order was issued by the Kyiv Commercial Court during a hearing in the commercial litigation between the
DGF and Mr. Zhevago, the Group’s controlling shareholder, in relation to the liquidation of Bank F&C in 2015.
In addition to the restriction covering 50.3% of FAG’s shareholding in each of FPM, FYM and FBM, the court order also contains a prohibition on
Fevamotinico S.a.r.l. disposing of its shares in Ferrexpo plc and Ferrexpo plc disposing of any of its shares in FAG. As at the date of the approval
of these consolidated financial statements, the Group has no intention, and never has had any intention, of transferring the shares in FPM, FYM,
FBM or FAG. The Group does not expect an impact on its operations as a result of this court order.
The Group’s subsidiaries affected by this court order, including FAG, filed appeals in Ukraine in March 2023 to remove the restrictions. A hearing
at the Northern Commercial Court of Appeal took place on 21 June 2023 and the court accepted FAG and the three Ukrainian subsidiaries as
third parties to this litigation. On 26 July 2023, the court of appeal dismissed the appeals of FAG, FPM, FYM and FBM in relation to the
restrictions covering 50.3% of the corporate rights in FPM, FYM and FBM so that the imposed restrictions remain effective. The Group’s
subsidiaries filed cassation appeals to the Supreme Court of Ukraine in August 2023 and a first hearing of the case at the Supreme Court took
place on 8 November 2023, without any decision being taken. On 10 January 2024, the Supreme Court rejected the cassation appeals from the
Group’s subsidiaries and the restrictions remain effective. After a review by the Supreme Court of other cassation appeals related to the main
dispute between the DGF and Mr. Zhevago, to which the Group is not a party, the case is expected to be sent to the court of first instance, the
Kyiv Commercial Court, to proceed with consideration of the main dispute between the DGF and Mr. Zhevago.
Based on advice from Ukrainian legal counsel, management considers that the court order was made in contradiction to Ukrainian law because
the restricted 50.3% of corporate rights in the three Ukrainian subsidiaries are the property of FAG and not of any other person as a matter of
Ukrainian law. The Group will file new applications and motions to challenge the validity of these restrictions once the case is returned to the Kyiv
Commercial Court.
However, as with other ongoing legal proceedings in Ukraine, there is a risk that the independence of the judicial system and its immunity from
economic and political influences in Ukraine is not upheld and in that case the Group might not be successful in procuring the cancellation of
such restrictions.
Shares freeze in relation to claim from the National Bank of Ukraine (“NBU”)
In addition to the case initiated by the Ukrainian Deposit Guarantee Fund (“DGF”) as described above, there is a commercial litigation between
the NBU and Mr. Zhevago, the Group’s controlling shareholder, in relation to the personal surety given by Mr. Zhevago for the loan provided by
the NBU to Bank F&C prior to its insolvency. In respect of this commercial litigation, the Chief State Bailiff of the Ministry of Justice of Ukraine
issued in September 2023 a resolution on arrest (freeze) of property of Mr. Zhevago as part of intended enforcement proceedings.
As part of this September 2023 resolution, the State Bailiff imposed an order to arrest (freeze) 50.3% of the issued share capital of FYM and
FBM, owned by FAG, based on the incorrect assumption that these corporate rights are owned by Mr. Zhevago. In reaching this decision to
arrest these corporate rights, the State Bailiff relied on conclusions made by the Northern Commercial Court of Appeal that Mr. Zhevago is the
ultimate beneficial owner of the Ukrainian subsidiaries and that all companies in the Group are just nominal owners of the assets ultimately
owned by Mr. Zhevago. FAG filed a civil claim in October 2023 seeking to cancel the order and to block the enforcement procedure initiated by
the State Bailiff. On 30 November 2023, the Komsomolskyi Town Court of Poltava Region, a court of first instance, suspended the enforcement
procedure, prohibiting the State Bailiff from taking any actions to forcefully sell FAG’s corporate rights in FYM and FBM. The State Bailiff filed an
appeal, but the Poltava Court of Appeal has not opened appeal proceedings to date. The date of the first hearing at the Poltava Court of Appeal
in these proceedings is currently unknown. In parallel, the NBU made an application to stay the main proceeding. On 9 January 2024, the court
of first instance suspended the court proceedings until there is a written decision from the Supreme Court of Ukraine in respect of the
restrictions imposed in the above-mentioned case initiated by the DGF.
220
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 30: Commitments, contingencies and legal disputes continued
Shares freeze in relation to investigation in connection with Bank F&C
As part of the ongoing investigation in connection with Bank F&C, on 25 March 2024, the Group became aware of a court order dated
18 January 2024 in the Ukrainian Register of Court Decisions regarding restrictions on certain corporate rights in all of the Group’s Ukrainian
subsidiaries. These restrictions are imposed on 49.5% of the shares in all of the Group’s Ukrainian subsidiaries, except for Nova Logistics LLC
and TIS-Ruda LLC, an associated company of the Group, where the relevant percentages restricted are 25.2% and 24.7%, respectively.
The restrictions do not affect ownership of the relevant shares, but prohibit their transfer and restrict the right to use corporate rights of
such shares, including the right to vote. The Group is not a party to the proceedings in which the restrictions have been imposed and
these restrictions were imposed without official notification to the Group and/or its subsidiaries. The Group plans to file an appeal to seek
the cancellation of these restrictions on the corporate rights.
Currency control measures imposed in Ukraine
With the start of the Russian invasion into Ukraine on 24 February 2022, the Ukrainian government introduced Martial Law affecting, among
others, aspects relating to lending agreements, foreign exchange and currency controls and banking activities.
As a result of the introduced Martial Law, the National Bank of Ukraine (“NBU”) has introduced significant currency and capital control
restrictions in Ukraine. These measures are affecting the Group in terms of its cross-border payments to be made, which are restricted
and may be carried out only in exceptional cases. The maximum period for settlements of invoices under export and import contracts was
decreased as of 1 April 2022 from what was previously 360 days to 180 days.
These measures put additional pressure on the Group’s liquidity management as the Ukrainian subsidiaries are currently not in the position to
make cash transfers outside of Ukraine. As it is essential to the Group that sufficient liquidity is held outside of Ukraine in order to ensure that the
Group’s liabilities can be settled when falling due, intercompany receivable balances due to the Ukrainian subsidiaries have historically only been
paid when falling due and after considering the local cash requirements for the operating activities and the capital expenditure programmes.
The currently lower operating activities and the reduced capital expenditure programmes due to the ongoing war have reduced the local cash
requirements and consequently increased the imbalance between payments to be made into Ukraine and local cash requirements. As a result
of the imposed currency control measures, the Group has to carefully manage the payments to be made into Ukraine, as the local subsidiaries
cannot transfer any surplus funds back to the Group entities outside of Ukraine, if required.
Failure to comply with the currency control regulations can result in fines. The offence against the currency control regulations would result
in fines of 0.3% per day calculated on the cumulative overdue receivable balances. The Group has implemented various measures to mitigate
the impact of the currency control regulations and reduce the risk of material fines, but there exists legal uncertainty in the application of the
currency control regulations during the application of Martial Law in Ukraine. The currency control regulations may also be subject to change
in the future (including with retrospective effect). Therefore, there is a risk that the Group may become subject to challenges from regulatory
authorities in connection with the application of the regulations.
Given the amount of outstanding receivable balances between Group companies, there is a risk of material fines becoming payable in the future.
However, as a result of different interpretations of the currency control regulations during the application of Martial Law and the measures
initiated by the Group to mitigate the risk of potential fines, it is currently not possible to reliably estimate the amount of a potential exposure.
Share dispute
On 23 November 2020, the Kyiv Commercial Court reopened court proceedings in relation to an old shareholder litigation.
This old shareholder litigation started in 2005, when a former shareholder in Ferrexpo Poltava Mining (“FPM”) brought proceedings in the
Ukrainian courts seeking to invalidate the share sale and purchase agreement concluded in 2002 pursuant to which a 40.19% stake in FPM
was sold to nominee companies that were previously ultimately controlled by Mr. Zhevago, amongst other parties. After a long period of
litigation, all old claims were fully dismissed in 2015 by the Higher Commercial Court of Ukraine.
In January 2021, Ferrexpo AG (“FAG”) received a claim from a former shareholder in FPM seeking to invalidate the share sale and purchase
agreement concluded in 2002.
In February 2021, FAG became aware that an additional three new claims had been filed by three other former shareholders in FPM. Taken
together, four claimants sought to invalidate the share sale and purchase agreement concluded in 2002 pursuant to which a 40.19% stake in
FPM was sold, similar to the previous claims made back in 2005. The Kyiv Commercial Court ruled on 27 May 2021 in favour of FAG and the
opposing parties filed their appeals in June 2021. The Northern Commercial Court of Appeal opened the appeal proceedings. After several
hearings, in September 2022 the Group received a judgment from the appeal court, which stated that the share sale and purchase agreement
concluded in 2002 was invalid and ordered that 40.19% of the current share capital in FPM should be transferred to the claimants.
Following the identification of numerous errors in the application of Ukrainian law in the judgment of the Northern Commercial Court of Appeal
by the Group’s Ukrainian legal advisors, FAG filed a cassation appeal and requested the Supreme Court of Ukraine to review the ruling made by
the Northern Commercial Court of Appeal. During the hearing on 19 April 2023, the judges of the Grand Chamber of the Supreme Court ruled in
favour of the Group.
Allegations of bribery against the Head of the Supreme Court made by the National-Anti-Corruption Bureau of Ukraine (“NABU“) and the
Specialised Anti-Corruption Prosecutor’s Office (“SAPO“) in May 2023 make reference to the ruling made by the Supreme Court on 19 April 2023
and the Group’s controlling shareholder. Following the subsequent removal of the Head of the Supreme Court, investigations by NABU and
SAPO are underway into the conduct of the former Head of the Supreme Court and a lawyer who allegedly acted as the intermediary in the
alleged bribery. On 3 August 2023, NABU announced that the Group’s controlling shareholder had been issued with a notice of suspicion in
NABU’s and SAPO’s investigation.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
221
Ferrexpo plc Annual Reports & Accounts 2023
Note 30: Commitments, contingencies and legal disputes continued
If the Ukrainian Anti-Corruption Court concludes that a judge received a bribe for the favourable decision in the share dispute case, and such
verdict of the Anti-Corruption Court remains valid after any potential appeal, then the claimants may apply to the Supreme Court to review the
decision of the Grand Chamber of the Supreme Court given on 19 April 2023 due to exceptional circumstances. In February 2024, all four
claimants were dissolved according to the records at the UK Companies House. As at the date of the approval of these consolidated financial
statements, no allegations have been made against the Group in connection with the alleged bribery and it is currently not possible to anticipate
future developments in this case with any certainty.
If the case were to be reviewed by the Grand Chamber of the Supreme Court once again, management remains of the view that FAG has
compelling legal arguments to defend its position. Based on the legal considerations and arguments in the case and taking into account the
advice received from the Group’s Ukrainian legal advisors, management remains of the view that the decision should be in favour of the Group,
but there is a risk that the independence of the judicial system and its immunity from economic and political influences in Ukraine is not upheld.
A hypothetical reversal of the decision by the Grand Chamber of the Supreme Court would result in the loss of a significant proportion of the
shareholding in the Group’s main operating subsidiary in Ukraine, which holds approximately 65% of the Group’s non-current operating assets,
and would have a material adverse impact on the shareholders’ equity attributable to the shareholders of Ferrexpo plc. Due to the uncertainties,
it is currently not possible to reasonably estimate the financial impact, but it could be material. A negative decision could also have an impact on
potential future dividends from FPM to FAG and, as result, on the distributable reserves of Ferrexpo plc (see Note 12 Earnings per share and
dividends paid and proposed for further details).
No non-controlling interest has been recognised as of 31 December 2023 because FPM remains wholly owned by FAG as at the date of the
approval of these consolidated financial statements. It is management’s view that a hypothetical reversal of the decision by the Grand Chamber
of the Supreme Court will not cast significant doubt on the Group’s ability to continue as a going concern. However, such a decision might
complicate the daily business of the Group’s major subsidiary in Ukraine, as the intentions of the opposing parties, the claimants in the share
dispute case, are not clear at this point in time.
Other ongoing legal proceedings and disputes
Other ongoing legal proceedings and disputes with corresponding provisions
Challenge of squeeze-out of minority shareholders
Following the completion of squeeze-out procedures in 2019 in respect of the one of the Group’s subsidiaries in Ukraine, Ferrexpo Poltava
Mining (“FPM”), two former minority shareholders of FPM challenged the valuation of the shares of FPM. This valuation formed the basis for
the mandatory buy-out of minority shareholders according to Ukrainian law.
On 19 September 2023, a court of first instance ruled in favour of the two former minority shareholders and decided that FPM should pay
UAH136 million (US$3,720 thousand as at 31 December 2023) in aggregate to the two former shareholders of FPM. Following the appeal filed
by FPM, the court of appeal in Kharkiv refused on 21 February 2024 to satisfy the appeal of FPM, and FPM subsequently filed a cassation appeal
to the Supreme Court of Ukraine. On 25 March 2024, the Supreme Court suspended the enforcement of the decision of the court of appeal and
scheduled a court hearing for 17 April 2024. On 17 April 2024, the Supreme Court heard the arguments of the parties and scheduled another
hearing for 27 May 2024.
The Group recorded a full provision for this claim as at 31 December 2023, in accordance with the requirements of IAS 37 Provisions,
contingent liabilities and contingent assets.
Other ongoing legal proceedings and disputes without corresponding provisions
Royalty-related investigation and claim
On 3 February 2022, Ferrexpo Poltava Mining (“FPM”) and Ferrexpo Yeristovo Mining (“FYM”) received letters from the Office of Prosecutor
General notifying them about an ongoing investigation into the potential underpayment of iron ore royalty payments during the years 2018 to
2021. The amount of underpayment was not specified in the letters. As part of the investigation, the Office of Prosecutor General requested
documents related to iron ore royalty payments and requested four representatives of the Group’s subsidiaries to appear as witnesses for
investigations.
On 8 February 2022, FPM received a tax audit report, which claims the underpayment of iron ore royalty payments during the period from
April 2017 to June 2021 in the amount of approximately UAH1,042 million (US$27,434 thousand as at 31 December 2023), excluding fines and
penalties. The Group provided its objections to the claims made in the tax audit report. On 11 August 2023, FPM received a tax notification-
decision, which claims the underpayment of royalty payments in the amount of UAH1,233 million (US$32,462 thousand as at 31 December
2023), which is higher than the amount initially stated in the tax audit report due to imposed fines and penalties. FPM challenged the notification
received as part of administrative procedures with the tax authorities. On 20 October 2023, the tax authorities decided that the amount in the
notification-decision is final and not subject to changes. In November 2023, FPM filed a lawsuit before the court to challenge the tax authorities’
decision and the first court hearing took place on 29 January 2024. The hearing scheduled for 18 March 2024 did not take place due to air raid
alerts and a reconvened court hearing on 15 April 2024 decided that the court proceedings are suspended until the review of another case.
On 16 November 2022, detectives from the Bureau of Economic Security of Ukraine conducted searches at FPM and FYM in connection
with the royalty-related investigation. On 3 February 2023, a notice of suspicion was delivered to a senior manager of FPM, which claimed
underpayment of royalty payments in the amount of approximately UAH2,000 million (US$52,656 thousand as at 31 December 2023). Bail of
UAH20 million (US$527 thousand as at 31 December 2023) was approved by the court on 9 February 2023 and subsequently paid by the Group.
On 6 February 2023, the court arrested the bank accounts of FPM. Following a motion to change the scope of the arrest filed by FPM, the
court on 8 February 2023 and on 16 February 2023 added exceptions to the original court order to arrest the bank accounts of FPM in order to
allow FPM to make payments for salaries, local taxes, social security charges, payments for utilities as well as payments to state and municipal
companies. An appeal to cancel the arrest of the bank account of FPM was heard by the court of appeal on 19 April 2023, but the court did not
satisfy the Group’s appeal and the arrest order remains in effect.
222
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 30: Commitments, contingencies and legal disputes continued
On 31 October 2023, a notice of suspicion was delivered to another senior manager of FPM. On 13 November 2023, a court of first instance
approved the bail in the amount of approximately UAH800 million (US$21,062 thousand as at 31 December 2023). An appeal was filed by the
Group’s subsidiary and after several scheduled court hearings were postponed, the next court hearing of the court of appeal to determine the
amount of bail for this senior manager was scheduled for 20 March 2024. However, this hearing was postponed and a reconvened hearing was
scheduled for 2 April 2024, but was postponed to 29 April 2024.
Based on legal advice obtained, it is management’s view that FPM and FYM have compelling arguments to defend their positions in the court
and, as a consequence, no associated liabilities have been recognised in relation to the claim in the consolidated statement of financial position
as at 31 December 2023. However, as with other ongoing legal proceedings, there is a risk that the independence of the judicial system and its
immunity from economic and political influences in Ukraine is not upheld and, in that case, there could be a material adverse impact on the Group.
Investigations on use of waste product and asset freeze
On 10 January 2023, the State Bureau of Investigations (“SBI”) in Ukraine performed several searches in respect of investigations on alleged
illegal extraction of minerals (“rubble”). The National Police of Ukraine also carried out investigations on the same matter and made searches
and collected samples of the rubble on 17 January 2023 at Ferrexpo Poltava Mining (“FPM”). FPM’s position is that the minerals in question
are not a separate mineral resource, but that it is a waste product resulting from the crushing of iron ore during the technical process for the
production of iron ore pellets.
On 29 June 2023, the SBI issued notices of suspicion to three representatives of FPM’s senior management and the head of one division for
allegedly selling the rubble without the appropriate permit. The FPM employees were detained by the SBI and subsequently released after FPM
paid bails totalling UAH122 million (US$3,336 thousand at this point of time) that were approved by the court.
On 22 September 2023, the National Police of Ukraine searched the private residence of a senior manager of FPM and issued a notice of
suspicion. The senior manager was subsequently detained by the National Police of Ukraine. On 26 September 2023, a court of first instance
approved bail in the amount of UAH999 million (US$26,302 thousand as at 31 December 2023) and then on 30 October 2023 the court of
appeal reduced the bail to UAH400 million (US$10,531 thousand as at 31 December 2023). Following payment of the bail by the Group, the
senior manager was released.
The sales of the rubble were subject to inspections by the State Service for Geology and Subsoil of Ukraine for many years and the sales were
suspended by the Group in September 2021. The position of FPM is that based on the mining license held, FPM complied with the relevant
legislation. In the pre-trial investigation of the rubble case and following an application from the prosecutor to arrest (freeze) all rail cars and
railway access tracks owned by FPM, a court of first instance issued the order to do so. FPM filed an appeal and at a hearing of the court of
appeal on 30 October 2023 the court of appeal confirmed the arrest (freeze) of assets, but refused to provide clarifications on the exact scope of
the order which created an alleged restriction on the use of one type of FPM’s rail cars. Since that time FPM has not been using this type of rail
cars (totalling 1,339 units), but continues to use another type of its rail cars (totalling 1,043 units). FPM filed new applications to several courts to
remove the arrest order. In the same pre-trial investigation of the rubble case, some of the real estate assets and transport vehicles of FPM were
also arrested, but this arrest does not restrict the use of these assets in operations. As disclosed under the royalty-related investigation and
claim on page 221, a court in Ukraine arrested on 6 February 2023 the bank accounts of FPM. Following a motion to change the scope of the
arrest filed by FPM, the court on 8 February 2023 and on 16 February 2023 added exceptions to the original court order to arrest the bank
accounts of FPM in order to allow FPM to make payments for salaries, local taxes, social security charges, payments for utilities as well as
payments to state and municipal companies. On 5 March 2024, the same bank accounts were again arrested by another governmental body,
the National Police of Ukraine, but in respect of the investigations on the use of waste products. FPM has filed again a motion to the court to
change the scope of the arrest to allow certain payments to be made from these arrested bank accounts. A court of appeal hearing scheduled
for 16 April 2024 did not take place and a hearing is now scheduled for 14 May 2024.
No associated liabilities have been recognised in relation to this case in the consolidated statement of financial position as at 31 December 2023
as no damage has been claimed from FPM.
Ecological claims
As discussed in detail in the 2022 Annual Report and Accounts, the State Ecological Inspection carried out an inspection of Ferrexpo Yeristovo
Mining (“FYM”) and on 1 October 2021 issued an order to remove a number of alleged violations of environmental rules. After the court of first
instance ruled in favour of FYM on 19 July 2022 the State Ecological Inspection filed an appeal. The court of appeal returned the appeal claim
to the State Ecological Inspection on 20 March 2023 due to procedural mistakes when filing the claim and the State Ecological Inspection
subsequently requested an extension of the deadline for the filing of their next appeal. The State Ecological Inspection subsequently filed
another appeal and on 20 July 2023 the court of appeal returned the appeal claim back to the State Ecological Inspection. There had been
no actions in respect of this dispute until 5 October 2023, when the National Police of Ukraine reviewed land plots of FYM.
Based on legal advice obtained, it is management’s view that FYM has compelling arguments to defend its position in the court and, as a
consequence, no associated liabilities have been recognised in relation to these matters in the consolidated statement of financial position as
at 31 December 2023.
Cancellation of licence for Galeschynske deposit
On 24 June 2021, an Order of the President of Ukraine was published on the official website of the President (the “Order”), which enacted the
Decision of the National Security and Defence Council of Ukraine on the application of personal special economic and other restrictive measures
and sanctions (the “Decision”). Ferrexpo Belanovo Mining (“FBM”) is included in the list of legal entities which are subject to sanctions pursuant
to the Decision. The Order and the Decision do not provide any legal ground for the application of sanctions. The sanction imposed on FBM is
the cancellation of the mining licence for the Galeschynske deposit, which is one of two licences held by FBM.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
223
Ferrexpo plc Annual Reports & Accounts 2023
Note 30: Commitments, contingencies and legal disputes continued
The Galeschynske deposit is a project in the exploration phase that is situated to the north of the Group’s active mining operations. Following the
cancellation of this license and considering the fact that the outcome of the proceedings is currently uncertain, all capitalised costs associated
with this licence totalling US$3,439 thousand were written off during the financial year 2021. A court hearing took place on 4 April 2023 and the
judges considered the evidence presented, but have not yet concluded on the legal merits of this dispute. Another court hearing took place on
12 February 2024 with no decision being taken and the date of the next hearing is unknown as at the date of the approval of these consolidated
financial statements.
Taxation
Tax legislation
As disclosed in Note 11 Taxation, following the completion of tax audits in respect of its cross-border transactions, the Group’s major
subsidiaries, Ferrexpo Poltava Mining (“FPM”) and Ferrexpo Yeristovo Mining (“FYM”) received tax claims in the amount of UAH2,162 million
(US$56,921 thousand as at 31 December 2023), including fines and penalties, and UAH259 million (US$6,819 thousand as at 31 December 2023),
still subject to potential fines and penalties, respectively. The Group’s subsidiaries filed the objections to be considered by the tax authorities.
Based on past experience, it is expected that no agreement will be made with the tax authorities and that the claims will need to be heard by the
courts in Ukraine. On 28 February 2024, a court of first instance opened a case in relation to the lawsuit filed by FPM to challenge the tax-
notification-decisions dated 27 November 2023. The first preparatory hearing took place on 1 April 2024 and the next hearing is scheduled for
20 May 2024. As at the date of the approval of these consolidated financial statements, the court preparatory hearings have just commenced and,
as a result, no final decisions have been made for the claims received by the Group’s subsidiaries in Ukraine. An unfavourable outcome would have
an adverse impact on the Group’s cash flow generation, profitability and liquidity. See Note 11 Taxation and also the update on the Group’s
Principal Risks on pages 76 to 78 in terms of the Ukraine country risk.
Note 31: Share capital and reserves
Accounting policy
Ordinary Shares
Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of Ordinary Shares and share options are recognised
as a deduction from equity, net of any tax effects.
Employee benefit trust reserve
Ferrexpo plc shares held by the Group are recognised at cost and classified in reserves. Consideration received for the sale of such shares is
also recognised in equity, with any difference between the proceeds from the sale and the original cost to be recorded in reserves. No gain or
loss is recognised in the consolidated income statement on the purchase, issue or cancellation of equity shares.
Treasury shares
Own equity instruments, which are reacquired (treasury shares), are recognised at cost and deducted from equity and represent a reduction in
distributable reserves. No gain or loss is recognised in the consolidated income statement on the purchase, sale, issue or cancellation of the
Group’s own equity instruments. Any difference between the carrying amount and the consideration is recognised in reserves.
Translation reserve
The translation reserve represents exchange differences arising on the translation of non-US dollar functional currency operations, mainly those
in Ukrainian hryvnia, within the Group into US dollars.
Share capital
Share capital represents the nominal value on issue of the Company’s equity share capital, comprising £0.10 Ordinary Shares. The fully paid
share capital of Ferrexpo plc at 31 December 2023 was 613,967,956 Ordinary Shares (2022: 613,967,956) at a par value of £0.10 paid for in
cash, resulting in share capital of US$121,628 thousand (2022: US$121,628 thousand) per the statement of financial position. The interest of the
Group’s largest shareholder, Fevamotinico S.a.r.l., in voting rights of Ferrexpo plc is 49.3% as at the date of this report (49.5% as at the time of
publication of the 2022 Annual Report and Accounts).
224
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 31: Share capital and reserves continued
As at 31 December 2023, other reserves attributable to equity shareholders of Ferrexpo plc comprised:
US$000
Uniting of interest Treasury share Employee benefit Translation Total other
reserve reserve trust reserve reserve reserves
At 1 January 2022
31,780
( 7 7, 26 0)
(1,679)
(1,938,972)
(1,986,131)
Foreign currency translation differences
–
–
–
(664,286)
(664,286)
Tax effect
–
–
–
13,036
13,036
Total other comprehensive loss for the year
–
–
–
(651,250)
(651,250)
Share-based payments
–
–
490
–
490
At 31 December 2022
31,780
( 7 7, 26 0)
(1,189)
(2,590,222)
(2,636,891)
Foreign currency translation differences
–
–
–
(54,847)
(54,847)
Tax effect
–
–
–
1,479
1,479
Total other comprehensive loss for the year
–
–
–
(53,368)
(53,368)
Share based payments
–
–
830
–
830
Effect from transfer of treasury shares
–
29,000
(15,865)
–
13,135
At 31 December 2023
31,780
(48,260)
(16,224)
(2,643,590)
(2,676,294)
Uniting of interest reserve
The uniting of interest reserve represents the difference between the initial investment by Ferrexpo AG in Ferrexpo Poltava Mining to gain control
of the subsidiary in 2005 and the net assets acquired, which under the pooling of interests method of accounting are consolidated at their
historic cost, less non-controlling interests.
Treasury share reserve
In September 2008, Ferrexpo plc completed a buy-back of 25,343,814 shares for a total cost of US$77,260 thousand. These shares are currently
held as treasury shares by the Group. The Companies Act 2006 forbids the exercise of any rights (including voting rights) and the payment of
dividends in respect of treasury shares. On 10 March 2023, the Group transferred 9,513,000 shares from the treasury shares reserve to the
Group’s employee benefit trust reserve, resulting in 15,830,814 shares in the treasury share reserve as of 31 December 2023 (2022: 25,343,814
shares).
Employee benefit trust reserve
This reserve represents the treasury shares held to satisfy future grants for senior management incentive schemes. Information on the Group’s
share-based payments is provided in Note 28 Share-based payments. Subsequent to the transfer of 9,513,000 shares from the treasury share
reserve on 10 March 2023, the employee benefit trust reserve includes 9,801,643 shares as at 31 December 2023 (2022: 577,370 shares).
Translation reserve
The Ukrainian hryvnia remained unchanged at 36.568 to the US dollar from 21 July 2022 to 30 September 2023, when the National Bank of
Ukraine (“NBU”) lifted the peg that had been in place since the devaluation of the local currency from 29.255 to 36.568. As a result of the
significant balance in foreign currencies currently held by the NBU, the local currency remained relatively stable until the end of the financial
year 2023, compared to a depreciation of the Ukrainian hryvnia of c. 34% during the financial year 2022 resulting in a significant reduction of the
Group’s net assets as assets and liabilities of the Ukrainian subsidiaries are denominated in the local currency and the effect from the translation
is reflected in the translation reserve. See also page 172.
Note 32: Consolidated subsidiaries
Accounting policy
Entities are included in the consolidated financial statements from the date of obtaining control and the inclusion in the consolidated financial
statements is consequently ceased when the control over an entity is lost. Control is obtained when the Group is exposed, or has the rights, to
variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee that gives the
current ability to direct the relevant activities. Control can be obtained through voting rights, but also through agreements, statutes, contracts,
trust deeds or other schemes.
Non-controlling interests in the net assets of consolidated subsidiaries are shown separately in the Group’s consolidated statement of financial
position and consolidated statement of changes in equity. The share of the profit attributable to non-controlling interests is shown in the
consolidated income statement and the consolidated statement of comprehensive income. The carrying amount of the non-controlling interests
is adjusted for any change in ownership interest to reflect the relative controlling and non-controlling interests in the subsidiary. Any difference
between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in the equity attributable
to equity shareholders of Ferrexpo plc.
The Group comprises Ferrexpo plc and its consolidated subsidiaries. The Group’s interests in the entities are held indirectly by the Company,
with the exception of Ferrexpo AG, which is directly held. All of the Group’s major subsidiaries are wholly owned. The interests that non-
controlling interests have in the Group’s operations are not material and no significant judgements and assumptions were required to determine
that the Group has control over these entities. The Group’s consolidated subsidiaries are listed on page 235.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
225
Ferrexpo plc Annual Reports & Accounts 2023
Note 32: Consolidated subsidiaries continued
The Group does not have any other interests of 20% or more in undertakings that are not disclosed on page 235, except for the investment in
the associate mentioned in Note 33 Investments in associates.
Note 33: Investments in associates
Accounting policy
The Group’s investments in associates are accounted for using the equity method of accounting. An associate is an entity in which the Group
has significant influence and which is neither a subsidiary nor a joint venture.
Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus any post-acquisition
changes in the Group’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the
investment and is not amortised nor individually tested for impairment. After application of the equity method, the Group determines whether
it is necessary to recognise any additional impairment loss with respect to the Group’s investment in the associate.
The share of profit from an associate is shown on the face of the consolidated income statement. This is the profit attributable to the Group
and is therefore the profit after tax and non-controlling interests in the subsidiaries of the associate. The reporting dates of the associates and
the Group are identical and the associates’ accounting policies are generally in conformity with those applied by the Group.
The Group holds an interest of 49.9% (2022: 49.9%) in TIS Ruda LLC, operating a port on the Black Sea, which the Group uses as part of its
distribution channel.
US$000
Year ended Year ended
31.12.23 31.12. 22
Opening balance
5,167
7,0 3 4
Share of profit
(372)
557
Dividends declared
−
(881)
Translation adjustments
(179)
(1,543)
Closing balance
4,616
5,167
1
For the year ended 31 December 2023 the summarised financial information for the associate was as follows:
Revenue
Net (loss)/profit
Year ended Year ended Year ended Year ended
US$000 31.12.23 31.12. 22 31.12.23 31.12. 22
TIS Ruda LLC
773
4,077
(745)
1,116
1
1. Based on preliminary and unaudited financial information.
Since February 2022, the operations at the port of Pivdennyi have been suspended due to the war in Ukraine, which has an adverse impact on
the business and financial position of TIS Ruda LLC. Following Russia’s withdrawal from the Black Sea Grain Agreement, a new alternative corridor
for shipments from the Ukrainian Black Sea ports was established, which was also used for non-grain shipments. TIS Ruda started the preparations
for the re-start of its operations at the end of 2023 and resumed the port operation again in January 2024. The situation remains very volatile and
the level and duration of TIS Ruda’s operations is still difficult to reliably predict.
The figures in the table above represent 100% of the associate’s revenue and net profit and not the Group’s share based on its ownership. As at
31 December 2023, the associate’s total assets were US$14,345 thousand (2022: US$15,237 thousand) and the total liabilities were US$5,094
thousand (2022: US$4,883 thousand) based on preliminary and unaudited statutory accounts. Any deviations from the Group’s associate’s
equity based on the audited financial statements is adjusted subsequent to the year end once the audited financial statements are available.
The Group became aware that a governmental body in Ukraine tried to confiscate UAH355 million (US$9,346 thousand) of TIS Ruda’s available
liquidity during the financial year 2023, but was not successful as the bank refused to confiscate the amount without a valid court order. As at the
date of the approval of these consolidated financial statements, the amount is still on TIS Ruda’s bank account, but currently not fully available
for general business expenses. A successful confiscation of this amount by the governmental body would have an impact on the Group’s share
in the equity of the associate.
Note 34: Related party disclosures
During the years presented, the Group entered into arm’s length transactions with entities under the common control of Kostyantin Zhevago,
a controlling shareholder of Ferrexpo plc, with associated companies and with other related parties. Management considers that the Group has
appropriate procedures in place to identify, control, properly disclose and obtain independent confirmation, when relevant, for transactions with
the related parties.
Entities under common control are those under the control of Kostyantin Zhevago. Associated companies refer to TIS Ruda LLC, in which the
Group holds an interest of 49.9% (2022: 49.9%). See Note 33 Investments in associates for further details. This is the only associated company
of the Group. Information on the Directors’ fee payments made to the Non-executive Directors and Executive Directors is provided in the
Remuneration Report on pages 141 and 142.
226
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 34: Related party disclosures continued
Related party transactions entered into by the Group during the years presented are summarised in the following tables:
Revenue, expenses, finance income and expense
Year ended 31.12.23
Year ended 31.12.22
Entities Entities
under Other under Other
common Associated related common Associated related
US$000 control companies parties control companies parties
Other sales
271
–
1
560
–
2
Total related party transactions within revenue
271
–
1
560
–
2
Materials and services
6,473
–
–
6,784
–
–
Spare parts and consumables
1,730
–
–
7,056
–
–
Other expenses
1,289
–
–
1,948
–
–
Total related party transactions within cost of sales
9,492
–
–
15,788
–
–
Selling and distribution expenses
5,825
20
–
6,542
3,819
–
General and administration expenses
200
–
691
398
–
567
Other operating expenses
1,019
–
–
2,019
–
–
Finance expense
3
–
–
8
–
–
Total related party transactions within expenses
16,539
20
691
24,755
3,819
567
Total related party transactions
16,810
20
692
25,315
3,819
569
a
b
c
d
e
f
g
A description of the most material transactions, which are in aggregate over US$200 thousand in the current or comparative year, is given below.
Entities under common control
The Group entered into various related party transactions with entities under common control. All transactions were carried out on an arm’s length basis in the normal course of business.
a Sales of scrap metal to OJSC Uzhgorodsky Turbogas totalling US$170 thousand (2022: US$361 thousand);
b Purchases of oxygen, scrap metal and services from Kislorod PCC for US$1,020 thousand (2022: US$1,437 thousand);
b Purchases of cast iron balls from OJSC Uzhgorodsky Turbogas for US$4,552 thousand (2022: US$4,258 thousand); and
b Purchase of maintenance and construction services from FZ Solutions LLC for US$779 thousand (2022: US$997 thousand).
c Purchases of spare parts from OJSC AvtoKraz Holding in the amount of US$2 thousand (2022: US$1,799 thousand);
c Purchases of spare parts from CJSC Kyiv Shipbuilding and Ship Repair Plant (“KSRSSZ”) in the amount of US$218 thousand (2022: US$902 thousand);
c Purchases of spare parts from OJSC Uzhgorodsky Turbogas in the amount of US$746 thousand (2022: US$1,460 thousand);
c Purchases of spare parts from FZ Solutions LLC of US$372 thousand (2022: US$1,125 thousand);
c Purchases of spare parts from Kislorod PCC in the amount of US$256 thousand (2022: US$410 thousand); and
c Purchases of spare parts from Valsa GTV of US$137 thousand (2022: US$1,231 thousand).
d Insurance premiums of US$1,289 thousand (2022: US$1,948 thousand) paid to ASK Omega for insurance cover in respect of mining equipment and machinery.
e Purchases of advertisement, marketing and general public relations services from FC Vorskla of US$5,823 thousand (2022: US$6,541 thousand).
g Insurance premiums of US$804 thousand (2022: US$1,085 thousand) paid to ASK Omega for workmen’s insurance and other insurances;
g Purchase of marketing services from TV & Radio Company of US$210 thousand (2022: US$212 thousand); and
g Purchase of food under the Ferrexpo Humanitarian Fund from JSC Kremenchukmyaso in the amount of US$798 thousand in the comparative year ended 31 December 2022. No such
purchases as at 31 December 2023. See page 228 for further information on the Ferrexpo Humanitarian Fund.
Associated companies
The Group entered into related party transactions with its associated company, TIS Ruda LLC, which were carried out on an arm’s length basis in the normal course of business for the
members of the Group (see Note 33 Investments in associates).
e Purchases of logistics services in the amount of US$20 thousand (2022: US$3,819 thousand) relating to port operations, including port charges, handling costs, agent commissions and
storage costs. The scope of the services procured from TIS Ruda is heavily affected by the ongoing war in Ukraine as the Group’s seaborne sales through the port of Pivdennyi were
suspended since the beginning of the war. See Note 33 Investments in associates for further information.
Other related parties
The Group entered into various transactions with related parties other than those under the control of a controlling shareholder of Ferrexpo plc. All transactions were carried out on an arm’s
length basis in the normal course of business.
f Legal and administrative services in the amount of US$510 thousand (2022: US$387 thousand) provided by Kuoni Attorneys at Law Ltd., which is controlled by a member of the Board of
Directors of one of the subsidiaries of the Group. The Directors’ fees paid totalled US$100 thousand for the financial year 2023 (2022: US$100 thousand).
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
227
Ferrexpo plc Annual Reports & Accounts 2023
Note 34: Related party disclosures continued
Purchases of property, plant and equipment
The table below details the transactions of a capital nature, which were undertaken between Group companies and entities under common
control, associated companies and other related parties during the years presented.
Year ended 31.12.23
Year ended 31.12.22
Entities Entities
under Other under Other
common Associated related common Associated related
US$000 control companies parties control companies parties
Purchases in the ordinary course of business
3,499
–
–
11,6 34
–
–
Total purchases of property, plant and equipment
3,499
–
–
11,63
4
–
–
During the year ended 31 December 2023, the Group purchased major spare parts and equipment from FZ Solutions LLC totalling US$3,499
thousand (2022: US$11,598 thousand) in respect of the continuation of the Wave 1 pellet plant expansion project.
The FPM Charity Fund owns 75% of the Sport & Recreation Centre (“SRC”) in Goryshnye Plavnye and made contributions totalling US$69
thousand during the year ended 31 December 2023 (2022: US$154 thousand) for the construction and maintenance of the building, including
costs related to electricity, gas and water consumption. The remaining stake of 25% is owned by JSC F&C Realty, which is under the control of
Kostyantin Zhevago.
Balances with related parties
The outstanding balances, as a result of transactions with related parties, for the years presented are shown in the table below:
As at 31.12.23
As at 31.12.22
Entities Entities
under Other under Other
common Associated related common Associated related
US$000 control companies parties control companies parties
Other non-current assets
3,001
–
–
3,847
–
–
Total non-current assets
3,001
–
–
3,847
–
–
Trade and other receivables
71
3,125
–
38
3,245
1
Prepayments and other current assets
124
389
–
745
120
–
Total current assets
195
3,514
–
783
3,365
1
Trade and other payables
1,219
–
–
2,057
244
–
Total current liabilities
1,219
–
–
2,057
244
–
g
h
i
j
A description of the balances over US$200 thousand in the current or comparative year is given below.
Entities under common control
g Other non-current assets include prepayments for property, plant and equipment totalling US$2,990 thousand (2022: US$3,787 thousand) were made to FZ Solutions LLC mainly in
relation to the Wave 1 expansion project of the processing plant.
i Prepayments and other current assets to ASK Omega for insurance premiums in the amount of US$233 thousand as at the comparative year ended 31 December 2022. No such
prepayments as at 31 December 2023; and
i Prepayments and other current assets totalling US$89 thousand to FZ Solutions LLC (2022: US$327 thousand) related to the purchase of spare parts and services.
j Trade and other payables of US$703 thousand (2022: US$1,603 thousand) related to the purchase of spare parts and services from FZ Solutions LLC; and
j Trade and other payables of US$317 thousand (2022: nil) related to the purchase of spare parts from Uzhgorodsky Turbogas, OJSC.
Associated companies
h Trade and other receivables included US$3,125 thousand (2022: US$3,245 thousand) related to dividends declared by TIS Ruda LLC.
i Prepayments and other current assets included US$389 thousand (2022: US$120 thousand) related to cargo storage services from TIS Ruda LLC.
j Trade and other payables to TIS Ruda LLC related to purchases of logistics services in the amount of US$244 thousand in the comparative year ended 31 December 2022. No such
purchases as at 31 December 2023.
Payments on behalf of a key management member
As disclosed in Note 30 Commitments, contingencies and legal disputes, the Group is subject to various legal actions and ongoing court
proceedings initiated by certain governmental bodies in Ukraine. It is current practice of these governmental bodies to issue notices of suspicion
to members of the senior management of the Group’s subsidiaries in Ukraine and requesting significant bail payments.
During the financial year ended 31 December 2023, the Group made bail payments totalling UAH540 million (US$14,901 thousand at the
applicable exchange rates on dates of payments) on behalf of four members of the senior management of one of the Group’s subsidiaries
in Ukraine.
Due to their roles as key management members of the Group, the payments made are considered to be related party transactions under the
Listing Rules as the payments were made to their benefit. As a result and as required by the Listing Rules, the Group consulted its sponsor
before making any of these payments.
228
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Consolidated Financial Statements continued
Note 34: Related party disclosures continued
One bail payment made in November 2023 in the amount UAH400 million (US$11,062 thousand at the applicable exchange rate on date of
payment) was a smaller related party transaction for the purposes of Listing Rule 11.1.10R and, as per the requirements of Listing Rule 11.1.10R,
the Group has obtained written confirmation from its sponsor that the terms of the transaction are fair and reasonable as far as the shareholders
of Ferrexpo plc are concerned. Further to that, the Group made an announcement in accordance with Listing Rule 11.1.10R(2)(c) on 2 November
2023.
The Ferrexpo Humanitarian Fund
Following the Russian invasion into Ukraine in February 2022, the Group has established the Ferrexpo Humanitarian Fund with total approved
funding of US$15,000 thousand in order to support local communities in Ukraine. The Group procured during the previous financial year ended
31 December 2022 medicine totalling US$404 thousand from Arterium LLC and food totalling US$798 thousand from JSC Kremenchukmyaso,
both under common control of Kostyantin Zhevago, a controlling shareholder of Ferrexpo plc. During the financial year ended 31 December
2023, no procurements were made from these companies under the Ferrexpo Humanitarian Fund.
Note 35: Events after the reporting period
As disclosed in Note 30 Commitments, contingencies and legal disputes, following the end of the reporting year the Group received two negative
decisions from courts of appeal in Ukraine in respect of ongoing legal proceedings and disputes that existed during the financial year 2023. The
first negative court decision related to a contested sureties claim, details of which were announced on 29 January 2024 on the Regulatory News
Service of the London Stock Exchange, and the second negative court decision related to a historic squeeze-out of minority shareholders in one
of the Group’s Ukrainian subsidiaries. As a result of these negative court decisions, the Group recorded provisions in the amount of US$124,450
thousand for the contested surety claim, and US$3,720 thousand in relation to the claim from two former minority shareholders of one of the
Group’s Ukrainian subsidiaries in respect of a squeeze-out of minority shareholders. The outcome of the contested sureties claim could have a
material negative impact on the Group’s business activities and its ability to continue as a going concern. See Note 2 Basis of preparation and
Note 30 Commitments, contingencies and legal disputes for further information.
As announced on 20 February 2024, the Board of Directors decided not to proceed with the interim dividend of 3.3 US cents per ordinary share,
which was announced on 18 January 2024 and was due to be paid to the shareholders on 23 February 2024. The decision to withdraw this
dividend followed the unexpected court decision in the contested sureties claim mentioned above. See Note 12 Earnings per share and
dividends paid and proposed for further information.
As announced on 11 March 2024 on the Regulatory News Service of the London Stock Exchange, a supplier and related party to the Group filed
an application to open bankruptcy proceedings (“creditor protection proceedings”) against Ferrexpo Poltava Mining (“FPM”), which was accepted
by the relevant court for further consideration. The initial amount of debt claimed by the supplier of FPM was UAH2.2 million, which subsequently
increased to UAH4.6 million (c. US$117 thousand as at 15 April 2024). See Note 2 Basis of preparation and Note 30 Commitments, contingencies
and legal disputes for further information.
The Group also announced on 11 March 2024 that FPM received a notification of a court order issued at the request of the prosecutor in Ukraine
to freeze the bank accounts of FPM. The freeze of FPM’s bank accounts is linked to an ongoing investigation in Ukraine concerning the alleged
illegal extraction of minerals (“rubble”). See Note 30 Commitments, contingencies and legal disputes for further information.
As announced on 26 March 2024 on the Regulatory News Service of the London Stock Exchange, the Group became aware on 25 March 2024
of a court order dated 18 January 2024 in the Ukrainian Register of Court Decisions regarding restrictions on certain corporate rights in all of
Group’s Ukrainian subsidiaries. These restrictions are part of the ongoing investigation in connection with Bank F&C and the Group is not a party
to the proceedings in which the restrictions have been imposed. See Note 30 Commitments, contingencies and legal disputes for further
information.
No other material adjusting or non-adjusting events have occurred subsequent to the year-end other than the events disclosed above.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
229
Ferrexpo plc Annual Reports & Accounts 2023
Parent Company Statement of Financial Position
Ferrexpo plc (the “Company”) is required to present its separate Parent Company statement of financial position and certain notes to the
statement of financial position on a standalone basis as at 31 December 2023 and 2022, which have been prepared in accordance with Financial
Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”). Information on the principal accounting policies is outlined in Note3
Material accounting policies.
Ferrexpo plc is exempt from presenting a standalone Parent Company profit and loss account and statement of comprehensive income in
accordance with Section 408 of the UK Companies Act 2006.
US$000
Notes
As at
31.12.23
As at
31.12. 22
(Restated)
Fixed assets
Investment in subsidiary undertakings
4 163,276 162,446
Total fixed assets 163,276 162,496
Current assets
Debtors: amounts falling due within one year
5 10,577 118,664
Debtors: amounts falling due after more than one year
5 275,653 148,437
Cash at bank and in hand 340 12
Total current assets 286,570 267,113
Creditors: amounts falling due within one year 8,636 5,384
Net current assets 277,934 261,729
Total assets less current liabilities 441,210 424,175
Net assets 441,210 424,175
Capital and reserves
Called up share capital
6 121,628 121,628
Share premium account 185,112 185,112
Treasury share reserve
6 (48,260) ( 7 7, 2 6 0 )
Employee benefit trust reserve
6 (16,224) (1,189)
Retained earnings
6 198,954 195,884
Total capital and reserves 441,210 424,175
The profit after taxation for the Company, registration number 05432915, was US$16,640 thousand for the financial year ended 31 December 2023
(2022: US$101,926 thousand).
See Note 4 Investment in subsidiary undertakings in relation to the restatement of balances as at the end of the comparative year ended
31 December 2022.
The financial statements were approved by the Board of Directors and authorised for issue on 17 April 2024 and signed on behalf of the Board.
Lucio Genovese Nikolay Kladiev
Executive Chair Chief Financial Officer and Executive Director
230
Ferrexpo plc Annual Reports & Accounts 2023
Parent Company Statement of Changes in Equity
US$000
Issued
capital
Share
premium
Treasury
share reserve
Employee benefit
trust reserve
Retained
earnings
Total capital
and reserves
At 1 January 2022 121,628 185,112 ( 7 7, 26 0 ) (1,679) 249,753 477, 5 5 4
Profit for the year – – – – 101,926 101,926
Total comprehensive income for the year – – – – 101,926 101,926
Equity dividends paid to shareholders – – – – (155,795) (155,795)
Share-based payments – – – 490 – 490
At 31 December 2022 121,628 185,112 (77, 26 0 ) (1,189) 195,884 424,175
Profit for the year – – – – 16,640 16,640
Total comprehensive income for the year – – – – 16,640 16,640
Equity dividends paid to shareholders – – – – (435) (435)
Share-based payments – – – 830 – 830
Effect from transfer of treasury shares – – 29,000 (15,865) (13,135) –
At 31 December 2023 121,628 185,112 (48,260) (16,224) 198,954 441,210
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
231
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Parent Company Financial Statements
Note 1: Corporate information
The Company is incorporated and registered in England, which is considered to be the country of domicile, with its registered office at
55StJames’s Street, London SW1A 1LA, UK. The Company’s Ordinary Shares are traded on the London Stock Exchange.
The majority shareholder of the Company is Fevamotinico S.a.r.l. (“Fevamotinico”), a company incorporated in Luxembourg and ultimately
ownedbyTheMinco Trust, of which Kostyantin Zhevago and two other members of his family are the beneficiaries. At the time this report was
published, Fevamotinico held 49.3% (49.5% at the time of publication of the 2022 Annual Report and Accounts) of the Company’s issued voting
share capital (excluding treasury shares).
Note 2: Basis of preparation
The financial statements are prepared under the historical cost convention and in accordance with Financial Reporting Standard 101 Reduced
Disclosure Framework (“FRS 101”).
The financial statements are presented in US dollars (US$), the Company’s functional currency, and all values are rounded to the nearest
thousand, except where otherwise indicated. The functional currency is determined as the currency of the primary economic environment in
which the Company operates. The majority of the Company’s operating activities are conducted in US dollars.
The Company has taken advantage of the following disclosure exemptions under FRS 101 as the Company is included in publicly available
consolidated financial statements, which include disclosures that comply with the standards listed below:
– the requirements of paragraphs 45(b) and 46–52 of IFRS 2 Share-based payments;
– the requirements of IFRS 7 Financial instruments: Disclosures;
– the requirements of paragraphs 91–99 of IFRS 13 Fair value measurements;
– the following paragraphs of IAS 1 Presentation of financial statements:
– 10 (d) (statement of cash flows);
– 16 (statement of compliance with all IFRSs);
– 38A (requirement for minimum of two primary statements, including cash flow statements);
– 38B-D (additional comparative information);
– 111 (cash flow statement information); and
– 134–136 (capital management disclosures).
– the requirements of IAS 7 Statement of cash flows;
– the requirements of paragraphs 30 and 31 of IAS 8 Accounting policies, changes in accounting estimates and errors; and
– the requirements of paragraph 17 of IAS 24 Related party disclosures and the requirements to disclose related party transactions entered
intobetween two or more members of a group, provided that any subsidiary, which is a party to the transaction, is wholly owned by such
amember of the same standard.
The Company has applied the exemption not to present a third statement of financial position as at the beginning of the preceding period
wherethere has been a retrospective restatement, in accordance with paragraph 10(f) (a statement of financial position as at the beginning of
thepreceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial
statements, or when it reclassifies items in its financial statements); and 40A–D (requirements for a third statement of financial position). See
Note4 Investments in subsidiary undertakings and Note 5 Debtors for further information.
The Company does not have any employees other than the Directors. The requirement to give employee numbers and costs information under
Section 411 of the Companies Act 2006 is addressed in the Directors’ Remuneration Report of the Group on pages 141 and 142.
Going concern
As at the date of the approval of these financial statements, the war in Ukraine is still ongoing and the duration is difficult to predict. During the
financial year 2023, the Group continued to demonstrate a high level of commitment and resilience that enabled it to operate at a constant,
butlower capacity, with a high degree of flexibility to adapt its operations to such changing circumstances.
The ongoing war and the situation in the country continues to represent a material uncertainty in terms of the Group’s ability to continue
asagoing concern. In addition to the war-related material uncertainty, the Group is also exposed to the risks associated with operating in
adeveloping economy, which may or may not be exacerbated by the war and/or the current circumstances facing the Group’s controlling
shareholder (see Ukraine country risk on pages 76 to 78 of the Group’s consolidated financial statements). As a result, the Group is exposed
toanumber of risk areas that are heightened compared to those expected in a developed economy, such as an environment of political,
fiscaland legal uncertainties, which represents another material uncertainty as at the date of the approval of these financial statements.
Considering the current situation of the ongoing war and legal disputes in Ukraine, mainly the contested sureties claim, the Group’s ability to
swiftly adapt to the changing circumstances, as demonstrated during the financial years 2023 and 2022, and the results of the management’s
going concern assessment, the Company continues to prepare its financial statements on a going concern basis. However, many of the
identified uncertainties in respect of the ongoing war and legal disputes in Ukraine are outside of the Group management’s control, and are
unpredictable, which may cast significant doubt upon the Company’s ability to continue as a going concern, including a potential seizure of
theGroup’s movable and immovable assets in Ukraine in respect of the contested sureties claim.
See Note 2 Basis of preparation and Note 30 Commitments, contingencies and legal disputes of the Group’s consolidated financial statements
for further information, which should be read in conjunction with this note.
If the Group, and as a consequence the Company, is unable to continue to realise assets and discharge liabilities in the normal course of
business, it would be necessary to adjust the amounts in the statement of financial position in the future to reflect these circumstances, which
may materially change the measurement and classification of certain figures contained in these financial statements.
232
Ferrexpo plc Annual Reports & Accounts 2023
Notes to the Parent Company Financial Statements continued
Note 3: Material accounting policies
Foreign currencies
The accounting policy is consistent with the Group’s policy set out in Note 2 Basis of preparation to the Group’s consolidated financial
statements.
Investments in subsidiary undertakings
Equity investments in subsidiaries are carried at cost less any provision for impairments. Investments are reviewed for impairment at each
reporting date. If indication exists that investments may be impaired, the investments’ recoverable amounts are estimated. If the carrying
amountof an investment exceeds its recoverable amount, the investment is considered impaired and is written down to its recoverable amount,
which is the higher of its fair value less costs of disposal and its value-in-use. Impairment losses are recognised in the income statement.
Amounts owed by subsidiary undertakings
Amounts owed by subsidiary undertaking are interest-bearing loans provided to entities of the Group. These loans are recognised at cost,
beingthe fair value of the consideration transferred. After initial recognition, interest-bearing loans are subsequently measured at amortised
costusing the effective interest method. In addition to the individual assessment at each reporting date whether a financial asset or group of
financial assets is impaired, the Company also assesses the expected credit losses on financial assets carried at amortised cost. The loss
allowance is measured at an amount equal to the lifetime expected credit losses. On consideration of the fact that the Group has a fully
integrated organisational structure with no history of default of its subsidiaries, the calculation of the allowance for amounts owed by subsidiary
undertakings is based on the default risk and recovery ratings of the Group adjusted for current observable circumstances and forecast
information. This assessment is performed individually for all financial assets that are individually significant and collectively for those that are
notindividually significant and have similar credit risk characteristics. The carrying amount of the financial assets is reduced by an allowance
account with the change of the allowance being recognised as a component of the profit after taxation. Individual balances are written off when
management deems that there is no possibility of recovery.
Financial guarantees
Financial guarantee liabilities issued by the Company, including guarantees issued in favour of subsidiary undertakings, are those contracts that
require a payment to be made to reimburse the holder for a loss, which is incurred because the specified debtor fails to make a payment when
due in accordance with the terms of a debt instrument.
Financial guarantees provided are initially recognised at fair value and subsequently measured at the higher of the loss allowances determined
under IFRS 9 Financial instruments and the amount initially recognised less, when appropriate, cumulative fees recognised as revenue under
IFRS 15 Contracts with customers.
Treasury share reserve
Own equity instruments, which are reacquired (treasury shares), are recognised at cost and deducted from equity shown in the treasury
sharereserve. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group’s own equity
instruments. Any difference between the carrying amount and the consideration is recognised in reserves.
Share-based payments
The accounting policy is consistent with the Group’s policy set out in Note 28 Share-based payments to the Group’s consolidated financial
statements.
Employee benefit trust reserve
Ferrexpo plc shares held by the Company are classified in capital and reserves as employee benefit trust reserves and recognised at cost.
Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the
original cost taken to revenue reserves. No gain or loss is recognised on the purchase, sale issue or cancellation of equity shares.
Dividend income
Dividend income is recognised to the extent that the Company has the right to receive payment, typically upon declaration by the subsidiary.
Taxation
The accounting policy is consistent with the Group’s policy set out in Note 11 Taxation to the Group’s consolidated financial statements.
Changes in accounting policies
The accounting policies adopted and applied in the preparation of the financial statements are consistent with those of the previous year,
exceptfor the adoption of new and amended IFRSs and IFRIC interpretations effective as of 1 January 2023. The new and amended IFRSs
andIFRIC interpretations adopted are consistent with the Group’s new accounting policies set out in Note 3 New accounting policies to the
Group’s consolidated financial statements and have not had a significant impact on these financial statements.
Use of critical estimates and judgements
Critical judgements made by management in preparing the separate Parent Company financial statements predominantly relate to the basis
ofpreparation of these financial statements in respect of the going concern assumption (see previous page).
The Company has not identified any area involving the use of critical estimates.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
233
Ferrexpo plc Annual Reports & Accounts 2023
Note 4: Investment in subsidiary undertakings
Investment in subsidiary undertakings as at 31 December 2023 relates to the Company’s investment in Ferrexpo AG, which is domiciled in
Switzerland and wholly owned by the Company. The subsidiary’s registered office is at Bahnhofstrasse 13, 6340 Baar, Switzerland.
US$000
At 31.12.23
At 31.12.22
(Restated)
Investment in subsidiary undertakings 163,276 162,446
Total investment in subsidiary undertakings 163,276 162,446
During the year it was identified that previous share-based payment transactions in relation to the Group’s long-term incentive plan had been erroneously
recognised as a receivable instead of a contribution in kind to be reflected in investments in subsidiary undertakings. The Company reclassified during
the financial year 2023 a net balance of US$12,600 thousand in relation to this error and, as a consequence, restated certain balances as at the
end of the comparative year ended 31 December 2022. The balances of investments in subsidiary undertakings and creditors falling due within one
year increased by US$14,950 thousand and US$2,350 thousand, respectively, and the balance of debtors falling due within one year decreased by
US$12,600 thousand. The restatement did not affect the Company’s result for the financial year 2022 or its retained earnings as at 31 December 2022.
See Note 32 Consolidated subsidiaries to the Group’s consolidated financial statements for further information on subsidiaries indirectly held by theCompany.
Note 5: Debtors
Debtors as at 31 December 2023 related to the following:
US$000
At 31.12.23
At 31.12.22
(Restated)
Amounts falling due within one year
Amounts owed by subsidiary undertakings – 114,437
Prepaid expenses 942 600
Income tax receivable – 139
Accrued interest owed by subsidiary undertakings 9,635 3,488
Total amounts falling due within one year 10,577 118,6 6 4
Amounts falling due after more than one year
Amounts owed by subsidiary undertakings 275,045 148,437
Deferred tax asset 608 −
Total amounts falling due after more than one year 275,653 148,437
Total debtors 286,230 279,701
Amounts owed by subsidiary undertakings falling due after more than one year include loans and dividend receivable balances contractually payable
ondemand but having assessed the expected repayment profile and payment date, this balance is presented as falling due after more than one year.
The table above includes the impact from the application of the expected credit loss impairment model under IFRS 9 Financial instruments.
Theeffect from the change of impairment losses on debtors included in the profit after taxation was a gain of US$830 thousand for the year-end
ended 31 December 2023 (2022: loss of US$1,027 thousand). The total expected credit loss allowance booked on the statement of financial
position was US$604 thousand as at 31 December 2023 (2022: US$1,434 thousand).
See Note 4 Investment in subsidiary undertakings in relation to the restatement of balances as at the end of the comparative year ended
31 December 2022.
Note 6: Share capital and reserves
Share capital
Share capital represents the nominal value on issue of the Company’s equity share capital, comprising £0.10 Ordinary Shares. The fully paid
share capital of the Company as at 31 December 2023 was 613,967,956 Ordinary Shares (2022: 613,967,956 Ordinary Shares) at a par value of
£0.10 paid for in cash, resulting in share capital of US$121,628 thousand (2022: US$121,628 thousand) per the statement of financial position.
Treasury share reserve
In September 2008, the Company completed a buy-back of 25,343,814 shares for a total cost of US$77,260 thousand. These shares are
currently held as treasury shares by the Group. The Companies Act 2006 forbids the exercise of any rights (including voting rights) and the
payment of dividends in respect of treasury shares. On 10 March 2023, the Group transferred 9,513,000 shares from the treasury shares reserve
to the Group’s employee benefit trust reserve, resulting in 15,830,814 shares remaining in the treasury share reserve as of 31 December 2023
(2022: 25,343,814 shares).
Employee benefit trust reserve
This reserve represents the treasury shares used to satisfy future grants for senior management incentive schemes. The employee benefit trust
reserve includes 9,801,643 shares as at 31 December 2023 (2022: 577,370 shares), including 9,513,000 shares transferred on 10 March 2023
from the treasury shares reserve to the employee benefit trust reserve.
234
Ferrexpo plc Annual Reports & Accounts 2023
Note 6: Share capital and reserves continued
Distributable reserves
The Company is the Group’s holding company, with no direct operating business, so its ability to make distributions to its shareholders is
dependent on its ability to access profits held in the subsidiaries. The Company’s retained earnings shown in the statement of changes in equity
as of 31 December 2023 do not reflect the profits that are available for distribution by the Company as of this date. Taking into account relevant
thin capitalisation rules and provisions of the Companies Act 2006, the total available distributable reserves of Ferrexpo plc is US$119,520
thousand as of 31 December 2023 (2022: US$118,624 thousand). Details on dividends are disclosed in Note 12 Earnings per share and
dividends paid and proposed of the Group’s consolidated financial statements.
Note 7: Events after the reporting period
One of the Group’s subsidiaries in Ukraine received two negative decisions from courts of appeal in Ukraine in respect of ongoing legal
proceedings and disputes that commenced already during the financial year 2023. The outcome of one of these legal disputes could have a
material negative impact on the Group’s business activities and its ability to continue as a going concern, and consequently also on the
Company’s ability to continue as a going concern. See Note 2 Basis of preparation and Note 30 Commitments, contingencies and legal disputes
of the Group’s consolidated financial statements for further information.
As announced on 20 February 2024, the Board of Directors has decided not proceed with the interim dividend of 3.3 US cents per ordinary
share, which was announced on 18 January 2024 and was due to be paid to the shareholders on 23 February 2024. See Note 12 Earnings per
share and dividends paid and proposed of the Group’s consolidated financial statements for further information.
As announced on 11 March 2024 on the Regulatory News Service of the London Stock Exchange, a supplier and related party to the Group filed
an application for opening bankruptcy proceedings (“creditor protection proceedings”) against one of the Group’s subsidiaries in Ukraine, which
was accepted by the relevant court for further consideration. See Note 2 Basis of preparation and Note 30 Commitments, contingencies and
legal disputes of the Group’s consolidated financial statements for further information.
In addition to the claim mentioned above, the Group also announced that one of its subsidiaries in Ukraine received a notification of a court order
issued at the request of the prosecutor in Ukraine to freeze the bank accounts of the subsidiary. See Note 30 Commitments, contingencies and
legal disputes of the Group’s consolidated financial statements for further information.
As announced on 26 March 2024 on the Regulatory News Service of the London Stock Exchange, the Group became aware on 25 March 2024
of a court order dated 18 January 2024 in the Ukrainian Register of Court Decisions regarding restrictions on certain corporate rights in all of
Group’s Ukrainian subsidiaries. See Note 30 Commitments, contingencies and legal disputes of the Group’s consolidated financial statements
for further information.
No material adjusting or non-adjusting events have occurred subsequent to the year-end other than the events disclosed above.
Notes to the Parent Company Financial Statements continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
235
Ferrexpo plc Annual Reports & Accounts 2023
Additional Disclosures
See Note 32 Consolidated subsidiaries for further information on the Group.
Unless otherwise stated, the equity interest disclosed includes ordinary or common shares, which are owned by subsidiaries of the Group.
Equity interest owned
Name Address of consolidated subsidiary’s registered office
Principal activity
31.12.23
%
31.12. 22
%
Consolidated subsidiaries
Ferrexpo AG Bahnhofstrasse 13, 6340 Baar, Switzerland Holding company and sale of
iron ore pellets and concentrate
100.0 100.0
PJSC Ferrexpo Poltava Mining
Budivelnykiv Street 16, 39802 Horishni Plavni, Poltava Region, Ukraine Iron ore mining and processing 100.0 100.0
LLC Ferrexpo Yeristovo Mining Budivelnykiv Street 15, 39802 Horishni Plavni, Poltava Region, Ukraine Iron ore mining 100.0 100.0
LLC Ferrexpo Belanovo Mining Budivelnykiv Street 16, 39802 Horishni Plavni, Poltava Region, Ukraine Iron ore mining 100.0 100.0
Ferrexpo Middle East FZE Office A2207, Jafza One, Jebel Ali Free Zone, Dubai, U.A.E., P.O. Box 18341 Sale of iron ore pellets and
concentrate
100.0 100.0
Ferrexpo Finance plc 55 St James’s Street, London SW1A 1LA, United Kingdom Finance 100.0 100.0
Ferrexpo Services Limited Patris Lumumba Street 4/6, 01042 Kyiv, Ukraine Management services and
procurement
100.0 100.0
Universal Services Group Ltd. Naberezna Street 2, 39800 Horishni Plavni, Poltava Region, Ukraine Asset holding company 100.0 100.0
DP Ferrotrans Portova Street 65, 39802 Horishni Plavni, Poltava Region, Ukraine Trade, transportation services 100.0 100.0
LLC FerroLocoTrans Portova Street 65, 39802 Horishni Plavni, Poltava Region, Ukraine Trade, transportation services 100.0 100.0
United Energy Company LLC Budivelnykiv Street 16, 39802 Horishni Plavni, Poltava Region, Ukraine Holding company 100.0 100.0
Nova Logistics Limited Budivelnykiv Street 16, 39802 Horishni Plavni, Poltava Region, Ukraine Service company 51.0 51.0
Ferrexpo Singapore PTE Ltd. 1 Fullerton Road, One Fullerton #02-01, Singapore 049213, Singapore Marketing services 100.0 100.0
Ferrexpo Shipping International Ltd. Ajeltake Road, MH-96960 Ajeltake Island – Majuro, Marshall Islands Holding company 100.0 100.0
Iron Destiny Ltd. Ajeltake Road, MH-96960 Ajeltake Island – Majuro, Marshall Islands Shipping company 100.0 100.0
First-DDSG Logistics Holding GmbH Handelskai 348, 1020 Wien, Austria Holding company 100.0 100.0
Erste Donau-Dampfschiffahrt
Gesellschaft GmbH in Liqu.
Handelskai 348, 1020 Wien, Austria Barging company 100.0 100.0
DDSG Tankschiffahrt GmbH in Liqu. Handelskai 348, 1020 Wien, Austria Barging company 100.0 100.0
DDSG Services GmbH Handelskai 348, 1020 Wien, Austria Service company 100.0 100.0
DDSG Mahart Kft. Sukorói út 1., 8097 Nadap, Hungary Barging company 100.0 100.0
Pancar Kft. Sukorói út 1., 8097 Nadap, Hungary Barging company 100.0 100.0
Ferrexpo Port Services GmbH Handelskai 348, 1020 Wien, Austria Bunker business 100.0 100.0
Transcanal SRL Ecluzei Street 1, Agigea, Constanta, Romania Port services 77.6 7 7.6
Helogistics Asset Leasing Kft. Sukorói út 1., 8097 Nadap, Hungary Asset holding company 100.0 100.0
LLC DDSG Ukraine Holding Patris Lumumba Street 4/6, 01042 Kyiv, Ukraine Holding company 100.0 100.0
LLC DDSG Invest Building 4/6, Ioanna Pavla II Street, 01042 Kyiv, Ukraine Asset holding company 100.0 100.0
LLC DDSG Ukraine Shipping
Management
Patris Lumumba Street 4/6, 01042 Kyiv, Ukraine Barging company 100.0 100.0
LLC DDSG Ukraine Shipping Radhospna Street 18, 39763 Kamiani Potoky, Kremenchuk District, Poltava Region,
Ukraine
Asset holding company 100.0 100.0
Ferrexpo Poltava Mining Charity Fund
1
Heroiv Dnipra Street 23-a, 39802 Horishni Plavni, Poltava Region, Ukraine Charity fund 100.0 100.0
Associate
TIS Ruda LLC Oleksiya Stavnitzera Street 50, 67543 Vizirka Village, Odesa Region, Ukraine Port development 49.9 49.9
Fair value through OCI
2
PJSC Stakhanov Railcar Company Rail car producer 1.1 1.1
Vostok Ruda LLC Iron ore mining 1.1 1.1
LLC Atol Gas 9.9 9.9
CJSC AMA Gas 9.0 9.0
CJSC Amtek Gas 9.0 9.0
1. Charity fund controlled by the Group through its HSEC Committee.
2. All investments relate to companies incorporated in Ukraine and are fully impaired.
236
Ferrexpo plc Annual Reports & Accounts 2023
Alternative Performance Measures
When assessing and discussing the Group’s reported financial performance, financial position and cash flows, management may make reference
to Alternative Performance Measures (“APMs”) that are not defined or specified under International Financial Reporting Standards (“IFRSs”).
APMs are not uniformly defined by all companies, including those in the Group’s industry. Accordingly, the APMs used by the Group may not
becomparable with similarly titled measures and disclosures made by other companies. APMs should be considered in addition to, and not
asasubstitute for or as superior to, measures of financial performance, financial position or cash flows reported in accordance with IFRSs.
Ferrexpo makes reference to the following APMs in the 2023 Annual Report.
C1 cash cost of production
Definition: Non-financial measure, which represents the cash cost of production of iron pellets from own ore divided by production volume of
own production ore. Non-C1 cost components include non-cash costs such as depreciation, inventory movements and costs of purchased ore
and concentrate. The Group presents the C1 cash cost of production because it believes it is a useful operational measure of its cost
competitiveness compared to its peer group.
US$000
Notes
Year ended
31.12.23
Year ended
31.12. 22
C1 cash costs 294,213 503,975
Non-C1 cost components 45,13 6 36,035
Inventories recognised as an expense upon sale of goods
7 339,349 540,010
Own ore produced (tonnes) 3,845,325 6,053,397
C1 cash cost per tonne (US$) 76.5 83.3
Underlying EBITDA
Definition: The Group calculates the underlying EBITDA as profit before tax and finance plus depreciation and amortisation, adjusted for net
gains and losses from disposal of investments property, plant and equipment, effects from share-based payments, write-offs and impairment
losses and exceptional items. The underlying EBITDA is presented because it is a useful measure for evaluating the Group’s ability to generate
cash and its operating performance. See Note 5 Segment information to the consolidated financial statements for further details.
Closest equivalent IFRSs measure: Profit before tax and finance.
Rationale for adjustment: The Group presents the underlying EBITDA as it is a useful measure for evaluating its ability to generate cash and
its operating performance. Also it aids comparability across peer groups as it is a measurement that is often used.
Reconciliation to closest IFRSs equivalent:
US$000 Notes
Year ended
31.12.23
Year ended
31.12. 22
Underlying EBITDA 130,242 765,113
Losses on disposal and liquidation of property, plant and equipment
7 (11) (1,665)
Share-based payments
28 (830) (490)
Write-offs and impairments
7 (978) (260,308)
Recognition of provisions for legal disputes
30 (131,117) −
Depreciation and amortisation (57,669) (96,977)
(Loss)/profit before tax and finance (60,363) 405,673
Net cash/(debt)
Definition: Cash and cash equivalents net of interest-bearing loans and borrowings.
Closest equivalent IFRSs measure: Cash and cash equivalents.
Rationale for adjustment: Net cash/(debt) is a measurement of the strength of the Group’s balance sheet. It is presented as it is a useful
measure to evaluate the Group’s financial liquidity.
Reconciliation to closest IFRS equivalent:
US$000
Notes
As at
31.12.23
As at
31.12. 22
Cash and cash equivalents 25 115,241 112,945
Interest-bearing loans and borrowings – current
26 (5,939) (5,194)
Interest-bearing loans and borrowings – non-current
26 (1,009) (1,354)
Net cash 108,293 106,397
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
2 37
Ferrexpo plc Annual Reports & Accounts 2023
Capital investment
Definition: Capital expenditure for the purchase of property, plant and equipment and intangible assets.
Closest equivalent IFRSs measure: Purchase of property, plant and equipment and intangible assets (net cash flows used in investing
activities).
Rationale for adjustment: The Group presents the capital investment as it is a useful measure for evaluating the degree of capital invested
inits business operations.
Reconciliation to closest IFRSs equivalent:
US$000
Notes
As at
31.12.23
As at
31.12. 22
Purchase of property, plant and equipment and intangible assets (net cash flows used in
investingactivities) 13/15 101,247 161,010
Total liquidity
Definition: Sum of cash and cash equivalents, available committed facilities and undrawn uncommitted facilities. No committed facilities
outstanding as at 31 December 2023 and the end of the comparative year ended 31 December 2022. Uncommitted facilities include trade
finance facilities secured against receivable balances related to these specific trades. See Note 26 Interest-bearing loans and borrowings and
Note 27 Financial instruments for further information.
Closest equivalent IFRSs measure: Cash and cash equivalents.
Rationale for adjustment: The Group presents total liquidity as it is a useful measure for evaluating its ability to meet short-term
businessrequirements.
Reconciliation to closest IFRSs equivalent:
US$000
Notes
As at
31.12.23
As at
31.12. 22
Cash and cash equivalents 25 115,241 112,945
238
Ferrexpo plc Annual Reports & Accounts 2023
Glossary
References to Ferrexpo plc
References in this report to “Ferrexpo”, the
“Company”, the “Group”, “we”, “us” and “our”
are all references to Ferrexpo, Ferrexpo
subsidiaries and those that work for Ferrexpo,
albeit not a singular entity or person. Such
terms are provided as a writing style in this
report, and are not indicative of how Ferrexpo
or its subsidiaries are structured, managed
orcontrolled.
Act
The Companies Act 2006
AGM
The Annual General Meeting of the Company
Articles
The Articles of Association of the Company
Audit Committee
The Audit Committee of the Company’s
Board
Bank F&C
Bank Finance & Credit
Belanovo or Bilanivske
An iron ore deposit located immediately to the
north of Yeristovo
Benchmark price
International seaborne traded iron ore pricing
mechanism understood to be offered to the
market by major iron ore producers under
long-term contracts
Beneficiation process
A number of processes whereby the mineral
is extracted from the crudeore
BIP
Business Improvement Programme, a
programme of projects to increase production
output and efficiency atFPM
Blast furnace pellets
Used in Basic Oxygen Furnace (“BOF”)
steelmaking and constitute about 70% of the
traded pellet market
Board
The Board of Directors of the Company
BT
Billion tonnes
C1 costs
Represents the cash costs of production of
iron pellets from own ore, divided by
production volume from own ore, and
excludes non-cash costs such as
depreciation, pension costs and inventory
movements, costs ofpurchased ore,
concentrate and production cost of gravel
Capesize
Capesize vessels are typically above 150,000
tonnes deadweight. Ships in this class include
oil tankers, supertankers and bulk carriers
transporting coal, ore and other commodity
raw materials. Standard capesize vessels are
able to transit through the Suez Canal
Capex
Capital expenditure for the purchase of
property, plant and equipment andintangible
assets
Capital employed
The aggregate of equity attributable to
shareholders, non-controlling interests
andborrowings
CFR
Delivery including cost and freight
CHF
Swiss franc, the currency of Switzerland
China & South East Asia
This segmentation for the Group’s sales
includes China and Vietnam
CID
Committee of Independent Directors
CIF
Delivery including cost, insurance and freight
CIS
The Commonwealth of Independent States
CODM
The Executive Committee is considered to be
the Group’s Chief Operating Decision-Maker
Company
Ferrexpo plc, a public company incorporated
in England and Wales withlimited liability
Controlling shareholder
Fevamotinico S.a.r.l. holds 49.3% of the voting
rights in Ferrexpo plc as at the date of this
report. The Minco Trust is a discretionary trust
that has three beneficiaries, consisting of
Mr Zhevago and two other members of his
family. Each of the beneficiaries of The Minco
Trust is considered a controlling shareholder
of Ferrexpo plc
Corporate Governance Code
2018 UK Corporate Governance Code
CPI
Consumer Price Index
CRU
The CRU Group provides market analysis and
consulting advice intheglobal mining industry
(see www.crugroup.com)
CSR
Corporate Social Responsibility
DAP
Delivery at place
DFS
Detailed feasibility study
Directors
The Directors of the Company
Direct reduction
Used in Direct Reduction Iron (“DRI”)
production
“DR” pellets
In regions where natural gas is cheap and
plentiful, such as the Middle East, DR pellets
are mixed with natural gas to produce DRI,
analternative source of metallic to scrap in
Electric Arc Furnace (“EAF”) steelmaking. DR
pellets are a niche, higher quality product with
Fe content greater than 67% and a combined
level of silica and alumina of<2%
EBT
Employee benefit trust
EPS
Earnings per share
ERPMC
Executive Related Party Matters Committee
Europe (including Turkey)
This segmentation for the Group’s sales
includes Austria, Czech Republic, Germany,
Hungary, Romania, Serbia, Slovakia and
Turkey
Executive Committee
The Executive Committee of management
appointed by theBoard
Executive Directors
The Executive Directors of the Company
FBM
LLC Ferrexpo Belanovo Mining, a company
incorporated under thelawsofUkraine
Fe
Iron
Ferrexpo
The Company and its subsidiaries
Ferrexpo AG Group
Ferrexpo AG and its subsidiaries, including
FPM
Fevamotinico
Fevamotinico S.a.r.l., a company incorporated
with limited liability inLuxembourg
First-DDSG
First-DDSG Logistics Holding GmbH
(formerlyHelogistics Holding GmbH) and
itssubsidiaries, an inland waterway
transportgroup operating on the Danube/
Rhine river corridor
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
239
Ferrexpo plc Annual Reports & Accounts 2023
FOB
Delivered free on board, which means that the
seller’s obligation to deliver has been fulfilled
when the goods have passed over the ship’s
rail at the named port of shipment, and all
future obligations in terms ofcosts and risks
of loss or damage transfer to the buyer from
that point onwards
FPM
Ferrexpo Poltava Mining, also known as
PJSCFerrexpo Poltava Mining, acompany
incorporated under the laws of Ukraine
FRMCC
Finance, Risk Management and Compliance
Committee, a sub-committee of the Executive
Committee
FTSE 250
Financial Times Stock Exchange top 250
companies
FYM
LLC Ferrexpo Yeristovo Mining, a company
incorporated under the laws ofUkraine
GPL
Gorishne-Plavninske-Lavrykivske, the iron ore
deposit being mined byFPM
Group
The Company and its subsidiaries
HSE
Health, safety and environment
HSEC Committee
The Health, Safety, Environment and
Community Committee
IAS
International Accounting Standards
IASB
International Accounting Standards Board
IFRIC interpretations
IFRS interpretations as issued by the IFRS
Interpretations Committee
IPO
Initial public offering
Iron ore concentrate
Product of the beneficiation process with
enriched iron content
Iron ore pellets
Balled and fired agglomerate of iron ore
concentrate, whose physical properties are
well suited for transportation to and reduction
within a blast furnace
Iron ore sinter fines
Fine iron ore screened to -6.3mm
IRR
Internal Rate of Return
JORC
Australasian Joint Ore Reserves Committee
– the internationally accepted code for ore
classification
K22
GPL ore has been classified as either K22
orK23 quality, of which K22 oreis of higher
quality (richer)
KPI
Key Performance Indicator
KT
Thousand tonnes
LIBOR
The London Inter Bank Offered Rate
LLC
Limited Liability Company (in Ukraine)
LSE
London Stock Exchange
LTI
Lost time injury
LTIFR
Lost time injury frequency rate
LTIP
Long-term incentive plan
m
3
Cubic metre
Middle East & North Africa
This segmentation for the Group’s sales
includes Algeria and the United Arab Emirates
mm
Millimetre
MT
Million tonnes
mtpa
Million tonnes per annum
NBU
National Bank of Ukraine
Nominations Committee
The Nominations Committee of the Board
Non-executive Directors
Non-executive Directors of the Company
NOPAT
Net operating profit after tax
North America
This segmentation for the Group’s sales
includes the United States
North East Asia
This segmentation for the Group’s sales
includes Japan and Korea
OHSAS 18001
International safety standard “Occupational
Health & Safety Management System
Specification”
Ordinary Shares
Ordinary Shares of 10 pence each in the
Company
Ore
A mineral or mineral aggregate containing
precious or useful minerals insuch quantities,
grade and chemical combination as to make
extractioneconomic
Panamax
Modern panamax ships typically carry a
weight of between 65,000 and 90,000 tonnes
of cargo and can transit both the Panama and
Suezcanals
PPE
Personal protective equipment
PPI
Ukrainian producer price index
Probable reserves
Those measured and/or indicated mineral
resources which are not yet “proved”, but
ofwhich detailed technical and economic
studies have demonstrated that extraction
can be justified at the time of determination
and under specific economic conditions
Proved reserves
Measured mineral resources of which
detailed technical and economic studies
havedemonstrated that extraction can be
justified at the time ofdetermination and
under specific economic conditions
PXF
Pre-export finance
Rail car
Railway wagon used for the transport of iron
ore concentrate or pellets
Relationship Agreement
The relationship agreement entered into
among Fevamotinico S.a.r.l., Kostyantin
Zhevago, The Minco Trust and the Company
Remuneration Committee
The Remuneration Committee of the Board
Reserves
Those parts of mineral resources for which
sufficient information is available to enable
detailed or conceptual mine planning and for
which such planning has been undertaken.
Reserves are classified as either proved
orprobable
240
Ferrexpo plc Annual Reports & Accounts 2023
Resources
Concentration or occurrence of material of
intrinsic economic interest inor on the earth’s
crust in such form, quality and quantity that
there arereasonable prospects for eventual
economic extraction
Sinter
A porous aggregate charged directly to the
blast furnace which is normally produced by
firing fine iron ore and/or iron ore concentrate,
other binding materials and coke breeze as
the heat source
Spot price
The current price of a product for immediate
delivery
Sterling/£
Pounds sterling, the currency of the United
Kingdom
STIP
Short-Term Incentive Plan
Tailings
The waste material produced from ore after
economically recoverable metals or minerals
have been extracted. Changes in metal
pricesand improvements in technology can
sometimes make the tailings economic to
process at a later date
Tolling
The process by which a customer supplies
concentrate to a smelter and the smelter
invoices the customer with the smelting
charge, and possibly arefining charge, and
then returns the metal to the customer
Ton
US short ton, equal to 0.9072 metric tonnes
Tonne or t
Metric tonne
Treasury shares
A company’s own issued shares that it has
purchased but notcancelled
TSF
Tailings storage facility
TSR
Total Shareholder Return. The total return
earned on a share over a period of time,
measured as the dividend per share plus
capital gain, divided byinitial share price
UAH
Ukrainian hryvnia, the currency of Ukraine
UK adopted IFRS
International Financial Reporting Standards
adopted for use in the United Kingdom
Ukr SEPRO
The quality certification system in Ukraine,
regulated by law to ensure conformity with
safety and environmental standards
Underlying EBITDA
The Group calculates the underlying EBITDA as
profit before tax and finance plus depreciation
and amortisation, adjusted for net gains and
losses from disposal of investments property,
plant and equipment, effects from share-based
payments, write-offs and impairment losses
and exceptional items
Underlying EBITDA margin
Underlying EBITDA (see definition above) as
apercentage of revenue
US$/t
US dollars per tonne
Value-in-use
The implied value of a material to an end
userrelative to other options, e.g.evaluating,
in financial terms, the productivity in the
steelmaking process of a particular quality
ofiron ore pellets versus the productivity
ofalternative qualities of iron ore pellets
VAT
Value added tax
WACC
Weighted average cost of capital
WAFV
Weighted average fair value
WMS
Wet magnetic separation
Yeristovo or Yerystivske
The deposit being developed by FYM
Glossary continued
Useful contact information
Registered office
55 St James’s Street
London SW1A 1LA
Company Secretary’s office
Company Secretary
Ferrexpo Plc
55 St James’s Street
London SW1A 1LA
Tel: +44 (0) 207 389 8300
Email: info@ferrexpo.com
Share registrar
Equiniti Group Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Tel: 0371 384 2030 (+44 121 415 7047 from outside UK)
https://equiniti.com/uk/
Advisers
Auditor
MHA
2 London Wall Place
London EC2Y 5AU
Solicitors
Herbert Smith Freehills
Exchange House
Primrose Street
London EC2A 2EG
Corporate broker
Liberum Capital
25 Ropemaker Street
London EC2Y 9LY
Sponsor
BDO LLP
55 Baker Street
London W1U 7EU
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Ferrexpo plc Annual Report & Accounts 2023
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Ferrexpo plc Annual Report & Accounts 2023