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Ferrexpo plc
Annual Report &
Accounts 2021
Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT
Chair’s Statement 02
A Significant Heritage 04
Ferrexpo: Strategic Priorities 06
CEO’s Review 08
Response to Covid-19 11
Market Review 12
Business Model 16
Strategic Framework 18
Key Performance Indicators 20
Financial Review 22
Operational Review 26
HSEC Committee Chair’s Review 30
Health and Safety 32
Environment 35
TCFD Reporting 38
Workforce Development and Inclusion 40
Community Engagement 42
Corporate Governance 44
Non-Financial Information Statement 45
Stakeholder Engagement Activities 46
Section 172 Statement 50
Risk Management 54
Principal Risks 56
Viability Statement 73
CORPORATE GOVERNANCE
Chair’s Introduction 76
Board of Directors 78
Executive Committee 80
Corporate Governance Compliance 81
Corporate Governance Report 83
Audit Committee Report 94
Nominations Committee Report 100
Remuneration Report 106
Directors’ Report 128
Statement of Directors’
Responsibilities 133
FINANCIAL STATEMENTS
Independent Auditor’s Report to the
Members of Ferrexpo plc 135
Consolidated Income Statement 147
Consolidated Statement of
Comprehensive Income 148
Consolidated Statement
of Financial Position 149
Consolidated Statement of Cash Flows 150
Consolidated Statement of Changes
in Equity 151
Notes to the Consolidated
Financial Statements 152
Parent Company Statement of
Financial Position 200
Parent Company Statement of
Changes in Equity 201
Notes to the Parent Company
Financial Statements 202
Additional Disclosures 206
Alternative Performance Measures 207
Glossary 210
Footnote: words with the symbol
A
are defined in the Alternative Performance Measures section of the Annual Report on pages 207 to 209. In this report, theterms “Ferrexpo”, the “Company”,
the “Group”, our “business”, “organisation”, “we”, “us”, “our” and “ourselves” refer to Ferrexpo plc and, except where the context otherwise requires, itssubsidiaries as defined in on page 206.
01
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
STANDING WITH UKRAINE
Looking to the future
The Russian invasion of Ukraine, which began in the
early hours of 24 February 2022, has changed everything
for Ukraine. Having endured eight years of armed conflict
along Ukraine’s eastern border, and the annexation
ofCrimea in 2014, in 2022 Russia brought its war to
Ukrainian homes, schools, nurseries, hospitals and
places of work, with millions forced to flee their homes.
Russian military troops have killed thousands of civilians,
and have destroyed cities, towns and villages across the
country, with communities scattered.
Despite all this, however, Ukraine remains united.
Ferrexpo is a major employer in central Ukraine and has
a workforce of more than 10,000 people. To date, the
Group has managed to continue to operate through the
remarkable resilience of our people. Through the hard
work, determination and collective spirit of the Group’s
employees and contractors, Ferrexpo has been able
tocontinue to contribute to the Ukrainian economy
throughout the conflict to date. Inaddition, a dedicated
Humanitarian Fund was established in the early stages
ofthe invasion, with US$12.5 million of approved funding
to date
1
. Details of this fund’s activities are provided
onthe Group’s website at the following location:
www.ferrexpo.com/responsibility/humanitarian-projects/
Ferrexpo is grateful for the sacrifices that have been
made during Russia’s invasion of Ukraine, and the Group
is proud of the resilience and collective spirit shown
bycountless communities. Ferrexpo is a key part of
Ukraine’s economy, and through further investment,
theGroup looks forward to a new future for the people
ofUkraine.
Slava Ukraini.
1. As of 21 April 2022.
02
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Chair’s Statement
REFLECTING ON
RECENT EVENTS
Events of 2022 will have a significant
impact on the Ukrainian people, their
communities and their future
generations.
At Ferrexpo, we had expected the year 2022
to be the year where we celebrated 15 years
since the Group listed in 2007. Instead, we
are focused on the safety and wellbeing of
our Ukrainian workforce and communities
across Ukraine, following Russia’s invasion,
and look to a future of helping to rebuild
acountry. Our assets have more than
50yea50 years of operating history in Ukraine,
through our workforce, local communities
and suppliers located throughout Ukraine.
We stand with Ukraine, and look forward to
the future, whereby Ukraine remains united
and can look towards a more positive future
for the next generation. To help in thenear
term, we have established a Humanitarian
Fund to help direct funding tohumanitarian
projects both in our local communities, as
well as across Ukraine, with details of this
fund available on ourwebsite.
Looking back at 2021 in my second annual
review as Chair, this was a year of
positioning our business for the future.
Despite the lingering impact of the global
Covid-19 pandemic, we retained our focus
in 2021 on safety, growth and reducing
carbon emissions. Through investing in high
grade production, we can contribute more
to the Ukrainian economy, growing our
business to represent 4% of Ukraine’s
export revenues in 2021 (2020: 3%).
Through financial resilience, we have been
able to provide additional support to our
local communities throughout both the
global Covid-19 pandemic and more
recently during Russia’s invasion of Ukraine.
We continue to evolve our management and
Board to fit our next phase of development.
In management changes announced in
February 2022, we appointed Jim North as
permanent CEO having successfully
transitioned the Group into a new phase of
its corporate culture and overall growth
ambitions. InAugust 2021, we also
appointed NikolayKladiev as CFO of the
Group having worked as our CFO at our
largest operation in Ukraine for over
15years.
As a Board, we continue to look to
strengthen our corporate governance.
InFebruary 2022, we rotated the position
ofSenior Independent Director to
FionaMacAulay, and I would like to thank
Vitalii Lisovenko for his efforts with
stakeholder engagement, who continues to
provide a strong presence in Ukraine as a
Non-executive Director of the Group. During
2021, we also appointed two additional
Independent Non-executive Directors,
taking the total number of independent
Directors to five. These appointments
comprised of Ann-Christin Andersen, who
specialises in digital technologies and
business transformation, and the
appointment of Natalie Polischuk, who is an
economist based in Kyiv, and who provides
further balance to our Board in terms of
regional expertise. Furthermore, aspart of
our initiative to increase our engagement
with the market, I travelled toLondon in
October 2021 to host a corporate
governance roadshow and engage directly
with ourshareholders.
We recognise the importance of climate
change, and in October 2021, we
announced our inaugural carbon targets,
effectively moving to align ourselves to our
peer group. To further develop this position,
we announced our collaboration with
environmental consultants Ricardo plc
(“Ricardo”) to model and review our
decarbonisation pathway for Ferrexpo and
the role of iron ore pellets in a low carbon
economy – see page 37 for more
information. Having set our inaugural
medium-term target in line with peers, we
have now achieved a 30% reduction in our
Scope 1 and 2 emissions combined against
our baseline year, demonstrating the
progress being made atour operations, and
ahead of our peers. See page 36 for details
of progress made, and page 34 for the
external assurance process we are
undertaking on our 2021 reporting for
carbon emissions, as well as safety.
We also took steps in 2021 to formalise our
approach to shareholder returns. We have
maintained a consistent approach to
shareholder returns since listing in 2007, but
we felt it important to outline our approach
to help engagement with shareholders. We
have structured this policy on the basisof
free cash flow to ensure that our
investments in growth can continue,
targeting a payout of 30% of the Group’s
GOVERNANCE
FIVE
Number of Independent Non-executive
Directors increased to five out of eight
Directors (31 December 2020: three of six).
CLIMATE CHANGE TARGETS
30
% REDUCTION
Carbon targets set to reduce carbon
emissions by 30% by 2030, with this level
achieved in 2021, and a net zero goal
for2050.
See Environment section on p35-39 for
details of progress made.
DELIVERING VALUE TO UKRAINE
4
% EXPORTS
Ferrexpo’s role in Ukraine increased to
represent 4% of exports in 2021 (2020: 3%).
free cash flow as dividends going forward,
and to date the Group has distributed 37%
of free cash flow in respect of 2021.
Looking ahead, Ukraine has shown
resilience to date in 2022 and we have every
confidence that this will continue in the
years to come. The country now faces a
significant task ahead to first defend itself,
and then to rebuild and repair. As a key part
of Ukraine’s economy, we will play our part
in helping Ukrainians realise a brighter
future, through continued investment and
development, as we have done for the past
15 years since Ferrexpo listed on the
London Stock Exchange. With over
US$3.0billion of investment since listing,
we now have a strong platform on which to
launch our next phase of growth and details
of our progress since 2007 are provided on
pages 4 to 5, with future growth plans
outlined on pages 28 to 29.
As a final note, on behalf of the Board,
Iwould like to thank all of Ferrexpo’s
stakeholders for their resilience and
teamwork in exceptional circumstances to
date in 2022, as well as thank the Group’s
workforce for its collective effort in
producing the Group’s result for 2021.
Iwould also like to thank those that are
involved in protecting Ukraine’s borders,
with every community in Ukraine, including
our own, suffering at this difficult time.
Lucio Genovese
Chair, Board of Directors
03
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Image: Ferrexpo constructed a
5MW solar power pilot plant at its
operations in Ukraine in 2021.
CA SE STU DY:
THE IMPORTANCE OF STEEL
Steel is crucial for modern life. Iron ore, the
primary ingredient for steel, represents 94%
of the total metals mined in the world today
9
and the average person uses more than ten
times the amount of steel in a single year
than any other single metal, asshown in
thechart below.
METALS CONSUMED PER PERSON
PERYEAR (GLOBAL)
Steel
1
Aluminium
2
Coppe
r
3
Zinc
4
Lead
5
Titanium
6
Nickel
7
Lithium
8
228
12
3
2
2
1
0.4
0.01
Per capita usage
(kg per person per year)
In terms of where steel is used in everyday
life, it is widely used in the modern
construction of homes, bridges and key
infrastructure such as railways, electricity
pylons and airports. Research shows that
steel is critical for all forms of renewable
power generation, representing up to 79%
of the mass of a wind turbine
10
, and steel
demand is expected to grow by 31% by
2050 to meet the needs of the transition
toalow carbon future
11
. Steel is used
extensively in forms of transport such as
trains, trams and shipping, in household
domestic appliances, and in manufacturing
equipment in factories. Steel is everywhere.
As part of the steel value chain, Ferrexpo
understands the need for society to have
high quality forms of steel for these uses.
The Group is working with its customers to
help deliver high grade forms of iron ore to
facilitate the steel sector’s transition to
alow carbon, more sustainable future.
1. World Steel Association (link).
2. USGS (link), Worldometer (link).
3. USGS (link), Worldometer (link).
4. USGS (link), Worldometer (link).
5. USGS (link), Worldometer (link).
6. www.european coatings.com (link).
7. Henckens & Worrell (2020) (link).
8. USGS (link), Worldometer (link).
9. Visual Capitalist (link).
10. National Renewable Energy Laboratory (link).
11. International Renewable Energy Agency (link).
Image: Lucio Genovese,
Chair of Ferrexpo’s Board since 2020.
04
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
2015
DELIVERING
HIGHER QUALITY
Following completion of the multi-year
Quality Upgrade Programme (approved in
2010), output of high grade pellets increased
to 89% of production (from own ore) in 2015
(up from 52% in 2014).
A Significant Heritage
MARKING 15 YEARS OF
INVESTING IN HIGH GRADE
Capital investment
A
since IPO
+US$3.0
BN
2011
DEVELOPING A NEW
MINE – YERISTOVO
In 2011, Ferrexpo’s second mine enters
production, with the Yeristovo mine
producing its first ore. This high grade mine
is the first new mine developed in Ukraine
since the country’s independence in 1991.
KEY MILESTONES
2007
LISTING ON LONDON
STOCK EXCHANGE
Ferrexpo lists in 2007 with 48% of revenues
derived from steel mills in Eastern Europe,
and a strategy to increase sales to premium
global markets such as Japan, whereby
sales to this market commenced in 2009.
$104m
$80/t
$145/t
$97/t
$146/t
$168/t
$128/t
$135/t
$56/t
$58/t
$71/t
$70/t
$93/t
$109/t
$277m $86m $167m $378m $429m $278m $235m $65m $48m $103m $135m $247m $206m $361m
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
$97/t
$160/t
Iron ore price
(62% Fe, US$/t)
05
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
KEY MILESTONES
ACHIEVEMENTS SINCE LISTING:
DEVELOPING A WORLD
CLASS IRON ORE COMPANY
In 2022, the Group will mark 15 years since
listing on the London Stock Exchange.
Through investing over US$3.0 billion
during this time, the Group has advanced
itself to become not only the third largest
exporter of iron ore pellets globally, but
isalso now beginning to supply global
markets with higher grade (67% Fe) direct
reduction pellets, which is the highest
grade market for commercially available
iron ore and represents one pathway to
carbon-free Green Steel – the long-term
future ofsteel production. Below are some
examples of how Ferrexpo’s investment
has provided returns:
Increasing product volumes
+27
%
8.8Mt of production from own ore in 2007,
growing to11.2Mt in 2021.
Increasing product grades
+2
pp
Pivoting from a producer of medium grade
(63% Fe) iron ore in 2007 to only high
grade iron ore (65% Fe and above) in 2021.
Increasing product quality
100
%
Moving to export 100% of production
in2021 (2007: 83% of revenues as
exports), reflecting product quality.
Adding mine life
+46
%
Despite 15 years of production, the Group
has grown JORC-compliant Ore Reserves
by 46% since listing in 2007.
Increased resilience
+22
pp
Increasing Underlying EBITDA
A
margin per
tonne produced, from 35% in 2007 to 57%
in2021.
2020
CONCENTRATOR
EXPANSION PROJECTS
The Group successfully invested in two key
development projects in 2020, expanding
concentrate production and adding
operational flexibility.
2017
BELANOVO MINE
COMMENCES
As the Group invests in its assets and looks
to the future, Belanovo and its high grade
ores represent the long-term future of
Ferrexpo’s growth plans.
2021
PELLETISER
EXPANSION PROJECT
Following the concentrator growth projects
of 2020, the Group proceeded to upgrade
capacity in its pelletiser in 2021.
In 2007, Ferrexpo listed on the London Stock
Exchange with the Poltava mine and processing
complex – assets in operation since 1960. Through
further investment, Ferrexpo aims to remain
relevant for another 50 years of production.
2019
ADDING MINE LIFE
THROUGH DRILLING
In 2019 the Group announced a 26%
increase in JORC-compliant Ore Reserves,
taking the Group’s mine life to over 50 years
at present mining rates.
1
06
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Ferrexpo: Strategic
Priorities
SAFETY
Safety remains the
first priority.
p32-33
Injury frequency rate of 0.41, the third
yearof performance materially below
Ferrexpo’s iron ore producing peers.
0.41
LTIFR
MODERN
Roll-out of autonomous
truckscontinues.
p26-27
Automation completed on automation
test work on six ofthe Group’s CAT
793D haul trucks at the Yeristovo mine.
6
trucks
The Group continues
toinvest and develop
itsassets, with the
following representing a
selection of the Group’s
achievements in 2021.
What we do
1
Extraction:
Ferrexpo’s iron ore mines in Central
Ukrainehaveover 50 years of mine life
remaining atpresent mining rates.
2
Processing:
Through significant investment the Group is
able to produce some of the highest quality
iron ore products commercially available.
3
Export:
Ferrexpo’s products are sold to a network
ofpremium steel mills around the world.
2
3
07
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
GROWTH
Wave 1 Expansion approved
by the Board in2021.
p28-29
The Group has launched an investment
project to add 3million tonnes of
pelletcapacity.
+25
%
growth
PREMIUM
Higher grade products,
forlowercarbon steelmaking.
p12-15
Higher grade (67% Fe) direct reduction
pelletsrepresented 4% of output in 2021
(2020:3%).
4
%
production
SUSTAINABLE
Reducing emissions and
settingcarbon targets.
p35-39
Sunflower husks are used as a biofuel,
helping cut carbon emissions, representing
18% of pelletiser energy in2021.
18
%
energy
USING PREMIUM
S T E E L I N S O C I E T Y
Ferrexpo’s iron ore pellets are used by
steelmakers to produce high quality steels that
are essential for modern life, with the world
using ten times more steel than other major
metals combined – seeCase Study on page 3
for more information. The images below depict
a number of key sectors in which steel is
commonly used:
Construction:
steel is critical for high
rise buildings and
infrastructure in
modern cities.
Electrification:
steel is critical to all
forms ofrenewable
power generation.
(Source: World Steel
Association, link).
Precision
engineering:
on average, 75%
oftheweight
ofhousehold
appliances is steel.
(Source: American Iron
&Steel Institute, link).
Automotive sector:
steel represents up to
60% of body structures
of modern vehicles.
(Source: World Steel
Association, link).
08
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
CEO’s Review
LOOKING TO THE FUTURE
As we reflect on the events to date in 2022,
with Russia’s invasion of Ukraine and
unprecedented aggression towards
communities throughout Ukraine, it is
important to note the resilience of our
workforce, as well as the people throughout
the country. Russia has caused untold
damage to parts of Ukraine, but the
country’s economy and infrastructure will be
rebuilt. At Ferrexpo, we understand the
importance of our role in the Ukrainian
economy, and we are proud of our team’s
efforts to continue operating during this
invasion, helping the Ukrainian economy to
continue to operate. To date, we have
continued to produce and are able to export
our products to Europe via rail and barge.
Our ability to export via the port of
Pivdennyi remains closed however – please
see the Group’s press releases for up to
date information on the Group’s logistics
capabilities and capacity. Our operations,
which have a close link to the local
communities surrounding our mines near
Horishni Plavni, will play an important role in
supporting the national and local economies
as the reconstruction effort commences.
Here, we present our results for 2021, but
we are very much focused on the future
ahead for Ukraine, and helping to rebuild.
Looking back at 2021, we can report on
another year of growth for the Ferrexpo
business. From an operating standpoint, we
are growing our production volumes through
our investments, and we are also growing
our product quality through our new higher
grade direct reduction pellets. Through our
investments in high grade production, we
are also growing our profitability, with
Underlying EBITDA
A
margins increasing to
57% in 2021, during a peak in the iron ore
market cycle. However, modern companies
are much more than production numbers
and cash flow generation, they are about
developing safe and sustainable businesses
with a purpose strongly linked to the
communities in which we operate. Crucially,
our work is about further developing a
brandthat all stakeholders can trust and
believe in.
Image: Sunset at Ferrexpo’s Yeristovo
mine, September 2021.
Russia’s invasion in 2022 has placed
communities throughout Ukraine under
severe pressure, but we remain resilient
anddetermined to look to the future.
REVENUE
+48
%
2021: US$2.5
BN
2020: US$1.7
BN
UNDERLYING EBITDA
A
+68
%
2021: US$1,439
M
2020: US$859
M
CAPITAL INVESTMENT
A
+75
%
2021: US$361
M
2020: US$206
M
A safety-first culture
Safety remains a key pillar of our business
model, with another positive result in safety
achieved in 2021, and without safety
embedded throughout our operations, there
can be no success. In respect of Russia’s
invasion of Ukraine in 2022, we report further
on the wellbeing of our workforce on page
40. In respect of 2021, we are pleased to
report on a fatality-free year, alongside an
injury rate that continues materially below
our trailing five-year average for the
business. The lost time injury frequency rate
recorded in 2021 of 0.41 was the lowest full
year result reported by the Group since
listing in 2007, and I would like to thank every
employee and contractor that has helped
deliver this result; see pages 32 to 33 for
more on our progress in safety. In respect of
Covid-19, we continue to be vigilant against
this risk to our business, and details of our
efforts to insulate our workforce and
production from this virus are provided on
pages 11, 42 and 71, with minimal disruption
caused to operations to date.
57%
50%
3 9%
2019 2020 202120182017
3 9%
46%
92 kg/t
110 kg /t
131 kg/t
2019 2020 202120182017
132 kg/t
130 kg/t
09
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Image: Jim North, Chief Executive Officer
and Executive Director.
Consistent operating performance
In 2021, we delivered production
performance in line with 2020 in terms of
total output, but with increased output of
our higher grade products. This was
achieved despite a total of over 60 days of
planned expansion work on the Group’s
pelletiser during 2021, and our operations
are in a strong position going into the year
ahead having completed this upgrade work.
As an iron ore producer, the grade of our
products is a key factor in the Group’s
success, as evidenced by the increasing
premiums being paid for high grade iron
ores (see page 13 for more information).
Asshown in the investment timeline on
pages 4 and 5, the Group has pursued
several phases of quality upgrade
programmes, which have culminated in the
strong operational result seen in 2021, with
100% of Ferrexpo’s output comprising of
high grade iron ore products.
Growth programme
We are growing and modernising our
business. However, given the conflict in
Ukraine, we have elected to pause projects
that are not expected to deliver near-term
growth, with an intention to resume these
See our KPIs on p20-21
Underlying EBITDA
A
margin
57
%
projects once greater certainty on the
outlook for Ukraine is available.
In our mines, growth projects are focused
on embracing modern technology, such as
automating our truck fleet, with six trucks
now automated in the Yeristovo mine, and
further phases of automation planned for
the years ahead. We are modernising our
production process and adapting our
product mix for customers as they embark
on the journey to green steel production. In
2021, we signed our first long-term contract
for direct reduction pellets, with this
achievement onlypossible through our
investments into our processing facilities.
We have now finished our initial upgrade
work on our pelletiser lines, and we are
looking to pivot to our next phase of growth.
The Wave 1 Expansion will deliver an
additional three million tonnes of pellet
capacity and we expect that this could be
delivered in the space of three years. This is
a significant undertaking and to put this into
perspective, this is the same uplift in
production volumes that we have achieved
in the past 15 years since listing in 2007. For
more information on our growth ambitions,
please see page 28.
Following approval of the Group’s growth
plans in October 2021, the decision has
been made to focus our operations on
processing of high grade ores to maximise
production volumes, and to meet customer
demands. As a result, currently it cannot be
reliably predicted as to when the Group’s
stockpiled low grade ore will be processed,
which has resulted in an impairment
amounting to US$231 million. Please see
Note 17 Inventories to the Consolidated
Financial Statements for more information.
Tangible progress in decarbonisation
We have made considerable steps in 2021
to develop our thinking in respect of
decarbonisation. In October 2021, we
aligned ourselves with our peer group with
our inaugural carbon targets, which set our
goal of being net zero by 2050.
Efforts to decarbonise our operations have
begun well, with the Group delivering a
second year of strong performance, and we
have now registered a 30% decline in our
combined Scope 1 and 2 emissions per
tonne against our baseline year of 2019.
This result matches our medium-term
emissions reduction target and underscores
where Ferrexpo is relative to its peers, who
are predominantly seeking to reach this
level of decarbonisation by 2030. We will
now look to maintain this lower level of
carbon emissions going forward as a
Carbon emissions per tonne (S1+S2)
-30
%
10
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
CA SE STU DY:
THE IMPORTANCE OF IRON
ORE PELLETS
Emissions saving for steelmakers
40
%
Blast furnace pellets
(vs.sinter fines)
Iron ore pellets are a direct charge material
and therefore do not require sintering prior
to use in the blast furnace. Since sintering is
a step that typically requires the use of coal,
steelmakers can avoid generating emissions
through using more iron ore pellets. Allied
with the high grade nature of Ferrexpo’s
pellets, steelmakers can reduce carbon
emissions by 40%
1
for each tonne of sinter
fines replaced (hot metal basis).
Scope 3 emissions saving for Ferrexpo
49
%
Direct reduction
pellets (vs. other pellets)
Direct reduction pellets offer a pathway
tolow emissions steel production. Blast
furnace steelmaking represented 73% of the
world’s steel production in 2021
1
, but this
process requires coal and therefore has
inherent carbon emissions associated with it.
Steelmaking via the electric arc furnace
production route using direct reduction iron
is not reliant on coal, however, and instead
involves processes that typically utilise
natural gas and electricity, resulting in
asignificantly lower carbon footprint.
Compared to Ferrexpo’s blast furnace
pellets, direct reduction pellets represent
afurther emissions saving of 49% for
producing crude steel
1
, providing a material
improvement to Ferrexpo’s Scope 3 footprint
through producing this particular type of
pellet. This saving is expected to further
increase over time as steelmakers introduce
hydrogen and renewable electricity to this
method of steelmaking to pursue the
production of carbon-free green steel.
1. Source: CRU. Natural gas based direct reduction without
carbon capture.
CEO’s Review continued
minimum, and we are working with
environmental consultants Ricardo to review
our strategy, and to develop a bespoke
understanding of our decarbonisation
journey ahead – please see the Case Study
on page 37 for more on this project. Finally,
to develop trust on sustainability topics, we
are undertaking an external assurance
process on our carbon emissions and safety
data, as we understand the significance of
getting this reporting right – see page 34 for
more information on thisproject.
Fostering inclusivity
We are also seeking to differentiate
ourselves through our efforts in diversity,
and we are extremely proud of the external
recognition received in the fourth quarter of
2021 for having highly-rated, family-friendly
policies, whilst also winning awards for
our“Fe_munity” women in leadership
programme aimed at improving diversity
byincreasing the skill base of our female
leaders. For more details on these
initiatives, please see pages 40 to 41.
Technology and innovation
Through a commitment to modern
technology and innovation, we are aiming to
secure the long-term viability of our mines
and products, to keep our business
competitive on the world stage. A recent
example of modernising production
processes is the initiation of the new press
filtration plant, which represents a modern
form of technology that will reduce moisture
in green pellet production, therefore
improving pellet quality and increasing
energy efficiency; see pages 26 to 29 for
more information on these projects.
Supporting local communities
The Group has long held a close bond with
its local communities in central Ukraine
where the Group’s operations are located.
Through working closely with our local
communities, we aim to understand their
needs, to deploy funding to where it is best
invested. In March 2021, the Ferrexpo
Charity Fund celebrated the tenth
anniversary since its establishment, during
which time the Group has provided direct
support to over 90 educational projects,
30healthcare projects and direct aid to over
4,000 individuals. This has been particularly
relevant during the global Covid-19
pandemic, where companies have needed
to step up and provide support to protect
their workforces and local communities, and
details of this work are provided opposite.
Engagement with stakeholders
In 2021, we increased our focus on developing
our relationships with our stakeholders. We
have continued our regular activities such as
our employee engagement survey and
associated employee engagement forum with
Board members, which is now in its fourth
year. We have also moved to engage more
broadly with institutional investors and the
media through the appointment of Liberum
Capital and Tavistock Communications in
London, as well as BDO LLP as the Group’s
Sponsor, with all three appointed in the
firstquarter of 2021. Furthermore, we
launched our new corporate website
inJanuary 2022, bolstering our online
presencefor informingstakeholders.
In February 2022, we were pleased to receive
an upgrade in our ESG rating from ratings
agency MSCI Inc. to A, capping a five year
journey that has seen our rating increase
byfour notches during this time. In further
external recognition, we were also pleased to
receive recognition of our efforts to protect
our workforce and engage proactively with
our suppliers, through the successful
completion of a Sedex Members Ethical
Trade Audit (“SMETA”), with this external
audit completed in the first quarter of 2022.
Addressing cybersecurity
Given the increasing prevalence of
cyberattacks, and war in Ukraine, we have
undertaken a number of steps to address
this rising risk. These efforts in 2021 have
included the procurement of additional IT
infrastructure to maintain our access to our
data in the event of an attack, and regular
audits of our IT security to maintain an
up-to-date approach to combating threats;
see page 70 for more information.
Looking to the future
The events of early 2022 have changed
Ukraine significantly, but our business model
and our resolve remains unchanged. We
continue to produce high grade iron ore
pellets, and we are continuing to invest in
growing our business for the future, which will
help further support the Ukrainian economy to
rebuild. I would like to thank our workforce
fortheir collective effort to continue our
operations throughout the invasion in 2022,
aswell as achieving the strong financial result
for 2021 that is presented here in this report.
Wehave continued to show resilience as
abusiness in 2022 and I look forward to
working with allof our stakeholders in the
years ahead tofurther develop our business.
Jim North
Chief Executive Officer & Executive Director
11
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
CA SE STU DY:
SHIELDING THE GROUP’S
WORKFORCE FROM COVID-19
Since the outset of the global Covid-19
pandemic, Ferrexpo has moved to protect
its workforce from the Covid-19 virus and
the after-effects that the global pandemic
ishaving on individuals and communities
around the world. In early 2020, the Group
established the Covid-19 Response Fund,
with a total of US$3.5 million of approved
funding provided to date.
Through measures initiated in 2020 and
continued into 2021, including rigorous
testing, social distancing measures and
staggered shift patterns, the Group has
limited the spread of the Covid-19 virus
atits operational facilities and has
successfully maintained production
andcapital investment activities to
expandoutput.
Medical equipment purchased in 2021 for
the Group’s on-site medical centre included
the installation of sample analysis machines
to determine the severity of infection that an
individual has developed, and equipment to
measure an individual’s natural immunity to
the virus following infection.
Following the development of a vaccine for
Covid-19 in late 2020, the Group has moved
to promote vaccine uptake in its workforce
and to facilitate local authorities in their
efforts to administer vaccines to local
communities and Ferrexpo’s workforce
through the provision of its healthcare
facility as a vaccination centre for anyone to
attend. As of January 2022, the Group’s
employee workforce had received over
5,900 doses of Covid-19 vaccinations, with
65% of the workforce being fully vaccinated,
approximately double the national average
of Ukraine
1
.
Ferrexpo is also working with communities
to directly counter the spread of the virus
beyond its operations. Details of these
activities are provided on pages 42 and 72.
65
%
Double-vaccination rate in Ferrexpo’s
employee workforce, approximately double
the rate in Ukraine
1
.
FERREXPO’S
RESPONSE
TO COVID-19
Image: Ferrexpo’s health
centrehas been provided as
avaccination hub, helping to
provide over 5,900 vaccinations
toemployees in 2021.
1. www.ourworldindata.org
IRON ORE PELLETS: MARKET FACTORS
Mar 21 Apr 21 May 21Feb 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21 Jan 22Dec 21Jan 21
300
250
200
150
100
50
Iron ore (65% Fe) price
Index price (US$/tonne)
C3 freight rate Atlantic pellet premium Source: Platts
0
12
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Market Review
KEY MARKET DRIVERS
2021 was a year marked by volatility in global
market prices for iron ore and rising demand for
iron ore pellets in response to rising environmental
measures to reduce steelmakers’ emissions.
Ferrexpo’s high grade iron ore pellets are
priced using the benchmark 65% Fe fines
price, with a pellet premium paid in addition
to this index, and a freight rate is typically
deducted according to the location and type
of contract agreed with each customer.
Thissection focuses on the factors affecting
pellet pricing, in addition to global supply
and demand factors affecting Ferrexpo’s
end-market – steel. The Atlantic pellet
premium, published on a monthly basis by
S&P Platts (“Platts”), is presented in this
section as an indicator of pellet premiums
throughout the year. The Atlantic pellet
premium is, however, based on the index for
iron ore fines grading 62% Fe, as published
by Platts, and therefore is not directly used
by the Group in the typical pricing of its
pellets, which are priced off the 65%
Feindex.
Iron ore fines prices
Volatility has been a key factor when looking
back at global iron ore markets in 2021,
affecting a range of key revenue drivers for
iron ore producers like Ferrexpo, with the
range of iron ore prices seen in 2021
approximately three times the average
range in prices seen in the past five years.
Iron ore fines prices began 2021 at
approximately US$180 per tonne, and rose
by between US$40 and US$45 per tonne in
both 1Q and 2Q of 2021, with this increase
driven by government stimulus packages
around the world in response to the global
Covid-19 pandemic. This upward trajectory
was then reversed in August 2021, with
average prices declining by US$42 in 3Q
2021 and US$62 per tonne in 4Q 2021,
ending the year at a level last seen in August
2020, back when prices originally began
torise.
The decline in fines pricing seen in the
second half of 2021 was primarily related to
government policies enacted in China to
taper markets, and was therefore a
controlled measure, which was widely
anticipated by market participants. With
China accounting for 73% of global iron ore
imports in 2021
1
, Chinese demand is the
primary driver for iron ore fines prices.
Reviewing the market in 2021, Chinese steel
production averaged 94 million tonnes a
month in the first half of 2021, representing
12% growth year on year and a record level
of steel production, with strong demand for
iron ore during this period. Following
measures enacted by the Chinese
government from July 2021 onwards,
Chinese steel output fell to 78 million tonnes
a month in the second half of 2021,
representing a 17% decline on the first half
of 2021, and demand for iron ore softened
as a result. Chinese steel production cuts
enacted in the summer of 2021 were
originally announced as early as 2020, as
part of Beijing’s decarbonisation policy
announced at the time, with environmental
Image: All of Ferrexpo’s pellets leave
the Group’s operations via rail, with
these routes electrified in Ukraine.
1. Source: CRU.
inspections commencing in April 2021 to
ensure that each province’s annual
production did not exceed 2020 levels.
Measures implemented included the
removal of export tax rebates in China
fromAugust 2021.
In terms of the supply-demand balance of
the iron ore market, movements in iron ore
pricing in 2021 were primarily driven by
fluctuations in demand for iron ore, rather
than changes in supply of iron ore, which
remained relatively stable. Independent
consultants CRU estimate that exports of
iron ore grew by 38 million tonnes in 2021,
representing an increase of 2%. The
majority of this additional material came
from Brazil and Australia, with the former
relating to recovering supply, and the latter
primarily relating to additional low grade
supply from brownfield sites.
13
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
CHART: PREMIUMS PAID FOR HIGH
GRADE IRON ORES (65% FE)
18%
17%
16%
2Q21 3Q21 4Q211Q212020
15%
12%
Premium paid for high grade (% of 62% Fe Index)
The outlook for the high grade premium is
expected to remain positive going forward
on the basis of steelmakers increasingly
looking to reduce emissions, with specific
markets – particularly Europe – expected to
drive demand for these ore types faster than
other regions, based on aggressive
decarbonisation policies currently being
adopted by key European governments and
the European Commission. An example of
such a policy change is the European
Union’s Carbon Border Adjustment
Mechanism (“CBAM”), which was
announced in 2020 and will be gradually
implemented between 2022 and 2025. The
CBAM envisages a tariff applied to specific
goods produced outside of the European
Union (“EU”), to account for the cost of
carbon. This legislation is designed to
strengthen key industries in Europe, such as
the steel industry, particularly as this
industry faces rising costs associated with
climate change. The Group believes that any
measure designed to strengthen the
European steel industry will improve the
purchasing power of European steelmakers
to purchase a greater degree of premium
raw materials, such as high grade iron ore
pellets, and will therefore drive greater
demand for the Group’s products.
Pellet premiums
The pellet premium is a premium applied to
all pellet sales, and is paid above the Platts
65% Fe Index for Ferrexpo’s pellets. The
Atlantic pellet premium in 2021 followed a
similar trend to the iron ore fines indices
during the year. In the first half of the year,
this pellet premium rose as steelmakers
worldwide looked to maximise steel output
and take advantage of high steel prices.
Subsequently, the Atlantic pellet premium
fell in the second half of 2021, but did not
fall to the same extent as iron ore fines
prices, declining from the highs of US$78
per tonne seen in the summer months of
2021 to close the year at US$56 per tonne.
This differing dynamic compared to the iron
ore fines price is a reflection of the pellet
market being governed by buying in
different geographic regions – namely steel
production in Europe and North East Asia,
which collectively account for more than
40% of the global trade in iron orepellets
2
.
Demand for iron ore pellets is therefore
more aligned to the health of the steel
sector in these two regions, as well as
overall pace of decarbonisation
seenglobally.
Global iron ore pellet exports amounted to
approximately 127 million tonnes in 2021,
reflecting a contraction of 1 million tonnes
versus 2020
2
. The main driver for the
decrease in supply seen in 2021 came from
FULL YEAR MARKET INDICES 2021
(US$/tonne, unless stated otherwise, and represent full year averages) 2021 2020 Change
Platts 62% Fe iron ore fines price CFR China 160 109 +47%
Platts 65% Fe iron ore fines price CFR China 186 122 +53%
65% Fe spread over 62% Fe 26 13 +96%
Atlantic pellet premium (BF pellet) 56 29 +92%
China pellet premium (BF pellet) 52 22 +139%
Direct reduction (“DR”) pellet premium 61 36 +67%
DR premium over Atlantic premium 5 7 -28%
C3 freight (Brazil – China) 27 15 +81%
C2 freight (Brazil – Netherlands) 16 7 +135%
Global steel production (million tonnes)
1
1,912 1,829 +4%
1. Source: World Steel Association (64 producing countries, representing 98% total world crude steel production in 2021).
2. Management estimate.
The near-term outlook for the iron ore fines
market and prices in 2022 will depend on
the level of activity seen in China in early
2022, following production cuts imposed in
2021, as well as the degree of stockpile
drawdown that is seen with steel inventories
that have accumulated. If a strong recovery
in Chinese demand continues beyond 2Q
2022, then it is expected that the iron ore
fines market is likely to become constrained,
which would potentially provide a tailwind to
iron ore fines prices.
High grade premiums
High grade premiums are the additional
prices paid for material that is high grade
(65% Fe or above), with this premium
averaging US$26 per tonne in 2021 (2020:
US$13 per tonne). As the world seeks to
decarbonise, steelmakers are increasingly
looking to source higher grade iron ores to
reduce their emissions footprints. For more
information on the environmental benefits of
high grade iron ores, please see the Case
Study on page 14. This trend is shown
through the premiums paid for high grade
iron ore fines, with quarterly average
premiums climbing consistently throughout
2021, as shown in the chart opposite.
Iron content Waste Pure iron ore (70% Fe)
4%
7%
High
grade
DR
grade
Medium
grade
Low
grade
11%
17%
Iron content
(% Fe)
67%
65%
62%
58%
14
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
lower exports from producers in Brazil,
Indiaand the USA, balanced in part by
areturning producer in Brazil
1
. Within
thistotal, blast furnace pellet exports
contracted by 6 million tonnes during 2021
(representing a 7% reduction), with supply
of direct reduction pellets growing by
4million tonnes (10% increase)
1
. This
relative stability in the supply of iron ore
pellets is a reflection of the difficulties faced
by companies looking to introduce new
supply of pellets into the market, since
newsupply requires significant capital
investment to commence operations and
the relative scarcity of deposits relevant
forpelletising operations that have good
access to existing infrastructure.
Demand for iron ore pellets in 2022 has been
strong in European markets following
Russia’s invasion of Ukraine, with iron ore
from Russia subject to trade restrictions.
Furthermore, pellet demand is expected to
increase globally in response to increasing
environmental controls. As referenced on
page 13, the introduction of the European
Union’s CBAM regulations is expected to
strengthen the European steel sector in the
medium term, and as a result will increase
the ability of EU steelmakers to purchase
premium products for steelmaking such as
iron ore pellets. Theglobal supply of iron ore
pellets today isrelatively constrained, with
the majority ofexisting suppliers operating at
(or near to) full capacity, particularly following
the recent completion of the ramp up of
Samarco, a Brazilian pellet supplier, which
had previously halted production following
atailings dam breach in 2015.
Freight rates
The Baltic Exchange’s C3 freight rate, which
is indicative for the Group’s overall freight
costs, increased significantly in 2021 to
US$27 per tonne. This increase was due in
part to the market imbalance seen in early
2021 that was created by the global
Covid-19 pandemic, with reduced dry bulk
shipments from Brazil, resulting in fewer
vessels entering the Atlantic basin to receive
cargoes. Secondly, increasing fuel prices in
the second half of the year resulted in a
sharp increase in freight rates, peaking at
an average of US$41 per tonne in October
2021, before retreating back to US$26 per
tonne by the end of the year. Freight rates
are a further example of the volatility seen
in2021 and how this contrasts to previous
years. In contrast, the average C3 freight
rate for the past five years has varied by
just
1
US$4 between US$15 and US$19,
whilst the average for 2021 rose by
US$12to U$27pertonne.
In terms of the near-term outlook for freight
rates, the forward curve for C3 freight rates
indicates that the index in 2022 will fall
below the high levels seen in 2021, but will
remain above the historical averages seen
inprevious years, reflecting increased
energy costs.
Steel production
Global steel production, according to the
World Steel Association, increased by 4% in
2021 compared to 2020, which also reflects
a rise above 2019 levels, indicating the strong
return to growth as governments worldwide
continue to respond to the global Covid-19
pandemic. During 2021, the majority of this
growth in global steel production occurred
during the first half of the year, which was
15% up year on year, whereas the second
half of 2021 saw a 5% contraction year on
year in global crude steel output. This trend
was driven by Chinese output, where
production increased by 13% year on year in
the first half and then contracted by 15%
year on year in the second half, ending the
year below the total output for 2020. The
European steel sector has continued its
strong recovery in 2021, growing by 20%
inthe first half and a further 10% in the
second half of the year. North East Asia,
another key market for global iron ore pellet
exports, exhibited a similar trend to Europe
in 2021, growing by 11% in both halves
of2021.
Based on data presented by independent
consultants CRU, it is expected that the
global outlook for hot metal production is
set to peak in 2021 (relevant data on this
topic to be published in 2022), with global
levels of output expected to remain above
1,400 million tonnes between 2022 and
2025. It is expected that the share of steel
production from electric arc furnaces will
grow from 27% of global crude steel
production in 2021 to 31% in 2025.
Steel pricing
The Group closely monitors the margins
being made by steelmakers as a lead
indicator of possible future movements in
the demand for iron ore, with the margin for
hot rolled coil (“HRC”) used as an indicator
of this. Margins for HRC remained positive
throughout 2021, with steel prices remaining
elevated despite the fall in raw materials
costs seen in the second half of 2021.
The Group expects global steel output to
rise in 2022, on the basis of steel margins
remaining at elevated levels at the present
time, with steelmakers increasing output to
meet rising global demand for steel.
CA SE STU DY:
THE IMPORTANCE OF HIGH
GRADE IRON ORES
In iron ore, grade is key. For commercially
available iron ores, which are predominantly
hematite, the maximum iron content is 70%,
with the remaining 30% being oxygen (as
part of the iron oxide that iron ores are
predominantly comprised of). Benchmark
iron ores grading 62% Fe are therefore 62%
iron, the oxygen as part of the iron oxide
molecule, and a component of waste that
represents approximately 11% of this
material. For low grade ores (58% Fe), the
proportion of waste material contained is
higher – approximately 17% of the total
mass of material being sold. Ferrexpo’s
products are high grade and therefore
contain between 4% and 7% waste
material, and as a result contain up to four
times less waste than competitors’ iron
ores. This is important, as it is the waste in
the ore that steelmakers must supply energy
to remove when making steel, with ores that
contain more waste requiring more energy
to process. In the blast furnace, this energy
is typically provided by coal, whereas in the
direct reduction process this energy comes
from either natural gas or electricity. High
grade ores are therefore a tool available to
steelmakers to reduce emissions today.
Market Review continued
15
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Future trends: Green Steel
A clear trend within the steel sector is
decarbonisation, with many of the world’s
governments pledging to achieve net zero
carbon emissions by either 2050 or 2060.
Governments are also setting medium-term
targets to establish a trajectory for
emissions reduction – typically a 30%
reduction by 2030. The European Union is
working towards its “Fit for 55” plan
announced in July 2021, which is a
legislative process aimed at delivering a
55% reduction in carbon emissions by 2030
against a baseline year of 1990. Given
Ferrexpo’s close proximity to European
steelmakers, this provides the Group with a
significant opportunity, since iron ore pellets
enable steelmakers to reduce emissions
through greater use of direct charge
material in their blast furnaces. For more
information on the environmental benefits of
pellets, please see the Case Study on page
10. This shift towards iron ore pellets is
mirrored in data presented by independent
consultants CRU, who forecast that global
iron ore pellet consumption will increase
by15% between 2021 and 2026, whilst
consumption of iron ore fines is forecast to
contract by 14% during this same period.
CA SE STU DY:
THE IMPORTANCE OF
PROXIMITY TO KEY MARKETS
In a global world that is facing up to the
journey of decarbonisation that lies ahead,
consumers are looking increasingly for
supplies of goods and services to come
from local sources. With assets based in
Ukraine, Ferrexpo is well positioned
geographically to supply the steel sector in
both Europe and the Middle East, with
Ferrexpo’s peers in Brazil, Canada and
South Africa located further away from
these key markets. Ferrexpo is able to
supply customers in Europe via rail, barge
or ocean-going vessel. The Middle East
represents the single biggest market for
direct reduction pellets today, and with
Europe rapidly decarbonising, this is
expected to significantly increase pellet
demand for this pellet type in the future
assteelmakers seek to adapt their
production processes.
In a world where ocean-going freight
contributed as much to Ferrexpo’s total
emissions as emissions from mining in 2021,
the distance to markets matters.
3
X
The distance for Canadian iron ore
to reach key European steel mills,
representing an additional
4,000km.
5
X
The distance for Brazilian iron ore
to reach key European steel mills,
representing an additional
8,000km.
6
X
The distance for South African iron
ore to reach key European steel
mills, representing an additional
10,000km.
Over time, the Group also intends to
increase production of its latest product –
the higher grade (67% Fe) direct reduction
pellets, which are typically converted to
steel using natural gas and then electricity
in electric arc furnaces. This is in contrast to
the blast furnace method of steelmaking,
which typically uses coal as the main fuel to
produce steel. Through removing coal from
the steel-production process, steelmakers
can operate with a significantly lower
carbon footprint. Direct reduction pellets
represented 4% of the Group’s production
in 2021 (2020: 3%), and the Group intends
to utilise its expansion plans in the medium
term to increase this proportion of
production as steelmakers around the
worlddecarbonise and demand for this
pellet type increases.
Image: Ferrexpo has operations
fordelivering pellets via the
RiverDanube, providing flexibility
intheGroup’s logistics network.
1. Management estimate.
16
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
CORE ASSETS
Ferrexpo aims to deliver its business model
through a safety-first operating model,
instilling a culture of safety throughout its
business to deliver successful operating
and financial performance.
PEOPLE
Ferrexpo has a workforce of over 10,000
people, and aims to continually train and
develop those that work for theGroup.
DEPOSITS
Ferrexpo mines and processes iron ore
from the deposits along the Kremenchuk
Magnetic Anomaly, a globally significant
ore body in scale.
OPERATIONS
Ferrexpo has three mines, two of which
were developed by the Group since IPO,
and also operates a processing complex
and logistics network.
HIGH GRADE PELLET
PRODUCTION
Ferrexpo produces high grade iron ore
pellets, which are a premium raw material
used by steelmakers to increase
productivity and reduce emissions.
TheGroup’s products carry an iron
oregrade of either 65% or 67% Fe.
PREMIUM
CUSTOMER BASE
Through developing increasingly high
quality, high grade products, the Group
isable to market its products to an
increasing range of premium steelmakers.
FINANCIAL
RESILIENCE
By focusing on higher quality, higher
grade forms of iron ore, and selling these
products to premium steelmakers, the
Group can realise higher margins on its
products, providing financial resilience.
PRUDENT CAPITAL
ALLOCATION
Through establishing a cash generative
and cost competitive business model, the
Group is able to deploy capital effectively
for the benefit of all stakeholders,
balancing investment in future growth
andshareholder returns.
Business Model
GENERATING SUSTAINABLE VALUE
KEY STRENGTHS COMMERCIAL AND OPERATING MODEL
Long life assets
The Group has 1.6 billion
tonnes of Ore Reserves,
representing over 50 years of
production ahead at current
processing rates.
Established production
and logistics
The Group’s assets have
been supplying the global
steel industry with pellets
formore than 50 years.
Ability to produce
premium products
Ferrexpo produces high
grade iron ore pellets, a
premium form of iron ore for
steelmakers. The Group has
commenced production of
direct reduction pellets, the
highest grade commercially
available form of iron ore.
Premium
customer service
Ferrexpo has an established
network of customers,
spread across four
continents, which use
pelletsto produce high
gradeforms of steel.
Ability to scale and
grow operations
Ferrexpo has invested
overUS$3.0 billion in its
operation since IPO, growing
production by 25%. The
Group’s Wave 1 Expansion
plan will see production grow
by a further 25% (see page
28 for more information).
UNDERPINNED BY OUR VALUES
Responsibility
See p30-44
Make it happen
See p8-10
Integrity
See p44-45
17
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
REINVESTMENT FOR FURTHER DEVELOPMENT
CORE ASSETS
Ferrexpo aims to deliver its business model
through a safety-first operating model,
instilling a culture of safety throughout its
business to deliver successful operating
and financial performance.
PEOPLE
Ferrexpo has a workforce of over 10,000
people, and aims to continually train and
develop those that work for theGroup.
DEPOSITS
Ferrexpo mines and processes iron ore
from the deposits along the Kremenchuk
Magnetic Anomaly, a globally significant
ore body in scale.
OPERATIONS
Ferrexpo has three mines, two of which
were developed by the Group since IPO,
and also operates a processing complex
and logistics network.
HIGH GRADE PELLET
PRODUCTION
Ferrexpo produces high grade iron ore
pellets, which are a premium raw material
used by steelmakers to increase
productivity and reduce emissions.
TheGroup’s products carry an iron
oregrade of either 65% or 67% Fe.
PREMIUM
CUSTOMER BASE
Through developing increasingly high
quality, high grade products, the Group
isable to market its products to an
increasing range of premium steelmakers.
FINANCIAL
RESILIENCE
By focusing on higher quality, higher
grade forms of iron ore, and selling these
products to premium steelmakers, the
Group can realise higher margins on its
products, providing financial resilience.
PRUDENT CAPITAL
ALLOCATION
Through establishing a cash generative
and cost competitive business model, the
Group is able to deploy capital effectively
for the benefit of all stakeholders,
balancing investment in future growth
andshareholder returns.
STAKEHOLDER BENEFITS (US$)COMMERCIAL AND OPERATING MODEL
UNDERPINNED BY OUR VALUES
Diversity within one team
See p40-41
Continuous innovation
See p28-29
Employees
US$113
M
(2%)
Wages and salaries paid
(2020: US$114M)
Customers
U S $ 2.5
BN
+48%
Revenue generated
(2020: US$1.7BN)
Suppliers
US$1.2
BN
+33%
Suppliers of goods
and services
(2020: US$876M)
Communities
US$6
M
+11%
Donations through
Ferrexpo Charity Fund
(2020: US$6M)
Environment
US$19
M
+10%
Money spent to safeguard
the environment
(2020: US$17M)
Government
US$281
M
+180%
Taxes and royalties paid
(2020: US$100M)
Investors
US$619
M
+217%
Shareholder returns
(2020: US$195M)
Capital providers
US$221
M
+49%
Debt repayments
and interest
(2020: US$148M)
18
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Strategic Framework
GENERATING ATTRACTIVE
SUSTAINABLE RETURNS
The Group’s purpose is to maximise the value it generates for stakeholders
through its operations inUkraine and global footprint, producing and
marketing the highest quality iron ore pellets to theGroup’s network of
premium customers. This isachieved in tandem with the adoption of modern
technologies to deliver production in a safe and sustainable manner.
STRATEGY GOALS WHAT WAS ACHIEVED IN 2021 STRATEGIC TARGETS FOR 2022
PRODUCE HIGH
QUALITY
PELLETS
– Expand existing customer
portfolio with additional high
quality steelmakers.
– Develop direct reduction pellet
offering with trial cargoes shipped
to potential new customers for
this product type.
– Further investments in mining,
concentrator and pelletiser.
– Group’s position maintained as third
largest global exporter of iron ore
pellets, producing 11.2Mt of pellets
in2021 (2020: 11.2Mt).
– Increased proportion of high grade
products to 100% (2020: 99%).
– Increasing grade: direct reduction pellets
representing 4% of total production
in2021 (2020: 3%).
– Secured first long-term contract for
DRpellets.
– Commenced sales of commercial
concentrate.
– Maintain production during Russian
invasion of Ukraine, where possible.
– Further develop new product offering.
– Maintain sales under long-term contract.
– Enhance understanding of DR
pelletmarkets.
LOW COST
PRODUCTION
– Target further cost reduction
initiatives through disciplined
costcontrol and further
dilutionoffixed costs through
productionincreases.
– C1 cash cost of production
A
increased
by 34% toUS$55.8 per tonne, reflecting
commodity input costs.
– The Group maintains a low cost position
on the global cost curve of iron ore
producers, as assessed by independent
consultants CRU (see page 25).
– Diesel consumption rate per tonne
mined fell by 7% in 2021, reflecting
improved productivity.
– Consumption rate of natural gas, a key
consumable in the pelletiser operations,
increased by 16% in 2021, reflecting trials
of higher grade direct reduction pellets.
– Consumption rate of electricity,
predominantly applicable to processing,
rose by 1% in 2021, reflecting
increasedprocessing to achieve
highergradeproducts.
– Maintain position as a low cost iron ore
producer on global C1 cost curve.
SELL TO A WORLD
CLASS CUSTOMER
PORTFOLIO
– Develop relationships with new
customers for existing blast
furnace pellet offering.
– Further work to establish direct
reduction pellet offering with
newcustomers.
– Establish presence in selling high
grade concentrate, either through
synergies with existing customers
or through new relationships.
– Pivot of sales back to Europe following
peak of global Covid-19 pandemic,
returning to historic market balance.
– Secured first long-term contract for
directreduction pellets.
– Developed new relationships for new
products (direct reduction pellets and
commercial concentrate).
– Continue discussions with existing
customer network, to optimise pellet mix
with customer requirements, particularly
as customers seek to accelerate
decarbonisation plans.
– Effective and clear communication
withcustomers during Russian invasion
of Ukraine.
– Maintain existing portfolio of premium
customers.
– Maintain high proportion of sales under
long-term contract.
– Add additional premium customers in
target markets (Europe and DR markets).
MAINTAIN
SOCIAL LICENCE
TO OPERATE
– Target zero harm for workforce.
– Maintain LTIFR safety metric
below five-year trailing average
and iron ore producing
peergroup.
– Continue efforts to improve
productivity and reduce Scope1
and 2 emissions footprints
pertonne.
– Maintained a safe operating environment
with zero fatalities, and LTIFR of 0.41
in2021, representing performance
materially below five-year trailing
averagefor third successive year.
– UAH 153 million invested in communities
through Ferrexpo Charity Fund in 2021,
which celebrated its tenth anniversary
since inception in March 2021.
– Further 16% reduction in carbon footprint
at operations (direct and indirect) in 2021,
matching reduction from 2020.
– Emissions targets set in 2021, with the
Group achieving its 30% reduction
against the baseline year (2019) and goal
of net zero emissions by 2050.
– “Fe_munity” women in leadership
programme, for advancing careers
offemale employees.
– Protect workforce during Russian
invasion of Ukraine.
– Maintain strong safety record.
– Continue to reduce carbon footprint
(Scopes 1, 2 and 3).
– Promote diversity in the workplace.
– Continue to deliver value to communities.
DISCIPLINED
CAPITAL
ALLOCATION
– Continued development of
operations, delivering volume
growth and quality improvements.
– Continue to pay dividends as
appropriate with cash flows
in2021 and in line with
shareholder returns policy.
– Maintained strong balance sheet,
withnet cash position as at
31 December 2021 of US$117 million
(2020: US$4 million).
– Repaid pre-export finance debt facility,
de-risking business.
– Balanced capital allocation in 2021,
increasing capital investment
A
by 75%
toUS$361 million (33% of operating
cash flow) and shareholder returns
(57%of operating cash flow).
– Published shareholder returns policy in
November 2021, targeting returns based
on free cash flow of the Group, to
maintain ability to invest in operations.
– Todate, the Group has paid dividends
amounting to the equivalent 37% of
freecash flow inrespect of 2021.
– Invest in the Group’s assets for growth.
– Continue the Group’s balanced approach
to stakeholders.
– Maintain a strong balance sheet.
19
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
STRATEGY GOALS WHAT WAS ACHIEVED IN 2021 STRATEGIC TARGETS FOR 2022
PRODUCE HIGH
QUALITY
PELLETS
– Expand existing customer
portfolio with additional high
quality steelmakers.
– Develop direct reduction pellet
offering with trial cargoes shipped
to potential new customers for
this product type.
– Further investments in mining,
concentrator and pelletiser.
– Group’s position maintained as third
largest global exporter of iron ore
pellets, producing 11.2Mt of pellets
in2021 (2020: 11.2Mt).
– Increased proportion of high grade
products to 100% (2020: 99%).
– Increasing grade: direct reduction pellets
representing 4% of total production
in2021 (2020: 3%).
– Secured first long-term contract for
DRpellets.
– Commenced sales of commercial
concentrate.
– Maintain production during Russian
invasion of Ukraine, where possible.
– Further develop new product offering.
– Maintain sales under long-term contract.
– Enhance understanding of DR
pelletmarkets.
LOW COST
PRODUCTION
– Target further cost reduction
initiatives through disciplined
costcontrol and further
dilutionoffixed costs through
productionincreases.
– C1 cash cost of production
A
increased
by 34% toUS$55.8 per tonne, reflecting
commodity input costs.
– The Group maintains a low cost position
on the global cost curve of iron ore
producers, as assessed by independent
consultants CRU (see page 25).
– Diesel consumption rate per tonne
mined fell by 7% in 2021, reflecting
improved productivity.
– Consumption rate of natural gas, a key
consumable in the pelletiser operations,
increased by 16% in 2021, reflecting trials
of higher grade direct reduction pellets.
– Consumption rate of electricity,
predominantly applicable to processing,
rose by 1% in 2021, reflecting
increasedprocessing to achieve
highergradeproducts.
– Maintain position as a low cost iron ore
producer on global C1 cost curve.
SELL TO A WORLD
CLASS CUSTOMER
PORTFOLIO
– Develop relationships with new
customers for existing blast
furnace pellet offering.
– Further work to establish direct
reduction pellet offering with
newcustomers.
– Establish presence in selling high
grade concentrate, either through
synergies with existing customers
or through new relationships.
– Pivot of sales back to Europe following
peak of global Covid-19 pandemic,
returning to historic market balance.
– Secured first long-term contract for
directreduction pellets.
– Developed new relationships for new
products (direct reduction pellets and
commercial concentrate).
– Continue discussions with existing
customer network, to optimise pellet mix
with customer requirements, particularly
as customers seek to accelerate
decarbonisation plans.
– Effective and clear communication
withcustomers during Russian invasion
of Ukraine.
– Maintain existing portfolio of premium
customers.
– Maintain high proportion of sales under
long-term contract.
– Add additional premium customers in
target markets (Europe and DR markets).
MAINTAIN
SOCIAL LICENCE
TO OPERATE
– Target zero harm for workforce.
– Maintain LTIFR safety metric
below five-year trailing average
and iron ore producing
peergroup.
– Continue efforts to improve
productivity and reduce Scope1
and 2 emissions footprints
pertonne.
– Maintained a safe operating environment
with zero fatalities, and LTIFR of 0.41
in2021, representing performance
materially below five-year trailing
averagefor third successive year.
– UAH 153 million invested in communities
through Ferrexpo Charity Fund in 2021,
which celebrated its tenth anniversary
since inception in March 2021.
– Further 16% reduction in carbon footprint
at operations (direct and indirect) in 2021,
matching reduction from 2020.
– Emissions targets set in 2021, with the
Group achieving its 30% reduction
against the baseline year (2019) and goal
of net zero emissions by 2050.
– “Fe_munity” women in leadership
programme, for advancing careers
offemale employees.
– Protect workforce during Russian
invasion of Ukraine.
– Maintain strong safety record.
– Continue to reduce carbon footprint
(Scopes 1, 2 and 3).
– Promote diversity in the workplace.
– Continue to deliver value to communities.
DISCIPLINED
CAPITAL
ALLOCATION
– Continued development of
operations, delivering volume
growth and quality improvements.
– Continue to pay dividends as
appropriate with cash flows
in2021 and in line with
shareholder returns policy.
– Maintained strong balance sheet,
withnet cash position as at
31 December 2021 of US$117 million
(2020: US$4 million).
– Repaid pre-export finance debt facility,
de-risking business.
– Balanced capital allocation in 2021,
increasing capital investment
A
by 75%
toUS$361 million (33% of operating
cash flow) and shareholder returns
(57%of operating cash flow).
– Published shareholder returns policy in
November 2021, targeting returns based
on free cash flow of the Group, to
maintain ability to invest in operations.
– Todate, the Group has paid dividends
amounting to the equivalent 37% of
freecash flow inrespect of 2021.
– Invest in the Group’s assets for growth.
– Continue the Group’s balanced approach
to stakeholders.
– Maintain a strong balance sheet.
Responsibility
Safety first, environmental responsibility,
accountable to communities.
See p30-44
Make it happen
Focused efforts to deliver superior business
results, achieved through an engaged
workforce.
See p8-10
Integrity
Delivering high ethical standards and
delivering on commitments. Accountability.
See p44-45
Diversity within one team
Valuing difference inopinions and
backgrounds. Building collective strength.
See p40-41
Continuous innovation
Embracing change. Courage to improve and
accepting new thinking.
See p28-29
UNDERPINNED BY OUR VALUES
20
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Key Performance Indicators
MEASURING OUR
PERFORMANCE
See pages 207 to 209 for
areconciliation of Alternative
Performance Measures to the
IFRSequivalent.
FINANCIAL KEY PERFORMANCE INDICATORS (“KPIs”)
Underlying EBITDA
A
US$1,439
M
2021
US$1,439m
2020
US$859m
2019
US$503m
Underlying EBITDA
A
represents profit before tax and
finance plus depreciation and amortisation, net gains
and losses from disposal of investments and property,
plant and equipment, share-based payments and
write-offs and impairment losses. Underlying EBITDA
A
measures the Group’s ability to generate cash as well as
providing a useful measure of operating performance
excluding certain non-cash items. In 2021, Underlying
EBITDA
A
increased by 68% to US$1,439 million,
reflecting increased commodity pricing.
Link to strategy: 1, 2, 3, 4 & 5
Closest equivalent IFRS measure: profit before tax
andfinance
Profit after tax
US$871
M
2021
US$871m
2020
US$635m
2019
US$403m
In addition to Alternative Performance Measures,
Ferrexpo considers the IFRS results of the Group to be
an important measurement of profitability. In 2021, profit
for the year was 37% higher at US$871 million, reflecting
increased commodity pricing.
Link to strategy: 1, 2, 3, 4 & 5
Net Cash/(Debt)
A
US$117
M
2021
US$117m
2020
US$4m
2019
(US$281m)
Ferrexpo uses its net cash/(debt) position as an indicator
of the relative level of indebtedness of the Group and
therefore the overall strength of the Group’s balance.
Asof the endof 2021, the Group continues to be in a net
cash position, reflecting the strong performance of the
Groupin recent years.
Link to strategy: 1, 2, 3, 4 & 5
Net cash flow from operating activities
US$1,093
M
2021
US$1,093m
2020
US$68 7m
2019
US$473m
Net cash flow from operating activities represents the
cash flow generation ability of the Group, and indicates
the level of cash flow available for investments, returns
to shareholders and debt reduction. In 2021, net cash
flow from operating activities increased by 59% to
US$1,093 million, reflecting higher realised pellet pricing
and increased product quality.
Link to strategy: 1, 2, 3, 4 & 5
21
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Link to strategy
1. Produce high quality pellets.
2. Be a low cost producer.
3. Sell to a world class customer portfolio.
4. Maintain a social licence to operate.
5. Maintain appropriate capital allocation
between a strong balance sheet,
returns to shareholders and investment
for growth.
NON-FINANCIAL KEY PERFORMANCE INDICATORS (“KPIs”)
Lost time injury frequency rate (“LTIFR”)
0.41
2021
0.41
2020
0.79
2019
0.58
It is the Group’s highest priority to ensure its workforce
operates in a safe environment and is trained in safe
working practices. The LTIFR is an industry standard
measurement and an important indicator of how safe the
work environment is. The Group’s LTIFR in 2021 was
0.41, representing the third successive year that this
metric is materially below the Group’s five-year trailing
average (0.98).
Link to strategy: 1, 2, 3, 4 & 5
Production volumes
11.2
MT
2021
11.2
MT
2020
11.2
MT
2019
10.5
MT
Production volumes measure the Group’s ability to meet
customer demand as well as provide an indication of the
Group’s operational performance. In 2021, production
was in line with 2020 as a result of the completion of
several projects to upgrade capacity in the Group’s
pelletiser in Ukraine.
Link to strategy: 1, 2, 3 & 5
C1 cash costs of production
A
US$55.8
/T
2021
US$55.8
/T
2020
US$41.5
/T
2019
US $47.8
/T
The C1 cash cost of production
A
is the cost of
production processes to the factory gate, divided by
production. This is an industry standard measurement
and assesses Ferrexpo’s relative competitiveness
compared to other pellet producers. In 2021, Ferrexpo’s
C1 cash cost of production
A
increased by 34% to
US$55.8 per tonne, reflecting higher energy costs.
Link to strategy: 2 & 5
Sales volume by region
202120202019
Region 2021 2020 2019
Europe, including Turkey (BF pellet) 58% 36% 56%
North East Asia (BF pellet market) 8% 5% 16%
China & South East Asia (BF pellet market) 30% 56% 28%
Middle East & North Africa
(DR pellet market) 0.4% 0% 0%
North America (DR pellet market) 3% 2% 0%
Ferrexpo believes it is important to have a diversified
customer base to be able to withstand periods of
volatility in specific regions. In 2021, the Group saw a
gradual return to historic balance of market demand for
its products, following the initial peak of the global
Covid-19 pandemic, which resulted in a temporary pivot
in sales towards China in 2020.
Link to strategy: 3 & 5
22
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Financial Review
DELIVERING VALUE
THROUGH INVESTMENT
Through investment in high grade iron ore products,
the Group has been able to maintain its position as
a high margin business, further enabling the Group
to continue its strategy of investing for future
growth and returns.
Summary
Through rising pellet quality and strong
market demand for high grade, premium
forms of iron ore such as pellets, the Group
saw revenues in 2021 increase by 48% to
US$2.5 billion and Underlying EBITDA
A
increase by 68% to US$1,439 million
(2020:US$859 million), maintaining the
Group’s position as a high margin business.
The Group has maintained its balanced
approach to capital allocation, with capital
investment
A
rising by 75% to US$361
million. The Group realised a net operating
profit after tax of US$871 million in 2021
(2020: US$635 million) following the
accounting of an impairment loss of
US$231million as at 31 December 2021.
Revenue
Group revenues increased in 2021 by 48%,
relating to increases in commodity pricing
seen during the year – principally iron ore
prices, premiums for high grade materials
and pellet premiums. Total sales for the
period fell by 6%, reflecting the de-stocking
process that was conducted in 2020 in
response to the onset of the global Covid-19
pandemic. Revenues also benefited from
the increase to 100% high grade iron ore
products (2020: 99%). For further
information, please see the Operational
Review section on pages 26 to 27.
Seaborne freight revenue arising from CFR
sales increased revenue by US$12 million
compared to 2020, reflecting the net effect
from higher freight rates, partially offset by
lower sales volumes to Asia. Finally, the
revenues from the Group’s barging and
bunker operations, First-DDSG Logistics
Holding, increased by US$4 million in 2021
compared with 2020 as a result of higher
freight rates and bunker prices, partially
offset by a lower volume shipped.
REVENUE
+48
%
Increase in revenues, reflecting strong
demand for the Group’s high grade iron ore
product portfolio.
UNDERLYING EBITDA
A
MARGIN
57
%
Investing in high grade iron ore delivers
strong Underlying EBITDA
A
margin
(2020:50%).
INVESTING FOR GROWTH
+75
%
Investing for future growth with capital
investment
A
of US$361 million
in 2021 (2020: US$206 million).
Image: Nikolay Kladiev, appointed Group
Chief Financial Officer in August 2021.
C1 cash cost of production
A
The Group’s average C1 cash cost of
production
A
was US$55.8 per tonne in 2021,
compared with US$41.5 per tonne in 2020,
with this increase in the Group’s cost base
relating to a global rise in commodity input
prices, which applies to approximately 50%
of the Group’s cost base.
In the first half of 2021, global commodity
prices rose as global economies
experienced a recovery from the financial
effects of the global Covid-19 pandemic.
Following this rise in the first half of 2021,
global energy prices rose further due to a
tightness in the supply of crude oil, following
production cuts announced in late 2020 by
OPEC nations. Consequently, oil prices rose
from US$55 per barrel in January 2021 to a
peak of US$84 per barrel in October 2021,
representing a rise of more than 50%,
before retreating during the fourth quarter
1
.
23
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
The Group pays royalties on the extraction
and sale of iron ore products to the
Ukrainian government, with this royalty
regime updated in late 2021. This new
royalty regime, which came into force in
January 2022, includes a royalty payment
based on the spot iron ore (62% Fe) fines
price, with no reference to pellet premiums
or freight rates, which is structured as
follows: (1) at monthly iron ore prices (62%
Fe) less than or equal to US$100 per tonne,
a royalty rate of 3.5% will apply to iron ore
product sales, (2) at prices less than or
equal to US$200 per tonne a royalty rate
of5% will apply and (3) at prices above
US$200 per tonne a 10% royalty rate will
apply. Royalties are not tiered and therefore
the rate applied will apply to the full price
ofthe iron ore product being sold. This
compares to the previous iron ore royalty
calculation whereby the Group paid a flat
royalty rate ofapproximately US$3.5 per
tonne of all tonnes sold.
In line with previous years, the Group’s C1
cash cost of production
A
represents the
cash costs of production of iron pellets from
own ore (tothe mine gate), divided by
production volume from own ore, and
excludes non-cash costs such as
depreciation, pension costs and inventory
movements, aswell as the costs of
purchased ore, concentrate and gravel. The
C1 cash cost of production
A
(US$ per tonne)
is regarded as an Alternative Performance
Measures (“APM”). For further information,
please see pages 207 to 209.
Selling and distribution costs
Total selling and distribution costs were
US$340 million in 2021 (2020: US$309
million), reflecting an increase in freight
rates, offset by a decrease in sales to Asia.
As a result, international freight costs
KEY FINANCIAL PERFORMANCE INDICATORS
US$ million (unless stated otherwise) 2021 2020 Change
Total pellet production (kt) 11,220 11,218 +0.02%
Sales volumes (kt) 11,350 12,062 -6%
Iron ore price (65% Fe Index, US$/t) 186 122 +53%
Revenue 2,518 1,700 +48%
C1 cash cost of production
A
(US$/t) 55.8 41.5 +34%
Underlying EBITDA
A
1,439 859 +68%
Underlying EBITDA
A
margin 57% 50% +7pp
Debt servicing 215 146 +47%
Capital investment
A
361 206 +75%
Closing net cash 117 4 +3,215%
arising from CFR sales increased by
US$36million compared to 2020.
General and administrative expenses
The general, administrative and other
expense in 2021 was US$72 million
(2020:US$62 million), with this increase
mainly due to higher consulting fees related
to the business improvement projects and
personnel expenses in Ukraine linked to
local inflation.
Currency
Ferrexpo prepares its accounts in US
dollars. The functional currency of the
Group’s operations in Ukraine is the
Ukrainian hryvnia, which has historically
represented approximately half of the
Group’s operating costs. In 2021, the
hryvnia appreciated by 4% from UAH
28.275 per US dollar on 1 January 2021
toUAH 27.278 per USdollar as of
31 December 2021. For further information,
please see section on C1 cash cost of
production
A
on page 22 and Case Study
onpage 25.
Local balances as of 31 December 2021
areconverted into the Group’s reporting
currency at the prevailing exchange rate.
The appreciation of the hryvnia resulted in
aUS$79 million increase in net assets in
2021 (2020: decrease of US$301 million),
asreflected in the translation reserve,
netofanassociated tax effect.
Operating foreign exchange
gains/losses
Given that the functional currency of the
Ukrainian subsidiaries is the hryvnia, an
appreciation of the hryvnia against the
USdollar results in foreign exchange loss
onthe Group’s Ukrainian subsidiaries’
USdollar denominated receivable balances
(from the sale of pellets). The operating
foreign exchange loss in 2021 was US$38
million compared to a gain of US$61 million
in 2020 when the hryvnia depreciated.
Non-operating foreign exchange
gains/losses
Non-operating foreign exchange gains are
mainly due to the conversion of the hryvnia
denominated intercompany payable
balances and the conversion of euro
denominated loans (at the Group’s barging
facility) into the functional currency of the
respective Group’s subsidiary. In 2021, the
Group recorded a non-operating foreign
exchange loss of US$3 million (2020: gain
ofUS$5 million), which was driven by a 4%
appreciation of the hryvnia during the year
against the US dollar, as well as fluctuations
in the euro/US dollar exchange rate. For
further information, please see Note 9
Foreign exchange gains and losses to the
Consolidated Financial Statements.
Underlying EBITDA
A
Underlying EBITDA
A
in 2021 increased by
68% to US$1,439 million, with this increase
reflecting a balance of positive factors,
including the 53% increase seen in iron ore
fines prices, a 92% increase in the Platts
Atlantic pellet premium, balanced by
negative factors such as a 6% decrease in
sales volumes, 34% increase in C1 cash
costs of production
A
and an 81% increase in
the C3 freight rate. The Group’s Underlying
EBITDA
A
for 2021 includes anon-cash
operating forex loss of US$38million in
2021 (2020: non-cash operating forex gain
of US$61 million).
UKRAINIAN HRYVNIA VS. US DOLLAR
2
UAH per US$
Spot 20.04.22
29.255
Opening rate 01.01.21
28.275
Closing rate 31.12.21
27.278
Average 2021
27.286
Average 2020
26.958
1. Source: EIA.
2. Source: National Bank of Ukraine.
24
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Financial Review continued
Interest
Interest expense on loans and borrowings
declined by 57% to US$10 million compared
to US$22 million in 2020, due to a lower
average outstanding debt balance. The
average cost of debt was 4.7% for the
period until the full repayment of the
Group’s major debt facility in June 2021
(average 31 December 2020: 5.2%). Further
details on finance expense are disclosed in
Note 10 Net finance expense to the
Consolidated Financial Statements.
Tax
In 2021, the Group’s tax expense was
US$200 million (2020: US$113 million).
Theeffective tax rate for 2021 was 18.7%
(2020: 15.1%). The increase in the effective
tax rate was driven by a higher proportion
oftaxable profits in Ukraine and the
impairment loss, which is not tax deductible.
In2021, the Group paid income taxes of
US$228 million (2020: US$57 million), of
which US$221million were paid inUkraine
(2020: US$54million).
A total of US$29 million of income taxes
related to 2021 are expected to be paid in
2022, of which US$21 million in Ukraine.
Further details on taxation are disclosed
inNote 11 Taxation to the Consolidated
Financial Statements.
Items excluded from underlying
earnings
The Group has recognised an impairment
charge of US$231 million as at 31 December
2021, relating to stockpiled low grade ore as
it cannot reliably predict when this material
will be processed. Please see Note 17
Inventories to the Consolidated Financial
Statements for more information.
Profit for the period
Profit for the period increased 37% to
US$871 million compared with US$635
million in 2020, reflecting a 44% increase in
operating profit (including operating foreign
exchange effects) and US$3 million lower
net financial expense and a foreign
exchange loss of US$38 million compared
to a foreign exchange gain of US$61 million
in2020, in addition to a higher income tax
expense of US$200 million.
Cash flows
Operating cash flow before working capital
increased 85% while the working capital
outflow in 2021 was US$139 million
compared to an outflow of US$24 million in
2020. The increase in the working capital
outflow largely reflects higher balances of
trade and other receivables, prepayments
made as of 31 December 2021 and higher
inventories, which were mainly as a result of
shipments that slipped into 2022 due to bad
weather conditions at the Group’s loading
port at year end.
As a result of the higher operating cash flow,
the net cash flow from operating activities
increased 59% to US$1,094 million in 2021
(2020: US$687 million). Capital investment
was US$361 million, an increase of 75%
compared to 2020 (US$206 million), while
dividends paid during the 2021 calendar
year increased by 220% to 105.6 US cents
compared to 33.0 US cents in 2020.
Capital investment
A
Capital expenditure in 2021 was US$361
million compared to US$206 million in 2020.
Of this amount for 2021, sustaining and
modernisation capex was US$113 million
(2020: US$103 million), covering activities at
all of Ferrexpo’s major business units. In
relation to growth capital investment
A
, total
investment in the Group’s concentrator and
pelletiser, including the Wave 1 Expansion,
amounted to US$111 million in 2021
(2020:US$34.3 million). In addition, FPM
invested US$34 million on the press filtration
project, which is set for completion in 2022.
Further areas of capital investment
A
included
mine stripping and development of US$69
million in 2021 (2020: US$14 million) and
US$6 million invested in the infrastructure,
development and exploration of the
Bilanivske (Belanovo mine), Galeschynske
and Northern Deposits (2020: US$6 million).
For further information on the Group’s
growth plans, please see pages 28 to 29.
Shareholder returns
In view of Russia’s invasion of Ukraine and
the ongoing hostilities, the Board has
decided to defer any decision in relation to
an interim dividend in conjunction with the
Group’s full year results for 2021. The Board
will continue to assess the situation and
when appropriate make a decision in
relation to shareholder returns.
Total dividends paid to date in respect of
2021 are 46.2 US cents (2020 total: 85.8 US
cents). In November 2021, the Group
announced ashareholder returns policy
outlining the Group’s intention to deliver
30% of free cash flows as dividends in
respect of a given year. To date, the Group
has announced dividends in respect of the
2021 financial year representing 37% of the
Group’s free cash flow in 2021.
Following repayment of the Group’s PXF
Facility in June 2021, the Group no longer
has a financial covenant restriction over the
total available distributable profits of the
Group (noting that any dividend payment
must still comply with distributable reserve
requirements under company law).
The Group’s Board will consider, as
appropriate, whether or not to propose a
further interim dividend in respect of 2021.
Debt and maturity profile
Ferrexpo has a strong balance sheet, low
levels of gross debt and had a net cash
position as of 31 December 2021. As of
31 December 2021, the Group’s net cash
position was US$117 million (31 December
2020: US$4 million net cash position).
Grossdebt as of 31 December 2021 was
US$50million compared with US$266
million as of 31 December 2020. The
Group’s gross debt relates to short-term
trade finance facilities that typically have
tenures of less than 12 months.
As of 31 December 2021, the credit ratings
agency Moody’s has a long-term corporate
and debt rating for Ferrexpo of B2, with a
negative outlook. The credit ratings agency
Fitch maintains aBB- rating on the Group,
with a stable outlook. While the credit rating
of Ferrexpo is capped by the sovereign
credit rating of Ukraine, the ceiling for credit
ratings ascribed to Ferrexpo by both Fitch
and Moody’s are higher (one notch above
sovereign for Moody’s and two notches
above sovereign for Fitch).
Following the start of the Russian invasion
of Ukraine on 24 February 2022, the credit
ratings agencies have taken steps to update
their assessment on Ukrainian issuers. As of
4 April 2022, with regards to Ferrexpo plc,
Moody’s has a long-term corporate and
debt rating for Ferrexpo of Caa2, with a
negative outlook, while the credit ratings
agency Fitch has a long-term corporate and
debt rating for Ferrexpo plc of B-, with a
negative outlook. While the credit rating of
Ferrexpo is capped by the sovereign credit
rating of Ukraine, the credit rating ascribed
to Ferrexpo by Fitch is higher. The credit
ratings agency Standard & Poor’s has
temporarily suspended the credit rating for
Ferrexpo plc.
Related party transactions
The Group enters into arm’s length
transactions with entities under the common
control of Kostyantin Zhevago and his
associates. For further information, please
see Note 34 Related party disclosures.
US$55.8/t
(2020: US$41.5/t)
25
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
CA SE STU DY:
MAINTAINING A LOW CASH
COST OF PRODUCTION
The Group’s C1 cash cost of production
A
isgoverned byarange of factors, with
energy costs historically representing
approximately halfof the cost base
throughthe Group’s exposure to diesel
prices (mining), electricity prices
(predominantly processing) and natural
gasprices (pelletising).
The Group’s full year C1 cash cost of
production
A
rose by 34% to US$55.8 per
tonne, primarily reflecting a rise in the
second half of the year due to high energy
costs. Over the full year, increasing energy
costs have accounted for a combined
US$10 per tonne increase in the Group’s C1
cash cost of production
A
, with a further
US$2 per tonne increase attributable to
spare parts and maintenance costs per
tonne combined. Elevated energy prices are
expected to remain in place going into 2022,
with a gradual decline to historic levels
expected during the course of first half of
the year.
Through its production of high grade iron
ore pellets, the Group remains competitive
for costs on a global scale, as shown in the
pellet cost curve, presented by independent
consultants CRU. With the increases in
energy costs described above, the Group
has moved from the first to the second
quartile of costs for pellet producers, but
the Group retains a cost advantage over
more than 55 million tonnes of existing
pellet production, representing
approximately half of the current market of
iron ore pellets. Given the long-term value
proposition of high grade iron ore and pellet
premiums, as outlined in the Case Studies
provided in this report, the Group believes
that it will continue to be globally
competitive on its cost of production.
For more details of the increasing
premiums paid for high grade iron
ore, please see page 13.
CHART: BREAKDOWN OF FERREXPO’S C1 CASH COST OF PRODUCTION
A
CRU BREAKDOWN PELLET COST CURVE TO NATURAL MARKETS
(US$ PER TONNE)
90
80
70
60
50
40
30
20
10
0
Pellet cost for delivery to China (US$ per tonne)
3rd Quartile
2nd Quartile
1st Quartile
FERREXPO
0 30 60 90
Cumulative pellet exports, 2021, Mt (dry)
Definition: Business costs are the sum of realisation costs and site costs. Realisation costs include the cost of getting the
material to market, the marketing of the material and the financing cost of selling the material. The power of business costs is
that by adjusting all product qualities relative to the same benchmark (62% Fe fines product delivered to North China), it allows
all mines to be compared on a cost curve on a like-for-like basis. This also means that by subtracting the benchmark price from
the business costs for a mine an estimate of cash flow from that operation is obtained. Source: CRU Group.
Note: above numbers are rounded.
Electricity 23%
Gas + Biofuel 16%
Fuel 6%
Materials 8%
Spare parts 11%
Personnel costs 8%
Repair service 11%
Grinding bodies 8%
Royalties 6%
Blasting 2%
26
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Operational Review
PRODUCTION
SUMMARY
Russia-Ukraine conflict (2022)
To date, the Group has managed to
continue production operations during
Russia’s invasion of Ukraine in 2022, with
the Group curtailing non-core activities.
Shipments continue via rail and barge to
Europe, but seaborne exports via the
portofPivdennyi have been temporarily
suspended. Please see the Group’s press
releases for up-to-date operational updates.
Mining (2021)
Total mining volumes increased by 21% in
2021, with the Group preparing for the Wave
1 Expansion, which will require an increase
in supply of iron ore to the Group’s
processing plant upon completion. At FPM,
mining activities in 2021 remained in line
with 2020, but the Group significantly
increased total volume movements at FYM
to over 60 million tonnes, representing a
39% increase, underscoring FYM’s role for
the Group’s near-term growth ambitions.
FBM is the key project in the Group’s
medium-term growth plans, and this project
saw a seven-fold increase in material moved
to 10 million tonnes in 2021, with this mine
expected to continue its ramp up of
activities over time.
Additional projects under way in the Group’s
mines include the ongoing automation of the
haul truck fleet at FYM (see Case Study on
page 27), as well as ongoing discussions to
electrify the Group’s mining fleet, which is
likely to include trolley assist and battery
technology (see Case Study on page 29).
Both projects are expected to offer
long-term benefits in safety performance,
productivity and emissions reduction.
Total mining volumes in 2022 across the
Group’s two ore-producing mines – FPM
and FYM – are expected to remain in line
with 2021, reflecting the recent step up in
waste stripping activities ahead of the Wave
1 Expansion. For more information on the
Group’s growth plans, please see page 28.
Processing (2021)
The Group’s processing plant has seen
significant investment in recent years, and
as a result, ore tonnes processed and
concentrate tonnes produced both
increased by 5% in 2021, with the Group
expecting further growth in future years.
The pelletiser was the focus of investments
in processing in 2021, with upgrade work
taking place in three distinct phases
throughout the year.
OPERATIONAL PERFORMANCE
(000’t unless otherwise stated) 2021 2020 Change
Production
Iron ore mined 33,764 29,842 +13%
Strip ratio 3.5 3.2 +9%
Iron ore processed 31,111 29,723 +5%
Concentrate production 14,655 14,007 +5%
Pellet production 11,220 11,218 +0.02%
– Direct reduction pellets (67% Fe) 431 339 +27%
– Premium blast furnace pellets (65% Fe) 10,790 10,780 +0.1%
– Basic blast furnace pellets (62% Fe) – 98 -100%
Commercial concentrate production 234 183 +28%
Iron ore sales
– Pellets 11,115 11,878 -6%
– Concentrate 234 183 +28%
– Total products sold 11,349 12,062 -6%
2021 saw operations continue to develop and grow,
with work already under way for the next phase of
growth, with the Wave 1 Expansion set to add three
million tonnes of additional capacity.
STRONG PRODUCTION PERFORMANCE
11.2
MT
Pellet production in line with previous year,
despite 60 days of planned downtime for
pellet line upgrades in 2021.
QUALITY IMPROVEMENTS CONTINUE
+27
%
Output of higher grade direct reduction
pellets rose by 27% in 2021, and is
expected to increase further in 2022.
PREPARING FOR FUTURE GROWTH
+21
%
21% increase in mining volumes in 2021,
inpreparation for the Wave 1 Expansion.
Image: Inspecting one of the Group’s automated
CAT 793D haul trucks during regular maintenance.
Image: Installation of new equipment at the new
press filtration complex, one of the final
processing stages in the Group’s concentrator.
27
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Following the approval of the Group’s Wave
1 Expansion in October 2021, the Group has
taken the decision to focus on the
processing of high grade ores to maximise
production, and has therefore realised an
impairment on the value of the low grade
ore stockpiled at site. Please see Note 17
Inventories to the Consolidated Financial
Statements for more information.
A key project completed in early 2022 is the
Group’s press filtration complex, which will
help improve product quality and reduce
natural gas consumption through lowering
the moisture content of pellets before
entering the pelletisation process. The work
completed to date represents the first phase
of this project, which will help facilitate an
increase in throughput of material through
the Group’s processing facilities.
In terms of product quality, the Group has
phased out production of medium grade
products, transitioning to 100% high grade
(65% Fe and above) production as of
2021(2020: 99%). This shift marks the
culmination of 15 years of investment in high
grade production since the Group’s IPO,
and reflects a shift in preference by the
Group’s premium customers, who use
pellets to make premium types of steel.
Tounderstand the importance of high
gradematerials to steel companies,
pleasesee the Case Study on page 14.
Ferrexpo continues to use sunflower husks
as a substitute for natural gas in the
pelletiser, with 18% of pelletiser energy use
sourced from sunflower husks in 2021
(2020: 25%). The decrease seen in 2021
correlates to commercial trials of producing
direct reduction pellets, and the Group
expects consumption rates of sunflower
husks to increase as the Group’s
understanding of the technical requirements
of producing this pellet type increases.
Logistics (2021)
Sales volumes fell 6% in 2021 as a result of
the Group conducting a one-off de-stocking
process in early 2020. Production and sales
volumes in 2021 returned to a level broadly
matching each other.
In December 2021, the Group also
conducted a trial shipment to a German
steel mill via rail, which has the potential
toreduce the Group’s Scope 3 emissions
footprint through use of the electrified rail
network in Europe, as well as having the
potential to cut delivery times in half to
certain customers.
In 2021, the Group’s subsidiary First-DDSG
transported 0.8 million tonnes of iron ore
pellets via the River Danube (2020:
0.8million tonnes), providing additional
logistics flexibility for the Group to supply
customers in Europe.
CA SE STU DY:
MINING FLEET AUTOMATION
In December 2020, the Group was proud
tounveil the latest phase of autonomy in
itsbusiness – Europe’s first large scale
autonomous haul trucks. The Group has
continued to progress this project, with
thefirst phase of automation completed,
representing the first six CAT 793D trucks
atthe Yeristovo mine. Over time, the Group
plans to continue to introduce fleet
automation throughout its mining operations
in line with this equipment showing
improvements in both safety and productivity.
Through automation, the Group expects
tosee significant benefits in safety,
productivity and maintenance. The
autonomous fleet continues to improve in
itsfleet utilisation levels, and in November
2021 the Group’s automated fleet achieved
the same rates of utilisation as the Group’s
historic level.
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”) 300 33 26 829 31 23 1,135 32 24
Yerystivske 220 30 25 290 33 26 510 32 26
Total 526 32 26 1,119 32 24 1,645 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 ke ( “ G P L” ) 472 35 29 1,627 30 22 744 32 24 2,843 31 24
Yerystivske 269 35 29 571 34 27 382 33 27 1,222 34 27
Bilanivske 336 31 24 1,149 31 23 217 30 21 1,702 31 23
Total 1,077 34 27 3,347 31 23 1,343 32 24 5,767 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 2022. The Group previously reported a resource estimate of 326Mt for the Galeschynske deposit, which is the subject of a legal dispute and is therefore not shown above;
please see page 59 for more information.
28
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Operational Review continued
Growth projects in 2021
Recent projects completed include the
pelletiser upgrade work primarily completed
in 2021, as well as the concentrator upgrade
and concentrate stockyard that were both
completed in 2020. Through this work,
theGroup aims to provide stability and
consistency in pellet production, growth
inproduction volumes, and growth in
product quality.
Wave 1 Expansion
The Group’s Wave 1 Expansion is an
ambitious project to add approximately 25%
of the Group’s existing pellet capacity in the
next three years. In light of the current
conflict in Ukraine, the Group has
temporarily paused investment in growth
projects and will look to recommence
growth activities once additional clarity on
the outlook for Ukraine is known. Please see
the Principal Risks section for more
information (pages 56 to 72).
Expansion plans in the processing of
magnetite iron ore are modular in nature,
whereby processing increased volumes
uses larger and more advanced pieces of
equipment, largely replicating the existing
process flow sheet. The Group’s
investments to date have been a reflection
of this, and the Group’s Wave 1 Expansion
will be a continuation of this strategy.
Each key aspect of the production process
required to deliver the Wave 1 Expansion
are shown in the diagram opposite, with
pre-stripping activities commencing in 2021,
and reflected in a 21% increase in the total
tonnes mined during the year. The all-in
capital intensity of the Wave 1 Expansion at
the Group’s operations is expected to be
approximately US$200 per tonne of
additional pellet capacity.
The Group also expects to see additional
benefits and flexibility in processing
different ore types as a result of the Wave 1
Expansion. Through adding modern
equipment, such as the planned high-
pressure grinding rolls in the beneficiation
plant, the Group expects to see efficiency
savings for key consumables such as
electricity, which will have a positive effect
on the Group’s cost structure and
environmental footprint.
GROWTH PLANS
The Group has now invested over US$3 billion in
itsoperations since IPO, with over 85% of this
investment at the Group’s operations in Ukraine.
WAVE 1 EXPANSION
1. MINING
– Scale: increasing total volumes mined
from 125Mt in 2020 to approximately
265Mt.
– Equipment required: additional
excavators and haul trucks.
– Phasing: gradual increase.
– Total investment: US$180 million,
excluding trolley-assist.
2. CRUSHING &
BENEFICIATION
– Scale: increasing crushing capacity
tomore than 45Mt.
– Equipment required: minor upgrades to
primary crushing, additional secondary
and tertiary crushing capacity. Contracts
signed with Metso and Weir Minerals.
– Total investment: US$240 million.
3. PELLETISING
– Scale: increasing capacity of one
pelletiser line (out of four) by three million
tonnes.
– Equipment required: pelletiser kilns to
remain as is, with modifications to
pre-heating stages to add capacity.
– Phasing: timing to be after concentrate
capacity completed.
– Total investment: US$181 million.
4. LOGISTICS
– Scale: capacity to transfer three
milliontonnes of additional products
tocustomers.
– Equipment required: additional rail cars,
upgraded port capacity.
– Phasing: gradual implementation.
– Total investment: US$28 million.
29
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
VOLUME &
QUALITY
GROWTH
CA SE STU DY:
DECARBONISATION
OFMINING FLEETS
With 40% of Scope 1 (direct) emissions in
2021 relating to diesel consumption in the
Group’s mining fleet, projects to address
this area will have a clear impact on the
overall carbon footprint.
In the short term, diesel consumption rates
declined by 7% in 2021 as productivity
measures continue to be implemented, and
the Group is working towards continuing
this progress in future years.
For over ten years, Ferrexpo has operated
electric excavators, taking advantage of the
fact that Ferrexpo’s mines are located with
good access to the Ukrainian electricity
grid, a key advantage of Ferrexpo’s mines
over the majority of iron ore mines operated
by the Group’s peers in Australia. With this
in mind, the Group continues to review the
installation of trolley-assist infrastructure
along the upward section of the haul ramps
of its mines, as 50% of diesel consumption
occurs when fully-loaded trucks ascend out
of the Group’s mines, making this a clear
area to target in decarbonisation efforts.
The Group is continuing discussions with
suppliers of this technology, and in 2021,
representatives of the Group visited a
mining operation with trolley-assist
equipment already in operation. It is
expected that the installation of such
equipment would take two to three years to
implement. Aside from the benefits of
decarbonisation, trolley-assist technologies
also allow trucks to ascend pit ramps using
100% of each truck’s engine capacity,
leading to shorter cycle times, therefore
reducing the requirement for the number of
trucks operating, as well as more efficient
mining practices.
The longer-term solution is however to
completely remove diesel consumption from
the Group’s haul trucks. This is possible
through a range of technologies and the
Group believes that, as of today, the best
opportunity to implement diesel-free fuelling
of trucks is through battery technology,
which represents a technology that is
rapidly developing. The Group considers
itself to be a fast follower for new
technologies, and is looking to implement
afleet-replacement strategy with battery
technology trucks once this becomes a
widespread solution in the mining industry.
The Group expects this to be a gradual
phasing out of diesel trucks over time, with
this becoming a viable pathway inthe
medium to long term.
Diesel efficiency improvement (2021)
7
%
Reduction in diesel consumption rate in
2021, reflecting increases in productivity
and electric excavator usage.
Image: An autonomous truck undergoing trial
mining activities at FYM in 2021.
30
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
HSEC Committee Chair’s Review
The events in the first quarter of 2022 have
highlighted the importance of sustainability,
particularly Ferrexpo’s community support
initiatives, at this difficult time. The Group’s
newlyestablished Humanitarian Fund is
designedtohelp address the needs of
communitiesacross the country.
approved funding for the Group’s
Humanitarian Fund
1
.
Looking back at 2021, we can report a
fatality-free year, alongside the Group’s
lowest recorded full-year lost time injury
frequency rate (“LTIFR”) since its listing in
2007. Our safety performance in 2021 was
once again materially below our five-year
trailing average for LTIFR, and also
continues below the same metric as
recorded by Ferrexpo’s iron ore producing
peers in Western Australia
2
, with further
details provided on page 32.
New Chair appointed
In February 2022, I assumed the role of
HSEC Committee Chair, with Fiona
MacAulay moving to become the Senior
Independent Director. In this section, we
look back at progress made in a number of
sustainability topics, with further details
available in our Responsible Business
Reports, which are available on the Group’s
website (www.ferrexpo.com).
Prioritising safety and wellbeing
Safety and wellbeing have never been more
prominent in our activities than during
Russia’s invasion of Ukraine in early 2022.
Further details of our humanitarian efforts
are provided in our community support
section on page 42, with US$12.5 million of
Workforce wellbeing is a key area of focus
to ensure that people are well looked after
during the conflict, including the free
provision of psychological support and
on-site childcare facilities. In external
recognition of our efforts in 2021, we were
pleased to be recognised as one of the top
four companies in Ukraine for family-friendly
policies in a country-wide survey sponsored
by the United Nations Population Fund.
Further details are provided on page 41.
Addressing climate change
On carbon emissions, we are continuing to
deliver reductions, with a 16% reduction in
combined Scope 1 and 2 carbon emissions
per tonne for a second successive year, with
this decrease in 2021 driven by our clean
Image: New HSEC Committee Chair
Ann-Christin Andersen visiting the
Group’s operations in September 2021.
POSITIONED TO LEAD
ONSUSTAINABILITY
1. As at 21 April 2022.
2. Source: Government of Western Australia (link).
Accessed April 2022.
DELIVERING RESULTS: SAFETY
0.41
Key safety lost time injury frequency
rate remains materially below the
Group’s trailing five year average (0.98).
DELIVERING RESULTS: CARBON
-16
%
Combined Scope 1 and 2 emissions
pertonne reduced by 16% in 2021,
achieving acumulative 30% reduction
against the Group’s benchmark
year(2019).
DELIVERING RESULTS: DIVERSITY
20.1
%
Women in management roles across the
Group increases to 20.1% in 2021
(2020: 18.2%).
31
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
HSEC Committee Chair’s Review
CA SE STU DY:
SUPPORTING LIFE ON AND
IN THE DNIEPER RIVER
Ferrexpo and the Group’s local communities
are fortunate to be situated close to one of
Europe’s great rivers, the Dnieper River,
which flows through Ukraine to the Black
Sea and is more than two kilometres wide
as it passes Ferrexpo’s operations.
Whilst the Group does not operate in a
region considered to be high risk for water
stress (in accordance with the Water
Resources Institute), the Group aims to
reduce its water consumption regardless,
and the Group is pleased to report a third
consecutive year of materially lower water
withdrawal from the local water supply
network. Furthermore, the Group’s
processing plant regularly recycles 98%
ofwater used in processing operations,
minimising the impact of processing on
thelocal water system.
To promote biodiversity, the Group is
continuing its initiative to reintroduce native
fish species to the Dnieper River, with this
project winning a sustainability award at an
award ceremony in Kyiv in December 2021
for helping implement the UN’s Sustainable
Development Goal 14 (Life Below Water).
Further details of this project are available in
the Group’s Responsible Business Report.
With a healthy Dnieper River, local
communities are able to utilise the river for
sport and leisure. The Group is proud to
support the local sailing club, which had
four Olympians travel to the Tokyo Olympics
in the summer of 2021 (with local canoeist
Liudmyla Luzan, pictured above, winning
two silver medals). The Group also regularly
sponsors local and national dragon boat
racing competitions on the river in
HorishniPlavni, which is a popular sport
within Ukraine.
power purchasing strategy, which helped to
reduce Scope 2 emissions by 40% in 2021
on a per tonne basis. We did, however,
record an 11% increase in Scope 1
emissions per tonne, which was driven by
increased mining activity as we ramp up our
Wave 1 Expansion activities, and reduced
sunflower husk consumption in our
pelletiser as we trial the production of our
latest product, direct reduction pellets. This
emphasises the need for us to advance our
plans to electrify our mining activities – see
page 29 on this work stream – and the
importance of biofuels today, which will
facilitate the transition away from natural
gas in thefuture.
Through the result presented here for 2021,
we have nominally achieved a 30%
reduction in carbon emissions against our
baseline year, which was the medium-term
target set by the Group in 2021. This 30%
target is the benchmark level set in the
mining industry, and by achieving this goal,
we can demonstrate where Ferrexpo is
relative to its peer group in reducing
emissions. From here, we intend to continue
to reduce our emissions, and through
ourongoing work with environmental
consultants Ricardo plc (“Ricardo”), we
planto establish a bespoke pathway for
Ferrexpo’s net-zero ambitions. The Group’s
long-term emissions reduction target
remains to be carbon neutral by 2050, and
we look forward to reporting further on this
when our work with Ricardo concludes later
this year; further details of this project are
provided on page 37. Further to our work
with Ricardo, we understand the importance
of external assurance of sustainability data,
particularly given the prominence of these
topics in stakeholder discussions. As a
result, we are currently conducting an
external assurance process with an
independent consultant on our reporting of
carbon emissions and safety data, with
details of this project provided on page 34.
Promoting diversity and inclusion
Diversity, equity and inclusion (“DEI”) is an
area where we have recently increased our
focus. In 2021, we appointed a dedicated
DEI officer to further our understanding of
our own workforce, and we also conducted
our inaugural DEI survey. Gender diversity is
a focus of a range of training programmes at
our operations, from attracting women into
atypical roles, to providing management
training to women identified as high
potential future leaders of our business
aspart of our “Fe_munity” women in
leadership programme. We are proud of the
progress made to date, with the proportion
of women in management roles advancing
to 20.1% in 2021 (2020: 18.2%).
Strong links to local communities
Since the development of Horishni Plavni in
the 1960s for the original construction of the
iron ore mining and processing operations,
there has been a close association between
the mine and the town. In 2022, we are set
to celebrate 15 years since Ferrexpo’s listing
and we are proud of the support that we
have been able to provide during this time.
In March 2021, the Ferrexpo Charity Fund
celebrated its tenth year, during which time
the Group has directly assisted over 90
schools and other educational facilities,
over 30 hospitals and related facilities, and
direct aid to over 4,000 individuals requiring
assistance, such as regular support
packages or expensive medical operations.
See pages 42 to 43 for more on our work
with local communities.
Sustainable environments
At Ferrexpo, we understand the need for
sustainable working practices. The Dnieper
River runs close to our operations, and we
have a number of projects to promote both
biodiversity in the river and local community
use on the river (see Case Study opposite).
Furthermore, in 2021, we undertook a new
phase of biodiversity mapping – looking at
the species of plants, fungi and animals in
our local ecosystems, and we expect to
compile our first biodiversity monograph
in2022 following this project’s work.
Sustainability is a broad topic however,
andwe regularly report our performance
across more than 30 standards under
theframework published by the Global
Reporting Initiative, as part of our
Responsible Business Reports
(availableatwww.ferrexpo.com).
In conclusion, our efforts to mitigate the
detrimental humanitarian effects of Russia’s
invasion of Ukraine are ongoing and have
highlighted the need for a close and effective
relationship with local communities to quickly
deliver relevant support where it is needed.
Despite the war, we are continuing to work
on our Responsible Business activities,
andIwould like to thank our workforce
forembracing the fundamental values of
sustainability to help deliver this progress.
Ferrexpo has strong credentials in
sustainability and we look forward to
updating the market on our progress
intheyear ahead.
Ann-Christin Andersen
Chair, HSEC Committee
32
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Responsible Business
HEALTH AND SAFETY
REVIEW
In recent years, the Group has seen
significant progress in safety, with zero
fatalities in 2021 (2020: 1) and a lost time
injury frequency rate – a key benchmark of
safety in the mining industry – continuing to
remain below the Group’s trailing five-year
average. The Group also records a range of
leading and lagging indicators of safety,
aiming to encourage a culture of safety that
requires an employer to identify risks before
safety incidents occur, monitor near miss
events and analyse incidents when they
have occurred, to learn and improve.
Reviewing the safety indicators for 2021
shows an improvement in the majority of
lagging indicators, demonstrating that
progress is being made in instilling a
safety-first culture throughout the Ferrexpo
business. Of particular note is the ten-fold
increase in hazard reporting in 2021, which
is a reflection of the recent adoption of ISO
45001:2019. A number of leading indicators
are, however, down against the level set in
2020, which is an area to monitor in the year
ahead to ensure that the standards being
set today are maintained. In recognition of
the recent trend in road traffic incidents, the
Group has commenced a process to test
visitors’ driving safety awareness before
being permitted to drive between areas
ofplant and administrative buildings
(miningareas being already subject
tostrictcontrols).
As part of the Group’s newly announced
‘Vision Zero’ programme to reduce
operational injuries and instances of
occupational disease, the Group has
introduced a range of new measures such
as the installation of a new aspiration
system to reduce particulate emissions
inthe pelletiser in 2021, which will have
benefits for both improving working
conditions as well as the environment.
As part of the Group’s efforts to further
develop its position on sustainability, an
independent assurance process is being
undertaken on the Group’s safety data
(LTIFR and TRIFR) for 2021 by an external
consultant, which is expected to be
completed later in 2022. Details of this
assurance process are provided in the Case
Study on page 34.
A successful mining company is one that delivers value
forall stakeholders in a safe and sustainable manner.
Following Russia’s invasion of Ukraine in 2022, the Group’s
primary focus is the safety and wellbeing of its workforce,
with the following a review of safety in 2021.
SAFETY INDICATORS 2020/21
2021 2020 Change
Lagging indicators
Fatalities
1
0 1 -100%
Lost time injuries
1
9 17 -47%
LTIFR
1
0.41 0.79 -48%
TRIFR
2
0.97 1.25 -22%
Near miss events
2
5 7 -29%
Significant incidents
2
12 17 -29%
Road traffic accidents
2
43 31 +39%
Lost work days
2
497 1,046 -52%
Leading indicators
2
HSE inspections 3,293 3,305 -0.4%
HSE meetings 1,165 1,528 -24%
HSE inductions 11,602 7,335 +58%
Training hours 11,786 14,755 -20%
Hazard reports 595 51 +1,067%
Management high visibility tours 124 131 -5%
1. Group-level indicators.
2. Ferrexpo’s operations in Ukraine only.
Image: Training the next generation of
operators through Ferrexpo’s Dual Education
programme, which has trained 61 students
since 2019.
33
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
CA SE STU DY:
INTERVIEW WITH NATALIA
STOROZH, HEAD OF SAFETY
AT FPM
Q: Health and safety is clearly an
important department at Ferrexpo;
how many people work in the safety
department?
A: In total we have 72 people working in the
safety department at Ferrexpo’s operations
in Ukraine, the equivalent of approximately
1 for every 100 employees across
ouroperations.
Q: Since starting the role of Head of
Safety at FPM in March 2021, what were
the main safety projects implemented
in2021?
A: Safety projects often go hand in hand
with modernisation of equipment, which
comes with additional benefits such as
improved productivity. Good examples
ofprojects implemented include the
installation of a stationary jib at the primary
crusher, removing the need for operators to
enter the crusher hoppers to break
oversized ore, and the installation of a fully
automated lathe in our workshops, both of
which are projects that help to remove
operators from hazardous areas. Safety
projects range from improving signage
– such as clearer demarcation of container
storage areas – to the installation of six
speed bumps on the main road entering our
production facilities.
Q: Were there any particular
departments that required a specific
approach for establishing safety
protocols?
A: Every area of our operations has a
tailored approach to safety. A good example
would be our maintenance workshops of the
processing plant, where work is carried out
at height and where a large number of
contractors are involved. Here, we have a
strong focus on risk assessments and
safety training, given the higher
concentration of contractors, to familiarise
those working in maintenance with the
identified risks.
Q: How often does the Safety Committee
meet at site?
A: At FPM, Ferrexpo’s main operating entity,
we have a committee for labour protection,
industrial safety and the environment,
aswell as a council board for labour
protection, industrial safety and the
environment of the plant. Meetings are held
to help draw up measures aimed at
improving working conditions, organising
the safe performance of work, to eliminate
inconsistencies and manage hazards and
risks. During 2021, FPM’s Safety Committee
met four times at site.
Q: Which safety projects are planned for
the coming year?
A: We have a number of projects that we are
continuing to roll out from previous years,
such as the tag-out lock-out system for
isolating machinery during maintenance,
aswell as safety training programmes
specifically for those working at height.
In2021, we obtained certification for our
occupational health and safety management
system under ISO 45001:2019 and we
continue to update practices and introduce
standards as part of this project. New
projects for 2022 include the installation of
additional traffic calming measures and the
installation of a training simulator to help
train operatives for working at height.
Ultimately we are aiming to develop our own
safety standard across the Group for
operatives working at height.
To help further deliver safety improvements
in the year ahead, we have developed the
concept of “Vision Zero” to eliminate
workplace injuries and occupational
diseases, with efforts under way to raise
awareness of this programme, such as the
installation of 12 large billboards around our
operational areas, as well as notices on
internal communications channels.
Lost time injury frequency rate (2021)
0.41
Record-low full-year lost time injury
frequency rate recorded since the Group’s
IPO in 2007 (2020: 0.79).
Image: Natalia Storozh,
Head of Safety at Ferrexpo’s
mainoperatingentity, FPM.
34
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
CA SE STU DY:
EXTERNAL ASSURANCE –
PROVIDING TRUST IN
SUSTAINABILITY PROGRESS
Ferrexpo recognises that a company’s
reporting around climate change is an
important pillar on which stakeholders base
their trust in a company. In order to build
trust in Ferrexpo’s performance on climate
change reporting, the Group is in the
process of undertaking an external
assurance process (ISAE 3000) with an
independent consultant, with the first year
of this project looking at both reporting of
data for carbon emissions and safety.
In terms of carbon reporting, the process
will provide external assurance on the
Group’s Scope 1 (direct) and Scope 2
(indirect) emissions, as these are directly
associated with the Group’s pellet
production facilities. Over time, the Group
intends to provide assurance on a broader
range of topics within sustainability.
The assurance process to date for the
Group’s carbon footprint has highlighted
anumber of minor amendments to the
Group’s calculation of its carbon footprint,
amounting to an overall decrease in the
Group’s carbon footprint of 1% in absolute
terms for 2020 and a 2% reduction on a unit
basis for 2020. The full list of amendments
raised through this process will be provided
on the Group’s website once this assurance
process is completed, including the
following amendments for the Group’s
2020data:
– Removal of steam from Scope2
calculation, as this is generated from
purchased natural gas and therefore
previously double counted. (Net impact
on 2020 data: -24kt CO
2
e.)
– Increase carbon factor for nuclear power
purchases from 5g to 12g per kilowatt-
hour, aligning with World Nuclear
Association
1
data. (Net impact on 2020
data: +2kt CO
2
e.)
– Correction of factor for sunflower husks
from 0.73kg/t to 0.073kg/t, bringing into
line with other biofuels. (Netimpact on
2021 data: -113kt CO
2
e.)
– Inclusion of the Group’s commercial
concentrate sales of 183kt in calculating
per tonne emissions.
Responsible Business continued
1. www.world-nuclear.org/information-library/energy-and-the-environment/carbon-dioxide-emissions-from-electricity.aspx
EXTERNAL
ASSURANCE
Image: Sample testing at
Ferrexpo’s laboratory, to confirm
the geological model ahead
oforemining activities.
35
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
The Group’s interaction with the
environment is encapsulated not just
through carbon emissions, but also through
other forms of emissions, energy use, water
withdrawal and recycling, waste generation
and biodiversity. These topics are covered
in detail in the Group’s Responsible
Business Reports, which are published
annually and available on the Group’s
website (www.ferrexpo.com).
Delivering progress on carbon
In 2021, the Group not only announced
decarbonisation targets to frame its
net-zero ambitions, but also engaged with
environmental consultants Ricardo plc
(“Ricardo”) to further develop the Group’s
understanding and reporting around climate
change. Further details of the Group’s
engagement with Ricardo are provided in
the Case Study on page 37.
The Group continues to make progress in
cutting its carbon footprint, delivering a
16% reduction in its Scope 1 and Scope 2
carbon emissions (CO
2
e) per tonne in 2021.
Details of this progress, as well as the
Group’s reporting under the TCFD, are
provided on page 38.
Cutting water consumption
The Group typically interacts with water in
two areas of its operations: (1) in mining,
water ingress into the Group’s open pits
(groundwater and precipitation) is pumped
out of mining areas and back into the
natural environment (“dewatering”), and (2)
in processing, water that is used to facilitate
the processing of iron ore. Dewatering
represented 95% of the Group’s total water
withdrawal in 2021, and the Group’s
activities in mining areas do not
predominantly utilise this water (aside from
dust suppression activities, which utilises
the equivalent of 4% of dewatering
volumes). Ferrexpo, however, maintains
regular inspections of the quality of this
water, monitoring 13 chemical elements at
each operation and other attributes, to
maintain standards, to ensure compliance
with local laws and to ensure a minimal
impact on the environment that this water
isreturned to. With water that is used in
processing, the Group’s processing plant
and tailings facility acts as a closed loop,
with water used to pump waste material to
the tailings facility reclaimed and pumped
back to the processing plant, resulting in
98% of process water being recycled by the
Group’s processing plant. The remaining
2% of water is lost through processes such
as evaporation when green pellets are
heated in the pelletiser or surface
evaporation at the tailings facility.
Supporting local biodiversity
A key natural habitat located close to the
Group’s operations in Ukraine is the Dnieper
River, one of Europe’s largest rivers. As a
consequence of domestic detergent use
and fertiliser use in agriculture
1
, this river
faces frequent blooms of blue-green algae
in the summer months, which are harmful to
the river’s ecosystem, as well as limiting
local communities from using the river for
recreation. Through an initiative launched in
2020, which was proposed internally by an
employee, the Group is aiming to improve
local conditions in the Dnieper River through
the introduction of native species of fish that
live off these algae and will help to balance
ENVIRONMENTAL REVIEW
1. Source: NASA (link).
Ferrexpo works closely with the natural
environment, to minimise any impact and strive to
improve as new technology becomes available.
the river’s natural ecosystem. The Group is
working with the Poltava Fish Conservation
Patrol on this multi-year project, with the
second phase of this project introducing
two tonnes of local species (carp) into the
river in November 2021.
Responsible waste management
The Group primarily produces waste
through overburden removal in mining
operations, and waste separated from iron
ores during processing. In 2021, the Group’s
three mines stripped a combined 118 million
tonnes of waste rock and sand (2020: 95
million tonnes), with this material stored
locally in waste facilities designed by the
Group’s mining engineers and reviewed by
local authorities. Waste mining activities
increased in 2021, ahead of the Group’s
Wave 1 Expansion, with details of this
project provided on page 28. Waste material
from processing, referred to as tailings,
increased by 6% to approximately 16 million
tonnes, with approximately 40% of this
waste subsequently recycled by the Group
as other materials such as gravel for
roadconstruction.
Image: Ferrexpo supports biodiversity
tohelplocal communities to enjoy the
river,withevents such as dragon boat
racingcompetitions.
36
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Responsible Business continued
CLIMATE CHANGE
Scope 1 and Scope 2 emissions
The Group’s Scope 1 (direct) and Scope 2
(indirect) emissions relate to the Group’s
controlled activities to produce and
transport products to customers, and are
shown in the table below. The Group has
made significant progress in its efforts
relating to climate change in 2021, with a
combined 16% reduction in Scope 1 and 2
carbon emissions
1
in 2021.
The Group has therefore reduced its
emissions by 30%
1
in the space of two
years, and whilst this meets the Group’s
medium-term target of reducing emissions
by 30% by 2030
1
, Ferrexpo understands
that progress in sustainability is only
achieved through improvements that are
maintained over a period of time. The Group
therefore commits to continuing to sustain
this level of reduction, and will look to
publish more on its decarbonisation
pathway once its work with Ricardo is
completed – with this project designed to
outline a bespoke, emissions reduction
journey for the Group. See Case Study
opposite for more information on this
workstream.
The reduction in carbon emissions in 2021
1
has primarily been achieved through the
Group’s targeted power purchasing
programme, driving the improvement in
Scope 2 emissions, which has delivered a
40% reduction in this category
1
. Conversely,
with increased mining volumes and reduced
biofuel consumption in 2021, Scope 1
emissions per tonne rose by 11%
1
. The
Group intends to continue to improve
efficiencies in the consumption of diesel
and natural gas, as well as increase biofuel
consumption, along with the various
decarbonisation projects outlined in the
Case Study onpage29.
The Group calculates its carbon footprint
via the application of carbon factors
supplied by the Greenhouse Gas Protocol
(https://ghgprotocol.org/), in line with
guidance provided by the Global Reporting
Initiative, which is the framework that the
Group uses to publish its annual
Responsible Business Reports. The carbon
factors supplied by this initiative are
combined with consumption data for the
Group’s activities at its mining, processing
and logistics subsidiaries, including the
Group’s consumption of diesel, natural gas,
gasoil and electricity, which collectively
accounted for 98% of the Group’s Scope 1
and 2 emissions in 2021 (2020: 98%). Using
the factors provided by the Greenhouse Gas
Protocol, the Group is able to incorporate a
range of greenhouse gases into its
calculation to generate a carbon-equivalent
figure. Gases included in this calculation are
as follows: carbon dioxide, methane and
nitrous oxide.
Scope 3 emissions
The Group’s Scope 3 (value chain)
emissions relate to the upstream and
downstream emissions related to the
Group’s activities, and over 90% of which
are related to the conversion of iron ore to
steel. The Group’s understanding of its
Scope 3 emissions continues to develop
through the Group’s ongoing engagement
with Ricardo. Furthermore, following the
Group’s increased focus on direct reduction
pellets, the Group has engaged
independent consultants CRU to provide an
emissions factor specific to this pellet type,
with this work summarised in the Case
Study on page 10. As a result of this work,
the Group can disclose that its Scope 3
emissions footprint was 1.28tCO
2
/t in 2021
(2020
2
: 1.29tCO
2
/t), with this 1% reduction
2021 2020
3
Change
Emissions (CO
2
e, kilotonnes)
– Scope 1 649 580 +12%
– Scope 2 404 675 -40%
– Combined 1,053 1,255 -16%
Footprint (CO
2
e kg/t)
– Scope 1 57 51 +11%
– Scope 2 35 59 -40%
– Combined 92 110 -16%
Biofuels (tonnes CO
2
) 10 13 -24%
Energy consumption (kWh) 5,489,232,550 5,142,974,253
3
+7%
1. Scope 1 and 2 emissions on a per tonne basis, carbon dioxide equivalent basis.
2. Adjusted versus 2020 Annual Report as a result of the review by Ricardo, see page 37 for more details.
3. Adjusted versus 2020 Annual Report as a result of the ongoing external assurance process, see page 34 for more details.
related to the Group’s increasing production
of direct reduction pellets.
Cutting carbon: targets
The Group understands the importance of
climate change, and for stakeholders to
understand a company’s long-term
ambitions in respect of climate change. In
recognition of this, the Group announced its
inaugural carbon reduction targets for
Scope 1 and Scope 2 emissions in October
2021, primarily designed to show a clear
ambition of achieving net zero carbon
emissions by 2050 and to align the Group
with its peer group in terms of the trajectory
to achieve this net zero goal, through a 30%
reduction in carbon emissions by 2030 on a
per tonne basis. Through announcing
inaugural targets, the Group is aligned with
its peer group, but the Group also
understands the importance of setting goals
that are specific to a company’s operations;
for more on this work stream, please see the
Case Study on Ricardo opposite.
The capital investment required to
decarbonise the Group’s activities is a key
aspect of the Group’s ongoing collaboration
with Ricardo, and the results of this work
stream are expected to be published later
in2022.
The Group is also developing its
understanding of Scope 3 emissions and as
outlined in the Case Study on page 10, the
Group can reduce its Scope 3 emissions
through the gradual increase in output of its
higher grade direct reduction pellets. Since
direct reduction pellets are processed by
steelmakers using a combination of natural
gas and electricity to produce steel, these
pellets have a 49% lower carbon footprint
than the Group’s blast furnace pellets. The
Group intends to develop its forward
thinking around reducing Scope 3 emissions
as the Group’s understanding of producing
this pellet type increases over time.
Improving energy efficiency
The Group understands the importance of
reducing its energy consumption over time,
and is implementing a series of energy
efficiency projects across its operations.
The Group’s energy consumption mirrors
the Group’s carbon emissions, with natural
gas, electricity and diesel the key drivers for
energy consumption. As a result of a 21%
increase in mining activities and a 5%
increase in ore tonnes processed, total
energy consumption increased by 7%
in2021, as shown in the table opposite.
37
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
CA SE STU DY:
RICARDO: A NEW PHASE
OFCLIMATE CHANGE
REPORTING FOR FERREXPO
In October 2021, alongside inaugural
decarbonisation targets, Ferrexpo
announced its collaboration with Ricardo
plc (“Ricardo”) to produce the next phase
ofclimate change reporting for the Group.
Through working with Ricardo, Ferrexpo
aims to further develop its forward-looking
understanding around climate change,
todevelop a bespoke understanding of the
Group’s pathway tonet-zero emissions and
a clear picture onthe role of iron ore pellets
in the decarbonisation of the global steel
industry. This project is specifically looking
at the modules shown opposite.
– Module 1: Government legislation –
risks and opportunities. Looking
primarily at the jurisdictions into which
Ferrexpo sells its pellets, this module
focuses on the changing regulatory
framework. Through this work stream
theGroup intends to gain a better
understanding of the likely decarbonisation
pathways ahead in each of the jurisdictions
into which the Group sells its products.
– Module 2: TCFD reporting. The group
has disclosed under TCFD since 2019
and with the help of Ricardo the Group
will present more detailed climate
change scenario analysis. This will
provide more in-depth insight to
understand the risks and opportunities
for the group and inform future strategy.
– Module 3: Pathway to net-zero carbon
emissions. The Group has established
anet-zero ambition with its inaugural
targets announced in October 2021,
andwith thehelp of Ricardo, the Group
hopes toadvance this process and
identify abespoke pathway for the
Group’s emissions.
Image: Since 2015 Ferrexpo hastaken
advantage of Ukraine’s sizeable sunflower
oilindustry tousesunflower husks as
abiofuel in the Group’s pelletiser.
– Module 4: Life cycle analysis. Looking
at Ferrexpo’s role in the circular
economy, this module aims to outline
how pellets have a lower environmental
impact beyond Ferrexpo’s own
operations than other forms of iron ore.
For example, Ferrexpo’s higher grade
iron ore pellets are typically used to
make higher grade forms of steel, which
in turn are more likely to be recycled,
lowering the environmental footprint of
this type ofsteel.
Through a clear understanding of Ferrexpo’s
future pathway, the Group expects to be
able to present a further level of detail on
climate change than has been previously
published by the Group. It is expected that
the Group will be in a position to present the
results of its collaboration with Ricardo in its
next Responsible Business Report, to be
published later in 2022.
38
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
The Group is proud to support the Task Force on
Climate-Related Financial Disclosures (“TCFD”), which
is designed to help companies provide clear reporting
for stakeholders on climate change.
Responsible Business continued
TCFD REPORTING
Topics reported by the Group in accordance
with TCFD are provided in the table
opposite.
Ferrexpo understands that climate change
presents the Group with a range of risks and
opportunities, and these are presented in
detail in the Group’s Responsible Business
Report for 2020 (pages 48 to 52).
Inaddition, Principal Risks relating to
climate change are outlined on page 71
ofthis report.
In respect of climate change scenario
planning, the Group is working with Ricardo
to conduct a detailed modelling exercise
ofa range of climate change scenarios –
further details of this work stream are
provided in the Case Study on page 37.
Ahead of the conclusion of this process with
Ricardo, theGroup has completed a
qualitative review of two potential climate
scenarios, which are as follows:
– 2
o
C scenario (Paris Agreement), with
anassociated increase in government
regulation compared to today. Under
thisscenario, the Group expects carbon
pricing in Ukraine to increase to align
with pricing envisaged under the Paris
Agreement (US$50-100/t). Based on the
Group’s Scope 1 and 2 emissions, this
would equate to an additional C1 cash
cost of production
A
of between US$5
and US$9 per tonne directly relating to
carbon costs. Inaddition, the Group
expects that the cost of electricity in
Ukraine will increase during the transition
to renewables.
– +3
o
C scenario, whereby a lack of
legislative action results in increased
physical effects of climate change, such
as increased water stress, as forecast by
US Aid’s projections for Eastern Europe,
which envisages prolonged periods
ofdrought. The Group uses water
throughout its operations, in theform of
dust suppression in mining operations
and in the wet processing ofores to
separate contained iron from waste
material. Any restriction on water use
would potentially require additional
capital investment to adjust existing
mining practices and reconfigure the
Group’s oreprocessing flow sheet.
The Group is currently conducting a
process with environmental consultants
Ricardo that is reviewing three different
climate change scenarios and the Group will
publish the results of this climate change
modelling following the conclusion of this
process later in 2022.
Climate change risks
In respect of climate change, the Group
considers this to be a Principal Risk, and
details of this are provided on page 71 of
this report. The Group also considers that
climate change poses opportunities to the
Group as well as risks, since the Group
produces a form of iron ore that is known
toreduce emissions for steelmakers when
used instead of more commonly traded
forms of iron ore. A full breakdown of the
Group’s approach to climate change risks
and opportunities is presented on pages 48
to 52 of the Group’s Responsible Business
Report for 2020, which is available on the
Group’s website (www.ferrexpo.com).
Climate change represents both a material
risk and opportunity to the Group in how it
is shaping the global steel industry, as
described in the Market Review section
(Green Steel) on page 15. In response to this
global trend towards lower emissions
steelmaking, the Group has commenced
production of higher grade (67% Fe) direct
reduction iron ore pellets, which are used in
lower carbon forms of steelmaking – see the
Case Study on page 10 of this report for
more information. The transition to
producing direct reduction pellets will be
led by market factors as the Group’s
customers pivot to production processes
that will require the use of this pellet type.
Inorder to produce greater volumes of
direct reduction pellets, the Group is
investing in its operations to increase
capacity and operational flexibility, as
described in the Growth Plans section
ofthis report (page 28).
The Group is investing in reducing its
greenhouse gas emissions throughout its
business. The Group is undertaking a range
of projects to decarbonise its mining
operations, with diesel consumption from
mining representing 40% of the Group’s
Scope 1 emissions in 2021 (2020: 40%), and
an overview of these projects is provided on
page 29 of this report.
The Group has been utilising biofuels
(sunflower husks) as a partial substitute for
natural gas consumption in its pelletiser
since 2015, with this activity having the
benefit of reducing the Group’s Scope 1
emissions as well as reducing the Group’s
exposure to the availability and pricing of
natural gas. In 2021, the Group substituted
18% of the pelletiser’s energy requirements
with sunflower husks (2020: 25%), with this
level of consumption expected to increase
in future years as the Group’s understanding
of producing direct reduction pellets
increases.
In 2020, the Group commenced a clean
power purchasing programme, aimed at
utilising new legislation in Ukraine that
enabled the purchase of electricity from
selected producers. As a result of this
programme, the Group reduced its Scope 2
emissions footprint on a per tonne basis by
40% in 2021 (see page 36 for more details).
Compliance Statement (FCA’s
Listing Rule 9.8.6(8)R)
In line with the current UK listing Rules
requirements, we have included climate
related financial disclosures consistent with
the four TCFD pillars and 11 recommended
disclosures. The table opposite provides a
summary of the Group’s climate-related
financial disclosures, with these disclosures
intended to be in accordance with the
recommendations by the TCFD. The
location of further information regarding the
Group’s climate change disclosures is
presented in the table opposite as well as in
the Group’s Responsible Business Reports,
which are available at the Group’s website
(www.ferrexpo.com).
Throughout the year, Ferrexpo has made a
number of steps to progress its reporting
ofclimate change topics in order to fully
comply with TCFD recommended
disclosures. Where full compliance is yet
possible, disclosure is included as to the
various work streams that are underway
tofacilitate full compliance.
39
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Summary disclosure against TCFD recommendations
Strategy
Climate-related risks
andopportunities over the
short, medium and long term
Climate change is considered to be a Principal Risk to the Group, and this risk is detailed on page 71 of this
report, alongside risk mitigation actions. The risks and opportunities relating to climate change and their
effect on the Group’s operations are outlined in detail in the Group’s Responsible Business Report, which
isavailable on the Group’s website. These include transition risks and physical risks associated with the
transition to a lower carbon economy. The time horizon for these risks and opportunities to emerge are
alsodescribed being short-term (less than 2 years), medium-term or long-term (greater than 10 years).
TheGroup’s Risk Management Process is outlined on page 54 of this report.
Impact on the Ferrexpo
business, strategy and
financial planning
The Group has incorporated climate change into its strategic planning and is currently pivoting its production
base towards direct reduction pellets as a consequence of this process, as discussed on page 10 (Case
Study: The Importance of Iron Ore Pellets) and page 15 (Market Review, Future Trends: Green Steel). The
Group has incorporated climate change into its financial modelling through the establishment of an internal
cost of carbon, which has been used when evaluating capital investment projects during the year. Please see
the Corporate Governance Report (page 88) and Principal Risks Section (pages 56 to 72) for more
information on the Group’s approach to evaluating the impact of climate change on its business.
Resilience based on
climatechange scenarios
The Group is conducting a detailed climate change modelling exercise with environmental consultants
Ricardo, which is a process that is expected to complete later in 2022. The Group has conducted scenario
analysis as presented in this report based on two climate change scenarios – see page 38 for more details.
Governance
The Board’s role in
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. Climate change was a standing agenda item at all five
scheduled Board meetings throughout the year. Further details of the Board’s consideration of climate
change and its oversight of the Group’s goals and targets for addressing climate change are on page 88.
TheHSEC Committee has been delegated management of climate change risk, which includes three
members of the executive management team, and reports the Group’s progress on climate change related
matters to the Board of Directors. Independent Non-executive Director Ann-Christin Andersen is Chair of
theHSEC Committee, which met four times during the year and climate change has been a standing agenda
item at all scheduled HSEC Committee meetings throughout the year.
Management’s role
inassessing risks
andopportunities
The Board is accountable for the long-term stewardship of the group. The Board has delegated oversight of
climate change related activities to the HSEC Committee. 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 Committee, which typically meets ten times a year. Risks relating to climate
change are determined in the same way as other principal and emerging risks, and the relative significance
ofclimate risks is assessed based on monetary impact, probability, maximum foreseeable loss, trend and
mitigating actions. A summary of the Group’s approach to risk identification and risk mitigation activities
isprovided on pages 54 to 55 of this report.
Risk management
Processes for identifying,
assessing and managing
climate-relatedrisks
The Group regularly assesses risks applicable to the Group through its Finance, Risk Management and
Compliance Committee, which assesses risks based on the probability of occurrence and severity of impact
should an event occur. An overview of the Principal Risks facing the Group, and the risk mitigation measures
that the Group has put in place in relation to these, is provided on pages 56 to 72, with climate change
identified as a Principal Risk and detailed on page 71 of this report. Within the topic of climate change,
theGroup’s management has identified specific risks and opportunities relating to climate change,
rangingfrom policy and legal topics, physical effects, emerging technologies, market factors and
reputational differentiators.
How Ferrexpo integrates
these risks into the Group’s
overall risk management
Ferrexpo’s governance relating to climate change risks has been designed to ensure that the management of
the financial risks from climate change are integrated across the whole governance system and embedded
into the existing risk management framework. The Group’s approach to assessing and managing risk,
including climate-related risks, is described on page 54.
Metrics and targets
Metrics used to assess
climate-related risks and
opportunities
Ferrexpo’s approach to managing its performance with respect to climate change is to fully integrate climate
change into the Group’s overarching strategy to grow production of direct reduction pellets, which have a
lower Scope 3 footprint for the Group, as well as decarbonise the key elements of the Group’s production
process, with consumption of diesel, electricity and natural gas collectively accounting for 90% of the
Group’s Scope 1 and 2 emissions. Details of projects to reduce consumption of each of these consumables
are provided on pages 29 and 38.
Greenhouse gas emissions Details of the Group’s Scope 1, 2 and 3 emissions are provided on page 36 of this report.
Targets Details of the Group’s targets for reducing Scope 1 and 2 emissions are provided on page 36 of this report.
Approximately 90% of the Group’s Scope 3 emissions relate to the conversion of the Group’s products to
steel, with the emissions from this process primarily governed by the type of iron ore pellet that the Group
produced – see the Case Study on page 10 for more information. The Group will be in a position to establish
Scope 3 emissions targets once its technical understanding of producing direct reduction pellets has been
further established.
40
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Through the Group’s employee engagement
initiatives, and through providing training
and development, the Group aims to foster
a positive and inclusive culture within
itsorganisation.
Training and development
With an employee workforce of over 5,000
men and over 2,000 women, the Group is a
substantial employer in central Ukraine, with
the Group accounting for 4% of Ukraine’s
export revenues in 2021 (2020: 3%). The
Group has a long-held belief that it can only
deliver strong financial results through a
close relationship with its workforce, which
can only be fostered through a strong
programme for workforce development.
During the year, the Group held 6,442
training courses for employees (2020:
6,863), with a further 931 training courses
provided to contractors (2020: 490). The
focus of this training remains primarily
safety and skills training, with 99% of
Ferrexpo’s employees having an annual
training and development review in 2021
(2020: 86%).
Employee wellbeing
Over the course of the past year the Group
has increased its focus on the health and
wellbeing of its workforce with the
continuation of the global Covid-19
pandemic in 2021. Ferrexpo understands
that as a responsible employer, the Group’s
interaction with its workforce goes beyond
basic safety, and through this approach, the
Group intends to foster aconstructive and
positive working environment.
A positive culture is achieved through
projects such as the Employee Wellbeing
Programme, which provides training on soft
skills such as courses to help people identify
the signs of burnout as well as training in
financial literacy, to provide people with the
tools required for managing the stresses of
modern life, which have been magnified by
the global pandemic. As an example of the
work carried out in this area, the Group has
recently worked to instil a culture at its
operations of not contacting colleagues for
work reasons after hours or at weekends, to
establish astrong work-life balance for the
Group’sworkforce in Ukraine.
Diversity, equity and inclusion
The development of the initiatives outlined
here has been the product of the Group
appointing a Diversity, Equity and Inclusion
(“DEI”) Officer in 2021, and the Group’s
inaugural DEI survey, gathering responses
from over 600 employees to help establish
a360-degree DEI strategy and promote
equal opportunities for all employees
goingforward.
Responsible Business continued
WORKFORCE DEVELOPMENT
AND INCLUSION
Ferrexpo’s workforce comprises over 10,000
employees and contractors, making it one of the
largest employers in the region.
A new programme to promote inclusivity
amongst different age groups was launched
in May 2021 with the Group’s “STEM
Streamers” programme, which attracted
90local students aged 14-18 from local
schools. Children were invited to participate
in a one-day workshop event consisting of
interactive talks and activities to promote
inclusivity, gender equality, and tackling
stereotypes within society. Other events
inthe same month included Ferrexpo
representatives participating in a panel
discussion on diversity and inclusion at the
People Management Conference, held in
Kyiv in May 2021, as well as events held at
schools in Ferrexpo’s local communities.
It is a legal requirement in Ukraine for
companies of Ferrexpo’s size to ensure
that4% of their workforces in Ukraine are
registered as disabled, with this regulation
deliberately designed to aid those with
disabilities. Ferrexpo is proud to adhere
tothis legislation, with 4.4% of employees
inUkraine having a registered disability
in2021 (2020: 4.3%).
Local recruitment for sustainable
communities
Ferrexpo benefits from having a location
close to well-established communities, with
strong educational facilities for providing
high calibre individuals to work at its
operations. In 2021, the Group was able
tosource 96% of new recruits from local
communities (2020: 85%). In management
roles, the same trend is also evident, with
84% of newly recruited managers coming
from local communities (2020: 60%).
The Group regularly recruits apprentices
and provides bursaries to students to plan
for the future, with a total of 98 sponsored
learners in 2021 (2020: 135). Through the
“Dual Education” programme, the Group
offers opportunities to students wishing to
learn practical, on-the-job skills, whilst
continuing their educational studies. This
programme alone has helped 62 local
students begin their careers with Ferrexpo
since 2019.
Image: Ferrexpo strives to
promote female participation in
atypical roles. Pictured here
iswelder Oksana Kisilyova, who
works atFerrexpo Poltava Mining.
41
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
CA SE STU DY:
PROMOTING DIVERSITY
THROUGH LEADERSHIP
Given Ferrexpo’s heritage and location in
Ukraine, the Group is able to call upon a
highly skilled female population for roles
throughout its business. As of 31 December
2021, three of the Group’s eight directors
were female (37%), and the Group’s
Executive Committee (“Exco”) consists of
five males. Of the 43 individuals reporting to
the Exco, the number of females in this group
rose to nine in 2021 (representing 20.9%)
from seven in 2020 (representing 17.9%).
Workforce diversity
29.2
%
Gender diversity in Ferrexpo’s employee
workforce in 2021 (2020: 29.2%).
Diversity in management roles
20.1
%
Women account for 20.1% of Ferrexpo’s
management roles in 2021 (2020: 18.2%).
“Fe_munity” women in leadership
programme
Started in 2020, the “Fe_munity”
programme is a series of training modules
for high performing female employees within
Ferrexpo to receive training on a range of
topics, from business topics such as
leadership and negotiation, to soft skills for
developing business networks. The goal
ofthis programme is to help identify and
fasttrack the careers of high potential
individuals, tohelp improve gender diversity
throughout the management structure of the
Ferrexpobusiness.
Launched in 2020 with an intake of 72
women, the Group welcomed its second
intake of 86 participants in 2021, with
Non-executive Directors Ann-Christin
Andersen and Fiona MacAulay hosting the
opening session in HorishniPlavni in
September 2021.
The Group is already seeing the benefits
ofthis programme, with women in
management roles across the Ferrexpo
Group increasing by 11% in 2021, rising
torepresent 20.1% of the Group’s total
management roles (2020: 18.2%), which
underscores the role of dedicated diversity
projects such as Fe_munity.
External recognition in 2021
Further to the gains being witnessed
internally within Ferrexpo’s workforce,
theGroup has received external recognition
for its efforts in promoting diversity and
inclusion within its workforce. In November
2021, the Group won the award for Diversity
and Inclusion at the HR Pro Awards in Kyiv
(see picture above), which is an award
ceremony that promotes the achievements
ofthe companies that are contributing to
raising the level of professional practices in
Ukraine. In the diversity category, Ferrexpo
received recognition of its diversity efforts
from a panel of 30 leading representatives
of the human resources community in
Ukraine from across 15 industries.
In addition, the Group was recognised
in2021 by a study initiated by the United
Nations Population Fund, which surveyed
50 companies across 16 sectors within
Ukraine. Reviewing family-friendly policies,
such as the Group’s approach to offering
parental benefits equally between men
andwomen, this study placed Ferrexpo
inthe top four for family-friendly companies
in Ukraine.
Image: Ferrexpo representatives collect
the award for Diversity and Inclusion at the
HR Pro Awards in Kyiv (November 2021).
42
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Responsible Business continued
COMMUNITY SUPPORT
ANDENGAGEMENT
Russia-Ukraine war (2022)
Following Russia’s invasion of Ukraine in
February 2022, the Group has moved to
support both its local communities and
communities across Ukraine, through a
dedicated Humanitarian Fund with an
approved US$12.5 million of funding.
Through this fund, the Group is able to
coordinate its response to the humanitarian
needs of Ukraine both quickly and
effectively. Numerous projects have been
approved through this fund, with details
available on the Group’s website (www.
ferrexpo.com/responsibility/humanitarian-
projects) and recent press releases.
Community support in 2021
In March 2021, the Ferrexpo Charity Fund,
through which the Group conducts its
engagement activities in its local
communities surrounding its operations,
celebrated its tenth anniversary. The Group
aims to support local schools, hospitals,
cultural centres and other public
institutions, as well as providing direct
support to individuals in the form of care
packages for the vulnerable and funding for
medical procedures that are not available in
local facilities. The Group also sees sports
and recreation as a key aspect of both its
community engagement activities as well as
employee wellbeing initiatives. As a result,
the Group has a strong focus on supporting
local teams and local sports facilities,
helping to facilitate local sporting events
and sponsoring local sports men and
women to compete at national and
international competitions – see the Case
Study opposite for more information on this
area of engagement. The Group is proud of
the five local athletes that participated in the
Tokyo Olympics in the summer of 2021 –
quite an achievement for a city of only
50,000 people!
Funding of community projects increased
by 63% to UAH153 million in 2021
(equivalent of US$6 million), reflecting the
strong operating performance of the Group,
and therefore the Group’s ability to reach
abroader range of local stakeholders. In
addition, the Group financed UAH24 million
(equivalent to approximately US$1 million) of
expenditures through the Group’s Covid-19
Response Fund, which primarily focused on
meeting the needs of local hospitals with
equipment for the treatment of conditions
that are more prevalent as a consequence
of Covid-19 infections, such as respirators
and x-ray equipment for diagnosing
respiratory conditions, as well as continuing
the supply of personal protective equipment
for hospital workers.
As part of its community engagement
strategy, Ferrexpo aims to support
Ukrainian cultural events, to preserve
Ukrainian culture in local communities as
well as to promote Ukrainian culture
overseas. Locally, the Group continues to
assist the Palace of Culture in Horishni
Plavni, which is a significant resource in
recording local history and culture in
Ferrexpo’s local communities. The Group
also sponsored the exhibition of art by local
artist Ivan Dryapachenko, along with the
installation of a statue in commemoration of
the artist in his home village of Vasylivka. In
September 2021, Ferrexpo had the honour
of being able to sponsor the Ukrainian Ballet
Gala in its performance of “Innovation” at
the Sadleres Wells Theatre, London, which
was an event attended by over 1,400
people, including the Ukrainian Ambassador
to the UK and guests invited through the
Ukrainian Embassy in London. Ferrexpo
also sponsored the Ukrainian Investment
Roadshow in London in December 2021,
anevent aimed at highlighting Ukraine’s
investment potential. In December 2021,
Ferrexpo celebrated the 50
th
anniversary of
the twinning of the Japanese city of Kyoto
and Kyiv with a tree-planting ceremony
inKyoto.
Additional local community support projects
completed in 2021 included the purchase
ofa car for the family doctor covering local
communities in the Pryshyb region, the
supply of medical equipment to the
outpatient clinic in Pyrogy village,
sponsorship of local football team
“Geologiya” and refurbishment work of
community and cultural centres in
NovaGaleschyna.
To understand more about Ferrexpo’s
community support work, please see the
Group’s website (www.ferrexpo.com/
what-we-do/projects-map/).
Russia’s invasion of Ukraine in 2022 has
emphasised the importance of working
withlocalcommunities, to help communities
duringthis humanitarian crisis.
43
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
CA SE STU DY:
PROMOTING SPORT FOR THE
HEALTH AND WELLBEING OF
LOCAL COMMUNITIES
The Group continued to support a number
of sporting activities in 2021, to promote
healthy and balanced lifestyles amongst
local community members, with well-
documented benefits to both individuals
and communities alike.
Ferrexpo has long supported the local
football club “Girnyk-Sport” in the city of
Horishni Plavni, and, in 2021, the Group was
pleased to help the club in establishing its
first women’s teams within its structure, in
accordance with recent efforts made on a
national level to promote women’s sports
inUkraine, and the club is now recruiting
female players born between 2011 and 2017
for these newly established teams.
Furthermore, Girnyk-Sport has already
established mixed-gender teams that
compete in local and national competitions.
The Group is also proud to sponsor the
local football team “Geologiya Sport Club”,
who were successful in winning a number
ofregional and national competitions in
Ukraine – including the Dnipro Cup, Odessa
Open Cup and Energy Cup championships.
Away from football, the Group promotes
arange of activities in local communities,
including the Group’s support for the local
rowing club, which hosts a number of local
athletes that have represented Ukraine
atOlympic, World and European
championships. The Group is also proud to
help Horishni Plavni host local and national
dragon boat competitions on the River
Dnieper, which is a popular sport in Ukraine.
The Group has long held a close association
with the local summer camp “Horyzont”,
pictured opposite, which hosts local
schoolchildren during the summer months
and aims to promote healthy lifestyles. The
Group provided UAH1 million (approximately
US$35,000) of funding for this project in
2021 and this represents a relationship that
has existed for over ten years.
Ferrexpo also helps support the local chess
club in the local community of Horishni
Plavni, which was recently renovated with
assistance from Ferrexpo.
Image: Children at the local youth Camp
‘Horyzont’, which Ferrexpo has supported
formore than ten years.
44
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Board structure and appointments
The Board understands the need for a
balanced and effective Board and senior
leadership team, in order to operate a
successful business model. As the Group
develops as a business, and aligns itself
towards a new phase of growth, changes
have been made within the Board and
senior leadership team to reflect this
changing environment.
As of early 2022, the Group appointed Jim
North as CEO on a permanent basis,
reflecting Mr North’s successful period as
Interim CEO, with Mr North already
appointed as an Executive Director. In
February 2022, Fiona MacAulay was
appointed as Senior Independent Director,
meeting a target outlined by the FCA’s
recent consultation on Board Diversity and
Inclusion. In March 2021, a further
Independent Non-executive Director –
Ann-Christin Andersen – was added to the
Board. In December 2021, Natalie Polischuk
was appointed as an Independent Non-
executive Director, who is an economist
based in Kyiv, Ukraine.
The above appointments have served to
increase the number of Independent
Non-executive Directors to five out of eight
Board positions. Further details of the steps
made to enhance corporate governance
procedures in 2021 can be found in the
Corporate Governance Report on pages 76
to 93.
Hampton-Alexander Review
The Hampton-Alexander Review is an
independent review that was established to
ensure that talented women at the top of
business are recognised, promoted and
rewarded, with a particular focus on female
representation on FTSE Boards and women
in senior leadership roles. As a result of this
work, the Hampton-Alexander Review
recommends that companies listed within
the FTSE 350 have at least 33% female
representation at the Board level, as well as
Responsible Business continued
CORPORATE GOVERNANCE
33% representation at the senior leadership
level and those reporting directly into senior
leaders. As a result of the appointments of
Ms Andersen and Ms Polischuk in 2021, the
Group now has 38% female representation
on its Board, meeting this requirement. The
same review also recommends that women
are promoted into senior roles such as the
Chair, Senior Independent Director and
Executive Director, and the Group now has
a female in one of these roles. The Group is
also focusing on increasing diversity further
down its organisational structure; further
details of this work can be found on pages
40 to 41, and in the Corporate Governance
Report on pages 100 to 105.
Corporate governance controls
The Group continues to strengthen its
internal corporate governance controls
and adapt its processes, further details
of which are presented in the Corporate
Governance Report (pages 76 to 133).
Furthermore, the Group bolstered its
advisory set-up in January 2021 through
the appointment of financial advisors
Liberum, who act to advise both the Board
and executive management team on
corporate matters. In addition, BDO LLP
was appointed in early 2021 as the Group’s
Sponsor in accordance with the Listing
Rules to provide advice and guidance on
certain corporate matters as required.
Stakeholder engagement
The Group’s engagement with its
stakeholders is summarised in the Business
Model (pages 16 to 17, and in more detail on
pages 46 to 49). Highlights of stakeholder
engagement activities during 2021 include
the hosting of a number of shareholder and
analyst events in London with the
assistance of the Group’s advisors Liberum
Capital, the employee engagement forum
held at site in September 2021, and the
Group’s Family Day in July 2021 for
engaging directly with local communities in
Ukraine. The Group is actively working to
Ferrexpo understands the importance of good
corporate governance for transparency and building
trust with stakeholders. In 2021, the Group has
continued to strengthen its approach to corporate
governance throughout its organisation, from its
Board of Directors to training programmes for
operators in Ukraine.
increase its engagement with a broader
range of stakeholder groups, in order
tounderstand stakeholder needs and
communicate effectively on a range of
topics. The Group intends to further
broaden its engagement with its
stakeholders in the year ahead, working
with its advisors in London and Kyiv to
achieve this goal.
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.
As discussed in the Group’s 2020 Annual
Report and Accounts, the Committee of
Independent Directors (“CID”) has
previously conducted a review in connection
with the Group’s sponsorship arrangements
with FC Vorskla and concluded its enquiry
in March 2021. Arrangements were put in
place by Kostyantin Zhevago and his
associated entities, which are required to be
executed by 31 July 2022. As of the date of
this Annual Report and Accounts, the CID
understands that these arrangements have
not yet been completed.
45
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Reporting requirements Policies and standards Additional information Risks
Environmental
– Tailings Management Greenhouse gas emissions (pages 35-36)
Energy consumption (page 36)
www.ferrexpo.com/responsibility/protecting-environments/
Principal risks,
pages56-72
Employees
– Ethics and Responsible Business Policy
– Code of Conduct
– Health and Safety Policy
Health and safety (pages 32-33)
Learning and development (pages 40-41)
Diversity, equity and inclusion (pages 40-41)
www.ferrexpo.com/responsibility/workforce-development/
www.ferrexpo.com/responsibility/safety-performance/
Principal risks,
pages56-72
Human rights
– Human Rights Policy
– Data Privacy Policy
– Anti-Slavery and Trafficking Statement
– Information Security
Diversity, equity and inclusion (pages 40-41)
Ferrexpo Code of Conduct
www.ferrexpo.com/about-ferrexpo/corporate-governance/
policies-and-standards
Principal risks,
pages56-72
Social matters
– Donations Policy
– Community Policy
Chair’s Statement (pages 2-3)
Social engagement (pages 42-43)
www.ferrexpo.com/responsibility/supporting-communities/
www.ferrexpo.com/responsibility/stakeholder-engagement/
Principal risks,
pages56-72
Anti-corruption
andanti-bribery
– Anti-Bribery Policy
– Anti-Money Laundering and
CounterTerroristFinancing Policy
– Fraud Risk Management
– Whistleblowing Policy
Chair’s Statement (pages 2-3)
Governance (page 44)
Governance Report (pages 76 to 133)
www.ferrexpo.com/about-ferrexpo/corporate-governance/
policies-and-standards/
www.ferrexpo.com/whistleblowing/
Principal risks,
pages56-72
Principal risks and
impact on business
activities
Business model (pages 16-17)
Risk management (pages 54-55)
Viability Statement (pages 73-75)
Going Concern Statement (page 131)
Principal risks,
pages56-72
Non-financial KPIs
Key Performance Indicators (pages 20-21)
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 2020 available on the Group’s website and the report for 2021 expected to be released in the coming months.
Image: Ferrexpo is proud of its 20 years of
collaboration with local partner Zeppelin,
which has trained over 200 local engineers
andmaintainers to provide maintenance of the
Group’s Caterpillar mining equipment.
46
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Review of Stakeholder
Engagement Activities
EMPLOYEES AND CONTRACTORS CUSTOMERS SUPPLIERS COMMUNITIES
Engagement activity in 2021
– 2021 employee engagement
survey.
– Training and development.
– Annual performance reviews.
– Engagement via Labour
Council.
– Compliance efforts and
Integrity Line.
– Board workforce
engagement session.
Reasons behind engagement
– To foster a strong corporate
culture.
– To promote workforce
development and alignment
with corporate values.
– To promote good corporate
governance.
Engagement activity in 2021
– Relationship management,
adapting in an environment
whereby Covid-19 limits
face-to-face interactions.
– Continuous dialogue with
customers around each
shipment, particularly for
new relationships and new
products.
– Contract negotiations for
long-term contracts.
Reasons behind engagement
– To develop strong, long-term
relationships that are
mutually beneficial.
– To promote sustainability
throughout the value chain.
Engagement activity in 2021
– Relationship management.
– Regular feedback.
– Contract negotiations.
Reasons behind engagement
– To develop mutually
beneficial, long-term
relationships, supporting
theGroup’s operations.
– To promote sustainability
throughout the value chain.
Engagement activity in 2021
– Regular and consistent
engagement provided
directly through the Group’s
operating entities or Ferrexpo
Charity Fund.
– The Group’s Covid-19
Response Fund, with
US$3.5million of
approvedfunding.
Reasons behind engagement
– A strong and healthy link
withlocal communities is
essential for sustainable
production and executing
future growth plans.
What matters most
– Safe production.
– Employee wellbeing.
– Workforce development.
– A diverse and inclusive
working environment.
– Fair pay.
The Group’s response
– Fatality-free operations
in2021.
– Injury rates of 0.41 per million
hours, materially below the
Group’s historical average.
– Training department
providing 6,442 courses
in2021.
What matters most
– High quality products.
– Consistent product quality.
– Sustainability throughout the
value chain.
The Group’s response
– Regular discussions between
the Group’s representatives
and customers.
– Effective communication
between Ferrexpo’s
marketing and operations
teams.
What matters most
– High quality goods and
services.
– High standards of employee
welfare throughout the
Group’s supply chain.
– Sustainability throughout the
value chain.
– Good corporate governance.
The Group’s response
– Where possible, goods and
services are sourced from
local providers. The Group
typically sources over 85%
ofgoods and services from
providers within Ukraine.
– 95% of contracts signed
refer to Code of Conduct
forSuppliers (2020: 87%).
What matters most
– High levels of local
employment.
– High level of engagement
with local businesses.
– Engagement with local
authorities and local groups
to provide direct support
where it is needed.
The Group’s response
– Over 98% of employees from
Ukraine, with majority based
in local communities.
– The Group typically sources
over 85% of goods and
services from Ukrainian
companies.
– Including Covid-19 support,
UAH177 million of funding for
local communities (2020:
UAH158 million).
How quality of engagement
isassessed
– Performance of safety
metrics relative to peers
andFerrexpo’s historical
performance.
– Strong working relationship
with unions at operations
inUkraine.
– Increasing levels of diversity
within all levels of workforce.
Further plans for engaging
in2022
– Maintain safety and support
individuals’ wellbeing during
Russia’s war with Ukraine.
– Employee engagement
survey.
– Continued workforce
development.
– Programmes to further
increase workforce diversity.
How quality of engagement
isassessed
– Longevity of customer
relationships.
– High proportion of sales
under long-term contracts
(2021: 97%).
Further plans for engaging
in2022
– Continue relationships with
long-term customers.
– Continue to maintain
consistent and high quality
supply of products.
– Continue to publish clear and
comprehensive sustainability
information in Responsible
Business Reports.
How quality of engagement
isassessed
– Adoption of Code of Conduct
for Suppliers.
– Reports to the Group’s
Integrity Line, maintaining
good corporate governance
standards.
Further plans for engaging
in2022
– Maintain supplier
relationships during the
Russian invasion of Ukraine.
– Maintain high level of goods
and services from local
providers.
– Further adoption of
Ferrexpo’s Code of Conduct
for Suppliers.
How quality of engagement
isassessed
– Direct feedback through
community support officers.
– Quarterly town hall meetings
with General Directors.
Further plans for engaging
in2022
– Humanitarian Fund with
US$12.5 million of approved
funding (as of 21 April 2022).
– Focus on humanitarian
assistance in 2022 in
response to the Russian
invasion of Ukraine.
– Employee engagement
survey.
47
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
EMPLOYEES AND CONTRACTORS CUSTOMERS SUPPLIERS COMMUNITIES
Engagement activity in 2021
– 2021 employee engagement
survey.
– Training and development.
– Annual performance reviews.
– Engagement via Labour
Council.
– Compliance efforts and
Integrity Line.
– Board workforce
engagement session.
Reasons behind engagement
– To foster a strong corporate
culture.
– To promote workforce
development and alignment
with corporate values.
– To promote good corporate
governance.
Engagement activity in 2021
– Relationship management,
adapting in an environment
whereby Covid-19 limits
face-to-face interactions.
– Continuous dialogue with
customers around each
shipment, particularly for
new relationships and new
products.
– Contract negotiations for
long-term contracts.
Reasons behind engagement
– To develop strong, long-term
relationships that are
mutually beneficial.
– To promote sustainability
throughout the value chain.
Engagement activity in 2021
– Relationship management.
– Regular feedback.
– Contract negotiations.
Reasons behind engagement
– To develop mutually
beneficial, long-term
relationships, supporting
theGroup’s operations.
– To promote sustainability
throughout the value chain.
Engagement activity in 2021
– Regular and consistent
engagement provided
directly through the Group’s
operating entities or Ferrexpo
Charity Fund.
– The Group’s Covid-19
Response Fund, with
US$3.5million of
approvedfunding.
Reasons behind engagement
– A strong and healthy link
withlocal communities is
essential for sustainable
production and executing
future growth plans.
What matters most
– Safe production.
– Employee wellbeing.
– Workforce development.
– A diverse and inclusive
working environment.
– Fair pay.
The Group’s response
– Fatality-free operations
in2021.
– Injury rates of 0.41 per million
hours, materially below the
Group’s historical average.
– Training department
providing 6,442 courses
in2021.
What matters most
– High quality products.
– Consistent product quality.
– Sustainability throughout the
value chain.
The Group’s response
– Regular discussions between
the Group’s representatives
and customers.
– Effective communication
between Ferrexpo’s
marketing and operations
teams.
What matters most
– High quality goods and
services.
– High standards of employee
welfare throughout the
Group’s supply chain.
– Sustainability throughout the
value chain.
– Good corporate governance.
The Group’s response
– Where possible, goods and
services are sourced from
local providers. The Group
typically sources over 85%
ofgoods and services from
providers within Ukraine.
– 95% of contracts signed
refer to Code of Conduct
forSuppliers (2020: 87%).
What matters most
– High levels of local
employment.
– High level of engagement
with local businesses.
– Engagement with local
authorities and local groups
to provide direct support
where it is needed.
The Group’s response
– Over 98% of employees from
Ukraine, with majority based
in local communities.
– The Group typically sources
over 85% of goods and
services from Ukrainian
companies.
– Including Covid-19 support,
UAH177 million of funding for
local communities (2020:
UAH158 million).
How quality of engagement
isassessed
– Performance of safety
metrics relative to peers
andFerrexpo’s historical
performance.
– Strong working relationship
with unions at operations
inUkraine.
– Increasing levels of diversity
within all levels of workforce.
Further plans for engaging
in2022
– Maintain safety and support
individuals’ wellbeing during
Russia’s war with Ukraine.
– Employee engagement
survey.
– Continued workforce
development.
– Programmes to further
increase workforce diversity.
How quality of engagement
isassessed
– Longevity of customer
relationships.
– High proportion of sales
under long-term contracts
(2021: 97%).
Further plans for engaging
in2022
– Continue relationships with
long-term customers.
– Continue to maintain
consistent and high quality
supply of products.
– Continue to publish clear and
comprehensive sustainability
information in Responsible
Business Reports.
How quality of engagement
isassessed
– Adoption of Code of Conduct
for Suppliers.
– Reports to the Group’s
Integrity Line, maintaining
good corporate governance
standards.
Further plans for engaging
in2022
– Maintain supplier
relationships during the
Russian invasion of Ukraine.
– Maintain high level of goods
and services from local
providers.
– Further adoption of
Ferrexpo’s Code of Conduct
for Suppliers.
How quality of engagement
isassessed
– Direct feedback through
community support officers.
– Quarterly town hall meetings
with General Directors.
Further plans for engaging
in2022
– Humanitarian Fund with
US$12.5 million of approved
funding (as of 21 April 2022).
– Focus on humanitarian
assistance in 2022 in
response to the Russian
invasion of Ukraine.
– Employee engagement
survey.
48
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Review of Stakeholder
Engagement Activities continued
ENVIRONMENT GOVERNMENT INVESTORS CAPITAL PROVIDERS
Engagement activity in 2021
– Emissions reduction
programme.
– Water recycling and
initiatives to reduce water
consumption.
– Biodiversity baseline studies.
– Waste recycling programme.
Reasons behind engagement
– A healthy natural ecosystem
is essential for sustainable
production.
– Strong environmental
credentials positively
influence all stakeholder
groups, with the opposite
also applicable.
Engagement activity in 2021
– Meetings, calls and emails
with government officials
across jurisdictions in which
the Group operates.
Reasons behind engagement
– Governments are central to
operating a successful
business, for example:
through providing operating
licences, whilst also
providing a platform for
effective community
engagement.
Engagement activity in 2021
– Yearly reporting suite.
– AGM (May) and post-AGM
engagement.
– Investor roadshows for both
financial results and
corporate governance.
– Analyst round table event
inNovember 2021.
Reasons behind engagement
– To foster a strong
understanding between the
Group and its investors, with
investors understanding the
Group’s business model and
the Group understanding
investor concerns and
priorities.
Engagement activity in 2021
– Regular dialogue with banks,
ratings agencies and other
lenders.
– Provision of information,
including both internal
updates and market updates
such as analyst research on
Ferrexpo and commodities.
Reasons behind engagement
– To maintain a successful
working relationship for
existing and future debt
facilities, and other sources
of capital.
– To enable future investment
in the business.
What matters most
– Producing iron ore products
that facilitates overall
emissions reductions in the
global steel value chain.
– Emissions reductions at
operations (direct and
indirect emissions).
– Reduced environmental
footprint.
The Group’s response
– 16% reduction in carbon
emissions per tonne in 2021
(Scope 1 and 2 basis).
– Maintain high level of water
recycling within plant (2021:
95%).
– Second year of biodiversity
project for reintroducing
native species of fish in the
Dnieper River.
What matters most
– Operating within a consistent
and understood financial and
legal framework.
– Payment of taxes and
royalties.
– Companies providing
employment and support to
local communities, as well as
export revenues.
– Sustainability in the
valuechain.
The Group’s response
– Taxes and royalties of
US$281 million paid in 2021
(2020: US$100 million).
– Total taxes and royalties
since IPO of more than
US$1.3 billion.
– Workforce of over 10,422
in2021 (2020: 10,911).
What matters most
– Clear and transparent
reporting of the Group’s
activities.
– Reporting that is
independently assured and
comparable to peers.
– Generating long-term,
sustainable value.
The Group’s response
– Financial advisors Liberum
appointed in January 2021.
– Corporate and financial
communications advisors
Tavistock Communications
appointed in March 2021.
– First analyst round table
event held since changes in
Group’s management (event
held in November 2021).
What matters most
– Clear, consistent and
transparent reporting of the
Group’s operations, financial
results and Responsible
Business activities.
– Providing information that is
directly comparable to peer
group reporting.
The Group’s response
– Provision of market research
and credit ratings research
on the Group, commodity
research and country
research.
How quality of engagement
isassessed
– Continued strong
performance in assessments
of air quality in Ferrexpo’s
local community of Horishni
Plavni, placing first in
2021study.
– Continued reduction in
withdrawal of water from
local water supply network.
– Reduction in blue-green
algae in Dnieper River as a
result of biodiversity project
reintroducing native fish.
Further plans for engaging
in2022
– Maintain Horishni Plavni’s
place as having the cleanest
air of all 39 industrial cities
inUkraine.
– Further reduce carbon
emissions, continuing
trajectory towards carbon
neutral pellet production.
– Third year of biodiversity
project with Dnieper River,
contingent on resolution of
Russia-Ukraine conflict.
How quality of engagement
isassessed
– Continued government
support at local and national
level in Ukraine.
– Continued government
support in all corporate and
marketing office locations for
the Group.
Further plans for engaging
in2022
– Working with government to
disperse funds through
Ferrexpo Humanitarian Fund.
– Working with local
government to ensure the
health and wellbeing of local
communities.
– Continued support during
pandemic through dedicated
Covid-19 Response Fund.
– Continued investments in
operations, workforce and
communities.
How quality of engagement
isassessed
– Feedback received from
shareholders, analysts and
other external parties.
– Market valuation of the
Group relative to its
peergroup.
Further plans for engaging
in2022
– Clear communication with
investors throughout the
Russian invasion of Ukraine.
– Institutional investor
roadshows.
– Broadening of investor
groups reached.
How quality of engagement
isassessed
– Successful repayment of
US$221 million of debt in
2021 (2020: US$148 million).
– Full repayment and
cancellation of the Group’s
Pre-Export Finance (“PXF”)
Facility.
– Continuation of existing
relationships with domestic
and international banks.
Further plans for engaging
in2022
– Continued dialogue with
capital provider space.
49
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
ENVIRONMENT GOVERNMENT INVESTORS CAPITAL PROVIDERS
Engagement activity in 2021
– Emissions reduction
programme.
– Water recycling and
initiatives to reduce water
consumption.
– Biodiversity baseline studies.
– Waste recycling programme.
Reasons behind engagement
– A healthy natural ecosystem
is essential for sustainable
production.
– Strong environmental
credentials positively
influence all stakeholder
groups, with the opposite
also applicable.
Engagement activity in 2021
– Meetings, calls and emails
with government officials
across jurisdictions in which
the Group operates.
Reasons behind engagement
– Governments are central to
operating a successful
business, for example:
through providing operating
licences, whilst also
providing a platform for
effective community
engagement.
Engagement activity in 2021
– Yearly reporting suite.
– AGM (May) and post-AGM
engagement.
– Investor roadshows for both
financial results and
corporate governance.
– Analyst round table event
inNovember 2021.
Reasons behind engagement
– To foster a strong
understanding between the
Group and its investors, with
investors understanding the
Group’s business model and
the Group understanding
investor concerns and
priorities.
Engagement activity in 2021
– Regular dialogue with banks,
ratings agencies and other
lenders.
– Provision of information,
including both internal
updates and market updates
such as analyst research on
Ferrexpo and commodities.
Reasons behind engagement
– To maintain a successful
working relationship for
existing and future debt
facilities, and other sources
of capital.
– To enable future investment
in the business.
What matters most
– Producing iron ore products
that facilitates overall
emissions reductions in the
global steel value chain.
– Emissions reductions at
operations (direct and
indirect emissions).
– Reduced environmental
footprint.
The Group’s response
– 16% reduction in carbon
emissions per tonne in 2021
(Scope 1 and 2 basis).
– Maintain high level of water
recycling within plant (2021:
95%).
– Second year of biodiversity
project for reintroducing
native species of fish in the
Dnieper River.
What matters most
– Operating within a consistent
and understood financial and
legal framework.
– Payment of taxes and
royalties.
– Companies providing
employment and support to
local communities, as well as
export revenues.
– Sustainability in the
valuechain.
The Group’s response
– Taxes and royalties of
US$281 million paid in 2021
(2020: US$100 million).
– Total taxes and royalties
since IPO of more than
US$1.3 billion.
– Workforce of over 10,422
in2021 (2020: 10,911).
What matters most
– Clear and transparent
reporting of the Group’s
activities.
– Reporting that is
independently assured and
comparable to peers.
– Generating long-term,
sustainable value.
The Group’s response
– Financial advisors Liberum
appointed in January 2021.
– Corporate and financial
communications advisors
Tavistock Communications
appointed in March 2021.
– First analyst round table
event held since changes in
Group’s management (event
held in November 2021).
What matters most
– Clear, consistent and
transparent reporting of the
Group’s operations, financial
results and Responsible
Business activities.
– Providing information that is
directly comparable to peer
group reporting.
The Group’s response
– Provision of market research
and credit ratings research
on the Group, commodity
research and country
research.
How quality of engagement
isassessed
– Continued strong
performance in assessments
of air quality in Ferrexpo’s
local community of Horishni
Plavni, placing first in
2021study.
– Continued reduction in
withdrawal of water from
local water supply network.
– Reduction in blue-green
algae in Dnieper River as a
result of biodiversity project
reintroducing native fish.
Further plans for engaging
in2022
– Maintain Horishni Plavni’s
place as having the cleanest
air of all 39 industrial cities
inUkraine.
– Further reduce carbon
emissions, continuing
trajectory towards carbon
neutral pellet production.
– Third year of biodiversity
project with Dnieper River,
contingent on resolution of
Russia-Ukraine conflict.
How quality of engagement
isassessed
– Continued government
support at local and national
level in Ukraine.
– Continued government
support in all corporate and
marketing office locations for
the Group.
Further plans for engaging
in2022
– Working with government to
disperse funds through
Ferrexpo Humanitarian Fund.
– Working with local
government to ensure the
health and wellbeing of local
communities.
– Continued support during
pandemic through dedicated
Covid-19 Response Fund.
– Continued investments in
operations, workforce and
communities.
How quality of engagement
isassessed
– Feedback received from
shareholders, analysts and
other external parties.
– Market valuation of the
Group relative to its
peergroup.
Further plans for engaging
in2022
– Clear communication with
investors throughout the
Russian invasion of Ukraine.
– Institutional investor
roadshows.
– Broadening of investor
groups reached.
How quality of engagement
isassessed
– Successful repayment of
US$221 million of debt in
2021 (2020: US$148 million).
– Full repayment and
cancellation of the Group’s
Pre-Export Finance (“PXF”)
Facility.
– Continuation of existing
relationships with domestic
and international banks.
Further plans for engaging
in2022
– Continued dialogue with
capital provider space.
50
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Section 172 Statement
CONSIDERING STAKEHOLDERS
INDECISION-MAKING
The Board of Directors acts to promote the
long-term success of the Company for the
benefit of shareholders as a whole, and in
doing so recognises the importance of
having due regard to the matters set out in
section 172(1)(a) to (f) of the Companies Act
2006, being:
– 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 on
directors’ duties and briefings in relation to
corporate governance developments and
stakeholder engagement. New directors
appointed to the Board receive tailored,
individual briefings on their duties.
How considering stakeholders in
decision-making works in practice
The Group engages regularly with its
stakeholders. This engagement is largely
conducted by the Group’s management
team, as part of the day-to-day
management of the Group delegated by the
Board to the management team, although
the Board will also engage directly with
stakeholders as appropriate. Where
stakeholder engagement has been
conducted by management, the stakeholder
issues are considered at Board level
through regular updates from the Chief
Executive Officer and senior management.
This will include presentations by members
of the senior management team to the
Board on particular stakeholder
considerations, and the Board will discuss
feedback received from stakeholders
directly with the management team.
Considerations relating to stakeholder
matters are also included in management
papers prepared for the Board,
asappropriate.
As part of its discussions and decision-
making process, the Board will take into
account relevant stakeholder considerations
and the potential impacts of their decisions
on such stakeholders and the environment.
This will include considering the impact of
competing stakeholder interests, and the
Board is cognisant of the fact that some of
its decisions may have an adverse impact
on certain stakeholders or affect different
stakeholder groups in different ways.
The stakeholder groups which the Board
has identified as being fundamental for an
effective, successful business, together with
the engagement activities carried out by the
Group in 2021, are outlined on pages 46
to49.
In addition to these stakeholder groups, the
Board considers the likely consequences of
decisions in the long term, the impact of the
Group’s operations on the community and
the environment and the importance of
maintaining a reputation for high standards
of business conduct. The Board will also
beguided in its decision-making by the
Group’s purpose and values and its
strategic framework as outlined on
pages18to 19.
Key decisions made in 2021
The Board and its Committees took a broad
range of factors and stakeholder
considerations into account when making
decisions in the year. Details on how the
Board and its Committees operate and the
way in which they reach decisions, including
the matters discussed and debated during
the year, can be found in the Corporate
Governance Report on pages 88 to 90.
The following are some examples of how the
Directors have had regard to the matters set
out in section 172(1) (a) to (f), and the need
to foster the Company’s business
relationship with customers, suppliers and
other stakeholders, when making principal
decisions and the effect of that on certain of
the decisions taken by them.
51
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
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
Workforce
– Case Study: Shielding the Group’s workforce from Covid-19
– Responsible Business: Health and Safety Review
– Responsible Business: Workforce Development and Inclusion
11
32-33
40-31
Suppliers and
customers
– Case Study: The importance of steel
– Case Study: The importance of proximity to key markets
3
15
Community
– CEO’s Review – Supporting Local Communities
– Responsible Business: Community Support and Engagement
10
42-43
Environment
– Case Studies: The importance of iron ore pellets and high grade iron ores
– Case Study: Decarbonisation of mining fleets
– Case Study: External assurance – providing trust in sustainability progress
– Environmental Review, Climate Change and TCFD Reporting
10 and 14
29
34
35-39
High standards of conduct
– HSEC Committee Chair’s Review
– Responsible Business: Health and Safety Review
– Case Study: External assurance – providing trust in sustainability progress
– Case Study: Promoting diversity through leadership
– Responsible Business: Corporate Governance
30-31
32-33
34
41
44
Investors
– Financial Review – Delivering Value Through Investment
– Case Study: Maintaining a Low Cash Cost of Production
– Case Study: Mining Fleet Automation
22-24
25
27
Image: a CAT 793D being loaded at Ferrexpo’s
Yeristovo mine in 2021.
52
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Section 172 Statement continued
CA SE STU DY:
SHAREHOLDER
RETURNS POLICY
CA SE STU DY:
EARLY REPAY MENT
OF DEBT FACILITY
On 30 June 2021, the Board was pleased to
announce that it had approved the early repayment
and cancellation of its outstanding pre-export
finance facility (PXF facility). The PXFfacility
agreement was signed in 2018 and repayment was
scheduled to take place quarterly between 2020
and 2022. As at 31 December 2020, the Group had
US$257m of debt drawn onits PXFfacility.
The Board’s decision to repay the PXF early was
largely driven by the additional liquidity available to
the Company due to favourable iron ore market
conditions. As part of its decision making process
the Board was required to balance a number of
different factors, including the need to maintain
sufficient liquidity, future operational and capital
expenditure, and also the desire to deliver
increased levels of shareholder returns at
atimeofstrong performance by the Group.
Overall the Board determined that through
previous investments, and the Group’s ongoing
growth program, the Group has been able to take
advantage of the strong iron ore market in 2021,
with particular demand for high-grade ores such
as the Group’s 65% Fe iron ore pellets. The
repayment of the PXF brought an end to the
deleveraging program and leaves the Group well
positioned to continue to invest in our assets,
delivering further growth in pellet volumes and
pellet quality, whilst also continuing to deliver
returns to shareholders – each of which will
promote the long term sustainable success
oftheGroup.
The decision to repay the PXF involved
considering the interests of a number of different
stakeholders, including the Group’s lending
banks and investors, and more broadly the
customers and suppliers of the Group and the
local community who benefit from the operations
and investments made by the Group. Ultimately,
the Board concluded that it was in the best
interests of the Company and its shareholders
asa whole to repay the PXF, and that the early
repayment would not haveanadverse impact
onthe interests ofotherstakeholders.
Ferrexpo has always been, and remains, a
company focused on growth, both in the form of
production volumes and product quality,
andrecognises the importance of delivering
shareholder returns throughout the commodity
cycle, as established through the Group’s track
record since listing.
Following discussions with investors and other
market participants, it was identified that the
Company could benefit by adopting a
sustainable, predictable, consistent and
measurable dividend policy. The adoption
ofsuch a policy would benefit all of the
shareholders of the Company and would alsoput
the Company in alignment with its industry peers.
The Board therefore embarked on a process
todesign and implement a new shareholder
returns policy. As part of the process, an industry
analysis was undertaken and the Board reviewed
a variety of potential metrics tobe adopted in the
policy, including Free Cash Flow, EBITDA and
Earnings. Input from the Group’s financial
advisers was also obtained as to the most
appropriate financial metric for the Group,
takinginto account the policies adopted by
othermetals and mining companies and general
investor expectations.
As part of designing the shareholder returns
policy, the Board considered the interests of
investors but also had regard to other matters as
set out in Section 172, including ensuring that
there was an appropriate balance between
shareholder returns and retaining capital for
future growth of the Group – which is in the
longterm interests of the Group. It was also
important to ensure that the level of returns asset
out in the policy would not impact the Group’s
ability to meet its commitments towards
suppliers, customers, employees and others,
andmaintaining sufficient flexibility inthe policy.
The Board concluded that free cash flow was the
most appropriate financial metric for the Group to
use in its shareholder returns policy given that it
is net of capital investment and financing
activities, and therefore does not restrict the
Group from continuing its focus on investing in its
operations in Ukraine and its wider logistic
network. Investors are one of theGroup’s key
stakeholders and the Board determined that
adopting a formal policy is aclear demonstration
of the Group’s strong commitment to shareholder
returns throughout the commodity cycle.
53
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
CA SE STU DY:
ANNOUNCEMENT OF
DECARBONISATION
TARGETS
The Board recognises the importance of climate
change, including acknowledging itsimpacts on
the environment and the local communities that
are a key stakeholder for theCompany. This has
been a long-term focusfor the Group, and the
Group’s iron orepelletsoffer our customers the
opportunity to significantly reduce their
owncarbon emissions.
Given the increased focus on climate change,
including as part of the COP26 conference
inNovember 2021 and the decarbonisation targets
made by the Group’s peers, the Board recognised it
was important for the Company to provide a clear
public commitment around its intention to
decarbonise the Group’s operations. Many of the
Group’s investors and institutional investor bodies
also want to see clear commitments from the Group
to reduce its environmental impact.
After due consideration, the Board agreed that the
Group undertakes a commitment to achieve
net-zero carbon emissions from its operations by
the year 2050. In addition, the Group has made an
initial commitment to achieve a minimum of a 30%
reduction in combined Scope 1 and 2 emissions by
2030, against the Group’s baseline year for
emissions (2019), in line with our peer group.
Reducing the Group’s carbon emissions, whilst
itself being important to reducing the impact of the
Group’s operations on the environment and the
local communities surrounding our mines, isalso
important in terms of the Group’s relationships with
its suppliers, customers and employees many of
whom are focused on their own environmental
impacts and expect the Groupto do the same
aspart of being a responsible business.
The Board has appointed environmental
consultants Ricardo Plc to work with the Group
todevelop science-based decarbonisation targets
as a second-phase of publishing carbon
commitments. Ricardo Plc are experts that have
been helping organisations around the world to
develop robust and science-based pathways to
achieving net zero carbon emissions. Through this
collaboration, the Group expects to advance our
targets and develop a clear roadmap of reducing
Scope 1, 2 and 3 emissions, whilst also identifying
market and regulatory risks and opportunities,
modelling of climate change scenarios and looking
at the environmental footprint of a Ferrexpo pellet
beyond the steelmaking process. As part of this,
the Group intends to engage with stakeholders in
2022 with a clear, science-based understanding of
our carbon journey that lies ahead.
Image: July 2021: Installation of
5MW solar farm completed.
54
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Risk Management
ASSESSING AND
MANAGING RISK
Risk identification
The process to identify risk areas is
conducted through each business function
within the Ferrexpo Group, with senior
management responsible for conducting
regular assessments to identify risk in each
aspect of the Group’s activities. Risks are
managed locally through the implementation
of policies and procedures, which are
maintained by local risk owners that have
individual responsibilities for specific
business functions. Risks are reported
internally through the Group’s risk register
and assessed against risks identified
throughout the business on the basis of
probability of occurrence and the potential
severity of an event. Through the
identification of principal risks facing the
Group, management are able to optimise
the risk management process through the
dedication of increased resources to these
risks, whilst also monitoring other risks for
increases either in probability or severity.
The Group considers emerging risks to be
risks that are newly developing, increasing
in potential severity of impact or changing
risks that are difficult to quantify. The risks
that have been assessed by the Group’s
management to be the Principal Risks
facing the Ferrexpo Group are presented
onpages 54 to 72.
Risk mitigation
The Group’s management understands that
risk is an inherent aspect of operating a
business, and the Group’s executive
management team and the Board aim to
mitigate the risks faced by the business
through prudent decision-making to limit
the Group’s exposure to risk where
possible. 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 Committee
(“FRMCC”), with the Group’s senior
leadership team reviewing the Group-level
risk matrix, which plots probability against
the potential severity of impact, and
identifying material changes in either
variable to all of the risks listed. Over 30
risks are reported to the FRMCC on a
monthly basis, with each risk attributed a
potential monetary impact should an event
occur. The FRMCC 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 in relation to 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 98.
Risk assessment for 2022
The Principal Risks faced by the Group, as
assessed by the Group’s management, are
shown in the risk matrix opposite. The
overall profile of the risks faced by the
Group in 2022 has increased relative to
2021, principally related to risks relating
togeopolitical tensions between Russia and
Ukraine. The primary focus of the Group’s
Principal Risks, as outlined on pages 54 to
72, are on the ongoing Russia-Ukraine war,
global market prices for iron ore pellets,
costs impacting the Group’s profitability
andclimate change.
The ongoing global Covid-19 pandemic
remains a Principal Risk, with continuing
infections of this virus both within Ukraine
and around the world, but the Group notes
that the severity of recent strains of this
virus do not appear to be as harmful to
human health as previous strains. The
Group continues to monitor the risk profile
related to Covid-19 for any potential impact
on operations in Ukraine or any loss
ofability to distribute and market the
Group’s products.
Cybersecurity is a risk that has been added
as a Principal Risk given Russia’s invasion
of Ukraine in early 2022. Further details of
the considerations relating to this risk are
provided on page 70.
Ferrexpo identifies and assesses risks based
oneach risk’s probability of occurrence and the
potential 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.
Image: inspection of an automated
CAT 793D in Ferrexpo’s modern
maintenance facilities at Yeristovo.
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.
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 Committee
– Monitors centralised financial
risk management structures.
– Monitors Group compliance.
Internal audit function
– Supports the Audit Committee in reviewing
the effectiveness of risk management.
– Maintains and develops internal control
systems.
Operational level
– Risk management processes and internal
controls embedded across all Ferrexpo
operations.
RISK MANAGEMENT PROCESS
55
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
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.
Please see pages 54 to 72 of
thisreport for a full summary
ofPrincipal Risks
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 Lower iron ore prices
3.3 Pellet premiums and pellet supply
3.4 Seaborne freight rates
4.1 Operating risks related
tomining,processing, pelletising
andlogistics
4.2
Operating risks related tohealth
andsafety
4.3
Operating risks related
tooperatingcosts
4.4
Risks relating to information
technology and cybersecurity
5.
Risks related toclimate change
6. Risks related to Covid-19
ImpactVery low Severe
LikelihoodUnlikely Almost certain
RISK MATRIX HEAT MAP
1.2
1.1
2.
5.
6.
4.1
1.3 3.2
4.23.4
3.1
3.3
4.3
4.4
56
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Principal Risks
PRINCIPAL RISK FACTORS
& MITIGATION MEASURES
Introduction
Principal Risks are considered to be the
main risks that have the potential to
negatively affect the Group’s strategy and
business model, which are outlined on
pages 54 to 72 and summarised through the
items shown below.
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.
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 and/or
likelihood, 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 30 different risk areas 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 FRMCC, which
ultimately reports into the Board for further
review and approval of the risk register. The
Group’s 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, which is a committee
thatincludes the Chief Executive Officer,
ChiefFinancial Officer and Chief
MarketingOfficer.
The Group has updated its Principal Risks
as shown in this section, in accordance with
the known risks facing the business. Further
updates to the Group’s Principal Risks will
be provided in the Group’s Interim Results
announcement, which is due for publication
in August 2022. Where the Group has
identified a Principal Risk, details of the
Group’s efforts to mitigate each risk are
alsoprovided.
Russian invasion of Ukraine
On 24 February 2022, Russia commenced
an invasion of Ukraine. This action has
resulted in significant loss of life within
Ukraine, the destruction of key
infrastructure across Ukraine and poses a
threat to the Group’s mining, processing
and logistics operations in Ukraine. This
riskis discussed in detail on page 57.
Covid-19
The Group continues to consider the global
Covid-19 pandemic as a Principal Risk given
the scale and impact that this global event
demonstrated in 2020 and 2021. As noted,
however, on page 52, the global outbreak of
this virus has continued to evolve into
different strains, which appear to be
increasing in the transmissibility of the virus
with each new strain, but also reducing the
severity and death rate for those contracting
the virus. The Group therefore notes that
with this trend, in addition to increasing
vaccination rates both locally in Ukraine and
globally, that the risks to the Group
associated with Covid-19 appear to be
decreasing in 2022. The Group however
notes that the Russian invasion of Ukraine in
2022 has resulted in reduced testing and
vaccination rates, and therefore this risk
may increase as a result. The Group will
maintain its protective measures to curb the
spread of Covid-19, however, noting that
further waves of infection and/or more
severe new strains of the Covid-19 virus
may emerge.
Cybersecurity
As the Group seeks to increasingly
modernise and digitise its operations and
business activities, the Group notes the
rising importance of cybersecurity, and
threats that may emerge via electronic
means. Since the NotPetya cyberattack in
2017, which was a cyberattack that affected
systems on a global basis, however,
primarily targeted at Ukraine, the Group has
sought to significantly increase its
understanding and to bolster its protocols
and defence relating to its digital presence.
Given the Russian invasion of Ukraine in
early 2022, the Group notes the rising
significance of cyber-threats to its business,
and has therefore elevated this topic to
become a Principal Risk, as discussed on
page 70.
Principal Risks are those considered to have the
greatest potential impact on the Ferrexpo business,
assessed on the basis of impact and probability.
Each Principal Risk is linked to the
aspects of the Group’s strategy that
could be potentially 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.
57
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Ukraine is currently at war with Russia. On
24 February 2022, Russia commenced an
invasion of Ukraine using significant and
widespread military force. To date, the
invasion of Ukraine has resulted in the
temporary occupation of south eastern
territory within the sovereign nation of
Ukraine, loss of life for citizens of Ukraine
and damage to infrastructure within Ukraine.
The situation in Ukraine remains uncertain
and unpredictable. As of early April 2022,
the Group’s operations, located adjacent to
the city of Horishni Plavni, has not been a
centre of armed conflict, but this remains a
risk should the current conflict continue to
escalate and grow in terms of the areas
directly affected. The Group has however
temporarily lost the ability to export its
products via the Black Sea, as the port
operator has closed the Group’s normal
port of operations (Pivdennyi). Should the
area surrounding the Group’s operations
and local communities be the setting for
armed conflict, there will be a significant risk
posed to the safety of the Group’s
workforce, as well as a significant risk to key
assets and infrastructure required for the
Group to operate effectively. The Group’s
workforce of more than 10,000 people is
predominantly based in local communities
surrounding the Group’s operations and
therefore the Group does not have the
ability to effectively evacuate its workforce
from the conflict zone. The Group will
always prioritise the safety and wellbeing of
its workforce and therefore may partially
halt, or fully halt, its operations to protect
itsworkforce.
Further consequences of the ongoing
invasion relate to a number of aspects of the
Group’s business. Ukraine’s government
has declared a state of martial law, and a
number of the Group’s employees have
been enlisted into the armed forces of
Ukraine. The Group relies on key
consumables, such as (but not limited to)
diesel, natural gas and electricity, to
produce the Group’s products, and the
ongoing invasion may limit the supply of
these items. Should the Group not receive
one or more of its key consumables, the
Group’s ability to effectively produce may
be impaired.
The Group relies on continuous and reliable
access to key infrastructure – principally
Ukraine’s railway network and the port of
Pivdennyi, to rail and ship its products to
customers, and both have been the subject
of significant disruption, including the full
stoppage of all port operations in Ukraine.
On 24 February 2022, the Group announced
that it had received notification of a
suspension of Ukraine’s railway network,
which was subsequently partially lifted (see
release 28 February 2022). On 25 February
2022, the Group announced that it had
received formal notification from the port
authorities at Pivdennyi that all operations
were being halted and the Group has served
force majeure notices to customers affected
by this suspension. Given the nature of the
situation, the Group may not be able to
accurately forecast the likely availability and
scale of its access to infrastructure or key
consumables until the conclusion of
Russia’s warfare towards Ukraine.
1.1 Conflict risk (external risk)
Responsibility
Board of Directors and
ChiefExecutiveOfficer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Change
1. COUNTRY RISK
58
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Principal Risks continued
1.1 Conflict risk (external risk) (continued)
RISK MITIGATION
The risks posed to Ferrexpo, its workforce
and operations as a result of the invasion
are difficult to predict in scale and nature,
and therefore difficult to mitigate as a
result. The Group has prepared itself, and
continues to prepare, in a number of
areas, such as enacting safety measures,
practising orderly shutdowns of
equipment, implementing asset protection
measures and planning to operate with
multiple logistics pathways for sourcing
key consumables for delivery to site, as
well as delivering the Group’s products to
its customers. In the event of any
hostilities happening close to the Group’s
operations, the Group’s first priority will be
the protection of its workforce, and the
Group will enact measures to protect its
workforce that are proportional to the
extent, severity and location of any
hostilities occurring. This will include,
where appropriate, the demobilisation of
the Group’s workforce from operational
sites and actions to distance individuals
from any areas affected by armed conflict
and/or a breakdown in civil order.
In mining, the Group has implemented
measures to increase the volume of
blasted ore available for mining and has
increased stockpiles of raw ore available
for processing should access to the
Group’s mines become restricted. In
logistics, the Group has investigated
alternative options for accessing
customers, either by different rail routes,
different methods of transport, or different
loading ports for ocean-going vessels.
In addition to the above measures, the
Group has also established a dedicated
humanitarian fund to direct assistance to
the people of Ukraine affected by the
conflict. More details of this fund’s work
are provided on page 42 and in the
Group’s recent press releases.
On 2 April 2022, a Russian missile strike
onKremenchuk oil refinery, located
approximately 15-20 kilometres from the
Group’s operations, resulted in damage
tothis facility. This facility is one of the
sources of fuel for the Group and this
incident has resulted in the suspension of
regular deliveries of diesel, with supplies
now being provided periodically. The Group
has existing arrangements in place to
source alternative supplies of diesel from
Europe, with these supplies arriving via both
rail and road delivery routes.
To date, the situation within the Group’s
operations and in the local communities
surrounding the Group’s operations, has
remained orderly, with local authorities
remaining in control. In the event of a
prolonged and/or escalated conflict in the
area where the Group operates, there is a
risk that the local authorities may no longer
be able to maintain civil order and there may
be a risk posed to either the safety of the
Group’s workforce, or threat to the integrity
of the Group’s assets and/or key supplies.
Furthermore, any conflict in the local area
may reduce the local authorities’ ability to
provide basic emergency services, such as
medical services and fire protection, with
potential effects on the Group’s workforce,
communities and production facilities.
Following the outbreak of hostilities, it is
expected that the business and operating
environment in Ukraine will be materially
worse than previously, and these conditions
may not completely recover to previous
levels for a period of time beyond the
cessation of hostilities.
It is also expected that cyber-warfare will be
a tool used against Ukraine and corporate
companies based in Ukraine, with Ukrainian
corporates being the subject of
cyberattacks in the recent past. Any
disruption to the digital infrastructure
belonging to either the state of Ukraine,
operators of key infrastructure or Ferrexpo
would likely result in a significant
interruption to the Group’s ability to operate.
With regards to international lending
activities, it is unclear as to whether the
Group will have access to external financing
following the cessation of hostilities. For the
duration of the ongoing conflict, the Group
does not expect to have any access to debt
markets, domestic or international.
The current war between Russia and
Ukraine is a threat to regional stability and
may impact international relations in the
longer term beyond the region in which
Ferrexpo operates. As a consequence,
trading relationships between sovereign
nations may be amended, or cut, and the
availability of key goods and services may
become restricted and/or limited.
1. COUNTRY RISK (CONTINUED)
59
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Ferrexpo plc Annual Report & Accounts 2021
1. COUNTRY RISK
Ferrexpo’s operating base is in Ukraine,
where all of the Group’s iron ore production
is generated, and therefore the Group is
materially exposed to the business
environment within Ukraine, which
continues to be defined as an emerging
market by Western governments and
institutions. As such, the Group is subject to
heightened risks, relative to developed
economies, relating to the stability of the
environment in which the Group operates,
including risks relating to the local economy,
currency, labour market, infrastructure and
other key resources essential for operating.
This exposure to an emerging market can
directly and indirectly affect the Group
through a range of factors, including
changes in government legislation,
decision-making related to changes in
political policy at a local or national level,
access to key operating licences and
infrastructure essential for producing and
distributing the Group’s products, access to
financial services and the Group’s ability to
transact with external parties either within
Ukraine or abroad, in addition to other
factors. Ukraine also continues to receive a
relatively low score in Transparency
International’s Corruption Perceptions
Index, placing 122
nd
out of 179 countries
(2020 Index: 117
th
place) in the latest survey
published in January 2022.
In recent years, Ukraine has been the
subject of armed conflict with Russia and
this is identified as a separate Principal Risk
on page 57. Russia’s invasion of Ukraine, in
addition to the annexation of Crimea and
temporary occupation of sections of eastern
Ukraine since 2014, has caused a significant
strain on the Ukrainian economy and the
budget of the Ukrainian government, which
in turn has resulted in changes to the
business environment within Ukraine. In
addition, these factors will likely continue to
negatively affect Ukraine’s economy for a
period of time beyond the cessation of
hostilities in Ukraine. In recent years, the
government of Ukraine has been reliant on
external funding through overseas
governments and agencies, principally the
International Monetary Fund (“IMF”), for
funding. Through this reliance on external
funding, there is increased risk around the
short- to medium-term stability of the
Ukrainian economy, local currency, and
local operating environment for businesses,
amongst other factors, particularly if the
availability of this external funding were
tochange unexpectedly.
The independence of the judicial system,
and its immunity from economic and
political influences in Ukraine, remains
questionable, and the stability of existing
legal frameworks may weaken further with
future political changes in Ukraine. Because
Ukraine is a civil law jurisdiction, judicial
decisions generally have no precedential
effect on subsequent decisions, and courts
are generally not bound by earlier decisions
taken under the same or similar
circumstances, which can result in the
inconsistent application of Ukrainian
legislation to resolve the same or similar
disputes. In addition, court claims are often
used in the furtherance of political aims. The
Group may be subject to such claims and
may not be able to receive a fair hearing.
The risk factors discussed here, either
individually or in combination, have the
ability to adversely impact the Group’s
ability to operate its pellet production
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
A
to maintain
production or expansion capital investment
A
for future growth, as well as the Group’s
ability to pay dividends.
As at the date of approval of this report, the
share dispute lodged by four claimants to
invalidate a share sale and purchase
agreement concluded in 2002 remains
ongoing. Following a statement of defence
filed by Ferrexpo AG (Ferrexpo’s Swiss
subsidiary), earlier in 2021, the relevant
court in Ukraine ruled on 27 May 2021 in
favour of Ferrexpo AG. The opposing parties
filed their appeals in June 2021 and the next
hearing is expected to take place later this
year. The court of appeal has opened the
appeal proceedings, and several hearings
have now been held, but without a court
decision being made as of the date of
thisreport.
1.2 Ukraine country risk (external risk)
Responsibility
Board of Directors and
ChiefExecutiveOfficer
Risk appetite
Medium
Link to strategy
1, 2, 3, 4 and 5
Change
RISK MITIGATION
60
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Following the cancellation of the licence for
Galeschynske deposit, which is a project in
the exploration phase that is situated to the
north of the Group’s active mining
operations, Ferrexpo Belanovo Mining has
commenced a legal action in the Ukrainian
courts system. For further information on
ongoing legal disputes, please see Note 30
Commitments, contingencies and
legaldisputes to the Consolidated Financial
Statements.
As referenced in the Group’s Interim Results
published in August 2021, there are
outstanding matters in Ukraine relating to
the Group’s controlling shareholder that
remain unresolved, and there is a risk that
assets owned or controlled (or alleged to be
Ferrexpo operates in accordance with
relevant laws and utilises internal 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 as a
result is subject to high standards of
corporate governance, including the UK
Corporate Governance Code and 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.
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 training.
Ferrexpo prioritises sufficient total
liquidity
A
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 by offering
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. It is therefore important that
Ferrexpo’s Board of Directors and relevant
senior management 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.
1. COUNTRY RISK (CONTINUED)
1.2 Ukraine country risk (external risk) (continued)
owned or controlled) by the Group’s
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.
Despite the recent cancellation of the share
freeze action in Ukraine regarding the
Group’s shareholding in FPM, held via the
Group’s Swiss subsidiary Ferrexpo AG,
there continues to be a risk that this action
may be resumed, despite several court
decisions to dismiss this action.
Principal Risks continued
61
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Ferrexpo plc Annual Report & Accounts 2021
RISK MITIGATION
1. COUNTRY RISK
Ferrexpo is exposed to counterparty risk
through its interactions with government
agencies, customers, suppliers, contractors
and external parties that the Group interacts
with, including through its CSR programmes.
Risks relating to government agencies both
in Ukraine and other jurisdictions in which
the Group operates throughout the globe
include levels of taxation, the repayment of
VAT and licences required for Ferrexpo’s
operations to operate. In Ukraine, a number
of monopolies exist, including the
transmission of electricity and natural gas
that is required for the creation of the
Group’s products, as well as the railway
network in Ukraine, and this presents the
Group with a risk should these monopoly
companies fail to function correctly.
TheGroup is also exposed to counterparty
riskthrough its business interactions with
customers and suppliers of goods and
services, as these interactions may result
infinancial loss for the Group if the
counterparty in question fails to fulfil its
duties correctly. This risk is heightened by
the ongoing conflict with Russia, which
mayresult in damage to key infrastructure
required for either the production or
shipment of the Group’s products. The
invasion of Ukraine has also put an increased
level of financial stress on the counterparties
with which Ferrexpo does business in
Ukraine, and therefore has heightened
therisk of counterparty failure.
The advent of the global Covid-19 pandemic
in 2020, which has continued into 2021, has
also introduced additional risk to Ferrexpo
in the form of heightened risk of
counterparty failure, as third parties
struggled to adapt to the effects of the
pandemic. This is a risk facing the Group
interms of timely payment and/or delivery
of goods and services, and Covid-19 is
alsocovered as a Principal Risk on page 72.
Asnoted on page 54, however, the risks
associated with recent variants of the
Covid-19 virus appear to be diminishing
inseverity, compared to the original
variantof this virus.
1.3 Counterparty risk (external risk)
Responsibility
Board of Directors, Chief Executive Officer
and Chief Financial Officer
Risk appetite
Low
Link to strategy
4
Change
Ferrexpo sells its iron ore products to
well-established steel producers that have
sound credit profiles. Ferrexpo’s
counterparties are subject to regular and
thorough review. The results of these
reviews are used to determine appropriate
levels of exposure and available
alternatives, in order to reduce the
potential risk of financial loss.
The Group has developed its supplier base
in order to avoid excessive dependence on
any supplier, actively encouraging a
diversity of supply where reasonable and
practical. Companies that would like to
work with Ferrexpo are required to
undergo an accreditation procedure,
where their documents, licences and
financial stability are checked. In 2021, in
line with previous years, Ferrexpo
screened and monitored third-party
entities for sanctions and other risks, with
suppliers that pass accreditation able to
participate in tenders. For entities deemed
to be “high risk”, additional checks and
further monitoring are required by the
Group’s compliance function. All supplier
contracts must contain the defined set of
compliance clauses (including, but not
limited to, topics such as anti-bribery,
sanctions, tax compliance and modern
slavery). These requirements were
consolidated into the Business Partners’
Code of Conduct in 2019, which is
referenced in 95% of all contracts signed
as of 2021 (98% of contracts with a value
in excess of UAH 500,000).
The Finance, Risk Management and
Compliance Committee (“FRMCC”), an
executive sub-committee of the Board,
met ten times in 2021 and is charged with
ensuring that systems and procedures are
in place for the Group to comply with laws,
regulations and ethical standards. The
FRMCC 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 FRMCC is given prior
warning of regulatory changes and their
implications for the Group. 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 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 HSEC
Committee required to provide approval
for community support expenditures.
RISK MITIGATION
62
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
2. MARKET RELATED RISKS
The Group is a supplier to the global steel
industry, with customers located in several
continents around the world. The global
steel industry produces steel for a wide
range of end uses and is exposed to a wide
range of factors that may affect each
customer’s ability to produce steel and
supply end users of steel. Therefore, as part
of the global steel value chain, Ferrexpo is in
turn also exposed to the same risks as
steelmakers. The Group does not, however,
supply its products to steelmakers in
Russia, and is therefore not exposed to
risks related to recent restrictions in trading
with this group of steelmakers that relate to
Russia’s invasion of Ukraine in early 2022.
On the input side, steel production requires
raw material inputs such as iron ore and
coking coal, as well as significant numbers
of employees, all of which represent a
significant proportion of steelmakers’ cost
bases and therefore have the potential to
negatively affect the profitability of a steel
mill. In the event of reduced profitability,
steel mills often reduce steel output in order
to preserve the balance sheet of the
operating company, which in turn reduces
demand for iron ore. Steel producers are
also reliant on the consistent supply of raw
materials, which requires access to global
markets, which can often be disrupted by
natural events, geopolitical events or
otherwise. These same distribution
networks are required for the transfer of
steel products to customers and end users,
and therefore any disruption can have
asignificant impact on the overall steel
value chain. One high profile example of
such an event was seen in 2021 with the
six-day blockage of the Suez Canal by the
vessel Ever Given in March 2021.
Steel mill profitability can also influence the
demand for different grades and forms of
iron ore, with demand for high grade iron
ore pellets typically lower at times of lower
steel prices, when steelmakers typically
move to reduce mill productivity and overall
output. Global demand for steel is also
linked to global productivity and levels of
investment, and therefore during periods of
reduced economic activity, steel demand
(and therefore steel production) is often
reduced as a consequence. The steel
industry is also regionally fragmented, with
factors relevant for certain geographic or
political regions, not applicable for other
regions. It is therefore important to have a
strong understanding of regional factors
that may affect specific steel producers
more than others.
The global steel industry is also under
significant pressure to decarbonise its
operations, with the global steel industry
responsible for 7% of global carbon
emissions
1
. Steelmakers are currently
seeking technological solutions for
producing commercial quantities of low
tozero carbon steel, which will require
significant investment in both research
anddevelopment, as well as likely require
significant investment to deploy
newtechnologies.
2.1 Risks relating to the global demand for steel
Responsibility
n/a
(Ferrexpo not large enough to influence
global demand)
Risk appetite
Medium
Link to strategy
3 and 5
Change
The Group aims to mitigate risks relating
to the global steel prices and global
demand for steel through having a network
of premium customers located in a variety
of geographic regions. Ferrexpo has also
commenced a process to develop a
network of additional customers for its
higher grade (67% Fe) direct reduction
pellets, which currently represents
approximately a third of the global pellet
export market, and historically has not
been a market that Ferrexpo has served.
Through direct reduction pellets, as well
as the ability to produce and market new
products such as high grade concentrate,
the Group aims to have the ability to serve
a broader range of customers, if required.
The Group also aims to develop long-term
relationships with customers, whereby
there is a strong level of engagement and
understanding between both parties.
Through the Group selling the majority of
its production via long-term contracts, the
Group aims to secure the stable and
consistent offtake of its production,
enabling the Group to be able to adapt and
adjust to meet changing business
conditions, if required, rather than relying
on short-term relationships and spot sales.
Ferrexpo operates in a country whereby
the local currency, the Ukrainian hryvnia,
is a currency that is linked 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.
1. Source: IEA.
Principal Risks continued
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Ferrexpo plc Annual Report & Accounts 2021
3. RISKS RELATED TO REALISED PRICING
Pricing formulas for iron ore pellets are
governed by a number of factors, including
the iron ore fines price, a premium for
additional ferrum content (if applicable),
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
individual regions. Premiums or discounts
paid for specific characteristics may change
and adversely impact the Group’s ability
tomarket specific products.
3.1 Changes in pricing methodology
Responsibility
Chief Executive Officer and
ChiefMarketingOfficer
Risk appetite
Medium
Link to strategy
1, 3 and 5
Change
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.
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. For more information
on its position on the cost curve, please
see the Case Study provided on page 25.
The Group also has the logistics capability
to divert sales to other markets to offset
any regional weakness, as was seen
during the initial peak of the global
Covid-19 pandemic in 2020, when the
Group was able to redirect sales volumes
away from Europe and towards China, to
meet temporary shifts in demand patterns.
The Group has since seen global demand
patterns for iron return to historical
distribution levels in 2021. The Group has
retained this flexibility to divert sales to
alternative markets should future shifts
indemand occur.
RISK MITIGATION
64
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Ferrexpo plc Annual Report & Accounts 2021
3. RISKS RELATED TO REALISED PRICING (CONTINUED)
As a single commodity producer, the Group
is inherently exposed to performance of the
iron ore price, in addition to other market
prices. The Group is a producer of high
grade iron ore products, which are widely
considered to be products with an iron
content in excess of 65%, and this is a
subset of the wider global trade in iron ore
that is affected by additional factors. The
iron ore industry as a whole is primarily
governed by steel demand and demand for
iron ore as a consequence. During periods
of low steel demand, iron ore prices trend
lower as steel mills look to actively reduce
steel output. The majority of the world’s
exported iron ore is traded on the 62% Fe
fines index, which in the past five years has
varied between periods of being less than
US$50 per tonne to over US$200 per tonne.
Ferrexpo is not sufficiently large enough a
producer to be able to directly affect the
globally quoted price of iron ore, and
therefore, like other companies that produce
and sell iron ore, must accept the prevailing
iron ore price. Factors governing steel
demand are discussed in this section (Risks
relating to global demand for steel, page
62). Factors specifically governing the price
of iron ore also include the global supply of
iron ore, as stable pricing requires that the
available supply of iron ore broadly matches
the global demand for iron ore, and any
imbalance can result in significant
movements in iron ore pricing. There are a
number of large greenfield and brownfield
projects that have the potential to
significantly impact the global price of
ironore should these projects come
intoproduction.
The global demand for high grade iron ore is
a further subset of the global iron ore trade,
with the supply of high grade iron ore
typically sourced from iron ore mines in
Northern Brazil, and fluctuations in output
from these particular mines can have a
direct impact on the prices paid for high
grade iron ores. Ferrexpo’s iron ore
products are priced using the high grade
index (65% Fe) and the Group is therefore
impacted by these fluctuations.
3.2 Lower iron ore prices
Responsibility
n/a
(Ferrexpo not large enough to influence
global demand)
Risk appetite
Medium
Link to strategy
1, 3 and 5
Change
Ferrexpo is a low to medium cost producer
relative to the majority of its peers, and is
positioned in the lower half of the global
cost curve of iron ore pellet producers.
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 options
to hedge the price of its output; however,
its current strategy is not to enter into
hedging agreements, due to the relatively
low liquidity of this market and high cost of
entering into such arrangements. Ferrexpo
has maintained positive profit and cash
generation throughout the iron ore
pricecycle.
Principal Risks continued
RISK MITIGATION
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Ferrexpo plc Annual Report & Accounts 2021
3. RISKS RELATED TO REALISED PRICING
Iron ore pellets are utilised by steel mills to
improve productivity through their inherent
characteristics as a pellet and the higher
grade nature of Ferrexpo’s iron ore pellets.
At times of lower steel mill profitability, steel
producers are known to reduce demand for
higher cost inputs such as iron ore pellets,
in order to reduce the cost of steel
production and to protect steel margins.
This has the potential to negatively affect
the pellet premium, and by extension, the
profitability of Ferrexpo, since the majority
of Ferrexpo’s profit margin has come from
its ability to receive the pellet premium.
Risks to the pellet premium also exist in
replacement of pellets in the blast furnaces
operated by Ferrexpo’s customers with
alternatives, such as lump ores, and a
significant increase in this substitution
would have the potential to reduce
pelletpremiums.
Further supply of pellets into the global
export market would also have the potential
to reduce pellet premiums and a pellet
producer in Brazil, which was offline since
2015, returned to production in late 2020
and has now reached its published
nameplate capacity for production.
Recent trends in the global steel industry
have led steel producers towards targeting
lower carbon emissions, and iron ore pellets
are a method for achieving such a
reduction, since iron ore pellets do not
require sintering prior to conversion into
steel. If, however, this trend towards an
environmentally friendlier method of steel
production were to reverse in the future, this
could also negatively affect demand for iron
ore pellets, and by extension, lower pellet
premiums. Lower pellet premiums could
impact the Group’s ability to pay dividends
to shareholders, repay debt amortisation
and could result in lower levels of capital
investment (including sustaining capex).
3.3 Pellet premiums and pellet supply
Responsibility
Chief Executive Officer and
ChiefMarketingOfficer
Risk appetite
Medium
Link to strategy
1, 3 and 5
Change
Ferrexpo primarily sells high quality
pellets, which underpin demand for its
product throughout the commodity cycle.
Should the pellet premium decline,
Ferrexpo has historically one of the lowest
pellet conversion costs in the industry
depending to different periods of
commodity prices, which helps the Group
to remain a competitive producer.
Ferrexpo also has the ability to produce
iron ore concentrate should market
conditions make this product more
economically viable. Ferrexpo’s pelletising
costs in 2021 were approximately US$19
per tonne (2020: US$11 per tonne) and,
therefore, lower than the pellet premium
seen in 2021, aiding the Group to deliver
firm margins during the year. Please see
the Market Review section on pages 12 to
15 for more details. Should, however, the
pellet premium fall below the cost of
pelletising material, the Group has the
option to halt pelletising operations and
produce concentrate instead for a period
of time.
RISK MITIGATION
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Ferrexpo plc Annual Report & Accounts 2021
3. RISKS RELATED TO REALISED PRICING (CONTINUED)
As iron ore is a bulk commodity, seaborne
freight rates are an important component of
the cost to deliver product to a customer.
An increase in freight rates will reduce the
net price received from a customer, and
reduce profitability, while a reduction in
freight rates will increase the net price
received from a customer. Seaborne freight
rates, such as the C3 freight index, are
published by the Baltic Exchange. The C3
freight index represents the cost for ocean
transportation for iron ore from the Brazilian
port of Tubarão (where the largest seaborne
pellet supplier is based) to Qingdao,
China(with China being the world’s largest
steel producer).
Ferrexpo’s received price is referenced
totransparent freight indices such as
theBaltic Exchange C3 freight index.
In2021, the C3 freight index increased
toanaverageof US$27 per tonne
(2020:US$15per tonne).
Russia’s invasion of Ukraine in early 2022,
and the related military activity in the Black
Sea, has resulted in increased freight
charges (principally additional insurance
premiums) for companies looking to
chartervessels to receive cargoes
atUkrainianports.
3.4 Seaborne freight rates
Responsibility
Chief Executive Officer and
ChiefMarketingOfficer
Risk appetite
Low
Link to strategy
2, 3 and 5
Change
Ferrexpo understands the need to have its
own in-house specialists within the
Group’s marketing team that are capable
of ensuring the Group pays a competitive
rate for seaborne freight rates. Through
effective internal planning procedures and
engagement with stakeholders in the
Group’s freight business, the Group is able
to effectively charter vessels at
competitive freight rates relative to the
prevailing index. The Group also has
sufficient flexibility in its customer and
logistics network to consider differences in
freight rates when budgeting for future
periods, considering freight rates in
broader decisions around allocating
tonnages to each geographic market into
which the Group sells its products.
Through the Group’s close proximity to the
key markets of Europe and the Middle
East, the Group has a natural advantage
over alternative suppliers of iron ore
pellets that are located in more distant
locations, such as Canada and Brazil. This
reduced distance to certain markets
results in shorter travel times for the Group
as well as a reduction in the carbon
emissions associated with the freight for
deliveries into these markets. For more
information, see the Case Study on page
15. The Group may decide to enter into the
forward hedging of its freight related costs
in light of the market volatility witnessed in
2021, with derivatives trading in freight
markets more liquid than similar markets
for iron ore pellets, and therefore
potentially making such activities
economically advantageous to the Group.
The additional insurance premiums
associated with Russia’s invasion of
Ukraine are expected to be temporary in
nature, and a requirement for such
premiums will likely be removed following
the cessation in hostilities. The Group is
also reviewing the possibility of shipping
its products either via (a) Black Sea ports
outside of Ukraine, or (b) ports that the
Group could utilise outside of the Black
Sea. However, it should be noted that
utilising such ports will likely result in
increased freight charges to the Group
relative to the logistics pathway utilised
viaPivdennyi.
Principal Risks continued
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Ferrexpo plc Annual Report & Accounts 2021
4. OPERATING RISKS
Ferrexpo operates three open pit mining
operations, a large-scale beneficiation plant
and four pelletising lines, which all involve
the processing of significant volumes of
material, and, therefore, have inherent
significant associated risks due to their size
and complexity of operations.
Russia’s invasion of Ukraine poses
numerous operational risks to the Group’s
operations, which are detailed on page 57
of this report.
In mining, there are inherent risks
associated with open pit mining, including
geotechnical risks, risks related to
groundwater and surface water ingress,
risks surrounding mine planning decisions,
and risks related to critical equipment
failure, in addition to other factors.
In the Group’s beneficiation and pelletising
operations, there are risks associated with
critical equipment failure, as well as risks
specific to the potential failure of the
Group’s tailings dam facilities. Logistics
risks relate to the business’s reliance on the
ease of transport of its iron ore products to
customers, in addition to the consistent
supply to the Group’s operations of key
consumables such as fuel for mining and
natural gas for pelletising.
Lower volumes, higher costs and financial
penalties due to poor quality and late
delivery can impact the Group’s cash
generation ability, reducing levels of total
liquidity
A
and impacting capital investment
A
levels as well as affecting the Group’s ability
to repay debt and pay dividends to
shareholders. Poor pellet quality or late
delivery of product can also affect the
Group’s ability to perform according to
customer contracts and its ability to
maintain and renew contracts in the future.
The global steel industry is under increasing
pressure to adapt its production processes
to reduce emissions of greenhouse gases,
and as a result the Group is seeing
increasing market demand for higher grade
forms of iron ore. The Group is able to
produce high grade forms of iron ore,
namely iron ore pellets grading 65% Fe
(blast furnace pellets) or 67% Fe (direct
reduction pellets), but these forms of
product require additional processing and
therefore are produced at an additional
cost. In certain circumstances, it may not
be economically viable to produce higher
grade forms of iron ore pellets from specific
lower grade ore types from the Group’s
mines, and therefore it may be necessary to
adjust mine planning activities and impair
existing investments in stockpiles of these
particular ore types.
4.1 Risks relating to producing and delivering the Group’s iron ore products to customers
Responsibility
Chief Executive Officer, Chief Operating
Officer and Chief Marketing Officer
Risk appetite
Medium
Link to strategy
2, 3 and 5
Change
The Group aims to continually reinvest its
profits into its business to expand its
production, improve product quality and
enhance logistics capabilities. Extensive
monitoring by in-house planning
departments, in addition to external
certification by third-party consultants,
help to mitigate risks around the Group’s
mining, processing, pelletising and
logistics operations, including the Group’s
tailings facility. To mitigate risk in relation
to the Group’s logistics business and
delivery of iron ore products to customers,
the Group strives to operate its own
equipment and facilities where possible,
and as a result the Group owns a fleet of
2,850 railcars within Ukraine, a fleet of 218
vessels for delivering products to
customers via the Danube River, and has a
49.9% interest in a berth at the port of
Pivdennyi (formerly known as Yuzhny). The
Group also operates a talent management
and leadership programme to ensure
management coverage of business-critical
roles. This involves the annual assessment
of all managers across the Group of
approximately 350 people, and the results
of this process are presented to the
Operations Management Committee,
theExecutive Committee and the Board.
RISK MITIGATION
68
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
4. OPERATING RISKS (CONTINUED)
Russia’s invasion of Ukraine in early 2022
has created a significant risk related to the
health and safety of the Group’s workforce
in Ukraine, with details of this risk and
mitigation measures, presented on page 57.
The extraction and processing of large
volumes of rock has historically been
associated with hazardous working
environments. Hazards in open pit mining
include hazards relating to drilling and
blasting of rock, the presence of operators
on and around large pieces of equipment
such as excavators and haul trucks, and the
creation of deep open pit mines with steep
inclines. In processing, operators are in
close proximity to large pieces of equipment
such as crushers and ball mills, all of which
carry significant electrical currents, weigh
asignificant number of tonnes and are
constantly moving when under operation.
Maintainers are often required to place
themselves within equipment to access and
repair equipment, and are often required to
use lifting equipment to raise machinery
weighing several tonnes. The risks to
operators conducting these activities,
orinclose proximity to those conducting
these activities, can be high if the correct
risk mitigation measures are not enforced.
There are inherent risks with materials
handling throughout the Group’s operations
– from hazardous chemicals, flammable
liquids and gases, and other dangerous
goods. In logistics, the Group oversees the
transfer of significant volumes of iron ore
pellets loaded onto trains, dry bulk vessels
and inland vessels, all of which carry
inherent risks. The Group’s logistics
subsidiary, First-DDSG, transports pellets
along the Danube River in all seasons, with
specific safety hazards applicable to river
transport throughout the year, including
operating in freezing conditions and river
safety around other vessels.
In addition, the Group and its workforce
have faced significant health and safety
risks relating to the global Covid-19
pandemic. Details of the risks relating to this
are provided on page 72 of the Principal
Risks section, with risk mitigation measures
also provided in the Case Study on page 11.
4.2 Risks relating to health and safety
Responsibility
Chief Executive Officer, Chief Operating
Officer and Chief Marketing Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Change
Risk mitigation in the Group’s approach
tohealth and safety begins with
understanding the risks faced by operators
when entering a place of work. This is
achieved through risk assessments for
each area and activity in which an operator
is active, aiming to ensure that potential
risks are understood before work takes
place. Extensive safety training is provided
to both operators and management,
toprovide the necessary level of
understanding of the risks faced and the
high level of safety standards expected by
the Group. Training is provided to both
employees and contractors, since safety
hazards do not distinguish between
anindividual’s contract status.
The Group uses leading and lagging safety
indicators to better understand where
safety risks may exist. An example of a
leading indicator of safety is the number of
safety audits conducted by the Group’s
safety department, which correlates to the
degree of safety improvements made in
each working area, and therefore reducing
the potential for future incidents to occur.
Lagging indicators of safety relate to
safety incidents that have already
occurred, such as near miss events, and
the Group monitors these closely to learn
and improve for the future, to reduce
thenumber of these events occurring.
Increases in a lagging indicator are often
an aspect of encouraging employees to
register incidents correctly and to promote
an open and understanding culture when it
comes to safety.
In relation to the safety and wellbeing
measures implemented in response to the
global Covid-19 pandemic, the Group has
sought to protect both its workforce and
its local communities, with details of these
measures provided on pages 11 and 42 of
this report.
In 2021, through implementation of the
above safety measures, the Group was
able to report on a fatality-free year and
arecord-low full year lost time injury
frequency rate since IPO of 0.41
(2020:0.79).
Principal Risks continued
69
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Ferrexpo plc Annual Report & Accounts 2021
RISK MITIGATION
Ferrexpo sits in the bottom half of the
pellet cost curve, and as such maintains a
degree of competitiveness over its
pellet-producing peers in countries such
as Brazil, Canada and Sweden. Many of
the Group’s costs relate to commodity
prices, which will in turn also impact
Ferrexpo’s peers to a similar extent, and
as such, in times of higher commodity
prices, the Group should be able to
maintain its cost competitiveness relative
to its competitors.
In 2022, Ferrexpo expects to increase
production volumes, which will aid
production costs through the dilution of
fixed costs, and will potentially enable the
Group to offset (to some extent) external
cost inflation. A number of companies in
the Group’s peer group have in the past
switched between production of iron ore
pellets and iron ore concentrate, according
to pellet premiums and the profitability of
producing pellets. Ferrexpo’s pelletising
costs in 2021 were approximately US$19
per tonne and therefore lower than the
pellet premium seen in 2021 (please see
the Market Review section on pages 12 to
15 for more details). However, should the
pellet premium fall below the cost of
pelletising material, the Group has the
option to halt pelletising operations and
produce concentrate instead of pellets for
aperiod of time. The Group also has a
Business Improvement Programme aimed
at increasing efficiencies and reducing
costs by 1% to 2% per annum. Ferrexpo
has established several sources of
suppliers for key products as well as
several supply routes to ensure cost
effective supplies of all key consumables.
The Group expects the inflationary cost
pressures related to Russia’s invasion of
Ukraine to be temporary in nature and that
the Group will retain the cost advantages
outlined above in the medium term to
remain competitive on costs on a
globalscale.
4. OPERATING RISKS
Ferrexpo’s overall ability to generate cash is
predicated on its ability to maintain a low
cash cost of production across its business,
including the Group’s mining, processing,
pelletising and logistics businesses. A
number of factors affect the Group’s ability
to remain cost effective relative to its iron
ore producing peers, including the
component of the Group’s cost base that
relates to global commodity prices, such
asfuel, gas, explosives, tyres and steel
grinding media. The commodity-linked
component of the Group’s cost base has
historically represented approximately 50%
of the total C1 cash cost of production
A
. In
times of relatively high iron ore prices the
cost of production tends to increase due to
commodity cost inflation; however, during
periods of low commodity prices the cash
cost is typically reduced. A second
important driver of C1 cash cost of
production
A
is local currency, which for
Ferrexpo is the Ukrainian hryvnia, and this
has historically directly affected
approximately 50% of the Group’s total C1
cash cost of production
A
. 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 2021, the Group’s C1 cash cost of
production
A
increased by 34% to US$55.8
per tonne (2020: US$41.5 per tonne). See
the Financial Review section (pages 22 to
25) for a description of the factors impacting
operating costs.
The Group has seen significant inflationary
pressure relating to energy costs in the
second half of 2021 and into 2022, with
prices for key consumables such as natural
gas, electricity and diesel all increasing.
SeeCase Study on page 25 for
moreinformation.
The Russian invasion of Ukraine in early
2022 has resulted in inflationary cost
pressures on a number of the Group’s key
consumables, with the Group conducting
measures to reduce the risks associated
with the conflict, such as increased
stockpiling of key consumables to reduce
the risks around potential supply disruption.
4.3 Risks relating to operating costs
Responsibility
Chief Executive Officer and
ChiefFinancialOfficer
Risk appetite
Low
Link to strategy
2 and 5
Change
RISK MITIGATION
70
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
4. OPERATING RISKS (CONTINUED)
Russia’s invasion of Ukraine in early 2022
has created a significant risk related to
cybersecurity at the Group’s operations
inUkraine, with details of this risk and
mitigation measures, presented on page 57.
The Group is continually looking to
modernise and digitise its operations, and is
increasingly looking towards information
technology (“IT”) to operate its business
model. The move towards increasing
digitalisation presents an increasing
exposure to parties that may wish to disrupt
the Group’s operations for financial gain,
competitive advantage over the Group or to
inflict other negative consequences on the
Group for other reasons. Cybersecurity
threats may take the form of, but not limited
to, the following: malware, ransomware,
phishing, denial-of-service attacks, and
password attacks.
Cyberattacks have been noted on a global
scale in recent years, as well as similar
attacks that have been specifically targeted
against sovereign nations, such as the
NotPetya ransomware first noted in 2017
that is believed to have been targeted at
entities in Ukraine, or the Colonial Pipeline
cyberattack in May 2021 that shut down
45% of the United States’ East Coast fuel
supply.
1
Such events appear to be becoming
increasingly frequent, with increasing
impact on the entities subjected to such
attacks. Events such as cyberattacks are
not necessarily targeted at specific
companies or sovereign states, but often
inflict additional damage to companies and
governments not directly connected to the
original targeted entity, and therefore such
attacks may appear random in nature and
difficult to predict asaconsequence.
Cyberattacks, such as malware and
ransomware, are often unreported in the
mainstream media by companies and
governments to avoid the negative publicity
associated with such events. It is therefore
difficult to ascertain the full extent to which
the Group is facing risks relating to
cybersecurity. Published cyberattacks
affecting companies and governments in
the past have closed or limited a company’s
ability to produce, have withheld or
disclosed confidential information, and have
withheld access to key operational
infrastructure, in addition to other attributes
of such events.
4.4 Risks relating to information technology and cybersecurity
Responsibility
Chief Executive Officer
Risk appetite
Low
Link to strategy
1, 2 and 3
Change
Ferrexpo conducts regular reviews of
thedifferent information systems and
technologies in use across its business,
toensure that information systems and
technologies are regularly maintained and
up-to-date in terms of security protocols.
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 users of IT 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. Efforts in 2021 have centred
around the procurement and installation
ofa dedicated on-site data centre at
Ferrexpo’s operations with backup power,
with elevated security protocols to
ensurethe Group’s continued access to
itsdata and IT systems in the event of
acyberattack.
Further to existing practices and
protocols, the Group regularly updates the
software and hardware in use throughout
its business, to remove the Group’s
exposure to known weaknesses
incybersecurity.
1. Source: Forbes (link). Accessed April 2022.
Principal Risks continued
RISK MITIGATION
71
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Ferrexpo plc Annual Report & Accounts 2021
5. RISKS RELATING TO CLIMATE CHANGE
As a contributor to the global steel value
chain, the Group is aware of the risks posed
to it by climate change. The risks posed by
climate change are diverse in scale and can
be either local, affecting the Group’s
stakeholders in the jurisdictions in which it
operates, or global whereby there are
impacts to factors such as demand for iron
ore pellets. Climate change risks can also
be further classified into risks that affect the
Group’s physical environment – such as
flooding, drought conditions and extremes
of temperature, or risks could be regulatory
in nature whereby governments seek to
impose restrictions to limit emissions of
carbon dioxide through measures such as
environmental levies or carbon taxes.
Climate change risks can also affect the
Group through its suppliers and customers,
with suppliers facing the same risks as
Ferrexpo, and as a result may not be able to
continue to supply the Group with the same
goods and services as currently provided.
Customers of Ferrexpo, comprising the
global steel industry, are significantly
affected businesses by climate change risk
given the relatively high proportion of global
emissions produced by steelmakers (7% of
total emissions
1
). As an example, the EU has
selected the European steel industry as one
specifically targeted under carbon reduction
regulations, such as a gradual reduction in
carbon credits as part of the EU’s “Fit for
55” initiative to achieve a 55% reduction in
carbon emissions by 2030
2
. As steelmakers
around the world face increasing regulation
to curb emissions, as well as the direct
effects of climate change and changing end
user demand, these changes will filter
through to Ferrexpo as a supplier to these
producers, with a portion of these changes
likely to be negative.
Ferrexpo also faces acute physical risk as a
result of climate change outside of Ukraine
in its logistics network, particularly its
barging operations along the Danube River,
which are prone to freezing weather
conditions in European winters and both
flooding and low water events in summer.
Additionally, the Group faces reputational
risk both in Ukraine and across the globe
with stakeholders such as investors,
suppliers and customers, if it is not seen
tohave strong environmental credentials,
ordoes not comply with government
regulation. This particular risk can apply to
the Group’s activities in Ukraine and barging
operations in Europe, but also perceptions
around the environmental footprint of the
Group’s products.
Responsibility
Board of Directors and
ChiefExecutiveOfficer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Change
The Group has sought to mitigate risks
around climate change in a number of
areas in 2021. Locally in Ukraine, the
Group has implemented a significant
number of operational projects targeting
productivity improvements to reduce
diesel and natural gas consumption,
including construction of a 5MW trial solar
power plant and the Group’s clean power
purchasing programme. Through various
initiatives, the Group has reduced its
carbon footprint per tonne (Scope 1 and
Scope 2 basis) by 30% since the Group’s
baseline year of 2019. Further to this
progress, in October 2021 the Group
announced medium- and long-term
carbon reduction targets (see page 36). To
further reinforce the Group’s existing
position on climate change and progress
in carbon emissions, the Group is
undertaking an external assurance
process, whereby an external consultant is
reviewing and providing assurance on the
validity of the Group’s calculations for its
carbon footprint. Further details of this
project are available on page 34. Looking
forward, the Group is seeking to further
establish its understanding of the role of
iron ore pellets in a low carbon future
through its ongoing work with independent
climate change consultants Ricardo plc;
see page 37 for more details.
The Group understands the need to take
action in addressing climate change today,
and positioning for the future. For
Ferrexpo, the future is Green Steel, which
is the production of steel without
associated carbon emissions. Thefirst
Green Steel was created in Sweden in the
summer of 2021 using direct reduction iron
ore pellets
3
and the Group has
commenced a process to align itself
towards Green Steel by starting to
produce direct reduction pellets, which
represent a known pathway to Green
Steel. The Group intends to build its
presence in marketing direct reduction
pellets in new regions, as well as maintain
a dialogue with existing customers as
theymodernise their production facilities
andswitch to direct reduction pellets
overtime.
The Group’s management believe that
through a multi-layered approach to
addressing climate change through
implementing projects today, as well as
the implementation of longer-term
projects, the Group will be well positioned
for a low carbon future.
1. Source: IEA, 2020 (link). Accessed April 2022.
2. Source: European Commission (link). Accessed April ‘22.
3. Source: Forbes (link), accessed April 2022.
RISK MITIGATION
72
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
6. RISKS RELATING TO THE GLOBAL COVID-19 PANDEMIC
In 2021 the world has seen a continuation of
the disruption caused by the Covid-19
pandemic, similar in nature to the effects
seen in 2020 but with periodic and regional
easing of restrictions followed by increases
in infection rates and the reintroduction of
restrictive measures. Measures introduced
in response to the global Covid-19
pandemic have varied between different
jurisdictions and have also varied in 2021
according to an individual’s vaccination
status, adding an additional dimension to
Covid-19 restrictions.
Overall, Covid-19 continues to affect the
health and wellbeing of individuals, as well
as continuing to divide and isolate
communities as governments and
businesses seek to find measures to slow
the spread of the virus each time infection
rates increase. Risks relating to the
individual continue to be significant – from
the threat to the long-term health of an
individual and their families and friends, to
the impact on wellbeing through social
distancing measures. Businesses are at risk
of seeing significant numbers of employees
and contractors of their own business be
forced to isolate due to infection, as well as
suppliers and customers experiencing
similar restrictions, resulting in a general
slowdown in companies’ ability to do
business with each other. Governments face
the risk of the additional strain on public
services and resources as a result of
measures taken to combat the causes and
the effects of the pandemic, which are costs
that may be passed on to businesses and
individuals in the form of additional taxes
and royalties, as well as cuts to existing
services. More broadly, the global steel
value chain relies on a steady transfer of
goods and services to operate efficiently,
and market prices such as iron ore prices
and pellet premiums could be negatively
impacted by a decrease in steel output or a
decrease in the ability of steelmakers to
produce steel. The global steel value chain
also relies heavily on international travel for
global businesses to conduct business with
each other effectively, and the global travel
industry has been significantly affected by
travel restrictions. International travel was
also a frequent requirement for the Group’s
senior leadership team, which is an activity
that has also been significantly curtailed
during the pandemic.
Responsibility
Board of Directors and
ChiefExecutiveOfficer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Change
The Group has sought to mitigate the
impact of the global Covid-19 pandemic on
its workforce, communities and business
activities through a variety of measures.
Inrelation to the Group’s workforce, the
Group moved quickly to implement
measures in early 2020 as the pandemic
commenced and these measures, such
asmask-wearing, social distancing,
staggered shift patterns, Covid-19 testing
and temperature screening, have all been
perpetuated into 2021. The Covid-19 virus
has affected every community around
theworld and Ferrexpo is acutely aware
ofthe impact of Covid-19, having had 14
employees pass away as a direct result
ofCovid-19, or complications related to
Covid-19, as of December 2021. The
Group is therefore making every effort to
prevent the virus causing further harm to
its workforce and as a result, the Group is
encouraging its workforce in Ukraine to
take up the government’s offer of Covid-19
vaccinations and has provided local
authorities with the use of the Group’s
on-site medical facility as a vaccination
centre. As of January 2022, over 5,900 of
the Group’s employees have had at least
one dose of a Covid-19 vaccine and 65%
of employees were fully vaccinated,
approximately double the rate for the
general population of Ukraine
1
. The
Group’s management is also aware of the
significant impact that Covid-19 has had
on the wellbeing of its employees, and as a
result the Group has offered psychological
support services and training to help
employees and contractors to cope with
the various forms of stress that have
emerged as a result of the pandemic.
On a broader scale, the Group has noted a
return in the global balance of steel
production, and therefore iron ore
demand, in 2021 as the world returns to a
more normal balance of trade as Covid-19
restrictions ease. In the iron ore industry,
the shift seen during the peak of the
pandemic during 2020 was towards China,
and in 2021, global markets have gradually
returned to a similar balance of demand
ashas been seen in years prior to 2020.
Whilst the Group is prepared for further
shifts in iron ore demand, and has
capacity in its logistics network to manage
such events, the Group does not expect
asimilar scale of market shift as observed
in 2020.
In relation to the Group’s local
communities, the Group’s Covid-19
Response Fund continues to work to
assist local hospitals and medical
institutions in their work combating the
pandemic, with a total approved funding
amount of US$3.5 million. Details of the
work conducted through this project are
provided in the Case Study on page 11.
1. Source: www.ourworldindata.org, accessed
1February2022.
The Russian invasion of Ukraine in early
2022 has also elevated the risk associated
with Covid-19 due to a reduced focus on
testing for the virus and therefore higher risk
of transmission in local communities.
Principal Risks continued
73
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Ferrexpo plc Annual Report & Accounts 2021
Viability Statement
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 54 to 72.
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 (12-18 month) time horizon in
light of the current war in Ukraine, and the
material uncertainties that this poses to the
Group in terms of its going concern and
long-term 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 12-18 months.
Factors associated with the war
inUkraine
Due to the significance, scale and
unpredictable nature of the 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. Following the
Russian invasion of Ukraine on 24 February
2022, the Group’s executive management
team has held regular meetings since the
outset of this armed conflict in order to
assess the various risks that the business
faces, including daily meetings during the
initial weeks of the war.
Emerging and existing risks are reported on
during these calls, with risk mitigation
procedures discussed, and the results of
each meeting being reported to the Group’s
Board of Directors. Risks to Ferrexpo 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, the supply of key input materials
required for the production process and
theprovision and availability of logistics
capacity required for the delivery of the
Group’s products to customers in its
keymarkets.
For more information, please see the
Principal Risks disclosed on pages 54 to72
of this report.
Business planning process
In response to the Russian invasion of
Ukraine on 24 February 2022, the Group has
temporarily revised its approach to its
business activities and investments from its
Business Model shown on pages 16 to 17.
This approach has been implemented to
concentrate on the Group’s ability to
generate cash in the revised market
environment, which will enable the Group
tosustain its business. As a result,
investments are currently focused on
sustaining capital expenditure, with limited
expenditure on growth capital projects,
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 in order
to maintain a clear understanding of the
risks faced by the business and how
thesefactors are influencing the business.
Following the start of the war in Ukraine on
24 February 2022, 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.
In assessing the inputs into this model, the
Group’s management team has assessed
the risks associated with the potential
disruption of the supply of key
consumables, which includes natural gas,
electricity and diesel fuel, in addition to the
supply of key pieces of equipment. The
Group’s modelling has also considered the
risks surrounding a further interruption to
the Group’s logistics network, in addition
tothe existing disruption faced through the
closure of Ukraine’s Black Sea ports. In
addition to the assessed risk associated
with continued production and shipment of
the Group’s products, the Group has also
assessed market factors that represent the
principal factors governing the pricing of
Group’s iron ore products.
APPRAISAL OF THE GROUP’S OUTLOOK
IN A STRESSED SITUATION
Reviewing the Group’s assessment of
principalrisks,to consider the long-term
viabilityofFerrexpo’sbusinessmodel.
74
STRATEGIC REPORT
Ferrexpo plc Annual Report & Accounts 2021
Stress testing
In determining the viability of the business,
the Directors have stress tested the
individual risks and combination of risks
that could materially impact the future
viability of the Ferrexpo business. At the
present time, the risk that the Group is
primarily exposed to is Russia’s invasion of
Ukraine in 2022 (see Principal Risk section,
pages 54 to 72). In addition, Ferrexpo’s
business model has historically also faced
risks relating to changes in the iron ore fines
price, pellet premiums and cost inflation,
which are factors that continue to govern
the Group’s profitability.
The Group’s ability to produce at full
capacity in 2022 will be contingent on the
war in Ukraine, and its impacts on the
Group’s ability to operate its assets in
Ukraine, and deliver its products to the
Group’s customers.
The Group has adjusted its long-term
financial model to reflect the lower sales
volume caused by the unavailable seaborne
sales to the Group’s customers, with
forecasted production volumes being varied
accordingly. The financial model anticipates
that production and sales volumes will
return to normal by 2024.
Viability Statement continued
The Group’s financial modelling indicates
that a 10% reduction in the Group’s
received price in 2022 would, if not
mitigated, reduce the Group’s Underlying
EBITDA
A
by US$8.4 per tonne. Modelling
also indicates that a general production
cost increase of 10% would decrease Group
Underlying EBITDA
A
by US$4.9 per tonne,
whilst a 10% decrease in production
volumes, and an associated 5% increase
inproduction costs, would decrease
Underlying EBITDA
A
by US$7.0 per tonne.
Itshould be noted that the impact of the
factors discussed above in this paragraph
apply for 2022 in isolation. Any impact on
additional years beyond 2022 will depend
on the underlying sales and production
volumes and the level of realised prices and
production costs in each period.
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the cessation of production for 3, 6 and
18 months, which could be caused by
adisruption of the supplies for key
consumables, equipment and/or a further
interruption of the Group’s currently
available logistics network, in the event
ofan escalation in the armed conflict
inUkraine.
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.
– Operating constraints due to Ukrainian
country risk.
In respect of mitigating actions in response
to the conflict in Ukraine, please see page
57 for more detail on this topic. 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.
75
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
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 was trading at a cyclical
low and the Group’s ability to repay its debt
facilities, with the early repayment of the
Group’s principal debt facility in June 2021.
Since the end of 2020, the Group has
moved into a net cash position, and has
announced a net cash position of US$117
million as of 31 December 2021. As at the
date of the approval of these Consolidated
Financial Statements, the Group is in net
cash position of approximately US$192
million and an available cash balance
ofapproximately US$209 million. Inaddition
to the available cash balance, the Group has
an outstanding receivable balance of
approximately US$156 million from itssales
in March and April 2022, which areexpected
to be collected in the comingweeks.
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 Group will continue to have the
ability to operate in Ukraine;
– The Group will continue to be able to
redesign its mining and processing plans
in order to align them to changing
circumstances;
– The Group will continue to be in the
position to secure the supplies of key
consumables and equipment; and
– The Group will continue to be in the
position to use its 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 152, although the
Group has managed to continue its
operations since the beginning of the war,
this continues to pose a significant threat to
the Group’s mining, processing and
logistics operations within Ukraine. Having
assessed the current situation of the war 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 as the duration and
the impact of the war cannot be predicted
atthis point of time.
The Strategic Report was approved by the
Board on 21 April 2022 and signed on
behalf of the Board by:
Lucio Genovese
Chair
76
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
Corporate Governance Report
CHAIR’S INTRODUCTION
Delivering on
our promises
and re-shaping
the Board
Operation of the Board during
Covid-19 and governance framework
Against the backdrop of the continuing
Covid-19 pandemic, we remained focused
on the health, safety and well-being of our
people globally, who have continued to
deliver for the Group and our stakeholders
through the testing times over the last
couple of years, and ensuring business
continuity and safeguard 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
presented by the pandemic. The majority of
Board meetings were held virtually and this
was an effective way of maintaining good
corporate governance, the corporate
agenda, the flow of information across the
Group and delivery of the Group’s strategy.
We have also ensured new directors’
onboarding programmes continued as
planned, albeit in a virtual environment. The
virtual format of meetings provided the
Board greater opportunities to engage with
each other, management and employees.
During 2021, for the second consecutive
year, the Board site visit to our operations in
Horishni Plavni was cancelled due to the
pandemic and was replaced with a virtual
site visit.
Despite the challenges of remote working
we continued to enhance our shareholder
and stakeholder engagement and place
their interests at the centre of our
considerations for key decisions. Our
Section 172 Statement set out on pages 50
to 53 provides further details on how the
Board complied throughout the year.
The Russian invasion to Ukraine has not
adversely impacted the operation of the
Board or its Committees.
Supporting local communities
during Covid-19
During the year, in addition to our continued
support for communities locally, Covid-19
special fund in the amount of US$1.0 million
(2020: US$2.5 million) was provided to
support the local community in Horishni
Plavni for the purchase of personal
protective equipment and equipment for
local hospitals (see Responsible Business
section of the Strategic Report on pages 32
to 45).
Dear Shareholder
Before reflecting on the improvements made
during 2021, it is important to note the
devastating impacts which the Russian
invasion of Ukraine is having on Ukraine and
the people, communities and businesses
within the country. Now more than ever
strong governance is essential to help see
Ferrexpo through this very challenging time.
As you would expect, the Board has been
meeting regularly to discuss the on-going
situation in Ukraine, receiving daily 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 during 2022
and the Board will continue to focus on
exercising strong governance during these
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
underpins 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
2018 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, 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 success of Ferrexpo Plc.
Lucio Genovese
Chair
77
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
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;
they are subject to the 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 local
charitable spending via its Health, Safety,
Environment and Community (“HSEC”)
Committee, which oversees and directs
these activities and receives reports
detailing the spend. The Audit Committee
reviewed reporting from the external
auditors in relation to their procedures on
HSEC Committee as part of their audit of
the Group.
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
Equality, Diversity and Inclusion Policy,
which sets our objectives.
Further to commitments made last year,
weannounced a number of changes to the
Board during the year. In accordance with
best practice requirements of the Corporate
Governance Code 2018, the Board keeps its
balance of skills, knowledge, experience,
independence and diversity under review
which is beneficial in itself in bringing new
perspectives to the Board. To that end, as
we began the year, I was pleased to
welcome Ann-Christin Andersen to the
Board on 1 March 2021. Ann-Christin’s
digital technologies and business
transformation experience provides us with
great breadth of insight, which is particularly
valuable as we transform our business.
Throughout the year, the Board continued
its search for further Independent Non-
executive Director candidates, led by the
Nominations Committee and supported by
external consultants. Towards the end of the
year, Iwas also pleased Natalie Polischuk
joined the Board on 29 December 2021.
Natalie, an economist, brings a combination
of financial expertise coupled with
experience of Ukraine and Central and
Eastern Europe markets, providing further
balance to our Board in terms of
regionalexpertise.
On 4 August 2021, Nikolay Kladiev was
appointed as Chief Financial Officer in place
of Roman Palyvoda who stepped down from
the Acting CFO role to pursue other career
opportunities. Nikolay joined the Group in
2005 and brings a wealth of experience to
the Group CFO role as well as a deep
understanding of both our operations and
the Ukrainian business environment.
On 14 February 2022, Jim North was
appointment as permanent CEO having
successfully transitioned the Group into a
new phase of its corporate culture and
overall growth ambitions. Jim brings a wealth
of mining experience coupled with excellent
leadership and an adept ability to refocus the
Group’s strategy, further promote an
inclusive leadership model, deliver a clear
message on key topics relevant to
stakeholders, whilst also continuing to
deliver strong operational performance
across the Group.
On 10 February 2022, the Board elected to
appoint Fiona MacAulay as Senior
Independent Director in place of Vitalii
Lisovenko after completing two and half
years in the role.
Additionally, on 10 February 2022
Ann-Christin Andersen was appointed as
Chair of the Group’s HSEC Committee and
Natalie Polischuk was appointed as a
member of both the Audit Committee and
HSEC Committee.
At the beginning of 2021, there was one
female Director on the Board and by the end
of the year I am delighted that we now have
three female directors, further strengthening
Board independence and diversity. Female
representation on the Board is now 38%,
which is enthusiastically welcomed by the
entire Board.
Board performance review
In line with the 2018 Corporate Governance
Code, at least every three years the Board
performance review is facilitated by an
external third party that interviews the
directors and senior management to form an
objective opinion on the performance of the
Board and its members. During the year, an
externally facilitated effectiveness 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 91 to 92.
Key highlights in 2021
andearly2022:
– continued management of Covid-19;
– Health & Safety and employee wellbeing
– zero fatalities;
– climate change – established inaugural
carbon reduction targets;
– established dividend policy;
– improved Board diversity;
– appointment of two female independent
Non-executive Directors;
– appointment of female Senior
Independent Director;
– appointment of CEO;
– appointment of CFO;
– appointment of HSEC Chair;
– appointment of female Independent
Non-executive director to Audit and
HSEC Committees;
– succession planning at Board and
management level;
– external Board Evaluation;
– strengthen cyber security;
– focus on shareholder and key
stakeholder engagement;
– appointment of broker; and
– appointment of sponsor.
Key priorities for 2022:
– supporting our workforce and the
operations as a result of the Russian
invasion of Ukraine;
– continued management of Covid-19;
– Health & Safety and employee wellbeing;
– climate change;
– commence search for a director
ofcolour;
– succession planning at Board and
diversity at management level;
– continue focus on shareholder and key
stakeholder engagement; and
– continue to strengthen 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 2022 AGM
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
Chair
21 April 2022
78
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
Board of Directors
AN EXPERIENCED AND BALANCED BOARD
Raffaele (Lucio) Genovese
Non-executive Chair
Fiona MacAulay
Senior Independent
Non-executive Director
Jim North
Chief Executive Officer and
Executive Director
Ann-Christin Andersen
Independent
Non-executive Director
Date of appointment
24 August 2020 as Chair
13 February 2019 as Non-
independent Non-executive Director
Current external appointments
Currently, he serves as chief
executive officer of Nage Capital
Management AG, a Swiss based
investment and advisory firm,
since 2004; Nevada Copper Inc
since 2016; and as chair of CoTec
Holdings, listed on NEX Board of
the TSVX, since 2021.
Previous appointments
Previously, he was non-executive
director of Mantos Copper SA, 2015-
2022; chair of Firestone Diamonds
Plc, 2012-2020; an Independent
Non-executive Director of Ferrexpo
plc, 2007–2014; independent
non-executive director of Ferrous
Resources Limited, 2014–2019;
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 30 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 Russia and 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.
Committee membership
Lucio is the Chair of the
Nominations Committee.
Date of appointment
12 August 2019
Current external appointments
Currently, she serves as non-
executive director of Costain Plc
since April 2022; non-executive
director of Chemring Group plc
since 2020; and non-executive
director of AIM listed IOG Plc since
2018 where she serves as chair.
Previous appointments
Previously, she was non-executive
director of AIM listed
Coro Energy 2017–2022; chief
executive officer of Echo Energy
plc 2017–2018 and a 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. 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
Fiona is the Chair of the
Remuneration Committee and
a member of the Audit and
Nominations Committee and
Committee of Independent
Directors. Fiona was the Chair
of the HSEC Committee until
February 2022.
Fiona was appointed Senior
Independent Director in
February 2022.
Date of appointment
14 February 2022
Chief Executive Officer
5 July 2020
Executive Director
28 May 2020 as
Acting Chief Executive Officer
1 November 2014 as
Chief Operating Officer
Current external appointments
None.
Previous appointments
Previously, he was Chief Operating
Officer of London Mining PLC,
where he was accountable for
setting the company’s operational
and investment strategy around
the world. He has wide-ranging
operational mining experience at
a senior level with Rio Tinto, BHP
Billiton and Mount Isa Mines in
Africa, South America and Australia
covering commodities including
iron ore, coal, base metals
and aluminium.
Skills, expertise and contribution
Jim joined the Company in
November 2014 and since then
he has successfully managed our
operations, enhancing operating
efficiency by introducing world-class
operating practices. Over the past
seven years, Jim has developed the
strategic organic growth programme
to expand and increase production
through incremental brownfield
expansions to FPM processing
facilities significantly reducing the
capital intensity required.
Jim is a capable Executive Director.
He brings multiple commodity
experience across the resources
value chain and extensive
experience to bear managing
the Company.
Committee membership
Jim is a member of the HSEC
Committee.
Date of appointment
1 March 2021
Current external appointments
Since 2021, Ann-Christin has served
as non-executive chair of Quantafuel
AS, and since 2020 served as chair
of the board of Glitre Energi AS
(unlisted), having been appointed
as a director in 2015. She is a
non-executive director of Maersk
Drilling since 2020 and has been a
non-executive director of Rotork Plc
since 2018.
Previous appointments
Previously, she has combined her
executive career in the oil and
gas industry with several board
assignments, e.g. non-executive
director for Veidekke ASA.
Skills, expertise and contribution
Ann-Christin is an engineer with
more than 30 years’ experience in
the oil and gas industry.
Ann-Christin brings wealth
of resource based industrial
experience in both mature and
emerging markets together with real
life experience on how to orchestrate
business transformation. In addition
to experience on how to implement
a culture of safety in a high-risk
industry, she brings knowledge
of stepping-up automation to
become smarter, better, faster
whilst driving digital transformation
for business value.
Committee membership
Ann-Christin is the Chair of HSEC
Committee with effect from
February 2022 and a member of
the Nominations and Remuneration
Committees and Committee of
Independent Directors.
79
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Graeme Dacomb
Independent
Non-executive Director
Vitalii Lisovenko
Independent
Non-executive Director
Natalie Polischuk
Independent
Non-executive Director
Kostyantin Zhevago
Non-independent
Non-executive Director
Date of appointment
10 June 2019
Current external appointments
Currently, he serves as non-
executive director of Anglo Pacific
Plc since 2019.
Previous appointments
Previously, he was an audit partner
of Ernst & Young LLP for 26 years
and a Member of the Financial
Reporting Review Panel from
2011–2018.
Skills, expertise and contribution
Graeme contributes to Ferrexpo
plc over 43 years’ experience of
which he was a partner at Ernst &
Young (“E&Y”) for 26 years where,
for his last 12 years, he was a lead
partner in the extractive industry,
responsible for coordinating the
provision of a full suite of services
to multinational mining and oil
and gas clients including Xstrata,
Fresnillo, and BP across a broad
range of countries including
emerging markets. In addition
to audit services, he provided
critical advice for his clients on
corporate governance structures,
risk management, acquisitions,
disposals and financial systems
and controls.
Graeme brings extensive knowledge
of the extractive industry and his
financial expertise gained as lead
audit partner provides a solid
foundation for his role as Chair
of the Audit Committee. He also
brings an invaluable perspective
and insights from his extensive
international career.
Committee membership
Graeme is the Chair of the Audit
Committee, where he acts as its
Financial Expert and a member of
the Nominations and Remuneration
Committees and the Committee of
Independent Directors.
Date of appointment
28 November 2016
Current external appointments
Currently, he serves as a non-
executive adviser 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.
Committee membership
Vitalii is the Chair of the Committee
of Independent Directors and a
member of the Audit, Nominations
and Remuneration Committees.
Vitalii was Senior Independent
Director until February 2022.
Non-executive Director designate
for workforce engagement
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.
Committee membership
Natalie is a member of the Audit
and HSEC Committees from
February 2022.
Date of appointment
14 June 2007 as Non-executive
Director
1 November 2008–25 October 2019
as Chief Executive Officer
25 October 2019 as Non-
independent Non-executive Director
Current external appointments
None.
Previous appointments
Kostyantin has substantial
management and investment
experience gained over a 30-year
business career in Ukraine.
Skills, expertise and contribution
Kostyantin contributes to Ferrexpo
plc over 30 years’ substantial
management and investment
experience gained during his
business career in Ukraine.
Kostyantin brings significant
experience in areas such as mining
operations, sales and marketing
and government relations, and
has a detailed understanding of
the Ukrainian business, economic
and political landscape, which is
very valuable to the Group. He has
a deep working knowledge of the
Group, having previously acted as
Chief Executive Officer for 11 years,
which he is able to contribute to
Board decision-making. Kostyantin
also has strong relationships with a
number of key stakeholders of the
Group, developed during his time
at Ferrexpo.
Committee membership
None.
•
Male 62.5%
•
Female 37.5%
GENDER
80
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
Executive Committee
AN EXPERIENCED AND FOCUSED
MANAGEMENT TEAM
Jim North
Chief Executive Officer and Chief
Operating Officer – combined role
Nikolay Kladiev
Chief Financial Officer
Viktor Lotous
Chief Operating Officer
and Head of Managing
Board, FPM
For more information see page 78 for details. Nikolay was appointed Group Chief Financial
Officer on 4 August 2021.
Nikolay Kladiev 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 16 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 and experience
He is a Chartered Accountant (UK) and has a
Masters in International Economic Relations
from the Kyiv National Economic University.
Viktor became Chief Engineer in 1997 and General
Director and Chief Operating Officer in April 2007.
Skills and experience
He is a graduate of Kryvyi Rih Mining and Ore
Institute, and of the Kyiv National Economic
University, specialising in Finance.
Greg Nortje
Chief Human Resources Officer
Brett Salt
Chief Marketing Officer
Greg joined Ferrexpo in January 2014.
He previously held a variety of international
human resource leadership positions with Anglo
American and BHP Billiton.
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.
On 1 July 2020, Brett joined Ferrexpo from Rio
Tinto where, over a 23-year career, he held
a variety of senior leadership roles in Asia,
North America, Europe, the Middle East, Africa
and the former Soviet Union. His commercial
experience covers sales and marketing, mergers
and acquisitions, corporate development,
finance, shipping and logistics across multiple
commodities to include iron ore, coal, copper
and freight.
Skills and experience
He holds a Bachelor of Commerce, majoring in
Economics and Commercial Law from Curtin
University of Technology and a diploma in
Investment and Risk Management in Shipping
from the IMD Business School.
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STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
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.
Corporate Governance Compliance
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 2021 with all the provisions of the 2018
Corporate Governance Code except as set out below:
– Provision 9: The Chair was not independent on appointment.
– 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 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 2021. 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 2021 except for Provision 9 and 19. Provision 9 recommends that
the Chair be independent on appointment and provision 19 recommends that the Chair should not remain in post beyond nine years from
the date of first appointment to the board.
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
rejoined the Board in February 2019 as a non-Independent Non-executive Director and most recently was appointed as Chair of Board in
August 2020.
Independent mind set
The Board is 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 mind set
and brings valuable challenge to the Board based on his in-depth understanding of the key drivers and challenges faced by the Group.
The Board is satisfied that Mr Genovese’s continuance as Board Chair adds considerable value to the business given his experience,
leadership qualities and detailed knowledge of the Group. He has more than 30 years’ experience of Ukraine together with in-depth
knowledge of the socio-political and economic environment. He has specific iron ore mining knowledge coupled with solid experience of
UK plc corporate governance matters. These qualities enable him to provide sound leadership to the Board based on his personal
experience and knowledge which facilitates constructive discussions and Board decisions.
Mr Genovese is committed to having a diverse and inclusive Board and workforce. He has overseen the design and implementation of
succession plans to facilitate increased independence and diversity. The Board considers that Mr Genovese continues to demonstrate
objective judgement and provides constructive challenge, and believes that his continued appointment is appropriate without fixing a time
limit to his service.
Examples of the changes Mr Genovese has overseen during the last year include:
– Appointment of two female Independent Non-executive Directors ensuring compliance with the Hampton-Alexander Review.
– Appointment of permanent CEO.
– Appointment of CFO.
– Appointment of female Senior Independent Director.
– Succession planning at Board and senior management level.
– Climate change – established inaugural carbon reduction targets.
– Return to shareholders – established dividend policy.
– Appointment of Broker.
– Appointment of Sponsor.
– Led a Corporate Governance Road Show with major institutional investors.
– Re-focused the 2021 Board agenda to include Cyber Security, Climate Change and Environmental, Social and Governance matters.
– Improved transparency on the outcome of the 2021 Board Evaluation and a further voluntary commitment for the Company to undertake
a further externally facilitated follow up in 2022.
82
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
Mr Genovese led the Board through the Covid-19 pandemic ensuring continuity of the Board agenda and meetings together with ongoing
corporate initiatives and the establishment of a Covid-19 Response Fund to support our local community in Ukraine and most recently in
early 2022 led the Board through the Russian invasion of Ukraine.
The Board believes Mr Genovese is the right person to Chair the Board. To provide continuity of his sound leadership, we request your
support to re-elect Mr Genovese at the 2022 AGM.
Further details on the composition of the Board and its Committees are set out on page 84 and further details of the role of the Senior
Independent Director are set out on page 87.
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:
Board leadership and
Company purpose
Principle A: Section 172 Statement page 50, Chair’s Statement page 2, Skills Matrix page 85
Principle B: Chair’s Statement page 2, Purpose, Values and Strategy pages 6 to 7 and pages 16 to 17
Principle C: Audit Committee Report page 94
Principle D: Our Stakeholders page 46
Principle E: Employee Engagement page 40, Non-Financial Information Statement page 45, Whistleblowing
Policy page 99
Division of
responsibilities
Principle F:
Role Descriptions page 87, Board Evaluation page 91
Principle G: Role Descriptions page 87
Principle H: Time Commitment page 86, Corporate Governance At a Glance page 83
Principle I: The Board page 84, Skills Matrix page 85
Composition,
succession, evaluation
Principle J: Appointment Process and Succession Planning page 102, Board Diversity Policy page 103
Principle K: Skills Matrix page 85, Appointment Process and Succession Planning page 102,
BoardComposition page 84
Principle L: Board Evaluation page 91
Audit, risk,
internalcontrol
Principle M: External Audit page 99, Internal Audit page 99
Principle N: Audit Committee Report page 94
Principle O: Internal Control and Risk Management page 98, Risk Management page 54, Principal Risks
page56
Remuneration Principle P:
Remuneration policy page 110
Principle Q: Procedure for developing policy on remuneration, page 106
Principle R: Directors should exercise independent judgement when authorising remuneration outcomes
page118
Disclosure Guidance and Transparency Rules
By virtue of the information included in this Corporate Governance Report and the Directors’ Report, we comply with the corporate
governance statement requirements of the FCA’s Disclosure Guidance and Transparency Rules.
Corporate Governance Compliance continued
83
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Corporate Governance Report
At a glance
SHAREHOLDERS
BOARD
AUDIT
COMMITTEE
Responsibilities
include:
– Monitoring integrity
of financial
statements.
– Reviewing internal
control and risk
management
systems.
– Relationship with
external auditor.
For more
information:
Audit Committee
Report
see page 94
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.
For more
information:
Directors’
Remuneration
Report
see page 106
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.
For more
information:
Nominations
Committee
Report
see page 100
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.
For more
information:
See page 87
H E ALT H,S A FE T Y,
ENVIRONMENT
ANDCOMMUNITY
(“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.
For more
information:
responsible
business section
see page 30
CHIEF
EXECUTIVEOFFICER
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.
For more
information:
See page 80
1. The Finance, Risk Management and Compliance Committee, Investment Committee and the Executive Related Party Matters Committee all report to the Executive Committee.
Controlling shareholder – Relationship Agreement
The Company’s majority shareholder is Fevamotinico S.a.r.l., which owns 50.3% of the issued share capital of 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. 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 2021.
– 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 2021.
– 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 2021.
84
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
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 83 to ensure
compliance with the Companies Act 2006, FCA Listing Rules and Disclosure Guidance and Transparency Rules and the 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 CEO and the Executive Committee to manage the day-to-day running of the Group.
Board composition and independence
As of 31 December 2021, the Board (excluding the Chair) comprised one Executive Director, one Non-independent Non-executive Director,
and five Independent Non-executive Directors who are considered by the Board to be independent in accordance with the Corporate
Governance Code. This structure ensures that the Executive Director is 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 2021 is presented in the table below:
Board member Role Audit Remuneration Nominations CID HSEC
1
R L Genovese Non-executive Chair ••
V Lisovenko Senior Independent Non-executive Director • • • ••
J North Acting Chief Executive Officer •
G Dacomb Independent Non-executive Director •• • • •
F MacAulay Independent Non-executive Director • •• • •
AC Andersen Independent Non-executive Director • • • ••
N Polischuk Independent Non-executive Director
K Zhevago Non-independent Non-executive Director
1. The HSEC Committee also includes some members of senior management.
• Committee member.
•• Committee Chair.
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 78 and 79.
Corporate Governance Report continued
Independent 5
Non-independent 1
Chair 1
Executive 1
2021
2021
Age: 40-49 2
Age: 50-59 5
Age: 60+ 1
2021
Female 3
Male 5
2021
White 8
Mixed/Multiple
Ethnic Group 0
2021
0-5 years 6
9 years + 2
85
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
BOARD
BALANCE
BOARD DIVERSITY
– GENDER
BOARD DIVERSITY
– AGE
BOARD DIVERSITY
– ETHNIC GROUP
BOARD
TENURE
BOARD DIVERSITY, TENURE AND BALANCE
Skills matrix
Expertise 100%
% of Board
members
Mining, Global Resource Industry 56%
Business leadership and strategy
66%
Corporate governance
66%
ESG/Sustainability
56%
Financial, Audit & Risk
72%
CIS Geographical experience
78%
Government and international relations
53%
HSEC
69%
Human capital management/ Remuneration
72%
Investor relations management
75%
Risk management
84%
86
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
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 Chair
of the Board 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 2021.
All of the Non-executive Directors (with the exception of Natalie Polischuk, who was appointed as a Non-executive Director of the Company
on 29 December 2021) 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 2021 is shown in the table below.
Non-executive Director external appointments during 2021
During 2021, Ms Andersen was appointed as Chair of Quantafuel AS, a company listed on Euronext Growth. Additionally, in relation to
Ms Andersen’s existing Non-executive Directorship of Argeo AS, during the year Argeo AS became a publicly listed company on Euronext
Growth. Also during 2021, Mr Genovese was appointed as Chair of CoTec Holdings Corp, a company listed on the NEX Board of the TSVX.
These appointments were considered a significant appointment for Ms Andersen and Mr Genovese for the purposes of the Corporate
Governance Code, and, in advance of the appointment, both Ms Andersen and Mr Genovese sought the prior approval of the Board. As part
of approving these additional appointments the Board considered a range of factors, including the existing appointments of Ms Andersen and
Mr Genovese, the time commitment expected in the role as a Ferrexpo director and Chair respectively, attendance records at Ferrexpo Board
and committee meetings, institutional investor guidance on number of board roles in respect of overboarding and the additional time
commitments from the new roles. The Board was satisfied having regard to these matters that the additional roles would not adversely impact
the ability of Ms Andersen or Mr Genovese to perform their existing roles on the Ferrexpo Board and its committees.
Board and Committee meeting attendance in 2021
Attended/Eligible to attend
Director
Board Audit Remuneration Nominations CID HSEC
Scheduled Ad hoc Scheduled Scheduled Ad hoc Scheduled Ad hoc Scheduled Ad hoc Scheduled Ad hoc
AC Andersen
1
3/4 11/11 2/2 3/3 1/1 1/3 0/1 2/2 1/2
G Dacomb
2
5/5 13/13 5/5 4/4 2/2 2/2 1/1 5/5 6/7
R L Genovese 5/5 13/13 5/5 1/1
V Lisovenko 5/5 13/13 5/5 4/4 2/2 5/5 1/1 5/5 7/7
F MacAulay 5/5 13/13 5/5 4/4 2/2 5/5 1/1 5/5 7/7 4/4 2/2
J North 5/5 13/13 4/4 1/2
N Polischuk
3
0/0 0/0
K Zhevago 4/5 12/13
1. Ms Andersen was appointed to the Board on 1 March 2021 and Board Committees on 18 May 2021.
2. Mr Dacomb was appointed to Nominations Committee on 19 May 2021.
3. Ms Polischuk was appointed to the Board on 29 December 2021.
During the year, there were a number of ad hoc Board and Committee meetings which dealt with (amongst other things) Covid-19 response,
Board appointments and the declaration of dividends.
Corporate Governance Report continued
87
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Role descriptions
The division of responsibilities between the Chair and the CEO has been clearly established in writing and is agreed by the Board. A summary
of the roles of the Chair, the CEO, 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 106.
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 78. There has been no increase in those commitments during
the reporting period.
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. Mr North as CEO has no other
directorships of quoted companies.
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.
TheSenior Independent Director also chairs the Committee of Independent Directors. 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 106); and monitor
executive succession planning (for Board succession planning, see the Nominations Committee Report on page 102).
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.
Mr Zhevago and his role
Given the expected time commitment of Mr Zhevago’s role, which continues to be broader than that of other Non-executive Directors,
theCompany has entered into a consultancy arrangement with Mr Zhevago. Further details can be found in the Remuneration Report
onpage124.
88
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
BOARD LEADERSHIP
Before setting out the Board’s activities in
2021, it is important to note that since the
Russian invasion of Ukraine, the Board has
continued to meet regularly to discuss the
on-going situation in Ukraine, the execution
of our business continuity plans, planning
for different eventualities and adjustments to
the corporate calendar. The Board receives
daily 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 2022.
Board activity in 2021
Five scheduled Board meetings were held
in2021 (supplemented by other ad hoc
meetings, telephone or video conferences
and written resolutions as required from
time to time). In line with Covid-19 safety
guidance, the majority of Board meetings
were held remotely during the year by video
conference, with management team
members and other Group personnel joining
to discuss matters as appropriate. The
Board intends to hold its scheduled
meetings in person during 2022 provided it
is safe to do so.
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.
At each scheduled Board meeting, the
Directors receive a report from each of the
Chair, the Chief Executive Officer 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 Chief Executive Officer’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. The Chair will report on
developments relating to investor and
stakeholder engagement (including
shareholder feedback), relevant corporate
governance matters and Board refreshment
and succession planning.
The following sets out an overview of the
key areas of focus for the Board during
theyear.
Covid-19
The impact of Covid-19 was a key area of
focus during the year, with the Board
undertaking regular reviews of the Group’s
response to the pandemic. The Board
received updates from the Chief Executive
Officer and Chair of the HSEC Committee
on the Group’s response to the pandemic,
including safety measures put in place at
the mine sites and other locations to protect
the Group’s workforce and support
provided to members of the workforce
affected by Covid-19 and their families.
TheBoard also reviewed expenditure
bytheGroup’s Covid-19 support fund,
andapproved additional funding for the
support fund.
More information can be found throughout
this Annual Report and Accounts.
Climate change and decarbonisation
targets
Climate change has been a standing agenda
item at all scheduled Board meetings and
meetings of the HSEC Committee
throughout the year.
During the year, the Board reviewed the
Group’s position in relation to climate
change, including the risks and
opportunities which climate change may
present to the Group, see page 71 Principal
Risks. The Board also approved a
commitment for the Group to achieve net
zero carbon emissions from its operations
by the year 2050, and an initial commitment
to achieve a minimum of a 30% reduction in
combined Scope 1 and 2 emissions by
2030, against the Group’s baseline year of
2019 emissions.
The Board also considered various
proposals aimed at reducing the carbon
emissions resulting from the Group’s
operations, including a proposal to
transition the existing mining fleet to an
electrified mining fleet in the medium term.
This proposal once implemented would
result in a material reduction in CO
2
emissions for the Group.
For further details, see page 36 of the
Strategic Report.
Financial position and early repayment
ofdebt facility
The Board continuously reviews the
financial position of the Group, including
performance against targets, balance sheet
strength and liquidity. During the year, the
Board decided to make an early repayment
in full and cancel its Pre-Export Finance
Facility in order to minimise funding costs
and ensure efficient use of liquidity.
The Company’s Preliminary and Interim
results and Annual Report were scrutinised
and approved by the Board.
Cyber security strategy
In light of the growing risks facing all
businesses in relation to cyber security, the
Board received a detailed presentation from
the Group’s Head of Information Technology
outlining the Group’s procedures and
controls in relation to cyber security. This
included an overview of the steps which the
Group plans to take to further improve its
protections relating to cyber security and
procurement of additional IT infrastructure
to maintain access to our data in the event
of a cyber attack.
Stakeholders and workforce engagement
Stakeholder considerations and culture
arean important part of the Board’s
discussions and decision-making. The
information on pages 46 to 49 provides a
review of stakeholder engagement activities
during the year and explains how the Board
considers stakeholders in decision-making.
During the year, the Board appointed
Mr Lisovenko as the designated Non-
executive Director to lead workforce
engagement. Mr Lisovenko attended and
led the 2021 workforce town hall meeting
held in September 2021 and provided an
update to the Board, together with
recommendations for encouraging further
active engagement with the workforce.
The Board also considered the results of the
second Employee Engagement Survey,
which was undertaken in November 2020.
This included a comparison of the survey
Corporate Governance Report continued
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BOARD LEADERSHIP (CONTINUED)
results as between employees and
managers, focusing on areas of disparity of
opinion between employees and managers,
and considerations for the lower
participation rate as compared to the
previous survey. The Board discussed the
feedback from the survey with the Chief
Executive Officer and the Chief Human
Resources Officer, including plans for
further engagement by functional heads
with their teams to better understand the
results of the survey and to develop joint
action points focusing on areas of strength
and areas for improvement.
For further details, see page 46 of the
Strategic Report.
Dividends and new shareholder
returns policy
The Board regularly considers proposed
shareholder dividends, taking into account
the financial performance and liquidity
position of the Group. As a result of the
Group’s strong financial performance, the
Group paid out dividends during the year
totalling US$619 million. Given the
uncertainties arising from the Covid-19
pandemic, ahead of approving and paying
these dividends, the Board would meet to
consider the Company’s liquidity position
and financial commitments (including
related to development capital expenditure).
During the year, the Board also considered
and approved a new Shareholder Returns
Policy, following feedback from some
market participants that they expected the
Group to have a formal dividend policy. As
part of this, the Board benchmarked the
proposed policy against dividend policies of
peer companies and considered the most
appropriate financial metrics for the Group.
The Board also sought input from the
Group’s financial advisers on the design of
the new policy.
For further details, see page 52 of the
Strategic Report.
Board balance and independence
Ensuring the appropriate balance of skills,
independence and diversity on the Board
remains a key priority of the Group.
During the year, the Board was focused on
improving the level of independent non-
executive director representation on the
Board, in line with previous commitments
made by the Chair. This led to the
appointment of Ann-Christin Andersen in
March 2021 and Natalia Polischuk in
December 2021, as Independent Non-
executive Directors. The process for these
appointments was led by the Nominations
Committee, with the Board involved in
reviewing the candidates recommended by
the Nominations Committee and ultimately
approving the appointment of Ms Andersen
and Ms Polischuk.
For further details see page 100 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 an
annual review of the terms of reference of
each Board Committee. Updates to the
terms of reference were incorporated to
reflect current best practice.
During the year, the Board also reviewed
and approved revised delegated authorities
for senior management and made updates
to its Inside Information and Disclosure
Policy, Share Dealing Policy and Director
Conflicts Authorisation Policy to reflect
updates in laws and regulations post Brexit
and current best practice.
At each of its scheduled meetings the Board
also considers any updates to the principal
and emerging risks of the Group.
Human Rights Policy and Modern
Slavery Act Statement
During the year, the Board approved a new
Human Rights Policy, taking into account
relevant international standards. The Board
also reviewed and approved the Group’s
Modern Slavery Act Statement for the year
ended 31 December 2020 (a copy of which
is available at www.ferrexpo.com).
Executive appointments and
succession planning
Nikolay Kladiev was appointed as Chief
Financial Officer on 4 August 2021. The
process for identifying and selecting a new
Chief Financial Officer was led by the
Nominations Committee with support from
the Chief Human Resources Officer. The
Board was involved in reviewing the work
carried out by the Nominations Committee,
approving the appointment of Nikolay
Kladiev following a recommendation to that
effect from the Nominations Committee and
ensuring an orderly handover process was
in place.
The Chief Human Resources Officer
presented to members of the Nominations
Committee to review the talent audit and
succession plans across senior,
management and operational levels
including a specific focus on diversity
among the talent pipeline to develop future
female leaders across the Group.
For further details see page 102 of the
Nominations Committee Report.
Production capacity and efficiencies
The Board regularly reviews proposals for
capital expenditure related to the increase
of production capacity and efficiencies.
During the year, the Board considered and
approved capital expenditures relating to
the concentrator expansion and upgrading
of pellet line 4 at FPM.
For further details see page 24 of the
Strategic Report.
At the end of some Board meetings, the
Chair and Non-Executive Directors also met
without the Executive Director being
present, and the Senior Independent
Director held discussions with the Non-
Executive Directors without the Executive
Director or the Chair being present.
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;
– review of agenda and approval of
minutes from previous Board meeting
and note Board Committee minutes;
– interactions with auditors;
– Chief Executive Officer’s report including
production and operations, iron ore
market conditions, and updates on
Covid-19 and the position in Ukraine;
– Growth projects: Wave 1 expansion;
– 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.
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BOARD LEADERSHIP (CONTINUED)
Matters reviewed as required included:
– the Group’s continued response to the
Covid-19 pandemic 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;
– external evaluation of the performance of
the Board, 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 Code of Conduct;
– appointment of a new Financial Advisor
and Broker;
– appointment of a new Sponsor; and
– the CSR budget.
During 2021, 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,
and communications.
Board virtual site visit and
Strategy Day
Due to travel restrictions imposed by the
Covid-19 pandemic, 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 2020 and achievements
during the year. This set the foundations
for‘where we are now’ and ‘where we
aregoing’.
The General Managers FPM, FYM and FBM
used drones to record video footage for
each mine including footage inside the
processing plant. The Board received
presentations from executive management
on operations, safety, strategy and tailings
storage facility.
All matters discussed aligned with the
Ferrexpo strategic pillars: Health & Safety,
Financial Strength, Technology & Innovation,
Product Quality, Growth and Licence
tooperate.
Health, safety and environment included
Covid-19 response, HSE performance,
business improvement, tailings storage
facility status, audits and ecology. An in
depth overview of plant development
(beneficiation and pelletising) and project
execution was illustrated by the use of
drones. The Autonomous Haulage System
update covered decarbonisation in
mining,electricification autonomy, rail
modernisation, digitalisation and enterprise
resource planning. Marketing and product
development was a key update for the
Board together with growth and expansion
plans supported by revenue and capital
modelling. Quality management systems
and analysis together with technology and
innovation including business improvement
initiatives were also provided. Licence to
operate, included carbon reduction, people
development, productivity and culture.
The actions from the Strategy Day were
collated and disseminated for execution
during the year.
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.
The Board virtual site visit and Strategy Day
was preceded by a Carbon Reduction
Strategy discussion including data
collection, validation and benchmarking
and the carbon reduction journey.
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 following significant
votes against Resolutions 9, 10 and 12 at
the 2021 AGM (re-election of Lucio
Genovese, Vitalii Lisovenko and Kostyantin
Zhevago) and one following significant votes
against Resolution 1 at the 2021 General
Meeting (re-election of Vitalii Lisovenko).
Based on the feedback received, the Board
understands that the votes against arose as
a result of concerns over corporate
governance. Actions taken in response
included:
– enhanced shareholder engagement with
a Corporate Governance road show
during the year;
– the appointment of Fiona MacAulay
asSenior Independent Director;
– increased diversity on the Board;
– increased independence by the
appointment of a further Independent
Non-executive Director; and
– enhanced procedures and internal
controls as part of the process of
improving the overall corporate
governance framework.
Corporate Governance Report continued
BOARD
EVALUATION CYCLE
2019: Internal
2020: Internal
2021: External
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BOARD EVALUATION
Board performance evaluation
Under the 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 2020 internal Board performance
The Board and its Committees consider their effectiveness regularly and the outcome and
findings from the 2020 internal review were progressed throughout the year with the following
actions taken:
Action to be taken Actions taken
Improve Board diversity Two female Non-executive Directors appointed during 2021. Female representation increased
from 17% in 2020 to 38% in 2021.
Improve frequency of site visits
tobetterunderstand operations
This could not be facilitated due to Covid-19 travel restrictions. This was replaced by a virtual site
visit with drone video footage and enhanced reporting from management.
Allocate additional time
forgrowthprojects
Additional time allocated to growth projects facilitated breadth and depth of presentation,
discussion and deep dives into specific areas such as mining fleet replacement.
Reviewing past performance and
influencing future performance
Reviews of past performance was better reflected in the Board papers in the context of the
potential impact on future performance.
Chair and Senior Independent
Directortobolster
shareholderengagement
A Corporate Governance road show was carried out by the Chair and Company Secretary during
2021 to address specific areas raised by some shareholders with feedback provided to the
Board at the next Board meeting.
More time to be allocated to
Remuneration Committee
More time was allocated to enable sufficient time for the construction of a transparent framework
for incentives and rewards.
2021 External Board performance
In line with recognised best practice, an external evaluator was engaged to conduct the 2021 Board evaluation. Three different providers
were reviewed prior to confirming the appointment of Clare Chalmers Ltd. They have a strong track record of conducting board evaluations
for FTSE350 companies and their distinctive review approach based on providing their own evidenced observations of the Board,
triangulated with those of Board Members and attendees, was one of the key considerations which informed this decision. Clare Chalmers
Ltd has no other connection with the Company and this is the first time they have provided Board Evaluation services to the Company.
Initial meetings with the Chair and Company Secretary were used to agree the purpose, scope and timing of the evaluation. This facilitated
the key themes for the Board performance review. The thematic evaluation focus areas included:
– Board composition, succession, development, leadership and dynamics;
– Board oversight: Strategy, performance, risk, people & culture;
– Stakeholders and decision making;
– Board efficiency including secretarial support;
– Leadership and succession decision making;
– Board planning; and
– The effectiveness of Board Committees.
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BOARD EVALUATION (CONTINUED)
Information gathering, interviews and meeting observation:
PREPARATION
– Held a scoping meeting with the Chair and Company Secretary 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.
– Individual interviews were scheduled with the Chair, all the Non-executive Directors, the Interim CEO,
theCompany Secretary, Chief Financial Officer, Chief Human Resources Officer, Remuneration Advisor and
External Audit Partner.
FORMAL
INTERVIEWS
– One-to-one interviews were conducted with six of the seven Directors appointed (at this point in time seven
directors were appointed) including the Chair, the Senior Independent Director, three further Independent
Non-executive Directors, the Controlling Shareholder and the Interim CEO. The Company Secretary, Chief
Financial Officer, Chief Human Resources Officer, Remuneration Advisor and External Audit Partner were also
interviewed.
BOARD
OBSERVATION
– Observed a Board and Board Committee meetings to observe the Board dynamics and interaction with
management and the Auditors.
REPORTING
– Key findings and recommendations were shared with the Chair and Company Secretary, and a draft report
wasprepared for review.
– The final report was circulated to the full Board, with a presentation from Clare Chalmers Ltd at the next
Boardmeeting to deliver the findings at which discussion was held and the outcomes and recommended
actions agreed.
The review also included feedback on individual performance. This informed the annual process of individual Director evaluation, led by
the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 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 Chair, led by the Senior
Independent Director. The Senior Independent Director also engaged the Interim CEO and Company Secretary to obtain their views on the
Chair’s performance.
Feedback and report findings
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. The Board is very well led by a proactive and fully engaged 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 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 2022:
Key areas for focus in 2022
Area Actions to be taken
Succession Planning – Succession planning within the business and senior management including diversity.
Balanced skill-set
– Ensure Non-executive Directors continue to bring the right skill set and to balance the
workload of the Board Committees.
Director Training
– Upskill the Board on all ESG matters.
Workforce engagement
– Explore ways to enhance workforce engagement and bring findings into the Boardroom.
Board efficiency and processes
– Continue to improve Board reporting particularly management report writing with externally
facilitated training among all report writers.
Corporate resourcing
– Ensure bolstered resourcing for Secretariat and Internal Audit functions.
Additionally, the Board suggested and agreed a follow-up session with Clare Chalmers Ltd late in 2022 to undertake a light review
ofprogress made during 2022 and with a view to recommend further actions for the following year in 2023.
Corporate Governance Report continued
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Ferrexpo plc Annual Report & Accounts 2021
BOARD TRAINING AND DEVELOPMENT
Training and professional
development
The 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. The Board had a
combined training session with its legal
adviser Herbert Smith Freehills and Broker
Liberum. This training covered key areas
such as directors’ duties, market
announcements, and listed company
obligations which are of particular relevance
to Ferrexpo.
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
Covid-19, the physical Board site visit was
cancelled and replaced with a virtual site
visit as set out on page 90. In addition,
training may be provided by the Group’s
advisers in respect of specific areas of
interest to the Board, including general
economic and market conditions,
developments in corporate governance
regulations and best practice and any other
matters as agreed by the Chair.
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 Covid-19 pandemic), meeting
the Company Secretary, necessary training
on corporate governance aspects, and
receiving various key Company
documentation and reports.
Ms Andersen and Ms Polischuk, who were
appointed during the year, followed a
tailored induction programme covering a
range of key areas of the business. They
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 which the Board
operates, Group Policies and Procedures,
constitutional documents and regulatory
codes and guidelines. Ms Andersen visited
site operations in September 2021 and met
with the three Mining General Directors,
senior and operational management teams
to provide an insight into the operational
side of the business.
Ferrexpo recently 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.
Ms MacAulay acted as Buddy to
Ms Polischuk.
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Audit Committee Report
MEMBERSHIP AND ATTENDANCE
Scheduled meetings
Committee member
Eligible
to attend Attended
Graeme Dacomb 5 5
Vitalii Lisovenko 5 5
Fiona MacAulay 5 5
conflict in Ukraine, which, as at the date of
the approval of these Consolidated Financial
Statements, is still ongoing. Although the
Group has managed to continue its
operations, 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.
The Covid-19 pandemic has continued to
have an impact across the Group which
resulted in remote working during various
periods in 2021 for corporate functions in our
global offices. The Committee throughout
the year has continued to utilise video
technology to maintain regular dialogue with
management throughout the year and to
ensure processes and controls were being
managed effectively to provide timely and
accurate financial information. Through the
use of appropriate technology by both the
auditors and Ferrexpo, the review
procedures in July 2021 were successfully
performed remotely. As the Covid-19
situation improved towards the year-end, our
external auditor MHA MacIntyre Hudson was
able to complete its annual audit procedures
for the preliminary and year-end audits partly
in person at the Group’s different locations
for the audit of the consolidated accounts.
Dear Shareholder,
On behalf of the Board, I am pleased to
present the Audit Committee Report for the
financial year ending 31 December 2021. The
aim of this report is to provide shareholders
insight into key areas that had been
considered, how the Committee has
discharged its responsibilities and lastly
provide assurance on the integrity of the
2021 Annual Report and Accounts.
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.
A critical area of focus for the Committee
since the year end, has been the
consideration of the preparation of the
consolidated accounts on the going concern
basis. On 24 February 2022, Russia began its
invasion into Ukraine using direct military
force and this has led to an intense armed
February
– Considered assumptions used for the going
concern and long-term viability assessment and
impairment testing.
– Received an update on the progress of the 2020
audit and analysed further work required.
– Considered the draft Annual Report and
Accounts for 2020.
– 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.
– Considered the resourcing for Internal Audit.
– Considered FRC recommendation to extend
reporting deadline.
March
– 2020 year-end review.
– Reviewed significant risks disclosed in the Annual
Report and Accounts for 2020.
– Assessed FRC’s Letter to Audit Committee
Chairs and recommended areas of focus.
– Reviewed and discussed the status of key areas
of focus and audit matters and disclosure
provisions.
– Reviewed auditor’s responsibilities statement.
– Reviewed auditor’s independence statement.
– Considered the draft of the auditor’s opinion.
– Final review of the Annual Report and Accounts
for 2020.
– Considered the going concern and viability
statement.
– Reviewed the disclosures around FC Vorskla
matters.
– Reviewed principal risks and uncertainties.
– Reviewed the Audit Committee Report.
– Reviewed draft letters of representation.
– 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.
– Held private meeting with the auditors.
ACTIVITY DURING 2021
Key activities of the Audit Committee during 2021 are set out below.
Independently
monitoring the integrity
of financial information
and internal control
Graeme Dacomb
Chair of the Audit Committee
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Ferrexpo plc Annual Report & Accounts 2021
MHA MacIntyre Hudson continues to provide
robust challenges to management and
provides independent judgement to the
Committee regarding specific financial
reporting and the control environment.
During the year, the Committee considered
the status of the proposed regulatory change
of the BEIS Consultation on ‘Restoring trust
in audit and corporate governance:
proposals on reforms’. The Committee
reviewed the future potential impacts this
could have on the Committee in order
tostayon top of developments and
planaccordingly.
TCFD disclosure requirements were a focus
for the Committee and Ricardo plc had been
appointed to help enhance the Group’s
existing climate change scenario reporting
and review the role of Ferrexpo iron ore
pellets within the circular economy. Results
of Ricardo’s analysis are expected to not
only enhance the Group’s carbon reduction
targets, but also additionally develop climate
change reporting in 2022.
Detailed below is further information on the
role, structure, key activities of the
Committee and significant judgements it has
considered in 2021. I hope this additional
information about the Committee and its
activities is insightful and based on this
shareholders can be assured of the work
undertaken by the Committee in 2021.
Graeme Dacomb
Chair of the Audit Committee
Role of the Committee
The Committee’s objectives and
responsibilities are set out in its terms of
reference which are available to view online.
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. (Details of the principal
risks are contained on pages 56 to 72.
– 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 2021,
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
As at the year end, the Committee
comprised three Independent Non-
executive Directors:
– Graeme Dacomb (Chair of the
Committee);
– Vitalii Lisovenko; and
– Fiona MacAulay.
Since the year end, Natalie Polischuk has
joined the Committee. In addition to the five
meetings held in 2021, the Audit Committee
has met twice to date in 2022. All members of
the Committee are considered to possess
appropriate knowledge and skills relevant to
the activities of the Group, and Graeme
Dacomb has recent and relevant financial
experience, including accounting and
auditing, due to his career as an audit
partner with Ernst & Young LLP.
In addition to its members, other individuals
and external advisers, and the 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, Company
Secretary and audit partners of our external
auditor MHA MacIntyre Hudson. The
Committee has an opportunity to meet with
the external auditors at the end of its
scheduled meetings, without the Executive
Director or management present.
ACTIVITY DURING 2021
Key activities of the Audit Committee during 2021 are set out below.
May
– Received an update on FC Vorskla related
matters.
– Reviewed auditors 2020 performance (Statutory
Audit Service Order) – analysis of scores.
– Reviewed 2021 audit planning, key dates,
preliminary audit plan.
– Reviewed an update on 2020 recommendations
from Internal Audit.
– Received an update on proposed Audit Reform
and considered whether to submit a response to
BEIS consultation.
– 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 2021
Forwardplanner.
July
– Presentation and review of half-year accounts.
– Going concern assessment, including Covid-19
related reporting and considerations.
– Auditor’s Review Report to the Audit Committee.
– Reviewed a compliance report, including
whistleblowing cases.
– Reviewed the Group’s risk matrix and register.
– Reviewed the Directors’ Interests list and
transactions with Related Parties.
– Received an update on IT Security audit.
– Reviewed the Audit Committee Terms
ofReference.
– Held private meeting with the auditors.
December
– Received a report on the outcome of the 2020
Internal Audit plan and progress update on 2021.
– Reviewed the preliminary Internal Audit plan
for2022.
– Considered a risk analysis of the Internal
Auditplan.
– Considered a report from the external auditors on
progress of the preliminary audit for 2021.
– Considered the Group’s work plan for the 2021
year end.
– Reviewed an external audit planning report.
– Received an update on the planned process for
the viability and going concern assessment.
– Considered the TCFD disclosure requirements.
– Received an update on BEPS 2.0.
– 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.
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Audit Committee Report continued
Significant issues and judgements
The significant issues and judgements considered by the Committee in respect of the 2021 Annual Report and Accounts are set out below:
Judgements/actions taken
Consideration of the impact of the Russian invasion of Ukraine on the Group’s going concern and viability assessment
Ukraine is currently at war with Russia. On 24 February 2022, Russia commenced an invasion of Ukraine using significant and widespread
military force. To date, the invasion of Ukraine has resulted in the temporary occupation of southeastern territory within the sovereign nation of
Ukraine, loss of life for thousands of citizens of Ukraine and damage to infrastructure within Ukraine. The situation in Ukraine remains uncertain
and unpredictable.
To date, the Group has managed to continue production although the Group has curtailed some non-core activities. Shipments continue
via rail and barge to Europe, but seaborne exports via the port of Pivdennyi have been temporarily suspended. The Group relies on key
consumables, such as (but not limited to) diesel, natural gas and electricity plus spare parts and equipment required for its mining and
processing operation to produce the Group’s products.
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 management’s going concern
assessment covering 18 months from the date of the approval of these Consolidated Financial Statements; and
– the feasibility and effectiveness of all available mitigating actions within the Group management’s control for identified uncertainties,
amaterial uncertainty still remains as some of the identified uncertainties are outside of the Group management’s control, with the
duration and the impact of the war unable to be predicted at this point of time.
As at the date of the approval of these Consolidated Financial Statements, the Group is in a net cash position of approximately US$192 million
with an available cash balance of approximately US$209 million. In addition to the available cash balance, the Group has an outstanding
receivable balance of approximately US$156 million from its sales in March and April 2022, which are expected to be collected in the coming
weeks.
While, to date, the Group has successfully managed to procure all its key consumables, such as natural gas, electricity and diesel fuel,
therisk of a potential disruption to the required supplies remains. Similarly, a further interruption to the availability of the Group’s logistics
network to its European customers via rail and barge – these have historically represented approximately 50% of the Group’s sales –
mayresult in a significant decline in the Group’s operating cash flows.
In addition, 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 involved in the conflict, but this remains a risk. Should the area surrounding the Group’s operations become a focal
point of 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 Principal Risks section on page 57 for further
information.
Considering the current situation of the war in Ukraine, all identified available mitigating actions 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
mitigating actions are outside of Group management’s control, 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 152 for further information.
The Committee also considered management’s analysis of the impact of the war in Ukraine on the long-term viability assessment of the
Group. 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 page 73 for further information.
Covid-19 related considerations for the Group’s going concern and viability assessment
The global Covid-19 pandemic had a continued impact on the world during 2021, although affecting economies, communities,
governments, businesses and individuals on a lower scale than in 2020. The Group could rely on the measures implemented in 2020 at its
main operations in Ukraine to ensure iron ore pellet production was not severely affected by, and continues to be unaffected by, the
Covid-19 pandemic as of the date of approval of this Annual Report and Accounts. The Group continued to benefit from high demand for its
products, mainly on the Chinese market, and prices increasing to record levels in the first half of 2021. As a result, the Group was highly
cash generative in 2021 and closed the year in a net cash
A
position of US$117 million, after debt repayments totalling US$221 million, on a
net basis, and dividend payments totalling US$619 million. As the Group successfully navigated through the Covid-19 pandemic in 2020,
there are no specific Covid-19 related critical judgements and estimates to be considered in assessing the Group’s going concern and
viability statements and the Group expects to be able to rely on the experience gained (e.g. redirection of sales to other markets) and to be
able to react again to any adverse changes on the global pellet market. Covid-19 related disclosures have been made in the Group’s
Principal Risks section on page 72 providing further information on key actions that management has taken.
97
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Judgements/actions taken
Taxation: tax legislation in Ukraine (Note 11 tothe Consolidated Financial Statements)
Having considered the background of ongoing court proceedings in respect of a claim made in Ukraine in respect of a tax audit with a focus on
theGroup’s cross-border transactions, the Committee shares management’s confidence that Ferrexpo will continue to successfully defend its
methodology applied to determine the prices between its subsidiaries in the courts in Ukraine. The court hearings and tax audits commenced earlier
in 2020 were put on hold due to a Covid-19 related quarantine imposed in Ukraine and resumed again in November 2021. Several hearings have been
held since then, without a court decision made. The next hearing was scheduled for 28 February 2022, but did not take place due to the Russian
invasion into Ukraine on 24 February 2022. Considering the current situation in Ukraine, it is unknown if and when the next hearing will take place.
Inventories: low-grade and weathered ore (Note17 to the Consolidated Financial Statements)
It was the Group’s intention to ramp up the processing of the stockpiled low-grade ore once additional processing capabilities, resulting from the
completion of Section 9, became available. Whilst the additional processing capacities were commissioned in the second half of 2020, operational
difficulties were experienced such that, during the financial year 2021, the new facility did not deliver the expected and required output. Because of
this and also in light of the additional customer demand for high quality iron ore pellets together with the high price environment for iron ore pellets,
management decided during 2021 to postpone the processing of the low-grade ore in order to maximise the financial benefits of the prevailing
market conditions.
Following the approval of the Wave 1 growth project by the Board in October 2021, management has had to revisit its mining and processing plans
and strategies as the growth project means that significant higher volumes of high-grade ore are required to meet both future production needs and
market expectations. Because of the recent focus on the decarbonisation challenges facing the global steel industry, in the second half of 2021 there
has been a significant increase in the demand for high quality products, such as direct reduction pellets, which cannot be achieved by feeding
low-grade ore into the Group’s current processing facilities. As a consequence, management is exploring a further expansion of its processing
capabilities to be in the position to process the low-grade ore using a facility built for this specific purpose. International Accounting Standard (IAS) 2
requires the stockpiled low-grade ore inventory to be valued at the lower of cost or net realisable value. Further to that, IAS 2 also requires that only
facts relating to the inventories and the operating environment at the time of the valuation are to be considered in determining net realisable value.
Asat the date of the approval of the Consolidated Financial Statements, it cannot be reliably predicted when the additional processing capacity will
be available. Whilst the stockpiled ore is still seen as an asset for the Group, (and additional low-grade ore will continue to be mined and stockpiled
inthe future), the changed circumstances has resulted in the calculation of the net realisable value of the existing stockpiled low-grade ore reducing
to nil. As a consequence, there has been a full impairment of US$231 million of the stockpiled low-grade ore.
It is possible that some or all of this impairment loss might be reversed in the future, once changed facts and circumstances are able to be
considered in the valuation of this asset. For example, the Group’s intention to accelerate the current engineering studies exploring the option of a
new processing facility for the specific purpose of processing low-grade ore. Depending upon the outcome of the engineering studies, the Group
may move the project forward and once a full technical feasibility study and financial budgets are completed and the Board has formally approved
detailed plans relating to the construction and operation of this possible new facility, it could then be considered in the net realisable value test.
Commitments, contingencies andlegal disputes (Note 30 to the Consolidated Financial Statements)
In the course of doing business in Ukraine, the Group is subject to various legal actions and claims, which require a significant level of
judgement by the management. Further to that, there is a risk that the independence of the judicial system and its immunity from economic
and political influences in Ukraine is not given, so that the Ukrainian legislation might be inconsistently applied to resolve the same or
similar disputes. Further information on the Ukraine country risk are provided in the Principal Risks section on pages 59 to 60.
The Group is involved in court proceedings in relation to a share dispute initiated by former shareholders of PJSC Ferrexpo Poltava Mining
(“FPM”). Back in 2005, former shareholders brought proceedings in the Ukrainian courts seeking to invalidate the share sale and purchase
agreement pursuant to which a 40.19% stake in FPM was sold to nominee companies that were previously ultimately controlled by Kostyantin
Zhevago, amongst other parties. After a long period of litigations, all old claims were fully dismissed in 2015. In early 2021, Ferrexpo AG (“FAG”),
the parent company of FPM, became aware that former shareholders of FPM filed again a claim to invalidate the share sale and purchase
agreement concluded in 2002 pursuant to which a 40.19% stake in FPM was sold similarly to the previous claims made back in 2005. Following a
decision in favour of FAG by the first instance, the opposing parties filed their appeals. The case is currently being heard by the appeal court and
several court hearings have been held without a court decision made.
In October 2021, Ferrexpo Yeristovo Mining LLC (“FYM”) received two ecological claims from the State Ecological Inspection following an
inspection carried out in September 2021. One of the claims was related to an allegation of violation of rules regarding removal of soil on a
particular land plot and the other claim was related to an allegation of absence of documents for disposal of waste on a particular land plot.
The claims totalled UAH786 million (US$28,144 thousand at the exchange prevailing as at 31 December 2021). The claims are currently
being heard in the court. 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 as at 31 December 2021.
In February 2022, FPM and FYM received letters from the Office of Prosecutor General notifying about ongoing investigation on potential
underpayment of iron ore royalty payments during the years 2018 to 2021. The amount of underpayment is not specified in the letters and,
as part of the investigation, the Office of Prosecutor General requested documents related to iron ore royalty payments and invited four
representatives of the Group’s subsidiaries to interrogation as witnesses.
In addition to the above-mentioned investigation, FPM received a tax audit report, which claims the underpayment of iron ore royalty payments
during the period starting from April 2017 to June 2021 in the amount approximately UAH1,042,000 thousand (US$38,199 thousand at the
exchange rate prevailing as at 31 December 2021). The Group is preparing its objections to the claims made in the tax audit report and it is
expected that this case will be heard by the courts in Ukraine. Based on legal advice obtained, it is management’s view that FPM has compelling
arguments to defend its position in the court and, as a consequence, no associated liabilities have been recognised in relation to the claim made
as at 31 December 2021.
The Board, acting through the Committee of Independent Directors (the “CID”), conducted during the financial year 2020 a review in connection
with the Group’s sponsorship arrangements with FC Vorskla and concluded its enquiry in March 2021. See Note 30 Commitments, contingencies
and legal disputes in the 2020 Annual Report and Accounts for detailed information. In the event that any of the payments made by the Group to
FC Vorskla were not fully used for the benefit of the football club, or there was any non-compliance with legal, regulatory or other requirements,
liabilities (including fines and penalties) may accrue to the Group. At the current time, the existence, timing or quantum of potential future
liabilities, if any, cannot be determined and measured reliably and, as a consequence, no associated liabilities have been recognised in relation to
these matters in the Consolidated Statement of Financial Position as of 31 December 2021 similarly to the position as of 31 December 2020.
98
CORPORATE GOVERNANCE
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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
process, 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.
– Regular review of risk and identification
of key risks at the Executive Committee
which are reviewed by the Audit
Committee and by the Board.
– The FRMCC, an executive sub-
committee, is charged, on behalf of the
Executive Committee or Audit
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, risk register
and third party risks. The FRMCC met 10
times in 2021.
– 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 CID and its delegated
management sub-committee the Executive
Related Party Matters Committee
(“ERPMC”). Additional procedures are in
place locally to ensure the completeness
and arm’s length nature of related party
transactions with related parties under
common control, such as background
checks and tender processes. The ERPMC
met 12 times in 2021.
Internal control and risk
management
The Board has overall responsibility for the
Company’s system of internal control, which
includes risk management, and monitoring
and reviewing its effectiveness. The system
of internal control is designed to identify,
evaluate and manage significant risks
associated with the achievement of the
Company’s objectives, and to meet the
Company’s particular needs and the risks to
which it is exposed, rather than eliminate risk
altogether. Consequently, it can only provide
reasonable, and not absolute, assurance
against material misstatement or loss.
The day-to-day responsibility for managing
risk and the maintenance of the Company’s
system of internal control is collectively
assumed by the Executive Committee. Key
risk and control issues are reviewed
regularly by the Executive Committee,
Finance, FRMCC, HSEC Committee and
Audit Committee. On behalf of the Board,
the Executive Committee and FRMCC have
established a process for identifying,
evaluating and managing the significant
risks faced by the Company. This process
was followed throughout 2021 and up to the
date of approval of this Annual Report and
Accounts. The Group has also adopted a
risk-based approach in establishing the
Company’s system of internal control and
inreviewing its effectiveness. To assist
inmanaging key internal risks, it has
established a number of Company-wide
procedures, policies and standards and has
set up a framework for reporting matters
ofsignificance.
Internal controls – general
The Board, with assistance from the Audit
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
Audit 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 Audit Committee. In making
its assessment, the Audit 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.
– 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 met 12 times
in 2021.
– 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 184 to
191), 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 Audit Committee, and to the 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.
Audit Committee Report continued
99
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
The Audit Committee and the Board
continued to review ongoing litigation
affecting the Company throughout the year
(see Note 30 Commitments, contingencies
and legal disputes to the Consolidated
Financial Statements on pages 193 to 194,
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 184 to 191.
See also the Principal Risks section of the
Strategic Report from page 56.
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 Audit Committee and to
the 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 2021
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
2022 was approved by the Audit Committee
in December 2021.
The Internal Audit plan for 2021, approved
bythe Audit Committee, focused on the
operational risks relating to sales and
marketing, FYM Procurement process, FPM
Inventory management, Group Compliance
audit, DP-Ferrotrans and Health & Safety risk
register review. 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.
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 Audit 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.
Certain areas for improvement were noted
but none impacted on the effectiveness of
the audit. The outcome of the 2021 review in
respect of the 2020 Annual Report and
Accounts was discussed with the relevant
partners of MHA MacIntyre Hudson.
The MHA MacIntyre Hudson audit for the
2019 financial year was reviewed by the
FRC’s Audit Quality Review team who
issued their Inspection Report in September
2021. The Committee reviewed the key
findings of the Inspection Report and
discussed them with MHA MacIntyre
Hudson, including the steps undertaken
toaddress the findings.
The auditors also provide to the Audit
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, 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 Audit Committee has
recommended to the Board the
reappointment of MHA MacIntyre Hudson.
Resolutions reappointing MHA MacIntyre
Hudson as external auditor and authorising
the Directors to set the Auditor’s
remuneration will be proposed at the
2022AGM.
The Company has complied with the
Statutory Audit Services Order issued by the
UK Competition and Markets Authority for
the financial year ended 31 December 2021.
The Committee meets at least once a year
with the external Auditors without any
representation from management
beingpresent.
Non-audit services
The Audit 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
Audit Committee (who are routinely notified
of all non-audit services).
Fees for audit-related and non-audit related
services performed by the external auditors
during 2021 are shown in Note 7 Operating
expenses to the Consolidated Financial
Statements on page 158. For 2021, MHA
MacIntyre Hudson did not perform any
non-audit services.
Financial reporting
The Board has asked the Audit Committee
to advise whether it considers the 2021
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 Ferrexpo’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 2021 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
Corporate Governance Code. The Viability
Statement is set out in the Strategic Report
on page 73 and a statement setting out the
Board’s assessment of the Company as a
going concern is contained in the Directors’
Report on page 131 and Note 2 Basis of
preparation to the Consolidated Financial
Statements on page 152.
Whistleblowing policy
In accordance with the 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.
Graeme Dacomb
Chair of the Audit Committee
21 April 2022
100
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
Dear Shareholder
I am pleased to present the Nominations
Committee Report for 2021 and provide a
summary of the work that the Committee
completed in 2021. 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. All of these
activities were undertaken in the year, some
of which 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 2021, the Committee was formally
convened five times (2020: five). In addition,
one informal meeting was also held.
Attheformal meetings of the Committee,
itconsidered:
– the composition and refreshment of
theBoard;
– developing a skills and experience matrix
for directors to ensure Board
effectiveness;
– conducting a training needs analysis for
the current Board;
– 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
Executive Committee and direct reports
to Executive Committee members;
– the engagement of executive search
agencies to assist with Board
appointments;
– deciding upon a shortlist of candidates
for interview. Committee members
interviewed shortlisted candidates and
made recommendations to the Board;
– formalising search processes and
making recommendations to the Board
for the appointments of Ann-Christin
Andersen and Natalie Polischuk as
Independent Non-executive Directors,
and Nikolay Kladiev as Chief Financial
Officer;
– approving actions to be taken in 2021
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.
Nominations Committee Report
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 Executive
Officer and the Chief Human
Resources Officer.
Lucio Genovese
Chair of the Nominations Committee
MEMBERSHIP AND ATTENDANCE
Scheduled meetings
Committee member
Eligible
to attend Attended
Lucio Genovese 5 5
Ann-Christin Andersen
1
3 3
Graeme Dacomb
2
2 2
Vitalii Lisovenko 5 5
Fiona MacAulay 5 5
1. Appointed on 18 May 2021.
2. Appointed on 19 May 2021.
The Committee also agreed to undertake an
externally facilitated Board performance
evaluation for the year to 31December2021
(for further information see the Board’s
Performance Evaluation on page 91).
TheCompany will conduct an internal
performance evaluation in 2022.
In 2021, the Committee continued its
ongoing work to strengthen the overall
governance agenda of the Board and
ensure that the Board maintains an
appropriate mix of skills and experience.
Insupport of this objective the Committee
undertook a detailed review of the Board’s
skills and experience matrix used to inform
recruitment and training for the Board.
Asaresult of this review, the matrix was
expanded to incorporate additional areas
ofstrategic focus for the Group such as
Environmental, Social, and Governance
(“ESG”) and Digitalisation. All Directors
conducted a self-evaluation against the
revised matrix to inform individual
development plans which will be progressed
over the next two years to enhance the
overall skill set of the Board.
Recruitment was also continued in the year
to address identified Board knowledge and
experience gaps and to improve the balance
between independent and non-independent
directors on the Board. Following a robust
process, the Committee recommended the
appointment of Ann-Christin Andersen with
effect from 1March2021 and Natalie
Polischuk with effect from 29December
2021. We were delighted that Ms Andersen
and Ms Polischuk agreed to join the Board
as they both bring a wealth of experience
that has further enhanced the knowledge
and skills of the Board as a whole. Their
appointments in 2021 mean that the Board
is now comprised of five Independent
Non-executive Directors, which exceeds the
requirement of the Corporate Governance
Code to ensure that at least half of the
Board (excluding the Chair) are independent
Non-executive Directors.
The Board 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
Equality, Diversity and Inclusion policy
which was approved by the Board in 2019.
While the composition of the Board now
exceeds the gender diversity target set by
the Hampton-Alexander Review, the Board
is mindful of the need to enhance diversity
and foster inclusion below the Board.
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Ferrexpo plc Annual Report & Accounts 2021
The Committee, therefore, undertook a
review of the composition of the Executive
Committee as well as direct reports to
Executive Committee members. It was
noted that the Executive Committee had
decreased from six in 2020 to five members
in 2021, all of whom are male, while out of
43 direct reports, the number of females
had risen from seven (2020: 17.9%) to nine
(2021: 20.9%) but which remains below the
Hampton Alexander Review’s
recommendation of one third women in
leadership. As a result of this review,
succession plans to address both identified
gender diversity imbalances as well as
deliver sustainable talent pipelines for
succession to senior leadership roles have
been put in place. The execution of these
plans will remain a focus for the Committee
to eliminate gender imbalances below
theBoard.
The Committee also participated in the
process to find a Chief Financial Officer for
the Group. Following interviews by the
Committee with potential internal and
external candidates, the Committee
recommended the promotion and
appointment of Nikolay Kladiev as Chief
Financial Officer leading to his appointment
taking effect on 4 August 2021. This
promotion is a great reflection of the
Company’s commitment to internal
progression and is explained further
inthisreport.
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. In working towards greater
diversity, Fiona MacAulay and Ann-Christin
Andersen represented the Board at the
launch of the second Fe_munity women in
leadership programme at the Group’s
operations in Ukraine. The programme
seeks to 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. They also took the
opportunity to engage with alumni from the
first programme held in 2020 and visited a
local school that receives support from the
Group’s CSR programme.
During the year, the Committee also
reviewed the progress made towards the
Group’s target of at least 25% of managerial
roles to be held by women by 2030.
Although the overall number of women in
the workforce remained static at 29.2%
(2020: 29.2%), the number of women in
leadership positions advanced to 20.1%
(2020: 18.2%). The Committee is pleased to
report this trend and believes that the
enhanced gender balance will serve to be
an important component in achieving the
Group’s strategic priorities.
Aligned with the goals of the Parker Review,
the Committee is committed to ensuring
that the Board’s composition reflects the
Group’s employee base and the
communities where the Group operates.
The Committee has, therefore,
commissioned an external search
consultancy to conduct research into how
comparable organisations are responding to
the Parker Review. The outcome of this
study will be considered over the course of
2022 which, it is anticipated, will enable the
Board to chart a course to ensure a
sustainable, diverse and ethnically
representative Board. The findings are also
expected to assist with advancing our
ethnic and cultural diversity efforts below
the Board to reflect the demographic
composition of communities surrounding
the Group’s operations. The outcome of this
project will be reported in 2022.
As at 31 December 2021, the Committee
was composed of four Independent
Non-executive Directors, Ann-Christin
Andersen, Graeme Dacomb, Vitalii
Lisovenko and Fiona MacAulay and I would
like to thank the Committee for all their work
during the year.
Lucio Genovese
Chair of the Nominations Committee
21 April 2022
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Ferrexpo plc Annual Report & Accounts 2021
Membership and meetings
The Nominations Committee is chaired by
Lucio Genovese and its other members are
Vitalii Lisovenko, Fiona MacAulay, Graeme
Dacomb and Ann-Christin Andersen.
TheCommittee is required by its terms of
reference to meet at least once a year and
met on five scheduled occasions in 2021. An
informal meeting also took place to progress
the refreshment of the Board. All meetings
were held using videoconferencing due to
travel restrictions as a result of the Covid-19
pandemic. 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
Non-executive and Executive succession
planning and recruitment.
Succession planning and
recruitment
The Nominations 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 we
continue 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
Company’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.
During 2021, the Committee oversaw a
review of the skills and experience matrix
that informs development planning and
recruitment processes for Non-executive
Directors.
Nominations Committee Report continued
The review included consideration of the
succession timeline for the progressive
refreshment of the Board and changes
required to reflect core areas of strategic
focus to inform the skills and experience
profile for appointments to the Board (for
further information see the Board’s skills
matrix on page 85). All Non-executive
Directors completed a self-assessment
against the matrix to inform individual
development plans that will be progressed
in 2022 and beyond. It is anticipated that
each Non-executive Director will receive
training appropriate to their level of
experience and knowledge which would
consist of a combination of tailored training
together with individual briefings with
Executive Committee members and their
teams to provide information about the
Group’s business, culture and values,
andother relevant information to assist
Non-executive Directors in effectively
performing their duties. In addition,
Non-executive Directors are expected to
spend time at theGroup’s operations to
engage with management and members
ofthe workforce.
The review also identified further
opportunities to increase Board diversity
and knowledge and experience gaps to
beaddressed through recruitment. The
Nominations Committee appointed two
search firms, Caldwell and Partners, and
Boyden International (Kyiv), to support the
recruitment of two additional Non-executive
Directors. Both firms had previously worked
with the Company to conduct other
searches and, therefore, already possessed
insight into the Company’s values, culture
and strategy. The firms have no other
connection with the Company. Prior to the
search commencing, the Nominations
Committee agreed the knowledge and
experience it considered necessary for the
roles and the skills mix required to enhance
the balance of skills on the Board. Lists of
potential candidates were then identified by
the two search firms and discussed with
Committee members to agree shortlists to
be interviewed. In each case, the initial
shortlisted candidates were interviewed
bymembers of the Committee and,
subsequently by all members of the Board.
Following this robust recruitment process
two additional Independent Non-executive
Directors were formally recommended by
the Committee to the Board for appointment
as independent Non-executive Directors.
This resulted in the appointment of
Ann-Christin Andersen with effect from
1March2021 and Natalie Polischuk with
effect from 29December 2021. These
appointments mean that the Board is now
comprised of five Independent Non-
executive Directors, which exceeds the
requirement of the Corporate Governance
Code to ensure that at least half of the
Board (excluding the Chair) are independent
Non-executive Directors. Additionally, the
composition of the Board now also exceeds
the gender diversity target set by the
Hampton-Alexander Review. The roles of
allDirectors are summarised on page 87.
The Committee also participated in the
process to find a permanent Chief Financial
Officer (“CFO”) for the Group. This search
was supported by Korn Ferry who are
accredited under the UK Government’s
enhanced code of conduct for executive
search firms and also subscribe to the
Voluntary Code of Conduct on diversity
bestpractice. Following a detailed search
process which included consideration of
both internal and external candidates,
theCommittee interviewed all shortlisted
candidates and recommended the internal
promotion of Nikolay Kladiev and
appointment as CFO. 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. This includes taking development
actions to close identified knowledge and
skill gaps over the short to medium term.
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Election and re-election
As in previous years and in accordance
withthe Corporate Governance Code,
alldirectors will stand for re-election by
shareholders at the Company’s AGM
scheduled for June 2022. Natalie Polischuk,
who joined the Board in December 2021,
will stand for election by shareholders at the
same meeting. The range of skills and
experience offered by the current Board is
mentioned in this report and set out on
pages 78 to 79 and 85. The Committee and
the Board consider the performance of each
of the Directors standing for election and
re-election to be fully satisfactory and that
they have demonstrated on-going
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
Annual General Meeting.
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 biases are
acknowledged and mitigated. In support of
this goal, the Board agreed a Diversity,
Equity and Inclusion policy (“Diversity
Policy”) in 2019 which is kept under review
by the Nominations Committee. The
Diversity 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 Diversity 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.
In support of the Group’s Diversity and
Inclusion goals, Fiona MacAulay and
Ann-Christin Andersen represented the
Board at the launch of the second
Fe_munity women in leadership programme
held at the Group’s operations in Ukraine
(for further details on the Fe_munity
programme see page 41). This internal
programme, which is run with the support of
external consultants, seeks to 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.
They also took the opportunity to engage
with alumni from the first programme held in
2020 and visited a local school that receives
support from the Group’s CSR programme
for a maths and science class that provides
the opportunity for students to apply for
abursary to study Science, Technology,
Engineering and Mathematics (“STEM”)
subjects at selected universities and on
graduation be offered employment with
theGroup.
The Nominations Committee places high
importance on having a diverse and
inclusive 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 a review
conducted in 2021 which also took account
of the targets of the Hampton-Alexander
and Parker reviews, the Committee was
satisfied that the present composition of the
Board, following the appointment of two
Independent Non-executive Directors in the
year, provides an appropriate mix of skills,
experience, diversity and perspectives on
the Board.
However, should recruitment need to be
progressed, the Board will seek to ensure
that a broad range of diverse candidates are
taken into account 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 are,
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 Policy is
considered when conducting all searches
for Board positions, and will take account of
the recommendations of the Hampton-
Alexander and Parker reviews regarding
gender balance and ethnic diversity
onboards.
The Committee is committed to ensuring
that the Company’s composition is
congruent with the goals of the Parker
Review and is reflective of the Group’s
employee base and the communities where
the Group operates. The Committee has,
therefore, commissioned Wilbury Stratton,
an external search and research
consultancy, to conduct research into how
comparable organisations are responding to
the Parker Review. The outcome of this
study will be considered over the course of
2022 which, it is anticipated, will enable the
Board to formulate an approach that will
ensure a sustainable, diverse and ethnically
representative Board. The findings are also
expected to assist with advancing our
ethnic and cultural diversity efforts below
the Board to reflect the demographic
composition of communities surrounding
the Group’s operations. The outcome of this
project will be reported in 2022. The
Committee notes that the Group’s
operations and majority of its workforce are
primarily based in Ukraine, which is
reflected in the composition of the Board
and senior management which reflects the
broader societal aspects of Ukraine.
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Board diversity policy update
Board objective Progress in 2021
Foster a diverse and
inclusive workplace
culture aligned with the
Company’s Values,
Purpose and Strategy
– Diversity workforce survey conducted highlighting a higher level of diversity and inclusion awareness,
including an understanding of LGBTQ+ across survey participants; scores ahead of all other
Ukrainiancompanies.
– Upgrading of facilities and access points at operations to enable accommodation of people
withdisabilities.
– Board-sponsored second Fe_munity women in leadership programme to foster the advancement
ofwomen into senior leadership roles hosted by Fiona MacAulay and Ann-Christin Andersen.
– Integrated mining operating model executed.
– Assessment of workforce technical skills in the plant and training conducted to ensure workforce
capability supports business requirements.
– ‘Gender stations’ to increase diversity awareness among community included in annual family day.
Increase Board gender
diversity and women
inmanagement below
theBoard
– Board skills matrix reviewed, including diversity requirements and communicated to recruitment
partners; only firms adhering to the Voluntary Code of Conduct on diversity best practice used.
– The Committee’s search for two Non-executive Directors resulted in the appointment of Ann-Christin
Andersen on 1March 2021 and Natalie Polischuk on 29 December 2021. This increased the Board’s
gender diversity to 38%.
– Initiatives progressed in 2021 advanced women in leadership to 20.1% (2020: 18.2%); target for 2022
(toward target of 25% by 2030) set at 20.7% by end of 2022.
– Total female representation as percentage of the workforce currently at 29.2% (2020: 29.2%).
– 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 launched in 2021.
Monitor diversity
programme outcomes and
make adjustments to
ensure overall objectives
are met
New and repeat activities planned for 2022, subject to the cessation of the war in Ukraine, will include:
– Workforce Diversity and Inclusion education.
– Unconscious bias training for middle and senior management.
– STEM ambassador visits to local schools and colleges.
– ‘STEM streamers’ competition run online with students from local schools.
– Selection of bursary award school leavers.
– Roll-out of flexible and remote working policy for mothers of small children; and ‘bring a daughter
towork’ days.
– Guinness Book of Records HeforShe commitment signing.
Nominations Committee Report continued
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Ferrexpo plc Annual Report & Accounts 2021
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 a very
limited number of female applicants for
technical jobs in the Resources sector
historically while the Group’s workforce is
set to grow due to the Group’s organic
growth plans.
During the year, the Committee reviewed the
progress made towards the Group’s target
and although the overall number of women
in the workforce remained static at 29.2%
(2020: 29.2%), the number of women in
leadership positions advanced to 20.1%
(2020: 18.2%). The Committee was gratified
with this result and in order to sustain this
upward trend in 2022 and beyond, the
Committee approved diversity and inclusion
actions for execution in 2022.
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
2022 of 20.7%. This target represents the
appointment of an additional three women
in leadership positions by the end of 2022.
To test the effectiveness of the Group’s
diversity and inclusion activities, the Group
ran its first anonymous survey in early 2021
on diversity and inclusion topics, receiving
feedback from over 630 employees based
at the Group’s operating entities in Ukraine.
The survey is the first study by the Group
into topics such as gender identification,
sexual orientation, nationality and other
forms of diversity, as well as raising forms of
discrimination that have been encountered
by employees. The survey was devised and
administered by Biasless which is an
external independent Diversity and Inclusion
consultancy based in Kyiv. The Committee
reviewed the results and was pleased to
note that the Group scored ahead on all
topics in the survey in comparison with all
other participating companies covering
across section of sectors in Ukraine.
Further to the gains noted above, the Group
also received external recognition for
fostering diversity and inclusion within its
workforce. In November 2021, the Group
won the top award for Diversity and
Inclusion at the HR Pro Awards in Kyiv.
Theaward was judged by a panel of
30representatives from leading companies
inUkraine and recognises those that are
raising the level of professional practices
indiversity and inclusion.
The Group also placed fourth out of 50
participant companies in a survey,
conducted under the auspices of the United
Nations Population Fund in Ukraine, of
companies providing ‘family-friendly’
policies, for example by offering male and
female employees equal parental benefits.
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 21 April 2022.
Lucio Genovese
Chair of the Nominations Committee
21 April 2022
106
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
Remuneration Report
MEMBERSHIP AND ATTENDANCE
Scheduled meetings
Committee member
Eligible
to attend Attended
Fiona MacAulay 4 4
Graeme Dacomb 4 4
Vitalii Lisovenko 4 4
Ann-Christin Andersen1 2 2
1. Ms Andersen was appointed to the Board on 1 March
2021, and became a member of the Committee from
18 May 2021.
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 share-
based incentives in relation to variable
and fixed pay. 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 measures with long term
rewards earned subject to creating above
average long-term total shareholder
returns and, since 2021, achieving the
Company’s decarbonisation metrics.
Our policy is purposefully weighted
towards short term performance
measures 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 achieve
alignment with shareholders both through
the performance targets we set, but also
A statement to shareholders from
the Chair of the Remuneration
Committee
2
As Chair of the Remuneration Committee,
Iam pleased to present the Directors’
Remuneration Report for the year ended
31 December 2021.
The Directors’ remuneration policy was
presented to shareholders at the 2021 AGM
and we were pleased to receive support
from over 98% of our shareholders.
This report is split into the following
sections:
1. the Statement from the Chair of the
Remuneration Committee –
summarising the decisions taken by
theCommittee;
2. an “At a glance” overview of
remuneration;
3. the Directors’ remuneration policy
approved by shareholders at the
2021AGM;
4. the Annual Report on Remuneration,
setting out how we have paid Directors in
2021 and how we intend to operate the
policy in 2022.
February
– Engaging with shareholders and advisory bodies
in relation to the 2021 remuneration policy and its
proposed operation during 2021.
– Reviewing shareholder feedback in relation to the
2021 remuneration policy and its operation.
– Determining the 2020 bonus outturn.
– Determining vesting of the 2018 long-term
incentive awards.
– Setting 2021 annual bonus targets.
– Reviewing 2021 LTIP TSR peer group
constituents.
March
– Approving the final design of the 2021
remuneration policy and its application for 2021.
– Reviewing market pay benchmarking data for the
members of the Executive Committee.
– Determining the size of 2021 long-term incentive
awards and the performance targets.
– Approving awards under the Company’s
shareplans.
– Signing off the 2020 Remuneration Report.
KEY ACTIVITIES OF THE COMMITTEE IN 2021
The Committee’s key activities during the 2021 financial year were:
The Committee is chaired by Fiona
MacAulay. The Committee consists
ofthree independent Non-executive
Directors as required by the Code
and is also attended by the Chair
ofthe Board and, by invitation,
theChiefExecutive Officer, the
ChiefHuman Resources Officer, and
a representative from KornFerry, the
Committee’s independentadviser.
Main objective
To establish and maintain on behalf
ofthe Board a policy on executive
remuneration to deliver the
Company’s strategy and value
forshareholders; 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 2018 GovernanceCode.
Fiona MacAulay
Chair of the Remuneration Committee
2. 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.
107
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
through a combination of partial deferral of
annual bonus into shares, annual awards
under a performance share plan and 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.
Performance and reward in 2021
As detailed in the Strategic Report, 2021
was a year of operational progress and
strong financial performance. This
performance was delivered against the
challenging backdrop of the Covid-19
pandemic which rightly remained a priority
in the year as we focussed on maintaining
and developing further measures across our
operations to keep our people safe and
wellwhile maintaining safe and reliable
operations, and further supported the
communities surrounding our operations.
Full year iron ore pellet production was
11.2million tonnes which was in line with
our 2020 performance in terms of total
output. This was a strong operating result
considering that our investment in 2021 to
expand future production necessitated the
operation of only three of our four pellet
lines for a period of the year during upgrade
work. In line with our strategy, we also
continued to produce higher grade iron ore
with 100% of pellet production being
comprised of grade 65% Fe or above,
including an increase in our 67% Fe pellet
production by 27% with this grade of iron
ore totalling 4% of the total production. At
the same time, we have now registered a
30% decline in our combined Scope 1 and
Scope 2 emissions per tonne against our
baseline year 2019.
The Group benefited from strong prices for
iron ore products in H1 2021 when prices
achieved record levels of above US$260 per
tonne for 65% Fe fines CFR China in May
before a steady decline from H2 2021. This
enabled the Group to realise a profit after
tax of US$871 million and an EBITDA of
US$1,439 million for 2021. The positive
effect of high prices on the Group’s financial
performance was slightly offset by higher
C1 cash production costs
A
primarily as a
result of increased input prices, mainly for
gas, diesel and electricity, and stronger than
expected local currency and inflation.
The strong cash generation in 2021 enabled
further investment into the Group’s capital
growth projects totalling US$361 million
and, together with the Group’s solid balance
sheet, distributions to shareholders of
US$619 million in respect of 2021. In
December 2021, the Group announced a
further interim dividend of 6.6 US cents
payable in January 2022. This aligns
distribution to shareholders with the
Group’s shareholder distributions policy
announced in November 2021 that targets
distributions to shareholders of 30% of free
cash flow.
In the context of the robust operational,
financial and strategic performance detailed
above, the CEO achieved a bonus at 67.1%
of the maximum (100.7% of salary) for the
year under review. Full details of the
financial targets and actual performance
against them are set out on pages 120 and
121 along with details of the non-financial
targets and the level of performance
achieved. This payment was consistent with
the wider discretionary bonus awards and
the Committee was comfortable with the
payment having had regard to the broader
stakeholder experience.
With regard to the 2019 LTIP, as in prior
years, our three-year total shareholder
return performance was measured relative
to the performance of a bespoke Index of
comparable Iron Ore and Composite
Miners. Ferrexpo’s TSR performance over
the period was 12.9% p.a., which resulted
in100% of the award vesting.
The Committee considered the
remuneration earned in relation to 2021 to
be appropriate in the context of outstanding
Company performance in the year and
continued progress against our medium-
term strategy of expanding production in a
cost effective manner while recognising the
duty to shareholders, employees and
broader stakeholders to protect the
continuity of the business and contribute
toeconomic recovery.
With remuneration outcomes aligned across
the executive leadership of the Group and
after considering wider stakeholder
experience through the year (for example,
noting the impact of the above performance
on our shareholders), the Committee was
comfortable with remuneration outcomes
with the policy operating as intended and
sodid not use discretion.
KEY ACTIVITIES OF THE COMMITTEE IN 2021
The Committee’s key activities during the 2021 financial year were:
July
– Consideration of AGM feedback.
– Approving any proposed salary increases for
Executive Committee members in line with the
wider workforce increases.
– Reviewing market developments and institutional
investor issues raised during the 2021
AGMseason.
– Considering the treatment of share awards for
departing executives.
– Reviewing the Committee’s Terms of Reference.
December
– Considering performance to date against 2021
annual bonus targets.
– Reviewing shareholder advisory body updates
for2022.
– Overseeing the review and amendment of the
annual bonus plan rules to conform with the
Company’s remuneration policy.
– Approving the 2022 Remuneration
Committeeplanner.
Key activities of the Committee in 2022
Subject to the cessation of the war in Ukraine, the
Committee’s anticipated key activities in 2022 are to:
– consider AGM feedback;
– confirm the 2021 remuneration policy continues
tosupport the Company’s strategy;
– consider the evolution of performance conditions
inline with the business strategy;
– monitor senior management remuneration in line
withthe Code; and
– ensure remuneration decisions are taken in the
context of the wider stakeholder experience through
the period.
108
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
Remuneration Report continued
Implementation of the remuneration
policy in 2022
The current war in Ukraine creates
significant uncertainty and may necessitate
that the Company adapt its approach to
remuneration in 2022. At the start of the
invasion, the Company took steps to ensure
that employees in Ukraine could access
their salaries despite disruption to banking
systems and increased overtime payments
to compensate for changes in shift rosters
resulting from employees being called up
for military service together with providing
financial assistance to employees needing
to relocate themselves and their families
away from areas of intense fighting,
especially from Kyiv and surrounding areas.
It is expected that the economic
consequences will not only be acutely felt
by employees in Ukraine but also by
employees in other locations as soaring
energy prices and higher inflation in food
markets and other commodities impact
households worldwide. It will therefore be
necessary for the Company’s remuneration
practices to remain fluid in order to respond
sensitively to shifting circumstances,
especially considering the humanitarian
crisis unfolding in Ukraine.
In 2022, the general approach to senior
executive salaries will be to undertake a
review against the relevant market data
where the executive is located with effect
from 1 July. The factors considered as part
of the review process include the role itself,
any changes to that role in addition to the
performance in post. The typical rate of
increase awarded across the workforce is
also considered. With regards to the role of
the CEO, Mr North was permanently
appointed to the position on 14 February
2022 and his base salary was increased by
US$100,000. This increase was equivalent
to the “acting up” allowance that Mr North
received while serving as Acting CEO since
May 2020.His salary will be subject to
review with effect from 1 July 2022.
There are no other material changes to the
application of the remuneration policy for
2022 with the main points to note being:
– The annual bonus opportunity will be
unchanged at 150% of salary for the
CEO. Performance will continue to be
measured against a balanced scorecard
of structured financial, operational and
ESG targets (60% of the total bonus) and
tailored strategic targets (40% of the
bonus). 25% of any bonus earned is
deferred into shares for two years.
– The long-term incentive award for 2022
to the CEO is expected to equate to circa
45% of salary which is consistent on a
percentage of salary basis with his 2021
award which comprised 87,800 shares.
Performance will continue to be
measured based on Ferrexpo’s relative
total shareholder return compared
against the performance of an index
derived from a group of iron ore and
composite miners (75% of the award)
and 25% based on sustainability targets
which are equally split between carbon
reduction targets and higher grade iron
ore production targets with higher grade
iron ore pellets improving the
productivity of blast furnaces such that
their carbon footprint is reduced by 40%
for every tonne of sinter fines replaced
(Source: CRU).
Further details of the performance
conditions and targets for 2022 are set out
on pages 122 and 123.
Consideration of shareholders and
employees
We consulted with shareholders in 2021 in
relation to the new remuneration policy and
were pleased to receive over 98% support
for that resolution and over 97% support for
the remuneration report resolution at the
same AGM.
The Committee also noted feedback from
employees, elicited through the Company-
wide annual Employee Engagement Survey.
The survey 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.
As in prior years, while policies are
understood and are generally considered to
be working effectively, work remains
ongoing to improve the alignment between
remuneration with individual performance
outcomes, particularly within some of our
operations. The progress made to date in
these areas will be progressed further in
2022 with this being a key focus in 2022 by
the Chief Human Resources Officer, subject
to the cessation of the war in Ukraine. The
Chief Human Resources Officer will also
work with the designated Employee
Engagement Non-executive Director, Vitalii
Lisovenko, to further develop a formal
process through which two-way feedback
can be effected in relation to the operation
of the Company’s remuneration policies.
Fiona MacAulay
Chair of the Remuneration Committee
21 April 2022
—
Ferrexpo
—
2021 LTIP Index
—
FTSE 250 Index
—
FTSE All-Share Index
0
100
200
31 Dec
2018
31 Dec
2019
31 Dec
2021
31 Dec
2020
Group
EBITDA
Safety –
LTIFR
Diversity Carbon
reduction
FPM Full
cash costs
(C1)
FPM Total
movement
costs
Total
Bonus payment (% of salary)
90%
80%
60%
40%
20%
0%
109
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
BUSINESS SCORECARD (60% OF BONUS) TOTAL SHAREHOLDER RETURN
AT A GLANCE (NOT SUBJECT TO AUDIT)
Element Operation Time-horizon
2021 2022 2023 2024 2025
Salary:
To attract and retain talent by ensuring
base salaries are competitive in the
market in which the individual is
employed
– Annual review by Committee
– Increases typically in line with wider
workforce
Pension & 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 measures based on a
scorecard of financial, operational and
common strategic objectives
– Safety underpin
– 25% of bonus deferred into shares for
two years
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
– Policy maximum of 200% of salary
– Performance based primarily on relative
TSR (75% weighting) in conjunction with
production (12.5% weighting) and carbon
emissions (12.5% weighting)
– Performance measured over three
yearswith two-year post vesting
holdingperiod
Share ownership guideline:
To provide alignment of interests
between Executive Directors and
shareholders
– Executive Directors required to build
andmaintain a shareholding of 200%
ofsalary
– Applies for two years post-cessation
ofemployment
200% of salary
payment/accrual
performance period
holding period
110
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
This part of the Directors’ Remuneration Report sets out the Remuneration Policy for the Executive Directors. This Directors’ Remuneration
Policy was approved by shareholders at the Company’s AGM on 27 May 2021 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 the year 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 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 measures (e.g. Total Shareholder Return (“TSR”) relative to sector peers, 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 takes 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 – 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 in our long-term incentive plan (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.
– 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 115 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, both the annual bonus and the LTIP incorporate climate-related performance
targets linked to the Company’s strategic climate goals as set out on pages 36 and 123.
Remuneration Report continued
PART A: POLICY SECTION (NOT SUBJECT TO AUDIT)
111
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
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 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; and
therange of salary increases applying across
theGroup.
Base salary increases are applied
in line with the outcome of the
review, 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.
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 5% of salary with
pension for Swiss-based employees set at 10%
of salary. Whilst pension in Dubai is not typically
provided, a statutory lump sum gratuity is
accrued each year and will be payable on
termination in line with the relevant legislation.
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 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.
112
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
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 discretion
to adjust the formulaic outcome or amount of
bonus payable, 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 one-third
ofmaximum.
Performance related.
Performance measures
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.
113
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
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 approved by
shareholders at the 2018 AGM. 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 LTIP awards is subject to performance
measured over a period of at least three years. In
addition, for any shares to vest, the Committee
must be satisfied that the outcome is a fair
reflection of Ferrexpo’s underlying business
performance.
For LTIP awards from 2018 onwards a two-year
holding period applies to shares vesting under
th e LTI P.
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.
The LTIP provides for annual
awards of performance shares,
options or cash 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 Committee reviews
the LTIP performance
conditions, in advance
of granting each
LTIPcycle.
Relative TSR will be the
primary performance
measure. Other
performance measures
may, however, be used
in combination with
relative TSR.
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 all of the post-tax shares vesting under
the LTIP and shares deferred under the annual
bonus (from 2022 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
guideline will apply to shares deferred under the
annual bonus (from 2022 on an after tax basis)
and shares which vest under existing and future
LTIP awards (after tax).
Executive Directors are required to
build and maintain a shareholding
to the value of at least 200%
ofsalary.
The lower of 200% of salary and
the value of shares held on
cessation must be held for two
years post cessation.
Not performance related.
114
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
Remuneration Report continued
Rationale for performance measures
The STIP is based on performance categories that are key to delivering on our long-term strategy. Performance measures 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.
Where appropriate, the Committee sets a performance zone (threshold to stretch) around the target, which it considers provides an
appropriate degree of “stretch” challenge and an incentive to outperform. The Committee believes that using multiple targets for the
purposes of the STIP provides for a balanced assessment of performance over the year.
For the LTIP, the Committee believes that relative TSR is the most objective external measure of the Company’s success over the longer
term. Relative TSR helps align the interests of Executive Directors with shareholders by incentivising share price growth and, in the
Committee’s view, provides an objective measure of long-term success. The Committee has discretion to review the comparator index if
any of the constituent companies are affected by corporate events such as mergers and acquisitions. The Committee also reviews the
constituents and their weightings prior to the start of each LTIP cycle in order to ensure that they remain appropriate. Details of the
comparator group will be set out in Part B of the Remuneration Report for the year immediately following the year in which the grant is
made. Part of the LTIP will normally also include other performance metrics (e.g. production or sustainability metrics) for a minority of the
award to ensure that the long-term targets are appropriately balanced in light of the Company’s strategic objectives.
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.
Senior executives participate in the LTIP with the same performance measures applied as for the CEO. Long-term incentive awards may be
granted to participants below the Board without performance conditions, for example, if it is considered necessary to attract executives of
the appropriate calibre.
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.
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 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, to reflect
additional responsibility.
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 £5,000,000.
Not performance
related.
115
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Pay-for-performance: scenario analysis
For the CEO, who is currently the sole Executive Director, the graph below provides 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”. In illustrating potential reward opportunities, the following
assumptions have been made:
Scenario Fixed pay STIP LTIP
Below threshold Base salary, pension
and benefits as
applicable for 2022
financial year
1
No STIP (0% of salary) No LTIP vesting (0% of maximum)
On-target On-target STIP (75% of salary) On-target vesting of LTIP (40% of maximum)
Maximum Maximum STIP (150% of salary) Full vesting of LTIP (100% of maximum) –
assumed normal policy maximum of 200% of
salary although in practice awards to Executive
Directors are significantly lower
Maximum, assuming 50%
share price growth
Maximum STIP (150% of salary) As for Maximum, but modelling the impact
ofa50% increase to share price
1. Benefits have been included at US$196,948 based on the annualised benefit provision to Executive Director.
CEO US$ (‘000)
0
Maximum
Target
Minimum
1,000 2,000 3,000 4,000 5,000 6,000
Fixed Pay STIP LTIP LTIP value with 50% share price growth
2,259
1,156100%
51% 32% 17%
25% 32%
43%
4,513
Maximum
with 50%
share price
growth
21% 26%
35% 18%
5,472
116
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
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 measures may be set initially for the STIP and LTIP awards, taking into account
the responsibilities of the individual, and the point in the financial year at which he or she joined, and subject to the rules of the plan. 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 measures 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 Director’s service contract
The Executive Director is employed under a contract of employment with Ferrexpo Middle East FZE, a Group company (the “employer”).
The Committee sets notice periods for the Executive Directors at six months, which reduces the likelihood of having to pay excessive
compensation in the event of poor performance.
The principal terms of the Executive Director’s service contract not otherwise set out in this report are as follows: save in circumstances
justifying summary termination, Mr North’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 North and has no special provisions in the event of a change
ofcontrol.
Notice period
Executive Director Position Date of contract From employer From employee
J North CEO 30 September 2015 6 months 6 months
Under his service contract, the Executive Director is 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 contract contains 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 Director will be entitled under his contract to receive all components of his base salary, 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. Under UAE law, upon loss of office the Executive Director is entitled
toa one-way economy class ticket to his country of origin and the service gratuity payment referred to on page 111.
Policy for loss of office payments
The following principles apply when determining payments for loss of office for the Executive Director 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 but
excluding STIP); 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 necessary:
– 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, consultancy arrangements).
Remuneration Report continued
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Ferrexpo plc Annual Report & Accounts 2021
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 performance conditions will be measured. 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. 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 tenure as Director, performance of the Company as a
whole and perception of the payment amongst the shareholders, general public and employee base. 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 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 contract is 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 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 for an initial period of three years, and their appointments may then be renewed on a three-yearly basis, subject
tore-election when appropriate by the Company in a general meeting; in 2011 the Company adopted the practice of annual re-election
ofallNon-executive Directors. 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 Chair 12 February 2019 2022 AGM
AC Andersen Non-executive Director 1 March 2021 2022 AGM
G Dacomb Non-executive Director 10 June 2019 2022 AGM
V Lisovenko Non-executive Director 28 November 2016 2022 AGM
F MacAulay Non-executive Director 12 August 2019 2022 AGM
N Polischuk Non-executive Director 29 December 2021 2022 AGM
K Zhevago Non-executive Director 1 December 2020 2022 AGM
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 setting out the circumstances surrounding, and
potential changes to, broader employee pay. The CEO 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 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
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.
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Ferrexpo plc Annual Report & Accounts 2021
PART B: ANNUAL REPORT ON REMUNERATION (AUDI T ED)
Remuneration Report continued
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 2021
The Committee comprises four Independent Non-executive Directors. Fiona MacAulay is Chair of the Remuneration Committee, with the
other members of the Committee during the year being Graeme Dacomb, Vitalii Lisovenko and Ann-Christin Andersen from 18 May 2021.
The Committee met on four scheduled occasions in 2021, and had two further informal meetings to discuss proposed changes to the
Company’s remuneration policy which was put to a vote by shareholders at the 2021 AGM. Attendance at meetings by individual members
is detailed in the Corporate Governance Report on page 86. A summary of the topics discussed at meetings in 2021 is set out in the Chair’s
Introductory Statement on pages 106 to 107.
The CEO and the Chief Human Resources Officer (the “CHRO”) usually attend meetings of the Committee at the invitation of the Chair of
the Committee, and the Company Secretary acts as secretary to the Committee. The Company Chair, 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.
Advisers
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 2021 totalled £92,600 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 advisers periodically and is satisfied that advice received is independent and
objective and that the advisers did not have any connections with Ferrexpo which may impair their independence.
The CEO 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 Mr North for the year ending
31 December 2021 and the prior year.
Salary
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
J North (2021) US$959,050 US$196,948 US$965,544 US$351,922 – US$2,473,464 US$1,155,998 US$1,317,466
J North (2020)
7
US$567,180 US$6,459 US$573,656 – – US$1,147,295 US$573,639 US$573,656
The figures have been calculated as follows:
1. Base salary: amount earned for the year.
2. Benefits: the taxable value of benefits received in the year (accommodation allowance/provision and healthcare).
3. STIP: this is the total bonus earned on performance during the year. Further details are provided on pages 120 to 121.
4. LTIP: the market value of shares that vested on performance to 31 December of the relevant year (2021: 100% vested and 2020: 0% vested). The market value is based on the three-month
average share price to 31 December 2021 of 300.96 pence; the impact of share price appreciation on the value of the LTIP is reflected in the LTIP Award Vesting table on page 122.
5. Pension: Mr North does not participate in a pension scheme in line with normal practice in Dubai. Whilst working in Dubai, under local legislation he accrues 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$111,234 was accrued towards the
statutorygratuity.
6. Average exchange rates: 2021 – £1=US$1.3757; 2020 – £1=US$1.2843.
7. 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 2020 is in respect of the period as Acting CEO i.e. from 28 May to 31 December 2020 and for the full financial year for 2021.
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Ferrexpo plc Annual Report & Accounts 2021
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 2021 and the prior year.
All figures shown in currency of payment, US$000
2021 2020
Fees Benefits Pension Total Fees Benefits Pension Total
Non-executive Directors
L Genovese (Chair)
1
500 – – 500 282 – – 282
V Lisovenko (Senior Independent
Director)2 190 – – 190 190 – – 190
F MacAulay (Senior Independent Director)2 175 – – 175 138 – –
138
AC Andersen
3
113 – – 113 – – – –
G Dacomb 155 – – 155 120 – – 120
N Polischuk
4
– – – – – – – –
K Zhevago
5
135 – – 135
6
240 – – 240
1. Mr Genovese retired from the Ferrexpo plc Board on 1 August 2014 and was subsequently re-appointed on 12 February 2019. He was appointed Chair on 25 August 2020.
2. Mr Lisovenko served as the SID until 10 February 2022, the post was then assumed by Ms MacAulay with effect from 10 February 2022.
3. Ms Andersen was appointed to the Board from 1 March 2021.
4. Ms Polischuk was appointed to the Board on 29 December 2021 but did not receive any fees from the Company during the reporting period.
5. Mr Zhevago stepped aside from the role of CEO on 25 October 2019 following which he was appointed a Non-independent Non-executive Director of the Company. He continued to receive
an annualised fee of US$240,000 until 31 December 2020 when it was agreed that Mr Zhevago will receive a fee in line with other Non-executive Directors (i.e. US$135,000).
6. In addition, and to reflect Mr Zhevago’s wider role at the Company in providing strategic advice and managing key relationships with stakeholders, he receives a consultancy fee set at
US$90,000 per year. This fee reflects the current time commitment of the role and will be kept under review. Mr Zhevago does not receive any wider Company benefits in connection with
his role.
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. As explained in the Committee Chair’s
Introductory Statement, Mr North is eligible for a base salary review with effect from 1 July 2022.
On being appointed to the position of CEO on 14 February 2022, Mr North’s anuual base salary was increased by US$100,000.
Thisincrease was equivalent to the “acting up” allowance that Mr North received while serving as Acting CEO since May 2020.
Base salary at:
Executive Director Position 1 January 2022 1 January 20211
J North CEO US$959,050 US$959,050
1. This included an “acting up” allowance of US$100,000 referred to above.
Pensions and other benefits – audited
The Group does not operate a separate pension scheme for Executive Directors. In line with standard company practice in Dubai, Mr North
does not participate in a pension scheme. Whilst working in Dubai, under local legislation he accrues 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
reporting period, an amount of US$111,234 was accrued towards the statutory gratuity.
Mr North is eligible for other benefits whilst he is an Executive Director as set out in the Executive Director remuneration policy earlier in the
report. This includes 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$200,000 p.a. In 2021, Mr North utilised US$185,589 of the allowance.
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Ferrexpo plc Annual Report & Accounts 2021
2021 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 2021 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 2021 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 safety, 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. No payment is made under the STIP if performance is below threshold.
In 2021, the threshold performance equated to a bonus potential of 50% of salary, on-target performance a bonus potential of 75% of
salary (reduced from 100% of salary for 2021) and stretch performance a bonus potential of 150% of salary.
The level of achievement against each of the targets for 2021, as determined by the Committee for Mr North as CEO, is summarised below.
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% 1,252 1,316 1,381 1,360 Above target 22.5% 15.7%
ESG LTIFR <WA Mines trailing 5yr
average (%) 5.0% -25.0 -30.0 -35.0 -74.0 Stretch achieved 7.5% 7.5%
Diversity Ratio (% Women
inleadership (grade 10+)) 7.5% 18.4% 19.0% 19.6% 19.7% Stretch achieved 11.25% 11.25%
Carbon reduction (reduction
from2020 avg as a base) 7.5% 1.0% 3.0% 5.0% 16.0% Stretch achieved 11.25% 11.25%
Operational Production from own ore
(GPL+Y) M tonnes 15.0% 11,300 12,183 12,483 11,220 Below threshold 22.5% 0.0%
Full Cash Costs reported
(C1 costs GPL+Y) US$/tonne 10.0% 62.4 61.1 59.4 66.4 Below threshold 15.0% 0.0%
Total 60.0% 90.0% 45.7%
Scorecard outcome 45.7%
In determining the outcome for the Business scorecard, the Committee reflected that 2021 had once again been an unprecedented year of
global pandemic. In response, management took appropriate steps to protect the workforce and maintain business continuity. In respect of
financial targets, it was noted that the Company had benefitted from higher iron ore pellet prices but that these had been partly offset by
higher primary energy supply costs, in particular, oil and electricity, which had resulted in higher C1 costs which had served to have a
negative effect on the scorecard’s EBITDA, and Operational results. Significant positive progress was however made in respect of ESG
targets, including exceeding safety, diversity and carbon reduction targets but mining volumes had not been achieved. The Committee
took into account that this was largely due to the consolidation of mining activities. However, this lower than threshold result had also
impacted target pellet production which was consequently below threshold. Although lower than budget, the Committee considered that
production volumes were notable given the context of the pandemic and in light of planned maintenance downtime to effect necessary
plant upgrades. Reflecting on the impact of these items on the overall scorecard outcome, the Committee did not adjust the overall result
and confirmed an outcome of 45.7% (max 90%) for all participants.
Remuneration Report continued
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Ferrexpo plc Annual Report & Accounts 2021
Strategic objectives (40% of STIP)
Objective Weighting
Threshold
50%
Target
75%
Stretch
150% Outcome Assessment
Max
as a %
of salary
Bonus
awarded
as a %
of salary
Decarbonisation
strategy
10.0% Strategy in
development
Strategy
developed and
approved by the
Board
In execution
and market
communication
underway
Stretch Targets
communicated
to the market
15.0% 15.0%
Optimise Group
Functions
10.0% Implementation
of Operational
One Ferrexpo
Planned
Objectives
Plan for group
optimisation and
implementation
of Cultural
Development
Programme
Implementation
underway
Stretch Optimisation
in execution
and cultural
programs run
15.0% 15.0%
Effective management
of Covid-19 pandemic
5.0% Covid-19
Response
Developed
Effective
Management of
Pandemic
Business
Continuity
maintained
Stretch Business
continuity
maintained
7.5% 7.5%
Project Development 10.0% Implementation
of planned
activities for
2021
5 year plan for
implementation
of growth
activities
Target and
ahead of plan
Stretch Wave 1
growth plan in
advanced stage of
execution
15.0% 15.0%
Conduct underground
mine feasibility study
5.0% Outline Strategy
and commence
drilling
(in-house or
contractor)
Underground
strategy
presented to the
Board, including
potential JV
partnership
options leading
to enhanced
discussion with
directors
JV partnership
discussions/
evaluation
commenced
Threshold Drilling contract in
execution and
nearing completion
7.5% 2.5%
Total 40.0% 60.0% 55.0%
Total STIP (Composite result of business scorecard and personal objectives achievement) 150.0% 100.7%
Outcome as a percentage of salary 100.7%
The Committee considered Mr North’s personal performance against his personal targets during 2021 as shown above and confirmed that
the CEO had achieved all but one of his personal targets at stretch. It was evident that from the overall performance of the Group in the
year that actions taken to address the Covid-19 pandemic, in particular, had ensured business continuity in what was a very difficult
operating environment. This was largely due to the leadership and strong personal performance of the CEO and the Committee was
comfortable with the payment of a bonus at 45% of salary in respect of his personal objectives and did not use negative 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 67.1% of the maximum (100.7% of salary) was earned by the CEO. In determining 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.
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Ferrexpo plc Annual Report & Accounts 2021
STIP framework for 2022
The CEO’s 2022 STIP opportunity will remain at 150% of salary for maximum performance, calculated as a percentage of salary earned
during the year. A balanced scorecard of financial, operational, ESG and strategic targets will again operate. 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 be required to be deferred into shares for two years. Alternatively, the Committee may
determine that 25% of any bonus earned is deferred into a share award which vests after two years.
KPI Weighting
Financial
Underlying cash EBITDA 15.0%
ESG
Safety
Diversity
Carbon reduction 15.0%
Operational
Production
C1 cost
A
management
Total mining movement cost 22.5%
Sales and Marketing
Freight costs 7.5%
Strategic
Organisational growth
Organisational optimisation
Pandemic management
Decarbonisation execution 40.0%
Total 100.0%
LTIP award vesting – audited
The performance period for the 2019 LTIP awards ended on 31 December 2021. The 2019 LTIP rewarded TSR outperformance of a tailored
comparator group. Under the 2019 LTIP, 20% of the maximum award vests for TSR performance in line with the index, with full vesting for
TSR outperformance of 8% p.a.
Ferrexpo’s TSR performance relative to the weighted index was assessed by Korn Ferry. From 1 January 2019 to 31 December 2021,
Ferrexpo’s TSR outperformance was 12.9% p.a. resulting in 100% of the 2019 LTIP awards vesting.
Mr North was granted the 2019 LTIP award in respect of his role as Chief Operating Officer. Details of the number of shares vesting are set
out in the table below.
Date of grant
Number of
shares
Award share
price
1
Value awarded
based on grant
price
Vesting
percentage
Number of
shares
vesting
Value vesting
based on
grant price
Share price at
date of
vesting
2
Value based
on vesting
price
3
Impact of
share price
appreciation
J North 25.4.19 85,000 268.9p £228,565 100% 85,000 £228,565 300.96p £255,813 11.9%
1. Based on the average share price over the three-month period preceding the start of the performance period.
2. Based on the on the three month average share price to 31 December 2021 of 300.96 pence.
3. Excludes value of share purchase of 40,693 shares in lieu of dividends throughout 2021.
LTIP granted in 2021 – audited
Mr North was granted a 2021 LTIP award in respect of 87,800 shares, which had a face value of 39% of salary.
Executive Director Date of grant Number of shares Face value
1
Face value
(% of salary)
1
Vesting for minimum
performance
(% of maximum)
End of
performance
period
J North 25.3.21 87,800 £275,692 39% 20% 31.12.23
1. Based on the average share price over the three-month period preceding the start of the performance period and an average exchange rate of £1=US$1.3757.
Remuneration Report continued
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Ferrexpo plc Annual Report & Accounts 2021
The LTIP award will vest to the extent that the performance conditions set out below are met with performance measured over the period to
31 December 2023. A two-year holding period will apply to any shares that vest. 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
75% Index Index + 8% p.a.
Production of 67% Fe pellets2 12.5% 3% over period 7% over period
Carbon emissions reduction 12.5% 3% p.a. 5% p.a.
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 cessation of the war in Ukraine and the re-opening of export port facilities enabling delivery to DR-pellet customers.
2019 2020 2021
Focused iron ore miners Weighting 60% 60% 60%
Cleveland-Cliffs
Fortescue Metals
Kumba Iron Ore
Mount Gibson
Mineral Resources1 – –
Global diversified miners Weighting 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.
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 six months to help improve the comparison of the management long-term incentive in relation to
potential short-term movements in Ferrexpo’s share price or the share price of comparator companies.
Dividends accrue on performance shares over the vesting period and are paid on shares that vest. Dividends that arise post vesting are
paid to participants in shares.
LTIP framework for 2022
This Directors’ Remuneration Report is published prior to the grant date of awards under the LTIP. The Committee intends to grant
Mr North an LTIP award which is expected to have a face value of c.45% of his CEO salary which sits at the lower end of the award possible
under the policy.
The number of shares under Mr North’s LTIP award for 2022 will be based on the share price prevailing at the time the size of LTIP award
isset.
The performance metrics for the 2022 LTIP awards will continue to be based on a mix of TSR, production and sustainability targets.
The production target will relate to 12.5% of the 2022 LTIP award and directly aligns with the core strategic objective of improving the
product mix to higher grade iron ore pellets. We are targeting increased production in pellets above 65% Fe (i.e. DR pellets) of between 3%
and 7% over the period to the end of 2024.
The carbon emissions target will relate to 12.5% of the 2022 LTIP and incentivise reduction in carbon emissions of between 3% and 5%
p.a. across this period.
The relative TSR target will determine the remaining 75% of the 2022 LTIP award based on our performance measured relative to the
performance of an index derived from a group of iron ore and composite miners with vesting taking place between matching the index and
outperforming the index by 8% p.a. (see above for details of the index constituents which will be the same as per the 2021 award).
Any shares vesting from these awards will be subject to a two-year holding period and recovery provisions (as detailed in the remuneration
policy on page 113) will apply should it be required. Under all metrics, 20% vests at the threshold performance level rising to 100% at
maximum performance levels. Each target operates independently.
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Ferrexpo plc Annual Report & Accounts 2021
Non-executive Directors (including the Chair)
The Non-executive Directors’ fees are reviewed each year in light of the time commitment and level of involvement that Non-executive
Directors are required to devote to the activities of the Board and its Committees.
For 2022, fees will be unchanged.
In addition to his fee for Chair of the Board, Mr Genovese serves as a Non-executive Director of Ferrexpo AG for which he received a fee
ofUS$80,000 in 2021.
As detailed in last year’s Directors’ Remuneration Report, Mr Zhevago stepped aside from the role of CEO in October 2019 and from this
time was a Non-independent Non-executive Director. During 2020, his remuneration arrangements were reviewed and from 1 December
2020 Mr Zhevago has received a fee in line with other Non-executive Directors (i.e. US$135,000 p.a.). In addition, and to reflect his wider
role at the Company in providing strategic advice and managing key relationships with stakeholders, he receives a consultancy fee set at
US$90,000 p.a. This fee reflects the expected time commitment of the role and will be kept under review. He does not receive any wider
Company benefits in connection with his role.
Role Current fee levels Change
Chair fee US$500,000 N/A
Non-executive Director base fee US$135,000 N/A
Committee Chair fee US$20,000 N/A
Senior Independent Director fee US$35,000 N/A
Employee Engagement Director fee US$35,000 N/A
Directors’ shareholdings – audited
Total interests of the Directors in office (and connected persons) as at 31 December 2021:
At 31 December
2021
At 31 December
2020
AC Andersen – –
G Dacomb – –
L Genovese 233,651 233,651
V Lisovenko – –
F MacAulay – –
J North 336,364 295,671
K Zhevago
1
296,077,944 296,077,944
1. Mr Zhevago is interested in these shares as a beneficiary of The Minco Trust, which is the ultimate shareholder of Fevamotinico S.a.r.l., which owns 296,077,944 shares in the Company.
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 their vested LTIP shares on an after tax basis until the required level
is achieved. Shares deferred under the annual bonus (from 2022) 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.
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. As with the ‘in service’ share
ownership guideline, 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) will count for the purposes of the guideline. The Committee will retain discretion to
disapply the guideline in exceptional circumstances (e.g. death).
Performance shares that have vested under the LTIP but which are still subject to the two-year holding period will be released at the
conclusion of the two-year holding period unless the Committee determines otherwise.
Remuneration Report continued
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Ferrexpo plc Annual Report & Accounts 2021
Mr North’s shareholding against the guideline as at 31 December 2021 was as follows:
Shareholding
requirement
(% salary)
Owned
outright
Subject to
performance
1
Current
shareholding
2
(% salary)
Requirement
met?
J North 200% 336,364 204,800 88% 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 2021 and a share price of 299.4 pence on 31 December 2021 and an exchange rate of £1=US$1.3757.
Details of LTIP awards held by Mr North (which are subject to performance) are provided below.
Award
At 1 January
2021
Granted
(2021 award) Vested Lapsed
Total at
31 December
2021
Award share
price
(pence)
1
End of
performance
period
J North 2019 Award
2
85,000 – – – 85,000 205.7 01.01.22
2020 Award 117,000 – – – 117,000 142.7 01.01.23
2021 Award – 87, 8 00 – – 87, 8 00 216.4 01.01.24
Total 202,000 87,800 − – 289,800
1. Based on the average share price over the three-month period preceding the start of the performance period.
2. The 2019 award vested at 100% as described above.
With the exception of the reinvestment of the January 2022 dividend to purchase 4,355 shares for Mr North, there have been no changes in
the interests of the Directors from the end of the period under review to 21 April 2022 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 2021 are
equivalent to 0.049% 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 2021, 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
2021. Mr Lucas retired from the Board on 24 August 2020 and received a consultancy fee of US$101,000 to provide transition support to
the Chair and the CEO.
As set out in the information which has been available on the Company’s website from 21 July 2021 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 6 July 2020 and the signing of a settlement agreement, Mr Mawe’s employment terminated on 31 July 2021. Under the
terms of the settlement agreement, Mr Mawe continued to be paid his salary and contractual benefits until 31 July 2021 (with an aggregate
amount of CHF996,776 paid for the period from 1 January 2021 to 31 July 2021). Mr Mawe’s employment contract under Swiss law,
provided for him to receive his full salary and bonus, in line with the remuneration policy, for the period of his employment through to
31 July 2021. Based on legal advice in connection with the settlement of any claims against the Company, the bonus for the period for H2
2020, and for the period 1 January 2021 to 31 July 2021, was payable at the target performance level. Payment of the bonus in line with the
terms of Mr Mawe’s legacy contract ensured that the Company was able to reach a mutually beneficial settlement. The Committee was
comfortable approving a STIP payment for the year ended 31 December 2020 of CHF690,261 with performance assessed at 83.5% of
salary for H1 2020 and at 100% for H2 2020. In respect of performance for the year ended 31 December 2021 (pro-rated for the period to
31 July 2021), he received a STIP payment of CHF289,328 reflecting target performance (75%) as per the Company’s remuneration policy
approved by shareholders in May 2021. As explained on page 122, his LTIP award granted on 25 April 2019 over 100,000 shares vested
inrespect of 80,556 shares (as a result of time pro-rating, the performance conditions having been met in full). Mr Mawe also received a
contribution of £3,500 plus VAT towards his legal fees incurred in taking advice on the settlement agreement.
No other payments were made to past Directors in the year.
126
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
Percentage change in Directors’ remuneration compared to employees
The table below sets out the percentage change in salary, taxable benefits and annual bonus between 2019 and 2020, and 2020 and 2021
for Directors of the Company, and the average for an all employee population as compared with the CEO.
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
All employee average
1
13.4% 0% 37.1% 24.0% 0% 2.9%
J North (CEO)
2
0% 1,703.4% -0.5% 11.6% 0% 12.8%
L Genovese (Chair)
3
0% 0% 0% 400.0% 0% 0%
V Lisovenko (SID)
4
0% 0% 0% 0% 0% 0%
AC Andersen
5
0% 0% 0% N/A N/A N/A
G Dacomb
6
0% 0% 0% 35.0% 0% 0%
F MacAulay
7
(SID) 0% 0% 0% 35.0% 0% 0%
N Polischuk
8
– – – – – –
K Zhevago
9
0% 0% 0% -44.0% -100.0% 0%
1. The All Employee population is based on the remuneration for the Executive Committee. 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. In 2020, Mr North only received company provided healthcare of US$10,921. In 2021, he received company provided
healthcare and an allowance totalling US$196,948.
3. Mr Genovese was appointed to the Board in February 2019 and appointed Chair in August 2020.
4. Mr Lisovenko served as SID from August 2019 until February 2022.
5. Ms AC Andersen was appointed to the Board in March 2021. There is no comparable information for prior years and therefore percentage changes are not shown above.
6. Mr Dacomb was appointed to the Board in June 2019.
7. Ms MacAulay was appointed to the Board in August 2019, and was appointed SID in February 2022.
8. Ms Polischuk was appointed to the Board in December 2021.
9. Mr Zhevago stepped aside from the role of CEO in October 2019 and has been a Non-executive Director since.
Relative importance of spending on pay
The table below shows Ferrexpo’s dividend and total employee pay expenditure (this includes pension and variable pay, including STIP and
fair value of LTIP, but not social security) for the financial years ended 31 December 2020 and 31 December 2021, and the percentage
change.
US$ million 2021 2020
Year-on-year
change
All-employee remuneration
95 93 2%
Distributions to shareholders
1
619 195 217%
1. Includes dividends and share buy-backs.
Comparison of Company performance and Executive Director pay
The graph shows the value, at 31 December 2021, of £100 invested in Ferrexpo’s shares on 31 December 2011 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.
Remuneration Report continued
127
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
Historical TSR performance
Growth in the value of a hypothetical £100 holding over the ten years to 31 December 2021.
—
Ferrexpo
—
2020 LTIP Index
—
FTSE 250 Index
—
FTSE All-Share Index
0
100
200
400
300
31 Dec
2018
31 Dec
2019
31 Dec
2021
31 Dec
2020
Chief Executive Officer’s pay
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
KZ KZ KZ KZ KZ KZ KZ KZ CM/JN JN
Single figure total remuneration (US$000)
1
291 243 243 243 243 255 251 257 595/1,147 2,473
STIP vesting (% max) K Zhevago did not participate in the STIP 36/67 67
LTIP vesting (% max) K Zhevago did not participate in the LTIP 0/0 100
1. 2020 single figure 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.
Statement of shareholder voting
The following table shows the results of the binding vote on the remuneration policy and the advisory vote on the 2020 Annual Report and
Accounts at the 2021 AGM.
For Against Withheld
Shares
(millions) %
Shares
(millions) %
Shares
(millions)
Remuneration policy (at 2021 AGM) 499 9 8.1% 10 1.9% 0
2020 Annual Report on Remuneration (at 2021 AGM) 498 97.8% 11 2.2% 0
This report was approved by the Board on 21 April 2022.
Signed on behalf of the Board
Fiona MacAulay
Chair of the Remuneration Committee
128
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
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 2021. The Russian invasion into Ukraine on 24 February 2022 which is regarded as a significant
event since the balance sheet is treated as a non-adjusting post balance sheet event and therefore does not affect the carrying value of the
Group’s assets and liabilities as at 31 December 2021. This event however 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 152 for further details) and might
have a financial impact on the Group’s non-current assets in the future (see Note 35 Events after the reporting period to the Consolidated
Financial Statements on page 199 for further details). Information about the use of financial instruments by the Group is given in Note 27
Financial instruments to the Consolidated Financial Statements on page 184.
Dividends
Results for the year are set out in the Consolidated Income Statement on page 147.
Overall, in 2021 the Group paid out dividends of US$619 million, a 217% increase compared to 2020 (US$195 million).
In view of Russia’s invasion of Ukraine, the Board has decided to defer any decision in relation to an interim dividend in conjunction with
the Group’s full year results for 2021. The Board will continue to assess the situation, and when appropriate, will make a decision in relation
to shareholder returns.
The Board has become aware of a technical issue in respect of the interim dividend of 39.6 US cents per Ordinary Share paid on 26 August 2021.
When this was identified, the Board decided to perform a review of historic dividend payments and has identified a technical issue in respect of
all or a portion of certain dividends paid in 2010, 2011 and 2021 (the “Relevant Distributions”). The Company did not satisfy certain procedural
requirements of the Companies Act 2006 (the “Act”) before making the Relevant Distributions. The Company has been advised that, as a
consequence of this, it may have claims against past and present Shareholders who were recipients of the Relevant Distributions and against
persons who were directors of the Company at the time of payment of the Relevant Distributions. The Company wishes to put all potentially
affected parties so far as possible in the position in which they were always intended to be. Accordingly, the Company intends to convene a
general meeting at which a resolution will be proposed, which will, if passed, give the Board authority to enter into a Directors’ Deed of Release
and a Shareholders’ Deed of Release to discharge these parties from any obligation to repay any amount to the Company in connection with the
Relevant Distributions. The proposed ratification of the Relevant Distributions, and the entry by the Company into the Shareholders’ Deed of
Release and Directors’ Deed of Release will not have any effect on the Company’s financial position. A circular to shareholders to convene the
general meeting and giving more information about the Relevant Distributions will be sent to shareholders shortly.
Directors
The Directors of the Company who served during the year and up to the date of signing were:
– Ann-Christin Andersen (appointed 1 March 2021)
– Graeme Dacomb
– Lucio Genovese
– Vitalii Lisovenko
– Fiona MacAulay
– Jim North
– Natalie Polischuk (appointed 29 December 2021)
– Kostyantin Zhevago
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 given in the Directors’ biographies on pages 78 to 79. 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 106 to 127.
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.
129
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
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.
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
160
Details of long-term incentive schemes (LR 9.8.4R (4)) Remuneration Report 113
Contracts of significance (LR 9.8.4R (10)) See Note 30 Commitments, contingencies and legal disputes
tothe Consolidated Financial Statements. Transactions with
FCVorskla are considered to be contracts of significance
underthe Listing Rules
193
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
124
Details of waivers of dividends by shareholders
(LR 9.8.4R (12) and (13))
As as 21 April 2022, the employee benefit trust contains 577,370
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 83
Disclosures concerning greenhouse gas emissions Strategic Report 36
Engagement with suppliers, customers and others Strategic Report and pages 46 to 49
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
184
Events since the balance sheet date See Note 35 Events after the reporting period to the
Consolidated Financial Statements
199
Statement of Directors’ responsibilities in respect of the
Annual Report and Accounts
Corporate Governance Report 133
Information that fulfils the requirements of DTR 7.2
(other than DTR 7.2.6)
Corporate Governance Report 76
Disclosures required by statute
Employees
Information on the Group’s employment policies can be found in the Strategic Report on pages 40 to 41. Employee numbers are stated
inNote 29 Employees to the Consolidated Financial Statements on page 192. The Group employs fewer than 250 staff in the United
Kingdom and so does not disclose its policies on employee involvement or employing disabled people. However, it will give 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% of the Group’s energy consumption in
2021 and UK greenhouse gas emissions was the equivalent of less than 0.001% of the Group’s greenhouse gas emissions in 2021.
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.
1 30
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
Directors’ Report continued
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 195.
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 27 May 2021. This authority will expire at the conclusion of the Company’s 2022 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 2021.
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.
131
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
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.
Substantial shareholdings
As at 31 December 2021, 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.1 296,077,944 296,077,944 50.30%
Schroder Investment Management 32,100,540 32,100,540 5.45%
As at 21 April 2022, 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.1 296,077,944 296,077,944 50.30%
BlackRock, Inc. 33,407,724 33,407,724 5.67%
Schroder Investment Management 32,100,540 32,100,540 5.45%
1. Fevamotinico S.a.r.l. is a wholly owned subsidiary of The Minco Trust of which Kostyantin Zhevago is a beneficiary.
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 page 83. 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
On 24 February 2022, Russia began its invasion into Ukraine using direct military force and this has led to an intense armed conflict in
Ukraine, which is, as at the date of the approval of these Consolidated Financial Statements, still ongoing. Although the Group has
managed to continue its operations, the war continues to pose a 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.
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; and
iii) the feasibility and effectiveness of all available mitigating actions within the Group management’s control for identified uncertainties, a
material uncertainty still remains as some of the uncertainties are outside of the Group management’s control, with the duration and the
impact of the war unable to be predicted at this point of time.
132
CORPORATE GOVERNANCE
Ferrexpo plc Annual Report & Accounts 2021
Directors’ Report continued
The Group’s business activities, together with the risk factors that might affect its business model, future performance, solvency or liquidity
and reputation are set out on pages 22 to 72. The Viability Statement is set out in the Strategic Report on page 73 and addresses the threat
to the Group’s viability caused by the Russian invasion into Ukraine. The financial position of the Group, its cash flows, liquidity position
and borrowing facilities are described in the Financial Review on pages 22 to 25. In addition, Note 27 Financial instruments to the
Consolidated Financial Statements on pages 183 to 190 sets out the Group’s objectives, policies and processes for managing its capital;
its financial risk management objectives and details of its financial instruments; its exposure to price risk, credit risk, liquidity risk and cash
flow risk, as well as currency risk and interest rate risk
Considering the current situation of the war in Ukraine, all identified available mitigating actions 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 and are of unpredictable duration and severity, 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 152 for further details).
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
he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information (as defined) and to
establish that the Group’s auditors are aware of that information.
Amendments to Articles of Association
The Articles may be amended by special resolution in accordance with the Act.
AGM
The Board currently intends to hold the AGM of the Company on Wednesday 15 June 2022 at 11.00am, subject to the ongoing Covid-19
pandemic and any UK Government the guidance on social distancing, non-essential travel or public gatherings. 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 75 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 21 April 2022.
For and on behalf of the Board
Lucio Genovese
Chair
133
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Ferrexpo plc Annual Report & Accounts 2021
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. Under that law the Directors are required
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 then apply them consistently;
– make judgements and estimates that are reasonable and prudent;
– state whether applicable UK adopted International Financial Reporting Standards 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 comply with the Companies Act 2006. The Directors are also responsible for
safeguarding the assets of the Group and Parent Company and hence 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
We confirm that to the best of our 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 pages 131 and 132 of the
Directors’ Report and Note 2 Basis of preparation of the Consolidated Financial Statements on page 152;
(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 asssets, liabilities and financial position
of the Parent Company;”
(c) the Strategic 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 76 to 132.
This responsibility statement was approved by the Board of Directors on 21 April 2022 and is signed on its behalf by:
Lucio Genovese
Chair
Jim North
Chief Executive Officer
21 April 2022
Financial contents
Notes Content Page
Independent Auditor’s Report 135
Primary Statements
Consolidated Income Statement 147
Consolidated Statement of Comprehensive Income 148
Consolidated Statement of Financial Position 149
Consolidated Statement of Cash Flows 150
Consolidated Statement of Changes in Equity 151
Notes to the Consolidated Financial Statements 152
Section 1: Basis of Preparation
1 Corporate information 152
2 Basis of preparation 152
3 New accounting policies 153
4 Use of critical estimates and judgements 155
Section 2: Results for the Year
5 Segment information 155
6 Revenue 156
7 Operating expenses 158
8 Other income 159
9 Foreign exchange gains and losses 159
10 Net finance expense 160
11 Taxation 160
12 Earnings per share and dividends paid and proposed 165
Section 3: Assets and Liabilities
13 Property, plant and equipment 167
14 Leases 170
15 Goodwill and other intangible assets 171
16 Other non-current assets 173
17 Inventories 174
18 Trade and other receivables 175
19 Prepayments and other current assets 176
20 Other taxes recoverable and payable 177
21 Trade and other payables 178
22 Pension and post-employment obligations 178
23 Provisions 182
24 Accrued and contract liabilities 182
Section 4: Financial Instruments and
Financial Risk Management
25 Cash and cash equivalents 183
26 Interest-bearing loans and borrowings 183
27 Financial instruments 184
Section 5: Other
28 Share-based payments 191
29 Employees 192
30 Commitments, contingencies and legal disputes 193
31 Share capital and reserves 195
32 Consolidated subsidiaries 196
33 Investments in associates 196
34 Related party disclosures 197
35 Events after the reporting period 199
Parent Company Financial Statements 200
Additional Disclosures 206
Alternative Performance Measures 207
Glossary 210
FINANCIAL STATEMENTS
134 Ferrexpo plc Annual Report & Accounts 2021
Independent Auditor’s Report
To the members of Ferrexpo plc on the
audit of the financial statements
For the purpose of this report, the terms “we” and “our” denote MHA MacIntyre Hudson 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 138 to 141 that sets out the key
audit matters and how our audit addressed the key audit matters, the terms “we” and “our” refer to MHA MacIntyre Hudson and/or our component
teams. 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. 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 and its subsidiaries for the year ended 31 December 2021 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 related consolidated Notes 1 to 35;
– the Parent Company statement of financial position;
– the Parent Company statement of changes in equity; and
– the related Parent Company Notes 1 to 8.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International
Financial Reporting Standards as adopted 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 Parent Company’s affairs as at 31 December 2021 and of the
Group’s profit for the year then ended;
– the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted
in the United Kingdom;
– the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standard Financial Reporting Standard 101 “Reduced Disclosure Framework”, and applicable law); and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
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’s 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.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
135Ferrexpo plc Annual Report & Accounts 2021
Independent Auditor’s Report continued
To the members of Ferrexpo plc on the
audit of the financial statements
Material uncertainty relating to going concern
We draw your attention to Note 2 Basis of preparation on pages 152 and 153 and also Note 35 Events after the reporting period on page 199 of
the financial statements, which indicates that management has assessed the ongoing armed conflict in Ukraine to pose a threat to the Group’s
mining, processing and logistics operations within Ukraine and on the ability of the Group to continue as a going concern due to the unpredictable
duration and severity of such events and circumstances, which are outside of the Group’s control. This indicates that a material uncertainty exists
that may cast significant doubt upon the Group’s ability to continue as a going concern. Moreover, the ongoing conflict is expected to have an
adverse impact on the Group’s cash flows and a connected negative impact on the carrying value of the non-current assets of the Group after the
balance sheet date. Our opinion is not modified in respect of these matters.
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.
The going concern assessment required a high level of management judgement and is complex, as a result of the possible interaction of multiple
variable factors, particularly in analysing the potential impact of the war upon the Group’s forecast sales channels to certain customers; liquidity
management including available cash; and its ability to continue mining and processing operations in light of current and potential disruption of
consumables and equipment supplies, and logistics uncertainties.
Management has prepared an updated long-term model, including an 18-month base case scenario reflecting lower sales volume caused by the
unavailable seaborne sales to its customers. Management also considered a series of plausible downside sensitivities to the base case, which
assume reasonably possible adverse outcomes for the items described above such as the potential for supply restrictions and reduced production
and sales volumes, as well as reduction in sales prices and increases in production costs. In evaluating the impact of these downside scenarios,
management has identified reasonable mitigating actions the Group could take, which include reducing production and mining volumes, exploring
new sales channels, deferring and/or reducing the Group’s capital expenditure.
Management also prepared stress tests for ‘severe downside’ scenarios, including cessation of production and/or interruption of its logistics
network for 3, 6 and 18 months. In the severe scenarios, management expected the Group to have sufficient liquidity for more than 12 months.
The Board is satisfied that the Group’s analysis, including the downside scenarios above, supports that it is appropriate to adopt the going
concern basis of preparation but recognise a material uncertainty exists.
For further details, refer to the Audit and Risk Committee’s report on page 96 and other areas of the Annual Report and Accounts (including the
Chairman’s statement on page 2, the CEO’s statement on pages 8 to 10, Principal risks on pages 57 and 58 and longer-term viability statement on
pages 73 to 75).
Our evaluation of the Directors’ assessment of the Group’s ability to continue to adopt the going concern basis of accounting, having considered
the impact of the war in Ukraine, included:
– Challenging management’s assessment of the potential risks and uncertainties relevant to the Group as a result of the war;
– Challenging whether the Group’s mitigating actions are reasonable and within the Group’s control;
– Obtaining evidence of delivery of critical supplies and reviewing new contracts entered into since 24 February 2022;
– Assessing for reasonableness the assumptions applied in the going concern assessment cash flow forecast, evaluating the potential 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 since 24 February 2022, 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;
– Assessing the Group’s going concern related financial statement disclosures; and
– Reviewing the events after the reporting period note disclosure of the impact on the financial statements, as well as confirming that the non-
adjusting post balance sheet event conclusion has been disclosed as a significant judgement.
We agree with management’s conclusion that there is enough evidence to conclude that the use of the going concern basis of accounting is
appropriate for the Group. We also agree that a material uncertainty risk about the Group’s ability to continue as a going concern exists, as some
of the uncertainties are outside of the Group management’s control, with the duration and the impact of the war unable to be predicted at this
point of time. Whilst the Group has successfully managed to procure all its key consumables, such as natural gas, electricity and diesel fuel,
andequipment required for its mining and processing operations to date, and has managed to continue its operations, the risk of a potential
disruption remains.
In relation to the Group’s reporting on how they have 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.
FINANCIAL STATEMENTS
136 Ferrexpo plc Annual Report & Accounts 2021
Overview of our audit approach
Materiality The materiality that we used for the Group financial statements was US$42 million (2020: US$26.5 million), which was
determined as 5% of the three-year average of profit before tax (“PBT”) and special items (2020: 5%).
Performance materiality was set at 60% of materiality (2020: 60%).
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.
Material subsidiaries were determined based on:
1) financial significance of the component to the Group as a whole; and
2) 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 in 100% of the Group’s
revenue, 98% of the Group’s profit and 95% of the net assets.
Key audit matters The key audit matters that we identified in the current year were:
– Completeness of related party transactions
– Taxation – IFRIC 23 and critical judgements of transfer pricing and the international structure
– Management override of controls
– Completeness of provisions for litigations and claims
– Accounting treatment and valuation of low-grade ore
Our assessment of the Group’s key audit matters is consistent with 2020 except for:
– Accounting treatment and valuation of low-grade Ore
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
137Ferrexpo plc Annual Report & Accounts 2021
Independent Auditor’s Report continued
To the members of Ferrexpo plc on the
audit of the financial statements
The scope of our audit and our key audit matters
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements and the
financial report. In particular, we looked at where the Directors made subjective judgements, for example, in respect of significant accounting
estimates that involved making assumptions and considering future events that are inherently uncertain.
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.
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$42.2 million (2020:
US$35.8 million) and other income of US$0.7 million (2020: US$0.4 million) in 2021.
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 Related party disclosures to the Financial Statements and the Group’s
controls are described in the Report of the Audit Committee on page 98.
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 their register.
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 2021 that are significant or outside the normal course of business.
We used our data analytics tool to search for transactions which had not been included in the related party disclosures.
We also used our data analytics tool to identify potential transactions with related parties.
We reviewed a sample of suppliers in Ukraine to establish whether they are genuine businesses against information held
on public records.
We performed independent searches of the Board of Directors’ other appointments and shareholdings and did not identify
any counterparties on the list which were not included in the related party disclosures.
Key observations We are satisfied that the related party transactions and balances are appropriately disclosed in the financial statements.
FINANCIAL STATEMENTS
138 Ferrexpo plc Annual Report & Accounts 2021
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, which comply with applicable legislation.
As detailed in Note 11 Taxation to the financial statements and considered by the Audit Committee on page 97 of the
Annual Report and Accounts, in August 2017, the State Tax Service of Ukraine (“STS”) commenced a tax audit for the
period from 1 September 2013 to 31 December 2015 at the Group’s major subsidiary in Ukraine with a focus on cross-
border transactions in terms of its pellet sales to another subsidiary of the Group resulting in a formal claim for UAH448
million (US$16.4 million) as at 31 December 2021 (2020: US$15.8 million).
The Group’s subsidiary initiated legal proceedings through various courts, which were ruled in favour of the Group. The
STS subsequently filed an appeal of cassation to the Supreme Court of Ukraine in December 2019, which remains open
after several hearings have taken place.
The STS launched two additional tax audits in February 2020 into the cross-border pricing arrangements with other Group
subsidiaries and for other financial periods. 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 2019.
The cassation proceedings commenced in November 2021 and although several hearings have been held since then, no
decision has yet been made by the Supreme Court of Ukraine. A hearing was scheduled for 28 February 2022, but did
not take place due to the Russian invasion into Ukraine on 24 February 2022. Considering the current situation in Ukraine,
it is unknown if and when the next hearing will take place. No results of the subsequent tax audits as well as the SBI
investigation have been issued by the relevant governmental authorities yet.
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.
The IFRIC 23 framework can be challenging to apply in the context of international taxation and contentious transfer
pricing, 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. 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 the correspondence with STS 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 IFRIC23 assessment for the inherent risks in 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
139Ferrexpo plc Annual Report & Accounts 2021
Independent Auditor’s Report continued
To the members of Ferrexpo plc on the
audit of the financial statements
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 Chief Executive Officer and 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 and the whistle blower reports 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 judgements 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; and
– 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 We did not identify any instances of management override of controls.
Contingencies and completeness of litigations and claims
Key audit matter
description
The Group is involved in a number of legal proceedings, both for and against the Group. Management has assessed that the
probability of success of the claim and considered how to account and/or disclosed the claims in accordance with IAS 37.
As disclosed in Note 30 Commitments, contingencies and legal disputes, the Group has disclosed the contingencies
which exist as a result of past transactions or events.
Management judgement is involved in assessing the accounting for contingencies and claims. In particular in considering
the probability of a claim 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.
How the scope of
our audit responded
to the key audit
matter
In response to the risk of the completeness of litigations and claims in the financial statements, we completed the following
audit procedures:
– Obtained external confirmations directly from the Group’s internal and external legal advisors and counsel.
– We discussed the cases with management, and reviewed correspondence and other documents exchanged between
the Group and the other parties involved.
– 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 based on our procedures detailed above.
Key observations Based on the procedures performed, we noted no material issues from our work.
FINANCIAL STATEMENTS
140 Ferrexpo plc Annual Report & Accounts 2021
Accounting treatment and valuation of low-grade ore
Key audit matter
description
In accordance with the Group’s accounting policies, low-grade iron ore inventories are required to be measured at the
lower of cost and net realisable value (‘NRV’) as at 31 December 2021.
The determination of the NRV of the Group’s low grade iron ore stockpile is an accounting estimate which is subject to
high estimation uncertainty, as it is highly dependent on subjective judgements in respect of the amount and timing of
future cash flows based on uncertain events many years in the future.
In October 2021, Management have re-assessed their plans to process low-grade ore in light of operational difficulties
in the processing facilities and changes following the implementation of the Group’s growth project approved by the
Board. As at 31 December 2021, management have confirmed there are no current plans for processing lean ore in the
foreseeable future due to the high iron fines price and current market demand that justify the high grading sales.
Given there is currently no immediate plan to process the low-grade ore, management have concluded that the entire
balance, with the exception of an immaterial balance relating to weathered ore, should be fully impaired as at the year end.
How the scope of
our audit responded
to the key audit
matter
In response to the risk of the accuracy of valuation of low-grade iron ore in the financial statements, we completed the
following audit procedures:
– Reviewed the method used in estimating the NRV of low-grade ore and considered if it is appropriate.
– Challenged management whether low-grade ore can be sold or contracted for processing to third parties.
– Identified which of the assumptions used are significant to the estimate, i.e., those whose reasonable variation would
cause a material change in the valuation of the NRV of low-grade ore.
– Evaluated whether, in the view of our knowledge of the circumstances of the Group and further information gathered
inthe course of the audit, the assumptions used in estimating the NRV of low-grade ore are reasonable.
– Developed our own point estimate of NRV of lean ore by modifying some of management’s assumptions and completed
a comparison.
– Assessed any evidence of management bias in selecting key assumptions and assessed the impact of changes in the
model vs. the assumptions used in previous periods.
– Reviewed management’s position paper on the rationale for the change in processing plans for 2022 and assessed the
impact of potential further deferrals in processing.
– Challenged whether the changes in intention should have been regarded as a prior year adjustment.
– Challenged whether low-grade ore should be recognised as stripping costs in light of a change in circumstances.
Key observations In October 2021, Management have re-assessed their plans to process low-grade ore in light of operational difficulties in
the processing facilities and changes following the approval of the growth project.
Based upon processing low-grade ore at the same levels as that estimated in the FY 2020, management have confirmed
that as at 31 December 2021 they did not intend to process any low-grade ore using existing and committed production
facilities until at least 2036 or later. Management also confirmed that low-grade ore may be processed at some earlier
point in the future only if additional purpose-built production capacity, for which there is no specific commitment yet,
isrealised.
Based upon our audit review, management’s stated intentions are consistent with the impairment of low-grade iron ore.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
141Ferrexpo plc Annual Report & Accounts 2021
Independent Auditor’s Report continued
To the members of Ferrexpo plc on the
audit of the financial statements
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 UK based, 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 focussed 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 vessel; and
revenue of the Hungarian DDSG Mahart entity. Our full scope and specified audit procedures cover revenue (100% of Group total), profit before tax
(98% of Group total) and net assets (95% of Group total).
The remaining 20 components represent a 2% of the Group’s profit before tax and individually do not represent more than a 1% of the Group’s
profit 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$0.9 million to US$16.0 million (2020: US$2.8
million to US$13.2 million).
98
2
Full scope
Specified audit procedures
Analytical procedures
96
2
2
Full scope
Analytical procedures
91
4
5
Full scope
Specified audit procedures
Analytical procedures
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 travel restrictions related to the global Covid-19 pandemic and more lately due to the Russian
military build-up on the borders which led to the incursion on 24 February 2022, 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 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.
FINANCIAL STATEMENTS
142 Ferrexpo plc Annual Report & Accounts 2021
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
5
10
15
20
25
30
35
40
45
2021 2020
42.0
26.5
Parent Company Materiality
(US$ Million)
0
2
4
6
8
10
12
14
16
2021 2020
9.0
15.0
How we
determinedit
We have determined materiality by using 5% of a three-
year average of profit before tax (2020: 5%)
2% of Parent Company’s net assets (2020: 2%)
Rationale for the
benchmark applied
The profit before tax for the years 2019-2021 has
been normalised in determining materiality to exclude
items which, due to their variable financial impact and/
or expected infrequency of the underlying events, are
not considered indicative of continuing operations of
theGroup.
These items do not form part of the Group’s internally or
externally monitored primary key performance indicators,
and which if included, would distort materiality year on-
year. We consider this approach of using a three-year
average to be more appropriate than an assessment
based on current-year results alone given the nature
of themining industry which is exposed to cyclical
commodity price fluctuations and to therefore provide
amore stable base reflective of the scale of the Group’s
size and operations.
We set our 2021 performance materiality at 60% of overall
materiality (2020: 60%), amounting to US$25.2million
(2020: US$15.9 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.
We consider the chosen benchmark to be appropriate due to
the nature of Parent Company’s operations being a holding
company of the Group.
We set our 2021 performance materiality at 60% of overall
materiality (2020: 60%), amounting to US$5.4 million
(2020:US$9.0 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.
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$2.1 million (2020: US$1.3 million) for the
Group as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
143Ferrexpo plc Annual Report & Accounts 2021
Independent Auditor’s Report continued
To the members of Ferrexpo plc on the
audit of the financial statements
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 those reports have been prepared in accordance with applicable legal requirements; 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.
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 or our knowledge obtained during the audit:
– Directors’ Statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties
identified set out on page 131;
– Directors’ explanation as to its assessment of the entity’s prospects, the period this assessment covers and why the period is appropriate set
out on pages 73 to 75;
– Director’s 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 pages 73 to 75;
– Directors’ statement on fair, balanced and understandable set out on page 133;
– Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 73;
– Section of the Annual Report and Accounts that describes the review of effectiveness of risk management and internal control systems set out
on page 98; and
– Section describing the work of the audit committee set out on pages 94 and 95.
FINANCIAL STATEMENTS
144 Ferrexpo plc Annual Report & Accounts 2021
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 133, 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.
Auditor’s 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 the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
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.
We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of
controls) and determined that the principal risks were related to posting inappropriate journal entries to both reduce costs and inflate operating
profit, and management bias in accounting estimates.
The specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud is
detailedbelow:
– obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and regulations that had a
direct effect on the financial statements. We obtained this understanding through assessing the risk register of the Group and understanding the
Group’s response to assessing the legal and regulatory frameworks that apply to it. In addition, we leveraged our understanding of the legal and
regulatory framework applicable to UK listed entities and to those in the mining sector, based on past experience of the team and consultation
with internal and external experts. This included, but was not limited to, discussions with the Group’s key legal advisers and review of minutes of
the Group’s various governance committees, including the Finance and Risk Management Committee;
– the key laws and regulations we considered in this context included UK Companies Act, Listing Rules, and 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;
– discussions among the engagement team including significant component audit teams and involving relevant internal specialists, including tax,
valuations, pensions, and IT;
– discussions with Group and local management, internal audit and the Group’s internal and external legal counsel, including consideration of
known or suspected instances of non-compliance with laws and regulations and fraud;
– enquiring of the Audit Committee concerning actual and potential litigation and claims;
– evaluation of the operating effectiveness of management’s controls designed to prevent and detect irregularities;
– assessment of matters reported on the Group’s whistleblowing helpline and the results of management’s investigation of such matters;
– reading key correspondence with regulatory authorities such as the Financial Conduct Authority; and the Financial Reporting Council;
– challenging assumptions and judgements made by management in their significant accounting estimates, in particular, with respect to
valuations of low-grade ore inventories;
– identifying and testing journal entries, in particular, any journal entries posted with understatement of costs, journals that are backdated or
posted by senior management;
– the audit team in Ukraine visited the mines in November and December 2021 and observed 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.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
145Ferrexpo plc Annual Report & Accounts 2021
Independent Auditor’s Report continued
To the members of Ferrexpo plc on the
audit of the financial statements
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from
the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a
material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by,
for example, forgery or intentional misrepresentations, or through collusion.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal
specialists and significant component audit teams and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit. The engagement team includes audit partners and staff who have extensive experience of working with listed companies
and with those in the mining sector, and this experience was relevant to the discussion about where the risk of irregularities, including fraud
mayarise.
A further description of our responsibilities is available on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities
This description forms part of our auditor’s report.
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 27 May 2021 to audit the financial statements for the year ending 31 December 2021. Our total uninterrupted engagement
is 3 years, covering the years ending 31 December 2019 to 31 December 2021.
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.
Our audit opinion is consistent with the additional report to the Audit Committee.
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
21 April 2022
FINANCIAL STATEMENTS
146 Ferrexpo plc Annual Report & Accounts 2021
Consolidated Income Statement
US$000 Notes
Year ended
31.12 . 21
Year ended
31.12.20
Revenue 6 2,5 1 8,23 0 1,70 0 , 3 2 1
Operating expenses
5/7 (1 , 4 11 , 9 11) (1,018,109)
Other operating income
8 9, 49 9 5,432
Operating foreign exchange (losses)/gains
9 (3 7 ,808) 61 ,023
Operating profit 1 ,078,010 74 8 , 6 6 7
Share of profit from associates
33 4, 4 6 8 5,624
Profit before tax and finance 1, 0 8 2 , 47 8 75 4 , 2 91
Finance income
10 637 553
Finance expense
10 (8,940) (12 , 2 8 6)
Non-operating foreign exchange (losses)/gains
9 (3,200) 5, 302
Profit before tax 1 ,070,975 747, 8 6 0
Income tax expense
11 (19 9 , 9 8 2) (112 , 5 6 8)
Profit for the year 870 , 9 93 635,292
Profit attributable to:
Equity shareholders of Ferrexpo plc 870,9 87 635,292
Non-controlling interests 6 −
Profit for the year 870,9 9 3 635, 292
Earnings per share:
Basic (US cents)
12 14 8 . 2 10 8 .1
Diluted (US cents)
12 14 7. 9 1 0 7. 9
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
147Ferrexpo plc Annual Report & Accounts 2021
Consolidated Statement of Comprehensive Income
US$000 Notes
Year ended
31.12 . 21
Year ended
31.12.20
Profit for the year 870, 99 3 635,292
Items that may subsequently be reclassified to profit or loss:
Exchange differences on translating foreign operations 82,196 ( 3 17, 6 74)
Income tax effect
11
(3 , 3 13) 16 , 2 7 8
Net other comprehensive income/(loss) that may be reclassified to profit or loss in
subsequent periods 78, 8 83 (301,396)
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains/(losses) on defined benefit pension liability
22 9, 8 8 2 (1, 0 5 7)
Net other comprehensive income/(loss) not being reclassified to profit or loss in
subsequent periods 9,8 82 (1, 0 5 7)
Other comprehensive income/(loss) for the year, net of tax 8 8 ,76 5 (302 ,453)
Total comprehensive income for the year, net of tax 959, 7 58 332 ,839
Total comprehensive income attributable to:
Equity shareholders of Ferrexpo plc 959, 778 3 3 2,8 2 2
Non-controlling interests (2 0) 17
959, 7 58 332 ,839
FINANCIAL STATEMENTS
148 Ferrexpo plc Annual Report & Accounts 2021
Consolidated Statement of Financial Position
US$000 Notes
As at
31.12 . 21
As at
31.12.20
Assets
Property, plant and equipment
13
1, 2 16 , 6 9 3 1 ,00 4,3 85
Right-of-use assets
14 7, 7 7 6 8 , 3 13
Goodwill and other intangible assets
15
43,586 4 0 ,73 4
Investments in associates
33
7, 0 3 4 5, 873
Inventories
17
8 , 414 21 3,685
Other non-current assets
16 96,484 25,480
Deferred tax assets
11
32,946
3 0 , 5 74
Total non-current assets
1, 41 2 , 9 3 3
1, 3 2 9 , 0 4 4
Inventories
17
202,399 1 44,6 0 5
Trade and other receivables
18 192 , 3 6 3 15 2 ,7 5 0
Prepayments and other current assets
19
6 8 ,16 2 25, 884
Income taxes recoverable and prepaid
11 636 1, 3 51
Other taxes recoverable and prepaid
20 48, 040 31, 3 2 3
Cash and cash equivalents
25 16 7, 2 9 1 270,0 0 6
Total current assets
678 , 8 91
6 2 5 , 9 19
Total assets
2 , 0 9 1, 8 2 4
1 ,95 4,9 63
Equity and liabilities
Issued capital
31 121, 6 2 8 12 1 ,6 28
Share premium 1 8 5 ,11 2 18 5 ,11 2
Other reserves
31 (1 ,986, 13 1) (2,0 6 5, 8 9 6)
Retained earnings
3 , 510 ,7 9 3
3, 25 0,5 3 4
Equity attributable to equity shareholders of Ferrexpo plc
1, 8 31, 4 0 2
1, 4 9 1, 3 7 8
Non-controlling interests
75
95
Total equity
1, 8 31, 47 7
1, 4 9 1, 47 3
Interest-bearing loans and borrowings
5/26 2 ,1 4 3 1 3 2 ,1 2 9
Defined benefit pension liability
22
2 6 , 0 74 32 , 47 5
Provision for site restoration
23 3 , 873 2,8 4 6
Deferred tax liabilities
11
141
101
Total non-current liabilities
32 , 2 31
16 7, 5 5 1
Interest-bearing loans and borrowings
5/26 48,206 134,34 9
Trade and other payables
21 72 , 8 2 4 4 3 , 74 9
Accrued and contract liabilities
24 5 2 , 6 13 45,542
Income taxes payable
11 3 7,13 8 58,48 3
Other taxes payable
20
1 7 ,335
13 , 8 16
Total current liabilities
2 2 8 ,116
295,939
Total liabilities
2 6 0 , 3 47
46 3,49 0
Total equity and liabilities
2 , 0 9 1, 8 2 4
1,954,963
The financial statements were approved by the Board of Directors and authorised for issue on 21 April 2022 and signed on behalf of the Board.
Lucio Genovese Jim North
Non-executive Chair Chief Executive Officer & Executive Director
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
149Ferrexpo plc Annual Report & Accounts 2021
Consolidated Statement of Cash Flows
US$000 Notes
Year ended
31.12 . 21
Year ended
31.12.20
Profit before tax 1 ,070,975 747, 8 6 0
Adjustments for:
Depreciation of property, plant and equipment, right-of-use assets and amortisation of intangible assets 115 ,111 10 2 , 47 5
Finance expense
10 5,7 2 9 9 ,11 3
Finance income
10 (637) (55 3)
Losses on disposal and liquidation of property, plant and equipment 4,69 5 1, 3 0 3
Write-offs
7 4,5 07 19 2
Impairment of inventories
7 2 3 1 ,111 −
Share of profit from associates
33 (4,4 6 8) (5, 6 24)
Movement in allowance for doubtful receivables
18 69 0 7 24
Movement in site restoration provision
23 5 51 18
Employee benefits
22 4,936 4 ,7 7 9
Share-based payments
28 856 291
Operating foreign exchange losses/(gains)
9 37 ,808 (61 ,023)
Non-operating foreign exchange losses/(gains)
9 3, 200 (5, 3 02)
Other adjustments (4 , 9 14) (2, 5 46)
Operating cash flow before working capital changes 1 , 4 7 0 ,1 5 0 7 9 1, 7 0 7
Changes in working capital:
Increase in trade and other receivables (10 2 , 8 2 7) (49, 5 3 8)
(Increase)/decrease in inventories (6 5 ,1 7 0) 2 7, 0 3 4
Increase/(decrease) in trade and other payables (incl. accrued and contract liabilities) 4 0 ,1 8 6 (4 ,79 8)
(Increase)/decrease in other taxes recoverable and payable (incl. VAT)
20 (1 1 ,073) 3 , 2 14
Cash generated from operating activities 1, 3 31, 2 6 6 76 7, 6 1 9
Interest paid (7, 0 3 1) (2 1, 4 3 9)
Income tax paid
11 (227,930) (5 6 , 5 71)
Post-employment benefits paid (2 , 475) (2 , 3 9 1)
Net cash flows from operating activities 1, 0 9 3 , 8 3 0 6 8 7, 21 8
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets
13/15 (3 60, 86 9) (20 5 ,77 9)
Proceeds from disposal of property, plant and equipment and intangible assets 1, 0 3 0 836
Interest received 583 442
Dividends from associates 3,9 67 4,0 27
Advance payment for investment in joint venture
16 − (5 ,000)
Net cash flows used in investing activities (355,289) (205,4 7 4)
Cash flows from financing activities
Proceeds from loans and borrowings
26 4 2 ,14 6 −
Repayment of loans and borrowings
26 (2 5 7, 4 3 0) (14 4 , 9 0 4)
Principal elements of lease payments
26 (5 , 5 17) (3, 0 82)
Dividends paid to equity shareholders of Ferrexpo plc
12 (619 , 3 7 7) (19 5 , 4 4 6)
Net cash flows used in financing activities (8 4 0 ,17 8) (343,43 2)
Net (decrease)/increase in cash and cash equivalents (10 1, 6 3 7) 13 8 , 3 12
Cash and cash equivalents at the beginning of the year 270,00 6 131, 0 2 0
Currency translation differences (1, 0 7 8) 6 74
Cash and cash equivalents at the end of the year
25 16 7, 2 9 1 270 ,0 0 6
FINANCIAL STATEMENTS
150 Ferrexpo plc Annual Report & Accounts 2021
Attributable to equity shareholders of Ferrexpo plc
US$000
Issued capital
(Note 31)
Share premium
(Note 31)
Other reserves
(Note 31)
Retained
earnings
Total
capital and
reserves
Non-controlling
interests
(Note 32)
Total
equity
At 1 January 2020 1 21, 6 2 8 1 8 5 ,11 2 (1,76 4 ,7 7 4) 2, 810 , 5 8 8 1 ,352 ,554 78 1, 3 5 2 , 6 3 2
Profit for the year – – – 635,292 635, 292 − 635, 292
Other comprehensive (loss)/
income – – (3 0 1, 413) (1, 0 5 7) (3 0 2 , 470) 17 (302 ,453)
Total comprehensive (loss)/
income for theyear – – (301 ,4 13) 6 3 4,23 5 3 3 2,8 22 17 332, 839
Share-based payments (Note 28) – – 291 – 2 91 – 291
Equity dividends to shareholders
of Ferrexpoplc – – – (19 4 , 28 9) (19 4 , 2 8 9) – (19 4 , 2 8 9)
At 31 December 2020 121, 6 2 8 1 8 5 ,11 2 (2,0 6 5 ,8 9 6) 3, 25 0, 53 4 1, 4 9 1, 3 7 8 95 1, 4 9 1, 47 3
Profit for the year – – – 870,9 87 870,9 87 6 870,9 9 3
Other comprehensive income/
(loss) – – 78 ,9 0 9 9, 8 82 8 8 ,79 1 (2 6) 8 8 ,7 6 5
Total comprehensive income/
(loss) for theyear – – 78 ,9 0 9 8 80, 86 9 959, 778 (2 0) 959, 7 58
Share-based payments (Note 28) – – 856 – 856 – 856
Equity dividends to shareholders
of Ferrexpoplc (Note 12) – – – (620,610) (620,610) – (620,610)
At 31 December 2021 121, 6 2 8 1 8 5 ,11 2 (1 ,986, 1 3 1) 3 , 51 0,7 9 3 1, 8 3 1, 4 0 2 75 1, 8 3 1, 47 7
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.
Consolidated Statement of Changes in Equity
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
151Ferrexpo plc Annual Report & Accounts 2021
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 Kremenchug 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 Kremenchug Magnetic Anomaly and are currently
being extracted at the Gorishne-Plavninske-Lavrykivske (“GPL”) and Yerystivske deposits.
The majority 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, the Group’s previous Chief Executive Officer, and two other members of his family
are the beneficiaries. At the time this report was published, Fevamotinico held 50.3% (2020: 50.3%) of Ferrexpo plc’s issued share capital.
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. 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 detailed accounting policies are included in the disclosure notes to the specific financial statement accounts.
Going concern
On 24 February 2022, Russia began its invasion into Ukraine using direct military force and this has led to an intense armed conflict in Ukraine,
which is, as at the date of the approval of these consolidated financial statements, still ongoing. Although the Group has managed to continue its
operations, the war continues to pose a 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.
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; and
iii) the feasibility and effectiveness of all available mitigating actions within the Group management’s control for identified uncertainties,
a material uncertainty still remains as some of the uncertainties are outside of the Group management’s control, with the duration and the impact
of the war unable to be predicted at this point of time. Whilst the Group has successfully managed to procure all its key consumables, such as
natural gas, electricity and diesel fuel, and equipment required for its mining and processing operation to date, the risk of a potential disruption
to the required supplies, remains. As announced several times to the market, the Group’s seaborne sales through the port of Pivdennyi, located
in southwest Ukraine, where the Group’s berth is located for shipping pellets to customers, have been suspended as a result of the closure
of the port and due to constraints caused by the hostilities in the Black Sea. Although activities at the Black Sea port of Pivdennyi continue to
be suspended, the Group’s logistics pathways to its European customers via rail and barge remain currently available. These have historically
represented approximately 50% of the Group’s sales. However, a further interruption to the availability of the Group’s logistics network may result
in a significant decline in the Group’s operating cash flows. Due to the potential threat resulting form the war in Ukraine, the Group has redesigned
its mining and processing plans in order to align them to the new circumstances. Further to that, the Group has identified possible alternative
options accessible in case of an interruption of the supplies of key consumables and equipment as well as its currently available logistics network.
As at the date of the approval of these consolidated financial statements, the Group is in a net cash position of approximately US$192,000
thousand with an available cash balance of approximately US$209,000 thousand. In addition to the available cash balance, the Group has an
outstanding receivable balance of approximately US$156,000 thousand from its sales in March and April 2022, which are expected to be collected
in the next weeks.
As part of management’s going concern assessment, the Group adjusted its long-term model reflecting the lower sales volume caused by the
unavailable seaborne sales to its customers. The adjusted 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.
As a result of the remaining material uncertainty outside of the Group’s control in respect of the duration and the impact of the war in the future, the
Group also prepared stress tests with more severe adverse changes, such as a ceasing of its production for 3, 6 and 18 months, which could be
caused by a disruption of the supplies for key consumables and equipment and/or a further interruption of the Group’s currently available logistics
network. Based on these stress tests, it is expected that the Group would have sufficient liquidity for more than 12 months and sufficient mitigating
actions, such as further reductions of the development capital expenditures and its operating costs, within its control, even if the operations were
to be stopped immediately.
FINANCIAL STATEMENTS
152 Ferrexpo plc Annual Report & Accounts 2021
Note 2: Basis of preparation continued
Considering the current situation of the war in Ukraine, all identified available mitigating actions addressing the uncertainties caused by the war,
as outlined on page 57, 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 and are of
unpredictable duration and severity, which may cast significant doubt upon the Group’s ability to continue as a going concern.
In addition, 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 involved in the conflict, but this remains a risk. Should the area surrounding the Group’s operations become a focal
point of 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 Principal Risks section on pages 57 and
58 for further information.
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 the consolidated financial statements. Further information on the financial impact of the war in Ukraine
is provided in Note 35 Events after the reporting period.
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 2020 except for the adoption of new
standards, interpretations and amendments to UK adopted IFRS effective as of 1 January 2021.
New standards, interpretations and amendments adopted without an impact on the Group’s consolidated financial statements
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 relate to the modification of financial
assets, financial liabilities and lease liabilities, specific hedge accounting requirements, and corresponding disclosure requirements. Modifications
of financial assets and financial liabilities required as a direct consequence of the Interbank offered rates (“IBOR”) reform and made on an
economically equivalent basis are accounted for by updating the effective interest rate and a similar practical expedient is proposed for lessee
accounting applying IFRS 16. All other modifications are accounted for using the current IFRS requirements.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
153Ferrexpo plc Annual Report & Accounts 2021
Note 3: New accounting policies continued
Additional disclosure requirements are introduced in order to allow users to understand the nature of the exposure and extent of risks arising
from the IBOR reform and how those risks are assessed as well as the progress in transitioning from IBORs to alternative benchmark rates,
and how this transition is managed. As at 31 December 2021, the Group has outstanding short-term uncommitted trade finance facilities at
a floating rate (see Note 26 Interest-bearing loans and borrowings for further information). These lines are denominated in USD and linked to
USD LIBOR. Following the current IBOR Transition plan, the Group is revising these interest rate conditions with its financial partners to come
to define adequate applicable fallback conditions going forward. The Group does not expect a material impact on the funding cost of its lines
fromtheTransition.
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.
Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current were issued in January 2020 and
are effective for the financial year beginning on 1 January 2024 subject to endorsement by the UK Endorsement Board. 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.
Amendments to IAS 16 Property, Plant and Equipment were issued in May 2020 and are effective for the financial year beginning on 1 January
2022 subject to endorsement by the UK Endorsement Board. The amendments prohibit the deduction from the cost of an item of property, plant
and equipment of any proceeds from selling items produced while bringing that asset into operation and clarify that these proceeds (and the
corresponding costs of production) are recognised in profit or loss. The Group does not expect that these amendments will have a material impact
on its consolidated financial statements.
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets were issued in May 2020 and are effective for the financial year
beginning on 1 January 2022 subject to endorsement by the UK Endorsement Board. The amendments clarify that the cost of fulfilling a contract
comprises the costs that relate directly to the contract. These can either be incremental costs of fulfilling that contract or the allocation of other
costs that relate directly to fulfilling contracts. The Group does not expect that these amendments will have a material impact on its consolidated
financial statements.
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies were issued in
February 2021 and are effective for the financial year beginning on 1 January 2023 subject to endorsement by the UK Endorsement Board. They
require the disclosures of material accounting policies rather than significant accounting policies. The amendments to IAS 1 clarify that accounting
policy information may be material because of its nature, even if it relates to immaterial amounts, that accounting policy information is material
when it is needed by users of financial statements to understand other material information in the financial statements and that the disclosure of
immaterial accounting policy information shall not obscure material accounting policy information. The amendments to IFRS Practice Statement
2 include guidance and examples to the amendments to IAS 1 and illustrate, in particular, the “four-step materiality process” to accounting policy
information. The Group does not expect that these amendments will have a material impact on its consolidated financial statements.
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates were issued in
February 2021 and are effective for the financial year beginning on 1 January 2023 subject to endorsement by the UK Endorsement Board. The
amendments 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. A change in accounting estimate resulting from new information or
developments is not the correction of an error and changes in an input or a measurement technique of an accounting estimate are changes in
accounting estimates if they do not result from the correction of prior period errors. The effect of the change relating to the current period is
recognised as income or expense in the current period while the effect, if any, on future periods is recognised as income or expense in those future
periods. The Group does not expect that these amendments will have a material impact on its consolidated financial statements.
Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction were issued in May 2021
and are effective for the financial year beginning on 1 January 2023 subject to endorsement by the UK Endorsement Board. The amendments
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. For these transactions, such as leases or decommissioning obligations, deferred tax has to be
recognised upon accounting of both an asset and a liability. The Group does not expect that these amendments will have a material impact on its
consolidated financial statements.
Furthermore, the Group does not expect an impact on its consolidated financial statements from all other standards, interpretations and
amendments issued at the reporting date, but not yet to be adopted for these financial statements.
Notes to the Consolidated Financial Statements continued
FINANCIAL STATEMENTS
154 Ferrexpo plc Annual Report & Accounts 2021
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 17 Inventories – low-grade and weathered ore
Critical judgements
– Note 2 Basis of preparation – going concern assumption
– Note 11 Taxation – tax legislation
– Note 30 Commitments, contingencies and legal disputes – loan relationship between related parties of the Group
– Note 35 Events after the reporting period – non-adjusting post balance sheet event
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 207.
US$000
Notes
Year ended
31.12 . 21
Year ended
31.12.20
Profit before tax and finance 1,082,478 754,291
Losses on disposal and liquidation of property, plant and equipment 4,695 1,303
Share-based payments
28 856 291
Write-offs and impairments
7 235,618 192
Depreciation and amortisation 115,112 102,475
Underlying EBITDA 1,438,759 858,552
US$000
Notes
Year ended
31.12 . 21
Year ended
31.12.20
Revenue 6 2,518,230 1,700,321
Cost of sales
7 (727,818) (608,641)
Gross profit 1,790,412 1,091,680
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
31.12 . 21
As at
31.12.20
Cash and cash equivalents 25 167, 291 270,006
Interest-bearing loans and borrowings – current
26 (48,206) (134,349)
Interest-bearing loans and borrowings – non-current
26 (2,143) (132,129)
Net cash 116,942 3,528
The Group made debt repayments net of proceeds of US$221,188 thousand during the year ended 31 December 2021 (2020: US$148,328
thousand). Net cash is an Alternative Performance Measure (“APM”). Further information on the APMs used by the Group, including the definitions,
is provided on pages 207 to 209.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
155Ferrexpo plc Annual Report & Accounts 2021
Note 5: Segment information continued
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 the following terms:
– CIF (“Cost Insurance and Freight”);
– CFR (“Cost and Freight”);
– DAP (“Delivery At Place”); or
– FOB (“Free on Board”).
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.
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.
Notes to the Consolidated Financial Statements continued
FINANCIAL STATEMENTS
156 Ferrexpo plc Annual Report & Accounts 2021
Note 6: Revenue continued
Revenue for the year ended 31 December 2021 consisted of the following:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Revenue from sales of iron ore pellets and concentrate 2,323,238 1,523,772
Freight revenue related to sales of iron ore pellets and concentrate 137,595 125,254
Total revenue from sales of iron ore pellets and concentrate 2,460,833 1,649,026
Revenue from logistics and bunker business 50,393 46,002
Revenue from other sales and services provided 7,004 5,293
Total revenue 2,518,230 1,700,321
Revenue for the year ended 31 December 2021 includes the effect from the derecognition of contract liabilities of US$8,487 thousand (2020:
US$8,572 thousand) deferred as revenue in the comparative year ended 31 December 2020. As at 31 December 2021, freight-related revenue in
the amount of US$7,648 thousand was deferred in relation to the performance obligations not fulfilled and included in the balance of the contract
liabilities. See Note 24 Accrued and contract liabilities for further information.
Export sales of iron ore pellets and concentrate by geographical destination showing separately countries that individually represented 10%
ormore of export sales in either the current or prior year were as follows:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Europe, including Turkey 1,354,048 584,286
Austria 5 27, 2 0 0 280,903
Germany 291,235 14 5 ,311
Turkey 270,514 82,514
Others 265,099 75,558
North East Asia 223,409 78,786
China & South East Asia 770,584 951,718
China 549,885 908,949
Others 220,699 42,769
Middle East & North Africa 23,928 –
North America 88,864 34,236
Total exports 2,460,833 1,649,026
The Group markets its products across various regions. The presentation of the sales segmentation data has been changed during the financial
year 2021 with Turkey being reclassified from the region Middle East and North Africa to Europe in order to reflect how the Group makes its
business decisions and monitors its sales. In order to be consistent with the presentation in the current year, export sales of iron ore pellets
and concentrate to Turkey in the amount of US$82,514 thousand have been reclassified for the comparative year ended 31 December 2020.
Information about the composition of the regions is provided in the Glossary on pages 210 and 211.
During the year ended 31 December 2021, sales made to three customers accounted for 37% of the revenues from export sales of ore pellets and
concentrate (2020: 41%).
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
31.12 . 21
Year ended
31.12.20
Customer A 389,554 280,903
Customer B 211,231 316,720
Customer C 29 0,511 96,596
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
157Ferrexpo plc Annual Report & Accounts 2021
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 2021 consisted of the following:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Cost of sales 727,818 608,641
Selling and distribution expenses 340,301 309,276
General and administrative expenses 72,163 61,788
Other operating expenses 271,629 38,404
Total operating expenses 1,411,911 1,018,10 9
Total operating expenses include:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Inventories recognised as an expense upon sale of goods 697,900 582,796
Employee costs (excl. logistics and bunker business) 104,018 106,782
Inventory movements (51,603) 41,471
Depreciation of property, plant and equipment and right-of-use assets 113,429 101,278
Amortisation of intangible assets 1,682 1,197
Royalties 40,871 29,180
Costs of logistics and bunker business 47,254 39,993
Audit and non-audit services 1,694 1,719
Community support donations 6,449 5,800
Write-offs and impairments 235,618 192
Losses on disposal and liquidation of property, plant and equipment 4,695 1,303
US$000
Notes
As at
31.12 . 21
As at
31.12.20
Write-off of inventories 247 466
Write-off/(write-back) of property, plant and equipment
13 3,233 (288)
Write-off of intangible assets
15 931 –
Write-off of receivables and prepayments 96 14
Total write-offs 4,507 192
Impairment of inventories
17 231,111 –
Total impairments 231,111 –
Total write-offs and impairments 235,618 192
Impairment of inventories for the year ended 31 December 2021 is related to the stockpiled low-grade ore for which the start of the processing
of low-grade ore and the volume expected to be utilised cannot be reliably estimated as at the date of the approval of the consolidated financial
statements. Further information is provided in Note 17 Inventories. Write-offs of property, plant and equipment and intangible assets for the year
ended 31 December 2021 is primarily related to the cancellation of the licence for the Galeschynske project, which is in the exploration phase.
Whilst the Group is focused on returning this licence to its previous state, all capitalised costs associated with this licence have been written off
as the outcome is currently uncertain. For further information see Note 30 Commitments, contingencies and legal disputes and the update on the
Group’s Principal Risks on page 60 in terms of the Ukraine country risk.
Notes to the Consolidated Financial Statements continued
FINANCIAL STATEMENTS
158 Ferrexpo plc Annual Report & Accounts 2021
Note 7: Operating expenses continued
Auditor remuneration
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Audit services
Ferrexpo plc Annual Report and Accounts 1,269 1,356
Subsidiary entities 196 213
Total audit services 1,465 1,569
Audit-related assurance services 229 150
Total audit and audit-related assurance services 1,694 1,719
Total auditor remuneration 1,694 1,719
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.
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 2021 consisted of the following:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Lease income 916 649
Other income 8,583 4,783
Total other income 9,499 5,432
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 2021 consisted of the following:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Operating foreign exchange (losses)/gains
Conversion of trade receivables (37,791) 61,948
Conversion of trade payables 38 (538)
Other (55) (387)
Total operating foreign exchange (losses)/gains (37,808) 61,023
Non-operating foreign exchange (losses)/gains
Conversion of interest-bearing loans (3,229) 3,378
Conversion of cash and cash equivalents (181) 2,506
Other 210 (582)
Total non-operating foreign exchange (losses)/gains (3,200) 5,302
Total foreign exchange (losses)/gains (41,008) 66,325
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
159Ferrexpo plc Annual Report & Accounts 2021
Note 9: Foreign exchange gains and losses continued
The translation differences and foreign exchange gains and losses are predominantly dependent on the fluctuation of the exchange rate of the
Ukrainian hryvnia against the US dollar and the outstanding US dollar denominated receivable balances in Ukraine. During the financial year 2021,
the Ukrainian hryvnia appreciated from 28.275 as at the beginning of the year to 27.278 as at 31 December 2021 resulting in an operating foreign
exchange loss (2020: depreciation from 23.686 as at the beginning of the year to 28.275 as at 31 December 2020 resulting in an operating foreign
exchange gain).
The table below shows the closing and average rates of the most relevant currencies of the Group compared to the USdollar.
Average exchange rates Closing exchange rates
Against US$
As at
31.12 . 21
As at
31.12.20
Year ended
31.12 . 21
Year ended
31.12.20
UAH 27.286 26.958 27.278 28.275
EUR 0.845 0.877 0.882 0.815
Exchange differences arising on translation of non-US dollar functional currency operations (mainly in Ukrainian hryvnia) are included in the
translation reserve. See Note 31 Share capital and reserves for further details.
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.
Finance expense and income for the year ended 31 December 2021 consisted of the following:
US$000
Notes
Year ended
31.12 . 21
Year ended
31.12.20
Finance expense
Interest expense on loans and borrowings (9,567) (22,381)
Less capitalised borrowing costs 5,343 14,871
Net interest on defined benefit plans
22 (3,211) (3,170)
Bank charges (632) (829)
Interest expense on lease liabilities (474) (443)
Other finance costs (399) (334)
Total finance expense (8,940) (12,286)
Finance income
Interest income 609 497
Other finance income 28 56
Total finance income 637 553
Net finance expense (8,303) (11,733)
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.
Notes to the Consolidated Financial Statements continued
FINANCIAL STATEMENTS
160 Ferrexpo plc Annual Report & Accounts 2021
Note 11: Taxation continued
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 all or part of 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.
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.
In August 2017, the State Fiscal Service of Ukraine (“SFS”) commenced a tax audit for the period from 1 September 2013 to 31 December 2015
at the Group’s major subsidiary in Ukraine with a focus on cross-border transactions in terms of its pellet sales to another subsidiary of the
Group. Following the completion of this audit, the SFS issued its official tax audit report on 27 December 2018, claiming a tax adjustment totalling
UAH448 million (US$16,423 thousand as at 31 December 2021) and issued the formal claim on 12 March 2019. The Group’s subsidiary initiated
legal proceedings and filed a claim to the first court instance in Poltava on 22 March 2019. The Poltava court of first instance confirmed on
4 September 2019 the position of the Group’s major subsidiary. The SFS filed its appeal in November 2019 and the Second Administrative Court
of Appeal confirmed on 21 December 2019 the decision of the first court instance and supported the position of the Group’s subsidiary in full.
The SFS subsequently filed an application of cassation to the Supreme Court of Ukraine. The cassation proceedings commenced in November
2021 and although several hearings have been held since then, no decision has yet been made by the Supreme Court of Ukraine. A hearing was
scheduled for 28 February 2022, but did not take place due to the Russian invasion into Ukraine on 24 February 2022. Considering the current
situation in Ukraine, it is unknown if and when the next hearing will take place.
On 18 February 2020, the State Tax Service of Ukraine (“STS”), formerly known as SFS, commenced two new 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. The audits were halted in March 2020 due to a Covid-19 related quarantine imposed
in Ukraine and resumed on 10 February 2021. 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. Based on legislation
in Ukraine, the results of these audits are to be provided by the STS within 18 months after commencement. As for the claim for cross-border
transactions currently heard in the Supreme Court of Ukraine, the above-mentioned tax audits are on hold and it is currently unknown if and when
these will resume again.
The Group considers that it has complied with applicable legislation for all cross-border transactions undertaken and continues to expect that it
can successfully defend its methodology applied to determine the prices between its subsidiaries. Consequently, no provision has been recorded
as at 31 December 2021, neither for the years subject to the aforementioned court proceedings nor for transactions and years subject to the new
audits commenced by the SFS in Ukraine. As of the approval of these consolidated financial statements, no claim has been made by the SFS in
respect of the newly commenced audits.
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 ongoing court proceedings and the newly commenced audits of cross-border transactions in Ukraine under the provisions
of this interpretation. Considering the two favourable court decisions and third party advice obtained for the financial years 2021, 2020 and 2019,
the management of the Group concluded that it is probable that the Supreme Court of Ukraine will confirm the decisions from the two lower
court instances. It is considered that, if there are any new claims made by the SFS, the Group will continue to successfully defend its pricing
methodology applied during these years. An unexpected outcome of the ongoing court proceeding would have an adverse impact on the Group’s
total income tax expense and effective tax rate in a future period.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
161Ferrexpo plc Annual Report & Accounts 2021
Note 11: Taxation continued
Separate from the cases mentioned above, on 23 June 2020 FPM received a court ruling, which grants access to information and documents to
the State Bureau of Investigators 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. The court ruling relates to pre-trial investigations carried out by the SBI in relation to potential tax evasion by the
Group in Ukraine. At the time of the approval of these consolidated financial statements, there is very little information provided in the court ruling
in respect to the alleged offences. There is no quantified claim made by the SBI and the ruling is primarily seeking disclosure of information in
order to allow the SBI to determine whether there have potentially been any offences. The Ukrainian subsidiaries cooperated with the SBI and
provided the requested information as per the court ruling in order to support these pre-trial investigations. As of the date of approval of these
consolidated financial statements, there have been no actions or any new requests received from the SBI.
The Ukrainian legislation and regulations on taxation continued to evolve over the last number of years. However, they are not always clearly
written and are therefore subject to varying interpretations and inconsistent enforcement by local, regional and national tax authorities. As a result,
instances of inconsistent interpretations and enforcements to resolve the same or similar cases are not unusual. See also the Principal Risks
section on pages 59 and 60 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.
The income tax expense for the year ended 31 December 2021 consisted of the following:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Current income tax
Current income tax charge 202,335 111,160
Amounts related to previous years (1,010) (1,203)
Total current income tax 201,325 109,957
Deferred income tax
Origination and reversal of temporary differences (1,343) 2,611
Total deferred income tax (1,343) 2,611
Total income tax expense 199,982 112,568
Tax effects on items recognised in other comprehensive income consisted of the following for the year ended 31 December 2021:
US$000
Notes
Year ended
31.12 . 21
Year ended
31.12.20
Tax effect of exchange differences arising on translating foreign operations 31 3,313 (16,278)
Total income tax effects recognised in other comprehensive (loss)/income 3,313 (16,278)
Notes to the Consolidated Financial Statements continued
FINANCIAL STATEMENTS
162 Ferrexpo plc Annual Report & Accounts 2021
Note 11: Taxation continued
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 was 15.5% for the financial year 2021 (2020:15.1%).
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 2021 is as follows:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Profit before tax 1,070,975 747,8 60
Notional tax charge computed at the weighted average statutory tax rate of 15.5% (2020: 15.1%) 166,330 112,583
Derecognition/(recognition) of deferred tax assets
1
1,107 2,13 9
Credit for Ukrainian fuel excise tax against income tax
2
– (1,10 6)
Expenses not deductible for local tax purposes
3
42,163 1,046
Income exempted for local tax purposes
4
(238) (1,807)
Effect from utilisation of non-recognised deferred taxes
5
(5,852) –
Effect from capitalised tax loss carry forwards on historic tax losses
5
(1,578) –
Effect from non-recognition of deferred taxes on current year losses
6
– 1,345
Effect of different tax rates on local profit streams
7
(1,131) 779
Prior year adjustments to current tax
8
(1,010) (1,203)
Effect from share of profit from associates
9
(803) (997)
Other (including translation differences) 994 (212)
Total income tax expense 199,982 112,568
1. The derecognition in 2021 and 2020 is related to deferred tax assets recognised in 2019 in light of the change of the tax law in Switzerland. The deferred tax assets recognised were in
connectionwith available transitional measures for companies losing the special tax status available under the old tax law. The derecognition is due to the fact that the taxable profits of the
Swiss subsidiaries were lower than forecasted. Whilst the recognition is considered of a non-recurring nature, the derecognition might recur again depending on the taxable profits of the Swiss
subsidiaries in the future.
2. Effective 1 January 2018, a temporary provision in the Ukrainian tax code allowed a reduction in income tax payable for the amount of excise tax included in prices of fuel used for mining
equipment. This provision was still applied for the financial year 2020, but not for the financial year 2021.
3. The effect in 2021 predominantly relates to the impairment loss of US$231,111 thousand on stockpiled low-grade ore recorded in one of the Group’s subsidiaries in Ukraine, which is not deductible.
This effect is considered to be of a non-recurring nature. There are other expenses in Ukraine and the United Kingdom, which are historically not deductible for tax purposes according to the
enacted local tax legislation and considered to be of a recurring nature.
4. The effect in 2020 largely relates to interest income that does not incur any additional local tax in the United Kingdom due to withholding tax paid on this interest in Ukraine. This effect is considered
to be of a non-recurring nature.
5. The effects relate to a subsidiary in Ukraine, for which no deferred tax asset was recognised for available tax losses at the end of the comparative year ended 31 December 2020. During the
financial year 2021, the subsidiary became profitable and available tax losses incurred in previous years were used to offset the profit. As all available losses are either used or recognised as a
deferred tax asset as at 31 December 2021, this effect is considered to be of a non-recurring nature.
6. The effect in 2020 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.
7. The effects in 2021 and 2020 relate to 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.
8. The effects in 2021 and 2020 relate to final tax assessments received in Switzerland. Similar effects are likely to occur in the future. In addition to the effect in Switzerland in 2021, included therein is
the release and recognition of provisions, which are expected to be non-recurring.
9. Share of profit from associates is recognised net of taxes of the associates. This effect is of a recurring nature.
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 2021 was 18.7% (2020: 15.1%). The increase predominantly relates to an impairment loss in respect
of stockpiled low-grade ore recorded in a subsidiary in Ukraine, which is not tax deductible in Ukraine. This effect is considered to be of a non-
recurring nature and, without this effect, the effective tax rate for the financial year 2021 would have been 15.4%.
Following an agreement reached by the Finance Ministers from the G7 in July 2021 backing the creation of a global minimum corporate tax rate
of least 15%, over 140 countries and jurisdictions have agreed to the OECD/G20 Inclusive Framework on BEPS, also referred to as BEPS 2.0,
including Ukraine, United Arab Emirates and Switzerland. The new framework aims to ensure that large multinational enterprises pay a fair share
of tax wherever they operate and to set a global minimum tax rate. Earliest possible implementation is on 1 January 2023 and it is expected that
implementation in key countries will commence soon. Whilst some details are still unknown, the United Arab Emirates and Switzerland announced
the adjustment of their local tax legislation by 1 June 2023 and 1 January 2024, respectively, resulting in an increase of the local corporate tax rate.
Based on the current understanding of the anticipated changes to the global tax landscape, the Group expects an increase of its future effective
tax rate once adjustments are made to relevant local tax legislation. The Group’s future effective tax rate is expected to be in a range of 15.0% to
19.0%. As mentioned above, this 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.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
163Ferrexpo plc Annual Report & Accounts 2021
Note 11: Taxation continued
As mentioned under critical judgements on page 161, the Group is involved in ongoing court proceedings in respect of its cross-border
transactions and an unexpected adverse outcome would have an adverse impact on the Group’s total income tax expense and its effective tax
rate in the future. In addition to the changes in the statutory tax rates, the Group’s future effective tax rate could also be impacted by legislative
changes or different interpretations of the legislation in any of its key jurisdictions. See also the Principal Risks section on pages 59 and 60 for
further information on the Ukraine country risk.
The net balance of income tax payable changed as follows during the financial year 2021:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Opening balance (57,132) (21,064)
Charge in the consolidated income statement (201,325) (109,957)
Booked through other comprehensive (loss)/income (3,313) 16,278
Tax paid 227,930 56,571
Translation differences (2,662) 1,040
Closing balance (36,502) (57,13 2)
The net income tax payable as at 31 December 2021 consisted of the following:
US$000
As at
31.12 . 21
As at
31.12.20
Income tax receivable balance 636 1,351
Income tax payable balance (37,138) (58,483)
Net income tax payable (36,502) (57,13 2)
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2021:
Consolidated statement
of financial position
Consolidated
income statement
US$000
Notes
As at
31.12 . 21
As at
31.12.20
Year ended
31.12 . 21
Year ended
31.12.20
Property, plant and equipment 23,757 21,996 895 (426)
Right-of-use assets 532 425 92 (518)
Intangible assets 5,942 7,447 (1,456) (1,869)
Inventory 478 344 123 (409)
Allowance for restricted cash and deposits
30 3,837 3,702 – 9
Defined benefit pension liability 537 1,098 (560) 331
Other 1,679 1,203 450 (14)
Tax losses recognised 2,157 499 1,657 134
Total deferred tax assets/change 38,919 36,714 1,201 (2,762)
Thereof netted against deferred tax liabilities (5,973) (6,140)
Total deferred tax assets as per the statement of financial position 32,946 30,574
Property, plant and equipment (559) (600) 33 (64)
Intangible assets (470) − (472) −
Financial assets (4,133) (4,422) 289 (86)
Lease obligations (590) (519) (53) 488
Other (362) (700) 345 (187)
Total deferred tax liabilities/change (6,114) (6,241) 142 151
Thereof netted against deferred tax assets 5,973 6,140
Total deferred tax liabilities as per the statement of financial position (141) (101)
Net deferred tax assets/net change 32,805 30,473 1,343 (2,611)
Notes to the Consolidated Financial Statements continued
FINANCIAL STATEMENTS
164 Ferrexpo plc Annual Report & Accounts 2021
Note 11: Taxation continued
The movement in the deferred income tax balance is as follows:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Opening balance 30,473 38,468
Charge in consolidated income statement 1,343 (2,611)
Translation differences 989 (5,384)
Closing balance 32,805 30,473
The increase of the deferred tax assets as at 31 December 2021 is primarily related to the recognition of available tax losses for a Ukrainian
subsidiary that started to trade and generate taxable profits in 2021. At current prices for iron ore pellets, it is expected that the entire balance
of available tax losses from previous years will be utilised during the financial year 2022. Other movements, which impacted the net deferred
taxassets though not necessarily the income tax expense, related to foreign exchange movements and a reclassification from current
todeferredtaxes.
As at 31 December 2021, the Group had available tax loss carry forwards in the amount of US$78,188 thousand (2020: US$116,076 thousand)
for which no deferred tax assets were recognised. US$44,591 thousand (2020: US$82,100 thousand) are related to losses incurred in Ukraine
and Austria and those losses do not expire. The remaining balance totalling US$33,598 thousand (2020: US$33,913 thousand) relates to losses
incurred in Hungary, of which US$19,545 thousand (2020: US$22,407 thousand) expire after more than eight years.
No deferred tax liabilities have been recognised on temporary differences in the amount of US$1,282,355 thousand (2020: US$1,001,311 thousand)
arising from undistributed profits from subsidiaries as no distributions are planned. Other temporary differences of US$7,765 thousand have not
been recognised as of 31 December 2021 (2020: US$5,489 thousand), of which the vast majority relates to temporary differences on property,
plant and equipment in Ukraine.
Non-adjusting post balance sheet event
On 24 February 2022, Russia began its invasion into Ukraine using direct military force and this has led to an intense armed conflict in Ukraine,
which, as at the date of the approval of these consolidated financial statements, is still ongoing. This event is treated as a non-adjusting post
balance sheet event and therefore does not affect the carrying value of the Group’s assets and liabilities as at 31 December 2021. However, as a
result of the uncertainties caused by the war, the recoverability of the recognised deferred tax assets will have to be re-assessed when the Group
is preparing its interim condensed consolidated financial statements for the six months period ended 30 June 2022. Note 35 Events after the
reporting period provides further information on the possible financial impact.
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 of 31 December 2021.
Year ended
31.12 . 21
Year ended
31.12.20
Earnings for the year attributable to equity shareholders – per share in US cents
Basic 148.2 108.1
Diluted 147.9 107. 9
Profit for the year attributable to equity shareholders – US$000
Basic and diluted earnings 870,993 635,292
Weighted average number of shares – thousands
Basic number of Ordinary Shares outstanding 587,699 587, 4 9 6
Effect of dilutive potential Ordinary Shares 1,028 1,510
Diluted number of Ordinary Shares outstanding 588,727 589,006
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
165Ferrexpo plc Annual Report & Accounts 2021
Note 12: Earnings per share and dividends paid and proposed continued
Dividends proposed and paid
Prior to the dividend proposed below and 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$170,800 thousand as of 31 December 2021 (2020: US$317,646 thousand).
US$000
Year ended
31.12 . 21
Dividends proposed
Interim dividend for 2021: 6.6 US cents per Ordinary Share
38,788
Total dividends proposed
38,788
The interim dividend for 2021 was declared on 22 December 2021 and paid on 28 January 2022.
US$000
Year ended
31.12 . 21
Dividends paid during the year
Interim dividend for 2021: 39.6 US cents per Ordinary Share
231,011
Final dividend for 2020: 13.2 US cents per Ordinary Share
77,89 0
Special interim dividend for 2020: 39.6 US cents per Ordinary Share
233,097
Special interim dividend for 2020: 13.2 US cents per Ordinary Share
77,379
Total dividends paid during the year
619,377
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.
Companies Act requirements in respect of dividend payments
During the financial year 2021, the Directors became aware of a technical issue in respect of the interim dividend declared on 4 August 2021 and,
following investigations of the issue, of technical issues in respect of dividend payments made by the Company in 2010 and 2011. Further details are
included in Directors’ Report on page 128.
US$000
Year ended
31.12.20
Dividends proposed
Special interim dividend for 2020: 39.6 US cents per Ordinary Share
232,729
Special interim dividend for 2020: 13.2 US cents per Ordinary Share
77,576
Total dividends proposed
310,305
The special interim dividend for 2020 was declared on 5 January 2021 and paid on 28 January 2021.
US$000
Year ended
31.12.20
Dividends paid during the year
Special interim dividend for 2020: 6.6 US cents per Ordinary Share
39,004
Interim dividend for 2020: 6.6 US cents per Ordinary Share
38,796
Interim dividend for 2020: 6.6 US cents per Ordinary Share
39,177
Final dividend for 2019: 3.3 US cents per Ordinary Share
20,050
Special final dividend for 2019: 3.3 US cents per Ordinary Share
19,458
Special interim dividend for 2019: 6.6 US cents per Ordinary Share
38,961
Total dividends paid during the year
195,446
Notes to the Consolidated Financial Statements continued
FINANCIAL STATEMENTS
166 Ferrexpo plc Annual Report & Accounts 2021
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
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 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.
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. No production stripping costs were capitalised as at
31 December 2021 and as at the end of the comparative year ended 31 December 2020.
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.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
167Ferrexpo plc Annual Report & Accounts 2021
Note 13: Property, plant and equipment continued
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, or when annual
impairment testing for an asset, such as goodwill, is required, 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.
Impairment losses in respect of goodwill are not reversed.
Notes to the Consolidated Financial Statements continued
FINANCIAL STATEMENTS
168 Ferrexpo plc Annual Report & Accounts 2021
Note 13: Property, plant and equipment continued
Capitalised stripping costs
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. As at 31 December 2021, deferred pre-production stripping costs totalling US$159,141 thousand relate to
components in operation and are included in mining assets (2020: US$90,819 thousand). Deferred pre-production stripping costs in relation to
components expected to be put into operation in a future period totalled US$156,975 thousand and are included in assets under construction
(2020:US$128,609 thousand). No production stripping costs are capitalised as of this point of time.
As at 31 December 2021, property, plant and equipment comprised:
US$000
Exploration
and
evaluation Land
Mining
assets
Buildings
and tailings
dam Vessels
Plant and
equipment Vehicles
Fixtures
and fittings
Assets under
construction Total
Cost:
At 1 January 2020 1,917 7,777 226,476 239,371 121,067 334,519 242,704 11,173 358,771 1,543,775
Additions – 1,867 55 73 1,498 60 – 48 226,714 230,315
Transfers – – – 38,597 3,021 97,350 29,016 653 (168,637) –
Disposals – – – (572) (6) (4,779) (6,313) (252) (4,480) (16,402)
Translation differences (311) (1,306) (36,752) (39,135) 8,392 (57,6 04) (40,510) (1,457) (60,742) (229,425)
At 31 December 2020 1,606 8,338 189,779 238,334 133,972 369,546 224,897 10,165 351,626 1,528,263
Additions – 1,827 587 1 1,044 764 447 169 312,059 316,898
Transfers – 56 76,620 26,256 4,005 66,330 33,188 1,909 (208,364) –
Disposals – 7 – (2,910) – (6,415) (1,245) (1,634) (6,918) (19,115)
Translation differences 59 302 9,574 8,219 (7,520) 13,266 7,535 272 9,683 41,390
At 31 December 2021 1,665 10,530 276,560 269,900 131,501 443,491 264,822 10,881 458,086 1,867,436
Accumulated depreciation and impairment:
At 1 January 2020 – 11 74,816 76,903 63,583 159,159 115,774 5,846 3,257
499,349
Depreciation charge – 3 6,384 20,960 8,281 40,537 27,943 1,115 – 105,223
Disposals – – – (210) (84) (3,919) (6,458) (242) – (10,913)
(Write-back)/impairment – – – (35) – (678) (138) – 563 (288)
Translation differences – 1 (12,468) (13,551) 4,078 (26,869) (19,781) (654) (249) (69,493)
At 31 December 2020
– 15 68,732 84,067 75,858 168,230 117,340 6,065 3,571 523,878
Depreciation charge – 3 7,797 25,231 5,648 48,192 32,216 1,664 – 120,751
Disposals – – – (2,043) – (4,095) (924) (1,741) – (8,803)
(Write-back)/impairment – – – 5 – (13) (4) 1 3,244 3,233
Translation differences – (1) 2,506 3,004 (3,791) 5,915 3,850 149 52 11,684
At 31 December 2021
– 17 79,035 110,264 77,715 218,229 152,478 6,138 6,867 650,743
Net book value:
At 31 December 2020 1,606 8,323 121,047 154,267 58,114 201,316 107,557 4,100 348,055 1,004,385
At 31 December 2021 1,665 10,513 197,525 159,636 53,786 225,262 112,344 4,743 451,219
1,216,693
A
ssets under construction consist of ongoing capital projects amounting to US$294,244 thousand (2020: US$219,446 thousand) and capitalised
pre-production stripping costs of US$156,975 thousand (2020: US$128,609 thousand). Once production commences, stripping costs are
transferred to mining assets.
Property, plant and equipment includes capitalised borrowing costs on qualifying assets of US$55,768 thousand (2020: US$50,474 thousand).
Thecapitalised borrowing costs on general borrowings were determined based on the capitalisation rate of 6.51% (2020: 6.59%), which is the
average effective interest rate on general borrowings for the period until the full repayment of the Group’s major debt facility in June 2021. The
Group has no specific borrowings in relation to qualifying assets during either reporting period.
US$2,620 thousand of property, plant and equipment have been pledged as security for liabilities (2020: US$13,174 thousand).
The gross value of fully depreciated property, plant and equipment that is still in use is US$119,706 thousand (2020: US$89,053 thousand).
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
169Ferrexpo plc Annual Report & Accounts 2021
Note 13: Property, plant and equipment continued
Non-adjusting post balance sheet event
On 24 February 2022, Russia began its invasion into Ukraine using direct military force and this has led to an intense armed conflict in Ukraine,
which, as at the date of the approval of these consolidated financial statements, is still ongoing. This event is treated as a non-adjusting post
balance sheet event and therefore does not affect the carrying value of the Group’s assets and liabilities as at 31 December 2021. However, as a
result of the uncertainties caused by the war, the Group adjusted its long-term model to reflect the lower sales volume caused by the unavailable
seaborne sales to its customers. The anticipated lower sales volume will have an adverse effect on the Group’s cash flow generation, which would
in turn negatively impact the carrying value of the Group’s assets in future periods. Note 35 Events after the reporting period provides further
information on the possible financial impact.
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 2021 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.
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.
As at 31 December 2021, 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:
US$000
Exploration
and
evaluation Land
Mining
assets
Buildings
and tailings
dam Vessels
Plant and
equipment Vehicles
Fixtures
and fittings
Assets under
construction Total
Net book value:
At 31 December 2020 − 2,503 − 3,693 − 2,098 12 7 − 8,313
At 31 December 2021 − 3,830 − 3,072 − 872 − 2 − 7,776
Depreciation charge:
Year ended 31 December 2020 − 2,053 − 954 − 1,328 43 6 − 4,384
Year ended 31 December 2021 − 2,890 − 990 − 1,299 11 6 − 5,196
During the year ended 31 December 2021, the additions to right-of-use assets totalled US$4,504 thousand (2020: US$2,599 thousand).
Notes to the Consolidated Financial Statements continued
FINANCIAL STATEMENTS
170 Ferrexpo plc Annual Report & Accounts 2021
Note 14: Leases continued
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 2021, the carrying amount of the lease liabilities consisted of the following:
US$000
Notes
Year ended
31.12 . 21
Year ended
31.12.20
Non-current 26 2,143 3,796
Current
26 6,060 5,252
The total cash outflow for leases falling under the scope of IFRS 16 Leases during the year ended 31 December 2021 was US$5,904 thousand
(2020: US$3,425 thousand). During the year ended 31 December 2021, US$746 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 (2020: US$424
thousand). Furthermore, interest expense on lease liabilities in the amount of US$474 thousand was recognised in the consolidated income
statement during the year ended 31 December 2021 (2020: US$443 thousand).
Lease related commitments for future contingent rental payments were US$51,034 thousand as at 31 December 2021 (2020: US$16,217
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.
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.
Other intangible assets
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.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
171Ferrexpo plc Annual Report & Accounts 2021
Note 15: Goodwill and other intangible assets continued
As at 31 December 2021, goodwill and other intangible assets comprised:
US$000
Goodwill
Exploration
and evaluation
Patents and
licences
Computer
software
Other
intangible assets Total
Cost:
At 1 January 2020 33,530 4,177 5,270 9,587 165 52,729
Additions
–
−
− 25 1,602 1,627
Disposals
–
−
(14) (16) (2) (32)
Transfers
–
(10)
− 1,259 (1,249) −
Translation differences (5,271) (677) (768) (927) (26) (7,66 9 )
At 31 December 2020 28,259 3,490 4,488 9,928 490 46,655
Additions
– 1,269 – 19 2,697 3,985
Disposals
– – (5) (107) (2) (114)
Transfers
–
(17) 202 2,528 (2,713) –
Translation differences 989 158 119 164 42 1,472
At 31 December 2021 29,248 4,900 4,804 12,532 514 51,998
Accumulated amortisation and impairment:
At 1 January 2020
– – 1,538 3,639
– 5,177
Amortisation charge
– – 229 968 – 1,197
Disposals
– – (14) (16) – (30)
Translation differences
– – (185) (238) –
(423)
At 31 December 2020
– – 1,568 4,353 –
5,921
Amortisation charge
– – 242 1,427
12 1,681
Write-offs
– 931 – – – 931
Disposals
– – (5) (106) – (111)
Translation differences
– 1 16 (27) – (10)
At 31 December 2021
– 932 1,821 5,647 12
8,412
Net book value:
At 31 December 2020 28,259 3,490 2,920 5,575 490 40,734
At 31 December 2021 29,248 3,968 2,983 6,885 502 43,586
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.
The major component of other intangible assets comprises mining licences and purchased software.
Impairment testing
Impairment testing was performed at 31 December 2021 based on a fair value less cost of disposal calculation using 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 estimated production volumes are based on these mine plans and do not take into account the effects of
expected future mine life extension programmes.
The cash flow projection is based on a financial long-term model approved by senior management covering the expected life of the mines. A
number of significant judgements and estimates are used when preparing the financial long-term model of the Group. These judgements and
estimates as well as the key assumptions used are reviewed by the Audit Committee with a specific consideration given to the price forecasts,
production volumes and costs and the discount rate used.
Notes to the Consolidated Financial Statements continued
FINANCIAL STATEMENTS
172 Ferrexpo plc Annual Report & Accounts 2021
Note 15: Goodwill and other intangible assets continued
The key assumptions used for the impairment testing are:
Estimates/assumptions Basis
Future production Proved and probable reserves
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 costs
Exchange rates Current market exchange rates
Discount rates Cost of capital risk adjusted for the resource concerned
The production capacity used for the cash flow projections is expected to increase by approximately 41% over a period of five years from the level
in the financial year 2021, as a result of the completion of certain growth projects. Once full capacity is reached, it will remain at a fixed level and
therefore no perpetual growth rate is applied for the cash flow projections beyond this point of time.
Cash flows are projected based on management’s expectations regarding the development of the iron ore and steel market and the cost of
producing and distributing the pellets. The Group takes into account two key assumptions: selling price and total production costs considering
relevant macro and local factors.
In determining the future long-term selling price, the Group takes into account external and internal analysis of the longer-term and shorter-term
supply and demand dynamics in the local region and throughout the world along with costs of production of competitors and the marginal cost
of incremental production in a particular market. The Group considers local supply and demand balances affecting its major customers and the
effects this could have on the longer-term price. An average iron ore price of US$95.7 per tonne of 65% Fe fines CFR North China was used in the
assumptions for the cash flow projection for the next five years. At the time of approval of these consolidated financial statements, the average
price applied is below the forecasted average price of one of the leading third party providers of commodity price forecasts.
Cost of production and shipping is considered taking into account local inflationary pressures, major exchange rate developments between the
Ukrainian hryvnia and the US dollar, the longer-term and shorter-term trends in energy supply and demand and the effect on costs along with the
expected movements in steel-related commodity prices, which affect the cost of certain production inputs. An average devaluation of the hryvnia
of 3.5% per year was assumed over the next 5 years in the Group’s cash flow projection used for the impairment testing.
For the purpose of the goodwill impairment test, the future cash flows were discounted using a pre-tax real discount rate of 13.8% (2020: 12.6%)
per annum. These rates reflect the time value of money and risk associated with the asset, and are in line with the rates used by competitors with
asimilar background.
Sensitivity to changes in assumptions
The Group’s management believes that, due to the available headroom resulting from the Group’s impairment testing of its operating assets as at
31 December 2021, no reasonable change in the above key assumptions would cause the carrying value of these operating assets to materially
exceed its recoverable amount. Please see below in respect of a non-adjusting post balance sheet event.
Non-adjusting post balance sheet event
On 24 February 2022, Russia began its invasion into Ukraine using direct military force and this has led to an intense armed conflict in Ukraine,
which, as at the date of the approval of these consolidated financial statements, is still ongoing. This event is treated as a non-adjusting post
balance sheet event and therefore does not affect the carrying value of the Group’s assets and liabilities as at 31 December 2021. However, as a
result of the uncertainties caused by the war, the Group adjusted its long-term model to reflect the lower sales volume caused by the unavailable
seaborne sales to its customers. The anticipated lower sales volume will have an adverse effect on the Group’s cash flow generation, which would
in turn negatively impact the carrying value of the Group’s assets in future periods. Note 35 Events after the reporting period provides further
information on the possible financial impact.
Note 16: Other non-current assets
As at 31 December 2021, other non-current assets comprised:
US$000
As at
31.12 . 21
As at
31.12.20
Prepayments for property, plant and equipment 91,132 18,098
Prepaid bank arrangement fees – 1,940
Other non-current assets 5,352 5,442
Total other non-current assets 96,484 25,480
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 later in 2022.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
173Ferrexpo plc Annual Report & Accounts 2021
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.
Critical estimates
Low-grade and weathered ore
Iron ore of various grades is being extracted at the Group’s two operating mines GPL and Yerystivske. In order to maximise the operational
efficiency and output of the processing facility at FPM, management determines the optimal mix and grade of ore to be delivered to the processing
facility from each mine under consideration of the market environment for iron ore pellets. As a result, ore of a lower iron content was stockpiled
due to limited processing capacities during the last financial years.
As at 31 December 2021, the stockpiled ore valued at cost totalled US$8,414 thousand (2020: US$213,685 thousand). The decrease compared
to the comparative year is due to an impairment loss of US$231,111 thousand recorded as at 31 December 2021 in respect of the stockpiled low-
grade ore. The balance of US$8,414 thousand relates to weathered ore, which is not expected to be processed within the next 12 months.
The processing of the stockpiled ore is dependent on the availability of additional processing capabilities. It was the Group’s intention to ramp up
the processing of the stockpiled low-grade ore once additional processing capabilities became available. Whilst additional processing capabilities
were commissioned in the second half of 2020, operational difficulties were experienced during the financial year 2021 as the new facility did not
deliver the expected and required capacities. Because of this and in light of changed customer demand for additional high quality iron ore and the
continued high price environment for iron ore pellets, management decided during the financial year 2021 to postpone the processing of the low-
grade ore in order to maximise the financial benefits from the prevailing market conditions.
Following the approval of a growth project by the Board in October 2021, management has had to revisit its mining and processing plans and
strategies as the growth project requires significant higher volumes of high-grade ore in order to meet future production needs for the current
market expectations. Further to that, because of the recent focus on the decarbonisation challenges facing the global steel industry, there has
been a significant increase in the demand for high quality products in the second half of the financial year 2021, such as direct reduction pellets,
which cannot be produced by feeding low-grade ore into the Group’s current processing facilities. As a consequence, management is exploring a
further expansion of its processing capabilities to be in the position to process the low-grade ore using a facility built for this specific purpose.
As at the date of the approval of the consolidated financial statements, it cannot be reliably predicted when the additional processing capabilities
will be available and the unknown timing of processing of the stockpiled low-grade ore was considered in the net realisable value test performed.
Whilst the stockpiled low-grade ore is considered as an asset for the Group, the changed circumstances have resulted in a full impairment of the
stockpiled low-grade ore totalling US$231,111 thousand.
The most critical estimate in determining the net realisable value of low-grade ore as at 31 December 2021 is the fact that the start of processing
of low-grade ore and the volume expected to be utilised cannot be reliably estimated as at the date of the approval of these consolidated financial
statements. Further critical estimates are a WACC-based pre-tax discount rate of 13.8% and an average forecasted long-term iron ore prices of
US$104 per tonne of 65% Fe fines CFR North China.
Some or all of this impairment loss might reverse in the future, once changed facts and circumstances can be considered in the net realisable
value test of this asset. It is the Group’s intention to accelerate the currently ongoing engineering studies exploring the option of new processing
capabilities for the specific purpose of processing low-grade ore. Depending upon the outcome of the engineering studies, the Group may move
the project forward. Inclusion of the additional processing facilities in a future net realisable value test is subject to completion of full technical
feasibility study, financial budgets and Board approval relating to the construction and operation of these new processing capabilities. In the
best case, the new processing capabilities could be available during the financial year 2029. Assuming the start of the processing of the currently
stockpiled low-grade ore in 2029 and an utilisation of approximately 11,500 thousand tonnes per year, the impairment loss of US$231,111 thousand
recorded as at 31 December 2021 would be approximately US$167,200 thousand lower, all other assumptions unchanged.
Notes to the Consolidated Financial Statements continued
FINANCIAL STATEMENTS
174 Ferrexpo plc Annual Report & Accounts 2021
Note 17: Inventories continued
At 31 December 2021, inventories comprised:
US$000
As at
31.12 . 21
As at
31.12.20
Raw materials and consumables 57,575 38,286
Spare parts 80,886 76,565
Finished ore pellets 48,058 17,6 9 9
Work in progress 13,496 9,679
Other 2,384 2,376
Total inventories – current 202,399 144,605
Low-grade and weathered ore 8,414 213,685
Total inventories – non-current 8,414 213,685
Total inventories 210,813 358,290
Inventories classified as non-current comprise low-grade and weathered ore that are, based on the Group’s current processing plans, not planned
to be processed within the next 12 months. The processing of this stockpile will take more than 12 months and the beginning and duration of the
processing depend on the Group’s future mining activities, processing capabilities and anticipated market conditions.
The balance of low-grade and weathered ore is net of an impairment loss of US$231,111 thousand recorded as at 31 December 2021 in respect
ofthe stockpiled low-grade ore. See further information on critical estimates on the previous page.
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 2021 is disclosed
in Note 27 Financial instruments.
At 31 December 2021, trade and other receivables comprised:
US$000
As at
31.12 . 21
As at
31.12.20
Trade receivables 189,664 148,954
Other receivables 5,730 6,109
Expected credit loss allowance (3,031) (2,313)
Total trade and other receivables 192,363 152,750
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 2021 include US$4,283 thousand (2020: US$4,570 thousand) owed by related parties. The detailed related
party disclosures are made in Note 34 Related party disclosures.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
175Ferrexpo plc Annual Report & Accounts 2021
Notes to the Consolidated Financial Statements continued
Note 18: Trade and other receivables continued
The movement in the expected credit loss allowance for trade and other receivables during the year under review was:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Opening balance 2,313 1,844
Increase 1,201 1,124
Release (511) (400)
Translation differences 28 (255)
Closing balance 3,031 2,313
During the financial year 2021 and the comparative year 2020, 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 31.12.21
US$000
Current
Less than
45 days
45 to 90
days
Over 90
days Total
Expected loss rate 0.4% 3.8% 2.4% 53.3% 1.6%
Trade receivables – gross carrying amount 183,004 1,298 1,750 3,612 189,664
Other receivables – gross carrying amount 5,087 19 – 624 5,730
Expected credit loss allowance 679 50 42 2,260 3,031
Days past due
As at 31.12.20
US$000
Current
Less than
45 days
45 to 90
days
Over 90
days Total
Expected loss rate 0.6% 6.2% 2.3% 61.7% 1.5%
Trade receivables – gross carrying amount 145,382 1,698 673 1,201 148,954
Other receivables – gross carrying amount 5,055 192 3 859 6,10 9
Expected credit loss allowance 909 117 16 1,271 2,313
The change of the balance of impairment losses on trade receivables recognised in the consolidated income statement as of 31 December 2021
and during the comparative year ended 31 December 2020 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 2021, prepayments and other current assets comprised:
US$000
As at
31.12 . 21
As at
31.12.20
Prepayments to suppliers:
Electricity and gas 17,950 3,697
Materials and spare parts 9,600 4,136
Services 7,452 2,760
Other prepayments 220 469
Prepaid bank arrangement fees – 2,284
Prepaid expenses 13,687 12,446
Other 19,253 92
Total prepayments and other current assets 68,162 25,884
Prepayments at 31 December 2021 include US$2,076 thousand (2020: US$1,390 thousand) made to related parties. The detailed related party
disclosures are made in Note 34 Related party disclosures.
FINANCIAL STATEMENTS
176 Ferrexpo plc Annual Report & Accounts 2021
Note 19: Prepayments and other current assets continued
Other current assets as at 31 December 2021 include cash deposits for letters of credit in the amount of US$18,962 thousand available only after
three months from the date of inception of the letters of credit, whereas those with a maturity within 3 months are classified as cash equivalents.
See Note 25 Cash and cash equivalents for further information.
Freight costs in the amount of US$7,097 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 2021 (2020: US$6,754 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 2021, other taxes recoverable comprised:
US$000
As at
31.12 . 21
As at
31.12.20
VAT receivable 47,954 31,226
Other taxes prepaid 86 97
Total other taxes recoverable and prepaid 48,040 31,323
The table below provides a reconciliation of the VAT receivable balance in Ukraine:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Opening balance, gross 31,602 37,471
Net VAT incurred 194,488 135,816
VAT refunds received in cash (179,959) (134,789)
Translation differences 832 (6,896)
Closing balance, gross 46,963 31,602
Allowance (1,361) (1,739)
Closing balance, net 45,602 29,863
There is no material VAT receivable balance overdue in Ukraine as at 31 December 2021 and the end of the comparative year ended 31 December
2020. The allowance of US$1,361 thousand (2020: US$1,739 thousand) is related to uncertainties in terms of the timing of the recovery of VAT
receivable balances.
As at 31 December 2021, other taxes payable comprised:
US$000
As at
31.12 . 21
As at
31.12.20
Environmental tax 1,954 2,052
Royalties 10,641 8,251
VAT payable 310 130
Other taxes 4,430 3,383
Total other taxes payable 17,335 13,816
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
177Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
178 Ferrexpo plc Annual Report & Accounts 2021
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 2021, trade and other payables comprised:
US$000
As at
31.12 . 21
As at
31.12.20
Materials and services 59,488 33,269
Payables for equipment 13,036 9,984
Other 300 496
Total current trade and other payables 72,824 43,749
Trade and other payables at 31 December 2021 include US$1,221 thousand (2020: US$550 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 2021, the pension schemes in Ukraine covered 2,847 current employees (2020: 3,380 people) and there are 768 former
employees currently in receipt of pensions (2020: 795 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.
Notes to the Consolidated Financial Statements continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
179Ferrexpo plc Annual Report & Accounts 2021
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 2021, the Swiss pension scheme covered 18 people (2020: 20 people).
The principal assumptions used in determining the defined benefit obligation are shown below:
Year ended 31.12.21 Year ended 31.12.20
Ukrainian
schemes
Swiss
scheme
Ukrainian
schemes
Swiss
scheme
Discount rate 12.9% 0.3% 10.8% 0.2%
Retail price inflation 5.2% 1.3% 5.1% 0.5%
Expected future salary increase 6.0% 1.25% 5.6% 1.0%
Expected future benefit increase 6.0% − 5.6% –
Female life expectancy (years) 81.2 89.4 81.8 89.8
Male life expectancy (years) 76.6 87.6 77.4 87.7
US$000
As at
31.12 . 21
As at
31.12.20
Present value of funded defined benefit obligation 4,404 9,729
Fair value of plan assets (3,045) (5,941)
Funded status 1,359 3,788
Present value of unfunded defined benefit obligation 24,715 28,687
Defined benefit pension liability 26,074 32,475
Thereof for Ukrainian schemes 24,608 28,586
Thereof for Swiss scheme 1,359 3,788
Thereof for schemes in other jurisdictions 107 101
Amounts recognised in the consolidated income statement or in other comprehensive income are as follows:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Defined benefit cost charged in the consolidated income statement:
Current service cost 1,810 1,588
Past service cost (96) –
Interest cost on defined benefit obligation 3,231 3,181
Interest income on plan assets (20) (11)
Administration cost 11 21
Total defined benefit cost charged in the consolidated income statement 4,936 4,779
Remeasurement (gains)/cost in consolidated statement of other comprehensive income:
Remeasurement effect from demographic assumptions (361) 856
Remeasurement effect from financial assumptions (4,055) (336)
Experience adjustment (5,230) 476
Return on plan assets (236) 61
Total remeasurement (gains)/cost in other comprehensive income (9,882) 1,057
Total defined benefit cost (4,946) 5,836
Thereof for Ukrainian schemes (2,953) 5,206
Thereof for Swiss scheme (2,013) 636
Thereof for schemes in other jurisdictions 20 (6)
FINANCIAL STATEMENTS
180 Ferrexpo plc Annual Report & Accounts 2021
Note 22: Pension and post-employment obligations continued
The majority of the effects from remeasurement of financial assumptions relates to the changes of the discount rate and effective salary
increases in Ukraine. The remeasurement effect from financial assumptions as at 31 December 2021 is driven by the increase of the discount
rate from 10.8% to 12.9%, compared to a decrease from 12.3% to 10.8% at the end of the comparative year ended 31 December 2020,
resulting in significant actuarial gains as at 31 December 2021. The positive effect from the experience adjustments as at 31 December 2021
isdue a lower effective salary increase in Ukraine than expected as at the end of the comparative year ended 31 December 2020.
Changes in the present value of the defined benefit obligation are as follows:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Opening defined benefit obligation 38,416 38,383
Current service cost 1,810 1,588
Interest cost on defined benefit obligation 3,231 3,181
Remeasurement (gains)/losses (9,646) 996
Contributions paid by employer (2,074) (1,892)
Contributions paid by employees 114 135
Benefits paid and net transfers through pension assets (3,341) 239
Plan amendments (96) –
Translation differences 705 (4,214)
Closing defined benefit obligation 2 9,119 38,416
Thereof for Ukrainian schemes 24,608 28,586
Thereof for Swiss scheme 4,404 9,729
Thereof for schemes in other jurisdictions 107 101
Thereof for active employees 13,57 2 25,178
Thereof for vested terminations 9,485 7,793
Thereof for pensioners 6,062 5,445
The durations of the defined benefit obligation for the different schemes as at 31 December 2021 are 10.2 years in Ukraine (2020: 9.6 years)
and 22.7 years inSwitzerland (2020: 21.3 years).
Contributions to the defined benefit plans, including benefits paid by employer and employee contributions, are expected to be US$2,131
thousand for the schemes in Ukraine and US$164 thousand in Switzerland in the next financial year.
The expenses in relation to the defined contribution plan in the UK and Singapore totalled US$23 thousand (2020: US$62 thousand).
Changes in the fair values of the plan assets are as follows:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Opening fair value of plan assets 5,941 4,755
Interest income 20 11
Contributions paid by employer 287 363
Contributions paid by employees 114 135
Benefits paid and net transfers through pension assets (3,341) 239
Return on plan assets 236 (61)
Administration cost (11) (21)
Translation differences (201) 520
Closing fair value of plan assets 3,045 5,941
Thereof for Swiss scheme 3,045 5,941
Notes to the Consolidated Financial Statements continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
181Ferrexpo plc Annual Report & Accounts 2021
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
31.12 . 21
As at
31.12 . 21
As at
31.12.20
As at
31.12.20
Scheme assets at fair value
Equities 29.7 905 30.7 1,824
Bonds 29.7 905 33.0 1,961
Properties 15.3 466 13.7 814
Other 25.3 769 22.6 1,342
Fair value of scheme assets 100.0 3,045 100.0 5,941
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 31.12.21
US$000
Ukrainian
schemes
Swiss
scheme
Other
jurisdictions
Ukrainian
schemes
Swiss
scheme
Other
jurisdictions
Increase by Decrease by
Change
1.0% or
1 year
1.0% or
1 year
1.0% or
1 year
1.0% or
1 year
1.0% or
1 year
1.0% or
1 year
Discount rate (%) (1,876) (780) (7) 2,145 1,125 8
Future salary increases (%) 1,129 176 7 (1,029) (151) (7)
Local inflation (%) 61 5 n/a (87) − n/a
Indexation of pension (%) n/a 398 n/a n/a n/a n/a
Life expectancy (years) 394 69 n/a (468) (69) n/a
Year ended 31.12.20
US$000
Ukrainian
schemes
Swiss
scheme
Other
jurisdictions
Ukrainian
schemes
Swiss
scheme
Other
jurisdictions
Increase by Decrease by
Change
1.0% or
1 year
1.0% or
1 year
1.0% or
1 year
1.0% or
1 year
1.0% or
1 year
1.0% or
1 year
Discount rate (%) (2,510) (1,657) (9) 2,908 2,335 10
Future salary increases (%) 1,616 233 7 (1,464) (215) (7)
Local inflation (%) 74 12 n/a (137) (22) n/a
Indexation of pension (%) n/a 1,102 n/a n/a n/a n/a
Life expectancy (years) 467 206 n/a (547) (206) 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.
FINANCIAL STATEMENTS
182 Ferrexpo plc Annual Report & Accounts 2021
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.
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 changed as follows during the financial year 2021:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Opening balance 2,846 3,016
Unwind of the discount 370 311
Charge to the consolidated income statement 551 18
Translation differences 106 (499)
Closing balance 3,873 2,846
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 2040, 2044 and 2061 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 13.22% (2020: 12.1%).
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.
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 2021, accrued and contract liabilities comprised:
US$000
As at
31.12 . 21
As at
31.12.20
Accrued expenses 10,915 5,334
Accrued interest 28 1,764
Accrued employee costs 19,088 17,333
Advances from customers 13,184 11,113
Contract liabilities1 9,398 9,998
Total accrued and contract liabilities 52,613 45,542
1. For further information on the change in contract liabilities during the year ended 31 December 2021 see Note 6 Revenue.
Notes to the Consolidated Financial Statements continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
183Ferrexpo plc Annual Report & Accounts 2021
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 2021, cash and cash equivalents comprised:
US$000
As at
31.12 . 21
As at
31.12.20
Cash at bank and on hand 158,052 270,006
Cash equivalents 9,239 −
Total cash and cash equivalents 167,291 270,006
The Group made debt repayments net of proceeds of US$221,188 thousand during the year ended 31 December 2021 (2020: US$148,328
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$52,326 thousand as at 31 December 2021 (2020: US$33,058
thousand). The Group’s exposure to liquidity, counterparty and interest rate risk as well as a sensitivity analysis for financial assets and
liabilities are disclosed in Note 27 Financial instruments.
Cash equivalents as at 31 December 2021 relate to cash deposits for letters of credit available within three months from the date of
inception of the letters of credit. Cash deposits available only after three months are classified as other current assets. See Note 19
Prepayments and other current assets for further information.
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
31.12 . 21
As at
31.12.20
Current
Syndicated bank loans – secured − 128,333
Other bank loans – unsecured − 764
Lease liabilities
14 6,060 5,252
Trade finance facilities 42,146 −
Total current interest-bearing loans and borrowings 48,206 134,349
Non-current
Syndicated bank loans – secured − 128,333
Lease liabilities
14 2 ,143 3,796
Total non-current interest-bearing loans and borrowings 2,143 132,129
Total interest-bearing loans and borrowings
27 50,349 266,478
Following two further quarterly amortisations and the cancellation of advance prepayments of US$60,000 thousand of the Group’s
syndicated revolving pre-export facility (the “facility”) earlier in 2021, the remaining outstanding amount of US$140,000 thousand was fully
repaid on 30 June 2021 and the facility was subsequently cancelled. The facility agreement was signed in 2018 and repayment was
scheduled to take place in quarterly instalments between 2020 and 2022.
As at the end of the comparative year ended 31 December 2020, the outstanding amount of the facility was US$256,666 thousand.
The aforementioned bank debt facility was guaranteed and secured as follows:
– Ferrexpo AG and Ferrexpo Middle East FZE, which are also joint borrowers, assigned the rights to revenue from certain sales contracts;
– PJSC Ferrexpo Poltava Mining assigned all of its rights of certain export contracts for the sale of pellets to Ferrexpo AG and Ferrexpo
Middle East FZE; and
– the Group pledged bank accounts of Ferrexpo AG and Ferrexpo Middle East FZE into which sales proceeds from certain assigned sales
contracts are exclusively received.
FINANCIAL STATEMENTS
184 Ferrexpo plc Annual Report & Accounts 2021
Note 26: Interest-bearing loans and borrowings continued
As at 31 December 2021, the Group has uncommitted trade finance facilities in the amount of US$140,000 thousand of which US$42,146
thousand were drawn, compared to a total and undrawn US$80,000 thousand as at the end of the comparative year ended 31 December
2020.
Trade finance facilities are secured against receivable balances related to these specific trades.
Arrangement fees for the aforementioned syndicated revolving pre-export facility were presented as prepayments in current assets and
other non-current assets based on the maturity of the underlying facility and were amortised on a straight-line basis over the term of the
facility. Following the cancellation of the facility, the associated arrangement fees were amortised in full.
The table below shows the movements in the interest-bearing loans and borrowings:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Opening balance of interest-bearing loans and borrowings 266,478 412,378
Cash movements:
Repayments of syndicated bank loans – secured (256,666) (143,333)
Repayments of other bank loans – unsecured (764) (1,570)
Principal and interest elements of lease payments (5,904) (3,425)
Change of trade finance facilities, net 42 ,146 −
Total cash movements (221,18 8) (148,328)
Non-cash movements:
Amortisation of prepaid arrangement fees 4 39
Additions to lease liabilities 4,506 2,589
Others (incl. translation differences) 549 (200)
Total non-cash movements 5,059 2,428
Closing balance of interest-bearing loans and borrowings 50,349 266,478
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.
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 investments in equity and debt securities (e.g. promissory notes), 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.
Notes to the Consolidated Financial Statements continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
185Ferrexpo plc Annual Report & Accounts 2021
Note 27: Financial instruments continued
Subsequent measurement
Financial assets
Loans and receivables
Except for the provisionally priced receivables disclosed in Note 18 Trade and other receivables, loans and receivables are non-derivative
financial assets 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 loans and receivables
are derecognised or impaired along with the amortisation process.
Other
Other non-derivative financial assets are measured at amortised cost using the effective interest method less any impairment losses.
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 loan and receivable balances 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.
The accounting classification of each category of financial instruments and their carrying amounts are set out below:
As at 31.12.21
US$000
Notes
Financial
assets
measured at
amortised cost
Financial
liabilities
measured at
amortised cost
Lease
liabilities Total
Financial assets
Cash and cash equivalents
25 167,291 – – 167, 291
Trade and other receivables
18 192,363 – – 192,363
Other financial assets 26,246 – – 26,246
Total financial assets 385,900 – – 385,900
Financial liabilities
Trade and other payables
21 – 72,824 – 72,824
Accrued liabilities
24 – 30,031 – 30,031
Interest-bearing loans and borrowings
26 – 42,146 8,203 50,349
Total financial liabilities – 145,001 8,203 153,204
FINANCIAL STATEMENTS
186 Ferrexpo plc Annual Report & Accounts 2021
Note 27: Financial instruments continued
As at 31.12.20
US$000
Notes
Financial
assets
measured at
amortised cost
Financial
liabilities
measured at
amortised cost
Lease
liabilities Total
Financial assets
Cash and cash equivalents
25 270,006 – – 270,006
Trade and other receivables
18 152,750 – – 152,750
Other financial assets 5,328 – – 5,328
Total financial assets 428,084 – – 428,084
Financial liabilities
Trade and other payables
21 – 43,749 – 43,749
Accrued liabilities
24 – 24,407 – 24,407
Interest-bearing loans and borrowings
26 – 257,430 9,048 266,478
Total financial liabilities – 325,586 9,048 334,634
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).
Thefair values of interest-bearing loans and borrowings totalled US$50,349 thousand (2020: US$257,441 thousand).
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 2021 and the
comparative year ended 31 December 2020.
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.
Notes to the Consolidated Financial Statements continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
187Ferrexpo plc Annual Report & Accounts 2021
Note 27: Financial instruments continued
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.
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 within three months for production, distribution and capital expenditures is invested with
counterparties rated by S&P or Moody’s at a level of long-term BBB “S&P” or short-term A3 “S&P” or better.
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.
Subsequent to the declaration of insolvency of the Group’s former transactional bank in Ukraine (see Note 30 Commitments, contingencies
and legal disputes), the Group changed its transactional banking arrangements and is currently working with four banks in Ukraine, all of
them being subsidiaries of Western banks, and is still 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. At the end of the comparative year ended 31 December 2020, Ferrexpo AG, Ferrexpo Finance plc and Ferrexpo
Middle East FZE were jointly and severally liable under a US$400 million revolving pre-export finance facility, of which US$256,666 thousand
was drawn and US$10,000 thousand was undrawn. The facility was fully repaid on 30 June 2021 and subsequently cancelled. See Note 26
Interest-bearing loans and borrowings for further information.
Furthermore, Ferrexpo AG acted as guarantor for finance facilities provided to Ukrainian subsidiaries in the amount of US$767 thousand as
at the end of the comparative year ended 31 December 2020. No such facilities were outstanding as at 31 December 2021.
The total remaining contractual maturities of the guarantees provided under the facilities listed above were US$257,433 thousand as at the
end of the comparative year ended 31 December 2020.
Exposure to credit risk
The carrying amount of financial assets at 31 December 2021 was US$385,900 thousand (2020: US$428,084 thousand) and represents the
maximum credit exposure. See page 185 for further information.
Of the total maximum exposure to credit risk, US$85,457 thousand (2020: US$38,088 thousand) related to Ukraine.
FINANCIAL STATEMENTS
188 Ferrexpo plc Annual Report & Accounts 2021
Note 27: Financial instruments continued
The total receivables balance relating to the Group’s top three customers was US$130,684 thousand (2020: US$75,108 thousand), making
up 75% of the total amounts receivable (2020: 53.0%). The top three customers are considered to be crisis-resistant top-class steel mills
and sales are made under long-term contracts.
Whilst the global Covid-19 pandemic did not result in a significant increase in the Group’s credit risk, the risks related to Covid-19 remain
relevant. See the Principal Risks section on page 72 for detailed information.
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
unacceptable losses or risking damage to the Group’s reputation by holding surplus cash or undrawn committed credit facilities.
The Group prepares detailed rolling cash flow forecasts, which assist it in monitoring cash flow requirements and optimising its cash return on
investments. Typically, the Group intends to ensure that it has sufficient cash on demand and/or lines of credit to meet expected operational
expenses, including the servicing of financial obligations. 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.
For further information see Note 26 Interest-bearing loans and borrowings and the Group’s Viability Statement on pages 73 to 75.
The following are the contractual maturities of financial liabilities:
As at 31.12.21
US$000
Less than
1 year
Between
1 to 2 years
Between
2 to 3 years
Between
3 to 4 years
Between
4 to 5 years
More than
5 years Total
Interest-bearing
Floating rate loans and borrowings 42,146 − − − − − 42,146
Lease liabilities 6,182 963 881 577 7 7 8,617
Total interest-bearing 48,328 963 881 577 7 7 50,763
Non-interest-bearing
Trade and other payables 72,824 − − − − − 72,824
Accrued liabilities 30,031 − − − − − 30,031
Future interest payable 51 – – – – – 51
Total non-interest-bearing 102,906 – – – – – 102,906
Total financial liabilities 151,234 963 881 577 7 7 153,669
As at 31.12.20
US$000
Less than
1 year
Between
1 to 2 years
Between
2 to 3 years
Between
3 to 4 years
Between
4 to 5 years
More than
5 years Total
Interest-bearing
Floating rate loans and borrowings 129,10 0 128,333 − − − − 257,4 3 3
Lease liabilities 5,502 2,369 765 718 703 − 10,057
Total interest-bearing 134,602 130,702 765 718 703 − 267,49 0
Non-interest-bearing
Trade and other payables 43,749 − − − − − 43,749
Accrued liabilities 24,407 − − − − − 24,407
Future interest payable 9,999 3,810 − − − − 13,809
Total non-interest-bearing 78,155 3,810 − − − − 81,965
Total financial liabilities 212,757 134,512 765 718 703 − 349,455
The difference of the total of floating interest-bearing loans and borrowings compared to the balances disclosed in Note 26 Interest-bearing
loans and borrowings mainly related to arrangement fees paid for specific facilities, which were netted for the presentation in the statement
of financial position, at the end of the comparative year ended 31 December 2020.
Notes to the Consolidated Financial Statements continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
189Ferrexpo plc Annual Report & Accounts 2021
Note 27: Financial instruments continued
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 functional currency and reporting
currency is the US dollar.
The Group’s major lines of borrowings and the majority of its sales are denominated in US dollars, with costs of local Ukrainian production
mainly in hryvnia. The value of the hryvnia is published by the NBU.
An appreciation of the Ukrainian hryvnia increases 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 a depreciation 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.
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 are held in local
currency amounts and a change in the functional currencies different to the US dollar results in a change of the Group’s net assets as
recorded in the translationreserve.
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.
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 2021:
US$000
As at
31.12 . 21
As at
31.12.20
Total financial assets 385,900 428,084
Thereof exposed to Ukrainian hryvnia – −
Thereof exposed to US dollar 32 ,12 0 6,966
Thereof exposed to euro 7,025 87
Thereof exposed to Swiss franc 1,014 −
Thereof exposed to other currencies 549 512
Total exposures to currencies other than local functional currencies 40,708 7,565
Total financial liabilities (153,204) (334,634)
Thereof exposed to Ukrainian hryvnia – −
Thereof exposed to US dollar (4,482) (2,402)
Thereof exposed to euro (4,058) (2,504)
Thereof exposed to Swiss franc (225) (2,167)
Thereof exposed to other currencies (445) (623)
Total exposures to currencies other than local functional currencies (9,210) ( 7,6 9 6)
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 does not therefore 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
The Group predominantly borrows bank funds that are at floating interest rates and is exposed to interest rate movements. No interest rate
swaps have been entered into in this or prior years.
FINANCIAL STATEMENTS
190 Ferrexpo plc Annual Report & Accounts 2021
Note 27: Financial instruments continued
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. The provisionally priced iron ore exposure as at 31 December 2021 was 342,916 tonnes (2020: 622,705
tonnes) and gave rise to a fair value gain relating to the embedded provisional pricing mechanism of US$4,455 thousand as at
31 December 2021 (2020: US$28,921 thousand). Final iron ore prices based on the relevant index are normally known within 60 days after
the reporting period. The difference between the provisionally priced receivable balance recognised as at 31 December 2021 and the
receivable balance taking into account the known final prices is US$13,550 thousand and would have increased the consolidated result and
the shareholders’ equity by this amount (2020: increase of US$3,968 thousand).
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% strengthening of the US dollar against the following currencies at 31 December would have increased/(decreased) 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.
US$000
Year ended
31.12 . 21
Income
statement/
equity
Year ended
31.12.20
Income
statement/
equity
Ukrainian hryvnia 4,606 761
Euro 495 (403)
Swiss franc 131 (361)
Other 17 (19)
Total 5,249 (22)
A 20% weakening of the US dollar against the above currencies would have an equal but opposite effect to the amounts shown above,
onthe basis that all the other variables remain constant.
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 movement of
variable interest rates in the last year 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
31.12 . 21
Year ended
31.12.20
Net finance charge 1,251 126
A decrease of 100bps would decrease equity and profit by US$984 thousand for the year ended 31 December 2021 (2020: US$550
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 total shareholders’ equity, excluding non-controlling interests, and the level
ofdividends to ordinary shareholders. 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$3,528 thousand at the beginning of the year to US$116,942 thousand as at 31 December 2021 as a result of strong
financialperformance.
Notes to the Consolidated Financial Statements continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
191Ferrexpo plc Annual Report & Accounts 2021
Note 27: Financial instruments continued
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 returns that might be possible with higher levels of
borrowings and advantages and security afforded by a low gearing and strong capital position.
Growth projects are approved under consideration of potential future market constraints, intended further de-gearing of 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 cover supported by an appropriate level of liquidity.
Neither Ferrexpo plc (the “Company”) nor any of its subsidiaries is currently subject to externally imposed capital requirements.
Compliance is ensured by balancing dividend payments against the earnings of the Group.
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 of 31 December 2021. 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
2021 LTIP 2020 LTIP 2019 LTIP Total
Year ended 31.12.21 295 – 81 376
Year ended 31.12.20 – 793 – 793
Year ende d 31.12.19 – – 470 470
The following expenses have been recognised in 2021 and 2020 in respect of the LTIP:
US$000
2021 LTIP 2020 LTIP 2019 LTIP 2018 LTIP Total
Year ended 31.12.21 352 131 380 (7) 856
Year ended 31.12.20 – 199 54 38 291
The expenses recognised in 2021 include the effect of lapsed awards resulting from the departure of two members of the key management.
FINANCIAL STATEMENTS
192 Ferrexpo plc Annual Report & Accounts 2021
Note 28: Share-based payments continued
Year ended
31.12 . 21
WAFV (US$)
Year ended
31.12.20
WAFV (US$)
Year ended
31.12 . 21
No. (000)
Year ended
31.12.20
No. (000)
LTIP
Beginning of the year 1.57 1.94 1,034 1,558
Awards granted during the year 3.83 0.90 376 793
Awards vested during the year 2.22 1.65 – (705)
Awards lapsed during the year 2.05 1.58 (364) (612)
Outstanding unvested awards at 31 December 2.22 1.57 1,046 1,034
The main inputs to the valuation of the 2021 LTIP awards were the share price at date of grant of US$4.81 (2020 LTIP awards: US$1.47), the
volatility of the share price of 60% p.a. (2020 LTIP awards: 56% p.a.) and a risk-free interest rate of 0.2% p.a. (2020 LTIP awards: 0.3% 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.
The weighted average share price at the date of exercise of the awards during the comparative year ended 31 December 2020 was
US$1.48. No awards vested during the financial year 2021. 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 2021 consisted of the following:
US$000
Notes
Year ended
31.12 . 21
Year ended
31.12.20
Wages and salaries 88,960 89,152
Social security costs 18,002 21,137
Post-employment benefits
22 1,810 1,588
Other employee costs 3,006 2,201
Share-based payments
28 856 291
Total employee benefits expenses 112,634 114,369
The table above includes compensation for Non-executive Directors, Executive Directors and other key management personnel
asoutlinedbelow:
Year ended 31.12.21 Year ended 31.12.20
US$000
Non-executive
and Executive
Directors
Other key
management Total
Non-executive
and Executive
Directors
Other key
management Total
Wages and salaries 3,217 2,917 6,134 3,186 5,829 9,015
Social security costs 73 81 154 132 35 167
Post-employment benefits 111 63 174 81 74 155
Other employee costs 290 82 372 107 21 128
Share-based payments 215 424 639 77 62 139
Total compensation for key management 3,906 3,567 7,473 3,583 6,021 9,604
The totals of shared-based payments for employees and for key management recognised in the comparative year ended 31 December
2020 include the effect of lapsed awards resulting from the departure of two members of the key management.
Notes to the Consolidated Financial Statements continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
193Ferrexpo plc Annual Report & Accounts 2021
Note 29: Employees continued
The average number of employees during the financial year 2021 is detailed in the table below:
Average number of employees
Year ended
31.12 . 21
Year ended
31.12.20
Production 6,427 6,758
Marketing and distribution 171 174
Administration 1,283 1, 211
Other 386 521
Total average number of employees 8,267 8,664
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.
Commitments
Commitments as at 31 December 2021 consisted of the following:
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Total commitments for the lease of mining land (out of the scope of IFRS 16) 57,66 5 30,874
Total capital commitments on purchase of property, plant and equipment 191,412 57,526
Commitments for investment in a joint venture 6,064 6,064
For further information on lease-related commitments see Note 14 Leases.
Critical judgements
Loan relationship between related parties of the Group
As disclosed in the 2020 Annual Report and Accounts, the Board, acting through the Committee of Independent Directors (the “CID”),
conducted during the financial year 2020 a review in connection with the Group’s sponsorship arrangements with FC Vorskla and
concluded its enquiry in March 2021. See Note 30 Commitments, contingencies and legal disputes in the 2020 Annual Report and
Accounts for detailed information. In the event that any of the payments made by the Group to FC Vorskla were not fully used for the benefit
of the football club, or there was any non-compliance with legal, regulatory or other requirements, liabilities (including fines and penalties)
may accrue to the Group. At the current time, the existence, timing or quantum of potential future liabilities, if any, cannot be determined
and measured reliably and, as a consequence, no associated liabilities have been recognised in relation to these matters in the
consolidated statement of financial position as of 31 December 2021 similarly to the position as of 31 December 2020.
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, consequently
Ukrainian legislation might be inconsistently applied to resolve the same or similar disputes. See also the Principal Risks section on pages
59 and 60 for further information on the Ukraine country risk.
Share dispute
On 23 November 2020, the Kyiv Commercial Court opened court proceedings in relation to an old shareholder litigation. In 2005, a former
shareholder in PJSC Ferrexpo Poltava Mining (“FPM”) brought proceedings in the Ukrainian courts seeking to invalidate the share sale and
purchase agreement pursuant to which a 40.19% stake in FPM was sold to nominee companies that were previously ultimately controlled
by Kostyantin Zhevago, amongst other parties. After a long period of litigations, all old claims were fully dismissed in 2015. In January 2021,
Ferrexpo AG (“FAG”) received a claim from a former shareholder in FPM to invalidate part of the share sale and purchase agreement
concluded in 2002 related to the sale of a 9.32% shareholding in FPM. Following the receipt of the claim, FAG, as the parent company of
FPM, filed on 27 January 2021 its statement of defence to the court in response.
In February 2021, after the first hearing of the Kyiv Commercial Court on this case, FAG became aware that three new claims had been filed
by three other former shareholders in FPM. Taken together, four claimants seek to invalidate the share sale and purchase agreement
concluded in 2002 pursuant to which a 40.19% stake in FPM was sold, similarly to the previous claims made back in 2005. FAG filed on
5 March 2021 its statements of defence to the court in response to these new claims. The Kyiv Commercial Court ruled on 27 May 2021 in
FINANCIAL STATEMENTS
194 Ferrexpo plc Annual Report & Accounts 2021
Note 30: Commitments, contingencies and legal disputes continued
favour of FAG. The opposing parties filed in June 2021 their appeals. The Northern Commercial Court of Appeal has opened the appeal
proceedings and several hearings have been held since then without a court decision made. Considering the current situation in Ukraine,
itis unknown if and when the next hearing will take place. The date of the next hearing is not yet known.
Based on legal advice obtained and considering the dismissal of the claims made by a former shareholder in FPM back in 2015, it is
management’s view that FAG has compelling arguments to defend its position in the court.
Royalty-related investigation and claim
On 3 February 2022, PJSC Ferrexpo Poltava Mining (“FPM”) and Ferrexpo Yeristovo Mining LLC (“FYM”) received letters from the Office of
Prosecutor General notifying about ongoing investigation on potential underpayment of iron ore royalty payments during the years 2018 to
2021. The amount of underpayment is 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. The Group’s subsidiaries are collecting the necessary documents and intend to comply with all lawful requests in this
investigation. However, due to the current situation in Ukraine, the status and further development of the initiated investigation is unknown.
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 UAH1,042,000 thousand (approximately US$38,200 thousand as at 31 December
2021). The Group provided its objections to the claims made in the tax audit report and it was expected that this case will ultimately be
heard by the courts in Ukraine in due course. However, due to the current situation in Ukraine, it is unknown if and when a first hearing will
take place in respect of the claim received and how the aforementioned investigation is going to further develop.
Based on legal advice obtained, it is management’s view that FPM has compelling arguments to defend its position in the court and,
asaconsequence, no associated liabilities have been recognised in relation to the claim made in the consolidated statement of financial
position as of 31 December 2021.
Ecological claims
In September 2021, the State Ecological Inspection carried out an inspection of Ferrexpo Yeristovo Mining LLC (“FYM”) and on 1 October
2021 issued an order to remove a number of alleged violations of environmental rules. On 19 October 2021, FYM received two ecological
claims from the State Ecological Inspection. One of the claims was related to an allegation of violation of rules regarding removal of soil on
a particular land plot and the State Ecological Inspection requested payment for damages of approximately UAH768 million (US$28,155
thousand). The other claim was related to an allegation of absence of documents for disposal of waste on a particular land plot and the
State Ecological Inspection requested payment for damages in the amount of approximately UAH18 million (US$660 thousand). Each claim
states that if FYM does not voluntarily pay the damages, the State Ecological Inspection will start court proceedings. In November 2021,
FYM sent written objections to these claims to the State Ecological Inspection. The State Ecological Inspection has neither responded to
FYM’s objections nor filed the claims to the court within a reasonable period by February 2022. In February 2022, FYM has therefore filed a
lawsuit to the court. The Kremenchuk District Prosecutor’s Office is conducting the investigation in connection with alleged violations of
environmental rules. Due to the current situation in Ukraine, it is not clear if and when a first hearing will take place.
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 of 31 December 2021.
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.
The Galeschynske deposit is a project in the exploration phase that is situated to the north of the Group’s active mining operations.
Notes to the Consolidated Financial Statements continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
195Ferrexpo plc Annual Report & Accounts 2021
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 2021 was 613,967,956 Ordinary Shares (2020: 613,967,956) at a par value of £0.10 paid
for in cash, resulting in share capital of US$121,628 thousand (2020: US$121,628 thousand) per the statement of financial position.
As at 31 December 2021, other reserves attributable to equity shareholders of Ferrexpo plc comprised:
US$000
Uniting of
interest reserve
Treasury share
reserve
Employee
benefit trust
reserve
Translation
reserve
Total other
reserves
At 1 January 2020 31,780 ( 77, 26 0) (2,826) (1,716,468) (1,764,774)
Foreign currency translation differences – – – (317,691) (317,6 91)
Tax effect – – – 16,278 16,278
Total other comprehensive loss for the year – – – (301,413) (301,413)
Share-based payments – – 291 − 291
At 31 December 2020 31,780 ( 77, 26 0) (2,535) (2,017, 8 81) (2,065,896)
Foreign currency translation differences – – – 82,222 82,222
Tax effect – – – (3,313) (3,313)
Total other comprehensive income for the year – – – 78,909 78,909
Share-based payments – – 856 – 856
At 31 December 2021 31,780 (77, 260) (1,679) (1,938,972) (1,986,131)
Uniting of interest reserve
The uniting of interest reserve represents the difference between the initial investment by Ferrexpo AG in FPM 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.
Employee benefit trust reserve
This reserve represents the treasury shares held by Ferrexpo AG setting up an employee benefit trust reserve. The reserve is used 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. As at 31 December 2021, the employee benefit trust reserve includes 924,899 shares (2020: 924,899 shares).
FINANCIAL STATEMENTS
19 6 Ferrexpo plc Annual Report & Accounts 2021
Note 32: Consolidated subsidiaries
Translation reserve
During the financial year 2021, the Ukrainian hryvnia appreciated from 28.275 as at the beginning of the year to 27.278 as at 31 December
2021 and the exchange differences arising on translation of the Group’s foreign operations are initially recognised in the consolidated
statement of comprehensive income. See also page 148.
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 206.
The Group does not have any other interests of 20% or more in undertakings that are not disclosed on page 206, 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% (2020: 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
31.12 . 21
Year ended
31.12.20
Opening balance 5,873 8,064
Share of profit
1
4,468 5,624
Dividends declared (3,536) (6,381)
Translation adjustments 229 (1,434)
Closing balance 7,034 5,873
For the year ended 31 December 2021 the summarised financial information for the associate was as follows:
Revenue Net profit
US$000
Year ended
31.12 . 21
Year ended
31.12.20
Year ended
31.12 . 21
Year ended
31.12.20
TIS Ruda LLC
1
21,619 23,014 8,947 11, 271
1. Based on preliminary and unaudited financial information.
Notes to the Consolidated Financial Statements continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
197Ferrexpo plc Annual Report & Accounts 2021
Note 33: Investments in associates continued
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 2021, the associate’s total assets were US$20,106 thousand (2020: US$18,745 thousand) and the total liabilities were
US$6,009 thousand (2020: US$6,977 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.
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% (2020: 49.9%). 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 118 and 119.
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 31.12.21 Year ended 31.12.20
US$000
Entities
under
common
control
Associated
companies
Other
related
parties
Entities
under
common
control
Associated
companies
Other
related
parties
Other sales
a
657 – 9 323 – 7
Total related party transactions within revenue 657 – 9 323 – 7
Materials and services
b
8,334 – – 6,299 – –
Spare parts and consumables
c
6,350 – – 3,063 – –
Other expenses
d
2,172 – – 524 – –
Total related party transactions within cost of sales 16,856 – – 9,886 – –
Selling and distribution expenses
e
4,876 18,139 – 4,552 19,073 –
General and administration expenses
f
1,762 – 524 1,747 – 482
Finance expense 20 – – 25 – –
Total related party transactions within expenses 23,514 18,139 524 16,210 19,073 482
Other income 2 – – 21 – –
Total related party transactions 24,173 18,139 533 16,554 19,073 489
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$437 thousand (2020: US$157 thousand); and
a Sales of electricity to Kislorod PPC for US$209 thousand (2020: US$140 thousand).
b Purchases of oxygen, scrap metal and services from Kislorod PCC for US$1,533 thousand (2020: US$2,060 thousand);
b Purchases of cast iron balls from OJSC Uzhgorodsky Turbogas for US$5,700 thousand (2020: US$4,191 thousand); and
b Purchase of maintenance and construction services from FZ Solutions LLC (formerly OJSC Berdichev Machine-Building Plant Progress) for US$1,024 thousand (2020: nil).
c Purchases of spare parts from OJSC AvtoKraz Holding in the amount of US$1,983 thousand (2020: US$446 thousand);
c Purchases of spare parts from CJSC Kyiv Shipbuilding and Ship Repair Plant (“KSRSSZ”) in the amount of US$837 thousand (2020: US$656 thousand);
c Purchases of spare parts from OJSC Uzhgorodsky Turbogas in the amount of US$1,032 thousand (2020: US$675 thousand);
c Purchases of spare parts from FZ Solutions LLC (formerly OJSC Berdichev Machine-Building Plant Progress) of US$719 thousand (2020: US$353 thousand); and
c Purchases of spare parts from Valsa GTV of US$1,735 thousand (2020: US$878 thousand).
d Insurance premiums of US$2,172 thousand (2020: US$524 thousand) paid to ASK Omega for insurance cover in respect of mining equipment and machinery. The increase in insurance
premiums during the financial year 2022 is due to the increase in the insurance coverage of the insured equipment.
FINANCIAL STATEMENTS
198 Ferrexpo plc Annual Report & Accounts 2021
Note 34: Related party disclosures continued
e Purchases of advertisement, marketing and general public relations services from FC Vorskla of US$4,875 thousand (2020: US$4,552 thousand). See page 193 in respect of a loan
relationship between FC Vorskla and another related party.
f Insurance premiums of US$1,341 thousand (2020: US$1,365 thousand) paid to ASK Omega for workmen’s insurance and other insurances; and
f Purchase of marketing services from TV & Radio Company of US$243 thousand (2020: US$237 thousand).
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$18,139 thousand (2020: US$19,073 thousand) relating to port operations, including port charges, handling costs, agent commissions
and storage costs.
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$506 thousand (2020: US$471 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 2021 (2020: US$100 thousand).
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 31.12.21 Year ended 31.12.20
US$000
Entities
under
common
control
Associated
companies
Other
related
parties
Entities
under
common
control
Associated
companies
Other
related
parties
Purchases in the ordinary course of business 552 – – 2,247 – –
Total purchases of property, plant and equipment 552 – – 2,247 – –
During the year ended 31 December 2021, the Group purchased major spare parts and equipment from FZ Solutions LLC (formerly OJSC Berdichev Machine-Building Plant Progress) totalling
US$283 thousand in respect of its regular sustaining capital expenditure programmes (2020: US$1,719 thousand). The Group also procured equipment and materials from CJSC Kyiv
Shipbuilding and Ship Repair Plant (“KSRSSZ”) totalling US$235 thousand for several ongoing projects on its processing facilities (2020: US$510 thousand).
The FPM Charity Fund owns 75% of the Sport & Recreation Centre (“SRC”) in Horishni Plavni and made contributions totalling US$120 thousand during the year ended 31 December 2021
(2020: US$115 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 31.12.21 As at 31.12.20
US$000
Entities
under
common
control
Associated
companies
Other
related
parties
Entities
under
common
control
Associated
companies
Other
related
parties
Prepayments for property, plant and equipment
g
8,463 – – 133 – –
Total non-current assets 8,463 – – 133 – –
Trade and other receivables
h
101 4,181 1 96 4,473 1
Prepayments and other current assets
i
2,076 – – 1,390 – –
Total current assets 2,177 4,181 1 1,486 4,473 1
Trade and other payables
j
732 489 – 462 2 86
Accrued and contract liabilities – – – 71 – –
Total current liabilities 732 489 – 533 2 86
A description of the balances over US$200 thousand in the current or comparative year is given below.
Entities under common control
g Prepayments for property, plant and equipment totalling US$8,422 thousand were made to FZ Solutions LLC (formerly OJSC Berdichev Machine-Building Plant Progress) in relation
totheongoing update of pellet lines and work on the concentrate stockyard. No such prepayments were made at the end of the comparative year ended 31 December 2020.
h Prepayments and other current assets totalling US$1,123 thousand related to insurance premiums from ASK Omega (2020: US$1,053 thousand); and
i Prepayments and other current assets totalling US$572 thousand related to spare parts from FZ Solutions LLC (formerly OJSC Berdichev Machine-Building Plant Progress)
(2020:US$279thousand).
j Trade and other payables included US$221 thousand (2020: US$195 thousand) related to the purchase of oxygen, scrap metal and services from Kislorod PCC and US$295 thousand
(2020:US$191 thousand) related to the purchase of spare parts and services from FZ Solutions LLC (formerly OJSC Berdichev Machine-Building Plant Progress).
Notes to the Consolidated Financial Statements continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
199Ferrexpo plc Annual Report & Accounts 2021
Note 34: Related party disclosures continued
Associated companies
h Trade and other receivables included US$4,181 thousand (2020: US$4,473 thousand) related to dividends declared by TIS Ruda LLC.
j Trade and other payables included US$489 thousand (2020: US$2 thousand) related to purchases of logistics services from TIS Ruda LLC.
Note 35: Events after the reporting period
On 24 February 2022, Russia began its invasion into Ukraine using direct military force and this has led to an intense armed conflict in
Ukraine, which is, as at the date of the approval of these consolidated financial statements, still ongoing. To date, this action has resulted
insignificant loss of life and the destruction of key infrastructure in a number of regions across Ukraine, but not in close proximity of the
Group’s mines and processing plant. Military activities to date, however, have impacted the Group’s logistics network, with operations at
the port of Pivdennyi in southwest Ukraine formally halted by the port authorities, as announced by the Group on 25 February 2022. The
armed conflict in Ukraine continues to pose a threat to the Group’s mining, processing and logistics operations within Ukraine.
The situation in Ukraine remains uncertain and unpredictable. 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 involved in the conflict, but this remains a risk. Should the
area surrounding the Group’s operations become the focal point of 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 Principal Risks section on pages 57 and 58 for further information.
Critical judgements
The Russian invasion into Ukraine is treated as a non-adjusting post balance sheet event and therefore does not affect the carrying value of
the Group’s assets and liabilities as at 31 December 2021. This event however poses a material uncertainty in respect of the Group’s going
concern assessment (see Note 2 Basis of preparation for further details). The Group adjusted its long-term model to reflect the lower sales
volume caused by the unavailable seaborne sales to its customers. The anticipated lower sales volume will have an adverse effect on the
Group’s cash flow generation, which would in turn negatively impact the carrying value of the Group’s non-current assets in future periods.
Based on the base case of the Group’s long-term model, the Group’s single cash generating unit’s assets, including plant, property and
equipment, and goodwill and other intangibles, may become subject to an impairment loss of approximately US$190,000 thousand using
assumptions for iron ore prices, production costs as well as production and sales volumes, which are consistent with the conditions
experienced after the balance sheet date and up until the date of approval of these financial statements. The impairment loss will, however,
depend on a number of factors that will only be known to the Group as at this point of time. As a result of the remaining material uncertainty
outside of the Group’s control in terms of potential disruption to the supply of key consumables, such as natural gas, electricity and diesel
fuel, and equipment in the future and a further interruption to the Group’s logistics network currently available, the Group also prepared
stress tests with more severe adverse changes, such as a ceasing of its production for 3, 6 and 18 months. Under these stress test
scenarios, the impairment loss may increase to an amount between US$320,000 thousand and US$400,000 thousand, again depending on
circumstances and macro-economic data, which will only be known to the Group as at the point of time of the preparation of its interim
condensed consolidated financial statements for the six month period ended 30 June 2022. In addition to the potential financial impact on
the Group’s non-current assets in the future and as disclosed in Note 11 Taxation, the recoverability of the recognised deferred tax assets
will be re-assessed when the Group is preparing its interim condensed consolidated financial statements for the six month period ended
30 June 2022.
Other than the event disclosed above, there are no material adjusting or non-adjusting events that have occurred subsequent to the
yearend.
FINANCIAL STATEMENTS
200 Ferrexpo plc Annual Report & Accounts 2021
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 2021 and 2020, 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
Significant 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 . 21
As at
31.12.20
Fixed assets
Investment in subsidiary undertakings
4 147,496 147,49 6
Total fixed assets 147,496 147,49 6
Current assets
Debtors: amounts falling due within one year
5 176,391 12,202
Debtors: amounts falling due after more than one year
5 156,971 648,292
Cash at bank and in hand 199 208
Total current assets 333,561 660,702
Creditors: amounts falling due within one year
6 3,503 4,270
Net current assets 330,058 656,432
Total assets less current liabilities 477,554 803,928
Creditors: amounts falling due after more than one year
6 − 104
Net assets 477,554 803,824
Capital and reserves
Called up share capital
7 121,628 121,628
Share premium account 185,112 18 5,112
Treasury share reserve
7 (77,260) (77, 26 0)
Employee benefit trust reserve
7 (1,679) (2,535)
Retained earnings
7 249,753 576,879
Total capital and reserves 477,554 803,824
The profit after taxation for the Company, registration number 05432915, was US$293,484 thousand for the financial year ended 31 December
2021 (2020: US$85,817 thousand).
The financial statements were approved by the Board of Directors and authorised for issue on 21 April 2022 and signed on behalf of the Board.
Lucio Genovese Jim North
Non-executive Chair Chief Executive Officer & Executive Director
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
201Ferrexpo plc Annual Report & Accounts 2021
US$000
Issued
capital
Share
premium
Treasury
share reserve
Employee benefit
trust reserve
Retained
earnings
Total capital
and reserves
At 1 January 2020 121,628 185,112 (77, 26 0) (2,826) 685,351 912,005
Profit for the year − − − − 85,817 85,817
Total comprehensive income for the year − − − − 85,817 85,817
Equity dividends paid to shareholders − − − − (194,289) (194,289)
Share-based payments − − − 291 − 291
At 31 December 2020 121,628 185,112 (77, 26 0 ) (2,535) 576,879 803,824
Profit for the year − − − − 293,484 293,484
Total comprehensive income for the year − − − − 293,484 293,484
Equity dividends paid to shareholders − − − − (620,610) (620,610)
Share-based payments − − − 856 − 856
At 31 December 2021 121,628 185,112 (77,260) (1,679) 249,753 477,554
Parent Company Statement of Changes in Equity
FINANCIAL STATEMENTS
202 Ferrexpo plc Annual Report & Accounts 2021
Note 1: Corporate information
The Company is incorporated and registered in England, which is considered to be the country of domicile, with its registered office at
55StJames’s Street, London SW1A 1LA, UK. The Company’s Ordinary Shares are traded on the London Stock Exchange.
The majority shareholder of the Company is Fevamotinico S.a.r.l. (“Fevamotinico”), a company incorporated in Luxembourg and ultimately
owned byTheMinco Trust, of which Kostyantin Zhevago, the Group’s previous Chief Executive Officer, and two members of his family are the
beneficiaries. At the time this report was published, Fevamotinico held 50.3% (2020: 50.3%) of the Company’s issued share capital.
Note 2: Basis of preparation
The financial statements are prepared under the historical cost convention and in accordance with Financial Reporting Standard 101 Reduced
Disclosure Framework (“FRS 101”).
The financial statements are presented in US dollars (US$), 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;
– 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 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 118 and 119.
Going concern
On 24 February 2022, Russia began its invasion into Ukraine using direct military force and this has led to an intense armed conflict in Ukraine,
which is, as at the date of the approval of these financial statements, still ongoing. This poses a significant threat to the Group’s mining, processing
and logistics operations within Ukraine and therefore a material uncertainty in terms of the Company’s going concern. Considering the current
situation of the war in Ukraine, all identified available mitigating actions and the results of the management’s going concern assessment, the
Company continues to prepare its financial statements on a going concern basis, although a material uncertainty remains as some of the
uncertainties are outside of the Group management’s control as the duration and the impact of the war cannot be predicted at this point of time.
For further details see Note 2 Basis of preparation of the Group’s consolidated financial statements.
Note 3: Significant accounting policies
Foreign currencies
The accounting policy is consistent with the Group’s policy set out in Note 2 Basis of preparation of the Group’s 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.
Financial guarantees
Financial guarantee liabilities issued by the Company 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.
Notes to the Parent Company Financial Statements
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
203Ferrexpo plc Annual Report & Accounts 2021
Note 3: Significant accounting policies continued
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 of the Group’s 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 of the Group’s 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 2021. 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 of the Group’s financial
statements and have not had a significant impact on these financial statements.
Use of critical estimates and judgements
The Company has not identified any area involving the use of critical estimates and judgements made by management in preparing the separate
Parent Company financial statements.
Note 4: Investment in subsidiary undertakings
Investment in subsidiary undertakings at 31 December 2021 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 .21 At 31.12.20
Investment in subsidiary undertakings 147,496 147,49 6
Total investment in subsidiary undertakings 147,496 147, 4 9 6
See Note 32 Consolidated subsidiaries to the consolidated financial statements for further information on subsidiaries indirectly held by theCompany.
Note 5: Debtors
Debtors as at 31 December 2021 related to the following:
US$000 At 31.12 .21 At 31.12.20
Amounts falling due within one year
Amounts owed by subsidiary undertakings 175,034 10,203
Prepaid expenses 600 898
Income tax receivable 613 1,101
Accrued interest owed by subsidiary undertakings 144 –
Total amounts falling due within one year 176,391 12,202
Amounts falling due after more than one year
Amounts owed by subsidiary undertakings 155,119 645,557
Accrued interest owed by subsidiary undertakings – 265
Deferred tax assets 1,852 2,470
Total amounts falling due after more than one year 156,971 648,292
Total debtors 333,362 660,494
FINANCIAL STATEMENTS
204 Ferrexpo plc Annual Report & Accounts 2021
Note 5: Debtors continued
The Company’s loans are contractually payable on demand but having assessed the expected repayment profile, this balance is presented
as falling due after more than one year. Furthermore, taking into account the expected repayment profile, receivables owed by subsidiary
undertakings relating to financial guarantee fees in the amount of US$21,928 thousand have been re-presented as falling due after more than one
year as at 31 December 2021.
Amounts owed by subsidiary undertakings as at the end of the comparative year ended 31 December 2020 include the financial guarantees
provided by the Company relating to the future guarantee fee receivable recorded when the financial guarantees were recognised as a liability.
Following the full repayment of the Group’s syndicated revolving pre-export facility on 30 June 2021, no amounts in relation to financial guarantees
are outstanding as at 31 December 2021.
The table on the previous page includes the impact from the application of the expected credit loss impairment model under IFRS 9 Financial
instruments. The balance of impairment gains on debtors included in the profit after taxation is US$2,788 thousand as of 31 December 2021 (2020:
US$795 thousand).
Note 6: Creditors
Creditors as at 31 December 2021 related to the following:
US$000 At 31.12 .21 At 31.12.20
Creditors: amounts falling due within one year
Financial guarantees – 362
Other payables and accrued liabilities 3,503 3,908
Total creditors: amounts falling due within one year 3,503 4,270
Creditors: amounts falling due after more than one year
Financial guarantees – 104
Total creditors: amounts falling due after more than one year – 104
The Company’s policy is to provide financial guarantees under limited circumstances only for the benefit of wholly owned or substantially owned
subsidiaries.
As at the end of the comparative year ended 31 December 2020, the Company was a guarantor to the major external debt facility of the Group’s
subsidiary Ferrexpo Finance plc, a syndicated revolving pre-export finance facility signed in 2018 and with repayment scheduled to take place in
quarterly instalments between 2020 and 2022. The remaining outstanding amount of US$140,000 thousand was fully repaid on 30 June 2021 and
the facility was subsequently cancelled.
The Company earned guarantee fees from its subsidiaries for the financial guarantees provided in respect of the Group’s finance facility
aforementioned.
Note 7: 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 at 31 December 2021 was 613,967,956 Ordinary Shares (2020: 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 (2020: 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 (2020: 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.
Employee benefit trust reserve
This reserve represents the treasury shares used to satisfy future grants for senior management incentive schemes. As at 31 December 2021, the
employee benefit trust reserve included 924,899 shares (2020: 924,899 shares).
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 2021 do not reflect the profits that are available for distribution by the Company as of this date. Prior to the dividend proposed
as of 31 December 2021 and taking into account relevant thin capitalisation rules and provisions of the Companies Act 2006, the total available
distributable reserves of Ferrexpo plc was US$170,800 thousand as of 31 December 2021 (2020: US$317,646 thousand). Details on dividends are
disclosed in Note 12 Earnings per share and dividends paid and proposed of the Group’s consolidated financial statements.
Companies Act requirements in respect of dividend payments
During the financial year 2021, the Directors became aware of a technical issue in respect of the interim dividend declared on 4 August 2021
and, following investigations of the issue, of further dividend payments made by the Company in previous years. Further details are included in
Directors’ Report on page 128.
Notes to the Parent Company Financial Statements continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
205Ferrexpo plc Annual Report & Accounts 2021
Note 8: Events after the reporting period
On 24 February 2022, Russia began its invasion into Ukraine using direct military force. This has led to an intense armed conflict in Ukraine, which
poses a significant threat to the Group’s mining, processing and logistics operations within the country. This event is treated as a non-adjusting
post balance sheet event and therefore does not affect the carrying value of the Company’s assets and liabilities as at 31 December 2021. This
event however poses a material uncertainty in respect of the Company’s going concern assessment. The anticipated lower sales volume will have
an adverse effect on the Group’s cash flow generation, which may in turn negatively impact the carrying value of the Company’s investment in
subsidiary undertakings in future periods. More details are provided in Note 2 Basis of preparation and Note 35 Events after the reporting period of
the Group’s consolidated financial statements. For further information see also the Principal Risks section of the Group on pages 57 and 58.
Other than the event disclosed above, there are no material adjusting or non-adjusting events that have occurred subsequent to the year end.
FINANCIAL STATEMENTS
206 Ferrexpo plc Annual Report & Accounts 2021
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 . 21
%
31.12.20
%
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
EDDSG GmbH Handelskai 348, 1020 Wien, Austria Barging company 100.0 100.0
DDSG Tankschiffahrt GmbH 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 77.6
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 Alekseya 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.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
207Ferrexpo plc Annual Report & Accounts 2021
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 2021 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$000 Notes
Year ended
31.12 . 21
Year ended
31.12.20
C1 cash costs 626,561 466,013
Non-C1 cost components 71,339 116,783
Inventories recognised as an expense upon sale of goods
7 697,9 0 0 582,796
Own ore produced (tonnes) 11,220,260 11, 217,926
C1 cash cost per tonne (US$) 55.8 41.5
Underlying EBITDA
Definition: The Group calculates the underlying EBITDA as profit before tax and finance plus depreciation and amortisation, net gains and losses
from disposal of investments and property, plant and equipment, share-based payments and write-offs and impairment losses. 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 . 21
Year ended
31.12.20
Underlying EBITDA 1,438,759 858,552
Losses on disposal and liquidation of property, plant and equipment
7 (4,695) (1,303)
Share-based payments
28 (856) (291)
Write-offs and impairments
7 (235,618) (192)
Depreciation and amortisation (115,112) (102,475)
Profit before tax and finance 1,082,478 754,291
Alternative Performance Measures
FINANCIAL STATEMENTS
208 Ferrexpo plc Annual Report & Accounts 2021
Diluted earnings per share
Definition: Earnings per share calculated using the diluted number of Ordinary Shares outstanding.
Closest equivalent IFRSs measure: Diluted earnings per share.
Rationale for adjustment: Excludes the impact of special items that can mask underlying changes in performance.
Reconciliation to closest IFRSs equivalent:
Year ended
31.12 . 21
Year ended
31.12.20
Earnings for the year attributable to equity shareholders – per share in US cents
Basic 148.2 108.1
Diluted 147.9 107. 9
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 . 21
As at
31.12.20
Cash and cash equivalents 25 167, 291 270,006
Interest-bearing loans and borrowings – current
26 (48,206) (134,349)
Interest-bearing loans and borrowings – non-current
26 (2,143) (132,129)
Net cash 116,942 3,528
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 . 21
As at
31.12.20
Purchase of property, plant and equipment and intangible assets (net cash flows used in
investingactivities) 13/15 360,869 205,779
Alternative Performance Measures continued
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
209Ferrexpo plc Annual Report & Accounts 2021
Total liquidity
Definition: Sum of cash and cash equivalents, available committed facilities and undrawn uncommitted facilities. Committed facilities at the end
of the comparative year ended 31 December 2020 include the Group’s syndicated revolving pre-export finance facility, while 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 . 21
As at
31.12.20
Cash and cash equivalents 25 167, 291 270,006
Available committed facilities – 10,000
Undrawn uncommitted facilities 97,85 4 80,000
Total liquidity 265,145 360,006
FINANCIAL STATEMENTS
210 Ferrexpo plc Annual Report & Accounts 2021
Glossary
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
50.3% of Ferrexpo plc shares are held by Fevamotinico S.a.r.l.;
Fevamotinico is wholly owned by The Minco Trust. 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
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
211Ferrexpo plc Annual Report & Accounts 2021
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
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
FINANCIAL STATEMENTS
212 Ferrexpo plc Annual Report & Accounts 2021
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
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, net gains and losses
from disposal of investments and property, plant and equipment,
share-based payments and write-offs and impairment losses
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
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 Macintyre Hudson
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
WWW.FERREXPO.COM
FERREXPO PLC
55 ST JAMES’S STREET, LONDON SW1A 1LA
T +44 (0)20 7389 8300
Ferrexpo plc Annual Report & Accounts 2021