TIDMFXPO
RNS Number : 3654X
Ferrexpo PLC
29 April 2019
29 April 2019
FERREXPO plc
("Ferrexpo", the "Company" or the "Group")
Statement from the Board of Ferrexpo re Auditor Resignation and
Director Resignations
Following the announcement of the resignation of Deloitte LLP
("Deloitte") as the Group's Auditors with immediate effect on 26
April 2019, the Directors of Ferrexpo have now had an opportunity
to review and consider the Statement of Reasons provided by
Deloitte and are publishing these today in full so that all
shareholders are informed.
Deloitte Reasons for Resignation
The Directors note Deloitte's reasons for their resignation
(which are attached to this announcement), and in particular
Deloitte's view that the Company delayed in commencing its
independent review into the Group's charitable donations to
Blooming Land (the "Independent Review"). The Company formed its
own considered view and believes it initiated the formal
Independent Review at the appropriate time, given the other steps
it was taking and all the surrounding circumstances.
In response to the reasons given by Deloitte for their
resignation, Ferrexpo notes the following relevant additional
information:
-- The Group ceased donations to Blooming Land in May 2018.
-- Deloitte were asked by Ferrexpo in June 2018 to review
Blooming Land's 2017 audited financial accounts and report to the
Directors on, amongst other things, the reliance that could be
placed on those accounts.
-- Ferrexpo's half year results were published on 1 August 2018,
following a review by Deloitte. As noted therein, Deloitte's review
did not flag any matters which caused Deloitte to believe that the
half year results had not been prepared, in all material respects,
in accordance with the relevant accounting standards and the FCA's
Disclosure Guidance and Transparency Rules.
-- On 29 August 2018, the Company was informed of the
discrepancies in the copy bank statements received by Deloitte as
part of their audit work.
-- The Company sought to obtain the original bank statements
from Blooming Land in September 2018, with a deadline set for 31
October 2018.
-- Blooming Land did not provide the original bank statements
citing its opinion that it was unable to comply with the request
due to local legislation. The Company, through its non-executive
directors, thereafter sought to obtain further clarification and
information from Blooming Land.
-- On 12 November 2018 the Company commissioned Herbert Smith
Freehills LLP to start work on preparing a draft scope for an
independent review.
-- The Board formally considered commencing an independent
review on 22 November 2018, but concluded that as a preliminary
step the Company would likely achieve better results through a
cooperative route taking into account the third party nature of
Blooming Land. The Board wrote again to Blooming Land to formally
request information and explanations for the discrepancies in the
copy bank statements. This letter was prepared by the Company and
its advisers, with relevant input from Deloitte, and was sent to
Blooming Land on 6 December 2018.
-- Whilst awaiting a response from Blooming Land, the Company
continued to finalise the scope of an independent review. It agreed
a shortlist of potential Ukrainian legal advisers and forensic
accountants who could assist with the independent review. The
process of engaging Ukrainian legal advisers commenced shortly
prior to a response letter received from Blooming Land on 28
December 2018.
-- The responses from Blooming Land received on 28 December 2018
were reviewed by the Company, its legal advisers and Deloitte. Some
of the explanations received were considered incomplete and
unsatisfactory and could not be independently verified. In January
2019 the Company considered whether an independent review should be
launched at that stage, with differing views considered, but
determined it remained appropriate to seek to engage with Blooming
Land outside of a formal independent review. The Company wrote a
letter to Blooming Land on 25 January 2019 requesting further
clarification.
-- On 3 February 2019, and following further discussions with
Deloitte and an appraisal of the options available, Ferrexpo
resolved by unanimous board decision to formally commence the
Independent Review and set up a committee comprised solely of
Independent Non-Executive Directors to oversee the process and
review its findings (the "Independent Review Committee" or "IRC").
This was announced by the Company on 4 February 2019. The IRC is
being advised by Herbert Smith Freehills, as its UK legal adviser,
and BDO as independent forensic accountants, together with
Ukrainian legal advisers and data collection specialists. The
advisers report directly to the Independent Review Committee.
Deloitte has noted that Ferrexpo published its annual report and
accounts prior to the conclusion of the Independent Review, and
that as a consequence Deloitte was required to qualify its audit
opinion. Ferrexpo's obligations as a listed company under the FCA's
Disclosure Guidance and Transparency Rules, and also the terms of
the Group's banking covenants, required the Group to publish its
2018 full year results by 30 April 2019. Having already delayed
publication on two occasions to allow more time for progress with
the Independent Review, it was neither possible nor realistic to
delay further.
Deloitte Audit
Deloitte undertook an intensive audit of the Group's 2018
financial statements. Deloitte set out their opinion, as noted on
page 80 of the Group's full year results announcement, that (other
than in relation to certain disclosed matters concerning Blooming
Land) the financial statements of the Group give a true and fair
view of the results of Ferrexpo plc and its subsidiaries. The
Directors are confident in the quality of the Group's accounts,
reporting and internal control systems.
Ferrexpo would like to re-emphasise that Blooming Land is not
considered a related party of the Group. As detailed in the Group's
full year results announcement, the IRC has considered the
relationship of the CEO and the Group executive management with
Blooming Land, including the CEO's business network, and
unanimously concluded, based on the evidence before it, including
the interim findings of the Independent Review to date and
representations from the Chief Executive Officer, that neither the
CEO nor the Group's executive management control or exercise
significant influence over Blooming Land as defined under
applicable accounting standards or under Chapter 11 of the Listing
Rules and, as a result, Blooming Land is neither a related party of
the CEO nor of the Group's executive management.
The search for a new auditor for the Group is underway and
Ferrexpo will make an announcement as soon as appropriate.
Director Resignations
The Group also announced on 26 April 2019 that two of its
directors Mary Reilly, Chair of the Audit Committee, and Bert
Nacken, Chair of the Remuneration Committee, had decided not to
seek re-election at the Company's AGM on 7 June 2019.
Ms Reilly and Mr Nacken have since informed the Company that,
having seen the Company to the publication of its annual report and
accounts in what have been difficult and very time consuming
circumstances, they have decided to resign with immediate
effect.
Ferrexpo would like to thank both Ms Reilly and Mr Nacken for
their contributions and, in particular, their work to date on the
on-going Independent Review. The remaining members of the IRC
(Vitalii Lisovenko, Chair, and Steve Lucas) are committed to
completing the Independent Review thoroughly in accordance with the
agreed terms of reference and as soon as possible, with advice from
Herbert Smith Freehills, BDO and Ukrainian counsel.
The Board has initiated a process to identify and appoint new
Independent Non-Executive Directors. This process will be taken
forward as a matter of priority, in order to restore the
appropriate balance of independent non-executive directors to the
Board and its committees, including the IRC.
The Board can confirm that its Directors are fully committed to
Ferrexpo and focused on delivering its successful business strategy
given the strong fundamentals underpinning the market it operates
in.
Group Trading
As noted in recent announcements, the Group continues to trade
strongly. To date in 2019, realised prices for Ferrexpo's pellets
have continued at high levels and the Group remains a competitive
producer in a favourable segment of the iron ore market,
underpinning near record EBITDA margins and strong cash
generation.
Commitment to Corporate Governance
Steve Lucas, Chairman of Ferrexpo, said: "The Board of Ferrexpo
is committed to the highest levels of corporate governance and
transparency."
"We are naturally disappointed by Deloitte's resignation and its
reasons, as well as the resignation of Ms Reilly and Mr Nacken. We
have commenced a process to appoint new auditors and additional
independent non-executive directors. We are also committed to
completing the independent review into Blooming Land as quickly as
possible and will update shareholders on the outcome in due
course."
"As reported in the Group's 2018 full year results announcement,
at this stage we cannot conclude as to the ultimate use of all of
the funds by the charity. While there are indications that some
funds could have been misappropriated, further work is required
before any final conclusions can be drawn and the Board would like
to make clear that to date no conclusive evidence of
misappropriation of funds has come to light. "
The Company and its Directors have a good and open dialogue with
all of the Company's stakeholders, and the Company remains
committed to maintaining this level of engagement. The Chairman
will be meeting and speaking with shareholders and other market
participants during the course of this week. The Directors also
look forward to speaking to shareholders at this year's annual
general meeting. In the meantime, if shareholders would like to
speak to the Company or Directors regarding recent developments,
appropriate arrangements can be made through Ferrexpo's Investor
Relations Manager.
For further information contact:
Ferrexpo:
Ingrid McMahon +44 207 389 8304
Maitland:
James Isola +44 207 379 5151
Notes to Editors:
Ferrexpo is a Swiss headquartered iron ore company with assets
in Ukraine. It has been mining, processing and selling high quality
iron ore pellets to the global steel industry for 40 years.
Ferrexpo's resource base is one of the largest iron ore deposits in
the world. In 2018, the Group produced 10.6 million tonnes of
pellets, a 2% increase compared to 2017, ranking it as the 3rd
largest exporter of pellets to the global steel industry with a
market share of approximately 8%. Ferrexpo has a diversified
customer base supplying steel mills in Austria, Germany, Japan,
South Korea, Taiwan, China, Slovakia, the Czech Republic, Turkey,
Vietnam and the United States. Ferrexpo has a premium listing on
the main market of the London Stock Exchange under the ticker FXPO.
For further information, please visit www.ferrexpo.com
Deloitte Statement of Reasons
Statement of Reasons pursuant to section 519 of the Companies
Act 2006 ("the Act") in relation to the
resignation of Deloitte LLP ("we" and "Deloitte") as statutory
auditors of Ferrexpo PLC (company number
05432915) ("the Company")
In August 2018, as explained within our audit report of 22 April
2019 ("our Audit Report"), we identified discrepancies in relation
to copy bank statements provided to us by Blooming Land Charitable
Foundation ("Blooming Land"), a Ukrainian charity which was
established with the primary function of co-ordinating the
Company's CSR programme. We notified the Company of these
discrepancies at that time and requested the Company to obtain the
original bank statements from Blooming Land.
In October 2018, we confirmed to the Company that should
Blooming Land fail to provide the original bank statements by the
end of that month, then we would expect the Company to conduct an
independent forensic investigation into the discrepancies and
Blooming Land.
After Blooming Land had failed to provide the original bank
statements, we renewed our request in November 2018 that in our
view it was necessary for the Company to conduct an independent
forensic investigation and we repeated our request that the Company
do so.
At this time, there was apparent acceptance by the Company that
a forensic investigation would be conducted. Subsequently, when
discussed by the full board in January 2019, a majority of the
directors did not consider that such an investigation was
necessary, with the reason given, being the potential for future
correspondence to be exchanged with Blooming Land and, therefore,
the Company declined to conduct one.
We repeated our request that such an investigation be conducted
on several occasions thereafter, which culminated in us stating on
31 January 2019 that unless the investigation were to be conducted,
we would be obliged to consider our position as the Company's
auditor.
Shortly thereafter a majority of the Board agreed with our
request and decided to conduct a "comprehensive independent review"
(referred to as the "Independent Review" by the Company), as
reported by the Company in its announcement of 4 February 2019 (see
RNS 9506O).
The Company published its Annual Report for the year ended 31
December 2018 on 23 April 2019, before the Independent Review was
completed. As a consequence, we were unable to obtain satisfactory
audit evidence or explanations in respect of two key audit matters.
This led to our qualified opinion, as fully explained within our
Audit Report (the contents of which are to be treated as
incorporated into this Statement of Reasons).
Whilst we recognise that the Company is conducting the
Independent Review (which remains ongoing), and that is welcome, in
the circumstances we consider that the Company's response to the
situation, including its delay in conducting an independent
forensic investigation, with the consequences described above, are
incompatible with our continuing in the role of statutory auditor
beyond the 2018 financial year.
We have accordingly concluded, following completion of our Audit
Report, that we do not consider it appropriate for us to continue
as statutory auditor of the Company.
Unless the Company applies to Court, the Company must within 14
days of receipt of this Statement of Reasons, send a copy of the
Statement of Reasons to every person who, under section 423 of the
Act, is entitled to be sent copies of the accounts.
Deloitte LLP - Audit registration C009201919
25 April 2019
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END
MSCGUGDSDUDBGCC
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