TIDMFXPO
RNS Number : 0311J
Ferrexpo PLC
22 April 2022
22 April 2022
Ferrexpo plc
("Ferrexpo" or the "Company" or the "Group")
2021 Full Year Financial Results
Ferrexpo plc (LSE: FXPO), a FTSE 250 iron ore pellet producer,
today announces its full year audited financial results for the 12
months ended 31 December 2021.
Lucio Genovese, Non-executive Chair of Ferrexpo, commented:
"At Ferrexpo, we entered 2022 expecting to celebrate 15 years of
success since the Group listed in 2007. Instead, the world is
witnessing a brutal invasion being waged by Russia against the
people of Ukraine, which has created a humanitarian crisis across
the country. From the very start of this invasion, our priority has
been the safety and wellbeing of our workforce, their families and
our wider communities.
"The Government of Ukraine has been highly organised and quickly
recognised the role that the private sector needs to play in
supporting the economy, thereby indirectly supporting those on the
front line. It has been the resilience of our workforce that has
enabled the Group to continue to operate, as well as launch a
significant humanitarian programme to assist those directly
impacted by the invasion. The response that I have seen from our
colleagues has been incredible, and I would like to thank our
workforce for their professionalism and continued efforts during
this very difficult period.
"The financial results for the full year 2021 that we present
here to you today reflect a very different time, in a period that
pre-dates the invasion. We make no fanfare in presenting these
results, but stand united with the people of Ukraine. In 2021,
despite the lingering impact of the global Covid-19 pandemic and
significant volatility in the iron ore markets, we maintained our
focus on safety, growth in producing high quality iron ore pellets
and reduction of carbon emissions.
"As shown in our recent production report and trading update for
the first quarter of 2022, our operations continue to operate and
we continue to export to Europe. We understand the importance of
our role today - our operations have more than 50 years of
association with Ukraine, and a workforce of more than 10,000
people in the country. Whilst there remains significant uncertainty
in the near term outlook with the ongoing hostilities, the
resilience and determination of the Ukrainian people continues to
impress in these dark and difficult times."
Financial Highlights for 2021:
-- Revenues up 48% to US$2.5 billion, reflecting rising demand
for high grade iron ore (2020: US$1.7 billion).
-- Underlying EBITDA(A) up 68% to US$1,439 million (2020: US$859 million).
-- Net cash flows from operations up 59% to US$1,094 million (2020: US$687 million).
-- Net cash position of US$117 million as at year end (31
December 2020: net cash US$4 million).
-- In view of Russia's invasion of Ukraine in 2022, the Board of
Directors ("Board") has decided to defer any decision in relation
to an interim dividend in conjunction with the Group's full year
results for 2021. The Board will continue to assess the situation
in Ukraine, and when appropriate, will make a decision in relation
to shareholder returns.
2021 Financial Summary:
US$ million (unless otherwise stated) Year ended Year ended % Change
31.12.21 31.12.20
Pellet production (kt) 11,220 11,218 +0.02%
Sales volumes (kt) 11,350 12,062 (6%)
Average Platts [1] CFR 62% Fe iron
ore fines price (US$/t) 160 109 +47%
Average Platts(1) CFR 65% Fe iron
ore fines price (US$/t) 186 122 +53%
Revenue 2,518 1,700 +48%
Average C1 cash cost(A) (US$/t) 55.8 41.5 +34%
Underlying EBITDA(A) 1,439 859 +68%
Diluted EPS (US cents) 147.9 107.9 +37%
Net cash flow from operating activities 1,094 687 +59%
Capital investment(A) 361 206 +75%
Net cash 117 4 +3,215%
Cash and cash equivalents 167 270 (38%)
Safety and Wellbeing
-- The safety and wellbeing of Ferrexpo's workforce remains the
Group's key focus, with measures in place to protect the safety of
individuals during Russia's invasion of Ukraine, and additional
projects to support individuals' wellbeing and mental health during
this difficult time.
-- Fatality-free year across the Ferrexpo Group in 2021 (2020: 1).
-- Group lost time injury frequency rate of 0.41 - the third
successive year of safety performance materially below the Group's
five-year full year trailing average (0.98).
Market Factors
-- High grade iron ore prices ([2]) average US$186 per tonne in 2021 (2020: US$122 per tonne).
-- Atlantic Pellet Premiums(1) increased to US$56 per tonne in
2021 (2020: US$29 per tonne), reflecting increased demand from
steelmakers for forms of iron ore that result in lower emissions of
carbon dioxide during the conversion process to create steel.
-- C3 freight rate ([3]) increased to US$27 per tonne (2020:
US$15 per tonne), reflecting higher energy costs.
Operational Highlights
-- Iron ore pellet production of 11.2 million tonnes (2020: 11.2 million tonnes).
-- Proportion of high grade pellets (65% Fe and above) increased
to 100% (2020: 99%), including a 27% increase in production of
higher grade direct reduction pellets.
-- Iron ore sales volume decreased by 6% to 11.3 million tonnes
(2020: 12.1 million tonnes), reflecting a one-off destocking
process in early 2020.
-- C1 cash costs(A) increased by 34% to US$55.8 per tonne (2020:
US$41.5 per tonne), reflecting higher commodity input costs.
-- Capital investment(A) of US$361 million, an increase of 75%
(2020: US$206 million), reflecting increased investment in the
Group's Wave 1 Expansion, pelletiser upgrade work and stripping and
development work in the Group's mines.
Environment, Social and Governance ("ESG")
-- Establishment of a dedicated Humanitarian Fund, with US$12.5
million of approved funding [4] , in response to Russia's invasion
of Ukraine in 2022 and the unfolding humanitarian crisis in
Ukraine.
-- Carbon-equivalent emissions per tonne of production reduced
by 16% in 2021, matching 2020 achievement, and realising a
cumulative 30% reduction since the Group's baseline year of
2019.
-- Carbon emissions reduction targets for years 2030 and 2050 announced in October 2021.
Corporate Governance
-- February 2022: Jim North confirmed as permanent Chief Executive Officer of the Group.
-- December 2021: Natalie Polischuk appointed Independent
Non-executive Director, increasing number of Independent Directors
to five.
-- August 2021: Nikolay Kladiev appointed as Chief Financial Officer of the Group.
-- March 2021: Ann-Christin Andersen appointed Independent Non-executive Director.
Stakeholder engagement
Owing to the timing of this release, and ongoing Russian of
Ukraine, the Group will not be hosting a conference call alongside
this set of financial results. Following the publication of the
Group's financial results for 2021, Group expects to host its
Annual General Meeting in June 2022 and will update the market
accordingly at this event. A summary presentation has been made
available on the Group's website alongside this announcement.
Alternative Performance Measures
Words with the symbol (A) are defined in the Alternative
Performance Measures - see pages 80 to 81 for more information.
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.
This announcement contains inside information in relation to the
Company. The person responsible for making this notification is
Mark Gregory, Company Secretary.
For further information, please contact:
Ferrexpo:
Rob Simmons r.simmons@ferrexpo.ch +44 207 389 8305
Tavistock:
Jos Simson +44 207 920 3150
Gareth Tredway ferrexpo@tavistock.co.uk +44 7785 974 264
About Ferrexpo:
Ferrexpo is a Swiss headquartered iron ore company with assets
in Ukraine and a premium listing on the London Stock Exchange in
the FTSE 250 index (ticker FXPO). The Group produces high grade
iron ore pellets, which are a premium product for the global steel
industry and enable reduced carbon emissions and increased
productivity for steelmakers when the Group's iron ore pellets are
converted into steel, compared to more commonly traded forms of
iron ore. Ferrexpo's operations have been supplying the global
steel industry for over 50 years and in 2021 the Group produced
11.2 million tonnes of iron ore pellets, placing Ferrexpo as the
world's third largest exporter of pellets to the global steel
industry with a market share of approximately 9%. The Group has a
global customer base comprising of premium steel mills around the
world, which includes steel mills in Austria, Germany, Japan, South
Korea, Taiwan, China, Slovakia, the Czech Republic, Turkey, Vietnam
and America. For further information, please visit www.ferrexpo.com
.
Chair's Statement
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 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 28 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 25
for details of progress made, and page 25 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 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, with future growth plans outlined
on pages 19 to 21 .
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
CASE STUDY: 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 [5] and the average person uses more than ten times
the amount of steel in a single year as they use than any other
single metal, as shown in the table below.
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 [6] , and steel demand is expected to grow by 31% by 2050
to meet the needs of the transition to a low carbon future [7] .
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.
Table: Metals consumed per person per year (global basis,
kilogrammes)
Steel [8] 228
-------------- ----
Aluminium
[9] 12
-------------- ----
Copper [10] 3
-------------- ----
Zinc [11] 2
-------------- ----
Lead [12] 2
-------------- ----
Titanium [13] 1
-------------- ----
Nickel [14] 0.4
-------------- ----
Lithium [15] 0.01
-------------- ----
CEO's Review
Russia's invasion in 2022 has placed communities throughout
Ukraine, under severe pressure, but we remain resilient and
determined to look 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.
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 pag-e 23 . 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 23 to 24 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 8, 33 and 51 ,
with minimal disruption caused to operations to date.
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 10 for more
information). 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 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
19.
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 10 (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 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 28 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 25 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 31 to 32 .
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 17 to 20 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 on pages 8 and 32 .
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 48 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
CASE STUDY: THE IMPORTANCE OF IRON ORE PELLETS
Blast furnace pellets (vs. sinter fines): 40% emissions saving
for steelmakers
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).
Direct reduction pellets (vs. other pellets): 49% Scope 3
emissions saving for Ferrexpo
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.)
Case Study: Ferrexpo's Response to 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 [16] .
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 32 and 51 .
Market Review
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.
Table: Full year Market Indices 2021
(US$/tonne, unless stated otherwise, and represent 2021 2020 Change
full year averages)
--------------------------------------------------- ----- ----- ------
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) [17] 1,912 1,829 +4%
--------------------------------------------------- ----- ----- ------
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 [18] , 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 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.
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 12. 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 table below .
Table: Premium paid for high grade (% of 62% Fe Index)
2020 1Q 2021 2Q 2021 3Q 2021 4Q 2021
----- -------- -------- -------- --------
12% 15% 16% 17% 18%
----- -------- -------- -------- --------
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, Atlantic pellet
premiums 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 [19] .
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(1) . The main driver for the decrease in supply
seen in 2021 came from lower exports from producers in Brazil,
India and the USA, balanced in part by a returning producer in
Brazil(1) . Within this total, exports of 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 10 , 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 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 space 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.
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 8. 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.
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.
CASE STUDY: THE IMPORTANCE OF HIGH GRADE IRON
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.
CASE STUDY: 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.
Financial Review
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 17
to 19.
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.
C1 cash cost of production(A)
The Group's average C1 cash cost of productionA 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 [20] .
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$3.5
per tonne of all tonnes sold.
In line with previous years, the Group's C1 cash cost of
production(A) represents the cash costs of production of iron
pellets from own ore (to the mine gate), divided by production
volume from own ore, and excludes non-cash costs such as
depreciation, pension costs and inventory movements, as well as the
costs of purchased ore, concentrate and gravel. The C1 cash cost of
productionA (US$ per tonne) is regarded as an Alternative
Performance Measures ("APM"). For further information, please see
pages 80 to 81.
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 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 productionA on page 13 and Case
Study on page 16 .
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 6
(Foreign exchange gains and losses) to the Consolidated Financial
Statements.
Underlying EBITDAA
Underlying EBITDAA 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 EBITDAA 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).
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 7 (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 8 (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 10 (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 the Northern
Deposits (2020: US$6 million). For further information on the
Group's growth plans, please see pages 19 to 21 .
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, will 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 14 (Related party
disclosures).
CASE STUDY: 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$2 per tonne increase attributable to spare parts and
maintenance costs per tonne combined. Elevated energy prices are
expected to remain in place going into 2022, with a gradual decline
to historic levels expected during the course of first half of the
year.
Through its production of high grade iron ore pellets, the Group
remains competitive for costs on a global scale, as shown in the
pellet cost curve, presented by independent consultants CRU. With
the increases in energy costs described above, the Group has moved
from the first to the second quartile of costs for pellet
producers, but the Group retains a cost advantage over more than 55
million tonnes of existing pellet production, representing
approximately half of the current market of iron ore pellets. Given
the long-term value proposition of high grade iron ore and pellet
premiums, as outlined in the Case Studies provided in this report,
the Group believes that it will continue to be globally competitive
on its cost of production.
For more details of the increasing premiums paid for high grade
iron ore, please see page 10 .
Table: Breakdown of Ferrexpo's C1 cash cost of production(A)
Electricity 23%
Gas + Biofuel 16%
Fuel 6%
Materials 8%
Spare parts 11%
Personnel
costs 8%
Repair service 11%
Grinding bodies 8%
Royalties 6%
Blasting 2%
---------------- ---
Note: above numbers are rounded.
Chart: CRU Breakdown pellet cost curve to natural markets (US$
per tonne)
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
Operational Review
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.
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 19 ), 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 20). 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 19.
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.
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 10 (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 12 .
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.
Table: 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%
----------------------------------------- ------ ------ ------
Table: JORC-Compliant Ore Reserves and Mineral Resources(1)
Proven Probable Total
-------------------------------- ------------------------- --------------------------- ----------------------------
Fe Fe
Fe total magnetic Fe total magnetic Fe total Fe magnetic
JORC-compliant Ore Reserves Mt % % Mt % % Mt % %
-------------------------------- --- -------- ---------- ----- -------- ---------- ----- -------- -----------
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
-------------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Fe Fe Fe Fe Fe Fe Fe Fe
JORC-compliant total magnetic total magnetic total magnetic total magnetic
Mineral Resources Mt % % Mt % % Mt % % Mt % %
-------------------------------- ----- ----- -------- ----- ----- --------- ----- ----- -------- ----- ----- --------
Gorishne-Plavninske-Lavrykivske
("GPL") 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, 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 38 for more
information.
CASE STUDY: 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.
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.
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 36 to 52 ).
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 below , 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.
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.
CASE STUDY: DECARBONISATION OF MINING 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.
HSEC Committee Chair's Review
The events in the first quarter of 2022 has 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.
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 ( http://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 32 , with US$12.5 million of
approved funding for the Group's Humanitarian Fund [21] .
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 [22] , with further details provided on page 23
.
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 31 .
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 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 20 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 28 .
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 25.
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 32 to
33 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
CASE STUDY: 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.
Health and Safety Review
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.
Table: Safety Indicators 2020/21
2021 2020 Change
--------------------------------- ------ ------ -------
Lagging indicators
--------------------------------- ------ ------ -------
Fatalities1 - 1 -100%
Lost time injuries1 9 17 -47%
LTIFR1 0.41 0.79 -48%
TRIFR2 0.97 1.25 -22%
Near miss events2 5 7 -29%
Significant incidents2 12 17 -29%
Road traffic accidents2 43 31 +39%
Lost work days2 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.
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 25 .
CASE STUDY: 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.
CASE STUDY: 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 CO2e.)
-- Increase carbon factor for nuclear power purchases from 5g to
12g per kilowatt-hour, aligning with World
Nuclear Association [23] data. (Net impact on 2020 data: +2t CO2e.)
-- 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 CO2e.)
-- Inclusion of the Group's commercial concentrate sales of
183kt in calculating per tonne emissions.
ENVIRONMENTAL REVIEW
Ferrexpo works closely with the natural environment, to minimise
any impact and strive to improve as new technology becomes
available.
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 28 .
The Group continues to make progress in cutting its carbon
footprint, delivering a 16% reduction in its Scope 1 and Scope 2
carbon emissions (CO2e) per tonne in 2021. Details of this
progress, as well as the Group's reporting under the TCFD, are
provided on pages 25 to 30 .
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 [24] , 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 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 19 . 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.
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 [25] in 2021.
The Group has therefore reduced its emissions by 30% 2 in the
space of two years, and whilst this meets the Group's medium-term
target of reducing emissions by 30% by 2030 (2) , 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 on page 28 for more information on this work
stream.
The reduction in carbon emissions in 2021 (2) 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%(2) . 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
20 .
Table: Scope 1 and Scope 2 emissions 2021 2020 [26] 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 CO2) 10 13 -24%
5,142,974,253
Energy consumption (kWh) 5,489,232,550 (1) +7%
------------------------------------- ------------- ------------- ------
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 8 . As a result of this work, the Group can disclose that its
Scope 3 emissions footprint was 1.28tCO 2 /t in 2021 (20202:
1.29tCO 2 /t), with this 1% reduction 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 on page 28 .
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 8, 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 on page 27 .
CASE STUDY: 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 below:
-- 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.
-- 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.
TCFD reporting
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.
Topics reported by the Group in accordance with TCFD are
provided in the table on page 30.
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 [49] of this report.
In respect of climate change scenario planning, the Group is
working with Ric ardo 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 [above]. 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 49 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 12. 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 8 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 19).
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 20 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 27 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
4 TCFD pillars and 11 recommended disclosures. The table [over the
page] 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 on page 30 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.
Table: Summary disclosure against TCFD recommendations
Strategy
-------------------------- ------------------------------------------------------------------
Climate-related Climate change is considered to be a Principal Risk to
risks and opportunities the Group, and this risk is detailed on page 49 of this
over the short, report, alongside risk mitigation actions. The risks
medium and long and opportunities relating to climate change and their
term 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 35 of this report.
-------------------------- ------------------------------------------------------------------
Impact on the Ferrexpo The Group has incorporated climate change into its strategic
business, strategy planning and is currently pivoting its production base
and financial planning towards direct reduction pellets as a consequence of
this process, as discussed on page 8 (Case Study: The
Importance of Iron Ore Pellets) and page 12 (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 Principal Risks Section
(pages 36 to 52) for more information on the Group's
approach to evaluating the impact of climate change on
its business.
-------------------------- ------------------------------------------------------------------
Resilience based The Group is conducting a detailed climate change modelling
on climate change exercise with environmental consultants Ricardo, which
scenarios 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
- please see page 29 for more details.
-------------------------- ------------------------------------------------------------------
Governance
-------------------------- ------------------------------------------------------------------
The Board's role The Board of Directors has ultimate oversight of the
in oversight of Group's strategy, including its approach to the effect
climate-related of climate change on the Group's business model. Climate
risks and opportunities change was a standing agenda item at all five scheduled
Board meetings throughout the year. 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 The Board is accountable for the long-term stewardship
in assessing risks of the group. The Board has delegated oversight of climate
and opportunities 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 35 to 36 of this report.
-------------------------- ------------------------------------------------------------------
Risk management
-------------------------- ------------------------------------------------------------------
Processes for identifying, The Group regularly assesses risks applicable to the
assessing and managing Group through its Finance, Risk Management and Compliance
climate-related Committee, which assesses risks based on the probability
risks 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 36 to 52, with climate change identified as a Principal
Risk and detailed on page 49 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 Ferrexpo's governance relating to climate change risks
these risks into has been designed to ensure that the management of the
the Group's overall financial risks from climate change are integrated across
risk management 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 49.
-------------------------- ------------------------------------------------------------------
Metrics and targets
-------------------------- ------------------------------------------------------------------
Metrics used to Ferrexpo's approach to managing its performance with
assess climate-related respect to climate change is to fully integrate climate
risks and opportunities 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 26 to 28.
-------------------------- ------------------------------------------------------------------
Greenhouse gas emissions Details of the Group's Scope 1, 2 and 3 emissions are
provided on page 27 of this report.
-------------------------- ------------------------------------------------------------------
Targets Details of the Group's targets for reducing Scope 1 and
2 emissions are provided on page 26 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 8 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.
========================== ==================================================================
WORKFORCE DEVELOPMENT AND INCLUSION
Ferrexpo's workforce comprises over 10,000 employees and
contractors, making it one of the largest employers in the
region.
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.
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.
Case Study: "Fe_Munity" women in leadership programme
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%).
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, 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.
COMMUNITY SUPPORT AND ENGAGEMENT
Russia's invasion of Ukraine in 2022 has emphasised the
importance of working with local communities, to help communities
during this humanitarian crisis.
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 on page 33 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 Sadler's
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/ ).
CASE STUDY: 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", 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.
Corporate Governance
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.
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.
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 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 page 31 to 32.
Corporate governance controls
The Group continues to strengthen its internal corporate
governance controls and adapt its processes. 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
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
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.
Risk Management: Assessing and Managing Risk
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.
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 36 to 52 .
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.
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.
Risk assessment for 2022
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 36 to 52
, 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 37
.
Principal Risks
Principal Risks are those considered to have the greatest
potential impact on the Ferrexpo business, assessed on the basis of
impact and probability.
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 36 to 52 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 37
.
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 35 , 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 48 .
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.
1. Country Risk
1.1 Conflict risk (external risk)
Risk overview
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.
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.
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
aims to prepare itself 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 32 and in the Group's recent press releases.
Responsibility
Board of Directors and Chief Executive Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Change
Increased
1.2 Ukraine country risk (external risk)
Risk overview
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 37 . 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.
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 13 (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 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.
Risk mitigation
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.
Responsibility
Board of Directors and Chief Executive Officer
Risk appetite
Medium
Link to strategy
1, 2, 3, 4 and 5
Change: Increased
1.3 Counterparty risk (external risk)
Risk overview
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 51. As noted on page 35 , 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.
Risk mitigation
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.
Responsibility
Board of Directors, Chief Executive Officer and Chief Financial
Officer
Risk appetite
Low
Link to strategy
4
Change: Increased
2. Market Related Risks
2.1 Risks relating to the global demand for steel
Risk overview
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 [27] . 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.
Risk mitigation
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.
Responsibility:
n/a (Ferrexpo not large enough to influence global demand)
Risk appetite:
Medium
Link to strategy:
3 and 5
Change: Unchanged
3. Risks related to realised pricing
3.1 Changes in pricing methodology
Risk overview
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.
Risk mitigation
The Group aims to price its products through clear and
consistent engagement with customers, with the Group seeking to
develop mutually beneficial long-term relationships. Through
consistent supply and consistent high quality of the Group's
products, Ferrexpo aims to maintain strong relationships with its
customers.
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 16 . 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.
Responsibility
Chief Executive Officer and Chief Marketing Officer
Risk appetite
Medium
Link to strategy
1, 3 and 5
Change: Unchanged
3.2 Lower iron ore prices
Risk overview
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 41 ). 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.
Risk mitigation
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.
Responsibility
n/a (Ferrexpo not large enough to influence global demand)
Risk appetite
Medium
Link to strategy
1, 3 and 5
Change: Unchanged
3.3 Pellet premiums and pellet supply
Risk overview
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).
Risk mitigation
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 9 to 12 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.
Responsibility
Chief Executive Officer and Chief Marketing Officer
Risk appetite
Medium
Link to strategy
1, 3 and 5
Change: Decreased
3.4 Seaborne freight rates
Risk overview
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.
Risk mitigation
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 12 . 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.
Responsibility
Chief Executive Officer and Chief Marketing Officer
Risk appetite
Low
Link to strategy
2, 3 and 5
Change: Increased
4. Operating risks
4.1 Risks relating to producing and delivering the Group's iron
ore products to customers
Risk overview
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 37 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.
Risk mitigation
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.
Responsibility
Chief Executive Officer, Chief Operating Officer and Chief
Marketing Officer
Risk appetite
Medium
Link to strategy
2, 3 and 5
Change: Increased
4.2 Risks relating to health and safety
Risk overview
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 37 .
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 51 of
the Principal Risks section, with risk mitigation measures also
provided in the Case Study on page 8 of this report .
Risk mitigation
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 8 and 32 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).
Responsibility
Chief Executive Officer, Chief Operating Officer and Chief
Marketing Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Change: Increased
4.3 Risks relating to operating costs
Risk overview
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 13 to 17) 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 16 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.
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$9 per tonne and therefore lower
than the pellet premium seen in 2021 (please see the Market Review
section on pages 9 to 12 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.
Responsibility
Chief Executive Officer and Chief Financial Officer
Risk appetite
Low
Link to strategy
2 and 5
Change: Increased
4.4 Risks relating to information technology and
cybersecurity
Risk overview
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 37.
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. [28] 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.
Risk mitigation
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.
Responsibility
Chief Executive Officer
Risk appetite
Low
Link to strategy
1, 2 and 3
Change: Increased
5. Risks relating to climate change
Risk overview
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 [29] ). 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
[30] . 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.
Risk mitigation
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
27). 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 25. 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 28 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 [31] 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.
Responsibility
Board of Directors and Chief Executive Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Change: Increased
6. Risks relating to the global Covid-19 pandemic
Risk overview
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.
The Russian invasion of Ukraine in 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.
Risk mitigation
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 [32] . 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 8.
Responsibility
Board of Directors and Chief Executive Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Change: Decreased
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 in Note 2
(Basis of preparation) to the Consolidated Financial
Statements;
(b) the parent company financial statements, which have been
prepared in accordance with United Kingdom Accounting Standards,
comprising FRS 101 Reduced Disclosure Framework, give a true and
fair view of the company's assets, liabilities and financial
position of the Parent Company;
(c) the Strategic Report 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.
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 and Executive Director
Independent Auditor's Report TO THE SHAREHOLDERS OF
FERREXPO PLC ON THE PRELIMINARY ANNOUNCEMENT OF FERREXPO PLC
As the independent auditor of Ferrexpo plc we are required by UK
Listing Rule LR 9.7A.1 (2) to agree to the publication of Ferrexpo
plc's preliminary statement of annual results for the year ended 31
December 2021.
The preliminary statement of annual results for the year ended
31 December 2021 includes the 2021 full year results and the
disclosures required by the Listing rules including:
-- Financial Highlights and 2021 Financial Summary;
-- Chair's Statement;
-- Management commentary included under the following headings;
Ferrexpo's Response to COVID-19, Market Review, Financial Review,
Operations Review, Growth Plans, HSEC's Chair Review, Health and
Safety Review, Climate Change, TCFD Reporting, Workforce
Development and Inclusion, Community Support and Development,
Corporate Governance, Risk Management, Responsible Business and
Principal Risks Sections;
-- Statement of Directors' Responsibilities;
-- Consolidated Income Statement;
-- Consolidated Statement of Comprehensive Income;
-- Consolidated Statement of Financial Position;
-- Consolidated Statement of Cash Flows;
-- Consolidated Statement of Changes in Equity;
-- Notes to the Consolidated Financial Statements; and
-- Alternative Performance Measures.
The Directors of Ferrexpo plc are responsible for the
preparation, presentation and publication of the preliminary
statement of annual results in accordance with the UK Listing
Rules.
We are responsible for agreeing to the publication of the
preliminary statement of annual results, having regard to the
Financial Reporting Council's Bulletin "The A uditor's Association
with Preliminary Announcements made in accordance with the
requirements of the UK Listing R ules".
Status of our audit of the financial statements
Our audit of the annual financial statements of Ferrexpo plc for
the year ended 31 December 2021 is complete and we signed our
auditor's report on 21 April 2022. Our auditor's report is not
modified although it includes a separate section in respect of a
material uncertainty related to going concern.
Procedures performed to agree to the preliminary announcement of
annual results
In order to agree to the publication of the preliminary
announcement of annual results of Ferrexpo plc we carried out the
following procedures:
-- Confirmed that the preliminary statement includes the minimum
information required by the Listing Rules.
-- Checked that the figures in the preliminary statement have
been accurately extracted from the audited financial
statements.
-- Checked the consistency of presentation of the financial
information in the preliminary statement with the audited financial
statements.
-- Read management commentary, the financial information in the
consolidated financial statements and notes thereof and considered
if the management commentary is:
o Fair, balanced and understandable
o Materially consistent with the financial statements and with
the contents of the annual report
o Consistent with the information and our knowledge obtained in
the course of the audit of the financial statements of Ferrexpo plc
for the year ended 31 December 2021.
-- Considered if for Alternative Performance Measures (APMs) and associated narrative:
o APMs are clearly defined and have been given meaningful
labels
o The use and relevance of APMs is explained
o APMs have been reconciled to the most relevant figures in the
financial statements
o Comparatives have been included
-- Considering whether the financial information in the
preliminary announcement is misstated, either because it is stated
incorrectly or because it is presented in a misleading manner.
Rakesh Shaunak FCA
Senior Statutory Auditor
For and on behalf of MHA MacIntyre Hudson,
Statutory Auditor
London
21 April 2022
Consolidated Income Statement
Year ended Year ended
US$000 Notes 31.12.21 31.12.20
---------------------------------------------- ----- ----------- -----------
Revenue 4 2,518,230 1,700,321
---------------------------------------------- ----- ----------- -----------
Operating expenses 3/5 (1,411,911) (1,018,109)
---------------------------------------------- ----- ----------- -----------
Other operating income 9,499 5,432
---------------------------------------------- ----- ----------- -----------
Operating foreign exchange (losses)/gains 6 (37,808) 61,023
---------------------------------------------- ----- ----------- -----------
Operating profit 1,078,010 748,667
---------------------------------------------- ----- ----------- -----------
Share of profit from associates 4,468 5,624
---------------------------------------------- ----- ----------- -----------
Profit before tax and finance 1,082,478 754,291
---------------------------------------------- ----- ----------- -----------
Finance income 7 637 553
---------------------------------------------- ----- ----------- -----------
Finance expense 7 (8,940) (12,286)
---------------------------------------------- ----- ----------- -----------
Non-operating foreign exchange (losses)/gains 6 (3,200) 5,302
---------------------------------------------- ----- ----------- -----------
Profit before tax 1,070,975 747,860
---------------------------------------------- ----- ----------- -----------
Income tax expense 8 (199,982) (112,568)
---------------------------------------------- ----- ----------- -----------
Profit for the year 870,993 635,292
---------------------------------------------- ----- ----------- -----------
Profit attributable to:
---------------------------------------------- ----- ----------- -----------
Equity shareholders of Ferrexpo plc 870,987 635,292
---------------------------------------------- ----- ----------- -----------
Non-controlling interests 6 -
---------------------------------------------- ----- ----------- -----------
Profit for the year 870,993 635,292
---------------------------------------------- ----- ----------- -----------
Earnings per share:
---------------------------------------------- ----- ----------- -----------
Basic (US cents) 9 148.2 108.1
---------------------------------------------- ----- ----------- -----------
Diluted (US cents) 9 147.9 107.9
---------------------------------------------- ----- ----------- -----------
Consolidated Statement of Comprehensive Income
Year ended Year ended
US$000 Notes 31.12.21 31.12.20
-------------------------------------------------------- ----- ---------- ----------
Profit for the year 870,993 635,292
-------------------------------------------------------- ----- ---------- ----------
Items that may subsequently be reclassified to
profit or loss:
-------------------------------------------------------- ----- ---------- ----------
Exchange differences on translating foreign operations 82,196 (317,674)
-------------------------------------------------------- ----- ---------- ----------
Income tax effect 8 (3,313) 16,278
-------------------------------------------------------- ----- ---------- ----------
Net other comprehensive income/(loss) that may
be reclassified to profit or loss in subsequent
periods 78,883 (301,396)
-------------------------------------------------------- ----- ---------- ----------
Items that will not be reclassified subsequently
to profit or loss:
-------------------------------------------------------- ----- ---------- ----------
Remeasurement gains/(losses) on defined benefit
pension liability 9,882 (1,057)
-------------------------------------------------------- ----- ---------- ----------
Net other comprehensive income/(loss) not being reclassified
to profit or loss in subsequent periods 9,882 (1,057)
--------------------------------------------------------------- ---------- ----------
Other comprehensive income/(loss) for the year,
net of tax 88,765 (302,453)
-------------------------------------------------------- ----- ---------- ----------
Total comprehensive income for the year, net of
tax 959,758 332,839
-------------------------------------------------------- ----- ---------- ----------
Total comprehensive income attributable to:
-------------------------------------------------------- ----- ---------- ----------
Equity shareholders of Ferrexpo plc 959,778 332,822
-------------------------------------------------------- ----- ---------- ----------
Non-controlling interests (20) 17
-------------------------------------------------------- ----- ---------- ----------
959,758 332,839
-------------------------------------------------------- ----- ---------- ----------
Consolidated Statement of Financial Position
As at As at
US$000 Notes 31.12.21 31.12.20
---------------------------------------------- ----- ----------- -----------
Assets
---------------------------------------------- ----- ----------- -----------
Property, plant and equipment 1,216,693 1,004,385
---------------------------------------------- ----- ----------- -----------
Right-of-use assets 7,776 8,313
---------------------------------------------- ----- ----------- -----------
Goodwill and other intangible assets 43,586 40,734
---------------------------------------------- ----- ----------- -----------
Investments in associates 7,034 5,873
---------------------------------------------- ----- ----------- -----------
Inventories 10 8,414 213,685
---------------------------------------------- ----- ----------- -----------
Other non-current assets 96,484 25,480
---------------------------------------------- ----- ----------- -----------
Deferred tax assets 8 32,946 30,574
---------------------------------------------- ----- ----------- -----------
Total non-current assets 1,412,933 1,329,044
---------------------------------------------- ----- ----------- -----------
Inventories 10 202,399 144,605
---------------------------------------------- ----- ----------- -----------
Trade and other receivables 192,363 152,750
---------------------------------------------- ----- ----------- -----------
Prepayments and other current assets 68,162 25,884
---------------------------------------------- ----- ----------- -----------
Income taxes recoverable and prepaid 8 636 1,351
---------------------------------------------- ----- ----------- -----------
Other taxes recoverable and prepaid 48,040 31,323
---------------------------------------------- ----- ----------- -----------
Cash and cash equivalents 11 167,291 270,006
---------------------------------------------- ----- ----------- -----------
Total current assets 678,891 625,919
---------------------------------------------- ----- ----------- -----------
Total assets 2,091,824 1,954,963
---------------------------------------------- ----- ----------- -----------
Equity and liabilities
---------------------------------------------- ----- ----------- -----------
Issued capital 121,628 121,628
---------------------------------------------- ----- ----------- -----------
Share premium 185,112 185,112
---------------------------------------------- ----- ----------- -----------
Other reserves (1,986,131) (2,065,896)
---------------------------------------------- ----- ----------- -----------
Retained earnings 3,510,793 3,250,534
---------------------------------------------- ----- ----------- -----------
Equity attributable to equity shareholders of
Ferrexpo plc 1,831,402 1,491,378
---------------------------------------------- ----- ----------- -----------
Non-controlling interests 75 95
---------------------------------------------- ----- ----------- -----------
Total equity 1,831,477 1,491,473
---------------------------------------------- ----- ----------- -----------
Interest-bearing loans and borrowings 3/12 2,143 132,129
---------------------------------------------- ----- ----------- -----------
Defined benefit pension liability 26,074 32,475
---------------------------------------------- ----- ----------- -----------
Provision for site restoration 3,873 2,846
---------------------------------------------- ----- ----------- -----------
Deferred tax liabilities 8 141 101
---------------------------------------------- ----- ----------- -----------
Total non-current liabilities 32,231 167,551
---------------------------------------------- ----- ----------- -----------
Interest-bearing loans and borrowings 3/12 48,206 134,349
---------------------------------------------- ----- ----------- -----------
Trade and other payables 72,824 43,749
---------------------------------------------- ----- ----------- -----------
Accrued and contract liabilities 52,613 45,542
---------------------------------------------- ----- ----------- -----------
Income taxes payable 8 37,138 58,483
---------------------------------------------- ----- ----------- -----------
Other taxes payable 17,335 13,816
---------------------------------------------- ----- ----------- -----------
Total current liabilities 228,116 295,939
---------------------------------------------- ----- ----------- -----------
Total liabilities 260,347 463,490
---------------------------------------------- ----- ----------- -----------
Total equity and liabilities 2,091,824 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
Consolidated Statement of Cash Flows
Year ended Year ended
US$000 Notes 31.12.21 31.12.20
------------------------------------------------------- ----- ---------- ----------
Profit before tax 1,070,975 747,860
------------------------------------------------------- ----- ---------- ----------
Adjustments for:
------------------------------------------------------- ----- ---------- ----------
Depreciation of property, plant and equipment, right-of-use
assets and amortisation of intangible assets 115,111 102,475
-------------------------------------------------------------- ---------- ----------
Finance expense 7 5,729 9,113
------------------------------------------------------- ----- ---------- ----------
Finance income 7 (637) (553)
------------------------------------------------------- ----- ---------- ----------
Losses on disposal and liquidation of property,
plant and equipment 4,695 1,303
------------------------------------------------------- ----- ---------- ----------
Write-offs 5 4,507 192
------------------------------------------------------- ----- ---------- ----------
Impairment of inventories 5/10 231,111 -
------------------------------------------------------- ----- ---------- ----------
Share of profit from associates (4,468) (5,624)
------------------------------------------------------- ----- ---------- ----------
Movement in allowance for doubtful receivables 690 724
------------------------------------------------------- ----- ---------- ----------
Movement in site restoration provision 551 18
------------------------------------------------------- ----- ---------- ----------
Employee benefits 4,936 4,779
------------------------------------------------------- ----- ---------- ----------
Share-based payments 856 291
------------------------------------------------------- ----- ---------- ----------
Operating foreign exchange losses/(gains) 6 37,808 (61,023)
------------------------------------------------------- ----- ---------- ----------
Non-operating foreign exchange losses/(gains) 6 3,200 (5,302)
------------------------------------------------------- ----- ---------- ----------
Other adjustments (4,914) (2,546)
------------------------------------------------------- ----- ---------- ----------
Operating cash flow before working capital changes 1,470,150 791,707
------------------------------------------------------- ----- ---------- ----------
Changes in working capital:
------------------------------------------------------- ----- ---------- ----------
Increase in trade and other receivables (102,827) (49,538)
------------------------------------------------------- ----- ---------- ----------
(Increase)/decrease in inventories (65,170) 27,034
------------------------------------------------------- ----- ---------- ----------
Increase/(decrease) in trade and other payables
(incl. accrued and contract liabilities) 40,186 (4,798)
------------------------------------------------------- ----- ---------- ----------
(Increase)/decrease in other taxes recoverable
and payable (incl. VAT) (11,073) 3,214
------------------------------------------------------- ----- ---------- ----------
Cash generated from operating activities 1,331,266 767,619
------------------------------------------------------- ----- ---------- ----------
Interest paid (7,031) (21,439)
------------------------------------------------------- ----- ---------- ----------
Income tax paid 8 (227,930) (56,571)
------------------------------------------------------- ----- ---------- ----------
Post-employment benefits paid (2,475) (2,391)
------------------------------------------------------- ----- ---------- ----------
Net cash flows from operating activities 1,093,830 687,218
------------------------------------------------------- ----- ---------- ----------
Cash flows from investing activities
------------------------------------------------------- ----- ---------- ----------
Purchase of property, plant and equipment and
intangible assets (360,869) (205,779)
------------------------------------------------------- ----- ---------- ----------
Proceeds from disposal of property, plant and
equipment and intangible assets 1,030 836
------------------------------------------------------- ----- ---------- ----------
Interest received 583 442
------------------------------------------------------- ----- ---------- ----------
Dividends from associates 3,967 4,027
------------------------------------------------------- ----- ---------- ----------
Advance payment for investment in joint venture - (5,000)
------------------------------------------------------- ----- ---------- ----------
Net cash flows used in investing activities (355,289) (205,474)
------------------------------------------------------- ----- ---------- ----------
Cash flows from financing activities
------------------------------------------------------- ----- ---------- ----------
Proceeds from loans and borrowings 12 42,146 -
------------------------------------------------------- ----- ---------- ----------
Repayment of loans and borrowings 12 (257,430) (144,904)
------------------------------------------------------- ----- ---------- ----------
Principal elements of lease payments 12 (5,517) (3,082)
------------------------------------------------------- ----- ---------- ----------
Dividends paid to equity shareholders of Ferrexpo
plc 9 (619,377) (195,446)
------------------------------------------------------- ----- ---------- ----------
Net cash flows used in financing activities (840,178) (343,432)
------------------------------------------------------- ----- ---------- ----------
Net (decrease)/increase in cash and cash equivalents (101,637) 138,312
------------------------------------------------------- ----- ---------- ----------
Cash and cash equivalents at the beginning of
the year 270,006 131,020
------------------------------------------------------- ----- ---------- ----------
Currency translation differences (1,078) 674
------------------------------------------------------- ----- ---------- ----------
Cash and cash equivalents at the end of the year 11 167,291 270,006
------------------------------------------------------- ----- ---------- ----------
Consolidated Statement of Changes in Equity
Attributable to equity shareholders
of Ferrexpo plc
---------------- --------- -------------------------------------------------------- --------------- ----------
Total
Issued Retained capital Non-controlling Total
US$000 capital Share premium Other reserves earnings and reserves interests Equity
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
At 1 January
2020 121,628 185,112 (1,764,774) 2,810,588 1,352,554 78 1,352,632
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
Profit for the
year - - - 635,292 635,292 - 635,292
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
Other
comprehensive
(loss)/income - - (301,413) (1,057) (302,470) 17 (302,453)
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
Total
comprehensive
(loss)/income
for
the year - - (301,413) 634,235 332,822 17 332,839
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
Share-based
payments - - 291 - 291 - 291
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
Equity dividends
to shareholders
of Ferrexpo plc - - - (194,289) (194,289) - (194,289)
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
At 31 December
2020 121,628 185,112 (2,065,896) 3,250,534 1,491,378 95 1,491,473
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
Profit for the
year - - - 870,987 870,987 6 870,993
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
Other
comprehensive
income/(loss) - - 78,909 9,882 88,791 (26) 88,765
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
Total
comprehensive
income/(loss)
for
the year - - 78,909 880,869 959,778 (20) 959,758
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
Share-based
payments - - 856 - 856 - 856
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
Equity dividends
to shareholders
of Ferrexpo plc - - - (620,610) (620,610) - (620,610)
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
At 31 December
2021 121,628 185,112 (1,986,131) 3,510,793 1,831,402 75 1,831,477
---------------- --------- ------------- -------------- ---------- ------------- --------------- ----------
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 9 Earnings per share and dividends paid and proposed for
dividends paid during the year.
Notes to the Consolidated Financial Statements
Note 1: Corporate information
The financial information set out in this statement does not
constitute statutory accounts as defined in section 435 of the
Companies Act 2006. This set of financial results was approved by
the Board on 21 April 2022. The financial information for the years
ended 31 December 2021 and 31 December 2020 has been extracted from
the statutory accounts for each year.
The auditors' report on the 2021 statutory accounts was (i)
unqualified, (ii) included a separate section with regard to a
material uncertainty related to going concern, in respect of which
the report was not qualified and (iii) did not contain statements
under section S498(2) or S498(3) of the Companies Act 2006. The
audited statutory accounts for the year ended 31 December 2020 have
been delivered to the Registrar of Companies .
Ferrexpo plc will publish on or around 12 May 2022 its Annual
Report and Accounts for the year ended 31 December 2021 on its
corporate website www.ferrexpo.com. The audited statutory accounts
for the year ended 31 December 2021 will be delivered to the
Registrar of Companies following the Company's annual meeting
convened for Wednesday, 15 June 2022.
Organisation and structure
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
Whilst the preliminary announcement has been prepared in
accordance with International Financial Reporting Standards
("IFRS") 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, this
announcement does not itself contain sufficient information to
comply with IFRS. The Board approved the full financial statements
that comply with IFRS on 21 April 2022. The financial statements
have been prepared under the historical cost convention as modified
by the recording of pension assets and liabilities and the
revaluation of certain financial instruments.
The Group's principal risks likely to affect its future
development, performance and position are set out on pages 36 to 52
. The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Financial
Review on pages 13 to 17.
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 from 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 and 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.
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 38, 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 37
and 38 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 in the future amounts in the statement of
financial position to reflect these circumstances, which may
materially change the amounts 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 15 Events after the reporting period.
Changes in 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.
All new standards, interpretations and amendments adopted as of
1 January 2021 did not have a material impact on the Group's
consolidated financial statements for the year ended 31 December
2021. Full disclosure of the list of new standards, interpretations
and amendments adopted during the year will be provided in Note 3
New accounting policies included in the Group's 2021 Annual Report
and Accounts.
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.
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 10 Inventories - low-grade and weathered ore
Critical judgements
-- Note 2 Basis of preparation - going concern assumption
-- Note 8 Taxation - tax legislation
-- Note 13 Commitments, contingencies and legal disputes - loan
relationship between related parties of the Group
-- Note 15 Events after the reporting period - non-adjusting post balance sheet event
Note 3: 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 Alternative performance measures section
on page 80.
Year ended Year ended
US$000 Notes 31.12.21 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 856 291
------------------------------------------------ ----- ---------- ----------
Write-offs and impairments 5 235,618 192
------------------------------------------------ ----- ---------- ----------
Depreciation and amortisation 115,112 102,475
------------------------------------------------ ----- ---------- ----------
Underlying EBITDA 1,438,759 858,552
------------------------------------------------ ----- ---------- ----------
Year ended Year ended
US$000 Notes 31.12.21 31.12.20
-------------- ----- ---------- ----------
Revenue 4 2,518,230 1,700,321
-------------- ----- ---------- ----------
Cost of sales 5 (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.
As at As at
US$000 Notes 31.12.21 31.12.20
---------------------------------------------------- ----- --------- ---------
Cash and cash equivalents 11 167,291 270,006
---------------------------------------------------- ----- --------- ---------
Interest-bearing loans and borrowings - current 12 (48,206) (134,349)
---------------------------------------------------- ----- --------- ---------
Interest-bearing loans and borrowings - non-current 12 (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 80 and 81.
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 4
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 4: Revenue
Revenue for the year ended 31 December 2021 consisted of the
following:
Year ended Year ended
US$000 31.12.21 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.
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:
Year ended Year ended
US$000 31.12.21 31.12.20
--------------------------- ---------- ----------
Europe, including Turkey 1,354,048 584,286
--------------------------- ---------- ----------
Austria 527,200 280,903
--------------------------- ---------- ----------
Germany 291,235 145,311
--------------------------- ---------- ----------
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.
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:
Year ended Year ended
US$000 31.12.21 31.12.20
----------- ---------- ----------
Customer A 389,554 280,903
----------- ---------- ----------
Customer B 211,231 316,720
----------- ---------- ----------
Customer C 290,511 96,596
----------- ---------- ----------
Note 5: Operating expenses
Operating expenses for the year ended 31 December 2021 consisted
of the following:
Year ended Year ended
US$000 31.12.21 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 1,018,109
------------------------------------ ---------- ----------
Total operating expenses include:
Year ended Year ended
US$000 31.12.21 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
------------------------------------------------------ ---------- ----------
As at As at
US$000 Notes 31.12.21 31.12.20
---------------------------------------------- ----- --------- ---------
Write-off of inventories 247 466
---------------------------------------------- ----- --------- ---------
Write-off/(write-back) of property, plant and
equipment 3,233 (288)
---------------------------------------------- ----- --------- ---------
Write-off of intangible assets 931 -
---------------------------------------------- ----- --------- ---------
Write-off of receivables and prepayments 96 14
---------------------------------------------- ----- --------- ---------
Total write-offs 4,507 192
---------------------------------------------- ----- --------- ---------
Impairment of inventories 10 231,111 -
---------------------------------------------- ----- --------- ---------
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 10 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 13 Commitments, contingencies and legal
disputes and the update on the Group's Principal Risks on pages 38
to 40 in terms of the Ukraine country risk.
Auditor remuneration
Year ended Year ended
US$000 31.12.21 31.12.20
------------------------------------------------- ---------- ----------
Audit services
------------------------------------------------- ---------- ----------
Ferrexpo plc Annual Report 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 6: Foreign exchange gains and losses
Foreign exchange gains and losses for the year ended 31 December
2021 consisted of the following:
Year ended Year ended
US$000 31.12.21 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
---------------------------------------------------- ---------- ----------
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 Closing exchange
rates rates
-------------------- ----------------------
As at As at Year ended Year ended
Against US$ 31.12.21 31.12.20 31.12.21 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.
Note 7: Net finance expense
Finance expense and income for the year ended 31 December 2021
consisted of the following:
Year ended Year ended
US$000 31.12.21 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 (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 8: Taxation
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.
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 38 to 40 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:
Year ended Year ended
US$000 31.12.21 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:
Year ended Year ended
US$000 31.12.21 31.12.20
----------------------------------------------------------- ---------- ----------
Tax effect of exchange differences arising on
translating foreign operations 3,313 (16,278)
------------------------------------------------------------ ---------- ----------
Total income tax effects recognised in other comprehensive
(loss)/income 3,313 (16,278)
------------------------------------------------------------ ---------- ----------
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:
Year ended Year ended
US$000 31.12.21 31.12.20
--------------------------------------------------------------- ---------- ----------
Profit before tax 1,070,975 747,860
--------------------------------------------------------------- ---------- ----------
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 2,139
--------------------------------------------------------------- ---------- ----------
Credit for Ukrainian fuel excise tax against income tax(2) - (1,106)
--------------------------------------------------------------- ---------- ----------
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.
As mentioned under critical judgements on pages 66 and 67, 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 38 to 40 for further
information on the Ukraine country risk.
The net balance of income tax payable changed as follows during
the financial year 2021:
Year ended Year ended
US$000 31.12.21 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) (57,132)
------------------------------------------------- ---------- ----------
The net income tax payable as at 31 December 2021 consisted of
the following:
As at As at
US$000 31.12.21 31.12.20
------------------------------ --------- ---------
Income tax receivable balance 636 1,351
------------------------------ --------- ---------
Income tax payable balance (37,138) (58,483)
------------------------------ --------- ---------
Net income tax payable (36,502) (57,132)
------------------------------ --------- ---------
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 Consolidated
statement of income
financial position statement
------------------------------------------------ --------------------- ----------------------
As at As at Year ended Year ended
US$000 31.12.21 31.12.20 31.12.21 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 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)
------------------------------------------------- ---------- --------- ---------- ----------
The movement in the deferred income tax balance is as
follows:
Year ended Year ended
US$000 31.12.21 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 15
Events after the reporting period provides further information on
the possible financial impact.
Note 9: Earnings per share and dividends paid and proposed
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 Year ended
31.12.21 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 587,699 587,496
---------------------------------------------------------- ---------- ----------
Effect of dilutive potential Ordinary Shares 1,028 1,510
---------------------------------------------------------- ---------- ----------
Diluted number of Ordinary Shares outstanding 588,727 589,006
---------------------------------------------------------- ---------- ----------
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).
Year ended
US$000 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 Year ended
and paid on 28 January 2022.US$000 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 77,890
----------
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 Acts 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. A circular to shareholders to convene a
general meeting seeking to ratify the relevant distributions and
authorise the Company to enter into relevant release agreements and
giving more information about the relevant distributions will be
sent to shareholders shortly.
Year ended
US$000 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.
Year ended
US$000 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
----------------------------------------------------------------- ----------
Note 10: Inventories
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.
At 31 December 2021, inventories comprised:
As at As at
US$000 31.12.21 31.12.20
-------------------------------- --------- ---------
Raw materials and consumables 57,575 38,286
-------------------------------- --------- ---------
Spare parts 80,886 76,565
-------------------------------- --------- ---------
Finished ore pellets 48,058 17,699
-------------------------------- --------- ---------
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 11: Cash and cash equivalents
As at 31 December 2021, cash and cash equivalents comprised:
As at As at
US$000 31.12.21 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
12 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).
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.
Note 12: Interest-bearing loans and borrowings
This note provides information about the contractual terms of
the Group's major finance facilities.
As at As at
US$000 31.12.21 31.12.20
-------------------------------------------------------- --------- ---------
Current
-------------------------------------------------------- --------- ---------
Syndicated bank loans - secured - 128,333
--------------------------------------------------------- --------- ---------
Other bank loans - unsecured - 764
--------------------------------------------------------- --------- ---------
Lease liabilities 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 2,143 3,796
--------------------------------------------------------- --------- ---------
Total non-current interest-bearing loans and borrowings 2,143 132,129
--------------------------------------------------------- --------- ---------
Total interest-bearing loans and borrowings 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.
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:
Year ended Year ended
US$000 31.12.21 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 (221,188) (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.
Note 13: Commitments, contingencies and legal disputes
Commitments
Commitments as at 31 December 2021 consisted of the
following:
Year ended Year ended
US$000 31.12.21 31.12.20
--------------------------------------------------------- ---------- ----------
Total commitments for the lease of mining land (out of
the scope of IFRS 16) 57,665 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
--------------------------------------------------------- ---------- ----------
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.
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 38 to 40 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 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.
Note 14: 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.
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
------------------------------ ------------------------------
Entities Entities
under Other under Other
common Associated related common Associated related
US$000 control companies parties control companies 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.
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 75 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.
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
----------------------------------- --------------------- --------
Entities
Entities Other under Other
under common Associated related common Associated related
US$000 control companies parties control companies 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
----------------------------------- -------------------- --------
Entities
Entities Other under Other
under common Associated related common Associated related
US$000 control companies parties control companies 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).
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 15: 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 37 and 38 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 8 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.
Alternative Performance Measures
When assessing and discussing the Group's reported financial
performance, financial position and cash flows, management may make
reference to Alternative Performance Measures ("APMs") that are not
defined or specified under International Financial Reporting
Standards ("IFRSs").
APMs are not uniformly defined by all companies, including those
in the Group's industry. Accordingly, the APMs used by the Group
may not be comparable with similarly titled measures and
disclosures made by other companies. APMs should be considered in
addition to, and not as a substitute for or as superior to,
measures of financial performance, financial position or cash flows
reported in accordance with IFRSs.
Ferrexpo makes reference to the following APMs in this
statement.
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.
Year ended Year ended
US$000 Notes 31.12.21 31.12.20
----------------------------------------------- ----- ---------- ----------
C1 cash costs 626,561 466,013
----------------------------------------------- ----- ---------- ----------
Non-C1 cost components 71,339 116,783
----------------------------------------------- ----- ---------- ----------
Inventories recognised as an expense upon sale
of goods 5 697,900 582,796
----------------------------------------------- ----- ---------- ----------
Own ore produced (tonnes) 11,220,260 11,217,926
----------------------------------------------- ----- ---------- ----------
C1 cash cost per tonne (US$) 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 3 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:
Year ended Year ended
US$000 Notes 31.12.21 31.12.20
------------------------------------------------ ----- ---------- ----------
Underlying EBITDA 1,438,759 858,552
------------------------------------------------ ----- ---------- ----------
Losses on disposal and liquidation of property,
plant and equipment 5 (4,695) (1,303)
------------------------------------------------ ----- ---------- ----------
Share-based payments (856) (291)
------------------------------------------------ ----- ---------- ----------
Write-offs and impairments 5 (235,618) (192)
------------------------------------------------ ----- ---------- ----------
Depreciation and amortisation (115,112) (102,475)
------------------------------------------------ ----- ---------- ----------
Profit before tax and finance 1,082,478 754,291
------------------------------------------------ ----- ---------- ----------
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 Year ended
31.12.21 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:
As at As at
US$000 Notes 31.12.21 31.12.20
---------------------------------------------------- ----- --------- ---------
Cash and cash equivalents 11 167,291 270,006
---------------------------------------------------- ----- --------- ---------
Interest-bearing loans and borrowings - current 12 (48,206) (134,349)
---------------------------------------------------- ----- --------- ---------
Interest-bearing loans and borrowings - non-current 12 (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:
As at As at
US$000 31.12.21 31.12.20
--------------------------------------------------------- --------- ---------
Purchase of property, plant and equipment and intangible
assets (net cash flows used in investing activities) 360,869 205,779
---------------------------------------------------------- --------- ---------
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 12 Interest-bearing loans and borrowings
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:
As at As at
US$000 Notes 31.12.21 31.12.20
------------------------------- ----- --------- ---------
Cash and cash equivalents 11 167,291 270,006
------------------------------- ----- --------- ---------
Available committed facilities - 10,000
------------------------------- ----- --------- ---------
Undrawn uncommitted facilities 97,854 80,000
------------------------------- ----- --------- ---------
Total liquidity 265,145 360,006
------------------------------- ----- --------- ---------
[1] Source: S&P Platts.
(A) Alternative Performance Measures. See pages 80 to 81 for
more information.
[2] Source: S&P Platts.
[3] Source: Baltic Exchange.
[4] As of 21 April 2022.
[5] Visual Capitalist ( link ).
[6] National Renewable Energy Laboratory ( link ).
[7] International Renewable Energy Agency ( link ).
[8] Global consumption data for 2020. Source: World Steel
Association ( link ) .
[9] Global consumption data for 2020. Source: USGS ( link ) ,
Worldometer ( link ).
[10] Global consumption data for 2017. Source: USGS ( link ),
Worldometer ( link ).
[11] Global consumption data for 2019. Source: USGS ( link ),
Worldometer ( link ).
[12] Global consumption data for 2019. Source: USGS ( link ),
Worldometer ( link )..
[13] Global consumption data for 2021. Source: www.european
coatings.com ( link )
[14] Global consumption data for 2017. Source: Henckens &
Worrell (2020) ( link ) .
[15] Global consumption data for 2019. Source: USGS ( link ),
Worldometer ( link ).
[16] www.ourworldindata.org
[17] Source: World Steel Association (64 producing countries,
representing 98% total world crude steel production in 2021).
[18] Source: CRU
[19] Management estimate
[20] Source: EIA
[21] As at 21 April 2022.
[22] Source: Government of Western Australia ( link ). Accessed
April 2022.
[23]
www.world-nuclear.org/information-library/energy-and-the-environment/carbon-dioxide-emissions-from-electricity.aspx
[24] Source: NASA ( link ).
[25] Scope 1 and 2 emissions on a per tonne basis, carbon
dioxide equivalent basis.
(3) Adjusted figures versus 2020 Annual Report as a result of
external assurance process, see page [25] for more details.
[26] Adjusted versus 2020 Annual Report as a result of the
ongoing external assurance process, see page 25 for more
details.
(2) Adjusted versus 2020 Annual Report as a result of review by
Ricardo, see page 28 for more details.
[27] Source: IEA
[28] Source: Forbes ( link ). Accessed April 2022.
[29] Source: IEA, 2020 ( link ). Accessed April 2022.
[30] Source: European Commission ( link ). Accessed April
2022.
[31] Source: Forbes ( link ), accessed April 2022.
[32] Source: www.ourworldindata.org, accessed 1 February
2022
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