TIDMFXPO
RNS Number : 4888S
Ferrexpo PLC
17 March 2021
17 March 2021
Ferrexpo plc
("Ferrexpo" or the "Company" or the "Group")
2020 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 2020.
Financial Highlights for 2020:
-- 13% increase in revenue to US$1.7 billion, reflecting rising
production volumes and destocking process in 1H 2020.
-- Underlying EBITDA(A) up 46% to US$859 million (2019: US$586 million).
-- 45% increase in net cash flows from operations to US$687 million (2019: US$473 million).
-- Net cash position of US$4 million as at year end (31 December
2019: net debt US$281 million).
-- Dividends paid in 2020 increase 26% to US$195 million (2019: US$155 million).
-- In respect of the strong operational and financial
performance in 2020, coupled with transition to net cash position
and continued healthy iron ore prices, a further special interim
dividend is being proposed of 39.6 US cents. Total dividends paid
in respect of 2020 amount to 72.6 US cents (2019: 19.8 US
cents).
Lucio Genovese, Non-executive Chair of Ferrexpo, commented:
"There is no doubt that the year 2020 was one that will be
remembered as a difficult time for communities around the world.
The safety and wellbeing of our workforce has always been, and will
continue to be, of paramount importance to Ferrexpo, an aspect that
has been highlighted by the global pandemic. In response to the
global COVID-19 pandemic, we acted swiftly, setting up a dedicated
COVID-19 Response Fund in March 2020, approving US$2.5 million for
supporting local communities, in addition to taking significant
measures to protect our workforce. At the peak of the first global
wave of the virus, 3,000 of our employees at our operations were
working remotely, helping us to achieve social distancing for those
that could not work remotely, with significant measures implemented
for those that remained on site.
From a safety standpoint, the lost time injury frequency rate of
0.79 in 2020 was 22% below our five-year trailing average, a
remarkable effort by all involved. We did however have a fatality
at our operations in the year, which we are determined to learn
from and improve as an organisation.
During 2020, we achieved material reductions in our carbon
footprint per tonne for both Scope 1 (8%) and Scope 2 (21%)
emissions, with a similar trajectory expected in 2021.
Although COVID-19 caused disruption to global iron ore demand
patterns, our central geographic location between Europe and Asia,
coupled with flexibility our logistics capacity, enabled us to
efficiently pivot towards China in 2020, as it quickly emerged from
the pandemic with a strong growth focus on metals. The resultant
rise in iron ore prices, coupled with the Group's increase in
production and cost control, has driven the strong financial
performance for the Group in 2020.
Through consistent investment and capital management, the Group
has once again been able to deliver strong financial performance,
coupled with shareholder returns. Dividends paid during the 2020
calendar year grew by 26% to US$195 million, after re-investing
US$206 million back into operations and US$148 million of debt
repayments.
In light of the Group's strong operational and financial
performance, coupled with the Group's transition to a net cash
position and continued healthy iron ore prices, the Group is
pleased to announce today a further special interim dividend of
39.6 US cents, bringing total dividends paid in respect of 2020 to
72.6 US cents (2019: 19.8 US cents). The Board will consider, as
appropriate, whether or not to propose a final dividend in respect
of 2020, which if proposed will be put to the Group's AGM.
Despite the continued effects of the pandemic, Ferrexpo will
continue to invest in both our assets and our people, produce high
quality iron ore products for the global steel industry, and
operate a business model that provides sustainability, growth and
returns to shareholders."
2020 Financial Summary:
US$ million (unless otherwise stated) Year ended Year ended % Change
31.12.20 31.12.19
Pellet production(1) (kt) 11,218 10,519 +7%
Sales volumes (kt) 12,062 10,312 +17%
Average Platts(2) CFR 62% Fe iron
ore fines price (US$/t) 109 93 +17%
Average Platts(2) CFR 65% Fe iron
ore fines price (US$/t) 122 104 +17%
Revenue 1,700 1,507 +13%
Average C1 cash cost(A) (US$/t) 41.5 47.8 (13%)
Underlying EBITDA(A) 859 586 +46%
Diluted EPS (US cents) 107.9 68.4 +58%
Net cash flow from operating activities 687 473 +45%
Capital investment(A) 206 247 (17%)
Net cash / (Net debt) 4 (281) (101%)
Cash and cash equivalents 270 131 +106%
Net debt to underlying EBITDA(A) N/A 0.48x N/A
(1) All production from own ore in 2019/2020. The last
production by the Group from third party materials was in 2018.(2)
S&P Global Platts.
Health and Safety
-- Ferrexpo regrets to report one fatality in 2020 (2019: none).
-- Group lost time injury frequency rate of 0.79, 22% below the
five-year trailing average (1.01).
Market Factors
-- High grade iron ore prices rise 17% to average US$122 per
tonne in 2020 (2019: US$104 per tonne), rising above US$200/t in
February 2021.
-- Decrease in Atlantic Pellet Premiums in 2020 to pivot in
sales to China, reflecting global shift in demand in response to
Covid-19 pandemic, with Group's sales to China and south east Asia
representing 56% of total sales in 2020 (2019: 30%).
Operational Highlights
-- Iron ore pellet production increases 7% to 11.2 million tonnes (2019: 10.5 million tonnes).
-- Proportion of high grade pellets (65% Fe and above) increases
by 3 percentage points to 99% (2019: 96%) as Group commences
production of new Direct Reduction (67% Fe) pellets.
-- Iron ore sales volume increases 17% to 12.1 million tonnes
(2019: 10.3 million tonnes), maintaining the Group's position as
the third largest exporter of iron ore pellets globally.
-- C1 cash costs(A) reduced by 13% to US$41.5 per tonne (US$47.8
per tonne), reflecting lower commodity input costs and current
local appreciation.
-- Capital Investment(A) of US$206 million, a decrease of 17%,
reflecting the completion of key investment projects in 2020 (2019:
US$247 million).
Corporate Governance
-- August 2020: Lucio Genovese appointed Non-executive Chair of
Ferrexpo, having joined the Ferrexpo Board of Directors in
2019.
-- July 2020: Jim North appointed Executive Director and Acting
CEO, having spent six years as the Group's Chief Operating
Officer.
-- January 2020: Fiona MacAulay, Independent Non-executive
Director, appointed Chair of the Health, Safety, Environment and
Community Committee. Committee is reformed with a renewed focus on
safety and climate change.
-- March 2021: Ann-Christin Andersen appointed Independent
Non-executive Director, increasing number of Independent Directors
to four.
-- The Board intends to make an additional appointment of an
Independent Non-executive Director in due course.
Conference call and webcast for analysts and institutional
investors
Please see below the webcast details for joining the Group's
scheduled webcast at 09:00AM GMT on Wednesday 17(th) March
2021:
Telephone dial in numbers:
UK: +44 (0)330 336 9411
Ukraine: 0800 503 441
Switzerland: +41 (0)44 580 1022
Confirmation Code: 6788181
Webcast: please click here , or visit the following web
address:
https://webcasting.brrmedia.co.uk/broadcast/6037bdcf1e24d464e23e3e9b
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
Emily Moss +44 207 920 3150
Gareth Tredway ferrexpo@tavistock.co.uk +44 778 855 4035
Notes to Editors:
Ferrexpo is a Swiss headquartered iron ore company with assets
in Ukraine. It has been mining, processing and selling high quality
iron ore pellets to the global steel industry for over 40 years. In
2020, the Group produced 11.2 million tonnes of iron ore pellets, a
7% increase on the prior year. The Company is ranked as the world's
3(rd) largest exporter of pellets to the global steel industry with
a market share of approximately 9%. Ferrexpo has a diversified
customer base supplying steel mills in Austria, Germany, Japan,
South Korea, Taiwan, China, Slovakia, the Czech Republic, Turkey,
Vietnam and America. Ferrexpo has a premium listing on the main
market of the London Stock Exchange under the ticker FXPO. For
further information, please visit www.ferrexpo.com.
CHAIR'S STATEMENT
2020 HIGHLIGHTS AND LOOKING FORWARD
2020 has been a significant year in the evolution of the
Ferrexpo business, ranging from resilience in our response to the
global COVID-19 pandemic, shifting into a new phase in growth of
the business, renewed focus on our Responsible Business activities
and further efforts to strengthen corporate governance.
COVID-19 presented us with a unique set of challenges in 2020 -
from day-to-day activities being restricted at our operations,
through to temporarily shifting global demand for iron ore pellets
away from the status quo and towards China. But despite all this,
we grew production by 7% in 2020, showing our flexibility and
resilience as a business. As a further demonstration of our
resilience, we increased our percentage of Ukrainian exports to 3%
of the country's total exports in 2020 (2019: 2%), delivering
consistent export revenues to the national government throughout
the pandemic.
Our workforce remains our strongest asset, and it is their
safety and wellbeing that is key to all of our future plans. That
is why we have made every effort to insulate and protect our
workforce during the global pandemic, and I would like to thank
them for their achievements this year. They represent Ferrexpo's
DNA and their safety and wellbeing is key to all of our future
plans, and I am proud to report that to date, production at
Ferrexpo's operations has continued largely unaffected despite
3,000 employees, representing nearly 40% of our workforce in
Ukraine, working remotely during the pandemic.
Our management team evolved in 2020, with a renewed focus on our
operations, delivering on our growth and carbon reduction
strategies, whilst also increasing stakeholder engagement. On
engagement, this is evidenced through our recent appointment of
Liberum as our corporate broker and financial adviser, and also
through more regular and broader updates on the business via our
social media channels, which collectively represent a key
opportunity for modern companies to communicate with their
stakeholders. For further information, please see Responsible
Business Section, pages 16-24.
As we enter into the next phase of the Group's development, it
is important that we continue to communicate effectively around our
strategy, from our plans to expand production volumes and pellet
quality, to cutting our carbon footprint per tonne for our
customers who are actively targeting production of Green Steel.
Through continued investment in our operating base, we have
demonstrated our ability to evolve and adapt for the future,
including the recent deployment of large scale autonomous trucks at
our Yeristovo mine, making Ferrexpo the first mine in Europe to
utilise this technology. Our strategy and purpose remain the same
however: we continue to invest in both our assets and our people,
produce the highest quality iron ore products for the global steel
industry, and operate a business model that provides both
sustainable growth and returns to shareholders.
Corporate governance
At Board level, in addition to my appointment as Chair of the
Company we appointed Ann-Christin Andersen as an additional
Independent Non-executive Director to the Board in March 2021, who
brings over 30 years of experience in the oil and gas industry. The
Ferrexpo Board also conducted a process of shareholder engagement
following the 2020 Annual General Meeting, and we are taking steps
to act on the feedback received as part of this process, including
increased levels of shareholder engagement and greater levels of
disclosure with proxy advisory firms.
In March 2021, the Committee of Independent Directors ("CID")
concluded its previously disclosed review into the Group's
sponsorship arrangements with the football club FC Vorskla, with
arrangements having been made for the repayment in full of the
c.US$17 million loaned by FC Vorskla to Collaton Limited. For
further information regarding the conclusion of the CID's review,
please see page 22 (Governance) and Notes 13 and 14 to the
Consolidated Financial Statements.
Responsible Business
In January 2020 we reformed our CSR Committee with a renewed
focus on safety and the environment, with Independent Non-executive
Director Fiona MacAulay appointed as Chair. Details of the work
undertaken by the newly formed Health, Safety, Environment and
Community ("HSEC") Committee are detailed in the Responsible
Business section of this report (pages 16 to 24).
Shareholder returns
Through strong operating performance, prudent financial
management, and continued investment in our operations, we have
consistently returned profits to shareholders in the form of
dividends since IPO. Dividends paid in the 2020 calendar year grew
by 26% to US$195 million, reflecting the Group's strong balance
sheet and growth in our operations. Furthermore, the Board is
pleased to announce a special interim dividend of 39.6 US cents per
share (2019: 3.3 US cents per share), meaning that the total
dividend declared in respect of the 2020 financial year will be a
record 72.6 US cents per share (total dividend declared in respect
of 2019: 19.8 US cents per share). This record dividend reflects
the Group's strong operational and financial performance,
transition to net cash position and continued healthy iron ore
prices. The Board will consider, as appropriate, whether or not to
propose a final dividend in respect of 2020, which if proposed will
be put to the Group's AGM in May 2021.
A final thank you to our workforce for the hard work and
dedication shown to achieve the result for 2020 presented in this
report, which is a significant achievement in light of the social
difficulties faced across the globe. The year ahead marks a new
phase for Ferrexpo, one which we are very much looking forward to
developing with all of our stakeholders.
Lucio Genovese
Chair, Ferrexpo plc
CEO'S REVIEW
TAKING A LOOK AT KEY EVENTS OF 2020
Despite the headwinds facing the world in 2020 due to the global
COVID-19 pandemic, we are pleased to be able to report today that
our business has shown strength in its ability to grow and adapt to
shifting market conditions. Ferrexpo is a multi-faceted business
that is focused on providing stakeholder value beyond its financial
results in any given year, and the following review aims to provide
an overview of our key achievements in 2020, as well as our goals
for the year ahead.
Safety continues to be the number one priority at our
operations. We strive to ensure that all employees and contractors
are able to return home safely at the end of each shift, and it is
our aim to provide clear and transparent reporting around safety.
Whilst the Group has recorded a second successive year with its
lost time injury frequency rate ("LTIFR") materially below the
Group's five year trailing average, it is with regret that we
report the fatality of a contractor at our operations in 2020,
whereby a maintenance contractor was fatally injured during
maintenance work being conducted in the beneficiation plant. We
strive to learn from these terrible events and further details of
the investigation and key learnings from this incident are provided
on page 17. We also continue to benchmark our safety performance
against our peers and can report a LTIFR in 2020 significantly
lower than the major iron ore miners in the Pilbara region of
Australia [1] . Given the difficulties facing the world related to
the global COVID-19 pandemic in 2020, we note the importance of our
role in keeping our workforce safe, protecting local communities
and also increasing our efforts in terms of workforce wellbeing.
Further details of these initiatives in relation to COVID-19 are
provided on pages 6 and 21-22.
Growth through a well invested asset base has been a cornerstone
of our business since IPO, and 2020 marks the culmination of a
multi-year expansion plan to grow production volumes and product
quality. In 2020, we saw production volumes grow by 7%, whilst we
also added sales of a new product - direct reduction ("DR") pellets
- to our marketing offering. This growth in volumes and product
quality has helped to deliver one of the best annual financial
results Ferrexpo has achieved since listing in 2007, details of
which are provided in the Financial Review on pages 9 to 12.
Furthermore, DR pellets are particularly important as they position
us for the future of carbon-free Green Steel, as well as enable us
to reduce our Scope 3 carbon emissions footprint. Further details
of our expansion plans are available on pages 12 to 16 and our
Scope 3 footprint on page 19.
Producing high grade, premium iron ore pellets enables us to
generate higher margins through selling to premium customers. In
2020, we realised an underlying EBITDA(A) margin of 50% on our
pellets, up from the five-year trailing average of 39%. Through
selling our premium products to the world's best steelmakers, we
also add resilience to our business. Our work over the years to
develop a customer presence in China enabled us to efficiently
pivot to this market in 2020 when demand in the rest of the world
declined as a result of the global COVID-19 pandemic. We are also
proud to sell our pellets to steelmakers that produce high end
steels for green sectors such as renewable power generation, with
steel representing up to 85% of the construction of a typical wind
turbine, as well as steel representing the single largest component
by weight in the construction of solar PV technologies [2] .
Technology helps us to maintain our profitability and
resilience, as well as offer safety benefits. In December 2020, we
successfully deployed autonomous trucks in our Yeristovo mine,
becoming the first mine in Europe to successfully invest in this
modern technology. We have seen significant safety improvements
through our investments in other areas of technology, such as our
autonomous drill rigs and drone surveys, which have been in use
since 2017 and 2018 respectively. We expect to see similar benefits
throughout our mining department as further automation investments
are realised.
High ESG standards are expected of all mining companies, and we
aim to be no exception. We worked hard to reduce our carbon
emissions footprint per tonne in 2020, achieving an 8% reduction in
Scope 1 and 21% reduction in Scope 2. We began reporting our Scope
3 emissions in 2019 and have further developed our thinking in
terms of reporting and assurance in this year's report. We continue
to work in a range of assistance projects in our neighbouring
communities, which have been particularly focused on helping
medical institutions during the global pandemic in 2020, with
US$2.5 million of funding made available in March 2020 through our
dedicated COVID-19 Response Fund, in addition to a further US$1
million of funding approved in 1Q 2021. For further details of our
ESG work, please see the Responsible Business section, pages 16 to
24, as well as our Responsible Business Reports, which are
available on the Ferrexpo website.
Our strong operational performance, delivery of investments and
expertise in marketing have enabled us to deliver a 46% increase in
underlying EBITDA(A) to US$859 million in 2020, which will enable
us to reinvest in our operations to further develop the business,
in addition to delivering further shareholder value.
I would like to thank all of our stakeholders in achieving the
result presented in this report, from our workforce's collective
hard work and determination, to our local communities in Ukraine,
and the continued support of our customers and shareholders around
the world. We have much to look forward to at Ferrexpo in 2021, and
I would like to thank everyone for their support going into the
year ahead.
Jim North
Acting Chief Executive Officer
COVID-19
FERREXPO'S RESPONSE TO COVID-19
Throughout the global COVID-19 pandemic in 2020, Ferrexpo has
taken significant measures to protect its workforce and local
communities.
Throughout the year, the Group has continued to operate with
minimal disruption due to COVID-19. In response to the global
pandemic, Ferrexpo has implemented a range of measures at various
levels of its organisation to raise awareness and change behaviours
in order to reduce the spread of COVID-19, as well as clear
messaging around the effectiveness of the Group's actions. Across
the business, Ferrexpo has enabled remote working, with over 3,000
employees working remotely during the peak of the global pandemic
in April and May 2020, representing nearly 40% of the Group's
workforce at its operations in Ukraine. For those who cannot work
remotely, social distancing, face masks and staggered shifts are
all examples of the significant measures that have been
implemented, along with the Group's own in-house testing equipment,
with the capacity to conduct over 1,000 tests a month.
However, no community has been unaffected by COVID-19, and
Ferrexpo's workforce is no exception. As of the end of 2020, one
Ferrexpo employee sadly passed away having contracted COVID-19.
Where the Group registers a positive test result in its testing,
extensive measures are implemented in each instance to both look
after the affected individual and to minimise the risk of onward
transmission of the virus. The Group has its own specialist teams
in place to isolate and support affected individuals, as well as
conduct contact tracing exercises.
Furthermore, the Group has periodically implemented increased
measures whereby external visitors are prohibited from visiting
Ferrexpo's operations, aimed at further reducing the transmission
risk at times of heightened infection rates within Ukraine.
In addition to the efforts undertaken to protect the Group's
workforce, Ferrexpo has made significant efforts to protect its
local communities in 2020, including the approval in March 2020 of
a US$2.5 million dedicated COVID-19 Response Fund for medical
donations to support local hospitals. In light of the ongoing
pandemic in 2021, the Group has approved a further US$1 million of
funding for this initiative, to sustain its support efforts into
2021. Further details of this work are provided on pages 21 to 22
of this report.
MARKET REVIEW
2020 was a year of shifting supply and demand within the
markets, with the main factors being (1) COVID-19 temporarily
shifting relative demand for iron ore towards China, and (2)
disruptions in iron ore supply from Brazil and Australia.
Ferrexpo's diverse customer portfolio, central geographic location
and flexibility in its logistics capacity helped the Group to adapt
quickly to these changing conditions.
The following market review focuses on the high grade fines
index (65% Fe), as this is the basis for pricing Ferrexpo's iron
ore products, which are predominantly grade 65% Fe or above.
Iron ore fines indices
Global iron ore fines prices showed resilience in the first half
of 2020, amid the onset of the global pandemic, with the high grade
(65% Fe) iron ore fines index rising 9% through to the end of June
2020 [3] . This upward trend reflected the speed and scale of the
Chinese government's intervention in its economy in the first half
of the year, with China ending the year as the only developed
economy in the world to report overall growth in 2020 [4] . China
alone typically represents approximately 70% of total global iron
ore fines consumption [5] , and therefore this acceleration is
directly attributable to the strength in iron ore fines prices in
the first half of 2020.
In the second half of the year, iron ore fines prices continued
their upward trajectory. This was driven by strong demand in China,
particularly high grade ores, but also by returning demand from
steel mills in the rest of the world. This increase in pricing was
further exacerbated by supply side disruptions from Brazilian iron
ore exports, related to ongoing permitting issues following two
high profile breaches of tailings dams in 2015 and 2019. Supply
constraints were also seen in Australia due to short term shortages
of benchmark material. These factors led to a 53% rise in iron ore
prices in the second half of the year, to close the year with an
iron ore price of US$174 per tonne [6] .
Expectations for the fines index in 2021 are that fines supply
from Brazil will begin to return to previous levels, whilst overall
output from Australia will be maintained at broadly similar levels
to those seen in 2020. It is, however, understood that the overall
chemistry of benchmark sinter fines material produced from the
Pilbara is changing, and it is, therefore, expected that demand for
low alumina iron ore products, such as those produced by Ferrexpo,
will increase as steelmakers seek to balance the chemistry of
material entering each blast furnace.
Pellet premiums
Pellet premiums, which are applied to the pricing for pellets in
addition to the benchmark iron ore fines price, are primarily
governed by global demand from key markets in Europe and Asia. With
these destinations seeing a sharper impact from the global pandemic
in 2Q and 3Q 2020 compared to China, pellet premiums did not
experience the same level of support as was seen with sinter fines.
This decline was seen despite significant disruption in the supply
of Brazilian pellets during 2020, which represents the single
largest source of iron ore pellets in the global pellet export
market.
Atlantic pellet premiums, as assessed by Platts, which is the
premium used in pricing the majority of long term contracts, fell
from a multi-year high of US$57 per tonne in 2019 to an average of
US$29 per tonne in 2020, with this decrease linked to the impact of
COVID-19 on key pellet markets. Conversely, China saw increased
pellet buying activity in 2020, which was the result of government
stimulus and increased steel demand. With global iron ore demand
pivoting towards China as the pandemic developed, the global pellet
export market mirrored this shift, with over 50% of global pellet
exports dispatched to China at the peak of the pandemic in May and
June 2020 (2019 China average: 22%) [7] . As a result of this
increasing supply, spot pellet premiums in China dropped to below
US$5 per tonne in August 2020, as portside inventories of imported
iron ore pellets doubled in size. Following a return to more normal
market conditions in 4Q, spot pellet premiums in China returned to
average US$23 per tonne in 4Q 2020.
(All figures US$/tonne, unless stated otherwise.) 2020 2019 Change
----------------------------------------------------- ----- ----- ------
Average Platts 62% Fe iron ore fines price CFR China 109 93 17%
----------------------------------------------------- ----- ----- ------
Average Platts 65% Fe iron ore fines price CFR China 122 104 17%
----------------------------------------------------- ----- ----- ------
65% Fe spread over 62% Fe 13 11 18%
----------------------------------------------------- ----- ----- ------
Average Atlantic pellet premium 29 57 -49%
----------------------------------------------------- ----- ----- ------
Average China pellet premium 23 28 -18%
----------------------------------------------------- ----- ----- ------
Average DR pellet premium 36 61 -41%
----------------------------------------------------- ----- ----- ------
C3 freight (Brazil - China) [8] 15 19 -21%
----------------------------------------------------- ----- ----- ------
C2 freight (Brazil - Netherlands) [9] 7 8 -19%
----------------------------------------------------- ----- ----- ------
Global steel production (million tonnes) [10] 1,829 1,846 -1%
----------------------------------------------------- ----- ----- ------
Source: S&P Platts unless stated otherwise.
With Chinese steel producers seeking to increase the
productivity of steel mills and further reduce their environmental
impact in 2020, owners of these steel mills increased buying of
imported iron ore pellets from approximately 28 million tonnes of
pellets in 2019 to 43 million tonnes in 2020, representing a
significant shift in the global pellet export market [11] .
Ferrexpo, with its operating base in Ukraine, was well situated to
adapt to this shift in the pellet market, whereas other pellet
producers in more remote locations such as Sweden and Canada faced
additional shipping and logistics challenges with their increased
shipping distances to China.
The second half of the year was characterised by resurgent
demand for iron ore, including iron ore pellets. In particular, a
number of European, Japanese and Korean steelmakers restarted blast
furnaces in 4Q 2020, and as a result, pellet producers saw a return
of sales to these markets, replacing spot sales to China. As of the
end of 2020, the global pellet export market had broadly returned
to a balance of sales in line with previous years.
The outlook for pellet premiums in 2021 is positive, with
continued supply disruption of Brazilian pellet exports expected,
as Brazilian producers face continued operational issues in the
consistent supply of pellet feed, as well as the apparent
prioritisation of the domestic steel sector in Brazil. The return
of Brazilian pellet producer Samarco is not expected to materially
impact the market in 2021, with this operation ramping up towards a
reduced level of output compared to previous levels. Global demand
for pellets continues to be robust, with steel producers globally
looking to increase the productivity of blast furnaces and reduce
carbon emissions, both of which are achieved through the increased
usage of iron ore pellets over sinter fines. In December 2020,
Brazilian pellet producer Vale S.A. announced an agreed Atlantic
pellet premium of US$40 per tonne for 1Q 2021, representing an
increase of over US$10 per tonne on the level seen in late 2020,
and this reflects tightness in pellet supply relative to demand. It
is expected that demand for both iron ore fines and pellets will
continue to mirror global steel demand throughout 2021, as
economies around the world recover from the global pandemic.
Seaborne freight indices
Ferrexpo exports all of its production, with the majority
shipped through the Group's berth at the port of Pivdennyi
(formerly Yuzhny) in south west Ukraine. The C3 freight rate, which
is the most relevant index for Ferrexpo's shipments to Asia,
averaged US$15 per tonne in 2020, compared to US$19 per tonne in
2019. The evolution of the C3 index throughout the year was
dominated by the global COVID-19 pandemic, starting at US$19 per
tonne in January, declining to a low of less than US$7 per tonne in
late May (driven by declining global industrial output and falling
oil prices), before recovering in the second half of the year.
Iron ore demand: steel sector
According to the World Steel Association, global steel output
fell by just 1% in 2020 to 1,829 million tonnes, despite the impact
of the global COVID-19 pandemic. Of particular note is the global
recovery in steel output in the second half of the year, which
amounted to a 4% gain year on year for this period. China, which
represents over 50% of global steel production, drove global demand
trends in 2020, with a 5% increase in steel output in the full
year, whilst the EU, Japan and the rest of the world saw full year
steel output fall by 12%, 16% and 5% respectively. The EU and Japan
are key import markets for iron ore pellets and therefore
particularly relevant for this review. December 2020 data for steel
output indicates that both the EU and Japan are producing at
similar rates to December 2019 (down 1% and 3% respectively),
suggesting that the recovery of these markets is nearing a
conclusion.
FINANCIAL REVIEW
DELIVERING GROWTH THROUGH INVESTMENT
Through investment of over US$2.75 billion in the Group's
production base since IPO, Ferrexpo has been able to realise strong
financial and operational performance in 2020, as a result of
volume growth and quality enhancements.
Summary
In 2020, Group revenue increased by 13% to US$1.7 billion and
profit before tax increased by 63% to US$748 million. Strong cash
flow generation provided a platform for dividend payments during
the 2020 calendar year of US$195 million and capital investment of
US$206 million, whilst the Group reduced its net debt position by
US$285 million, entering into a net cash position of US$4
million.
Revenue
Group revenue increased by 13% to US$1.7 billion in 2020 (2019:
US$1.5 billion), principally driven by a 17% increase in total
sales volumes. Average received DAP/FOB pellet prices fell by 4%
during the year as a result of a decrease in pellet premiums,
negating the impact of a 17% increase in the average iron ore fines
price (65% Fe) to US$122 per tonne and a US$2 per tonne decrease in
benchmark freight rates.
Total pellet sales volumes for the period increased to 11.9
million tonnes (2019: 10.3 million tonnes), increasing revenue by
US$219 million. Furthermore, the Group sold 183,000 tonnes of high
grade concentrate during 2020, giving a combined sales figure of
12.1 million tonnes. For further information, please see the
Operational Review section on pages 12-16.
The Group continues to sell its pellets using the high grade,
65% Fe, fines index, reflecting the high grade nature of Ferrexpo
pellets.
Iron ore pellets are priced using a pellet premium, which is
paid in addition to the benchmark fines price. The Atlantic Pellet
Premium and China Spot Pellet Premium are two pellet premiums that
are published regularly by third party providers, and further
discussion around the movements in these two indices during 2020 is
provided in the Market Review section (pages 7 to 8). The global
COVID-19 pandemic and a shift in pellet demand resulted in elevated
global shipments to China in the middle of 2020. The situation for
pellet demand subsequently stabilised in the second half of 2020
and pellet demand began to normalise in Europe and North East
Asia.
The geographic diversity of Ferrexpo's customer base results in
a variety of reference periods being used in contract pricing. The
net effect of this timing is not considered to have had a material
influence on the Group's financial performance in 2020.
Seaborne freight revenue arising from CFR sales increased
revenue by US$20 million compared to 2019, reflecting the net
effect from a higher proportion of sales to Asia, partially offset
by lower freight rates.
Lastly, the revenues from the Group's barging and bunker
operations, First-DDSG Logistics Holding, decreased by US$8 million
in 2020 compared with 2019 as a result of reduced volumes shipped,
lower freight rates and bunker prices.
C1 cash cost of production(A)
The Group's average C1 cash cost of production(A) was US$41.5
per tonne in 2020 compared with US$47.8 per tonne in 2019.
The decrease in costs in 2020 was primarily due to a fall in
input prices, notably oil prices, reduced electricity prices and a
weakening local currency against the US Dollar. Oil prices (Brent)
began the year at US$67 per barrel before falling to a multi-year
low of $9 per barrel in April 2020 in part as a result of the
global COVID-19 pandemic. Whilst prices recovered to US$51 per
barrel by the end of the year, the average oil price for the year
declined by 35%. Locally, reduced industrial activity in Ukraine,
which also related to the global COVID-19 pandemic, resulted in
electricity costs falling by 9% in 2020. Local inflation of 5% and
a 14% depreciation of the Ukrainian Hryvnia against the US Dollar
also contributed to the fall in C1 cash cost seen in 2020. Over
half of the Group's operating costs are in local currency and are
impacted by the Hryvnia exchange rate and inflation. For further
information, please see Currency on page 10.
Lower electricity, gas and fuel costs contributed US$4 to the
total reduction of the C1 cash cost per tonne in 2020 and the
remaining cost reduction was primarily related to materials used in
the production of pellets. An improvement in consumption rates for
key consumables offset the majority of commodity cost increases
during the year. Royalties increased in the second half of 2020 by
approximately US$1 per tonne due to a change in royalty tax
legislation in Ukraine.
The Group's C1 cash cost represents the cash costs of production
of iron pellets from own ore (to the mine gate), divided by
production volume from own ore, and excludes non-cash costs such as
depreciation, pension costs and inventory movements, as well as the
costs of purchased ore, concentrate and gravel.
The C1 cash cost of production(A) (US$ per tonne) is regarded as
an Alternative Performance Measure ("APM"). For further
information, please see pages 63 to 65.
Selling and distribution costs
Total selling and distribution costs were US$309 million (2019:
US$294 million), reflecting an increase in sales to Asia, which was
partly offset by lower freight rates. As a result, international
freight costs arising from CFR sales increased by US$17 million
compared to 2019.
General, administrative and other expenses
General and administrative and other expenses was US$62 million
compared with US$66 million in 2019, mainly due to US$3 million
decrease in audit and professional fees.
Currency
Ferrexpo prepares its accounts in US Dollars. The functional
currency of the Group's operations in Ukraine is the Hryvnia, which
has historically represented approximately half of the Group's
operating costs. In 2020, the Hryvnia depreciated 19% from
UAH23.686 per US Dollar on 1 January 2020 to UAH28.275 per US
Dollar as of 31 December 2020. For further information, please see
C1 Cash Cost of Production(A) on page 9.
Local balances as of 31 December 2020 are converted into the
Group's reporting currency at the prevailing exchange rate. The
depreciation of the Hryvnia resulted in a US$301 million decrease
in net assets in 2020 (2019: increase of US$246 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, a depreciation of the Hryvnia against the US Dollar
results in foreign exchange gain on the subsidiaries' US Dollar
denominated receivable balances (from the sale of pellets). The
operating foreign exchange gain in 2020 was US$61.0 million
compared to a loss of US$46.8 million in 2019.
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 2020, the Group recorded a non-operating
foreign exchange gain of US$5.3 million (2019: loss of US$18.5
million), which was driven by a 19% depreciation of the Hryvnia
during the year against the US Dollar, as well as changes 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 EBITDA(A)
Underlying EBITDA(A) in 2020 increased 46% to US$859 million
compared to US$586 million in 2019.
This increase in 2020 reflects a 17% increase in the Group's
total sales volumes to 12.1 million tonnes, which contributed an
additional US$100 million, in addition to a US$6 per tonne decrease
in C1 cash costs, which contributed a further US$71 million. This
was partially offset by a 4% decrease in realised DAP/FOB pellet
prices, which reduced underlying EBITDA(A) by US$41 million.
Selling and distribution and other costs reduced by US$35 million.
The 2020 Underlying EBITDA(A) includes a noncash operating forex
gain of US$61 million in 2020 (2019: non cash operating forex loss
of US$47 million).
Interest
Interest expense on loans and borrowings declined 33% to US$22
million compared to US$34 million in 2019 due to a lower average
outstanding debt balance. The average cost of debt for the period
ended 31 December 2020 was 5.2% (average 31 December 2019: 7.0%).
The decrease of the cost of debt was driven by the repayment of
US$173 million 10.375% Eurobonds in April 2019. Further details on
finance expense are disclosed in Note 7 Net Finance Expense to the
Consolidated Financial Statements.
Tax
In 2020, the Group's tax expense was US$113 million (2019: US$56
million). The effective tax rate for 2020 was 15.1% (2019: 12.2%).
The increase of the effective tax rate is driven by a higher
proportion of taxable profits in Ukraine.
In 2020, the Group paid income taxes of US$57 million (2019:
US$84 million), of which US$54 million were paid in Ukraine (2019:
US$73 million). US$48 million of income taxes related to 2020 are
expected to be paid in 2021, of which US$42 million in Ukraine.
Further details on taxation are disclosed in Note 8 Taxation to the
Consolidated Financial Statements.
Profit for the period
Profit for the period increased 58% to US$635 million compared
with US$403 million in 2019, reflecting a 51% increase in operating
profit (including operating foreign exchange effects) and US$12
million lower net financial expense and a foreign exchange gain of
US$66 million compared to foreign exchange losses of US$65 million
in 2019 as well as higher income tax expense of US$56 million.
Cash flows
Operating cash flow before working capital increased 27% while
the working capital outflow in 2020 was US$26 million compared to
an inflow of US$30 million in 2019. The increase in working capital
largely reflects an increase in trade accounts receivable and other
receivables, such as prepayments.
As a result of the higher operating cash flow, the net cash flow
from operating activities increased 45% to US$687 million in 2020
(2019: US$473 million). Capital investment was US$206 million, a
decrease of 17% compared to 2019 (US$244 million), while dividends
paid during the 2020 calendar year increased by 26% to US$195
million compared to US$155 million in 2019.
Capital investment(A)
Capital expenditure in 2020 was US$206 million compared to
US$247 million in 2019. Of this, US$103 million was sustaining and
modernisation capex (2019: US$102 million) at FPM, FYM, FBM,
First-DDSG and others. Total investment in the Group's
concentrator, including the concentrator expansion project
commissioned in 2H 2020, amounted to US$33 million in 2020 (2019:
US$34 million), with these projects expected to increase
concentrate production by 1.5 million tonnes per annum in 2021. FPM
also spent US$45 million on phase 1 of its press filtration project
during the year. Ferrexpo also invested US$6 million (2019: US$11
million) in the development and exploration of the Belanovo,
Galeschyno and the Northern Deposits.
For further information regarding the Group's capital investment
plans to expand existing production above current levels, please
see the Operational Review section (pages 12 to 16).
Dividends
A special interim dividend of 39.6 US cents per share (2019: 3.3
US cents per share) has been announced and will be paid on 15 April
2021 to shareholders on the register at the close of business on 26
March 2021. The dividends paid in respect of 2020 are now 72.6 US
cents (2019: 19.8 US cents), and this increase reflects the Group's
continued strong operational and financial performance, transition
to net cash position and continued healthy iron ore prices. The
dividend will be paid in UK Pounds Sterling with an election to
receive US Dollars. The Group's Board will consider, as
appropriate, whether or not to propose a final dividend in respect
of 2020, which if proposed will be put to the Group's AGM in May
2021. The total available distributable reserves of the Group are
shown in Note 9 (Earnings Per Share and Dividends Paid and
Proposed). Payment of further dividends during 2021 calendar year
will require a waiver from lenders, or full repayment of this
facility.
Debt and debt maturity profile
Ferrexpo has a strong balance sheet, low levels of gross debt
and had a net cash position as of 31 December 2020 (31 December
2019: net debt position of US$281 million). At the end of the
comparative year ended 31 December 2019, the Group had a net debt
to underlying EBITDA(A) position of 0.48x. The Group's net cash
position of US$4 million as of 31 December 2020 includes a cash
position of US$270 million (31 December 2019: US$131 million).
Gross debt as of 31 December 2020 was US$266 million compared
with US$412 million as of 31 December 2019. The Group's gross debt
relates to a Pre-Export Finance ("PXF") facility that was initially
drawn down in 2017. As of 31 December 2020, the total amount drawn
was US$257 million and US$10 million is available for future
drawdown if required by the Group. Amortisation of this facility
commenced in 1Q 2020 and it will amortise over a total of 12
quarters until 4Q 2022.
The credit ratings agency Moody's has a long term corporate and
debt rating for Ferrexpo of B2, with a negative outlook.
Furthermore, during 2020, the credit ratings agency Standard &
Poor's downgraded Ferrexpo's long term foreign issuer credit rating
by one notch to B-, with a negative outlook. The credit ratings
agency Fitch maintains a BB- rating on the Group, with a stable
outlook. The credit ratings ascribed by both Fitch and Moody's are
capped at a maximum level above Ukraine's Sovereign rating (one
notch above sovereign for Moody's and two notches above sovereign
for Fitch).
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 to the Consolidated Financial Statements.
OPERATIONAL REVIEW
During the course of 2020, Ferrexpo's operations in Ukraine
produced 11.2 million tonnes of iron ore pellets, a 7% increase on
the previous year, and representing a record for production of high
grade pellets since the Group's IPO. This improvement in production
was delivered through a multi-year investment programme throughout
the Group's production process.
Mineral Resources and Ore Reserves
Geological work completed during the year focused on in-pit
drilling and led to a 12% increase in the Group's JORC-compliant
Mineral Resources at FPM and FYM combined, and a 3% increase in the
Group's total Ore Reserves, with these estimates shown in the table
on page 14. At current processing rates, the Group has sufficient
Ore Reserves for over 50 years of further production. The resource
update process in 2020 also identified 6.3 billion tonnes of
additional material at depth below the Group's existing mines with
exploration potential for exploitation via underground means. This
mineralisation sits outside of the Group's JORC compliant Mineral
Resource estimate.
Mining review
Mining activities at the Poltava mine saw ore mined volumes
maintained at 17 million tonnes for the second year running, with
waste stripping volumes reduced by 7% as operations focused on
mining at depth in the main pit, with additional pushbacks planned
for 2021.
At the Yeristovo mine, total mining volumes increased by 11% to
44 million tonnes as this relatively new mine continues to develop
over time. The increase in mining activity resulted in a greater
supply of high grade ore from Yeristovo mine to the main processing
plant.
The Belanovo mine is Ferrexpo's newest development project, with
a focus on pre-stripping activities in 2020 and general preparatory
work with existing infrastructure and land acquisition. The
long-term development of the Belanovo mine is a key investment in
the Group's planned increase towards its strategic goal of doubling
existing production levels.
(000't unless otherwise stated) 2020 2019 % change
---------------------------------------------- ------ ------ --------
Iron Ore Production
---------------------------------------------- ------ ------ --------
Iron ore mined 29,842 28,195 +6%
---------------------------------------------- ------ ------ --------
Strip ratio (waste:ore) 3.2 3.4 -6%
---------------------------------------------- ------ ------ --------
Iron ore processed 29,723 28,475 +4%
---------------------------------------------- ------ ------ --------
Concentrate produced 14,007 13,228 +6%
---------------------------------------------- ------ ------ --------
Pellets produced 11,218 10,519 +7%
---------------------------------------------- ------ ------ --------
Of which 67% Fe pellets (DR pellets) 339 - -
---------------------------------------------- ------ ------ --------
Of which 65% Fe pellets ("Premium Pellets") 10,780 10,116 +7%
---------------------------------------------- ------ ------ --------
Of which 62% Fe pellets ("Basic Pellets") 98 403 -76%
---------------------------------------------- ------ ------ --------
Iron Ore Sales
---------------------------------------------- ------ ------ --------
Pellets sold 11,878 10,312 +15%
---------------------------------------------- ------ ------ --------
Concentrate sold 183 - -
---------------------------------------------- ------ ------ --------
Total iron ore products sold 12,062 10,312 +17%
---------------------------------------------- ------ ------ --------
Processing review
Processing activities in the beneficiation plant increased by 4%
to 30 million tonnes in 2020, following the implementation of new
processing capacity in the second half of 2020 (for more detail,
see the Future Growth Investment Programme section on pages 14 to
16). Expectations for processing in 2021 are for a further increase
as operations realise a full year at the plant's newly expanded
processing capacity. The Group is also progressing construction of
its concentrate stockyard, press filtration and medium- and
fine-crushing projects, which are collectively expected to provide
additional operational flexibility in processing.
Maintenance is key to a successful operation and further work
was completed in 2020 to ensure consistent and high quality
production. Work in this area focused on embedding world class
maintenance planning processes and the adoption of a management
system for preventative maintenance. An example of the progress
being made in maintenance can be seen in the change in culture and
consistent increase in pelletiser availability rates in 2017-2019,
increasing to 88% in 2020, up from 84% in 2017.
In 2020, the Group increased production of high grade (65% Fe or
above) iron ore pellets to 99% of total output (2019: 96%). Further
to this increase, the Group has also commenced production of direct
reduction ("DR") pellets, which are higher grade (67% Fe) and lower
impurity than alternative forms of iron ore pellets. DR pellets are
expected to represent the future of global steel production, as
steelmakers transition to the production of carbon-free Green
Steel, with DR pellets the primary source of virgin iron utilised
in this process. The Group continues to develop its offering of DR
pellets, production of which is possible through the Group's
existing production facilities, with two trial cargoes in 2020, and
a further four trial cargoes planned for 2021.
The Group continues to utilise sunflower husks as a biofuel in
its pelletiser, as a substitute for natural gas. Sunflower husks
are an abundant by-product of the sunflower industry in Ukraine,
which was the world's largest producer in the 2019-2020 crop year
[12] . This project has been in place since 2015, and usage has
steadily increased as the Group optimises the usage of husks in its
pelletisers. In 2020, the Group successfully increased usage to 25%
of the total energy consumed in the pelletiser (2019: 22%).
C1 cash costs(A) review
As shown in the graph below, Ferrexpo continues to operate in
the lowest quartile for pellet exporters globally, as assessed by
CRU. The Group's C1 cash cost(A) of production was US$41.5 per
tonne in 2020; for more details on the key drivers behind the
Group's C1 cash costs(A) , please see Financial Review section,
pages 9 to 12.
CRU breakdown pellet cost curve to China (US$ per tonne)
http://www.rns-pdf.londonstockexchange.com/rns/4888S_1-2021-3-16.pdf
Logistics review
The Group's sales of 12.1 million tonnes in 2020 is a record for
Ferrexpo since IPO in 2007, representing a significant achievement
for all those involved. Of particular note was the loading of 47
capesize vessels in 2020, a 68% increase on the prior year, and
this reflects the flexibility Ferrexpo has in its logistics chain
to meet changing global demand.
Outlook for 2021
The Group expects to deliver a further increase in production
from the level seen in 2020. Pellet production is likely to be
higher in the second half of 2021 as pelletiser upgrade work is
planned for the first half of the year, which will deliver
approximately 0.5-1.0 million tonnes per annum of additional full
year pelletiser capacity in the second half of 2021. The Group also
expects to market additional concentrate for sale during 2021 as a
result of investments completed in expanding processing capacity in
2020.
The Group's ongoing growth projects are shown on pages 14 to 16,
which represent the near term investment being made to grow
production and increase product quality.
Proven Probable Total
-------------------------------------- ---------------------- ------------------------ ------------------------
Fe Fe Fe Fe Fe Fe
total magnetic total magnetic total magnetic
Ore Reserves Mt % % Mt % % Mt % %
-------------------------------------- --- ------ --------- ----- ------ --------- ----- ------ ---------
Gorishne-Plavninske-Lavrykivske
("GPL") 313 33 26 841 31 23 1,154 32 24
-------------------------------------- --- ------ --------- ----- ------ --------- ----- ------ ---------
Yerystivske 234 30 25 290 33 26 524 32 26
-------------------------------------- --- ------ --------- ----- ------ --------- ----- ------ ---------
Total 547 32 26 1,131 33 24 1,678 32 24
-------------------------------------- --- ------ --------- ----- ------ --------- ----- ------ ---------
Measured Indicated Inferred Total
---------------------- ----------------------- ---------------------- ----------------------
Fe Fe Fe Fe Fe Fe Fe Fe
total magnetic total magnetic total magnetic total magnetic
Mineral Resources Mt % % Mt % % Mt % % Mt % %
-------------------------------- ----- ----- -------- ----- ----- --------- ----- ----- -------- ----- ----- --------
Gorishne-Plavninske-Lavrykivske
("GPL") 479 35 29 1,639 30 22 744 32 24 2,862 31 23
-------------------------------- ----- ----- -------- ----- ----- --------- ----- ----- -------- ----- ----- --------
Yerystivske 283 35 29 571 34 27 382 33 27 1,255 34 27
-------------------------------- ----- ----- -------- ----- ----- --------- ----- ----- -------- ----- ----- --------
Bilanivske 336 31 24 1,149 31 23 217 30 21 1,702 31 23
-------------------------------- ----- ----- -------- ----- ----- --------- ----- ----- -------- ----- ----- --------
Galeschynske - - - 268 55 - 58 55 - 326 55 -
-------------------------------- ----- ----- -------- ----- ----- --------- ----- ----- -------- ----- ----- --------
Total 1,098 33 26 3,627 33 21 1,401 33 23 6,126 33 23
-------------------------------- ----- ----- -------- ----- ----- --------- ----- ----- -------- ----- ----- --------
The Group's JORC-compliant Ore Reserves and Mineral Resources
shown above are based on an independent review completed by Bara
Consulting, and are dated as of 1 June 2020.
FUTURE GROWTH INVESTMENT PROGRAMME
Ferrexpo aims to grow its production base through continual
investment in the various sections of its production process, for
both volume growth and quality enhancements. The completion of the
Group's concentrator expansion in 2020 represents one phase of
growth to fully realise the Group's pelletiser capacity of 12
million tonnes per annum, and the following showcases examples from
the next phase of growth.
MINING FLEET AUTOMATION
Location: Yeristovo Mine
Status/timeline: Successful deployment December 2020
Capital outstanding: US$2M for Phase 1
Operational benefit: Phase 1 deployment of autonomous trucks
commenced in December 2020, with an expectation to deploy
additional autonomous CAT793 haul trucks to production areas
throughout 2021 (Phase 1), delivering gains in both safety and
productivity.
TROLLEY ASSIST (HAUL TRUCKS)
Location: Poltava Mine
Status/timeline : Scoping study
Capital outstanding: N/A (subject to OEM selection)
Operational benefit: Scoping studies are under way to install a
pantograph network of overhead cables in the Group's mines, which
would enable haul trucks to ascend the open pit using electricity
rather than diesel. Benefits expected in C1 cost base and Scope 1
carbon footprint.
FERREXPO BELANOVO MINE
Location: Belanovo Mine
Status/timeline: Pre-stripping works commenced
Capital investment in 2020 : US$6M
Operational benefit: FBM, located 4km north of the Yeristovo
Mine, has a significant Mineral Resource of 1.7 billion tonnes of
magnetite ore. Ore production from FBM is a prerequisite to the
Group achieving its long term goal of increasing pellet production
above 20 million tonnes per annum.
CONCENTRATE STOCKYARD
Location: Concentrator
Status/timeline: Commissioning 1H 2021
Capital outstanding: US$3M
Operational benefit: Increases operational flexibility to
operate the Group's concentrator and pelletiser independently of
each other during periods of plant maintenance. Enables phases of
excess concentrate production if desired.
SECTION 9 EXPANSION
Location: Concentrator
Status/timeline: Commissioned 2H 2020
Capital outstanding: N/A (operational optimisation)
Operational benefit: Provides additional 6MTPA of raw ore
processing capacity, resulting in 1.5-2.0 million tonnes per annum
of additional high grade concentrate capacity for pelletising.
MEDIUM AND FINE CRUSHING 2
Location: Concentrator
Status/timeline: Construction/Q4 2021
Capital outstanding: US$8M
Operational benefit: Second phase of upgrades to plant crushing
capacity, adding 800 tonnes per hour of raw ore capacity over two
additional crushing lines. Subset of next phase of expansion beyond
12 million tonnes per annum.
PELLETISER UPGRADES
Location: Pelletiser
Status/timeline: 1H 2021 (all four lines)
Capital outstanding: US$10M
Operational benefit: Work to reconfigure initial heating stage
within the pelletiser and improved heat recirculation, which will
result in enhanced pellet quality through reduced fragmentation of
pellets, as well as increases to the productivity of the pelletiser
and improved natural gas consumption rates.
SOLAR POWER (PILOT PLANT)
Location: Concentrator
Status/timeline: Procurement / 2H 2021
Capital outstanding: US$4M
Operational benefit: First stage in investigating potential for
industrial-scale generation of solar power at Ferrexpo's
operations, commencing with a 5MW pilot plant. Electricity
consumption accounted for 55% of the Group's Scope 1 and 2 carbon
emissions in 2020, with solar power offering significant potential
for cutting the Group's carbon footprint.
HSEC COMMITTEE CHAIR'S REVIEW
PROGRESS IN RESPONSIBLE BUSINESS
In 2020, the CSR committee was reformed into the HSEC committee
with an increased focus on all aspects of safety and climate
change. As Chair of this new committee, our goal is to deliver
sustainable improvements throughout the organisation. Furthermore,
the global pandemic has also highlighted the need for companies to
take a proactive role in the wellbeing of workforces, with this
work coordinated via the HSEC Committee.
Safety
Safety remains central to the success of our operations, and we
continue to operate with a lost time injury frequency rate below
that of the major iron ore producers in Australia. However, it is
with deep regret that we report a fatality at our operations in
2020, whereby a maintenance contractor was injured during routine
maintenance on heavy equipment in our beneficiation plant. As with
any safety event, we endeavour to investigate, learn and improve
our practices to ensure this type of accident cannot happen again,
with details of the key learning points described in the Safety
section on page 17. Across the Ferrexpo Group, we recorded a LTIFR
of 0.79 in 2020, which represents a level 22% below our five-year
trailing average for safety performance, and which we see as an
indication of a culture of safety being embedded throughout the
Group.
One area of safety improvement that we are particularly pleased
to report on is with our barging subsidiary, DDSG, which has
implemented a number of safety initiatives at its operations and
operated injury-free for the entirety of 2020. For more
information, please see the Responsible Business - Health and
Safety section, pages 17 to 18.
Carbon footprint
The world is on a pathway to a carbon-free future, with many
countries making pledges to be carbon neutral by 2050, and the
global steel industry is no exception to this trend. As part of the
network of suppliers that feeds the steel industry, we at Ferrexpo
acknowledge the importance of climate change and remaining relevant
as economies transition to a carbon neutral future. Longer term, we
are developing our DR pellet offering, which are pellets that can
be used in the production of Green Steel.
In the more immediate future, we are striving to reduce our
carbon footprint on a per tonne basis, with a 16% reduction
realised in 2020 alone. This excellent result has been achieved
through improving productivities in our operations (Scope 1) and
commencing a project to source low- to zero-carbon forms of
electricity (Scope 2). We are also continuing to use sunflower
husks in our pelletisers, and successfully increased consumption of
this biofuel to 25% of the pelletiser's total energy in 2020 (2019:
22%). We are reviewing further increases to our biofuel
consumption, having steadily increased this figure since this
project's inception in 2015.
Our next major project is the development of a 5MW solar farm at
our operations, to trial the effectiveness of solar power in our
geographic location. Should this trial be successful, we will look
to significantly expand this particular project.
Workforce wellbeing
In other areas, we continue to invest in our workforce, with
over 6,500 individuals trained in 2020, despite restrictive
measures associated with the global pandemic. In such uncertain
times, it is important that we also look after the wellbeing of our
workforce, and have offered a range of initiatives, including
dedicated mental health support sessions and training in financial
planning, as measures to help those who may be struggling through
the pressures of working during the pandemic.
ESG ratings upgrade
As a consequence of our efforts to bring our Responsible
Business efforts and reporting in line with industry best practice,
we can also report that Ferrexpo's ESG rating provided by MSCI was
upgraded one notch to BBB in December 2020 [13] . This puts
Ferrexpo into the top 40% of companies covered by MSCI in the steel
sector, and we are extremely proud of this recognition for our
efforts.
In February 2021, we also joined the ResponsibleSteel
initiative, which is a certification initiative designed to
maximise steel's contribution to a sustainable society.
In conclusion, we have seen an unprecedented year in 2020 with
the global pandemic. However, with the HSEC Committee and our
various local community support projects, I am confident that
Ferrexpo is well placed to provide vital support to our workforce,
environment and communities during these difficult times, aiming to
make Ferrexpo a good corporate citizen for all stakeholders, whilst
also addressing climate change as a key priority.
Fiona MacAulay
Chair, HSEC Committee
RESPONSIBLE BUSINESS
HEALTH AND SAFETY
Creating a safe working environment is paramount to a successful
modern mining business and an engaged workforce. Ferrexpo uses a
number of leading indicators to help measure progress in
implementing safety initiatives, as well as lagging indicators to
measure the effectiveness of these efforts.
Safety performance
It is with regret that the Company reports a fatality amongst
its workforce in 2020. In August, a maintenance contractor working
in the crushing plant was struck when using equipment to lift a
cone crusher from its protective housing during regular
maintenance. Whilst this individual was wearing the required PPE
for this task, the exclusion zone applied around the heavy
equipment as it was extracted was not sufficient in size. Ferrexpo
endeavours to support any family affected by such a tragic accident
and measures are taken to address the specific risks raised by any
such incident where an injury occurs. Corrective actions taken in
respect of this incident include efforts to strengthen the quality
controls in place for inspecting equipment prior to lifting
activities, and to extend the relevant hazard zones applied when
this type of maintenance is conducted.
Ferrexpo's LTIFR was 0.79 in 2020 (2019: 0.58), which represents
a second successive year where our overall safety performance was
recorded at a level significantly below the Group's five-year
trailing average LTIFR of 1.01. This result is also significantly
ahead of the major iron ore producers in the Pilbara region of
Western Australia, which averaged an LTIFR of 1.60 in the most
recently published information [14] . Furthermore, a review of the
leading and lagging safety indicators that the Group uses to assess
its full safety performance is presented below and in the table on
page 18.
Looking beyond lost time injuries, which are the traditional
indicator of safety performance, leading indicators, such as safety
inductions and training hours are important tools for assessing the
prospect of safety incidents before they occur. These factors, such
as safety inductions, were generally affected by measures
implemented in response to the global COVID-19 pandemic, with
reduced recruitment and an increase in those working remotely.
Despite this however, safety inspections were maintained at broadly
the same level in 2020. The number of near miss events, significant
incidents and road traffic incidents fell in 2020, reflecting the
increase in remote working during the global COVID-19 pandemic. A
study of Significant Incident Reports ("SIRs") in 2020 indicated
that working at heights and road traffic incidents ought to be
priority focus areas for our safety initiatives in 2021, but the
number of incidents involving the delivery of cargo have decreased
significantly in 2020 (50% reduction in 2020 to four working at
height related SIRs).
Effective occupational health and safety management systems are
an important tool in establishing a safe working culture, with
Ferrexpo successfully gaining ISO accreditation (ISO 45001) at FPM
in December 2020.
Workforce wellbeing
The global pandemic in 2020 drastically changed the working
environment, with Ferrexpo's operations implementing social
distancing, staggered shifts and rotating team working patterns,
all to reduce the risk of transmission of COVID-19. Ferrexpo's
operations are, however, sociable places to work, with many groups
meeting outside of work for formal and informal gatherings for
sport, hobbies and other activities. In the summer of 2020,
Ferrexpo began an offering of remote counselling sessions to
support the Group's workforce throughout the pandemic. This support
was not limited to counselling, but also personal financial
planning, as family's incomes were often negatively affected with
family members facing uncertainty around their employment outside
of Ferrexpo. The Group considers that these initiatives are
critical for Ferrexpo to retain its talented workforce and maintain
a level of stability that would otherwise have been missing during
the pandemic and the Group has approved additional funding to
continue these efforts into 2021.
2020 2019 Change
--------------------------------- ------ ------ ------
Lagging indicators
--------------------------------- ------ ------ ------
Fatalities 1 0 --
--------------------------------- ------ ------ ------
Lost time injuries 17 10 +70%
--------------------------------- ------ ------ ------
LTIFR 0.79 0.58 +35%
--------------------------------- ------ ------ ------
TRIFR 1.25 0.86 +45%
--------------------------------- ------ ------ ------
Near miss events 7 26 -73%
--------------------------------- ------ ------ ------
Significant incidents 17 30 -43%
--------------------------------- ------ ------ ------
Road traffic incidents 31 35 -11%
--------------------------------- ------ ------ ------
Lost work days 1,046 1,336 -22%
--------------------------------- ------ ------ ------
Leading indicators
--------------------------------- ------ ------ ------
HSE inspections 3,305 3,349 -1%
--------------------------------- ------ ------ ------
HSE meetings 1,528 1,347 +13%
--------------------------------- ------ ------ ------
HSE inductions 7,335 10,147 -28%
--------------------------------- ------ ------ ------
Training hours 14,755 36,167 -59%
--------------------------------- ------ ------ ------
Hazard reports 51 37 +38%
--------------------------------- ------ ------ ------
Management high visibility hours 131 231 -43%
--------------------------------- ------ ------ ------
ENVIRONMENTAL STEWARDSHIP
Ferrexpo's operations cover over 5,000 hectares and are closely
linked to the environment through the air, water, land use and
biodiversity around the Group's operations. This section focuses
primarily on greenhouse gas emissions reporting and climate change,
but additional environment-related disclosures and commentaries are
available in the Company's Responsible Business Reports ("RBR"),
which are available on the Company's website.
Greenhouse gas emissions
During 2020, Ferrexpo's management increased its efforts to
reduce the Group's carbon footprint [15] , and in doing so
delivering an 8% reduction in the Group's Scope 1 CO(2) e emissions
footprint per tonne and a 21% reduction in Scope 2 CO(2) e
footprint per tonne, as shown in the table on page 19. Ferrexpo's
Scope 1 CO(2) e emissions, which relate to the Group's controlled
operations, are primarily driven by diesel consumption in the
mining fleet and natural gas consumption in the pelletiser.
Ferrexpo has a competitive advantage over its pellet producing
peers in that Ferrexpo uses natural gas for pelletisation, whereas
the Group's peers commonly use more carbon-intensive sources of
energy, such as coal and heavy fuel oil.
Ferrexpo's improved Scope 1 CO(2) e performance relates to a
number of productivity gains throughout the business, including a
5% reduction in diesel volumes used in the Group's mining
activities, despite a 1% increase in the total tonnage mined.
Furthermore, Scope 1 emissions were reduced through an increase in
sunflower husk usage, which represented 25% of the input energy in
the pelletiser, an increase from 22% in 2019, which acts as a
substitute for natural gas. Ukraine was the largest producer of
sunflower oil in the world in the 2019-2020 crop season [16] , and,
therefore, the Group is well placed to take advantage of this
by-product as a biofuel in its processing operations.
The greatest area of improvement in the Group's carbon footprint
however has been in its Scope 2 CO(2) e emissions, which have
benefitted from the Group now being able to selectively buy low- to
zero-carbon forms of electricity in Ukraine thanks to recent
deregulation of the local electricity market. Through these
purchases, which began in July 2020, the Group has managed to
purchase up to 49% of its electricity from either hydroelectric or
nuclear power sources in any given month, and in doing so has
reduced the full year Scope 2 CO(2) e carbon footprint per tonne by
21%. This proportion of greener electricity purchases is expected
to grow as Ukraine's electricity market matures over time.
With a full year ahead of greener electricity purchases, as well
as productivity improvements and efficiency savings across the
Group's operations, the Group is confident of delivering a similar
level of improvement in 2021.
Ferrexpo is also committed to its role in the low carbon future
of the global economy, and is investigating low carbon solutions
throughout its business. Projects to achieve these goals include
near-term projects, such as continued purchasing of greener forms
of electricity and the proposed installation of a pantograph
network in the Group's mines (see pages 14 to 16), through to
longer-term projects such as the development of solar power at the
Group's mines and trials of using green hydrogen in the Group's
pelletisers.
To further help deliver the Group's carbon targets, future large
scale investment decisions at Ferrexpo's operations will now
include a carbon price in the associated financial modelling. The
first such example will be in assessing the long term replacement
options for the Group's mining fleet, modelling for which is being
considered in 2021 and will include a carbon price of US$17 per
tonne, which reflects the five year trailing average price of
carbon in the EU.
The Group has also now become a full member of the
ResponsibleSteel initiative, which is the steel industry's first
global multi-stakeholder standard and certification initiative,
which aims to maximise steel's contribution to a sustainable
society. This initiative aims to develop a certification standard
for participants throughout the steel supply chain. Ferrexpo has
now begun consultations regarding independent certification of its
carbon emissions reporting and reduction targets.
In addition, the Group successfully implemented a number of ISO
certificates at its operations in Ukraine in 2020. The
accreditation of Ferrexpo's energy management system at FPM (ISO
50001:2018) was achieved in December 2020, along with the Group's
continuing certificate for its environmental management system (ISO
14001:2015). Finally, the Group's barging subsidiary First-DDSG
completed its certification process for its quality management
system (ISO 9001:2015) in January 2020.
Table: Greenhouse gas emissions and energy consumption
2020 2019 % Change
------------------------------------------------------- ------------- ------------- --------
CO (2) e emissions (tonnes) 1,262,614 1,404,878 -10%
------------------------------------------------------- ------------- ------------- --------
- Scope 1 (direct, tonnes) 565,552 579,415 -2%
------------------------------------------------------- ------------- ------------- --------
- Scope 2 (indirect, tonnes) 697,062 825,462 -16%
------------------------------------------------------- ------------- ------------- --------
Pellets produced (tonnes, 000s) 11,218 10,519 +7%
------------------------------------------------------- ------------- ------------- --------
Intensity ratio (kg per tonne pellets) 113 134 -16%
------------------------------------------------------- ------------- ------------- --------
- of which Scope 1 50 55 -8%
------------------------------------------------------- ------------- ------------- --------
- of which Scope 2 62 78 -21%
------------------------------------------------------- ------------- ------------- --------
Emissions from biofuels (reported separately) (tonnes) 125,360 104,313 +20%
------------------------------------------------------- ------------- ------------- --------
Energy consumption (kWh) 5,203,263,593 5,036,590,365 +3%
------------------------------------------------------- ------------- ------------- --------
Note table above shows carbon-equivalent emissions, with the
following gases included in calculations: CO(2) , CH(4) and N(2) O.
During 2020, the Group consulted with external consultants
regarding its carbon footprint and as a result the Group has
updated the carbon emissions factor from emissions factors
estimated by the EBRD in 2010 to the latest factors published by
the IEA in September 2020. Scope 2 emissions are therefore restated
for 2019. Ferrexpo uses coefficients provided by the Greenhouse Gas
Protocol to calculate its emissions.
Further reading
Further information regarding climate change scenario planning
is available in the Company's latest Responsible Business Report
(www.ferrexpo.com).
Scope 3 emissions
As well as reducing the Company's footprint per tonne in terms
of its Scope 1 and Scope 2 CO(2) e emissions, the Company is also
committed to increasing its disclosures around its Scope 3
emissions, which relate to the upstream and downstream activities
beyond the production of iron ore pellets. In 2019, Ferrexpo
started reporting its Scope 3 emissions in relation to the
conversion of iron ore pellets to steel by steelmakers, on the
basis that this represents the majority of Ferrexpo's Scope 3
emissions. This year, Ferrexpo is proud to report that it has
worked with external consultants to establish a calculation for
Scope 3 emissions that includes a range of upstream and downstream
activities, such as employee commuting, tyre usage and third party
distribution of pellets via rail and oceangoing freight. On this
basis, the Group's Scope 3 emissions in 2020 were 12.1 million
tonnes of CO(2) , or 1,082 kilogrammes of CO(2) per tonne of
product produced (2019: 1,020 kg/t, using updated Scope 3
calculation). The conversion of the Group's iron ore products into
steel accounted for 94% of the Group's Scope 3 emissions in 2020
(2019: 92%).
Energy consumption
Ferrexpo's energy consumption in 2020 was 5,203,263,593kWh
(2019: 5,036,590,365kWh), representing the equivalent of 464kWh per
tonne of pellets produced (2019: 479kWh per tonne). Energy
consumption data is presented here in kilowatt-hours on the basis
of new regulatory requirements for London-listed entities. For
continuity with last year's energy reporting, the Group confirms
its energy consumption was the equivalent of 18.7PJ in 2020 (2019:
18.1PJ).
Task Force on Climate-Related Financial Disclosures ("TCFD")
The following sections of this report are aimed at addressing
the various requirements for reporting under TCFD.
- Board oversight of climate change risks and opportunities:
pages 18 to 21 and Principal Risks section 24 to 35.
- Management's role in assessing climate change related risks
and opportunities: pages 18 to 21 and Principal Risks section 24 to
35.
- Organisational processes to identify, assess and manage
climate change related risk: pages 18 to 21 and 2019 Responsible
Business Report (www.ferrexpo.com/responsibility).
- TCFD-specific metrics and targets: pages 18 to 21.
Climate change: risks and opportunities
Climate change presents a number of risks and opportunities for
Ferrexpo and its operations in Ukraine and logistics business
beyond Ukraine. These are presented in detail in the Company's
latest Responsible Business Report (available at www.ferrexpo.com),
which was released in August 2020, with the main factors summarised
as follows:
- Climate change related risk (policy) - carbon pricing. Ukraine
currently operates a carbon tax of UAH15 per tonne CO(2) ,
escalating by UAH5 per year until 2024. This is significantly below
the CO(2) price per tonne for companies operating under the EU's
Emissions Trading System. The Company is looking to address this
risk by reducing its carbon footprint - please see pages 18-21.
- Climate change related risk (technology) - many of the world's
steelmakers are currently focused on reducing their Scope 1 and 2
carbon footprints, including a number of Ferrexpo's customers, with
steelmakers targeting a switch to Green Steel as a result. Ferrexpo
is likely to have to switch production of its pellets to DR pellets
over BF pellets in the long term to satisfy this change in demand,
and the Group is currently in the process of forging customer
relationships with DR pellet customers to further future proof the
business - see pages 16-21 for more information.
- Climate change related opportunity (technology/customer
behaviour) - iron ore pellets represent a product that steelmakers
can utilise to lower their carbon footprint by up to 40% for every
tonne of pellets used instead of the more commonly used sinter
fines [17] . This presents an opportunity for the business as
steelmakers look to increase pellet usage in blast furnaces,
particularly in China, where pellet usage is currently only 10-15%
[18] of the burden mix in blast furnaces. For more information on
the opportunities around increasing pellet usage, please see Market
Overview, page 7 to 8.
A more extensive listing of the climate change related risks and
opportunities facing the business is provided on pages 61-64 of the
Company's 2019 Responsible Business Report (available at www.
ferrexpo.com). Further details on the Principal Risks facing the
Group are also provided on pages 24 to 35.
Climate change: scenario modelling
Ferrexpo has considered two climate change scenarios in its
review of the future impact of climate change on its business:
- A 2(o) C scenario, as envisaged by the Paris Agreement, with
an associated increase in government regulation compared to
today.
- A +3(o) C scenario, whereby governments do not address climate
change, and the business faces increased physical effects as a
result of climate change.
Details of these two scenarios are provided in the table
below.
Characteristics Impacts
---------------- ------------------------------------------------- -------------------------------------------------
2(o) C scenario Increased government regulation to curb the Carbon pricing: application of the same level of
potential impacts of climate change in the carbon pricing in Ukraine as currently envisaged
medium as required under the Paris Agreement (US$50-100
to long term. per tonne CO (2) ) would equate to an additional
cost of US$3 to US$5 per tonne of pellet
production.
Electricity pricing: phase out in Ukraine of
thermal power plants and increased demand for
low-carbon forms of electricity is likely to
increase overall electricity prices in Ukraine
in the short term, before additional supply of
low-carbon electricity is brought online in
the medium term.
---------------- ------------------------------------------------- -------------------------------------------------
+3(o) C scenario Increased physical effects of climate change in Water stress: US Aid projections for Eastern
the medium to long term. Europe forecast prolonged periods of drought
in the event of a +3(o) C scenario, which would
potentially limit the Group's ability to source
and utilise water in its operations. Water is
currently used in processing to remove waste
material, such as silica, and increase the iron
content of the Group's ores, as well as in
mining operations to limit dust emissions. Any
restriction on the availability of water usage
could have an adverse effect on the Group's
ability to mine and process its ores to the same
extent as it does today.
---------------- ------------------------------------------------- -------------------------------------------------
SOCIAL ENGAGEMENT
Working with local communities through the Ferrexpo Charity Fund
to develop local initiatives and provide support where it is
needed.
Local communities play an integral role in Ferrexpo's social
licence to operate, and the Group understands the need to play a
constructive and proactive role in the communities located close to
the Group's operations. Ferrexpo coordinates its community
activities through its own Charity Fund, which was established in
2011, and through direct sponsorship of projects by Ferrexpo's
operating entities FYM and FBM. The primary focus areas of the
Group's work in local communities are as follows:
(1) Social partnership projects (for example, the refurbishment
of hospitals and schools);
(2) Local community development (for example, supporting the
local Palace of Culture);
(3) Direct aid for local individuals (funding medical procedures
for example); and
(4) Administrative support for local council budgets (road
repairs and safety bollards for example).
Ferrexpo's Charity Fund and local operating entities FYM and FBM
focus their efforts on supporting communities immediately
surrounding each of the Group's three mines, in order to develop
close ties with each community, working with community leaders to
ensure work carried out is both relevant and targeted. Total
community support expenditures in 2020, including funds dedicated
to the COVID-19 Response Fund (see section below), amounted to
UAH158 million (equivalent of approximately US$5.9 million). This
figure represents an 11% increase of such expenditures, which
reflects the increased level of support for Ferrexpo's local
communities affected by the global pandemic. Further details of the
Company's response to COVID-19 are provided below, as well as on
page 6.
COVID-19 Response Fund
2020 has been an extraordinary year, with communities around the
world affected by the global COVID-19 pandemic. In March 2020, the
Group responded to rising concerns with a standalone fund for
assisting local hospitals and schools to acquire necessary medical
equipment and PPE to respond to the pandemic, with an initial
US$2.5 million of funding approved for this dedicated fund to
assist local hospitals. In light of the continuing pandemic in
early 2021 and in recognition of the continuing need for community
support, the Group has approved a further US$1.0 million of support
through the COVID-19 Response Fund. Through discussions with
hospital management, funds have been utilised in a range of areas,
including the provision of PPE and specialist medical equipment,
such as respirators, that would be necessary to assist treatment of
COVID-19 patients.
Specific donations have included the following:
- Remote monitoring equipment and lighting for intensive care patients, Kremenchug hospital;
- Ventilators for hospitals in Horishni Plavni, Kremenchug and Poltava City;
- Ambulance purchase for Horishni Plavni hospital; and
- Numerous purchases of PPE equipment for local schools and hospitals.
Further details of the Group's response to COVID-19 are provided
on page 6 .
Further reading
www.ferrexpo.com/responsibility
GOVERNANCE
Strong corporate governance is a requirement for modern
businesses to succeed and maintain a sustainable business model.
Corporate governance enables companies to operate effectively, with
transparency in decision-making and fairness for all stakeholders.
Whilst Ferrexpo's Board of Directors is responsible for setting the
Group's overall governance strategy and framework, governance is
applied as a culture throughout the workforce.
Board structure
Ferrexpo's Board of Directors (the "Board") is comprised of a
Chair and six Directors, four of whom are Independent Non-executive
Directors. Ferrexpo's Board. The Board understands the need for
high standards of corporate governance and the direct impact this
can have on the Group for all stakeholders. The Board announced an
additional appointment of Ann-Christin Andersen as an Independent
Non-executive Director in March 2021 and is seeking to appoint an
additional Independent Non-executive Director.
Shareholder engagement
The Group's Annual General Meeting ("AGM"), which is typically
held in May of each year, is an opportunity for the Board to
receive shareholder feedback on a number of subject areas,
including corporate governance. Following the 2020 AGM, the Board
conducted a shareholder feedback process to establish the reasons
behind shareholder voting at the 2020 AGM. This process resulted in
feedback from a number of the Group's largest shareholders, and the
Group is currently seeking to implement measures in response to
this feedback.
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, 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 disclosed in the Group's 2019 Annual Report and Accounts and
2020 Interim Results, the Board acting through the Committee of
Independent Directors ("CID") has been conducting a review into its
sponsorship arrangements with FC Vorskla, with specific reference
to payments totalling c.US$17 million made by FC Vorskla to
Collaton Limited, an entity controlled by Kostyantin Zhevago, in
connection with the renovation and construction of certain FC
Vorskla stadiums and training grounds in Ukraine (the "Loan"). The
CID, with assistance from third party advisers, has now concluded
its review and arrangements have been made for the Loan to be
repaid in full. As disclosed in the 2020 Interim Results, the CID
had been informed that the Loan is expected to be repaid via the
sale and leaseback of certain capital projects of FC Vorskla in
Ukraine, although with the ongoing COVID-19 pandemic and general
market conditions in Ukraine, the CID has since been informed that
this may not be possible in the near term. Therefore additional
arrangements have been put in place by Kostyantin Zhevago and his
associated entities for full repayment of the Loan to take place by
31 July 2022. These arrangements have been reviewed by the CID, and
having put in place appropriate monitoring controls, the CID is
satisfied with the arrangements.
The current sponsorship agreement with FC Vorskla Ukraine, as
agreed in 1Q 2021, includes enhanced reporting requirements by the
football club to the Group and additional provisions around the use
of sponsorship funds. Further details are provided in Notes 13 and
14 to the Consolidated Financial Statements.
WORKFORCE AND WORKFORCE ENGAGEMENT
Investing in the Group's workforce
Workforce engagement
Ferrexpo has a global workforce of nearly 11,000 employees and
contractors, all of whom contribute to the success of the Ferrexpo
business. In 2020, the Company held its third Workforce Engagement
Survey, which has provided an important mechanism for employees to
provide feedback. With the disruption experienced in relation to
the global pandemic, it has been harder to reach out to the number
of employees for participation in the 2020 survey, but the Group
still managed to receive responses from 1,660 employees in 4Q 2020,
across all three operating entities and the Group corporate and
marketing functions. Following a review of the responses received,
results of the survey will be communicated back to Ferrexpo's
employees throughout 2021 via town hall meetings, sharing and
discussion of results by line managers, briefings for individual
work groups and employee conferences.
Ferrexpo also engages with its workforce in Ukraine,
representing 93% of the Group's people, through several printed
media publications and newsletters, which give Ferrexpo's
management team the ability to reach operators that would not
normally use a computer in their day-to-day activities. Ferrexpo
also has its social media channels on Facebook, LinkedIn and
Instagram, which are used to issue regular updates on its business
in both Ukrainian and English.
Diversity
Gender balance in each department of Ferrexpo is important, as
this leads to diversity of thought leadership and a more balanced
decision-making process. At its operations, Ferrexpo has
historically had a more balanced workforce in its administrative
functions, compared to production and maintenance roles. The Group
is attempting to address this by several new initiatives to promote
the role of women in these departments through training programmes.
An example of this work can be seen in the Group's project to
promote future female leaders of the business, "Fe_munity", which
is an initiative commenced in 2020 that involves bringing together
70 women identified as future leaders, to create a high performance
community, who will all receive leadership training and mentoring
to help advance their careers.
In 2020, women represented 29.2% of Ferrexpo's employees (2019:
29.3%), with women in management positions representing 18.2% of
the total (2019: 17.5%). The Group is targeting a figure of at
least 25% of managerial roles to be held by women by 2030.
Training
Ferrexpo takes every step to ensure a high level of training is
provided to its workforce through its own training and development
centre, as well as external courses that are facilitated to help
invest in the future of the Group's workforce. The Group's
workforce completed over 6,800 training courses at its operations
in Ukraine in 2020, despite a sharp reduction in the number of
individuals at site due to social distancing and training largely
switching to online formats. In line with 2019, the majority of
this training was safety related, as the Group continues to embed a
safety first culture.
Social media
Ferrexpo uses LinkedIn, Facebook and Instagram to communicate
with stakeholders - please see links below for more regular updates
on Ferrexpo.
https://www.linkedin.com/company/ferrexpo-plc/
https://www.facebook.com/Ferrexpoplc/
https://www.instagram.com/ferrexpo/
PRINCIPAL RISKS
The principal risks and uncertainties facing Ferrexpo's business
as assessed by the Board of Ferrexpo are shown in this section.
A number of the risks described in this section have the ability
to directly affect the Group's strategy, which for reference is as
follows:
1. Produce high quality pellets.
2. Be a low cost producer.
3. Sell to a world class customer portfolio.
4. Maintain a social licence to operate.
5. Maintain appropriate capital allocation between a strong
balance sheet, returns to shareholders and investment for
growth.
Increase in expected risk in 2021
Decrease in expected risk in 2021
Risk balance for 2021
Risk assessment and risk mitigation
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 can be uncontrollable,
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 Finance, Risk
Management and Compliance Committee ("FRMCC") which ultimately
reports into the Company's Board of Directors 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 Acting Chief Executive Officer, Acting Chief Financial Officer
and Chief Marketing Officer.
Newly encountered risks that were specific to 2020 were
principally related to the global COVID-19 pandemic. In addition,
the Group faced similar risks that have faced the business in
previous years, including risks associated with operating in an
emerging market, and market risk related to commodity pricing.
The Group has updated its principal risks as shown on pages 24
to 35 of this report, 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 statement, which is due for
publication in August 2021. Where the Group has identified a
principal risk, details of the Group's efforts to mitigate each
risk are also provided. It should be noted that the Group's Audit
Committee has reviewed the risks associated with the exit of the
United Kingdom from the European Union ("Brexit"), and whilst
significant uncertainty exists in relation to this event and the
future trading relationship between the UK and the EU post-Brexit,
the Audit Committee has determined that this is not a principal
risk on the basis of the Group's reduced exposure to the UK
market.
1. COUNTRY RISK
1.1 UKRAINE COUNTRY RISK (EXTERNAL RISK)
Risk overview
Transparency International e.V. has published an annual
Corruption Perceptions Index since 1995 and is a leading global
indicator of public sector corruption. Ukraine is currently placed
117(th) out of 180 countries on the Corruption Perceptions Index
[19] , up from 126(th) position in the 2019 iteration of the same
survey. Whilst Ukraine is continuing to reform, most recently under
the guidance of the International Monetary Fund, its position on
the Corruption Perceptions Index has only marginally improved over
the past five years from being ranked 130(th) [20] . There
continues to be a number of principal risks relating to the Group's
operating assets being located in Ukraine and exposure to Ukraine's
geopolitical environment, judicial system and macro-economic
conditions. These factors, 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, ability to repay existing debt or gain access to new debt
facilities, ability to reinvest in the Group's asset base, either
in the form of sustaining capex to maintain production or expansion
capex for future growth, as well as the Group's ability to pay
dividends.
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.
In January 2020, the Company advised that it had lodged an
appeal against a court order in Ukraine, whereby a district court
had placed a restriction on the transfer on 50.3% of the shares in
Ferrexpo Poltava Mining ("FPM"), which are held through Ferrexpo
AG, the Company's Swiss subsidiary. Ferrexpo AG was subsequently
successful in this appeal and the Company announced that this
restriction had been removed on 3 June 2020. On 19 June 2020, the
Company announced that a similar restriction was placed on the same
shareholding by a district court in Kyiv. An appeal was also lodged
against this restriction, and whilst it was similar to the first
restriction, which was successfully appealed, the appeal against
this second restriction was not successful. In November 2020,
Ferrexpo AG was however successful in a motion to dismiss this
restriction, as announced on 30 November 2020. The Group
understands that the new ruling of the court to cancel the
restriction on 50.3% of the shares in FPM cannot be appealed. The
Group cannot however rule out similar cases being raised against
the Group in the future.
In October 2019, Kostyantin Zhevago stepped down as CEO of the
Group in order to focus on resolving certain matters in Ukraine
relating to one of the businesses he owned until 2015 (Bank Finance
& Credit). The Company understands that these matters remain
unresolved. Given Mr Zhevago's connection to Ferrexpo, and
Ferrexpo's previous commercial relationship with Bank Finance &
Credit, there is a risk that these matters may affect the Group,
including adverse media attention and reputational damage for the
Group and a reluctance on the part of some customers, suppliers or
other stakeholders to deal with the Group whilst such matters
concerning Mr Zhevago remain unresolved. The Group understands that
the restriction on 50.3% of the shares in FPM which was cancelled
in November 2020 was in connection with ongoing matters in Ukraine
involving Kostyantin Zhevago and Bank Finance & Credit. There
is a risk that assets owned or controlled (or alleged to be owned
or controlled) by Kostyantin Zhevago may be subject to restrictions
in connection with such unresolved ongoing matters, in Ukraine or
elsewhere, or that the Group may be impacted by or become involved
in further legal proceedings relating to these matters in Ukraine
or elsewhere.
In January 2021, Ferrexpo AG received a claim in relation to
previous litigation regarding the shares in FPM. In 2005, a former
shareholder in 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. These claims were fully dismissed
in 2015. According to recent claims made in the Ukrainian courts,
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.
Responsibility
Board of Directors and Chief Executive Officer
Risk appetite
Medium
Link to strategy
1, 2, 3, 4 and 5
Change Increase
Risk mitigation
Ferrexpo operates in accordance with relevant laws and utilises
internal and external legal advisers as required to monitor and
adapt to legislative changes or challenges. The Company maintains a
premium listing on the London Stock Exchange and as a result is
subject to high standards, 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 Hryvnia against the US Dollar and local
inflation levels. Ferrexpo has a high profile given its
international client base, its London listing and bank lending from
Western financial institutions. Ferrexpo's Board of Directors and
relevant senior management are tasked with stakeholder engagement
and government relations to communicate the economic contribution
that Ferrexpo makes to Ukraine and to show that it operates to high
international standards.
1.2 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 or taxation, the
repayment of VAT, and licences required for Ferrexpo's operations
to operate. In Ukraine, a number of monopolies exist, including the
supply of natural gas that is required for the pelletisation of the
Group's products, 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, suppliers of goods and services, and any charitable
donations to third parties, as these interactions may result in
financial loss for the Group if the counterparty in question fails
to fulfil its duties correctly.
The advent of the global COVID-19 pandemic in 2020 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.
Responsibility
Ferrexpo Board of Directors
Risk appetite
Low
Link to strategy
4
Change Increase
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 develops 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 2020, 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 (related to anti-bribery, sanctions, tax compliance, modern
slavery, etc). These requirements were consolidated into the
Business Partners' Code of Conduct in 2019, which is referenced in
87% of contracts signed in 2020. The Finance, Risk Management and
ComplianceCommittee ("FRMCC"), an executive sub-committee of the
Board, met ten times in 2020, 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's current policy regarding charitable
donations is not to donate on a nationwide basis, and the Group
does not have any plans to conduct any such activity in the future.
However, should the Company resume any national CSR programme in
Ukraine, the Board will ensure adherence to the highest standards
of diligence, oversight, governance and reporting.
2. GLOBAL DEMAND FOR STEEL
Risk overview
Ferrexpo operates within the global steel industry as a raw
material to feed steel mills, and therefore the global demand for
the Group's products is directly correlated to global demand for
steel. Demand for steel can affect both the underlying price for
iron ore, as well as the premium paid for high grade iron ore,
whereby steel mills deliberately reduce the productivity of blast
furnaces during times of reduced profitability by purchasing lower
grade iron ore products. Scrap steel prices also have an impact on
iron ore pricing as this material can be substituted for iron ore
in certain types of steelmaking. There is also a trend in the
global steel industry towards the production of Green Steel, which
involves the production of steel without carbon emissions, and the
risks presented to the Ferrexpo business by this factor are covered
in a separate risk on page 33.
Global steel production in 2020 was significantly impacted by
the global COVID-19 pandemic, with a significant decrease in steel
production seen across the globe. The impact of the pandemic on the
steel sector was more severe and longer lasting in Europe and Far
Asia (Japan, Korea and Taiwan), which are all important regional
destinations for iron ore pellets, compared to the steel industry
in China, which recovered to produce above 2019 levels sooner than
other regions. The impact of this shifting dynamic in the industry
resulted in significant inflows of iron ore pellets into China
during the middle of 2020 and a material decrease in the Chinese
pellet premium, which dropped from US$25 per tonne in early January
2020 to less than US$5 per tonne in August 2020. This decrease in
pellet premiums affected the Group's financial performance, with
over 50% of the Group's sales in 2020 going to China. In addition,
the Company faced increased risk around the transport of increased
volumes of products to Asia by oceangoing vessel, compared to the
Group's train shipments to Europe. The global steel industry is
recovering, however, back to 2019 levels, according to data from
the World Steel Association, which shows steel production in China
in December 2020 above the level seen a year earlier. Ferrexpo
remains vigilant, however, to further effects from the global
COVID-19 pandemic and any potential impacts on global steel output
in 2021 as a result.
Responsibility
n/a (Ferrexpo is not large enough to influence global market
dynamics)
Risk appetite
Medium
Link to strategy
3 and 5
Further reading
For further information on the global market for steel demand in
2020, please see the Market Review section on pages 7-8.
Change: increase
Risk mitigation
Ferrexpo is a low cost producer relative to the majority of its
peers, positioned on the lowest quartile of the pellet cost curve,
which is provided in the Market Review section on pages 7 and 8.
Ferrexpo's operating costs are partly correlated with commodity
prices. When the commodities cycle is in a downward phase, and
Ferrexpo typically receives a lower selling price, its cost base in
general also reduces. 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
Hryvnia against the US Dollar can also be influenced by short-term
political factors.
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.
Responsibility
Chief Executive Officer and Chief Marketing Officer
Risk appetite
Medium
Link to strategy
1, 3 and 5
Change Balance
Risk mitigation
Ferrexpo endeavours to achieve the prevailing market price at
all times, and is a low cost producer that aims to be cash flow
positive throughout the commodities cycle. For more information on
its position on the cost curve, please see Operational Review
section on pages 12 to 14. The Group also has the logistics
capability to divert sales to other markets to offset any regional
weakness, as was seen during 2020 when the Group was able to
redirect additional tonnages to Asia to meet increased relative
demand for pellets in China.
3.2 LOWER IRON ORE PRICES
Risk overview
Ferrexpo's iron ore products are priced using the iron ore fines
index, and as such, lower iron ore fines pricing would negatively
impact the Group's ability to generate cash, potentially affecting
shareholder returns, the Group's ability to repay existing debt
facilities and capital investment plans for future production. In
2020, the high grade iron ore fines price (65% Fe), which is the
most applicable index for Ferrexpo's iron ore products, averaged
US$122 per tonne, compared to an average of US$104 per tonne in
2019.
The price for medium grade iron ore fines (62% Fe) as of 1 March
2021 was US$174 per tonne, whereas the analyst consensus, as of
early March 2021, for iron ore fines (62% Fe) pricing in 2021 was
US$131 per tonne and the forward curve for delivery of 62% Fe iron
ore fines material in December 2021 was US$135 per tonne, with
both, therefore, indicating an expected decline in pricing in the
year ahead. For further information on the iron ore market in 2020,
please see the Market Review section on pages 7 to 8.
Responsibility
n/a (Ferrexpo not large enough to influence global iron ore
pricing)
Risk appetite
Medium
Link to strategy
1, 3 and 5
Change Decrease
Risk mitigation
Ferrexpo is a low cost producer relative to the majority of its
peers, positioned on the lower half of the pellet cost curve.
Ferrexpo's operating costs are partly correlated with commodity
prices. When the commodities cycle is in a downward phase, and
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. Ferrexpo regularly reviews options to
hedge the price of its output; however, its current strategy is not
to enter into hedging agreements. Ferrexpo has maintained positive
profit and cash generation throughout the iron ore price cycle.
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. 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).
Responsibility
Chief Executive Officer and Chief Marketing Officer
Risk appetite
Medium
Link to strategy
1, 3 and 5
Change Decrease
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 one of the lowest pellet
conversion costs in the industry, which should ensure that it is
able 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 2020 were approximately US$11
per tonne and, therefore, lower than the pellet premium seen in
2020 in both the Atlantic and China spot markets. Please see the
Market Review section on pages 7-8 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.
Further reading
For further information on the global market for steel demand in
2020, please see the Market Review section on pages 7-8.
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 (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 2020, the C3 freight index
fell to an average of US$15 per tonne, down from US$19 per tonne in
2019, with this decrease coming as a result of the global COVID-19
pandemic and lower global demand for oil as a result. Freight rates
are largely influenced by the price of oil and demand for
oceangoing vessels from bulk commodity producers. As of 1 January
2020, the International Maritime Organization enforced a new 0.5%
global sulphur cap on fuel content in the shipping industry from
the previous 3.5% limit. Subject to supply and demand dynamics,
including steel mill profitability, the introduction of IMO 2020
could have the potential to increase freight costs in future, due
to the installation cost of scrubbers or the higher cost of
compliant fuel, for iron ore suppliers across the industry and
reduce net prices and thus impact profitability.
Responsibility
Chief Marketing Officer and Group Freight Manager
Risk appetite
Medium
Link to strategy
2, 3 and 5
Change Balance
Risk mitigation
Ferrexpo has its own in-house freight and distribution
specialists who procure freight competitively on behalf of the
Group. Ferrexpo's geographic proximity to its European customers is
a competitive advantage compared to other iron ore producers.
4. OPERATING RISKS
4.1 OPERATING RISKS RELATED TO MINING, PROCESSING, PELLETISING
AND LOGISTICS
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. 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 the Company'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
liquidity levels and impacting capital investment(A) levels as well
as its 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.
Responsibility
Chief Executive Officer, Chief Marketing Officer and Chief
Operating Officer
Risk appetite
Medium
Link to strategy
2, 3 and 5
Change Balance
Risk mitigation
The Group aims to continually reinvest its profits into its
business to simultaneously sustain and expand its production and
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 dam. 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 154 barges on the River Danube, 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 300 people. The results
are presented to the Operations Management Committee, the Executive
Committee and the Board.
4.2 OPERATING RISKS RELATED TO HEALTH AND SAFETY
Risk overview
The mining and processing of iron ore is often associated with a
hazardous working environment as it includes the use of explosives
and the operation and repair of large mining machinery, amongst
other things. Failure to provide a safe work environment for the
Group's workforce and failure to ensure the right safety culture
and subsequent safe behaviours can impact the Group's social
licence to operate. Fatalities and lost time injuries negatively
impact the workforce, their families and the communities in which
we operate, and it can result in production stoppages due to
regulatory interventions. The Group had one fatality in 2020 (2019:
zero fatalities) and the Group's lost time injury frequency rate
("LTIFR") was 0.79 (2019: 0.58). Whilst the LTIFR result for 2020
represents an increase on the prior year, it should be noted that
this figure is 22% below the Group's five-year trailing average
LTIFR and is also significantly ahead of a number of the world's
largest iron ore miners, located in the Pilbara region of Western
Australia, which collectively achieved a LTIFR result of 1.6 in the
most recently published data (2019-20), as published by the
government of Western Australia [21] .
COVID-19 has presented the Group with an additional group of
risks in 2020 that have otherwise not been experienced previously.
Ferrexpo has a workforce of nearly 11,000 employees and
contractors, the majority of whom work in close proximity with
other individuals, and transmission of the COVID-19 virus in the
workplace represents a significant risk to the health and wellbeing
of Ferrexpo's workforce.
Responsibility
Chief Executive Officer, Chief Marketing Officer and Chief
Operating Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Change Balance
Risk mitigation
The Group seeks to address the risks around the overall health
and safety of its operations through a number of leading and
lagging indicators. Leading indicators focus on measuring progress
on efforts to reduce the incidence of safety-related events and
these include health and safety training programmes, health and
safety-specific audits of working areas and working practices,
hazard reports and the number of high visibility safety tours by
senior managers. Lagging indicators measure progress made through a
reduction in the number of safety events that occur at the Group's
operations, including the number of fatalities in a reporting
period, the number and frequency of lost time injuries, near miss
events and road traffic accidents. It is the Group's intention to
instil a safety first ethic within its workforce, and as a result
promote a culture of safety reporting incidents, regardless of
whether an injury was incurred. As a result, it is the goal of the
Group's management to increase the volume of reporting of leading
indicators (for example, safety training courses and the number of
emergency drills), as well as increase the number of lagging
indicators, such as near miss events, in order to learn from these
events and avoid any reoccurrences happening. A portion of all
employees' total remuneration, especially the bonus structure, is
also linked to team and individual safety performance. Further
details of the Group's safety performance are provided in the
Responsible Business section of this report; please see pages 16 to
24.
In relation to the specific risks posed by COVID-19, the Group
has taken significant steps to reduce the risk of transmission in
Ferrexpo workplaces, from demobilising up to a third of the Group's
employees to work remotely, through to the provision of training
and materials to raise awareness on the virus for those who cannot
work remotely, as well as enhanced cleaning protocols in Ferrexpo
work areas. Further details of the Group's efforts to stem the risk
of transmission of the COVID-19 virus are detailed on page 6 as
well as an overview on pages 34-35 of the risks posed by COVID-19
and risk mitigations that the Group has taken.
4.3 OPERATING RISKS RELATED 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
costs(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 costs(A) is
local currency, the Ukrainian Hryvnia, and this has historically
directly affected approximately 50% of the Group's total C1 cash
costs(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 2020, the Group's C1 cash costs(A) of production decreased by
13% to US$41.5 per tonne from US$47.8 per tonne. See the Financial
Review section of this report (pages 9 to 12) for a description of
the factors impacting operating costs.
Responsibility
Chief Financial Officer and Chief Operating Officer
Risk appetite
Low
Link to strategy
2 & 5
Change Balance
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 which relate to commodity prices will
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
2021, 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 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 2020 were approximately
US$11 per tonne and therefore lower than both the pellet premium
seen in 2020 in both the Atlantic and China spot markets (please
see the Market Review section on pages 7 to 8 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 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.
5. OPERATING RISKS RELATED TO CLIMATE CHANGE
Risk overview
Climate change poses potential risk to Ferrexpo in both the near
term and long term, through a variety of factors that range from
physical risks of climate change that have the potential to
directly affect operations, market risks related to the transition
towards iron ore products that enable a pathway to a carbon free
future of steel production, financial risks in the form of lenders
preferentially lending to projects and assets that are considered
to be environmentally friendly, and reputational risks related to
stakeholder perceptions of the Group. Physical risks include the
potential scarcity of water for mining operations (dust
suppression) and processing activities, for example the water in
the Group's flotation tanks that is used to remove silica from the
Group's products. Additional risks relating to climate change are
the potential for an increase in the frequency and severity of
storm events that may impact the Group's ability to access sections
of its open pit mines, or the potential to interrupt logistics
networks. Market risks relate to trends that are evident today in
the global steel industry whereby steel producers are targeting
carbon free steel production in the long term (typically by 2050),
in line with targets set by national governments. Such a switch in
steel production would necessitate a move away from the blast
furnace method of steel production, which utilises coal to fuel the
steelmaking process, to the direct reduced iron ("DRI") pathway of
producing steel, which typically utilises either electricity or
natural gas as its source of energy. This change in the global
steel industry will potentially reduce demand for the Company's
main pellet type - the blast furnace pellet, and as a result poses
a risk to pellet premiums paid for blast furnace pellets.
Conversely, this will increase demand for direct reduction ("DR")
pellets that are used in the DRI steelmaking process and will
therefore potentially increase pellet premiums for DR pellets
instead. Reputational risks that relate to climate change are
whereby stakeholders view the Group as having an excessive carbon
footprint, or as engaging in activities that are not sufficiently
beneficial to the environment, and could lead to the Group losing
its social licence to operate, creating difficulties in accessing
sources of external funding, a decrease in the Group's share price
relative to its peers, or limiting the Group's ability to attract
top managers to work for its business.
Responsibility
Ferrexpo Board of Directors and Chief Executive Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Change Increase
Risk mitigation
The Company aims to be proactive and transparent in its
activities, to inform stakeholders of its carbon footprint and to
provide details of the work carried out to reduce the Group's
carbon footprint in the short-, medium- and long-term. Initiatives
in 2020 have included the planning of a 5MW solar power plant, to
be installed at the Group's main operating facility, FPM, as a
pilot plant. The Group has also commenced a project to purchase
electricity generated by low-carbon (nuclear) or carbon-free
(hydroelectric) sources, so as to reduce the Company's Scope 2
emissions footprint, and to simultaneously promote the use of these
power sources locally in Ukraine. Ferrexpo also utilises sunflower
husks as a substitute for natural gas in its pelletiser, which
increased in 2020 to 25% of the total energy consumed in the
Group's pelletiser (2019: 22%). Through improved efficiencies
throughout its operations, and increased biofuel substitution of
natural gas, the Group reduced its Scope 1 footprint per tonne by
8% in 2020. Through purchasing greener forms of electricity, the
Company reduced its Scope 2 carbon footprint per tonne by 21% in
2020. Through a full year of greener energy purchases, further
productivity gains and an expected increase in production, the
Group expects to deliver a further reduction in its overall carbon
footprint on a per tonne basis in 2021.
6. RISKS RELATED TO COVID-19
Risk overview
The global COVID-19 pandemic had a significant impact on the
world in 2020, affecting economies, communities, governments,
businesses and individuals on an unprecedented scale. Examples of
the effect of COVID-19 on a global level include an increase in
mortality rates worldwide, a halt to international travel,
distorted trade patterns, and a significant strain put on both
national governments and health care systems around the world. On a
local level, COVID-19 has isolated communities, reduced the ability
of workers to attend their places of work and for businesses to
function, and has therefore put individuals under increased
physiological, psychological, emotional and financial strain as a
result. The limiting nature of the global pandemic, which has
resulted in the erection of significant barriers to day to day life
in 2020, has both heightened existing risks facing the Group as
well as introduced new risks that the business has not encountered
previously.
Risks posed to the Group as a result of COVID-19 can broadly be
categorised into the effect of COVID-19 on the iron ore market, the
Group's ability to produce and its impact on the health and
wellbeing of its workforce. Please see commentary in this section
around the iron ore market (page 7 to 8) and the Group's operations
(page 12 to 14) for additional information. Examples of specific
risks relating to the health and wellbeing of the Group's workforce
include the health implications of individuals contracting the
COVID-19 virus, and the subsequent risk on the business of their
absence and potential onward transmission to others, the inability
of the Group's workforce to attend their place of work and/or
travel to Ferrexpo offices and the subsequent impact of this on the
Group's ability to produce and distribute its pellets, and a
heightened risk of a deterioration in existing business
relationships as a result of contact with both customers and
providers of finance being limited.
Responsibility
Ferrexpo Board of Directors and Chief Executive Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Change Increase
Risk mitigation
Risk mitigation activities to ensure iron ore pellet production
was not affected by, and continues to be unaffected by, COVID-19
include the measures implemented to protect individuals in the
Group's workforce, as detailed below, in addition to contingency
planning around potential business interruptions, including events
that may affect either the supplies of key consumables or key
aspects of the Group's logistics used to supply customers with
pellets. The Group is confident that the measures undertaken to
insulate operations against the effects of COVID-19 in 2020 were
effective, as shown by the 7% increase in production seen during
the year, and the Group continues to implement these measures as
the pandemic continues into 2021.
In relation to mitigating risks posed by COVID-19 to the iron
ore export market, the Group maintains a global network of
marketing offices and an established logistics network, enabling it
to redirect sales to markets according to global demand. In 2020,
COVID-19 resulted in a significant adjustment of demand towards
China, and the Group reacted by shipping significantly greater
volumes of pellets to China as a result. This was achieved through
an increase in the number of capesize vessels shipped from the
Group's berth at the port of Pivdennyi (formerly Yuzhny) from 28 in
2019 to 47 in 2020. The Group has additional flexibility in its
rail and barge operations to adapt to further movements in global
pellet demand should they arise. Initial indications have shown an
acceleration in pellet buying from steel mills in Europe in the
fourth quarter of 2020, resulting in a normalisation of the pellet
market in this region as of the end of 2020. Global demand for
pellets remains strong, with other geographic regions seeing a
resumption in buying activity in early 2021.
In relation to protecting its workforce and local communities,
the Group has taken extensive measures throughout its business in
2020. Steps taken to protect the Group's workforce include remote
working measures for those that who can conduct their activities
remotely and measures at workplaces for those who are unable to
work remotely, such as social distancing of operating teams,
staggered shift patterns, the distribution of canteen food to
places of work, the provision of sanitiser for handwashing and
COVID-19 specific training and awareness initiatives. The Group
also regularly tests its workforce and conducts contact tracing
activities to limit the potential spread of the COVID-19 virus in
Ferrexpo's places of work. Further details of the efforts made to
protect the Group's workforce are provided on page 6. In addition,
the Group has made extensive efforts to protect the local
communities that surround the Group's operations in Ukraine,
through a dedicated COVID-19 Response Fund, which has approved
funding of US$2.5 million to be used in supporting local hospitals
in acquiring medical equipment and supplies, in addition to a
further US$1 million of available funding approved in early 2021.
Further details of Ferrexpo's efforts to support local communities
during the global pandemic are provided on pages 21 to 22.
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
("IFRS") as adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union , and have also chosen to prepare the
Parent Company financial statements in accordance with Financial
Reporting Standard 101 (Reduced Disclosure Framework). 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 Parent Company 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 Financial Reporting Standard 101 (Reduced
Disclosure Framework) has 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.
In preparing the Group financial statements, International
Accounting Standard 1 requires that the Directors:
-- Properly select and apply accounting policies;
-- Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- Provide additional disclosures when compliance with the
specific requirements in IFRSs is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- Make an assessment of the Group's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Parent
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Parent Company and enable them
to ensure that its financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of
the Group 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 financial statements, prepared in accordance with
applicable accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the subsidiary undertakings included in the
consolidation taken as a whole
b) 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
c) 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 position,
performance, business model and strategy.
This responsibility statement was approved by the Board of
Directors on 16 March 2021 and is signed on its behalf by:
Lucio Genovese
Chair
Jim North
Acting Chief Executive Officer
16 March 2021
INDEPENT 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 2020.
The preliminary statement of annual results for the year ended
31 December 2020 includes the 2020 full year results and the
disclosures required by the Listing rules including:
- Financial Highlights and 2020 Financial Summary;
- Chair's Statement;
- Management commentary included in the CEO's Review, COVID-19, Market Review, Financial Review,
Operations Review, HSEC's Chair Review, 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 Auditor's Association
with Preliminary Announcements made in accordance with the
requirements of the UK Listing Rules".
Status of our audit of the financial statements
Our audit of the annual financial statements of Ferrexpo plc for
the year ended 31 December 2020 is complete and we signed our
auditor's report on 16 March 2021. Our auditor's report is not
modified and contains no emphasis of matter paragraph.
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:
- Fair, balanced and understandable
- Materially consistent with the financial statements and with the contents of the annual report
- 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 2020.
- Considered if for Alternative Performance Measures (APMs) and associated narrative:
- APMs are clearly defined and have been given meaningful labels
- The use and relevance of APMs is explained
- APMs have been reconciled to the most relevant figures in the financial statements
- 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
16 March 2021
Consolidated Income Statement
Year ended Year ended
US$000 Notes 31.12.20 31.12.19
---------------------------------------------- ----- ----------- ----------
Revenue 4 1,700,321 1,506,724
Operating expenses 3/5 (1,018,109) (968,443)
Other operating income 5,432 5,614
Operating foreign exchange gains/(losses) 6 61,023 (46,752)
---------------------------------------------- ----- ----------- ----------
Operating profit 748,667 497,143
---------------------------------------------- ----- ----------- ----------
Share of profit from associates 5,624 4,114
---------------------------------------------- ----- ----------- ----------
Profit before tax and finance 754,291 501,257
---------------------------------------------- ----- ----------- ----------
Net finance expense 7 (11,733) (23,191)
Non-operating foreign exchange gains/(losses) 6 5,302 (18,491)
---------------------------------------------- ----- ----------- ----------
Profit before tax 747,860 459,575
---------------------------------------------- ----- ----------- ----------
Income tax expense 8 (112,568) (56,282)
---------------------------------------------- ----- ----------- ----------
Profit for the year 635,292 403,293
---------------------------------------------- ----- ----------- ----------
Profit attributable to:
Equity shareholders of Ferrexpo plc 635,292 402,370
Non-controlling interests - 923
---------------------------------------------- ----- ----------- ----------
Profit for the year 635,292 403,293
---------------------------------------------- ----- ----------- ----------
Earnings per share:
Basic (US cents) 9 108.1 68.6
Diluted (US cents) 9 107.9 68.4
---------------------------------------------- ----- ----------- ----------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
US$000 Notes 31.12.20 31.12.19
--------------------------------------------------------------------------------------- ----- ---------- ----------
Profit for the year 635,292 403,293
Items that may subsequently be reclassified to profit or loss:
Exchange differences on translating foreign operations (317,674) 266,197
Income tax effect 8 16,278 (20,487)
--------------------------------------------------------------------------------------- ----- ---------- ----------
Net other comprehensive (loss)/income that may be reclassified to profit or loss in
subsequent
periods (301,396) 245,710
--------------------------------------------------------------------------------------- ----- ---------- ----------
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains/(losses) on defined benefit pension liability (1,057) (6,932)
--------------------------------------------------------------------------------------- ----- ---------- ----------
Net other comprehensive income/(loss) not being reclassified to profit or loss in
subsequent
periods (1,057) (6,932)
--------------------------------------------------------------------------------------- ----- ---------- ----------
Other comprehensive (loss)/income for the year, net of tax (302,453) 238,778
--------------------------------------------------------------------------------------- ----- ---------- ----------
Total comprehensive income for the year, net of tax 332,839 642,071
--------------------------------------------------------------------------------------- ----- ---------- ----------
Total comprehensive income attributable to:
Equity shareholders of Ferrexpo plc 332,822 639,722
Non-controlling interests 17 2,349
--------------------------------------------------------------------------------------- ----- ---------- ----------
332,839 642,071
--------------------------------------------------------------------------------------- ----- ---------- ----------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
US$000 Notes 31.12.20 31.12.19
----------------------------------------------------------- ----- ----------- -----------
Assets
Property, plant and equipment 1,004,385 1,044,426
Right-of-use assets 8,313 10,976
Goodwill and other intangible assets 40,734 47,552
Investments in associates 5,873 8,064
Inventories 10 213,685 255,026
Other non-current assets 25,480 24,093
Deferred tax assets 8 30,574 38,608
----------------------------------------------------------- ----- ----------- -----------
Total non-current assets 1,329,044 1,428,745
----------------------------------------------------------- ----- ----------- -----------
Inventories 10 144,605 199,714
Trade and other receivables 152,750 99,864
Prepayments and other current assets 25,884 42,653
Income taxes recoverable and prepaid 8 1,351 184
Other taxes recoverable and prepaid 31,323 37,377
Cash and cash equivalents 11 270,006 131,020
----------------------------------------------------------- ----- ----------- -----------
Total current assets 625,919 510,812
----------------------------------------------------------- ----- ----------- -----------
Total assets 1,954,963 1,939,557
----------------------------------------------------------- ----- ----------- -----------
Equity and liabilities
Issued capital 121,628 121,628
Share premium 185,112 185,112
Other reserves (2,065,896) (1,764,774)
Retained earnings 3,250,534 2,810,588
----------------------------------------------------------- ----- ----------- -----------
Equity attributable to equity shareholders of Ferrexpo plc 1,491,378 1,352,554
----------------------------------------------------------- ----- ----------- -----------
Non-controlling interests 95 78
----------------------------------------------------------- ----- ----------- -----------
Total equity 1,491,473 1,352,632
----------------------------------------------------------- ----- ----------- -----------
Interest-bearing loans and borrowings 3/12 132,129 274,011
Defined benefit pension liability 32,475 33,628
Provision for site restoration 2,846 3,016
Deferred tax liabilities 8 101 140
----------------------------------------------------------- ----- ----------- -----------
Total non-current liabilities 167,551 310,795
----------------------------------------------------------- ----- ----------- -----------
Interest-bearing loans and borrowings 3/12 134,349 138,367
Trade and other payables 43,749 65,627
Accrued and contract liabilities 45,542 39,257
Income taxes payable 8 58,483 21,248
Other taxes payable 13,816 11,631
----------------------------------------------------------- ----- ----------- -----------
Total current liabilities 295,939 276,130
----------------------------------------------------------- ----- ----------- -----------
Total liabilities 463,490 586,925
----------------------------------------------------------- ----- ----------- -----------
Total equity and liabilities 1,954,963 1,939,557
----------------------------------------------------------- ----- ----------- -----------
The financial statements were approved by the Board of Directors
on 16 March 2021.
Lucio Genovese Jim North
Chairman Acting Chief Executive Officer
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
US$000 Notes 31.12.20 31.12.19
--------------------------------------------------------------------------------------- ----- ---------- ----------
Profit before tax 747,860 459,575
Adjustments for:
Depreciation of property, plant and equipment, right-of-use assets and amortisation of
intangible
assets 102,475 82,130
Finance expense 7 9,113 21,267
Finance income 7 (553) (1,436)
Losses on disposal of property, plant and equipment 1,303 417
Cash elements included in losses on disposal of property, plant and equipment (310) (153)
Write-offs 5 192 1,241
Share of profit from associates (5,624) (4,114)
Movement in allowance for doubtful receivables 724 736
Movement in site restoration provision 18 437
Employee benefits 4,779 3,534
Share-based payments 291 1,022
Operating foreign exchange (gains)/losses 6 (61,023) 46,752
Non-operating foreign exchange (gains)/losses 6 (5,302) 18,491
Other adjustments (2,236) (7,307)
--------------------------------------------------------------------------------------- ----- ---------- ----------
Operating cash flow before working capital changes 791,707 622,592
--------------------------------------------------------------------------------------- ----- ---------- ----------
Changes in working capital:
Increase in trade and other receivables (49,538) (23,479)
Decrease/(increase) in inventories 27,034 (37,152)
(Decrease)/increase in trade and other payables (incl. accrued and contract
liabilities) (4,798) 19,590
Decrease in other taxes recoverable and payable (incl. VAT) 3,214 11,371
--------------------------------------------------------------------------------------- ----- ---------- ----------
Cash generated from operating activities 767,619 592,922
--------------------------------------------------------------------------------------- ----- ---------- ----------
Interest paid (21,439) (33,932)
Income tax paid 8 (56,571) (83,730)
Post-employment benefits paid (2,391) (1,884)
--------------------------------------------------------------------------------------- ----- ---------- ----------
Net cash flows from operating activities 687,218 473,376
--------------------------------------------------------------------------------------- ----- ---------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets (205,779) (247,478)
Proceeds from disposal of property, plant and equipment and intangible assets 836 1,165
Interest received 442 1,344
Dividends from associates 4,027 3,519
Advance payment for investment in joint venture (5,000 ) -
Net cash flows used in investing activities (205,474) (241,450)
Cash flows from financing activities
Proceeds from borrowings and finance 12 - 225,000
Repayment of borrowings and finance 12 (144,904) (223,774)
Principal elements of lease payments 12 (3,082) (5,118)
Arrangement fees paid - (131)
Dividends paid to equity shareholders of Ferrexpo plc 9 (195,446) (154,922)
Acquisition of non-controlling interests - (2,189)
--------------------------------------------------------------------------------------- ----- ---------- ----------
Net cash flows used in financing activities (343,432) (161,134)
--------------------------------------------------------------------------------------- ----- ---------- ----------
Net increase in cash and cash equivalents 138,312 70,792
Cash and cash equivalents at the beginning of the year 131,020 62,996
Currency translation differences 674 (2,768)
--------------------------------------------------------------------------------------- ----- ---------- ----------
Cash and cash equivalents at the end of the year 11 270,006 131,020
--------------------------------------------------------------------------------------- ----- ---------- ----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity shareholders of Ferrexpo plc
---------------------------------------------------------
Total
Issued Share Other Retained capital and Non-controlling Total
US$000 capital premium reserves earnings reserves interests Equity
--------------------- -------- ----------- -------------- ----------- --------------- --------------- ---------
At 1 January 2019 121,628 185,112 (2,010,080) 2,568,187 864,847 2,050 866,897
--------------------- -------- ----------- -------------- ----------- --------------- --------------- ---------
Profit for the year - - - 402,370 402,370 923 403,293
Other comprehensive
income/(loss) - - 244,284 (6,932) 237,352 1,426 238,778
--------------------- -------- ----------- -------------- ----------- --------------- --------------- ---------
Total comprehensive
income for the year - - 244,284 395,438 639,722 2,349 642,071
--------------------- -------- ----------- -------------- ----------- --------------- --------------- ---------
Share-based payments - - 1,022 - 1,022 - 1,022
Equity dividends to
shareholders of
Ferrexpo plc - - - (155,087) (155,087) - (155,087)
Effect from increase
of shareholding in
subsidiary - - - 2,050 2,050 (4,321) (2,271)
--------------------- -------- ----------- -------------- ----------- --------------- --------------- ---------
At 31 December 2019 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
--------------------- -------- ----------- -------------- ----------- --------------- --------------- ---------
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 16 March 2021. The financial information for the years
ended 31 December 2020 and 31 December 2019 has been extracted from
the statutory accounts for each year.
The auditors' report on the 2020 statutory accounts was (i)
unqualified, (ii) did not include references to any matters to
which the auditor drew attention by way of emphasis without
qualifying its reports 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 2019 have been
delivered to the Registrar of Companies.
Ferrexpo plc will publish on or around 16 April 2021 its Annual
Report and Accounts for the year ended 31 December 2020 on its
corporate website www.ferrexpo.com. The audited statutory accounts
for the year ended 31 December 2020 will be delivered to the
Registrar of Companies following the Company's annual meeting
convened for Thursday, 27 May 2021.
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%
(2019: 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") and International Financial Reporting Interpretation
Committee ("IFRIC") interpretations as adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and with those parts of 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 16 March 2021. 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 24 to
35. The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Financial
Review on pages 9 to 12.
Going concern
The Group has assessed that, taking into account: i) its
available cash and cash equivalents available at the date of
authorisation of the consolidated financial statements; ii) its
cash flow projections for the period of management's going concern
assessment; and iii) events and conditions beyond the period of
management's going concern assessment, it has sufficient liquidity
to meet its present obligations and cover working capital needs for
the aforementioned period and will remain in compliance with its
financial covenants throughout this period. Therefore, the Group
continues to adopt the going concern basis of accounting for the
preparation of this set of financial statements. The update on the
Group's principal risks including COVID-19 related considerations
is disclosed on pages 24 to 35.
Changes in accounting policies
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 2019
except for the adoption of new standards, interpretations and
amendments to IFRSs effective as of 1 January 2020.
New standards, interpretations and amendments adopted without an
impact on the Group's consolidated financial statements
- Amendments to References to the Conceptual Framework in IFRS
standards introduce a new chapter on measurement, guidance on
reporting financial performance, improved definitions of an asset
and a liability and clarifications in areas such as the roles of
stewardship, prudence and measurement uncertainty in financial
reporting.
- Amendments to IAS 1 and IAS 8: Definition of material
introduce a revised definition of material information. In the new
definition, reference is made to the concepts of obscured
information and reasonable expectation that the information is
going to influence the decisions that the primary users of general
purpose financial statements make on the basis of those financial
statements.
New standards, interpretations and amendments not yet
adopted
The Group has elected not to adopt early any revised and amended
standards or interpretations that are not yet mandatory in the EU.
The standards and interpretations below could have an impact on the
consolidated financial statements of the Group.
Amendments to IAS 1 Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current were issued
in January 2020 and are effective for the financial year beginning
on 1 January 2023 subject to EU endorsement. The amendments clarify
that the classification of liabilities as current or non-current
should be based on the rights, in existence at the end of the
reporting period, to defer settlement by at least twelve months and
not on expectations about whether an entity will exercise these
rights. Furthermore, the amendments clarify that settlement refers
to the transfer to the counterparty of cash, equity instruments,
other assets or services. The Group does not expect a material
impact on its consolidated financial statements from these
amendments.
Amendments to IAS 16 Property, Plant and Equipment were issued
in May 2020 and are effective for the financial year beginning on 1
January 2022 subject to EU endorsement. The amendments prohibit the
deduction from the cost of an item of property, plant and equipment
of any proceeds from selling items produced while bringing that
asset into operation and clarify that these proceeds (and the
corresponding costs of production) are recognised in profit or
loss. The Group does not expect a material impact on its
consolidated financial statements from these amendments.
Amendments to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets were issued in May 2020 and are effective for the
financial year beginning on 1 January 2022 subject to EU
endorsement. The amendments clarify that the cost of fulfilling a
contract comprises the costs that relate directly to the contract.
These can either be incremental costs of fulfilling that contract
or the allocation of other costs that relate directly to fulfilling
contracts. The Group does not expect a material impact on its
consolidated financial statements from these amendments.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
Interest Rate Benchmark Reform - Phase 2 were issued in August 2020
and are effective for the financial year beginning on 1 January
2021. The changes relate to the modification of financial assets,
financial liabilities and lease liabilities, specific hedge
accounting requirements, and corresponding disclosure requirements.
Modifications of financial assets and financial liabilities
required as a direct consequence of the Interbank offered rates
("IBOR") reform and made on an economically equivalent basis are
accounted for by updating the effective interest rate and a similar
practical expedient is proposed for lessee accounting applying IFRS
16. All other modifications are accounted for using the current
IFRS requirements. Additional disclosure requirements are
introduced in order to allow users to understand the nature and
extent of risks arising from the IBOR reform to which the entity is
exposed to and how the entity manages those risks as well as the
entity's progress in transitioning from IBORs to alternative
benchmark rates, and how the entity is managing this transition.
The Group does not expect a material impact on its consolidated
financial statements from these amendments.
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 - lean and weathered ore
Critical judgements
- Note 8 Taxation - tax legislation
- Note 13 Commitments, contingencies and legal dispute - loan
relationship between related parties of the Group
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/(debt).
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 63.
Year ended Year ended
US$000 Notes 31.12.20 31.12.19
------------------------------------------------------------ ----- ---------- ----------
Profit before tax and finance 754,291 501,257
(Gains)/Losses on disposal of property, plant and equipment 1,303 417
Share-based payments 291 1,022
Write-offs 5 192 1,241
Depreciation and amortisation 102,475 82,130
------------------------------------------------------------ ----- ---------- ----------
Underlying EBITDA 858,552 586,067
------------------------------------------------------------ ----- ---------- ----------
Year ended Year ended
US$000 Notes 31.12.20 31.12.19
-------------- ----- ---------- ----------
Revenue 4 1,700,321 1,506,724
Cost of sales 5 (608,641) (581,743)
-------------- ----- ---------- ----------
Gross profit 1,091,680 924,981
-------------- ----- ---------- ----------
Net cash/(debt)
Net cash/(debt) as defined by the Group comprises cash and cash
equivalents less interest-bearing loans and borrowings.
As at As at
US$000 Notes 31.12.20 31.12.19
---------------------------------------------------- ----- --------- ---------
Cash and cash equivalents 11 270,006 131,020
Interest-bearing loans and borrowings - current 12 (134,349) (138,367)
Interest-bearing loans and borrowings - non-current 12 (132,129) (274,011)
---------------------------------------------------- ----- --------- ---------
Net cash/(debt) 3,528 (281,358)
---------------------------------------------------- ----- --------- ---------
The Group made debt repayments net of proceeds of US$148,328
thousand during the year ended 31 December 2020 (2019: US$4,374
thousand). Net cash/(debt) is an Alternative Performance Measure
("APM"). Further information on the APMs used by the Group,
including the definitions, is provided on pages 63 to 65.
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 2020 consisted of the
following:
Year ended Year ended
US$000 31.12.20 31.12.19
--------------------------------------------------------------------- ---------- ----------
Revenue from sales of iron ore pellets and concentrate 1,523,772 1,352,953
Freight revenue related to sales of iron ore pellets and concentrate 125,254 94,617
--------------------------------------------------------------------- ---------- ----------
Total revenue from sales of iron ore pellets and concentrate 1,649,026 1,447,570
--------------------------------------------------------------------- ---------- ----------
Revenue from logistics and bunker business 46,002 54,168
Revenue from other sales and services provided 5,293 4,986
--------------------------------------------------------------------- ---------- ----------
Total revenue 1,700,321 1,506,724
--------------------------------------------------------------------- ---------- ----------
Revenue for the year ended 31 December 2020 includes the effect
from the derecognition of contract liabilities of US$8,572 thousand
(2019: US$4,637 thousand) deferred as revenue in the comparative
year ended 31 December 2019. As at 31 December 2020,
freight-related revenue in the amount of US$8,487 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 31.12.20 31.12.19
---------------------------- ---------- ----------
Central Europe 356,461 529,159
Austria 280,903 331,964
Others 75,558 197,195
---------------------------- ---------- ----------
Western Europe 145,311 183,560
---------------------------- ---------- ----------
Germany 145,311 168,875
Others - 14,685
---------------------------- ---------- ----------
North East Asia 78,786 250,721
---------------------------- ---------- ----------
Japan 78,786 161,186
Others - 89,535
---------------------------- ---------- ----------
China & South East Asia 951,718 412,613
---------------------------- ---------- ----------
China 908,949 347,892
Others 42,769 64,721
---------------------------- ---------- ----------
Turkey, Middle East & India 82,514 62,717
---------------------------- ---------- ----------
Turkey 82,514 62,717
---------------------------- ---------- ----------
North America 34,236 -
---------------------------- ---------- ----------
United States 34,236 -
---------------------------- ---------- ----------
Other - 8,800
---------------------------- ---------- ----------
Total exports 1,649,026 1,447,570
---------------------------- ---------- ----------
The Group markets its products across various regions. The
disclosure of the segmentation reflects how the Group makes its
business decisions and monitors its sales.
During the year ended 31 December 2020, sales made to three
customers accounted for 41% of the revenues from export sales of
ore pellets and concentrate (2019: 40%).
Sales to one customer that individually represented 10% or more
of total sales in either the current or prior year amounted to
US$316,720 thousand (2019: US$331,964 thousand).
Note 5: Operating expenses
Operating expenses for the year ended 31 December 2020 consisted
of the following:
Year ended Year ended
US$000 31.12.20 31.12.19
------------------------------------ ---------- ----------
Cost of sales 608,641 581,743
Selling and distribution expenses 309,276 294,336
General and administrative expenses 61,788 66,036
Other operating expenses 38,404 26,328
------------------------------------- ---------- ----------
Total operating expenses 1,018,109 968,443
------------------------------------- ---------- ----------
Operating expenses include:
Year ended Year ended
US$000 31.12.20 31.12.19
---------------------------------------------------------------------- ---------- ----------
Inventories recognised as an expense upon sale of goods 582,796 551,141
Employee costs (excl. logistics and bunker business) 106,782 101,770
Inventory movements 41,471 (2,673)
Depreciation of property, plant and equipment and right-of-use assets 101,278 81,240
Amortisation of intangible assets 1,197 890
Royalties and levies 34,596 30,506
Costs of logistics and bunker business 39,993 49,587
Audit and non-audit services 1,719 3,229
Community support donations 5,800 5,893
Write-offs 192 1,241
Losses on disposal of property, plant and equipment 1,303 417
----------------------------------------------------------------------- ---------- ----------
Write-offs for the year ended 31 December 2020 primarily
consisted of obsolete inventories and property, plant and equipment
as outlined below:
As at As at
US$000 31.12.20 31.12.19
-------------------------------------------------------- --------- ---------
Write-off/(write-back) of inventories 466 (103)
(Write-back)/write-off of property, plant and equipment (288) 1,271
Write-off of receivables and prepayments 14 73
--------------------------------------------------------- --------- ---------
Total write-offs 192 1,241
--------------------------------------------------------- --------- ---------
Auditor remuneration
Year ended Year ended
US$000 31.12.20 31.12.19
---------------------------------------------------------------------------------------------- ---------- ----------
Audit services
Ferrexpo plc Annual Report 1,356 1,178
Additional fees charged by the previous auditor for the audit of the 2018 Ferrexpo plc Annual
Report - 1,834
Subsidiary entities 213 217
---------------------------------------------------------------------------------------------- ---------- ----------
Total audit services 1,569 3,229
---------------------------------------------------------------------------------------------- ---------- ----------
Audit-related assurance services 150 -
---------------------------------------------------------------------------------------------- ---------- ----------
Total audit and audit-related assurance services 1,719 3,229
---------------------------------------------------------------------------------------------- ---------- ----------
Total auditor remuneration 1,719 3,229
---------------------------------------------------------------------------------------------- ---------- ----------
Auditor remuneration paid is in respect of the audit of the
financial statements of the Group and its subsidiary companies and
for the provision of other services not in connection with the
audit.
Audit services for the comparative year ended 31 December 2019
include US$1,834 thousand relating to audit services provided by
the previous audit firm of the Group for the year ended 31 December
2018.
Note 6: Foreign exchange gains and losses
Foreign exchange gains and losses for the year ended 31 December
2020 consisted of the following:
Year ended Year ended
US$000 31.12.20 31.12.19
---------------------------------------------------- ---------- ----------
Operating foreign exchange gains/(losses)
Revaluation of trade receivables 61,948 (47,229)
Revaluation of trade payables (538) 523
Other (387) (46)
---------------------------------------------------- ---------- ----------
Total operating foreign exchange gains/(losses) 61,023 (46,752)
---------------------------------------------------- ---------- ----------
Non-operating foreign exchange gains/(losses)
Revaluation of interest-bearing loans 3,378 (1,240)
Conversion of cash and cash equivalents 2,506 (4,255)
Other (582) (12,996)
---------------------------------------------------- ---------- ----------
Total non-operating foreign exchange gains/(losses) 5,302 (18,491)
---------------------------------------------------- ---------- ----------
Total foreign exchange gains/(losses) 66,325 (65,243)
---------------------------------------------------- ---------- ----------
The translation differences and foreign exchange gains and
losses are predominantly dependent on the fluctuation of the
exchange rate of the Ukrainian Hryvnia against the US Dollar. The
table below shows the closing and average rates of the most
relevant currencies of the Group compared to the US Dollar.
Average exchange rates Closing exchange rates
------------------------ ------------------------
As at As at Year ended Year ended
Against US$ 31.12.20 31.12.19 31.12.20 31.12.19
------------ ----------- ----------- ----------- -----------
UAH 26.958 25.846 28.275 23.686
EUR 0.877 0.893 0.815 0.893
------------ ----------- ----------- ----------- -----------
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 2020
consisted of the following:
Year ended Year ended
US$000 31.12.20 31.12.19
----------------------------------------- ---------- ----------
Finance expense
Interest expense on loans and borrowings (22,381) (33,589)
Less capitalised borrowing costs 14,871 14,617
Interest on defined benefit plans (3,170) (2,730)
Bank charges (829) (710)
Interest expense on lease liabilities (443) (630)
Other finance costs (334) (1,585)
------------------------------------------ ---------- ----------
Total finance expense (12,286) (24,627)
------------------------------------------ ---------- ----------
Finance income
Interest income 497 1,379
Other finance income 56 57
------------------------------------------ ---------- ----------
Total finance income 553 1,436
------------------------------------------ ---------- ----------
Net finance expense (11,733) (23,191)
------------------------------------------ ---------- ----------
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 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$15,845
thousand as at 31 December 2020) 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 court 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 and, as
of the date of approval of these consolidated financial statements,
the date of the hearing is unknown.
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 have been halted in March 2020 due
to a COVID-19 related quarantine imposed in Ukraine and resumed on
10 February 2021 following a decision of the Cabinet of Ministers
that tax audits in the country 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
2020, neither for the years subject to the aforementioned court
proceedings nor for transactions and years subject to the newly
commenced audits 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 year-end 2020 and 2019, the management of the Group
concluded that it is probable that the Supreme Court of Ukraine
will also rule in favour of the Group's major subsidiary in Ukraine
and that, if any new claims should be 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.
Detached from the cases mentioned above, FPM received on 23 June
2020 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 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 for
disclosure of information in order to allow 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 were neither any actions
nor any new requests received from SBI.
The Ukrainian legislation and regulations on taxation continued
to evolve over the last couple of years, which are however 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 25 and 26 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 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 2020
consisted of the following:
Year ended Year ended
US$000 31.12.20 31.12.19
-------------------------------------------------- ---------- ----------
Current income tax
Current income tax charge 111,160 52,106
Amounts related to previous years (1,203) 10,297
-------------------------------------------------- ---------- ----------
Total current income tax 109,957 62,403
-------------------------------------------------- ---------- ----------
Deferred income tax
Origination and reversal of temporary differences 2,611 (6,121)
-------------------------------------------------- ---------- ----------
Total deferred income tax 2,611 (6,121)
-------------------------------------------------- ---------- ----------
Total income tax expense 112,568 56,282
-------------------------------------------------- ---------- ----------
Tax effects on items recognised in other comprehensive income
consisted of the following for the year ended 31 December 2020:
Year ended Year ended
US$000 31.12.20 31.12.19
----------------------------------------------------------------------------- ---------- ----------
Tax effect of exchange differences arising on translating foreign operations (16,278) 20,487
------------------------------------------------------------------------------ ---------- ----------
Total income tax effects recognised in other comprehensive (loss)/income (16,278) 20,487
------------------------------------------------------------------------------ ---------- ----------
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 15.1%
for the financial year 2020 (2019: 11.3%). 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 2020 is as
follows:
Year ended Year ended
US$000 31.12.20 31.12.19
---------------------------------------------------------------------------------------------- ---------- ----------
Profit before tax 747,860 459,575
Notional tax charge computed at the weighted average statutory tax rate of 15.1% (2019: 11.3%) 112,583 52,072
Derecognition/(recognition) of deferred tax assets(1) 2,139 (10,433)
Credit for Ukrainian fuel excise tax against income tax(2) (1,106) (3,686)
Expenses not deductible for local tax purposes(3) 1,046 2,539
Income exempted for local tax purposes(4) (1,807) (25)
Reassessment of prior year temporary differences(5) - 4,911
Effect from non-recognition of deferred taxes on current year losses(6) 1,345 -
Effect of different tax rates on local profit streams(7) 779 646
Prior year adjustments to current tax(8) (1,203) 10,297
Effect from share of profit from associates(9) (997) (783)
Other (including translation differences) (212) 744
---------------------------------------------------------------------------------------------- ---------- ----------
Total income tax expense 112,568 56,282
---------------------------------------------------------------------------------------------- ---------- ----------
1 The derecognition in 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 allows a reduction in income tax payable for the
amount of excise tax
included in prices of fuel used for mining equipment. This
provision still applied for both financial years and is considered
to be of a recurring
nature.
3 Effect predominantly relates to expenses not deductible in
Ukraine and the United Kingdom, which is expected to be recurring
to a certain extent
as a portion of operating expenses is historically not
deductible for tax purposes according to the enacted local tax
legislation.
4 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
recurring nature.
5 Effective 1 January 2019, the relevant accounting framework
for tax purposes changed from local GAAP to IFRSs resulting in a
reduction of
temporary differences as of 31 December 2018 being of a
non-recurring nature.
6 Effect relates mainly to a subsidiary in Ukraine not becoming
operative yet. 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 is considered to be of a
recurring nature until
this subsidiary becomes operative and profitable.
7 Effect in 2020 and 2019 related 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 Effect in 2020 related to final tax assessments received in
Switzerland. Effect in 2019 related to a retrospective tax
adjustment made for the
financial year 2018 in respect of prices charged by the
Ukrainian subsidiaries to the Group's sales companies in
Switzerland and the United Arab
Emirates and an allowance recognised on the reduction of the
income tax payable for the amount of excise tax in 2018. These
effects are
considered to be of a non-recurring nature.
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 2020 was 15.1% (2019: 12.2%) and was
driven by higher taxable profits of the Group's subsidiaries in
Ukraine as a result of strong prices for iron ore pellets on the
global market and the depreciation of the Ukrainian Hryvnia. The
depreciation against the US Dollar during the financial year 2020
positively impacted the profitability of the Group's local
subsidiaries, whereas the Ukrainian Hryvnia appreciated during the
financial year 2019 with the opposite effect.
The Group expects that its future effective tax rate will be in
a range of 11.0% to 16.0% depending on the aforementioned factors.
As mentioned under critical judgements on page 50, 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. The Group's future effective
tax rate could also be impacted by successful challenges to the
Group's cross-border operations and transactions by key
jurisdictions because of legislative changes or different
interpretations of the legislation and by changes in the statutory
tax rates in any of these jurisdictions. See also the Principal
Risks section on pages 25 and 26 for further information on the
Ukraine country risk.
The net balance of income tax payable changed as follows during
the financial year 2020:
Year ended Year ended
US$000 31.12.20 31.12.19
------------------------------------------------- ---------- ----------
Opening balance (21,064) (20,510)
Charge in the consolidated income statement (109,957) (62,403)
Booked through other comprehensive (loss)/income 16,278 (20,487)
Tax paid 56,571 83,730
Translation differences 1,040 (1,394)
------------------------------------------------- ---------- ----------
Closing balance (57,132) (21,064)
------------------------------------------------- ---------- ----------
The net income tax payable as at 31 December 2020 consisted of
the following:
As at As at
US$000 31.12.20 31.12.19
------------------------------ --------- ---------
Income tax receivable balance 1,351 184
Income tax payable balance (58,483) (21,248)
------------------------------ --------- ---------
Net income tax payable (57,132) (21,064)
------------------------------ --------- ---------
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 2020:
As at As at
US$000 31.12.20 31.12.19
------------------------- --------- ---------
Deferred tax assets 30,574 38,608
Deferred tax liabilities (101) (140)
-------------------------- --------- ---------
Net deferred tax assets 30,473 38,468
-------------------------- --------- ---------
The movement in the deferred income tax balance is as
follows:
Year ended Year ended
US$000 31.12.20 31.12.19
---------------------------------------- ---------- ----------
Opening balance 38,468 27,594
Charge in consolidated income statement (2,611) 6,121
Translation differences (5,384) 4,753
---------------------------------------- ---------- ----------
Closing balance 30,473 38,468
---------------------------------------- ---------- ----------
As at 31 December 2020, the Group had available tax loss carry
forwards in the amount of US$116,076 thousand (2019: US$112,889
thousand) for which no deferred tax assets were recognised.
US$82,100 thousand (2019: US$76,411 thousand) are related to losses
incurred in Ukraine and Austria and those losses do not expire. The
remaining balance totalling US$33,913 thousand (2019: US$36,478
thousand) relates to losses incurred in Hungary, of which US$22,407
thousand (2019: US$23,627 thousand) expire after more than eight
years.
No deferred tax liabilities have been recognised on temporary
differences in the amount of US$1,001,311 thousand (2019:
US$715,834 thousand) arising from undistributed profits from
subsidiaries as no distributions are planned. Other temporary
differences of US$5,489 thousand have not been recognised as of 31
December 2020 (2019: US$660 thousand), of which the vast majority
relates to temporary differences on property, plant and equipment
in Ukraine.
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 2020.
Year ended Year ended
31.12.20 31.12.19
---------------------------------------------------------------------------------- ---------- ----------
Earnings for the year attributable to equity shareholders - per share in US cents
---------------------------------------------------------------------------------- ---------- ----------
Basic 108.1 68.6
Diluted 107.9 68.4
---------------------------------------------------------------------------------- ---------- ----------
Profit for the year attributable to equity shareholders - US$000
---------------------------------------------------------------------------------- ---------- ----------
Basic and diluted earnings 635,292 402,370
---------------------------------------------------------------------------------- ---------- ----------
Weighted average number of shares - thousands
---------------------------------------------------------------------------------- ---------- ----------
Basic number of Ordinary Shares outstanding 587,496 586,715
Effect of dilutive potential Ordinary Shares 1,510 1,568
---------------------------------------------------------------------------------- ---------- ----------
Diluted number of Ordinary Shares outstanding 589,006 588,283
---------------------------------------------------------------------------------- ---------- ----------
Dividends proposed and paid
Prior to the dividend proposed below and taking into account
relevant thin capitalisation rules and dividend-related covenants
for the Group's major bank debt facility, the total available
distributable reserves of Ferrexpo plc is US$317,646 thousand as of
31 December 2020 (2019: US$201,647 thousand).
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 310,315
-------------------------------------------------------------------- ----------
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
------------------------------------------------------------------- ----------
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.
Year ended
US$000 31.12.19
------------------------------------------------------------------- ----------
Dividends proposed
------------------------------------------------------------------- ----------
Special interim dividend for 2019: 6.6 US cents per Ordinary Share 38,736
------------------------------------------------------------------- ----------
Total dividends proposed 38,736
------------------------------------------------------------------- ----------
Year ended
US$000 31.12.19
------------------------------------------------------------------- ----------
Dividends paid during the year
------------------------------------------------------------------- ----------
Interim dividend for 2019: 6.6 US cents per Ordinary Share 38,621
Final dividend for 2018: 6.6 US cents per Ordinary Share 38,621
Special final dividend for 2018: 6.6 US cents per Ordinary Share 38,847
Special interim dividend for 2018: 6.6 US cents per Ordinary Share 38,833
------------------------------------------------------------------- ----------
Total dividends paid during the year 154,922
------------------------------------------------------------------- ----------
Note 10: Inventories
Critical estimates
Lean 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.
The processing of the stockpiled ore was in the past dependent
on the availability of additional processing capabilities. It was
the Group's intention to ramp up the processing of the stockpiled
ore during the financial year 2021. Whilst the additional
processing capacities are fully operational and some volumes of the
stockpiled ore have been already processed in the second half of
the financial year 2020, it was decided to postpone the processing
of the lean ore for another year in order to maximise the financial
benefits in the current high price environment for iron ore
pellets. As a consequence, the entire balance of the stockpiled ore
is classified as non-current whereas at the end of the comparative
year a portion of the balance has been reclassified to current.
As at 31 December 2020, the stockpiled ore valued at cost
totalled US$213,685 thousand (2019: US$257,252 thousand). The
decrease compared to the comparative year is predominantly related
to the devaluation of the Ukrainian Hryvnia reducing the carrying
value as at 31 December 2020. Critical estimates in determining the
net realisable value of lean and weathered ore include: i)
utilisation of the ore over the expected period from 2022 to 2034,
representing an average of 10% of total available processing
capacity, and using an asset-specific WACC based pre-tax discount
rate of 12.6%; and ii) forecasted long-term iron ore prices of
US$98.4 per tonne of 65% Fe fines CFR North China.
The net realisable value of lean and weathered ore is most
sensitive to changes in long-term iron ore prices and delays in the
commencement of utilising the ore in the production process. Two
separate stress tests assuming a further one-year delay and a US$5
per tonne lower forecast long-term iron ore price would result in a
reduction in the net realisable value of US$35,300 thousand and
US$37,900 thousand, respectively.
At 31 December 2020, inventories comprised:
As at As at
US$000 31.12.20 31.12.19
-------------------------------- --------- ---------
Lean and weathered ore - 2,226
Raw materials and consumables 38,286 43,008
Spare parts 76,565 81,782
Finished ore pellets 17,699 59,010
Work in progress 9,679 11,393
Other 2,376 2,295
-------------------------------- --------- ---------
Total inventories - current 144,605 199,714
-------------------------------- --------- ---------
Lean and weathered ore 213,685 255,026
-------------------------------- --------- ---------
Total inventories - non-current 213,685 255,026
-------------------------------- --------- ---------
Total inventories 358,290 454,740
-------------------------------- --------- ---------
Inventories classified as non-current comprise lean and
weathered ore that are, based on the Group's current processing
plans, not planned to be processed within the next year. It is the
Group's intention to process this ore at a later point of time and
it is expected that it will take more than one year to process this
stockpile, depending on the Group's future mining activities,
processing capabilities and anticipated market conditions.
Note 11: Cash and cash equivalents
As at 31 December 2020, cash and cash equivalents comprised:
As at As at
US$000 31.12.20 31.12.19
-------------------------------- --------- ---------
Cash at bank and on hand 270,006 131,020
-------------------------------- --------- ---------
Total cash and cash equivalents 270,006 131,020
-------------------------------- --------- ---------
The Group made debt repayments net of proceeds of US$148,328
thousand during the year ended 31 December 2020 (2019: US$4,374
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$33,058 thousand as at 31 December 2020 (2019: US$28,351
thousand).
Note 13 Commitments, contingencies and legal disputes provides
details on the Group's balance of restricted cash and deposits,
which has been fully provided for during the financial years 2015
and 2016 as not available to the Group.
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 31.12.20 31.12.19
-------------------------------------------------------- --------- ---------
Current
Syndicated bank loans - secured 128,333 133,333
Other bank loans - unsecured 764 1,494
Lease liabilities 5,252 3,540
--------------------------------------------------------- --------- ---------
Total current interest-bearing loans and borrowings 134,349 138,367
--------------------------------------------------------- --------- ---------
Non-current
Syndicated bank loans - secured 128,333 266,667
Other bank loans - unsecured - 764
Lease liabilities 3,796 6,580
--------------------------------------------------------- --------- ---------
Total non-current interest-bearing loans and borrowings 132,129 274,011
--------------------------------------------------------- --------- ---------
Total interest-bearing loans and borrowings 266,478 412,378
--------------------------------------------------------- --------- ---------
The Group has a syndicated revolving pre-export finance
facility, with an outstanding amount of US$256,666 thousand and
US$10,000 thousand undrawn and available as at 31 December 2020. At
the end of the comparative year ended 31 December 2019, the
syndicated revolving pre-export finance facility was fully drawn,
with outstanding amounts of US$400,000 thousand. The facility is
amortised in 12 quarterly instalments, commencing on 7 February
2020 and with final repayment due on 6 November 2022.
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 2020, the Group has uncommitted trade finance
facilities in the amount of US$80,000 thousand (2019: US$40,000
thousand) in addition to the afore-mentioned syndicated revolving
pre-export finance facility. No amounts were drawn under these
facilities as at 31 December 2020 and 31 December 2019,
respectively.
Trade finance facilities are secured against receivable balances
related to these specific trades.
For the revolving syndicated pre-export finance facility,
arrangement fees are presented in prepayments and current assets
and other non-current assets based on the maturity of the
underlying facility and are amortised on a straight-line basis over
the term of the facility.
The table below shows the movements in the interest-bearing
loans and borrowings:
Year ended Year ended
US$000 31.12.20 31.12.19
--------------------------------------------------------- ---------- ----------
Opening balance of interest-bearing loans and borrowings 412,378 401,858
---------------------------------------------------------- ---------- ----------
Cash movements
Repayments of Eurobond issued - (173,181)
Proceeds from syndicated bank loans - secured - 225,000
Repayments of syndicated bank loans - secured (143,333) (20,000)
Repayments of other bank loans - secured - (9,560)
Repayments of other bank loans - unsecured (1,570) (1,717)
Principal and interest elements of lease payments (3,425) (5,600)
Change of trade finance facilities, net - (19,316)
---------------------------------------------------------- ---------- ----------
Total cash movements (148,328) (4,374)
---------------------------------------------------------- ---------- ----------
Non-cash movements
Amortisation of prepaid arrangement fees 39 1,462
First-time adoption IFRS 16 - 7,701
Additions to lease liabilities 2,589 5,297
Others (incl. translation differences) (200) 434
---------------------------------------------------------- ---------- ----------
Total non-cash movements 2,428 14,894
---------------------------------------------------------- ---------- ----------
Closing balance of interest-bearing loans and borrowings 266,478 412,378
---------------------------------------------------------- ---------- ----------
Note 13: Commitments, contingencies and legal disputes
Commitments
Commitments as at 31 December 2020 consisted of the
following:
Year ended Year ended
US$000 31.12.20 31.12.19
----------------------------------------------------------------------------- ---------- ----------
Total commitments for the lease of mining land (out of the scope of IFRS 16) 30,874 29,910
Total future contingent rental payments (IFRS 16) 16,217 15,068
Total capital commitments on purchase of property, plant and equipment 57,526 116,509
----------------------------------------------------------------------------- ---------- ----------
Critical judgements
Loan relationship between related parties of the Group
As disclosed in Note 14 Related party disclosures, the Board,
acting through the Committee of Independent Directors (the "CID"),
has been conducting a review into its sponsorship arrangements with
FC Vorskla. Following careful consideration of the information
received from FC Vorskla, and the work of the CID's third party
advisers, the CID has now concluded its enquiries. As detailed in
the Group's 2020 half-year report, the CID has received written
confirmations from FC Vorskla and Kostyantin Zhevago, who also
controls FC Vorskla, confirming the use of the funds under a loan
made by a FC Vorskla entity to Collaton Limited, a related party of
the Group, in connection with the construction and renovation of
certain FC Vorskla stadiums and training grounds in Ukraine. The
CID had also been informed that it was intended that the loan would
be fully repaid using the proceeds of a sale and leaseback of
certain capital projects of FC Vorskla in Ukraine. The CID has
since been informed that it is possible that the sale and leaseback
may not occur in the near term, given the ongoing COVID-19 pandemic
and general market conditions in Ukraine. Therefore, additional
arrangements have now been put in place by Kostyantin Zhevago and
his associated entities for the full repayment of the loan to FC
Vorskla by 31 July 2022. In the event that any of the payments made
by the Group to FC Vorskla or the loan provided by FC Vorskla to
Collaton Limited were not fully used for the benefit of the
football club, or there was any non-compliance with legal,
regulatory or other requirements, liabilities (including fines and
penalties) may accrue to the Group. At the current time, the
existence, timing or quantum of potential future liabilities, if
any, cannot be determined and measured reliably and, as a
consequence, no associated liabilities have been recognised in
relation to these matters in the consolidated statement of
financial position as of 31 December 2020. See Note 14 Related
party disclosures for further information.
Other contingencies
If any of the critical judgements outlined in Note 5 Operating
expenses and/or Note 14 Related party disclosures in the Annual
Report 2019 and/or the conclusions of the Independent Review
Committee in terms of the Independent Review into the Group's
relationship with Blooming Land and its sub-funds, a Charity, are
incorrect, in whole or in part, including as a result of
information not currently known to the Group, or new information
becomes available, which enables the Group to form conclusions,
which were not or could not be reached by the IRC, liabilities
(including fines and penalties) may accrue to the Group. No new
information has been received by the Group in 2020 and to the date
of the approval of these consolidated financial statements. At the
current time, the existence, timing and quantum of potential future
liability, if any, including fines, penalties or damages, which
could be material or other consequences arising from the
Independent Review cannot be determined and measured reliably and,
as a consequence, no associated liabilities have been recognised in
relation to these matters in the consolidated statement of
financial position as of 31 December 2020.
Legal
In the ordinary course of business, the Group is subject to
legal actions and complaints. Management believes that the ultimate
liability, if any, arising from such actions or complaints will not
have a material adverse effect on the financial condition or the
results of future operations of the Group.
There is a risk that the independence of the judicial system and
its immunity from economic and political influences in Ukraine is
not given, so that the Ukrainian legislation might be
inconsistently applied to resolve the same or similar disputes. See
also the Principal Risks section on pages 25 and 26 for further
information on the Ukraine country risk.
Deposit Guarantee Fund and liquidator of Bank F&C
The Group's former transactional bank in Ukraine, Bank F&C
("BFC"), is still going through the liquidation process after
having been declared insolvent by the National Bank of Ukraine and
put under temporary administration on 18 September 2015. The Group,
through its major subsidiaries in Ukraine, is engaged in various
court proceedings with the aim to maximise its recovery in the
liquidation process of BFC as disclosed below.
Following the commencement of the liquidation process of BFC and
in accordance with the applicable local legislation, PJSC Ferrexpo
Poltava Mining ("FPM"), LLC Ferrexpo Yeristovo Mining ("FYM") and
LLC Ferrexpo Belanovo Mining ("FBM"), collectively referred to as
"Ukrainian subsidiaries", submitted on 21 January 2016 their claims
for cash and deposit balances held with BFC on the date of
introduction of temporary administration totalling UAH4,262 million
(US$150,736 thousand as of 31 December 2020).
On 22 April 2016, the liquidator of BFC issued certificates
recognising UAH540 million (US$19,098 thousand as of 31 December
2020) of these claims and recognised these claims in the ninth
rank. The aforementioned Ukrainian subsidiaries are still involved
in legal proceedings in respect of the under-recognition of the
claims amounting to UAH3,722 million (US$131,637 thousand as of 31
December 2020) and the ranking of the claims in the liquidation
process.
The court proceedings commenced in October 2016 and, following
various hearings during the financial year 2017, the relevant court
instance dismissed in October 2017 FPM's claim in full. FPM filed
an appeal in November 2017. In July 2018, the court ruled in favour
of FPM and the counterparty subsequently filed its cassation appeal
against this decision. On 11 December 2018, the Supreme Court of
Ukraine upheld the cassation appeal and the case was directed for
new consideration to the Northern Commercial Court of Appeal. On 19
June 2019, the Northern Commercial Court of Appeal satisfied the
claim of FPM and the opposing party filed a cassation appeal. On 31
October 2019, the Supreme Court cancelled the decision of the
Northern Commercial Court of Appeal and directed the case to this
court instance for new consideration. The date of the hearing by
the Northern Commercial Court of Appeal is scheduled for 22 April
2021.
FYM's claim on the same matter was dismissed by the Kyiv
Commercial Court on 6 February 2019 and FYM filed its appeal
against this decision on 28 February 2019. On 20 May 2019, the
Northern Commercial Court of Appeal dismissed the appellate claim
of FYM in full and FYM filed its cassation claim on 18 June 2019.
On 20 August 2019, the Supreme Court upheld the appeal of FYM and
directed the case to the court of first instance for new
consideration. On 22 September 2020, the Kyiv Commercial Court
satisfied the claim made by FYM in full. The counterparty filed its
appeal on 9 November 2020 and the hearing by the Northern
Commercial Court of Appeal on 16 February 2021 dismissed the claim
of the opposing party and satisfied FYM's claim in full.
The outcomes of the aforementioned legal proceedings will not
have an adverse impact on the Group's financial result in future
periods as a full allowance was recorded for the claimed amounts
during the financial year 2015.
In relation to the aforementioned insolvency of BFC, an
investigating judge of the Pecherskyi District Court of Kyiv City
granted in November 2019 an order to arrest (freeze) certain assets
in connection with the investigation involving Kostyantin Zhevago
and BFC (the "Order"). The assets subject to the Order include
50.3% of Ferrexpo AG's ("FAG") shareholding in FPM. FAG filed an
appeal against the order and the Kyiv Court of Appeal satisfied on
2 June 2020 this appeal and cancelled the arrest of FAG's share in
FPM.
On 17 June 2020, FPM received an official notification that an
investigating judge of the Pecherskyi District Court of Kyiv City
granted again an order to arrest 50.3% of FAG's shares in FPM and
FAG filed on 22 June 2020 an appeal against this order. On 5
October 2020, the full text of the decision of the Kyiv Court of
Appeal was announced, which dismissed FAG's appeal. On 10 November
2020, FAG filed a claim to the Pecherskyi District Court of Kyiv
City to cancel this arrest and a hearing by the Pecherskyi District
Court of Kyiv City took place on 24 November 2020. On 30 November
2020, the full text of the decision of the Pecherskyi District
Court of Kyiv City was announced, stating that the court cancelled
the arrest. The arrest order itself did not affect ownership of the
shares in FPM, but did prohibit their transfer, and has had no
impact on the operations of the Group.
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 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 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 to this claim.
In February 2021 after the first hearing of the Kyiv Commercial
Court on this case, FAG became aware that three new claims have
been filed by other three 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 next hearing of the Kyiv
Commercial Court is scheduled for 25 March 2021.
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.
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% (2019: 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 31.12.20 Year ended 31.12.19
------------------------------ ------------------------------
Entities Entities
under Other under Other
common Associated related common Associated related
US$000 control companies parties control companies parties
---------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Other sales (a) 323 - 7 833 - 14
---------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Total related party transactions within revenue 323 - 7 833 - 14
---------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Materials (b) 6,299 - - 7,894 - -
Spare parts and consumables (c) 3,063 - - 4,537 - -
Other expenses (d) 524 - - 19 - -
---------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Total related party transactions within cost of
sales 9,886 - - 12,450 - -
---------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Selling and distribution expenses (e) 4,552 19,073 - 10,824 18,477 -
General and administration expenses (f) 1,747 - 482 1,650 - 393
Finance expense 25 - - 19 - -
---------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Total related party transactions within expenses 16,210 19,073 482 24,943 18,477 393
---------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Other income (g) 21 - - 319 - -
---------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Total related party transactions 16,554 19,073 489 26,095 18,477 407
---------------------------------------------------- -------- ---------- -------- -------- ---------- --------
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 diesel to DVD Trans during the comparative year ended
31 December 2019 US$322 thousand. The company ceased to be a
related
party in September 2018; in accordance with the Listing Rules,
all transactions with DVD Trans within one year from cessation were
still
considered as related party transactions and disclosed as such;
and
a Sales of scrap metal to OJSC Uzhgorodsky Turbogas totalling
US$157 thousand (2019: US$239 thousand).
b Purchases of compressed air, oxygen and scrap metal from
Kislorod PCC for US$2,060 thousand (2019: US$3,645 thousand);
and
b Purchases of cast iron balls from OJSC Uzhgorodsky Turbogas
for US$4,191 thousand (2019: US$4,194 thousand).
c Purchases of spare parts from Holding company AvtoKraz, OJSC
in the amount of US$446 thousand (2019: US$18 thousand);
c Purchases of spare parts from CJSC Kyiv Shipbuilding and Ship
Repair Plant ("KSRSSZ") in the amount of US$656 thousand (2019:
US$963
thousand);
c Purchases of spare parts from OJSC Uzhgorodsky Turbogas in the
amount of US$675 thousand (2019: US$436 thousand);
c Purchases of spare parts from Valsa GTV of US$878 thousand
(2019: US$1,165 thousand); and
c Purchases of spare parts from OJSC Berdichev Machine-Building
Plant Progress of US$353 thousand (2019: US$1,931 thousand).
d Insurance premiums of US$524 thousand (2019: US$19 thousand)
paid to ASK Omega for insurance cover in respect of mining
equipment and
machinery;
e Purchases of advertisement, marketing and general public
relations services from FC Vorskla of US$4,552 thousand (2019:
US$10,824
thousand). See page 61 in respect of a loan relationship between
FC Vorskla and another related party.
f Insurance premiums of US$1,365 thousand (2019: US$1,156
thousand) paid to ASK Omega for workmen's insurance and other
insurances; and
f Purchase of marketing services from TV & Radio Company of
US$237 thousand (2019: US$296 thousand).
g Other income is related to payments of US$21 thousand received
from ASK Omega in respect of claims made under insurance policies
in place
(2019: US$319 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$19,073
thousand (2019: US$18,477 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$471
thousand (2019: US$362 thousand) provided by Kuoni Attorneys at Law
Ltd., which
is controlled by a former member of the Board of Directors of
Ferrexpo plc who resigned in November 2016, but still acts as a
member of the
Board of Directors of one of the subsidiaries of the Group and
also received Directors' fees of US$100 thousand (2019: 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 31.12.20 Year ended 31.12.19
------------------------------ ------------------------------
Entities Entities
under Other under Other
common Associated related common Associated related
US$000 control companies parties control companies parties
------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Purchases in the ordinary course of business 2,247 - - 8,935 - -
------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Total purchases of property, plant and equipment 2,247 - - 8,935 - -
------------------------------------------------- -------- ---------- -------- -------- ---------- --------
During the year ended 31 December 2020, the Group purchased
major spare parts and equipment from OJSC Berdichev
Machine-Building Plant Progress totalling US$1,719 thousand (2019:
US$6,910 thousand) in respect of its regular sustaining capital
expenditure programme and construction supervision services in
respect of the construction of the concentrate stockyard. The Group
also procured equipment from CJSC Kyiv Shipbuilding and Ship Repair
Plant ("KSRSSZ") totalling US$510 thousand (2019: US$816 thousand)
for several ongoing major projects, including the construction of
the concentrate stockyard, the upgrade of beneficiation sections
and the refurbishment of the pellet loading area.
During the comparative year ended 31 December 2019, the Group
further procured services relating to the top soil removal and
relocation of waste material and gravel in the amount of US$861
thousand from DVD Trans. The company ceased to be a related party
in September 2018; in accordance with the Listing Rules, all
transactions with DVD Trans within one year from the cessation were
still considered as related party transactions and disclosed as
such.
The FPM Charity Fund owns 75% of the Sport & Recreation
Centre ("SRC") in Horishni Plavni and made contributions totalling
US$115 thousand during the year ended 31 December 2020 (2019:
US$129 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 31.12.20 As at 31.12.19
------------------------------ ------------------------------
Entities Entities
under Other under Other
common Associated related common Associated related
US$000 control companies parties control companies parties
-------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Prepayments for property, plant and equipment (g) 133 - - 1,093 - -
-------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Total non-current assets 133 - - 1,093 - -
-------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Trade and other receivables (h) 96 4,473 1 104 2,472 2
Prepayments and other current assets (i) 1,390 - - 1,662 - -
-------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Total current assets 1,486 4,473 1 1,766 2,472 2
-------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Trade and other payables (j) 462 2 86 1,001 898 -
Accrued and contract liabilities 71 - - - -
-------------------------------------------------- -------- ---------- -------- -------- ---------- --------
Total current liabilities 533 2 86 1,001 898 1
-------------------------------------------------- -------- ---------- -------- -------- ---------- --------
A description of the balances over US$200 thousand in the
current or comparative year is given below.
Entities under common control
g At the end of the comparative year ended 31 December 2019,
prepayments for property plant and equipment included prepayments
totalling
US$1,052 thousand to OJSC Berdichev Machine-Building Plant
Progress. No such prepayments made as at 31 December 2020.
i At the end of the comparative year ended 31 December 2019,
prepayments and other current assets included prepayments totalling
US$921
thousand made to FC Vorskla for advertisement, marketing and
general public relations services. No such prepayments made as
at
31 December 2020.
i Prepayments and other current assets totalling US$1,053
thousand related to insurance premiums from ASK Omega (2019: US$605
thousand).
i Prepayments and other current assets totalling US$279 thousand
related to spare parts from OJSC Berdichev Machine-Building Plant
Progress
(2019: US$72 thousand).
j Trade and other payables included US$195 thousand (2019:
US$246 thousand) related to the purchase of compressed air, oxygen
and scrap
metal from Kislorod PCC and US$191 thousand (2019: US$418
thousand) related to the purchase of spare parts from OJSC
Berdichev Machine-
Building Plant Progress.
Associated companies
h Trade and other receivables included US$4,473 thousand (2019:
US$2,472 thousand) related to dividends declared by TIS Ruda
LLC.
j Trade and other payables included US$2 thousand (2019: US$898
thousand) related to purchases of logistics services from TIS Ruda
LLC.
Loan relationship between related parties of the Group
As disclosed in the 2019 Annual Report & Accounts and 2020
Interim Results, the Board acting through the Committee of
Independent Directors (the "CID") has been conducting a review in
connection with the sponsorship payments the Group has previously
made to FC Vorskla following the identification of a loan made by
FC Vorskla to Collaton Limited, a related party of the Group. Based
on unaudited management accounts of FC Vorskla Cyprus Limited for
the financial year ended 31 December 2019, the loan to Collaton
Limited was US$16,978 thousand. FC Vorskla is considered to be a
related party of the Group as Kostyantin Zhevago controls FC
Vorskla. As the loan does not involve any of the Group's
subsidiaries, the loan is not a transaction between the Group and a
related party and therefore does not fall under Chapter 11 of the
Listing Rules. The CID has now concluded its review and
arrangements have been made for the loan to Collaton Limited to be
repaid in full. See also Note 13 Commitments, contingencies and
legal disputes.
Sponsorship payments have in the past been made by Ferrexpo
Middle East FZE to two entities: FC Vorskla Cyprus Limited, a
company incorporated in the Republic of Cyprus, and Football Club
Vorskla LLC, a company incorporated in Ukraine (together, "FC
Vorskla"). Following the identification of the above mentioned loan
in January 2020, no further payments have been made to FC Vorskla
Cyprus Limited. The Group's sponsorship payments to Football Club
Vorskla LLC, based in Ukraine, for advertisement, marketing and
general public relation services have continued during the
financial year 2020 and totalled US$4,552 thousand (2019: US$10,824
thousand, in aggregate for FC Vorskla Cyprus Limited and Football
Club Vorskla LLC). These payments made to FC Vorskla are considered
to be in the ordinary course of business. The current sponsorship
agreement with Football Club Vorskla LLC, as agreed in the first
quarter of the financial year 2021, includes enhanced reporting
requirements by the football club to the Group and additional
provisions around the use of sponsorship funds.
Note 15: Events after the reporting period
No material adjusting or non-adjusting events have occurred
subsequent to the year end other than the proposed dividend
disclosed in Note 9 Earnings per share and dividends paid and
proposed.
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$000 Notes 31.12.20 31.12.19
----------------------------------------------- ----- ---------- ----------
C1 cash costs 466,013 502,887
----------------------------------------------- ----- ---------- ----------
Non-C1 cost components 116,783 48,254
----------------------------------------------- ----- ---------- ----------
Inventories recognised as an expense upon sale
of goods 5 582,796 551,141
----------------------------------------------- ----- ---------- ----------
Own ore produced (tonnes) 11,217,926 10,518,954
C1 cash cost per tonne (US$) 41.5 47.8
----------------------------------------------- ----- ---------- ----------
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 31.12.20 31.12.19
---------------------------------------------------- ----- ---------- ----------
Underlying EBITDA 858,552 586,067
---------------------------------------------------- ----- ---------- ----------
Losses on disposal of property, plant and equipment 5 (1,303) (417)
Share-based payments (291) (1,022)
Write-offs 5 (192) (1,241)
Depreciation and amortisation (102,475) (82,130)
---------------------------------------------------- ----- ---------- ----------
Profit before tax and finance 754,291 501,257
---------------------------------------------------- ----- ---------- ----------
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
31.12.20 31.12.19
---------------------------------------------------------- ---------- ----------
Earnings for the year attributable to equity shareholders
- per share in US cents
Basic 108.1 68.6
Diluted 107.9 68.4
---------------------------------------------------------- ---------- ----------
Net cash/(debt) to underlying EBITDA
Definition: Net cash/(debt) divided by the underlying EBITDA
(for the last 12 months):
As at As at
31.12.20 31.12.19
Net cash/(debt) (US$000) 3,528 (281,358)
Underlying EBITDA (US$000) 858,552 586,067
-------------------------------------- --------- ---------
Net cash/(debt) to underlying EBITDA N/A 0.48x
-------------------------------------- --------- ---------
Rationale for adjustment: The ratio is a measurement of the
underlying EBITDA Group's leverage, calculated as a company's
interest-bearing liabilities minus cash or cash equivalents,
divided by its underlying EBITDA.
Reconciliation to net cash/(debt):
As at As at
US$000 Notes 31.12.20 31.12.19
Cash and cash equivalents 11 270,006 131,020
Interest-bearing loans and borrowings - current 12 (134,349) (138,367)
Interest-bearing loans and borrowings - non-current 12 (132,129) (274,011)
---------------------------------------------------- ----- --------- ---------
Net cash/(debt) 3,528 (281,358)
---------------------------------------------------- ----- --------- ---------
For a reconciliation of underlying EBITDA to profit before tax
and finance see page 63.
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 31.12.20 31.12.19
Purchase of property, plant and equipment and
intangible assets
(net cash flows used in investing activities) 205,779 247,478
------------------------------------------------ --------- ---------
Total liquidity
Definition: Sum of cash and cash equivalents and available
committed facilities and uncommitted facilities. Committed
facilities 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 31.12.20 31.12.19
-------------------------------- ---------- ----------
Cash and cash equivalents 270,006 131,020
Available committed facilities 10,000 -
Uncommitted facilities 80,000 40,000
--------------------------------- ---------- ----------
Total liquidity 360,006 171,020
--------------------------------- ---------- ----------
[1] Latest available period: 12 months to June 2020. http://www.dmp.wa.gov.au/Documents/Safety/MSH_Stats_Reports_SafetyPerfWA_2019-20.pdf
[2] Carrara, S., Alves Dias, P., Plazzotta, B. and Pavel, C.,
Raw materials demand for wind and solar PV technologies in the
transition towards a decarbonised energy system, EUR 30095 EN,
Publications Office of the European Union, Luxembourg, 2020, ISBN
978-92-76-16225-4 (online), doi:10.2760/160859 (online),
JRC119941.
[3] S&P Platts.
[4] Source: IMF World Economic Outlook Report
[5] Source: CRU.
[6] S&P Platts.
[7] Management estimates.
[8] Source: Baltic Exchange
[9] Source: Baltic Exchange
[10] World Steel Association.
[11] Management estimates.
[12] Source: www.statista.com/
[13] For further information on MSCI ESG Ratings please see www.ferrexpo.com/disclaimer
[14] Latest available period: 12 months to June 2020. http://www.dmp.wa.gov.au/Documents/Safety/MSH_Stats_Reports_SafetyPerfWA_2019-20.pdf
[15] Note Ferrexpo's reported on the basis of carbon-equivalent
emissions, and include the impact of other greenhouse gases (CH4
and N2O).
[16] Source: Source: https://www.statista.com/
[17] Source: CRU.
[18] Source: CRU.
[19] https://www.transparency.org/en/countries/ukraine#
[20] https://www.transparency.org/en/cpi/2015/results/ukr
[21] Latest available period: 12 months to June 2020. http://www.dmp.wa.gov.au/Documents/Safety/MSH_Stats_Reports_SafetyPerfWA_2019-20.pdf
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