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ANNUAL
REPORT
A F A R A K
G R O U P
2015
A vertically-integrated producer of
speciality alloys, Afarak is a global
organisation with operations in South
Africa, Turkey and Germany. Afarak
is listed on the NSDAQ OMX Helsinki
Stock Exchange and the London
Stock Exchange.
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CONTENTS
STRATEGIC REVIEW
GROUP HIGHLIGHTS
CEO REVIEW
BUSINESS MODEL
OUR PRODUCTS
OUR CLIENTS
OUR STRATEGY
2015 FOCUS
YEAR IN REVIEW
THE ECONOMIC ENVIRONMENT
OPERATIONAL REVIEW
FINANCIAL REVIEW
BUSINESS SEGMENTS
RISK STATEMENT
COMMUNITY DEVELOPMENT
RESOURCE STATEMENTS
GOVERNANCE REVIEW
CHAIRMAN’S INTRODUCTION
THE BOARD OF DIRECTORS
OUR PEOPLE
THE BOARD
EXECUTIVE MANAGEMENT TEAM
CORPORATE MANAGEMENT
GOVERNANCE STRUCTURE
THE BOARD OF 2015
BOARD COMMITTEES
CORPORATE GOVERNANCE STATEMENT
INTERNAL CONTROL
INSIDER ADMINISTRATION
RESOLUTIONS OF AGM
REMUNERATION REPORT
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FINANCIAL STATEMENTS
KEY FIGURES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT AND
STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
CONSOLIDATED STATEMENT OF CASH
FLOWS
CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
1. NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
1.1 COMPANY INFORMATION
1.2 ACCOUNTING PRINCIPLES
1.3 BUSINESS COMBINATIONS AND
ACQUISTION OF NON-CONTROLLING
INTEREST
1.4 IMPAIRMENT TESTING
1.5 OPERATING SEGMENTS
1.6 NOTES TO THE INCOME STATEMENT
1.7 NOTES TO THE STATEMENT OF FINANCIAL
POSITION
1.8 RELATED PARTY DISCLOSURES
1.9 COMMITMENTS AND CONTINGENT
LIABILITIES
1.10 EVENTS AFTER THE REPORTING PERIOD
PARENT COMPANY’S FINANCIAL
STATEMENTS (FAS)
INCOME STATEMENT (FAS)
BALANCE SHEET (FAS)
STATEMENT OF CASH FLOWS (FAS)
2. NOTES TO THE FINANCIAL STATEMENTS OF
THE PARENT COMPANY (FAS)
2.1 ACCOUNTING POLICIES
2.2 NOTES TO THE INCOME STATEMENT
2.3 NOTES TO ASSETS
2.4 NOTES TO EQUITY AND LIABILITIES
2.5 PLEDGES AND CONTINGENT LIABILITIES
2.6 OTHER NOTES
SIGNATURES TO THE BOARD OF DIRECTORS
REPORT AND THE FINANCIAL STATEMENTS
AUDITOR’S REPORT
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STRATEGIC
REVIEW
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2015 GROUP
HIGHLIGHTS
Strong turnaround in performance & profitability
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CEO
REVIEW
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Dr Alistair Ruiters
CEO
We Delivered.
2015 was a transformational year for Afarak.
Against a difficult external environment, Afarak
delivered a turnaround with significant operational
and financial improvements. As a matter of fact,
2015 has been Afarak’s strongest year.
Our efforts to focus on specialized products and
our ability to offer unique speciality alloys to
each and every customer has provided us with
added resilience in the face of adverse market
conditions. Our reputation in this niche sector
has allowed us to conclude additional long-term
sale agreements and to build deeper relationships
with our clients. In essence, it helped us protect
our margins. It confirms Afarak’s vision of
investing in research & development. In a market
characterised by susceptibility to external factors,
it is the speciality products that make us resilient
to adverse market conditions.
Afarak has assembled an able team of
professionals who were capable of transforming
the business. Today, we are also pioneering
logistics and delivery services to our clients apart
from our bespoke speciality alloys.
Delivering on commitments --------------------------------
This vision has allowed us to register a strong
financial performance too. We delivered on
our commitment to create shareholder value
by delivering high profitability and long-term,
sustainable growth remains at the heart of the
Group’s operations. The Group’s continued focus
on its core business and the production of special
grade material resulted in an improvement of
social responsibility. Looking ahead, we want to
its operative cash flow and profitability. In fact,
continue engaging with all stakeholders including
Afarak’s EBITDA doubled when compared to 2014
our valued shareholders. Our commitment
as EBITDA improved both in the Speciality Alloys
to continue creating value throughout all our
segment and the Ferro Alloys segment.
operations remains central to our business
strategy and vision. We plan to do so through mix
Resumption of mining activities at the Turkish
of investments, corporate social responsibility
mines of Tavas and Kavak and at the South
programs and other projects.
African mine of Mecklenburg during 2015
enabled the Group to increase production in
both segments. Furthermore, the introduction of
Looking ahead -----------------------------------
The economic conditions remain subdued. A weaker
bulk sample mining at Vlakpoort in the second
than expected economic recovery together with
quarter contributed positively to the increase in
China’s slowing economy will continue to present
production volumes.
a very challenging scenario. However, we are ever
more determined to continue delivering on our
As part of its growth strategy, the Group proudly
commitments. Our results for 2015 encourage us
announced the completion of the shaking
to continue moving forward with our strategy. We
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table plant at the FerroAlloys mine of Stellite in
will continue to build on our already significant
February 2016. The shaking table technology
operational investments whilst we will continue
will increase the mine’s total plant mass yield
pursuing our drive towards an efficient and effective
significantly, leading to a decrease in the
organization that creates value to all its stakeholders.
operating cost per ton. In 2015, the Speciality
Alloys Turkish operation TMS invested in the new
plant at Tavas and a fines tailing processing plant
Thank you -----------------------------------
On behalf of my executive management team, I
at Kavak, increasing annual mining volume by
would like to thank all our people and stakeholders
15,600 tonnes following the commissioning of
for the past year. Your support has been essential
these plants. New dust exhaustion was installed at
in this transformational process. Our employees
EWW, the smelting operation located in Germany
have continued to prove themselves as the
and a key component of Afarak’s integrated
backbone of this agile and robust organization. Our
Speciality Alloys business. The commissioning
clients have been partners in this internal process
by the Mogale Alloys plant in South Africa of the
and continue to believe in Afarak’s unwavering
refining and granulation plant in December 2014
commitment to quality. Also, I would like to thank
enabled the Group to increase annual processing
the communities that host us.
levels in the FerroAlloys segment allowing the
Group to enter into a new niche market and
Lastly, I thank all the members of the Board, led by
produce carbon ferrochrome in 2015.
our chairman Alfredo Parodi, for putting their trust
in me and for sharing their extensive collective
Health, safety and the environment continue to
expertise and insight, and for providing the support
be an integral part of our business. In 2015, the
Group set up a Health Safety and Environment
and guidance needed to deliver a performance that
reflects Afarak’s full potential.
Dr Alistair Ruiters
CEO
Committee (HSEC) with the aim of building a
stronger linkage between our operations and the
social, environmental, health and safety position of all
stakeholders. I am pleased to report that throughout
2015, the Group only suffered 15 accidents that
caused loss of time and zero fatalities.
Engaging with stakeholders ---------------------------------
Afarak remains at core a people-centered
business. We have continued to work and engage
with local communities where we have our assets.
We are working closely with civil society groups
as we seek to make a difference in people’s
lives through our commitment to corporate
OUR BUSINESS
MODEL
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Afarak is a vertically-integrated specialist alloys
company. We extract, process, market and trade
our specialised metals. We are trusted by a highly
diversified customer base that includes industry
leaders from the aviation, nuclear, oil & gas and
automotive sectors. Through our investments we
are today able to produce a unique alloy mix for
every customer making us a boutique speciality
alloys producer.
In all we do, we take pride in delivering on our
promise to create value for all our stakeholders.
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As we aim to create value across the product-
chain, Afarak remains committed to sustainable
development, investment and to delivering a
healthy financial performance for its shareholders.
As a global company, we seek to achieve a balance
between our environmental, social and economic
interests in all of our operations.
EXTRACT
We operate our own mines in South Africa & Turkey guaranteeing a
high-quality input to our processing activities.
R&D
Our modern and state-of-the-art laboratories at our plant in Germany
allow us to develop and test unique speciality alloys for every customer.
PROCESS
Our expertise and technology allow us to process our metals into
speciality alloys.
SALES & MARKETING
Our industry insight and knowledge allows us to sell our products all over
the world whilst building long-standing relationships with our clients.
LOGISTICS & DELIVERY
of speciality alloys to our clients whilst supporting them in their
Through our logistics platform we are able to deliver any quantity
inventory management.
GLOBAL DISTRIBUTION
Our products are trusted and requested by clients all over the world.
Today, we are honored to have a geographically diversified client base.
OUR PRODUCTS
We pride ourselves in being the speciality alloy
producer of choice for many leading companies
around the world. Our knowledge and leadership
allows us to produce unique alloys for each and
every customer, tailored to their specific needs.
Today, our products are found in a variety of
sectors including aerospace, nuclear energy,
construction, automobile and oil & gas.
If it’s speciality,
it’s Afarak.
Products
Customers
End User
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Ferrochrome smelters
Stainless steel smelters
Stainless steel smelters
Carbon steel mills
Cutlery
Automotive
Appliances
Construction
Architectural
Rail
Chemical applications
Automotive
Construction
Infrastructure
Housing
Appliance
Shipping
Industrial machinery
Tool and high speed steels
Engineering steel
High stenght low alloy steel
Carbon steel mills
Aerospace
Automotive
Engineering
Plastics
Machinery
Yellow goods (mining equipment)
Structural applications
Nuclear power plant tubing/pipes
CHROME ORE
PLASMA CHARGE
CHROME STAINLESS
STEEL ALLOY
SILICONE
MANGANESE
FERROCHROME
MEDIUM CARBON - LOW
CARBON - ULTRA LOW CARBON -
SPECIALITY LOW CARBON
OUR CLIENTS
We are trusted by a growing number of clients
all over the world. Our diversified client base also
strengthens our resilience to external pressures
and protects our margin as our sales to Europe are
speciality products.
Afarak is seen as a partner and not just a supplier.
Our ability to supply clients with the products and
materials they specify is at the foundation of our
relationship with them. We are also pioneering
the logistics and delivery approach in the alloy
business. Afarak is able to supply its clients with
small to large quantities thus supporting its clients
in their inventory management.
USA
EUR 22%
EUROPE
EUR 43%
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AFRICA
EUR 13%
OUR STRATEGY
Afarak is focused on leveraging long-term growth
opportunities. This goal guides our short to
medium term strategy and action plans.
Over the past few years, Afarak has invested
heavily in its internal capacity to deliver. We have
invested in our people, in technology, processes
and systems.
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MARGIN
PROTECTION
LOCAL COMMUNITY
DEVELOPMENT
OPERATIONAL
EFFICIENCY
SUSTAINED
GROWTH
STRATEGIC
INVESTMENTS
ZERO HARM
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MARGIN
PROTECTION
Afarak has managed to protect its margin by becoming a leading
speciality alloy producer. Our focus on offering speciality products
allows us to maximise our margins.
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OPERATIONAL
EFFICIENCY
We aim to streamline our processes and systems in order to reap
economies of scale thus reducing our operational expenditure.
STRATEGIC
INVESTMENTS
Through a strategic investment programme, we continue to develop and
implement new technologies to support our long-term strategy and goals.
ZERO
HARM
Afarak strives to achieve ‘Zero Harm’ at all of its operations and
to provide its employees and contractors with a safe and healthy
environment in which to work, develop and grow.
SUSTAINED
GROWTH
Our industry insight and knowledge ensures that we have a pipeline of
opportunities and projects to pursue and to sustain our growth.
LOCAL COMMUNITY
DEVELOPMENT
Afarak seeks to make positive contributions to the local communities in
which it operates and to build long-term relationships to underpin the
sustainability of its business.
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2015 IN
FOCUS
A F A R A K
G R O U P
THE YEAR
IN REVIEW
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JANUARY
Commissioning of the Tire Washing
System at EWW, Germany
JUNE
Commenced bulk sampling at its Vlakpoort
open pit mine in South Africa.
MARCH
Resumption of mining activities at
Kavak, Turkey
NOVEMBER
Re-ceritification of the Energy
Management System as per DIN EN ISO
50001 at EWW, Germany
AUGUST
• Setting-up of Health Safety and
Environment Committee
• Installation of solar powered borehole
pumps as a part of a community project,
Mecklenburg, South Africa
JANUARY
• Signing of further sale agreements
regarding saw mill equipment
• TMS has been granted the exploitation
mining license for ‘Eagle Field” in Turkey
• Start-up of the de-dusting system at
EWW, Germany
01
02
03
04
05
06
07
08
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01
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2015
2016
MAY
• New Board elected during AGM
• Dr Alistair Ruiters appointed as CEO
SEPTEMBER
Investment in new plant at Tavas, Turkey
FEBRUARY
ISO 14001:2004 & ISO 9001:2008
recertification, Mogale Alloys, South Africa
JULY
• Investment in dryer at Mogale
Alloys plant, South Africa
• Commencement of storm
water project, Mogale Alloys,
South Africa
FEBRUARY
• Afarak Trading entered into a
long-term agreement of low
carbon ferrochrome with US
company Carpenter
Technology Corporation
• Completion of shaking table
plant at Stellite Mine
• Second campaign of high
grad SiCr production at ASK,
EWW Germany
DECEMBER
• Commissioning of new dust
exhaustion at EWW, Germany
• Bulk sampling project at
Vlakpoort, South Africa
JANUARY
Commissioning of the Tire Washing
System at EWW, Germany
Commenced bulk sampling at its Vlakpoort
open pit mine in South Africa.
JUNE
Resumption of mining activities at
MARCH
Kavak, Turkey
NOVEMBER
Re-ceritification of the Energy
Management System as per DIN EN ISO
50001 at EWW, Germany
AUGUST
• Setting-up of Health Safety and
Environment Committee
• Installation of solar powered borehole
pumps as a part of a community project,
Mecklenburg, South Africa
JANUARY
• Signing of further sale agreements
regarding saw mill equipment
• TMS has been granted the exploitation
mining license for ‘Eagle Field” in Turkey
• Start-up of the de-dusting system at
EWW, Germany
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01
02
03
04
05
06
07
08
09
10
11
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01
02
2015
2016
MAY
• New Board elected during AGM
• Dr Alistair Ruiters appointed as CEO
SEPTEMBER
Investment in new plant at Tavas, Turkey
FEBRUARY
ISO 14001:2004 & ISO 9001:2008
recertification, Mogale Alloys, South Africa
JULY
• Investment in dryer at Mogale
Alloys plant, South Africa
• Commencement of storm
water project, Mogale Alloys,
South Africa
FEBRUARY
• Afarak Trading entered into a
long-term agreement of low
carbon ferrochrome with US
company Carpenter
Technology Corporation
• Completion of shaking table
plant at Stellite Mine
• Second campaign of high
grad SiCr production at ASK,
EWW Germany
DECEMBER
• Commissioning of new dust
exhaustion at EWW, Germany
• Bulk sampling project at
Vlakpoort, South Africa
THE ECONOMIC
ENVIRONMENT
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The external environment continues to pose
challenges to the mining industry particularly
through subdued economic growth, low commodity
prices and unfavourable exchange rates.
The global recovery continued to recover in 2015
and grew at a modest rate. As some developed
economies continued to strengthen, emerging
economies were sluggish and dampened global
growth to below three percent.
GDP growth (%)
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9
6
3
0
-3
-6
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: World Bank.
The US economy continued its solid growth.
subdued confidence have impacted the world
Improvements in the labour market supported
economy through the effects of weaker commodity
consumer demand whilst higher equity markets
prices and increased volatility in financial markets.
and the ongoing recovery in corporate investment
supported growth. Europe’s recovery continued to
gather momentum mainly driven by the successful
Commodity prices --------------------------------
Commodity prices fell further in the second half of
quantitative easing pursued by the European
2015. By November, the three industrial commodity
Central Bank.
price indexes—energy, metals, and agricultural
raw materials—were down, on average, 45 percent
However, growth in China continued to slow down
from their 2011 peaks. Abundant supplies, due in
mainly driven by a dampened property market
part to investment during the decade-long price
and fixed asset investment programmed. This two
boom, and softening demand are the main factors
factors had in turn a strong impact on the demand
behind the continued weakness. The appreciation
for metals and minerals. Policy measures directed
of the U.S. dollar, the currency in which most
towards the property market have supported
commodities are traded, has also contributed to
growth. However, this s slow down coupled by
the price weakness.
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Commodity Metals
Price Index
300
250
200
150
100
50
02/11
05/11
08/11
11/11
02/12
05/12
08/12
11/12
02/13
05/13
08/13
11/13
02/14
05/14
08/14
11/14
02/15
05/15
08/15
11/15
02/16
Source: IMF.
The slump in metal prices, which reached their lowest
Despite the expectations at the end of the third
levels in more than 6 years in November, reflects
quarter that consumption would improve in the
well-supplied markets as well as weaker growth
fourth quarter, demand failed to grow materially
in major emerging markets. New mining capacity
and selling prices decreased further than expected.
came into operation in several countries, especially
Australia, adding to already abundant supplies.
During the past year, the price of nickel, which is one
Stainless Steel --------------------------------
The fourth quarter of 2015 has been another
steel together with ferrochrome, in common with
most other traded commodities, has had a notable
difficult period for stainless steel industry globally.
downward trend. The LME nickel prices have
There was continued weakness in the European
dropped from over US$ 15,000 per tonne in 2014, to
markets with the margins for all mills remaining to
US$ 8,650 per tonne, by the end of 2015, a decrease
of the main raw materials used to produce stainless
be unsatisfactory.
of more than 44%. In addition, prices were at levels
lower than these during parts of the fourth quarter.
The nickel price has been undermined, in part, by
Spot ferroalloy prices continued to decrease during
the unprecedented high level of LME inventory. The
the fourth quarter, even though not at the same
official daily figure rose from over 400,000 tonnes
rate as Nickel or Ferro-Molybdenum. Destocking
at the end of 2014, to reach a peak of over 470,000
during the fourth quarter was expected to lead
tonnes in June 2015. Stocks steadily reduced
to a pickup in spot demand but the stainless steel
thereafter reaching a low of around 393,000
production showed very limited sign of any upturn.
tonnes, until a recent influx of material took the
total over 438,000 tonnes at the end of 2015.
Manganese Alloy --------------------------------
The anti-dumping disputes continued in the
The costs of the other major raw materials have
steel market, within the alloy markets, including
also fallen. The price paid by United States mills for
silico manganese, which was also the subject of
chromium has decreased by around 10% in the past
trade cases. Bulk alloy prices have decreased
twelve months, while the cost of scrap, used in the
significantly during 2015 and in some cases have
American producers’ alloy surcharge calculations,
fallen back to the levels last seen prior to China’s
has dropped by 56%, resulting in losses for scrap
upsurge in stainless production which began
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suppliers. As a result, the December 2015 alloy
in 2008 when the West was hit by the financial
surcharge in the United States is 46% lower than
crisis. Bulk alloys production in China and in the
the figure reported in the same period of 2014.
West was cut during the fourth quarter of 2015 in
This contributes to a transaction value for 304 cold
response to low prices.
rolled coil that was around 34% less than the prices
in December 2014.
It was also noted that Eurasian Economic Union
(EEU) Commission is considering introducing anti-
The Western mill selling figures for the same
dumping measures of Ukrainian Silico-Manganese
products have fallen by almost 34% in China and by
to Russia, which could increase exports to Europe.
nearly 25% in Europe when compared to the prices
at the end of 2014.
Currency --------------------------------
The South African Rand suffered a significant
The persistent negative trend in stainless steel
depreciation in value in 2015. Although the
selling values has created very difficult business
depreciation of the Rand increased the export
conditions for all participants in the supply chain
earnings of domestic producers, they were offset by
except for the speciality stainless steel producers
a further drop in international commodity prices.
who saw an improvement in sentiment.
Ferrochrome --------------------------------
In the fourth quarter South African benchmark
price dropped from the third quarter by US$ 0.04/
lb Cr. The benchmark prices for the European steel
mills and Japanese steel mills were of US$ 1.04/
On the other hand; the Euro, Sterling and Turkish
Lira continued to weaken against the dollar
throughout 2015.
Economic Outlook --------------------------------
The global economy is expected to modestly
lb Cr and US$ 1.12/lb Cr respectively not including
discounts which reached 25% at times. This price is
improve its grow similarly the pace in
2014, and to 5.3 percent in 2017 and 2018.
the lowest since the third quarter of 2009.
This modest improvement is predicated
The Chinese spot market prices of high carbon
on continued momentum in high-income
ferrochrome and charge chrome also came under
countries, a stabilization of commodity prices,
downward pressure during the fourth quarter of
still accommodative monetary policy in major
2015 where prices went down below US$ 0.70/
economies with no bouts of financial market
lb Cr, which is still low when compared to the
turbulence, and a continued gradual slowdown in
European benchmark prices. China’s ferrochrome
China. With stabilizing commodity prices, growth
market was quiet, with most producers waiting
in commodity exporters is expected to resume.
for new tender prices from steelmakers, most of
Among low-income countries, growth is mostly
which was heavily delayed and therefore tonnages
steady or rising. However, forecasts for 2016
imported dropped to 539,938 tonnes in the fourth
have been downgraded for some countries from
quarter, from the 755,883 tonnes reported in the
previous projections, reflecting lower commodity
third quarter of 2015.
prices and rising security and political tensions in
some countries.
The persistent growth slowdown in emerging
forecasts in recent years. Many of the factors
and developing economies has led to repeated
underpinning the slowdowns – low commodity
forecast downgrades. The largest emerging
prices, weak global trade, and slow productivity
markets are among the countries subject to
growth – are expected to persist
significant downward revisions to their long-term
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OPERATIONAL
REVIEW
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We achieved.
During 2015, both production and sales volumes
segment, the increase in mining activity by 37.1% to
increased over a year earlier contributing to the
49,152 (35,848) tonnes was primarily derived from
overall positive performance of the Group.
having the Turkish mines operating at normal levels
throughout most of 2015 as opposed to the previous
Production --------------------------------
Production for the year increased by 39.4% to
year during which mining at TMS stopped during
June 2014 due to a strike and lockout. Production of
565,372 (405,660) tonnes. The increase was mainly
processed material decreased at the Speciality Alloys
attributable to the resumption of normal mining
processing plant of EWW when compared to the
activity levels at the Mecklenburg mine throughout
previous year as a result of decreased demand and
2015 following a seven-month suspension of mining
inventory management. On the other hand, annual
activity during 2014 and due to bulk sampling activity
processing levels at the Ferro Alloys processing plant
at Vlakpoort mine which commenced in June 2015.
of Mogale Alloys were higher than those registered
These factors were crucial in increasing mining
during the previous year primarily as a result of
activity in the FerroAlloys segment by 53.8% to
medium carbon charge chrome production.
412,629 (268,351) tonnes. In the Speciality Alloys
Group Production
Tonnes
Q1
Q2
Q3
Q4
FY15
FY14 Change
Speciality Alloys - Mining*
5,997
13,685
11,663
17,807
49,152
35,848
37.1%
FerroAlloys - Mining*
102,776
116,732
115,341
77,780 412,629
268,351
53.8%
Speciality Alloys - Processing
7,862
7,365
4,585
6,422
26,234
28,784
FerroAlloys - Processing
19,586
20,491
14,763
22,517
77,357
72,677
-8.9%
6.4%
* Including both chromite concentrate and lumpy ore production
Sales --------------------------------
The Group’s sales from processing, which includes
the previous year due to lower demand during the
second and third quarters of the year. On the other
all the products produced at the Mogale Alloys
hand, sales volumes in the FerroAlloys segment
and EWW processing plants, were 104,150 (97,351)
increased by 11.5% when compared to the previous
tonnes in 2015, an increase of 7.0% compared
year due to a stronger demand seen during the
to 2014. Sales volumes in the Speciality Alloys
segment decreased by 3.9% when compared to
second and fourth quarters.
25
Group Sales
Tonnes
Q1
Q2
Q3
Q4
FY15
FY14 Change
Speciality Alloys - Processing
7,375
7,970
6,287
5,705
27,337
28,448
-3.9%
FerroAlloys - Processing
15,024
22,586
13,771
25,432
76,813
68,903
Total – Processing
22,399
30,556
20,058
31,137
104,150
97,351
11.5%
7.0%
Human resources --------------------------------
Afarak operates in a very competitive industry
demonstrated by the number of senior female
executives across the Group’s key business units.
and the Group’s ability to successfully execute its
In South Africa specifically, as part of the Group’s
business is dependent upon the competencies and
compliance with local legislation, the FerroAlloys
motivations of its employees, as well as its ability
division monitors its employment equity and it
to attract and retain a high calibre personnel. The
is a vital component of the recruitment process
Group follows local legislation and applicable
to ensure Afarak is playing its part in the
regulations at each of its operations in regards to
transformation of South Africa. The FerroAlloys
its human resources management.
division continues to aim for an aggressive target
At the end of 2015, the Group’s headcount was 773,
compared to 698 in 2014.
of at least 50% of its workforce is represented by
historically disadvantaged individuals.
Highly skilled, motivated and diverse
Equal opportunities and diversity are important
employees are essential to the Group’s success
to an international company such as Afarak and
in implementing its business strategies and
the Group’s commitment to gender diversity is
executing its objective.
Group Personnel
Speciality Alloys
FerroAlloys
Other operations
Total
31 December 2015
31 December 2014
402
365
6
773
355
339
4
698
Change
13.2%
7.7%
50.0%
10.7%
FINANCIAL
REVIEW
26
We performed.
from November 2014 and Kavak from March 2015
following the cessation of operations due to the strike
Afarak posted a profit of €8.5 million when compared
and lockout of the mines from June 2014 also had a
to the €2.2 million posted a year earlier. The main
positive effect on EBITDA.
driver behind this significant improvement was
increased production and sales levels.
The Synergy Africa Ltd joint venture managed to
reduce its losses during 2015 amounting to EUR
Revenue and profitability --------------------------------
Revenue for the full year 2015 increased by 8.7% to
-0.1 (-3.3) million. Such improvement occurred as a
result of resumption of normal mining activity at the
EUR 187.7 (172.7) million. Revenue in the Speciality
Mecklenburg mine throughout 2015 and as a result of
Alloys segment decreased marginally by 2.3% as a
the absence of net write-down of assets which during
result of lower sales volumes of processed material,
the previous year amounted to EUR 1.6 million.
whereas in the FerroAlloys segment revenue
increased by 22.7% due to higher sales volumes.
Profit from discontinued operations during 2015
EBITDA for the full year was EUR 17.2 (8.4) million.
release of a EUR 0.2 (0.6) million from provision in
The increase was more accentuated in the Speciality
relation to the discontinued wood segment as the
Alloys segment due to a stronger US dollar average
Group sold part of the saw mill equipment that was
rate on conversion of revenue as material prices did
acquired in 2008.
amounted to EUR 0.8 (1.8) million which includes a
not reduce in US dollar terms like they did in the
FerroAlloys segment. Normal levels of mining activity
being restored at the Turkish mines of Tavas
The full year earnings per share was EUR 0.03 (0.01).
EUR million
Revenue
EBITDA
Q1
40.7
4.6
Q2
53.1
7.6
EBITDA margin
11.4%
14.4%
EBIT
EBIT margin
Profit for the period
2.9
7.2%
2.3
5.8
11.0%
5.7
Q3
44.8
1.3
2.8%
-0.7
-1.5%
-1.0
Q4
49.2
3.7
7.5%
1.8
3.7%
1.6
FY15
187.7
17.2
9.2%
9.9
5.3%
8.5
FY14 Change
172.7
8.7%
8.4
4.9%
1.7
1.0%
2.2
Balance Sheet, Cash Flow
and Financing --------------------------------
The Group’s net assets totalled EUR 171.2 (182.2)
where a new dust exhaustion was commissioned
in December 2015. Capital expenditure also
included the dryer in the ferrochrome plant
million at 31 December 2015. This decrease mainly
at Mogale Alloys, replacement of the furnace
resulted from the impact of the weaker South
refractories during the shutdown period and the
African rand on conversion of our South African
acquisition of new plant vehicles. At Vlakpoort
investments which had a decrease in value during
mine the Group continued investing to ramp up
2015 of EUR 17.3 million. This was partially offset by
the bulk sample operation. The Synergy Africa
the positive operating performance that led to an
Joint Venture also made investments during the
increase in cash position of EUR 6.5 million.
year with the commencement of the shaking table
27
project at Stellite Mine.
The equity ratio was 64.2% (62.8%), which
continues to be at a conservative level. This stance
During 2015, Afarak divested its holding in the
has been adopted by Afarak’s management not
associate company Speciality Super Alloys Inc.
to put pressure on the balance sheet. This could
This led to a loss on sale of investment in associate
also be seen by the gearing ratio for 2015 which
of EUR 0.3 million and has been classified as an
stood at -2.6% (-0.7%). Net interest-bearing debt
extraordinary item.
amounted to EUR -4.5 (-1.2) million.
Working Capital, as at 31 December 2015, was
Research and development --------------------------------
Afarak remains committed to investing in Research
EUR 76.1 (74,4) million. During the year Afarak
and Development. As a Group it believes that new
managed to significantly reduce the inventory
technology leads to improved productivity levels
level and improve liquidity, which as at 31
and reduced costs over the long-term leading to a
December 2015 was EUR 19.6 (13.3) million. This
positive effect on its financial performance. To this
enabled Afarak to reduce its trade and other
end, it adopted a policy whereby all subsidiaries
payables by EUR 16.6 million.
have R&D investment projects and investments
The positive performance together with the more
in the pipeline. In 2015, Afarak’s R&D expenditure
totalled EUR 0.5 (0.3) million. Following the
efficient working capital management has led to an
installation of the new refining and granulation
increase of EUR 7.4 million in operating cash flow
plant at Mogale Alloys which was completed during
during 2015 when compared to 2014.. Total operating
the last quarter of 2014, the Group announced the
cash flows in 2015 was EUR 12.5 (5.1) million.
completion of the shaking table plant at the Stellite
Investments, acquisitions
and divestments --------------------------------
Capital expenditure for the full year 2015 totalled
mine early in 2016. The shaking table technology
will allow the Group to treat the tailing dump for
chrome and increase Stellite mine’s total plant
mass yield to 65% from a current level of 49%
EUR 8.0 (14.8) million. In the Speciality Alloys
leading to a reduction in operating cost per ton.
segment, capital expenditure was incurred both at
TMS as the company continued the investment of
fines tailing processing plant at Kavak to increase
annual mining volume by 15,600 tonnes following
the commissioning of the plants, and at EWW,
BUSINESS
SEGMENTS
28
Afarak is a diversified company. With mines and
assets in South Africa, Turkey and Germany; Afarak
Production --------------------------------
Annual production increased by 43.7% to 489,986
is mainly active in the FerroAlloys and Special Alloys
(341,028) tonnes. The increase is mainly attributable
industries.
FerroAlloys
to the resumption of normal mining activity levels at
the Mecklenburg mine throughout 2015 following a
seven-month suspension of mining activity during
2014 due to the unrest in the local community.
Annual processing levels at Mogale Alloys were
The FerroAlloys business consists of the processing
higher than those registered during the previous
plant Mogale Alloys, Vlakpoort mine and the joint
year primarily as a result of medium carbon charge
ventures, the Stellite mine and the Mecklenburg mine
chrome production following the commissioning in
in South Africa. The business produces chrome ore,
December 2014 of the converter and granulator.
charge chrome, medium carbon ferrochrome and
silico mangan ese for sale to global markets.
Tonnes
Mining*
Processing
Q1
Q2
Q3
Q4
FY15
FY14 Change
102,776
116,732
115,341
77,780 412,629
268,351
53.8%
19,586
20,491
14,763
22,517
77,357
72,677
6.4%
* Including both chromite concentrate and lumpy ore production
Financial performance --------------------------------
Revenue for the full year increased to EUR 91.8
reduced loss from the joint venture occurred as a
result of the resumption of normal mining activity
(74.8) million, representing an increase of 22.7%
at the Mecklenburg mine throughout the first
compared to the equivalent period in 2014. The
eleven months of 2015 following a seven-month
increase in trading volumes of processed material
suspension of mining activity during the previous
was the main contributor towards the improvement
year and the absence of net write-down of assets
in revenue when compared to 2014. The joint
which during the previous year amounted to EUR
venture share of profit for 2015 was that of EUR
1.6 million. The positive performance during the
-0.1 (-3.3) million, the reduction in losses was key
year enabled the FerroAlloys segment to register a
in increasing EBITDA in the FerroAlloys segment
positive EBIT of EUR 2.8 (-1.4) million.
for the full year to EUR 7.5 (3.1) million. The
EUR million
Revenue
EBITDA
Q1
16.8
1.8
Q2
27.0
3.9
Q3
20.2
0.7
EBITDA margin
10.5%
14.6%
-3.6%
EBIT
EBIT margin
0.6
2.7
-0.5
3.6%
10.1%
-2.5%
-0.20%
3.0%
-1.8%
29
Q4
27.7
1.0
3.7%
-0.1
FY15
FY14 Change
91.8
7.5
8.1%
2.8
74.8
22.7%
3.1
4.1%
-1.4
Afarak’s share of joint ventures revenue for the full
positive share of joint venture EBITDA for the full
year increased to EUR 9.7 (5.7) million representing
year amounting to EUR 1.3 (-2.2) million as opposed
an increase of 69.9% compared to the equivalent
to a negative share of joint venture EBITDA incurred
period in 2014. The increase in revenue was
during the previous year. The results of the previous
mainly due to the increase in sales volumes of the
year were negatively affected by write-downs in
Mecklenburg mine material as operations were
relation to Waylox mining project of EUR 0.5 million
resumed in December 2014. The increase in revenue
and a net write-down on the assets of Stellite mine of
was also attributable to the increase in processed
EUR 1.1 million.
material at the Stellite mine, particularly from
concentrate material. Resumption of mining activity
The share of profit from joint ventures is made up as
at the Mecklenburg mine also contributed to the
follows:
EUR million
Revenue
EBITDA
Q1
2.2
0.3
Q2
3.2
0.6
Q3
2.7
0.4
Q4
1.6
-0.1
FY15
FY14 Change
9.7
1.3
5.7
-2.2
69.9%
EBITDA margin
14.2%
18.8%
15.7%
-3.7%
13.2%
-38.0%
EBIT
EBIT margin
0.0
0.3
-0.2%
9.8%
0.2
7.3%
-0.2
-11.1%
0.3
-3.1
3.4%
-54.1%
30
Afarak’s FerroAlloys Mines & Processing Plant
Vlakpoort Mine
South Africa
Mecklenburg Mine
South Africa
The Vlakpoort Mine is situated on the Northern
Mecklenburg Mine is situated on the Eastern limb
part of the western limb of the Bushveld complex
of the Bushveld complex. It was forms part of the
in South Africa. It was acquired in 2011 when
Chromex Mining Company that was bought by
the prospecting right was bought. Since then
Afarak in 2010. It consists of about 5Mt of mineable
extensive exploration work was conducted which
LG6 material. Mining started in 2012 with an
include Geological drilling, trenching and a bulk
opencast mine producing about 20kt per month of
sample of the LG5 and LG 6 seams that were
LG6 Run of Mine material. The opencast resource
31
taken to test the market.
was depleted in January 2016, and it is envisaged
to establish and underground mine out of the
The property has a resource of in excess of 6Mt
current opencast.
of Chrome and 300,000 ounces of PGMs. The
resource consists of the LG1-6, MG1-4 and the UG1-
2 and Merensky reefs outcropping on the property.
The Stellite Mine
South Africa
Mogale Alloys Processing Plant
South Africa
The Stellite mine was acquired in late 2010, as part
Afarak acquired Mogale in 2009, providing it with
of the Chromex acquisition and will be the primary
access to the bulk minerals processing sector in
ore supply to Mogale Alloys, thereby integrating
South Africa. The acquisition marked a strategic
the FerroAlloys business. Excess lumpy chrome
step forward for the Group by providing access
ore mined at Stellite is exported directly to China.
to direct current (DC) furnace technology, which
has been in operation at Mogale since 1983 and is
Stellite is located on the western limb of the
considered to be a centre of excellence.
Bushveld complex in South Africa, where 70%
of the world’s chrome resources are located and
40% of chrome production is sourced. The mine
Mogale operates four furnaces; two submerged
arc furnaces and two DC furnaces, with a total
has a chromite resource of 32Mt comprising of
production capacity of 110,000 tonnes per annum.
four seams, namely the LG6, MG1, MG2 and MG4.
These furnaces are capable of producing four key
All four seams outcrop on the property.
products: silico manganese, plasma ferrochrome,
charge ferrochrome and stainless steel alloy
(chromium-iron-nickel alloy). Towards the end
of December 2014, the company finalized an
investment of €13 million in a ferroalloy refining
and granulation plant.
Speciality Alloys
Production --------------------------------
Annual production increased by 16.6% to 75,386
The Speciality Alloys business consists of Türk
(64,632) tonnes. The increase was primarily
32
Maadin Şirketi A.S (“TMS”), the mining and
derived from having the Turkish mines operating
beneficiation operation in Turkey and Elektrowerk
at normal levels throughout most of 2015 as
Weisweiler GmbH (“EWW”), the chromite
opposed to the previous year during which mining
concentrate processing plant in Germany.
at TMS stopped during June 2014 due to a strike
TMS supplies EWW with high quality chromite
and lockout. Tavas mine also restarted operations
concentrate which produces speciality products
following the end of the lockout in November
including specialised low carbon and ultra low
2014 and mining also recommenced in March 2015
carbon ferrochrome. Chrome ore from TMS that is
at Kavak. Processing levels decreased at EWW
not utilised for the production of specialised low
when compared to the previous year as a result of
carbon ferrochrome is sold to the market.
decreased demand and inventory management.
Tonnes
Mining*
Processing
Q1
Q2
Q3
Q4
FY15
FY14 Change
5,997
13,685
11,663
17,807
49,152
35,848
7,862
7,365
4,585
6,422
26,234
28,784
37.1%
-8.9%
* Including both chromite concentrate and lumpy ore production
Financial Performance --------------------------------
Revenue for the full year 2015 was EUR 95.6 (97.8)
attributable to a stronger US dollar average rate
million, representing a marginal decrease of 2.3%
on conversion of revenue when compared to 2014.
compared to the previous year. The decrease in
revenue was mainly attributable to lower sales
Having the Turkish mines in operation during the
majority of 2015 also had a positive impact on
volumes of processed material and third party
EBITDA and EBIT, as compared to 2014, where
material in 2015. EBITDA was EUR 12.7 (7.9) million
profit was impacted due to the lockout and strike
and EBIT for the year was EUR 10.1 (5.7) million.
at the Group’s Turkish operations.
The improvement in EBITDA and EBIT was mainly
EUR million
Revenue
EBITDA
Q1
23.7
3.4
Q2
26.1
4.5
Q3
24.5
1.4
Q4
21.3
3.4
FY15
95.6
12.7
EBITDA margin
14.5%
17.2%
5.7%
16.2%
13.3%
EBIT
EBIT margin
2.9
3.9
0.7
2.7
10.1
12.1%
15.0%
2.8%
12.6%
10.6%
FY14 Change
-2.3%
97.8
7.9
8.0%
5.7
5.8%
Afarak’s Speciality Alloys Mines &
Processing Plant
33
TMS
Turkey
TMS operations consist of open pit and
underground mining, as well as ore enrichment
facilities equipped with primary and secondary
crushing, milling and concentration tables. The
production facilities are located in Kavak, in the
Eskisehir province, and in Tavas, in the Denizli
province. It also holds 27 licences, of which 12 are
exploitation licences.
The annual production capacity is between
100,000 – 120,000 tonnes.
TMS produces two chrome ore types: special grade
chromite concentrates and lumpy chrome ore.
EWW Plant
Germany
EWW is a world-renowned processing facility with
state-of-the-art facilities and laboratories. With a
heritage in processing spanning close to 100 years,
EWW has a reputation of being a highly specialised
smelting operation producing a range of specialist
products, such as specialised Low Carbon and
Ultralow Carbon Ferrochrome. The products are
sold internationally to customers in the automotive,
aerospace and power generation industries.
RISK
MANAGEMENT
34
Understanding our risks and developing policies
The section below gives an overview of the
and procedures to manage and to minimize our
risks identified as well as the measures taken to
exposure to such risks is critical to our success.
mitigate such risks.
Afarak has defined its risks as being operational,
financial and compliance. Additional information
on financial risks and financial risk management are
presented in the notes to the consolidated financial
statements.
FINANCIAL RISK
Risks
Consequences
Controls to mitigate risk
Liquidity risk - whether
Afarak has sufficient
liquidity to service and
finance its operations
and pay back loans
Foreign exchange
exposure
Materialised liquidity risks may cause
• Overdue interest expenses
• Negative impact to the Group’s
relationship with its goods and
service suppliers
•
• Affect the pricing and other terms
for input goods and services
• The Group continuously assesses
its working capital to ensure that
it has sufficient funds to meet its
liabilities
• Prepares and assess forecast
reports
• Direct risk – commercial cash flows
• The Group constantly evaluates
and currency positions
•
Indirect risk – loss of
competitiveness within the
industry
the need to enter into forward
contract arrangements
Interest rate risks
Changes in interest rates can
•
Influence the repayment of loans
• The Group constantly evaluates
the need to enter into forward
contract arrangements
•
Impact the profitability of
investments
• Alter the fair value of the Group’s
assets
FINANCIAL RISK (CONT.)
35
Credit risks
• Afarak’s key customers
• Analyse credit limits
are typically long business
relationships including major
international steel and stainless
steel companies and some
specialty agents selling to the
steel sector. Major changes in
that industry’s future outlook or
profitability could increase the
Group’s credit risk
• The Group’s processing operations
are exposed to the availability,
quality and price fluctuations in raw
materials
Price risks
Price and demand
volatility in the
commodities markets
• The global market for Group’s
products may not progress or
develop at the levels forecast and
a drop in demand for the Group’s
products could have an adverse
effect on the Group’s revenues and
profits
Acquisition and organic
growth strategy risk
• There is a risk that the investment
will not perform as expected and
the group will not achieve the
desired future operating cash flows
and profitable results from the
investment
• There is a risk that the Group might
not be able to find the appropriate
site or to obtain the necessary
licences to develop and operate or
to secure the required financing
• Assesses the likelihood that a
borrower will default on the debt
obligations
• The price risks on input materials
and commodities are managed by
pricing contracts so that, where
possible, any changes in input
materials and commodities may
be absorbed in the sales prices
• The Group’s business units seek
long-term contract agreements
with known counterparties where
possible
• Using its strong customer
interface and market intelligence
to adjust its production volumes
to match demand
• Adapting its diverse product mix
to meet customer requirements
• The Group’s policy is to carry out
extensive R&D to mitigate the risk
that such investment will not be
successful
COMPLIANCE RISK
Risks
Consequences
Controls to mitigate risk
Environmental risks
• Direct potential harm to the
environment
• Environmental risks are managed
closely and regularly assessed’
• Potential post-production
rehabilitation or landscaping
obligations
• Regular assessment of
environmental liabilities
• External experts are appointed
to assist in identifying potential
liabilities and ensuring compliance
with environmental legislation
Legal risks
• Legal disputes may relate to
• Currently there is no significant
contractual or other liabilities or
environmental or other regulatory
matters
legal case pending and the group
policy is to publish all significant
legal cases and their outcomes
36
Political and social risks
• Changes in the mining,
employment and fiscal regulatory
environment may materially
adversely affect the business and
its financial results
• Operations may be affected to
varying degrees by government
regulations
• Afarak seeks to maintain good
relationships with stakeholders
Employment legislation
•
If not observed may negatively
impact Afarak’s financial results.
• Afarak regularly re-assesses its
policies in terms of employment
legislations
Tax risks
• Changes in tax laws and regulation,
or a change in interpretation of
the tax authorities in the different
jurisdiction we operate in could
have an adverse impact on Afarak’s
financial results.
• Afarak keeps abrest with changes
in tax regulation and external
experts are appointed to assist in
identifying potential tax liabilities
and ensuring compliance with the
tax legislation
Data protection risk
•
If data protection legislation is
not observed the business may
be adversely affected and have an
impact on the financial results
• Data protection law is closely and
regularly assessed in terms of the
Group operations
OPERATIONAL RISK
Risks
Consequences
Controls to mitigate risk
Loss of key personnel
or the engagement of
inappropriate personnel
• Adverse effect on operations,
• Regularly re-assesses its
particularly its processing plants,
which could impact the Group’s
operating and financial results
remuneration policies and
packages to attract and retain
suitably skilled and qualified
personnel
• Afarak has set up a remuneration
commitee to set guidelines
OPERATIONAL RISK (CONT.)
Risk of mining and
smelting accidents
(fire, flooding, rock
bursts, weather
conditions, seismic
events and other natural
phenomena)
Volatility of fuel and
energy prices with
general cost inflation
• This could affect both employees’
•
“Zero Harm” policy
and operations, resulting in
suspension of operations
• May negatively impact Afarak’s
current operations, particularly
its processing plants, which could
have a consequent effect on the
Group’s operating and financial
results. It may also impact the
plans to expand its operations and
implement its growth strategy
• Health and safety guidelines,
policies and procedures
• Continuous employee training
• The Group constantly evaluates
the need to enter into financial
arrangements to mitigate such
risk
Electricity power cuts
• Stoppages in smelting can cause
• To mitigate this risk Afarak
37
Social risk
•
the contents of furnaces to solidify,
resulting in a plant closure for a
significant period and expensive
repairs
employs experienced operating
managers and has standard
operating procedures in place for
most foreseeable circumstances
Industry or social unrest and labour
actions may materially adversely
affect the business and its financial
results by temporarily closing
down operations.
• Afarak seeks to resolve the
matters with all stakeholders to
reduce the impact on it operation
Loss of key suppliers
• Adverse effect on operations,
• Afarak carry out continuous
which could impact the Group’s
operating and financial results
financial health checks of key
suppliers
• Evaluations of key supplier
controls in order to minimize the
impact associate with disruption
• Assess safety and security stock
levels
• Understand alternate supply
options and how long it will take
to employ alternatives
• The future success depend on
the ability to attract and retain
suitably skilled and qualified
personnel. Afarak regularly re-
assesses its remuneration policies.
Competition & Rivalry
• May negatively impact Afarak’s
current operations which could
have a consequent effect on the
Group’s operating and financial
results. It may also impact the
plans to expand its operations and
implement its growth strategy
Distribution network
risk
• This may have adverse effect on
operations which could impact the
Group’s operating and financial
results
• To mitigate this risk Afarak has
standard operating procedures
in place for most foreseeable
circumstances
Technology risk
• There may be advances in
• Afarak regularly assesses the
technology which the company
is not aware off or has not kept
abreast with which may eventually
hinder the operating activity of the
company and affect the financial
results
lastest technological equipment
and software available on the
market
BUILDING SUSTAINABLE
COMMUNITIES
38
We care.
Afarak is a people-centered organization. Through
its support and initiatives, Afarak is investing in
Feeding schemes --------------------------------
Afarak supports 5 day-care centres in the
various communities close to its operations in South
Rietvallei area and provides daily meals to 155
Africa and is making a difference in people’s lives.
children. The day-care centres are the following;
Monwametsi Agri Project, Rustenburg ------------
Dams and irrigation projects are central to
Thembelihle, Ntlanta, Wise Girl, Little Achievers
and Busy Bee. Similar schemes are also run in
conjunction with Magda Fourie at the Paardekraal
communities in South Africa improving the
and Millenium Primary schools
quality of life for hundreds of families. Through
the Monwametsi Agri Project, Afarak contributed
in the repair and development of two dams,
boreholes and an irrigation system. It extended
Community entrepreneurship,
Mogale City --------------------------------
The Mzimhlope Service Centre operates a crafts
its support to develop an agricultural project and
shop and centre in which various members of the
various vegetables are being farmed on the land
community produce various items, mainly woolen
since water is now available.
items, that are used to finance their daily needs.
Afarak supports the centre through the purchase
Umephi Jade House, Mogale City --------------------
Afarak is supporting 7 orphans that are currently
of materials.
residing at Jade House. The House was built as a
place of safety for orphans and offers foster care
CK Trust --------------------------------
Afarak supports the CK Trust by paying a non-
to these children.
government teacher to provide support to
destitute children at the Patrick Mashego Primary
Patrick Masego School, Mogale City ---------------
Afarak has a number of projects at Rietvallei
school. The teacher is specialized in supporting
the emotional well-being of children who come
particularly directed towards the Patrick Masego
from broken families.
Primary school. Through Afarak’s support, the
school also has an extensive garden which is used
to farm vegetables and fruits which are then used
Polekego Centre --------------------------------
Afarak supports this Centre in Krugersdorp that
as part of the feeding scheme that the school
provides shelter for abused women and children.
operates. The Patrick Masego school provides a
The Centre can hold up to 40 mothers.
daily meal to close to 2,000 children including
weekends and holiday periods.
39
A
40
F
A
R
A
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RESOURCE
STATEMENTS
A
F
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R
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41
2
MINERAL RESOURCE AND
MINERAL RESERVE1 STATEMENT
FOR CHROMITE FOR THE AFARAK GROUP IN SOUTHERN-AFRICA AS AT 31 DECEMBER 2015.
Mineral Reserves1 (ROM Feed numbers)
Mineral Resources (Geological Losses Applied)
Tonnage (kt)
Cr2O3 (%)
Cr:Fe ratio
Tonnage (kt)
Cr2O3 (%)
Cr:Fe ratio
PROVED:
Stellite Tailings
MEASURED:
Stellite Tailings
LG6-MG4
683
24.49
1.14 LG6-MG4
683
24.49
1.14
Stellite; Underground
Stellite; Underground
42
MG4
MG3
MG1
LG6
MG4
MG3
MG1
4,568
34.98
1.36 LG6
Stellite; Open Pit
Stellite; Open Pit
MG4
MG3
MG2
MG1
LG6+6A
15
96
-
-
70
29.59
30.64
31.00
33.34
33.68
1.19 MG4
1.18 MG3
1.23 MG2
1.31 MG1
1.37 LG6+6A
4,810
2,830
3,460
5,680
28
371
188
158
120
33.59
31.51
35.30
37.70
31.86
31.68
37.20
39.00
38.11
1.24
1.19
1.28
1.41
1.22
1.19
1.32
1.40
1.46
Mecklenburg; Underground
Mecklenburg; Underground
LG6
3,416
41.47
1.57 LG6
4,495
43.36
1.59
Mecklenburg; Open Pit
Mecklenburg; Open Pit
LG6+6A
-
40.76
1.58 LG6+6A
0
44.10
1.64
Vlakpoort; Open Pit
Vlakpoort; Open Pit
LG1-3
LG5
LG6
MG1-4
UG1-2
23
18
65
52
101
37.30
39.12
36.72
29.72
22.40
1.74 LG1-3
1.52 LG5
1.51 LG6
1.25 MG1-4
1.14 UG1-UG2
Vlakpoort; Underground
Vlakpoort; Underground
LG6
UG2
LG6
UG2
Total
32
42
151
131
164
398
754
41.57
38.77
36.85
30.01
21.46
33.32
19.65
1.59
1.59
1.59
1.59
1.59
1.59
1.06
Total Proved
9,107
36.42
1.42
Measured
24,495
35.64
1.35
PROBABLE:
Stellite; Underground
MG4
MG3
MG1
LG6
INDICATED:
Stellite; Underground
MG4
MG3
MG1
1,241
34.26
1.35 LG6
1,490
1,040
800
1,600
33.80
31.88
36.50
37.50
1.25
1.20
1.30
1.41
Stellite; Open Pit
Stellite; Open Pit
MG4
MG3
MG2
MG1
LG6+6A
266
254
-
-
165
30.02
30.82
30.99
33.25
33.88
1.20 MG4
1.19 MG3
1.22 MG2
1.31 MG1
1.37 LG6+6A
808
990
320
260
280
32.35
31.68
37.30
38.80
38.54
Mecklenburg; Underground
Mecklenburg; Underground
LG6
2,273
41.45
1.57 LG6
3,008
43.37
Mecklenburg; Open Pit
Mecklenburg; Open Pit
LG6+6A
-
40.76
1.58 LG6+6A
0
44.10
Vlakpoort; Open Pit
Vlakpoort; Open Pit
LG1-3
LG5
LG6
MG1-4
UG1-2
40
3
37
16
9
37.93
35.01
31.25
30.52
27.09
1.78 LG1-3
1.45 LG5
1.63 LG6
1.36 MG1-4
1.22 UG1-UG2
Vlakpoort; Underground
Vlakpoort; Underground
LG6
UG2
LG6
UG2
Total
53
10
64
75
24
793
421
41.57
39.92
33.95
29.92
27.61
33.92
19.83
43
1.23
1.19
1.31
1.41
1.46
1.59
1.64
1.86
1.55
1.58
1.35
1.25
1.58
1.06
Total Proved
4,304
37.56
1.45
Indicated
12,036
36.26
1.38
Proved &
Probable
Reserves
13,411
36.78
1.43
Measured
& Indicated
Resources
INFERRED
Stellite; Open Pit
MG4
MG3
MG2
MG1
LG6+6A
1,480
790
210
80
40
33.18
32.64
37.10
38.90
37.82
36,531
35.85
1.36
1.24
1.26
1.32
1.41
1.44
1.59
1.59
1.79
1.59
1.30
Mecklenburg; Underground
LG6
1,138
43.41
Mecklenburg; Open Pit
LG6+6A
0
43.44
Vlakpoort; Open Pit
LG1-3
LG5
LG6
MG1-4
UG1-UG2
41
1
119
41.55
33.49
28.61
MINERAL RESOURCE AND
MINERAL RESERVE1 STATEMENT
FOR CHROMITE FOR THE AFARAK GROUP IN SOUTHERN-AFRICA AS AT 31 DECEMBER 2015 (CONT.)
Vlakpoort; Underground
LG6
UG2
Inferred
Resources
Total
Resources
(Excl
Exploration
Results2)
1,321
33.67
1.59
115
20.27
1.08
5,335
35.36
1.41
41,866
35.78
1.36
Total
Reserves
44
13,411
36.78
1.43
Exploration Results2
Vlakpoort; Underground
LG6
UG2
Vlakpoort; Open Pit
LG1
LG2
LG3
LG5
LG6
MG1
MG2
MG3
MG4+4A
UG1
UG2
Exploration
Results2
Total (Incl
Exploration
Results2)
1,243
34.16
1.60
10
7
33
365
20
5
264
38.35
33.51
38.73
33.55
39.73
27.47
29.70
1.70
1.75
2.01
1.60
2.09
1.21
1.23
1,947
33.58
1.56
43,813
35.69
1.37
• Mineral Reserves1 used in SAMREC and IMMM Codes whereas termed Ore Reserves in the JORC Code
•
Exploration Target Mineralisation used in JORC Code whereas termed Exploration Results2 in the SAMREC Code. The
potential quantity and grade is conceptual in nature and there has been insufficient exploration to define Mineral Resources
and it is uncertain if further exploration will result in the determination of a Mineral Resource.
The information in this report that relates to exploration results for Stellite, Mecklenburg and Vlakpoort is based
on information compiled by the MSA Group, Andrew Scogins and Shango Solutions respectively.
The team of people involved in the Mecklenburg, MSA and Shango Solutions estimation process is listed below:
Person:
Sifiso Siwela (MSA)
Mike Hall (MSA)
Position:
Affiliations:
Exploration Project Manager
Pr.Sci.Nat, MGSSA
Mineral Resources Consultant
Pr.Sci.Nat, MGSSA, MAusIMM
Andrew Scogings (Independent)
Geological Consultant
Hendrik Pretorius (Shango)
Geological Consultant
MAusIMM, MAIG
Pr.Sci.Nat, MGSSA
Stefanie Weise (Shango)
Geological Consultant
MGSSA
The combined Stellite, Mecklenburg and Vlakpoort Measured and Indicated Resource category declared as at 31 December
2015, decreased from that declared in December 2014 by 0.8 million tonnes mainly due to depletion at all three operations. The
depletion at the three operations was as follows (rounded up to nearest 0.1 million):
Stellite 0.3 million tonnes in the MG4 open pit,
•
• Mecklenburg 0.2 million tonnes in the LG6/6A open pit, and
• Vlakpoort almost 0.1 million tonnes mainly in the LG6 open pit with minor amounts in the LG5, LG2, MG3 and MG4 open pits.
The combined total Stellite, Mecklenburg and Vlakpoort Mineral Resources declared as at 31 December 2015, decreased from
that declared in December 2014, by 1.516 million tonnes and the grade decreased by 0.2% to 35.78% Cr2O3 and the Cr to Fe ratio
decreased by 0.01 to 1.36.
The Mineral Resources for Stellite declared as at 31 December 2015, decreased by 0.228 million tonnes from that declared in
December 2014, mainly due to depletion in the MG4 open pit. The Mineral Resources were positively impacted by the addition of
tailings material of 0.125 million tonnes.
45
The Mineral Resources for Mecklenburg declared as at 31 December 2015, decreased by 0.195 million tonnes from that declared in
December 2014, due to depletion in the open pit. Mecklenburg has no remaining open pit Mineral Resources.
The Mineral Resources for Vlakpoort declared as at 31 December 2015, decreased by 1.093 million tonnes from that declared in
December 2014. This was mainly due to trenching and drilling that disproved the presence of LG chromitite seams west of portion 1 of
Vlakpoort on surface, despite surface boreholes proving the existence of underground LG Mineral Resources. A revised exploration
programme will be designed to locate LG open pit Mineral Resources on portion 4.
The combined Stellite, Mecklenburg and Vlakpoort Mineral Reserves1 declared as at 31 December 2015, decreased from that
declared in December 2014, by 0.77 million tonnes mainly due to depletion as stated before and the Cr2O3 grade decreased by
0.01% to 36.78% Cr2O3 and the Cr to Fe ratio remained on 1.43.
The exploration results were severely affected due to trenching and drilling that encountered the Bushveld Gap between the
Amandelbult and Union Sectors further east than estimated in 2014. This eliminated all the seams over a strike length of 900 meters.
MINERAL RESOURCE AND
MINERAL RESERVE1 STATEMENT
FOR GMS FOR THE AFARAK GROUP IN SOUTHERN-AFRICA AS AT 31 DECEMBER 2015.
Mineral Reserves1 (ROM Feed numbers)
Mineral Resources (Geological Losses Applied)
Tonnage (kt) 2E+Au (g/t)
Ozs
Tonnage (kt) 2E+Au (g/t)
Ozs
PROVED:
Stellite; Underground
MG4
MG3
MG1
LG6
MEASURED:
Stellite; Underground
MG4
MG3
MG1
LG6
Stellite; Open Pit
Stellite; Open Pit
MG4
MG3
MG2
MG1
LG6+6A
MG4
MG3
MG2
MG1
LG6+6A
46
Vlakpoort; Open Pit
Vlakpoort; Open Pit
LG1-3
LG5
LG6+6A
MG1-4
UG1-MR
LG1-3
LG5
LG6
MG1-4
159
1.40
7,158 UG1-UG2
Vlakpoort; Underground
Vlakpoort; Underground
LG6
UG2
MR
LG6
UG2
MR
3,050
1,720
2,250
3,191
28
221
110
60
39
32
42
151
131
205
398
754
618
1.18
1.86
0.79
0.63
1.14
1.46
1.62
0.71
0.49
0.18
0.74
0.46
1.13
1.77
0.43
4.04
2.15
115,723
102,868
57,154
64,641
1,026
10,375
5,730
1,370
614
185
999
2,233
4,760
11,667
5,503
97,947
42,723
Total Proved
159
1.97
7,158 Total Measured
13,000
1.26
525,521
PROBABLE:
Stellite; Underground
INDICATED:
Stellite; Underground
MG4
MG3
MG1
LG6
MG4
MG3
MG1
LG6
Stellite; Open Pit
Stellite; Open Pit
MG4
MG3
MG2
MG1
LG6+6A
MG4
MG3
MG2
MG1
LG6+6A
Vlakpoort; Open Pit
Vlakpoort; Open Pit
LG1-3
LG5
LG6+6A
MG1-4
UG1-MR
LG1-3
LG5
LG6
MG1-4
9
0.19
55 UG1-UG2
3,020
2,141
1,810
3,220
583
690
260
130
70
53
10
64
75
24
1.24
1.86
0.80
0.54
1.18
1.59
1.66
0.74
0.48
0.22
0.66
0.40
0.85
0.31
120,412
128,047
46,559
55,910
22,120
35,277
13,878
3,093
1,080
375
212
823
2,050
239
Vlakpoort; Underground
Vlakpoort; Underground
LG6
UG2
MR
Total Probable
Proved &
Probable
Reserves
9
168
1.97
7,213
LG6
UG2
MR
793
421
208
0.43
4.45
2.96
10,964
60,240
19,797
55 Total Indicated
13,572
1.19
521,076
Measured
& Indicated
Resources
INDICATE D:
Stellite Tailings
LG6-MG4
Stellite; Underground
MG4
MG3
MG1
LG6
Stellite; Open Pit
MG4
MG3
MG2
MG1
LG6+6A
Vlakpoort; Open Pit
LG1-3
LG5
LG6
MG1-4
UG1-UG2
Vlakpoort; Underground
LG6
UG2
MR
Inferred
Resources
Total
Resources (Excl
Exploration
Results2)
Exploration Results2
Vlakpoort; Underground
LG6
UG2
MR
26,572
1.22
1,046,597
47
683
1.37
30,087
200
20
190
860
1,970
1,240
310
140
490
41
1
119
1,321
115
1.59
1.86
0.78
0.48
1.27
1.51
0.76
0.63
0.47
0.23
0.42
1.00
0.42
4.78
10,225
1,196
4,765
13,273
80,447
60,206
7,576
2,836
7,405
303
-
14
3,826
17,840
17,675
-
7,700
1.04
257,675
34,272
1.18
1,304,272
1,243
0.41
16,387
-
-
Total Reserves
168
1.97
7,213
48
Vlakpoort; Open Pit
LG1
LG2
LG3
UG2
LG5
LG6
MG1
MG2
MG3
MG4+4A
UG1
MR
Exploration
Results2
Total (Incl
Exploration
Results2)
10
7
33
365
20
5
264
0.30
0.17
0.27
0.42
0.85
1.67
0.87
96
38
286
-
-
4,929
547
-
268
7,385
1,947
0.48
29,938
36,219
1.15
1,334,209
• Mineral Reserves1 used in SAMREC and IMMM Codes whereas termed Ore Reserves in the JORC Code
• Exploration Target Mineralisation2 used in JORC Code whereas termed Exploration Results in the
SAMREC Code. The potential quantity and grade is conceptual in nature and there has been insufficient
exploration to define Mineral Resources and it is uncertain if further exploration will result in the
determination of a Mineral Resource.
• The PGM rights at Mecklenburg do not belong to Afarak and therefore do not satisfy all requirements for
reporting.
• No Mineral Reserves could be declared for Stellite yet as the feasibility study to extract PGMs, are still in
progress.
The Measured and Indicated Mineral Resources for Stellite declared as at 31 December 2015, decreased from
that declared in December 2014 due to depletion in the MG4 open pit.
The Measured and Indicated Mineral Resources for Vlakpoort declared as at 31 December 2015, decreased
from that declared in December 2014. Trenching and drilling encountered the Bushveld Gap between the
Amandelbult and Union Sectors further east than estimated in 2014 which resulted in a 0.458 million tonnes
decrease.
The combined Stellite and Vlakpoort Mineral Resources declared as at 31 December 2015, decreased from
that declared in December 2014, by 1.872 million tonnes and the PGM grade decreased by 0.18g/t. Vlakpoort
contributed 1.699 million tonnes to the total decrease due to exploration results mentioned before.
The information in this statement that relates to Exploration Results and Mineral Resources is based on
information compiled by Hermanus Berhardus Swart, a Competent Person who is a Professional Natural
Scientist registered with South African Council for Natural Scientific Professions accredited (No. 400101/00)
and a Member of the Geological Society of South Africa, each of which is a
“Recognised Professional Organisation” (RPO) that is included in a list that is posted on the ASX website
from time to time. The Competent Person is employed by Dunrose Trading 186 (PTY) Ltd trading as Shango
Solutions, which provides services as geological consultants. The Competent Person has sufficient experience
which is relevant to the style of mineralisation and types of deposits under consideration, and to the activity
which has been undertaken, to qualify as a Competent Person as defined by the 2012 edition of the Australasian
Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC), the 2001 Code for
reporting of Mineral Exploration Results, Mineral Resources and Mineral Reserves in the United Kingdom, Ireland
and Europe (IMMM) as well as the 2007 edition of the South African Code for Reporting of Exploration Results,
Mineral Resources and Mineral Reserves (SAMREC). The Competent Person consents to the inclusion of the
matters based on his information in the form and context in which it appears.
49
H.B. SWART PR.SCI.NAT MGSSA
Principal Geologist – Shango Solutions
TMS RESOURCES
AND RESERVES
Ore (kt)
Cr2O3 (%)
2,336.46
7-23%
-
398.52
2,734.98
1,500.00
193.36
-
155.90
295.26
193.10
101.96
-
235.97
337.93
257.17
6.00
-
24.00
30.00
40.00
30.00
-
20.00
50.00
150.00
-
-
7-23%
7-23%
14-34%
-
14-34%
14-34%
14-34%
8-28%
-
8-28%
8-28%
8-28%
12-14%
-
12-14%
12-14%
12-14%
36-44%
-
36-44%
36-44%
36-44%
3,395.18
-
4-13%
-
Ore Deposit
KAVAK CONCESSIONS
Proven
Probable
Possible
Total reserves
Hypothetical resources
50
BEYAGAC CONCESSIONS
Proven
Probable
Possible
Total reserves
Hypothetical resources
FETHIYE & KOYCEGIZ CONCESSIONS
Proven
Probable
Possible
Total reserves
Hypothetical resources
ADANA CONCESSIONS
Proven
Probable
Possible
Total reserves
Hypothetical resources
EAGLE CONCESSION
Proven
Probable
Possible
Total reserves
Hypothetical resources
KAVAK TAILINGS DAM
Proven
Probable
Possible
Total reserves
TAVAS TAILINGS DAM
Proven
Probable
Possible
Total reserves
Grand total reserves
Total hypothetical resources
TAHIR ACAR
Geology Engineer
Chamber of Geology Engineers Registration Nr. 14239
-
3,395.18
-
4-13%
560.56
9-11%
-
-
-
-
560.56
9-11%
51
7,403.91
2,140.27
A
52
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GOVERNANCE
REVIEW
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CHAIRMAN’S
INTRODUCTION
54
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Dr Alfredo Parodi
CHAIRMAN
Dear Shareholders,
2015 was a record year for Afarak. Despite the very
challenging economic and market environment,
Afarak has managed to register very positive
results. Throughout 2015, Afarak strengthened
its operations and we should all be proud of this
achievement. The Board has made significant
progress in corporate governance oversight,
the strategic orientation of the company and
deepening the sustainability agenda.
The Board -----------------------------------
Following the election of the new Board in May
2015, we set out to implement an ambitious
agenda focused at strengthening the policies and
procedures of Afarak. The new Board brought to
the table an extensive skill-set and together with
the new management team our combined efforts
are already showing results.
We also appointed a new CEO, Dr Alistair
Ruiters who replaced Dr Danko Koncar. Dr
Koncar, who held the position of CEO since
2013, was appointed to Business Development
Director. In addition to these changes, the
management team was strengthened through
new appointments.
Soon after its election, the Board held a two-
day induction and corporate governance work-
shop. A review of the mandates of all the sub-
committees, company policies and procedures
and subsidiary boards was initiated during 2015.
The Board also continued to keep abreast of
changes to corporate governance reporting
requirements under our two jurisdictions;
55
Finland and the United Kingdom. We remain
and will lower production costs once fully
committed to strengthening both the
implemented. Although R&D projects are
governance framework and the reporting
administered separately by each operation,
structures within Afarak.
Afarak’s Board is committed to continuous
investment in R&D.
Committees -----------------------------------
In 2015, the Board set-up a new Board committee
tasked to work with the existing management-
Community Development -----------------------------------
The Group continues to make positive
led HSS team, to oversee our work on health,
contributions to the local communities in which it
safety and sustainable development. Being a
operates. Afarak’s current community programs
people-centered organization, we are committed
in South Africa are primarily focused on children.
to offer a healthy and safe environment for all
Apart from financing feeding schemes and
our stakeholders, both internal and external,
education projects, we have also invested in
to work in an empowering environment. The
community infrastructure. We are privileged to
two Committees are working together at the
be in a position to make a difference in peoples’
operational and strategic level to ensure that our
lives and will continue to honour its corporate
‘Zero Harm’ policy is implemented throughout
social responsibility.
our operations. The Audit and Risk Management
Committee reviewed all main policies throughout
Looking ahead, the Board is set on guiding
the year, in particular those relating to risk
Afarak in these challenging times. Building on our
assessment and mitigation. Looking forward,
positive performance in 2015, I am optimistic that
this Committee is now focused on reviewing
reporting frameworks and accountabilities within
the team at Afarak will continue to deliver results.
the organization. During 2015, the Nomination
and Remuneration Committee took a broader
Dr Alfredo Parodi
Chairman
remit and started a review of the company’s HR
function and relationships.
Research & Development -----------------------------------
The Board is determined to continue
implementing research and development projects
within Afarak. R&D projects will contribute
significantly to the Group’s future growth and
sustainability through the introduction of new
technologies and production processes. Our
latest investment in shaking tables technology
will result in tangible gains in productivity
BOARD OF
DIRECTORS REPORT
56
In 2015, the Board of Directors was focused on
The Nomination and Remuneration Committee
improving the ogranisational structure of Afarak
broadened its remit to look at the HR function of
and its subsidiaries. The transformation that Afarak
the Group. It embarked on a streamlining exercise
was embarking upon was a collective effort and all
between employment grades and categories of
parties were focused on transforming Afarak into a
the Group and its subsidiaries. It also continued
resilient speciality alloy producer even in the face
with its work to build and foster relationships
of tough market conditions.
The Board -----------------------------------
The new Board that was elected in May, was
with key employment stakeholders in the various
countries of operation and continued monitoring
the employment policy of the Group.
immersed into a deep and thorough corporate
The Audit and Risk Management Committee
review of Afarak and of all its subsidiaries. In
continued with its exercise to monitor the risks
August, the Board held its first extended Board
faced by the Group and to follow measures taken
strategy meeting. The focus of the meeting was to
to reduce and mitigate such risks. A more detailed
understand and define the commercial strategy of
risk assessment is presented in this report. In
the Group together with management. This process
addition, a detailed review of internal policies
also included an in-depth review of the role and
was adopted. The Board wants to strengthen the
contribution of the subsidiaries. The Board is
relationships and processes between Group level
determined to ensure that our products, processes,
and its subsidiaries. To this end, a review of internal
safety and customers, both at a Group level and
management and meeting practices together
for each subsidiary, are aligned. Given the new
with an internal information and communication
direction of the Group, we are particularly focused
on both technology and market insight.
review was started by the Committee. Reporting
frameworks are also being reviewed with the aim of
further strengthening them in the near future.
The ongoing strategic orientation of the Group
is now a constant part of the Boards’ work
The newly-established Health Safety and
programme. In December 2015, we started
Sustainable Development Committee is solely
focusing on a single-channel marketing strategy
focused on ensuring that our operations do not
of the company. We reviewed the structure, brand
constitute any harm to our stakeholders. We are
and performance of RCS, our trading company,
focusing on reducing injuries during operations and
and in line with our rebranding efforts, the Board
it is worth noting that only 0.1% of hours worked
decided to change its name to Afarak Trading.
were lost due to injury. Various Protocols were
Committees -----------------------------------
Today, the Board has three committees which
implemented throughout 2015. In addition, the
Board was focused on reducing its environmental
impact emanating from its operations. Afarak
focus on particular areas and which are key drivers
of change and improvements.
respects the environment in which it operates and
aims to manage its operations in a sustainable
57
way, minimising its footprint as much as possible
speciality ferroalloy prod ucts, Afarak believes it
to preserve the environment. As an example, in
can mitigate some of this risk by using its strong
Turkey, TMS does not use chemical reagents in its
customer interface and market intelligence to
production process. In addition, at Tavas operation
adjust its production volumes to match demand
the Group conducted a research program with
and adapt its diverse product mix to meet
an aim to recycle into the production unit the
customer requirements.
fines resulting from past years’operation. This
project has been approved and will result in a
Afarak has mining operations and projects in
substantial reduction of fines stock pile as well as
Turkey and South Africa where political and social
in a reduction of the cost of production.In South
risks remain a challenge. Changes in the mining,
Africa, the Group has a number of initiatives in
employment and fiscal regulatory environment
place to address its impact on the environment. At
may materially adversely affect Afarak’s business
EWW the Group is investing substantial amounts
and its financial results. Operations may be
into R&D to reduce the amount of waste from its
affected to varying degrees by government
production processes and the aim is to achieve
regulations with respect to matters including, but
100% recycling of all materials.Both of Afarak’s
not limited to: export controls; currency remittance;
processing plants, EWW and Mogale Alloy, hold a
income taxes; expropriation of property; foreign
ISO 9001 certification for adopting the very best in
investment; maintenance of claims; environmental
quality systems and emphasises our commitment
legislation; land use; land claims of local people
at Group level to continuously improve and build
and water use. Afarak seeks to maintain good
excellence into every process of its integrated
relationships through direct, regular engagement
management systems.
Investments -----------------------------------
The Board is always keen to invest in either
and communication with government at local,
regional and national levels, the relevant regulatory
departments, its local communities, the unions, its
BEE partners, as well as other stakeholders. Social
technologies or through mergers and acquisitions
risk is also a key challenge in the mining sector.
to further strengthen the company. The current
Industry or social unrest and labour actions may
investment programme is focused on the shaking
materially adversely affect Afarak’s business and
tables project. The shaking table technology
its financial results by temporarily closing down
will allow the Group to treat the tailing dump for
operations. In the occurrence of such event Afarak
chrome and increase Stellite mine’s total plant mass
seeks to resolve the matters with all stakeholders
yield to 65% from a current level of 49% leading to
to reduce the impact on it operation.
a reduction in operating cost per ton.This will also
allow the firm to recycle third party mining waste
Afarak’s strategy is focused on acquisitive and
further reducing the environmental impact of
organic growth. Subject to market conditions, the
mining activity. In addition, the Group is following
Group expects to continue to expand its business
a number of investment projects throughout its
through acquisitions. There can be no assurance
subsidiaries. In Turkey, the fines tailing processing
that the Group will be able to identify suitable
plant investment is ongoing and will be finalised
throughout 2016. The Board is following a number
acquisition targets, obtain the necessary financing
to fund such acquisitions or acquire acquisition
of projects it might consider acquiring.
targets on satisfactory terms. If an acquisition
Risk Management -----------------------------------
Afarak’s business is cyclical in nature and a
has been successful, there are a number of risks
involved in integrating the acquisition into the
Group, including but not limited to: a failure to retain
significant strategic risk is the Afarak’s exposure
key personnel, difficulties in integrating the acquired
to price and demand volatility in the commodities
operations in the Group’s structure, risks arising
markets as well as the steel and stainless steel
from the change of control provisions in contracts of
industries. The global market for Group’s products
an acquired company, risk the acquisition may not
may not progress or develop at the levels forecast
become profitable and possible adverse effects on
and a drop in demand for the Group’s products
the Group’s financial results.
could have an adverse effect on the Group’s
revenues and profits. As a vertically integrated
As part of the organic growth strategy, the Group
producer who sells a diverse range of products,
from raw chrome ore through to premium,
has recently completed the shaking table plant
at the Stellite mine. The shaking table technology
will increase the mine’s total plant mass yield
and safety in the workplace. It has conducted
significantly, leading to a decrease in the operating
baseline assessment risks at all of its operations,
cost per ton. There is a risk that the new plant will
has developed a comprehensive set of health and
not perform as expected and the Group will not
safety guidelines, policies and procedures and has
achieve the desired future operating cash flows
a programme of regular, continuous employee
from this investment.
training. This is all overseen at the highest level in
the Group by the Board of Directors.
The future organic growth strategy of the Group
is changing and the idea of producing niche
Afarak’s processing operations in Germany and
products is taking over that of producing larger
South Africa are intensive users of energy, primarily
volumes. Furthermore, the Group is also trying to
electricity. Fuel and energy prices globally
increase its Resources and Reserves by acquiring
have been characterised by volatility coupled
new mines or expanding its current operations.
with general cost inflation in excess of broader
There is a risk that Afarak might not be able to find
measures of inflation. In South Africa the majority
the appropriate site, or to obtain the necessary
of the electricity supply, price and availability
58
licences to develop and operate them or to secure
are all controlled by one entity, namely Eskom.
the required financing, either through financial
Increased electricity prices and/or reduced or
institutions or through strategic partnerships. If all
unreliable electricity supply or allocation may
or some of these risks materialise it would hinder
negatively impact Afarak’s current operations,
the implementation of this part of the Group’s
particularly its processing plants, which could have
growth strategy.
a consequent effect on the Group’s operating and
financial results. It may also impact the Group’s
Afarak operates in a highly competitive industry
plans to expand its operations and implement its
and is dependent on the technical skill and
growth strategy.
management expertise of a small number of
key personnel. The loss of key personnel or the
Afarak’s processing plants are vulnerable to
engagement of inappropriate personnel could have
interruptions such as power cuts, particularly
an adverse effect on Afarak’s ability to operate
where these events cause a stoppage, which
some of its operations, particularly its processing
necessitates a shutdown in operations. Stoppages
plants, which could impact the Group’s operating
in smelting, even for only a few hours, can cause
and financial results. Afarak’s future success will
the contents of furnaces to solidify, resulting
depend on its ability to attract and retain suitably
in a plant closure for a significant period and
skilled and qualified personnel. It regularly re-
expensive repairs. To mitigate this risk Afarak
assesses its remuneration policies and packages,
employs experienced operating managers and has
based on Remuneration Committee guidelines,
standard operating procedures in place for most
to ensure they are attractively competitive and
foreseeable circumstances.
reviews its succession plans.
Due to the nature of its business, Afarak has a
There is always the risk of a severe mining and/
or smelting accident at Afarak’s operations, such
large, potential exposure to environmental risks.
Environmental risks relate first to direct potential
as adverse mining conditions, fire, flooding, rock
harm to the environment, and second to potential
bursts, unusual weather conditions, seismic events,
post-production rehabilitation or landscaping
other natural phenomena and other conditions
obligations. Both these types of environmental
resulting from drilling, blasting and the removal and
risks are managed closely and regularly assessed.
processing of material associated with underground
Afarak has appointed external experts to assist in
and/or opencast mining, which could have a
identifying potential liabilities and ensuring that the
serious impact on the Group. This could affect
different entities within the Group are compliant
both employees’ physical wellbeing and morale,
with the relevant environmental legislation. The
as well as the operations themselves, resulting
Group regularly assesses the need to conduct
in suspension of operations until the accident
studies regarding the environmental liabilities.
has been fully investigated and appropriate
In the recent reviews done in our South African
measures taken to prevent a re-occurrence. To
operations Afarak concluded that the provisions in
mitigate this risk as much as possible, Afarak has
adopted a policy of Zero Harm towards health
the accounts are sufficient at current level.
Afarak is exposed to litigation risk in various part
can influence the repayment of loans, impact the
of it business cycle. Legal disputes may relate to
profitability of investments or alter the fair value of the
contractual or other liabilities or environmental or
Group’s assets.
other regulatory matters. The Group policy is to
publish all significant legal cases and their outcomes.
Credit risks are realised when the counterparties in
commercial, financial or other agreements cannot
Liquidity risks involve whether Afarak has enough
take care of their obligations and cause a negative
liquidity to service and finance its operations and
financial impact to the Group. Afarak’s key
pay back loans. If liquidity risks materialised, it
customers are typically long business relationships
may cause overdue interest expenses and could
and include major international steel and stainless
negatively impact the Group’s relationship with its
steel companies and some specialty agents selling
goods and service suppliers as well as affect the
to the steel sector. As these customers are sector
pricing and other terms for input goods and services.
specific, major changes in that industry’s future
outlook or profitability could also increase the
Afarak is an international business and has
Group’s credit risk.
operations in Turkey, Germany, Malta and South
Africa so the Group has significant foreign
Afarak is exposed to price risks on various output
exchange rate exposure. The risks arise from both
and input products, materials and commodities.
direct risk, such as commercial cash flows and
The price risks on input materials and commodities
currency positions as well as indirect risk, such as
are managed by pricing contracts so that, where
changes in the Group’s competitiveness as a result
possible, any changes in input materials and
of its foreign exchange rateexposures compared to
commodities may be absorbed in the sales prices.
its competitors.
The Group’s processing operations are exposed
to the availability, quality and price fluctuations in
Afarak is exposed to interest rate risks where the
raw materials. To diminish these risks, the Group’s
Group’s subsidiaries enter into loans or other financing
business units seek long-term contract agreements
agreements or make deposits and investments related
with known counterparties where possible.
to liquidity management. Changes in interest rates
59
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INFORMATION PRESENTED
BY REFERENCE
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The Group’s key financial figures, related party
The Corporate Governance Statement and the
disclosures, information on share capital and
Remuneration Report are presented as separate
option rights are presented in the notes to
reports in this Annual Report.
the consolidated financial statements. The
share ownership of the parent company’s
For the purposes of United Kingdom Listing
Board members and Chief Executive Officer is
Authority listing rules (“LR”) 9.8.4C R, the
presented in the notes to the parent company’s
information required to be disclosed by LR 9.8.4 R
financial statements.
can be found in the following locations:-
Sector Topic
Location
1
2
4
5
6
7
8
9
Interest capitalised
1.7. Notes to the statement of financial position,
10. Property, plant & equipment
Publication of unaudited financial information Not applicable
Detals of long-term incentive schemes
1.7. Notes to the statement of financial
position, 19. Share-based payments
Waiver of emoluments by a director
Not applicable
Waiver of future emoluments by a director
Not applicable
Non pre-emptive issues of equity for cash
Not applicable
Item (7) in relation to major
subsidiary undertakings
Parent participation in a placing by a listed
subsidiary
Not applicable
Not applicable
10
Contracts of significance
1.7. Notes to the statement of financial
position, 1.8.2 Related party transaction
11
12
13
14
Provision of services by a controlling
shareholder
Not applicable
Shareholder waivers of dividends
Not applicable
Shareholder waivers of future dividends
Not applicable
Agreements with controlling shareholders
Not applicable
All the information cross-referenced above is hereby incorporated by reference into this Board of Directors report.
OUR PEOPLE
THE BOARD OF
DIRECTORS
A F A R A K
G R O U P
CHAIRMAN
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Dr Alfredo Parodi
Chairman, Independent Non-Executive Director.
Ph.D in Chemical Engineering. Born 1940.
Dr Parodi has been working as a technical consultant for ferrochrome and
chrome-chemical productions. He has numerous years of engineering
and managerial experience and has served in a number of positions in the
petrochemical and alloys industries. He was responsible for production,
technical organisation and plant construction in several international companies such as SIR & Saras
Chemical (Italy), Stoppani Engineering (Italy), Dirox (Uruguay), Vanetta Sarasota (USA) and Anxian
Sichnan (China). Dr Parodi is the Chairman of the Health & Safety Committee of the Company.
EXECUTIVE DIRECTORS
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Dr Alistair Ruiters
Executive Director & CEO.
BA Hons in Economic History, Ph.D in Sociology. Born 1964.
Dr Ruiters served as a public servant in the new South African Democratic Government
from 1994 to 2005. He has held a numerous senior positions in Government including
the Commissioner of the Competition Commission and the Director General of the
Department of Trade and Industry. After leaving the public sector, Dr Ruiters started his
own business and in addition has served on numerous Boards. He started his career in Afarak in October 2009
when he as appointed as a consultant. He joined on a full time basis in 2010 and May 2015 he was appointed as
CEO. He holds degrees from the University of Cape Town and a Doctorate from Oxford University.
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Michael Lillja
Executive Director.
M.Sc in Economics. Born 1962.
Michael Lillja is currently member of the Executive Management Team and is
Marketing Director at Afarak. Prior to joining Afarak, Mr. Lillja has served for decades
in several different positions in the mining and metals industry, the oil & gas sector,
and in international trade for companies such as, Alloy 2000 SA/ENRC -Kazakhstan,
International Ferro Metals Ltd, and SamChrome Ltd/Samancor Cr.
DEPENDENT NON-
EXECUTIVE DIRECTOR
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Dr Jelena Manojlovic
Dependent Non-Executive Director.
Ph.D in Medicine, Clin. D. in Psychology, MA in Psychotherapy. Born 1950.
Jelena Manojlovic has been a member of the Board since 11 July 2008, and has acted as
Chairperson of the Board since 16 June 2009 till 8 May 2015. She is also the Chairperson
of the Remuneration and Nomination Committee. She is an established university
lecturer and organizational consultant and has 35 years’ experience in the human
resources field and 20 years’ in management positions in a diverse range of organisations, including the UK’s
National Health Service, universities and other companies. She was previously Human Resources Director of
Kermas Limited (a major shareholder in the Company). Manojlovic is independent of the Company but through
a controlled entity of her husband Danko Koncar, she is dependent on a major shareholder of the Company.
INDEPENDENT NON-
EXECUTIVE DIRECTORS
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Mr Markku Kankaala
Independent Non-Executive Director.
B.Sc. in Engineering. Born 1963.
Markku Kankaala has been a member of the Board since 30 June 2003. He is also a member
of the Audit and Risk Management and Nomination and Remuneration Committees. He
was also the CEO of the Group from 2003 to 2004 and worked as an Executive Director in
Ruukki Group Plc (currently, Afarak Group Plc) until 31 August 2006. Mr Kankaala is a co-
founder of Ruukki Group back in 1993 and since then he worked for 10 years as an entrepreneur and Managing
Director of the Group. Before the era of Ruukki he worked in different positions in Ahlström and Rautaruukki.
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Ivan Jakovčić
Independent Non-Executive Director.
BA in Foreign Trade Faculty. Born 1957.
Ivan Jakovčić is a Croatian politician and a member of the European Parliament where
he is in the Committee on Regional Development, Committee on Agriculture and
Rural Development and the Committee of the Regions of the European Union. Prior
to joining the European Parliament Mr Jakovčić has held numerous political positions
in Croatia where he has been a member of the Croatian Parliament, the President of the Istrian Democratic
Assembly and served as Minister of European Integration.
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Barry Rourke
Independent Non-Executive Director.
FCA. Born 1950.
Barry Rourke was a member of the Afarak Board, the Chairman of the Audit Committee
and a member of the Remuneration Committee from April 2010 to February 2013.
Previously, he was an Audit Partner at PWC’s for 17 years from 1984 to 2001 where he
specialised in the Oil and Gas and Mining sectors. He currently holds a number of non-
executive directorships and positions on the audit committees in other listed companies.
OUR PEOPLE
LEADERSHIP
TEAM
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THE EXECUTIVE
MANAGEMENT TEAM
The Group’s Executive Management Team (EMT) assists the Group CEO in effectively accomplishing his
duties. The EMT is an advisory body which was set up by the Board of Directors in November 2009. It has
neither authority, based on laws or the Articles of Association, nor any independent decision-making rights.
Decisions on matters discussed by the EMT are taken by the CEO, the EMT member responsible for the
matter in question or the Group’s Board of Directors, as appropriate.
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Dr Alistair Ruiters
CEO
BA Hons in Economic History,
Ph.D in Sociology
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Michael Lillja
Marketing Director
M.Sc in Economics
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Dr Danko Koncar
Business Development Director.
Diploma, M.Sc. & Ph.D. in Engineering. Born 1942.
Dr Danko Koncar was appointed as a member of the Board at the Extraordinary
General Meeting on 11 August 2010 and as the CEO on 11 February 2013. He was also
the Acting Managing Director of the Company between October 2010 and April 2011.
He has extensive experience in minerals processing and trading, including more than
20 years in ferrochrome processing with more than 10 years of experience in application of direct current
technology to ferrochrome processing. He has served as Chairman of Samancor Chrome and General
Director of RCS Limited and is still General Director of Kermas.
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THE CORPORATE
MANAGEMENT TEAM
The Company’s Corporate Management includes, in addition to the Executive Management Team, the
following personnel responsible for corporate functions:
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Melvin Grima
Finance Director
FCCA, MIA, CPA. Born 1982.
Melvin Grima joined Afarak in 2013 as Group Finance Manager. He was responsible
of the relocation of the Group’s corporate finance function to Malta and its setup. He
was promoted to Finance Director in 2015. Prior to joining Afarak, he held a number
of management positions including Group Accountant of a hotel Group and Finance
Manager of a Group trading in the petroleum industry.
Julia Simonsson
General Counsel.
Master of Laws (LL.M.). Born 1975.
Julia Simonsson joined Afarak in September 2015 as General Counsel. Mrs Simonsson
is a German lawyer with prior experience as General Counsel for an international
multi-disciplinary Group.
GOVERNANCE
STRUCTURE
A F A R A K
G R O U P
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Governance Structure -----------------------------------
The management and control of Afarak Group plc
of the financial year. Pursuant to the Company’s
Articles of Association, the convening notice for a
and its subsidiaries (Group) is divided between
General Meeting will be published on the Group’s
the shareholders, the Board of Directors (Board),
website and in a stock exchange release no earlier
supported by the Board’s audit & risk management
than two months, and no later than 21 days, prior
committee; nomination & remuneration committee,
to the General Meeting or nine days prior to the
health safety & sustainable development
record date of the General Meeting.
committee; and the Chief Executive Officer.
General Meeting -----------------------------------
Afarak’s ultimate decision-making body is the
The notice of a General Meeting, the proposals for
resolutions, and the documents to be submitted
to the General Meeting, such as the financial
shareholders’ General Meeting which convenes
once a year and is held within six months of the end
statements, the annual report and the auditor’s
report, will be available on the Group’s website
69
and at the Group’s office in Helsinki at least three
publishes the details of how and when to submit
weeks before the meeting. The resolutions passed
the requests to the Board on its website.
by the General Meeting will be published as a stock
exchange release without undue delay and will be
The Company uses the Annual General Meeting
available on the Group’s website, along with the
to develop an understanding of the views of its
minutes of the General Meeting, no later than two
shareholders about the Company.
weeks after the meeting.
Shareholders have the right to add items falling
if the Board of Directors deems it necessary or if the
within the scope of the Annual General Meeting
auditor of the Company or the shareholders owning
to the meeting’s agenda. The request must be
at least 10 percent of the shares demand one in
submitted to the Board of Directors in advance so
that the item can be included to the notice. Afarak
writing in order to deal with a specific matter, or if it
is required by law or other regulations.
An Extraordinary General Meeting can be convened
The most significant items on the Annual General Meeting’s agenda include:
• Approving the year’s financial statements;
• Determining the number of directors on the
• Confirming the financial year’s profit or
loss, the dividend distribution or other
distribution, such as capital redemption;
Board of Directors, their remuneration and
electing those directors to the Board; and
• Electing the auditor or auditors and approving
their fees.
In addition, certain significant matters (such as
Resolutions by a General Meeting usually require a
amending the Articles of Association or deciding
simple majority. Certain resolutions, however, such
on a capital increase) require a resolution by the
as amending the Articles of Association and directed
shareholders in a General Meeting.
share issues require a qualified majority represented
by shares, and the votes conferred by the shares, at the
General Meetings are organised in a manner that
General Meeting.
70
permits shareholders to exercise their ownership
rights effectively. A shareholder wishing to exercise
The majority of the Board members, if not all, attend
his or her ownership rights shall register for a General
General Meetings together with the CEO and the
Meeting in the manner stated in the notice of meeting.
auditor. In addition, if a person is proposed f or election
All the shareholders who have been registered in
as a director for the first time, he or she will also attend
the Company’s shareholder register, maintained
the General Meeting.
by Euroclear Finland Ltd, on the record date of the
meeting have the right to attend a General Meeting,
provided they have delivered a proper notice to attend
General Meetings in 2015 -----------------------------------
The Annual General Meeting was held on 8 May
the meeting. Holders of nominee registered shares may
2015 at Restaurant Palace in Helsinki, Finland. All
be registered temporarily on the shareholder register,
the resolutions of the above-mentioned General
and they are advised to request further instructions
Meeting can be found at: http://www.afarak.com/en/
from their custodian bank regarding the temporary
investors/shareholder-meetings/2015/
registration and issuing of a proxy document.
THE BOARD OF DIRECTORS
Tasks & Responsibilities -----------------------------------
The Board of Directors is composed of between
The Board of Directors oversees the
administration of the Group and is responsible
three and nine members who are elected by
for the internal control of its assets, finances and
the General Meeting of shareholders, which
also approves their remuneration. The tenure of
each Board member is for one year and expires
at the end of the next annual General Meeting
immediately following their election. The Board
elects a chairman from among its members.
None of the non-executive directors has a
accounts on behalf of shareholders. Its specific
responsibilities include:
Formulating the Group’s business strategy and
overseeing its implementation;
» Deciding on the Group’s capital structure;
» Making decisions on significant investments,
divestments, credits and collaterals, guarantees and
service contract with the Company and none
of the directors has waived or agreed to waive
any emoluments from the Company or any
other commitments;
» Approving the quarterly interim reports, the
Board of Directors Report, the annual financial results
subsidiary undertaking.
The duties of a Board member are specified in the
Finnish Companies Act. The Afarak Board also has
a written charter governing its functions.
and future forecasts and/or outlook;
» Deciding on the Group’s organisational structure;
» Appointing the CEO and approving his or her
service agreement and remuneration;
» And convening and submitting proposals to the
shareholders’ General Meeting.
Key elements of the Board’s charter and
evaluates the operations and working methods
operations are:
of each committee and the Board. The evaluation
»
It convenes on prearranged dates, with a view
is conducted as internal self-evaluation. The
to meeting approximately once a month, or more
Board is also regularly in contact with the major
often if necessary. Meetings can be arranged as
shareholders of the Company to ensure that the
conference calls;
» Matters to be dealt with by the Board are
presented by the Chairman, the CEO or another
Board is aware of their views.
The 2015 Annual General Meeting elected seven
person who has participated directly in assessing
members to the Board: Dr Alfredo Parodi, Dr Jelena
and preparing the issue for consideration;
» It aims to make unanimous decisions;
» It prepares an annual plan for its operation; and
» It acts at all times in the interest of the Group and
all of its shareholders.
Manojlovic, Mr Michael Lillja, Mr Markku Kankaala
were re-elected and Mr Barry Rourke, Mr Ivan
Jakovčić and Dr Alistair Ruiters were newly elected.
Board Independence -----------------------------------
The Finnish Corporate Governance Code requires
The Board oversees all communications and
that the majority of the directors are independent
other requirements stipulated by the rules of the
of the Company. In addition, at least two of the
relevant stock exchanges and financial supervision
directors representing this majority must be
71
authorities and conducts regular self -assessments
independent of the significant shareholders of the
to ensure these requirements continue to be
Company. The Company believes that Mr Barry
fulfilled. The Group has established specific targets
Rourke, Mr Ivan Jakovčić, Mr Markku Kankaala
for the development of its administrative functions
and Dr Alfredo Parodi are independent of the
and processes, and continues to implement these.
Company and significant shareholders and Dr
Jelena Manojlovic is independent of the Company.
The Board also evaluates and decides on
The Board has named Mr Barry Rourke as the senior
acquisitions and disposals of subsidiaries and
independent non-executive director.
associated companies. To ensure the efficiency of
board and committee work, the Board regularly
Members of
Current
Appointed to the
the Board
Position
Board
Audit & Risk
Nomination &
Health
Status
Management
Remuneration
& Safety
Committee
Committee
Committee
Alfredo Parodi Chairman
11 February 2013
Independent
-
Chair
Jelena
Manojlovic
Barry Rourke
Ivan Jakovčić
NED
NED
NED
11 July 2008
Dependent
Chair
8 May 2015
Independent
Chair
-
8 May 2015
Independent
Member
Member
Member
-
-
Michael Lillja
Executive
11 February 2013
Executive
-
-
Member
Markku
Kankaala
NED
30 June 2003
Independent
Member
Member
Member
Alistair Ruiters Executive
8 May 2015
Executive
Danko Koncar
n/a
Bernice Smart
n/a
11 August 2010 -
8 May 2015
11 February 2013 -
8 May 2015
(Executive)
-
-
-
-
(Independent)
(Chair)
(Member)
-
-
-
-
-
THE BOARD
IN 2015
72
The new Board of Directors made it a priority
during their term to review various elements
Company performance -----------------------------------
As part of the focus to improve the company’s
relating to the operation and corporate governance
performance, it was decided to strengthen the
of Afarak. A review of the main discussions and
oversight of subsidiaries as well as reporting
decision is presented below.
frameworks. Given the exchange rate volatility it was
Corporate Governance -----------------------------------
Strengthening the corporate governance structure
also decided to close off foreign exchange positions
in order to minimize the exchange rate risk.
of Afarak was selected as a priority area for the
A total of 17 meetings of the Board were held
new Board. To this end, a review of the corporate
during the reporting period and the attendance of
reporting structure was undertaken whilst a review
the directors is tabled below.
of the corporate structures was initiated. This is an
ongoing process and work in this area is underway.
In tandem, a review of internal policies and
procedures was also initiated by the Board.
Review of policies & procedures -----------------------
A thorough review of internal policies and
procedures was initiated. Although the review is
holistic in its nature, special focus was directed
towards the human resources element where a
review of employment scales, positions and wages
was undertaken. A review of the Group’s insurance
was also undertaken by the Board together with
the setting up of a Health Safety & Environment
Committee which started to focus on the Group’s
health and safety policies. An exercise focusing on
subsidiary meetings, corporate level meetings and
information requirements was initiated. A decision
Meetings Attended
Alfredo Parodi
Jelena Manojlovic
Markku Kankaala
Michael Lillja
Barry Rourke
Alistair Ruiters
Ivan Jakovčić
Danko Koncar
Bernice Smart
17/17
17/17
17/17
16/17
10/10
10/10
9/10
7/7
7/7
A total of 17 meetings were held during the reporting
period. The differences in the meetings attended relate to
the changes in the Board composition.
Remuneration -----------------------------------
The Annual General Meeting held on 8 May 2015
was taken to kick-start a re-branding exercise so
approved that the Chairman of the Board and
that all subsidiary companies will carry the Afarak
the Chairman of the Audit and Risk Management
brand. This is an ongoing process and will continue
Committee shall be paid EUR 4,500 per month and
well into 2016.
Share performance -----------------------------------
The Board implemented a decision taken by the
AGM to move the London listing from primary
all Board Members are paid EUR 3,500 per month.
Non-executive Board Members who serve on the
Board’s Committees shall be paid additional EUR
1,500 per month for the committee work.
to standard. Discussion on how to continue
Those members of the Board of Directors that
improving the share performance of the
are executives of the Company are not entitled
Company and various meetings were held with
to receive any remuneration for the Board or
stakeholders in order to draw a road-map for
Committee memberships.
improving liquidity and share performance. It was
decided that a greater emphasis should be placed
on investors relations with the aim of having
road shows targeting a number of institutional
investors. This process is currently underway, in
parallel with the re-branding organisation.
During the financial year 2015, the Board members
received a total of EUR 285,967 in Board and
Committee membership fees.
BOARD
COMMITTEES
Audit and Risk Management
Committee -----------------------------------
The Audit and Risk Management Committee
Nomination and Remuneration
Committee -----------------------------------
The combined Nomination and Remuneration
currently has three members: Mr Barry Rourke
Committee of the Company currently has three
(committee chairman), Mr Markku Kankaala and Mr
members: Dr Jelena Manojlovic (committee
Ivan Jakovčić.
chairperson), Mr Markku Kankaala and Ivan Jakovčić.
The Board has defined the committee’s duties
The Committee leads the process for making
in accordance with the recommendations of the
appointments to the Board and the executive
Finnish and the UK Corporate Governance Codes.
management and submits recommendations to
The Audit and Risk Management Committee
the Board in this regard. The Committee also leads
reviews the auditors’ work and monitors the
the process relating to the remuneration of the
Group’s financial position and the appropriateness
executive management and the Board, and makes
of its financial reporting. The committee evaluates
recommendations to the Board and to the General
73
internal audit and risk management, maintaining
Meeting in relation to the Board’s remuneration.
contact with auditors and evaluating their reports.
The Committee’s duty is to ensure that Afarak’s
The committee reports regularly to the Board.
goal to have a diverse Board in every aspect,
including in respect of gender, is implemented.
In 2015, the Audit and Risk Management
Committee evaluated and monitored the
During 2015, the Committee took a broad review
development of internal controls and risk
of the company’s HR function. It reviewed
management policies. The Group had no
policies and procedures in this regard focusing
permanent internal auditor during the years,
on HR relationships across the Group. A
although operational management commissioned
streamlining exercise of employment grades and
local specialists to conduct internal audit reviews
categories was initiated.
within several business units as part of their
local assurance process. The Board has received
assurance from a number of sources, including
a Board review of the Group’s overall strategy
Health Safety and Sustainable
Development Committee -----------------------------------
The Health and Safety Committee of the Company
and management processes, which has exercised
currently has three members: Dr Alfredo Parodi
substantial supervision over the local operations.
(committee chairman), Mr Markku Kankaala,
Mr Michael Lillja. Dr Stefano Bonati acts as a
All significant Group companies are audited by the
consultant to the Committee.
Company’s auditor in order to ensure a consistent
approach and to facilitate communication between
The Committee was set-up in 2015 with the stated
the auditors and the Committee.
mission to ensure Afarak conduct its business in
a responsible and ethical manner for the benefit
The Committee has focused on improving
of all its stakeholders. The Committee’s priority
management information flow to the Board and
was to focus on its ‘Zero Harm’ policy and to this
on the identification and management of the main
end, the Committee worked together with the
risks facing the Group. The risks are discussed in
CEO to establish a Health Safety and Environment
the Board of Directors’ Report. These priorities
Committee with the task of generating, implementing
continued to form the core of the committee’s
and maintaining a common global culture about
business during 2015, along with the regular
safety, health, environment and communities. The
scrutiny of the Group’s compliance with laws,
Committee also continued to monitor Afarak’s
regulations and best practice.
investment in environmental initiatives and projects.
CORPORATE
GOVERNANCE STATEMENT
Afarak Group Plc (“Afarak”, the “Company” or
Listing, Disclosure and Transparency Rules, the
the “Group”) is a Finnish public limited company
NASDAQ Helsinki Stock Exchange and the London
listed on the NASDAQ Helsinki Stock Exchange
Stock Exchange. As Afarak primarily follows the
(AFAGR) and the Main Market of the London Stock
Finnish Corporate Governance Code, certain
Exchange (AFRK).
sections of the UK Corporate Governance Code
issued in September 2012 (“UK CG”) are not strictly
Afarak’s corporate governance is based on, and
complied with. However, in the areas that the
complies with, the laws of Finland, the Articles of
Company diverges from the UK CG the Company
Association of the Company, the Finnish Corporate
believes that its policies are acceptable for the
Governance Code and the regulations of the
reasons which are set out below.
74
Finnish Financial Supervisory Authority, the UK
UK CG Section
Description
The Reason for Non-Compliance
C.3.8
E.2.1
A separate section of
the annual report should
describe the work of
the Audit committee
in discharging its
responsibilities
While this report includes a description of the work
of the audit and risk management committee, the
contents requirements of this section under the UK GC
are not the same as those under the Finnish CG and,
therefore some information required under the UK GC
may not be included.
For each resolution, proxy
appointment forms should
provide shareholders with
the option to direct their
proxy to vote either for or
against the resolution or to
withhold their vote.
The Company’s AGM is arranged in accordance with the
Finnish Companies Act so certain procedural and other
matters differ from the UK CG recommendation. The
Company does not provide proxy voting forms.
E.2.2
Miscellaneous general
meeting procedures
The Company’s AGM is arranged in accordance with the
Finnish Companies Act so certain procedural and other
matters may differ from the UK CG recommendation.
Afarak’s foreign subsidiaries operate under the
Code which can be found on the Securities Market
local laws and regulations of the countries in which
Association’s website at www.cgfinland.fi. Afarak
they are located, including but not limited to local
has made no exceptions in its Finnish Corporate
accounting and tax legislation as well as exchange
Governance Code compliance.
controls. This Corporate Governance Statement
for the financial period 1 January to 31 December
2015 is issued as a separate report to the Board of
Directors’ Report and is available on the Group’s
website at www.afarak.com. It has been prepared
pursuant to the Finnish Corporate Governance
Code 2010 and the guideline of the Securities
Market Association dated 1 December 2010. Afarak
complies with the Finnish Corporate Governance
INTERNAL
CONTROL
75
The principles of internal control are confirmed
Internal control refers to elements of financial
by the Board. The Group’s EMT members are in
and operational management which are designed
charge of the day-to-day business management
and administrative control in their respective
responsibility areas.
Main Principles of Risk Management
& Internal Control -----------------------------------
The purpose of risk management is to identify,
evaluate and mitigate the potential risks that could
impact the Group’s business and the implementation
of its strategy, and to ensure that risks are
proportional to the Group’s risk-bearing capacity.
The Group’s risk management policy is approved
by the Board of Directors and defines the
objectives, approaches and areas of responsibility
of risk management activities. The Group’s key
risks are reviewed and assessed by the Board on
a regular basis. The Group’s business segments,
and the business units within those segments, are
primarily responsible for managing their risks, their
financial performance and their compliance with
the Group’s risk management policies and internal
control procedures.
The Board of Directors is responsible for organising
and maintaining adequate and effective internal
control performed by the senior and executive
management as well as other Afarak personnel, and
assisted by third-party experts when appropriate.
to ensure:
» Achievement of defined performance targets;
» Efficient use of resources and protection of
assets;
» Effective management of risks;
» Accurate, timely and continuous delivery of
financial and operational information;
» Full compliance with laws and regulations as well
as internal policies; and
» Business continuity through secure systems and
stable operating prodecures.
The Structure of Internal
Control Systems -----------------------------------
The main structural elements of the Group’s internal
control system are:
» The risk management and internal control
policies and principles defined by the Board;
» Implementation of the policies and principles
under the surveillance of Group management;
» Supervision of the efficiency and functionality
of the business operations ny Group management;
» Supervision of the quality and compliance of the
financial reporting by the Group finance department;
» An effective control environment within all
organisational levels and business units, including
tailored controls for each business process; and
» Internal audits conducted as and when needed.
The Board of Directors decides on the Group’s
management system and the corporate and
organisational structure required by each business
The Internal Control of the Financial
Reporting Process -----------------------------------
The Group’s financial organisation is structured
so that each business unit has its own finance
unit with a view to providing solid foundations
function, but overall financial management
for effective internal control. Internal control and
including accounting, taxation and financing is
risk management related to financial reporting at
centralised within the Group’s parent company.
the Group level are performed in a coordinated
way by a function independent of the business
The Group finance department is responsible for
areas. Each subsidiary’s executive management
ensuring the compliance, quality and timeliness
is responsible for the implementation of internal
of the Group’s external and internal financial
control and risk management to the agreed Group
reporting. The internal control mechanisms
principles and guidelines.
are based on the policies, procedures and
authorisations established and approved by the
The system of internal control provides reasonable
Board. In addition to control mechanisms, training
rather than absolute assurance that Afarak’s
and sharing of knowledge are also significant tools
business objectives will be achieved within the risk
tolerance levels defined by the Board.
of internal control.
Each business unit has its own finance function
which reports to the Group Finance. The business
Group Management -----------------------------------
The Group’s management is in charge of the day-
unit’s finance function is responsible for the
to-day management of the Group in accordance
unit’s accounting and daily financial operations
with the instructions and orders given by the
and internal reporting. The finance function
Board. It sets the framework of the internal control
and administration is overseen by the unit’s
environment and is in charge of the Group’s
management team and reports to the head of the
risk management process and its continuous
business unit’s segment.
development. This includes allocation of resources
The tasks of the Group Finance consist, among
management policies, as well as defining the
other things, of monthly consolidation of the Group’s
principles of operation and overall processes.
to the work and continuous review of the risk
accounts, preparation of the quarterly interim reports
and consolidated financial statements, financing of
the Group, and tax planning.
External Audit -----------------------------------
According to the Articles of Association, the
Annual General Meeting of shareholders elects the
76
Consolidated financial statements are prepared by
Company’s auditor, which must be a firm authorised
using consolidation software. The accounting of the
by the Finnish Central Chamber of Commerce;
Company’s subsidiaries is carried out by accounting
otherwise the Company will have one main auditor
systems and the accountants within each subsidiary
and one deputy auditor. The auditor’s term is for
enter the accounting information directly into the
one year and finishes at the end of the first General
consolidation system, or in some cases send the
Meeting following election.
information in a predefined format to the Group’s
financial administration to be consolidated.
On Afarak’s General Meeting elected Authorised
Roles and Responsibilities Regarding
Risk Management and Internal Control
Board of Directors -----------------------------------
The Board of Directors is ultimately responsible
Public Accountant Ernst & Young Oy (“EY”) as
auditor, with Authorised Public Accountant Erkka
Talvinko having the principal responsibility. EY is
also the local auditor of all of the Group companies.
In 2015 the Company paid EUR 365,000 (412,000)
for the administration and the proper organisation
for audit fees and EUR 29,000 for non-audit
of the Group’s operations and approves all
services (20,000) to EY.
internal control, risk management and corporate
governance policies. The Board establishes the risk-
taking level and risk-bearing capacity of the Group
and reassess them on a regular basis as part of the
Group’s strategy and goal-setting process. The
Board reports to the shareholders of the Company.
Audit and Risk Management
Committee -----------------------------------
The Audit and Risk Management Committee is
responsible for the following internal control
related activities:
» Monitoring the reporting process of the
financial statements;
» Supervising the financial reporting process;
» Monitoring the efficiency of the Group’s internal
control, internal audit and risk management
systems; and
» Monitoring the statutory audit of the financial
statements and consolidated financial statements.
stable operating prodecures.
INSIDER
ADMINISTRATION
The Company complies with the legal provisions
applying to the management of insiders, the
Guidelines for Insiders issued by the NASDAQ Helsinki
Company-specific
Insider Register -----------------------------------
In addition to the public insider register, the
Stock Exchange and the stipulations and guidelines of
Company holds a company-specific insider register
the Finnish Financial Supervision Authority.
of persons who regularly receive information
Public Insider Register -----------------------------------
The Company’s permanent public insiders
that can have material impact on the value of
its securities. These persons include all Afarak
Group Plc employees, corporate management and
comprise the Board members, the CEO, the
subsidiary and other third-party service providers
Executive Management Team and the auditors.
who regularly obtain insider information.
All permanent public insiders and the statutory
information about them, their related parties
When necessary, the Company sets up a separate
and the entities controlled by them or in which
project-specific insider register. Project-specific
they exercise influence, have been entered into
insiders are those who, in connection with the
the Company’s public insider register which is
insider project receive information that might have
published on the Group’s website.
material impact on the value of the Company’s
shares. The establishment of a project is decided
Afarak imposes a restriction on trading for insiders
by the Board or the CEO.
77
which forbids trading in the Company’s shares for
30 days before the publication of financial reports.
Prior to the preliminary announcement of the
Company’s annual results and the publication of
its annual financial report the closed period is 60
days or, if shorter, the period from the end of the
relevant financial year up to and including the time
of the announcement.
Shareholdings of the Public Insiders at 31 December 2015
Members of the Board
Title
Shares
Related Party Shares
Options
Jelena Manojlovic
Chairman
150,000
0
Markku Kankaala
Non-executive Director
7,066,116
24,500
Michael Lillja
Executive Director
0
Alfredo Parodi
Chairman
22,600
Alistair Ruiters
Executive Director
400,000
Ivan Jakovčić
Non-executive Director
0
Barry Rourke
Non-executive Director
150,000
Auditors
Erkka Talvinko
Other Insiders
Danko Koncar
Auditor
Executive
0
0
0
0
200,000
0
600,000
0
0
0
71
0
0
0
0
0
70,459,254
800,000
RESOLUTIONS OF THE
ANNUAL GENERAL MEETING
The Company’s Annual General Meeting (“AGM”)
and other special rights that entitle to shares
was held on 8 May 2015. The AGM adopted
in one or more tranches up to a maximum of
the financial statements. The AGM resolved in
25,000,000 new shares or shares owned by the
accordance with the proposal of the Board of
Company. This equates to approximately 9.6%
Directors a capital redemption of EUR 0.02 per
of the Company’s currently registered shares.
share for the year ended on 31 December 2014. The
The authorisation may be used among other
capital redemption was paid on 20 May 2015.
things in financing, enabling corporate and
business acquisitions or other arrangements
The AGM resolved that the Chairman of the
and investments of business activities and in the
Board and the Chairman of the Audit and Risk
employee incentive and commitment programs.
78
Management Committee would be paid EUR 4,500
By virtue of the authorisation, the Board of
per month and the ordinary Board Members would
Directors can decide both on share issues
be paid EUR 3,500 per month. Furthermore, the
against payment and on share issues without
non-executive Board Members who serve on the
payment. The payment of the subscription price
Board’s Committees shall be paid an additional
can also be made with consideration other than
EUR 1,500 per month for the committee work.
money. The authorisation contains the right to
Those members of the Board of Directors that are
decide on derogating from shareholders’ pre-
executives of the Group are not entitled to receive
emptive right to share subscriptions provided
any remuneration for Board membership.
that the conditions set in the Companies’ Act are
fulfilled. The authorisation replaces all previous
The AGM resolved that the Board of Directors
authorisations and is valid 2 years from the
comprises of seven members. Mr Michael Lillja, Mr
decision of the Annual General Meeting.
Markku Kankaala, Dr Jelena Manojlovic and Dr Alfredo
Parodi were re-elected to the Board. Mr Barry Rourke,
The AGM authorised the Board of Directors to
Dr Alistair Ruiters and Mr Ivan Jakovčić were elected.
resolve upon acquiring a maximum of 15,000,000
The Board appointed from among its members the
of the Company’s own shares. The authorisation
following members to the Committees:
replaces all previous authorisations and it is valid
Audit Committee
Barry Rourke (Chairman),
Markku Kankaala,
Ivan Jakovčić
for 18 months from the decision of the Annual
General Meeting.
The AGM resolved to approve the proposed transfer
of the Company’s equity share listing on the Official
List of the United Kingdom Listing Authority
The Nomination and Remuneration Committee
Jelena Manojlovic (Chairperson),
(‘’UKLA’’) and on the Main Market of the London
Stock Exchange plc from the Premium listing
Markku Kankaala,
Ivan Jakovčić
Health, Safety and Environment Committee
Alfredo Parodi (Chairman),
Michael Lillja,
Markku Kankaala
The AGM resolved that authorised public
accountant firm Ernst & Young Oy was re-elected
as the Auditor of the Group for the year 2015.
(commercial company) segment to the Standard
listing (shares) segment as described in detail in the
circular to shareholders dated 16 April 2015.
2016 Annual General
Meeting -----------------------------------
Afarak’s 2016 Annual General Meeting will be held
on 11 May 2016 at the Palace Restaurant, Helsinki.
Dividend Payout Proposal -----------------------------------
The Board of Directors will propose a new dividend
policy to the Annual General Meeting, which will be
The AGM resolved to authorise the Board of
Directors to issue shares and stock options
held on 11 May 2016. The Group will in future review
it distributions to shareholders either through a
capital redemption or dividend twice yearly at the
with shareholders. In line with this new policy the
time of full year and the half year announcements.
Board will be recommending a EUR 0.02 per share
This new policy will allow the Board to take
distribution where EUR 0.01 will be paid in May 2016
prudent decisions based on market conditions
and subject to market conditions a further EUR 0.01
whilst continuing to share its positive results
will be paid in August 2016.
ADDITIONAL
INFORMATION
Ligitation -----------------------------------
Further to the announcement of 27 March 2014,
the share price was EUR 0.40 and GBP 0.33
respectively. During 2015 the Company’s share
whereby Afarak announced that the Group had been
price on NASDAQ Helsinki ranged from EUR
served a notice of arbitration by Chinese Suzhou
0.33 to EUR 0.67 per share and the market
79
Kaiyuan Chemical Co. Ltd (“Suzhou”), on 14 July
capitalisation, as at 31 December 2015, was EUR
2015, Afarak announced that the claim by Suzhou
105.7 (1 January 2015: 83.1) million. For the same
was withdrawn. Suzhou’s claim of EUR 2.66 million
had related to a chrome ore sales agreement entered
period on the London Stock Exchange the share
price range was GBP 0.25 to GBP 0.33 per share
into by Chromex Mining Plc (“Chromex”) prior to
and the market capitalisation, as at 31 December
the acquisition of Chromex by Afarak together in a
2015 was GBP 85.5 (1 January 2015: 65.5) million.
joint venture with Kermas Limited and was served
on Afarak’s marketing arm Afarak Trading Limited
Based on the resolution at the AGM on 8 May
(previously known as RCS Limited) and various
2015, the Board is authorised to buy-back up to
companies which form part of the Chromex joint
a maximum of 15,000,000 of its own shares. This
venture. As a result of the withdrawal the arbitration
authorisation is valid until 8 November 2016. The
tribunal dismissed the claim and ordered Suzhou to
Company did not carry out any share buy-backs
pay the full arbitration cost.
during 2015.
Share Information -----------------------------------
Afarak Group Plc’s shares are listed on NASDAQ
Flagging Notifications -----------------------------------
On 30 April 2015, Afarak announced that as a
Helsinki (AFAGR) and on the Main Market of the
result of a transaction that occurred between
London Stock Exchange (AFRK).
two controlled corporations of Dr Danko Koncar,
Kermas Limited and Kermas Resources Limited,
On 31 December 2015, the registered number
Kermas Limited has decreased below the threshold
of Afarak Group Plc shares was 263,040,695
of 5% and Kermas Resources Limited has increased
(259,562,434) and the share capital was EUR
23,642,049.59 (23,642,049.59).
above the threshold of 25%. However, the total
combined beneficial ownership of Dr Danko Koncar
remains unchanged.
On 31 December 2015, the Company had 4,244,717
(4,244,717) own shares in treasury, which was
On 2 January 2015, Afarak announced that as a
equivalent to 1.61% (1.64%) of the issued share
result of a transaction that occurred between Ms
capital. The total amount of shares outstanding,
Aida Djakov and her controller corporation Atkey
excluding the treasury shares held by the
Limited (“Atkey”), Ms Aida Djakov has personally
Company on 31 December 2015, was 258,795,978
decreased below the threshold of 5% and Atkey
(255,317,717).
has increased above the threshold of 25%.
However, the total combined ownership of Ms Aida
At the beginning of the period under review,
Djakov and Atkey remained unchanged.
the Company’s share price was EUR 0.33 on
NASDAQ Helsinki and GBP 0.25 on the London
Stock Exchange. At the end of the review period,
REMUNERATION
REPORT
80
This report sets out the remuneration policy
The members of the committee in 2015 were Dr
and practices for Afarak’s Board and Executive
Jelena Manojlovic (Chairman), Mr Markku Kankaala
Management Team (“EMT”), and provides details of
and Mr Ivan Jakovcic.
their remuneration and share interests for the year
ended 31 December 2015.
Remuneration Policy -----------------------------------
Afarak operates in a very competitive sector where
CEO Service Agreement -----------------------------------
The Board appoints the Chief Executive Officer
(CEO), who manages, develops, guides and
supervises the Group’s activities and leads the EMT.
there is a shortage of highly qualified, experienced
The Board decides upon the CEO’s remuneration
executives. The Group’s remuneration policy is
based on the recommendations made by the
designed to attract, retain and incentivise high-
Remuneration Committee.
calibre executives to implement its business
strategy and enhance shareholder value.
The CEO receives an annual salary of EUR
The policy seeks to align the interests of the
Shares as an incentive for each completed year of
business and shareholders by rewarding executives
service acting as the Chief Executive Officer, the
appropriately for achieving individual and group
first 500,000 Company shares shall be received on
targets and thereby ensuring long-term value
22 May 2016 and the second 500,000 shares shall
creation for the benefit of all the shareholders.
be received on 22 May 2017 if he is still acting as
360,000. He shall also receive 500,000 Company
CEO at that time.
Nomination and Remuneration
Committee -----------------------------------
The Nomination and Remuneration Committee makes
The Group makes no pension arrangements for the
CEO beyond the statutory pension coverage, and
recommendations to the Board regarding executive
there is no set retirement age. CEO’s agreement is a
remuneration, and submits proposals to the Annual
definite agreement for 2 years until 30th June 2017.
General Meeting of shareholders regarding the
Board’s remuneration.
The committee is responsible for the overall direction of
Non-Executive Directors’
Service Contracts -----------------------------------
The remuneration of members of the Board of
the remuneration policy, as well as determining, within
Directors is agreed at the Company’s General
agreed terms of reference, the specific remuneration
Meetings. Directors’ remuneration consists of
packages of the EMT. This includes pension rights,
monthly fixed fees. The Annual General Meeting
executive incentive schemes and any compensation
held on 8 May 2014 approved that all Board
payments. To ensure that the Group’s remuneration
Members are paid EUR 3,500 per month and
packages are both appropriate and competitive, the
the Chairman of the Board and the Chairman of
committee evaluates information on market-based
remuneration levels for comparable companies.
the Audit and Risk Committee are paid 4,500
per month. The non-executive Board Members
who serve on the Board’s Committees shall be
As some of the Board members have also had
paid additional EUR 1,500 per month for the
executive management roles, both the Board fees
committee work.
and the salaries in relation to the executive role
have been presented below.
Those members of the Board of Directors that
are executives of the company are not entitled
to receive any remuneration for the Board or
Committee memberships.
EUR ‘000
2015
2014
Salaries
Fees
Share-
based
remuneration
Salaries
Fees
Share-
based
remuneration
Kankaala
Markku
Koncar Danko
Lillja Michael
CEO 11.2.2013 –
20.5.2015, Board
member 11.8.2010 –
7.5.2015
Board member
11.2.2013 onwards
Board member
86
120
Manojlovic
11.7.2008 onwards,
Jelena
Parodi Afredo
Smart Bernice
Alistair
Ruiters
Rourke Barry
Ivan Jakovcic
Total
Chairperson
17.6.2009 - 7.5.2015
Board member
11.2.2013 onwards.
Chairman 8.5.2015
onwards
Board member
11.2.2013 – 7.5.2015
Board member
8.5.2015 onwards,
CEO 21.5.2015
onwards
Board member
8.5.2015 onwards
Board member
8.5.2015 onwards
81
58
58
66
19
54
0
0
240
120
0
54
0
54
54
242
183
47
39
0
448
287
183
360
216
0
Other EMT Members’ Service
Contracts -----------------------------------
As Afarak operates within a highly competitive
There are no early retirement options in the EMT’s
employment contracts, and the notice period and/
or non-compete period is normally six months,
environment, its performance depends on the
unless agreed otherwise.
individual contributions of the executive directors
and other senior employees. The remuneration
The table includes the Executive Management
packages are designed to attract, motivate and
Team remuneration excluding the CEO. The CEO
retain executives to manage the Group’s operations
and Board members compensation has been
effectively and to reward them for enhancing
presented separately.
shareholder value.
The EMT remuneration package is a combination of
received any compensation for serving as a NED
a base salary and long-term share-based incentives.
in other companies.
None of Afarak’s executive directors have
Fringe benefits include liability insurance, traveller’s
insurance and mobile phones.
82
Management remuneration
EUR ‘000
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payments
Total
2015
258
0
0
0
258
2014
185
0
0
42
227
Share-based Compensation
The share subscription period for 1,450,000 share
options commenced on 1 October 2009 and on 1
Share Options -----------------------------------
The Company has three incentive-related option
October 2010 for the remaining 1,450,000 options.
The subscription period matured on 31 December
schemes, known as I/2005, I/2008 and I/2011.
2015, and the maximum number of 2,900,000
options has been issued.
Option rights relating to the I/2005 scheme are
granted to the EMT and other key employees and
Option rights relating to the I/2011 scheme are
to non-executive directors, as recommended by
granted to the key personnel of the Company, as
the Board. The scheme entitles option holders
recommended by the Board. The scheme entitles
to subscribe for a maximum of 2,700,000 shares
the option holders to subscribe for a maximum
in the Company. The share subscription period
is from 1 July 2007 to 30 June 2015 for various
of 6,900,000 shares in the Company. To date,
the total of 6,291,997 options have been issued.
options series denoted with different letters, and
The vesting period is 1 July 2014 to 1 August 2017
the subscription price range is EUR 0.32 – 0.82
for various option series denoted with different
(with dividend and capital redemption adjustment).
letters and years. The share subscription price
To date, options on A, B, C, D, E and F series of
is calculated by a formula based on the Volume
the I/2005 scheme have been issued totalling
Weighted Average Price of the Company’s share
1,175,000 option rights.
and varies between the option series.
Option rights relating to the I/2008 scheme were
In May 2015 the Group has granted the CEO,
granted to the Company’s previous CEO, Alwyn
Alistair Ruiters 1,000,000 shares in the Company.
Smit, in October 2008. The scheme entitled
These will be awarded in two tranches and vested
the option holder to subscribe for a maximum
based on completed year of service. The first
of 2,900,000 shares in the Company for a
500,000 Company shares shall be received once
subscription price of EUR 2.18 per share (with
dividend and capital redemption adjustment).
the first vesting period has lapsed, on 22 May 2016.
The second 500,000 Company shares shall be
received by the employee on 22 May 2017. These
shares have a lock-up period of two years form
subscription date. The fair value of the granted
shares is determined based on the market price of
Afarak Group share at the grant date which was
EUR 0.40 per share. The value at year end was
EUR 182,870.24
Directors’ and EMT members’ Shareholdings and Options at 31 December 2015
Members of the Board
Title
Shares
Related Party Shares
Options
Jelena Manojlovic
Chairman
150,000
0
Markku Kankaala
Non-executive Director
7,066,116
24,500
Michael Lillja
Executive Director
0
Alfredo Parodi
Chairman
22,600
Alistair Ruiters
Executive Director
400,000
Ivan Jakovčić
Non-executive Director
0
Barry Rourke
Non-executive Director
150,000
Auditors
Erkka Talvinko
Other Insiders
Danko Koncar
Auditor
Executive
0
0
83
0
0
200,000
0
600,000
0
0
0
71
0
0
0
0
0
70,459,254
800,000
K
P
A
U
R
O
A
R
G
F
A
A
F
A
R
A
K
G
R
O
U
P
FINANCIAL
STATEMENTS
A
F
G
A
R
R
O
U
A
P
K
4
KEY FIGURES
FINANCIAL INDICATORS
Continuing Operations
2015
2014
2013
Revenue
EBITDA
% of revenue
EUR’000
EUR’000
Operating profit / loss (EBIT)
EUR’000
% of revenue
Profit / loss before taxes
EUR’000
86
% of revenue
Return in equity
Return on capital employed
Equity ratio
Gearing
%
%
%
%
Personnel at the end of the accounting period
187,711
17,190
9.2%
9,888
5.3%
6,521
3.5%
4.4%
9.3%
64.2%
-2.6%
773
172,669
8,447
4.9%
1,725
1.0%
460
0.3%
1.2%
3.1%
62.8%
-0.7%
698
135,509
14,090
10.4%
-7,984
-5.9%
-11,130
-8.2%
-2.2%
0.0%
68.5%
-6.4%
779
KEY FIGURES
SHARE-RELATED KEY INDICATORS
2013
Continuing
Operations
-0.02
-0.02
0.74
87
2015
2014
Group
Continuing
Operations
Group
Continuing
Operations
0.00
0.00
0.69
Earnings per share, basic
Earnings per share, diluted
Equity per share
EUR
EUR
EUR
0.03
0.03
0.65
0.03
0.03
0.65
Distribution*
EUR’000
2,588
Distribution per share*
Price to earnings
EUR
EUR
0.01
11.7
Average number of shares
1000
256,652
Average number of shares,
diluted
Number of shares at the end
of the period
1000
1000
259,849
263,040
Share price information (NASDAQ Helsinki)
Average share price
Lowest share price
Highest share price
EUR
EUR
EUR
0.44
0.33
0.67
Market capitalisation
EUR’000
105,742
Share turnover
EUR’000
16,936
Share turnover
%
14.5%
Share price information (London Stock Exchange)
Average share price
Lowest share price
Highest share price
Market capitalisation
Share turnover
Share turnover
EUR
GBP
EUR
GBP
EUR
GBP
EUR’000
GBP’000
EUR’000
GBP’000
%
0.45
0.33
0.34
0.25
0.45
0.33
116,479
85,488
6
4
0.0%
0.01
0.01
0.69
5,106
0.02
27.9
249,280
253,077
259,562
0.32
0.21
0.42
83,060
6,638
8.1%
0.37
0.30
0.30
0.24
0.39
0.32
84,144
65,540
9
7
0.0%
Group
-0.02
-0.02
0.74
4,884
0.02
neg.
244,135
248,532
248,432
0.40
0.30
0.48
79,498
1,826
1.8%
0.43
0.37
0.35
0.30
0.47
0.40
89,396
74,530
19
16
0.0%
* In 2014 and 2015 the Company distributed a capital redemption of EUR 0.02 per share out of the paid-up unrestricted equity fund. In
2016 the Board will propose to the AGM a new dividend policy and will recommend a EUR 0.02 per share distribution where EUR 0.01 per
share will be paid in May 2016 and subject to market conditions a further EUR 0.01 will be paid in August 2016.
KEY FIGURES
FORMULAS FOR CALCULATION OF INDICATORS
Financial indicators
Return on equity
Profit for the period / Total equity (average for the period) * 100
Return on capital employed
88
Equity ratio
Gearing
EBITDA
(Profit before taxes + financing expenses) / (Total assets –
Interest-free liabilities) average * 100
Total equity / (Total assets - prepayments received) * 100
(Interest-bearing debt - liquid funds) / Total equity * 100
Operating profit + depreciation + amortisation + impairment
losses
Operating profit is the net of revenue plus other operating
income, plus gain/loss on finished goods inventory change, minus
employee benefits expense, minus depreciation, amortisation and
Operating profit / loss
impairment and minus other operating expense. Foreign exchange
gains or losses are included in operating profit when generated
from ordinary activities. Exchange gains or losses related to
financing activities are recognised as financial income or expense.
Share-related key indicators
Earnings per share, basic
Earnings per share, diluted
Equity per share
Profit attributable to owners of the parent company / Average
number of shares during the period
Profit attributable to owners of the parent company / Average
number of shares during the period, diluted
Equity attributable to owners of the parent / Average number of
shares during the period
Distribution / Number of shares at the end of the period. In the
attached table of share related key indicators, the dividend and
Distribution per share
capital redemptions are presented in that year’s column on which
Price to earnings
Average share price
Market capitalisation
results the pay-out are based; hence the actual payment takes
place during next year.
Share price at the end of the period / Earnings per share
Total value of shares traded in currency / Number of shares
traded during the period
Number of shares * Share price at the end of the period
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT AND STATEMENT
OF COMPREHENSIVE INCOME
EUR '000
Revenue
Other operating income
Materials and supplies
Employee benefits expense
Depreciation and amortisation
Other operating expenses
Impairment, net
Loss on disposal on investment in associate
Share of profit from associates
Share of profit from joint ventures
Operating profit
Finance Income
Finance Cost
Profit before taxes
Income taxes
Profit for the year from continuing operations
Discontinued operations
Profit for the year from discontinued operations
Profit for the year
Profit attributable to:
Owners of the parent
Non-controlling interests
Earnings per share (counted from profit
attributable to owners of the parent):
basic (EUR), Group total
diluted (EUR), Group total
basic (EUR), continuing operations
diluted (EUR), continuing operations
Note
1.1.- 31.12.2015
1.1 - 31.12.2014
1
2
3
4
5
4
12
12
13
6
6
7
8
9
187,711
172,669
2,331
-142,349
-17,836
-7,302
-11,928
0
-327
2
-414
9,888
7,906
-11,274
6,520
1,236
7,756
783
8,539
8,854
-315
8,539
0.03
0.03
0.03
0.03
3,370
-136,552
89
-16,123
-6,717
-11,612
-5
0
6
-3,311
1,725
4,166
-5,431
460
12
472
1,773
2,245
2,858
-613
2,245
0.01
0.01
0.00
0.00
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
EUR ‘000
Profit for the year
1.1.- 31.12.2015
1.1 - 31.12.2014
8,539
2,245
Other comprehensive income
90
Items that will not be reclassified to profit and loss
Remeasurements of defined benefit pension plans
986
-4,036
Items that may be reclassified to profit and loss
Exchange differences on translation of foreign operations - Group
Exchange differences on translation of foreign operations –
Associate and Joint Venture
Income tax relating to other comprehensive income
-18,844
-3,126
4,552
-5,198
-997
-964
Other comprehensive income, net of tax
-16,432
-11,195
Total comprehensive income for the year
-7,893
-8,950
Profit attributable to:
Owners of the parent
Non-controlling interests
-6,790
-1,103
-7,893
-8,527
-423
-8,950
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
EUR '000
ASSETS
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Investments in associates
Other financial assets
Receivables
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Note
31.12.2015
31.12.2014
10
11
11
12
14
14
20
15
16
17
43,559
58,349
17,015
0
597
38,638
3,260
161,418
45,153
40,779
19,644
105,576
91
47,972
63,051
20,358
92
587
39,910
4,166
176,136
60,052
40,769
13,332
114,153
Total assets
266,994
290,289
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONT.)
EUR '000
Note
31.12.2015
31.12.2014
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
6,520
460
Share capital
92
Share premium reserve
Legal Reserve
Paid-up unrestricted equity reserve
Translation reserve
Retained earnings
Non-controlling interests
Total equity
Non-current liabilities
Deferred tax liabilities
Interest-bearing debt
Share of joint ventures´ losses
Non-current liabilities (cont.)
Pension liabilities
Other non-current debt
Provisions
Current liabilities
Trade and other payables
Provisions
Tax liabilities
Interest-bearing debt
18
20
14
13
22
23
21
23
21
23
14
23,642
25,740
187
240,240
-28,692
-93,755
167,362
3,845
171,207
5,949
2,977
23,218
18,734
1,969
9,309
62,156
15,364
99
6,036
12,132
33,631
23,642
25,740
210
243,424
-12,061
-103,657
177,298
4,947
182,245
8,200
6,263
19,580
19,954
42
10,137
64,176
31,974
77
5,951
5,866
43,868
Total liabilities
95,787
108,044
Total equity and liabilities
266,994
290,289
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
EUR ‘000
Operating activities
Profit for the year
Adjustments to net profit:
Non-cash items
Depreciation and impairment
Finance income and cost
Income from associates
Income taxes
Share-based payments
Proceeds from non-current assets
Working capital changes:
Change in trade receivables and other receivables
Change in inventories
Change in trade payables and other debt
Change in provisions
Interest paid
Interest received
Other financing items
Income taxes paid
Discontinued operations
Net cash from operating activities
Investing activities
Acquisitions of subsidiaries, net of cash acquired
Capital expenditure on non-current assets, net
Other investments, net
Disposals of subsidiaries, net of cash sold
Disposals of associated companies
Repayments of loan receivables and loans given, net
Net cash used in investing activities
Financing activities
Capital redemption
Proceeds from borrowings
Repayments of borrowings
Repayments of finance leases
Net cash used in / from financing activities
1.1.-31.12.2015
1.1.-31.12.2014
8,539
2,245
93
7,302
3,191
414
-1,236
103
-563
-5,525
12,234
-9,148
-145
-1,796
369
-218
-1,163
177
12,535
-201
-7,317
-239
212
109
3,517
-3,919
-5,106
8,728
-5,649
-71
-2,098
6,722
2,352
3,305
-12
154
-3,029
2,732
-13,298
7,140
-1,113
-1,240
782
-47
-478
-1,087
5,129
0
-14,347
1,785
-2
0
2,351
-10,213
-4,884
11,365
-1,801
-89
4,590
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)
EUR ‘000
Change in cash and cash equivalents
Cash at beginning of period
94
Exchange rate differences
Cash at end of period
Change in the statement of financial position
1.1.-31.12.2015
1.1.-31.12.2014
6,518
13,332
-206
19,644
6,518
-494
13,769
57
13,332
-494
The cash flow from operating activites in 2015 includes discontinued operations relating to cash received in
December 2015 of Eur 560 thousand less the storage costs of the saw mill equipment of Eur 327 thousand
and commissions of Eur 56 thousand. The cash flow from operating activites in 2014 includes discontinued
operations relating to LP Kunnanharju cleaning cost of Eur 585 thousand and the storage cost of the Sawmill
equipment of Eur 501 thousand. The first part of the Sawmill equipment was sold in December 2014, however
the cash inflows were actually received in January 2015.
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
A = Share capital
B = Share premium reserve
C = Paid-up unrestricted equity reserve
D = Translation reserve
E = Retained earnings
F = Legal reserve
G = Equity attributable to owners of the parent, total
H = Non-controlling interests
I = Total equity
ATTRIBUTABLE TO OWNERS OF THE PARENT
95
EUR ‘000
A
B
C
D
E
F
G
H
I
Equity at 31.12.2013
23,642
25,740 242,725
-4,773 -102,574
201
184,961
5,367
190,328
Profit for the period 1-12/2014
Other comprehensive income
Total comprehensive
income
Share-based payments
Share Issue
Capital redemption
Acquisitions and disposals of
subsidiaries
Other changes in equity
2,858
-7,349
-4,036
2,858
-11,385
-613
190
2,245
-11,195
-7,349
-1,178
-8,527
-423
-8,950
5,583
-4,884
154
2
-61
61
154
5,583
-4,884
2
9
9
3
0
0
0
157
5,583
-4,884
2
9
Equity at 31.12.2014
23,642
25,740 243,424
-12,061
-103,657
210
177,298
4,947
182,245
Profit for the period 1-12/2015
Other comprehensive income
Total comprehensive
income
Share-based payments
Share Issue
Capital redemption
Acquisitions and disposals of
subsidiaries
Other changes in equity
-16,631
8,854
986
8,854
-315
8,539
-15,645
-787
-16,432
-16,631
9,840
-6,791
-1,102
-7,893
183
1,739
-5,106
91
-29
274
1,739
-5,106
-29
-23
-23
0
0
0
0
0
274
1,739
-5,106
-29
-23
Equity at 31.12.2015
23,642
25,740 240,240
28,692
-93,755
187
167,362
3,845
171,207
1.NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1.1 COMPANY INFORMATION
Afarak Group is a chrome mining and minerals producer focused on delivering sustainable growth with a
speciality alloys business in southern Europe and a ferro alloys business in southern Africa. The Group’s parent
company is Afarak Group Plc (business ID: 0618181-8). The parent company is domiciled in Helsinki, and its
registered address is Kasarmikatu 36, 00130 Helsinki, Finland. Copies of the consolidated financial statements
are available at Afarak Group Plc’s head office or at the Company’s website: www.afarakgroup.com.
Afarak Group Plc is quoted on the NASDAQ Helsinki Oy (trading code: AFAGR) in the industrials group, in the
small-cap category, and on the main market of the London Stock Exchange (AFRK).
96
1.2 ACCOUNTING PRINCIPLES
BASIS OF PREPARATION
These consolidated financial statements of Afarak Group have been prepared in accordance with the
International Financial Reporting Standards (IFRS) and in conformity with the IAS and IFRS standards as well
as the SIC and IFRIC interpretations in force on 31 December 2015. In the Finnish Accounting Act and the
regulations issued on the basis thereof, International Financial Reporting Standards refer to the standards and
their interpretations that have been approved for application within the EU in accordance with the procedure
prescribed in the EU regulation (EC) 1606/2002. Notes to the consolidated financial statements also meet the
requirements set forth in the Finnish accounting and company legislation.
The consolidated financial statements have been prepared on the historical cost basis, unless otherwise
explicitly stated. All the figures in the consolidated financial statements are given in EUR thousands.
Afarak Group Plc’s Board of Directors resolved on 31 March 2016 that these financial statements are to be
published. According to the Finnish Companies Act, shareholders shall endorse the financial statements in the
Annual General Meeting convening after the financial statements have been published.
PRESENTATION OF FINANCIAL STATEMENTS
The consolidated financial statements provide comparative information in respect of the previous period. In
addition, the Group presents an additional statement of financial position at the beginning of the earliest period
presented when there is: a retrospective application of an accounting policy; a retrospective restatement; or a
reclassification of items in financial statements that has a material impact on the Group.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the parent company Afarak Group Plc, its subsidiaries, joint ventures
and associated companies. Subsidiaries refer to companies controlled by the Group. The Group gains control of a
company when it holds more than half of the voting rights or otherwise exercises control. The existence of potential
voting rights has been taken into account in assessing the requirements for control in cases where the instruments
entitling their holder to potential voting rights can be exercised at the time of assessment. Control refers to the right
to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities.
Acquired subsidiaries are consolidated from the time when the Group gained control, and divested subsidiaries
until the time when control ceased. All intra-group transactions, receivables, debts, and unrealised profits, as well
as internal distribution of profits, are eliminated when the consolidated financial statements are prepared. The
distribution of profits between parent company owners and non-controlling owners is shown in the statement of
comprehensive income, and the non-controlling interest of equity is shown as a separate item in the statement of
financial position under shareholders’ equity.
Afarak Group Plc has consolidated Elektrowerk Weisweiler GmbH to its financial statements since 1 November
2008 based on potential voting rights arising from a call option. Afarak exercised the call option on 10 May
2012 and acquired 100 % of the shares in Elektrowerk Weisweiler GmbH. The transaction has been treated as an
adjustment to the cost of acquisition in accordance with the earlier IFRS 3 which was applied in 2008.
The Group holds 51% of shares of Synergy Africa Ltd. However, the shareholders of Synergy Africa Ltd have
entered into a joint venture agreement with joint control over the company. Therefore, the company and its
subsidiaries are not consolidated into the Group as subsidiaries but as joint ventures.
97
Joint ventures are entities in which each venturer has an interest and there is a contractual arrangement
establishing joint control over the economic activity of the entity. Afarak Group changed the accounting method
in 2012 and the interests in joint ventures are now recognised using the equity method. The Group’s share of
net assets or liabilities in the Joint venture is recorded on one line in the balance sheet. The Group’s share of net
profit or loss of the Joint venture is also shown on one line in the income statement.
Associates are companies in which Afarak Group exercises significant influence. The Group exercises significant
influence if it holds more than 20% of the target company’s voting rights, or if the Group in other ways exercises
significant influence but not control. Associates have been consolidated in the Group’s financial statements
using the equity method. If the Group’s share of the associate’s losses exceeds the carrying amount of the
investment, the investment is recognised at zero value on the statement of financial position, and losses
exceeding the carrying amount are not consolidated unless the Group has made a commitment to fulfil the
associates’ obligations. Investment in an associate includes the goodwill arising from its acquisition.
TRANSLATION OF FOREIGN CURRENCY ITEMS
Amounts indicating the profit or loss and financial position of Group entities are measured in the currency
of each entity’s main operating environment (‘functional currency’). Figures in the consolidated financial
statements are presented in euro, the functional and presentation currency of the Group’s parent company,
Afarak Group Plc.
Transactions in foreign currencies have been recorded at the functional currency using the exchange rate on
the date of the transaction or mid reference rates of central banks. Monetary items denominated in foreign
currencies have been translated into the functional currency using the exchange rates at the end of each
reporting period. Exchange rate gains and losses are included in the revenue, operational costs or financial
items, corresponding to their respective origin. Hedge accounting has not been applied.
In the Group accounts, foreign subsidiaries’ income statements and statements of cash flows are converted
into euro by using average exchange rates for the period, and the statement of financial position is converted
by using the period-end exchange rate. The translation differences arising from this are recognised in other
comprehensive income. Translation differences arising from the elimination of the acquisition cost and post-
acquisition equity changes are also recognised in other comprehensive income. If and when the foreign
subsidiary is partially or fully divested, these accrued translation differences will be taken into account in
adjusting the sales gain or sales loss.
Goodwill, other assets and liabilities arising from acquisitions of subsidiaries are recognised in the Group
accounts using the functional currency of each acquired subsidiary. The balances in that functional currency
have then been translated into euro using the exchange rates prevailing at the end of the reporting period.
OPERATING PROFIT
IAS 1 Presentation of financial statements does not define the concept of operating profit. Afarak Group has
defined it as follows: Operating profit is the net amount derived by adding to revenue other operating income,
less materials and supplies, and expenses from work performed by the enterprise and capitalised, less costs
from employee benefits, depreciation and impairment losses, and other expenses. Shares of associated
companies’and joint venture companies’ profit or loss are included in the operating profit to the extent to which
they relate to the Group’s core businesses. Exchange differences arising from operational transactions with third
parties are included in operating profit; otherwise they are recorded under financial items.
All other items of the income statement are excluded from operating profit.
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IAS 1 amendment introduced the requirement for grouping of items presented in Other Comprehensive Income.
Items that are reclassified (or `recycled`) to profit or loss at a future point in time will be presented separately from
items which will never be reclassified. The amendment affected the presentation of Other Comprehensive Income.
REVENUE RECOGNITION
Income from the sale of goods is recognised once the substantial risks and benefits associated with ownership
have been transferred to the buyer. The transfer of risks depends on, among others, terms of delivery
(Incoterms). The most often used term is FCA or FOB, under which the revenue is recognised when the goods
are assigned to the buyer’s carrier or loaded on board the vessel nominated by the buyer. As typical in the
business, preliminary invoices are issued for the mineral concentrates at the time of delivery. Final invoices are
issued when quantity, mineral content and pricing have been defined for the delivery lot.
Income not generated by the Group’s main businesses is accounted for as other operating income. The expenses
incurred from disposals of non-current assets or a disposal group of assets are deducted from the gain on disposal.
PENSION LIABILITIES
Pension arrangements in Afarak Group are classified as defined contribution plans or defined benefit plans
(Germany and Turkey). Payments for defined contribution plans are recognised as expenses for the relevant
period. The present value of obligation for the defined benefit plans has been estimated applying the Projected
Unit Credit Method and recognised as a non-current liability on the statement of financial position. The standard
IAS 19 was revised and includes changes to the presentation and measurement of defined benefit plans as well
as amendments to the accounting treatment of other employee benefits. The amendment has changed the
determination of the applicable discount rate and also the possibility to apply the so called “corridor method” has
been abolished. Consequently, actuarial gains and losses are recognised in other comprehensive income when
they occur and the net defined benefit liability or asset are presented in full on the statement of financial position.
SHARE-BASED PAYMENTS
Option rights are measured at fair value at the time they were granted and recorded as expenses on a straight-
line basis during the vesting period. The expenses at the time the options were granted are determined according
to the Group’s estimate of the number of options expected to vest at the end of the vesting period. Fair value is
determined on the basis of an applicable option pricing model (e.g. Black-Scholes). The effects of non-market-
based terms and conditions are not included in the fair value of the option; instead, they are taken into account
in the estimated number of options expected to vest at the end of the vesting period. The Group updates the
estimated final number of options at the end of each reporting period. Changes in the estimates are recorded in
the statement of comprehensive income. When the option rights are exercised, the cash payments received from
the subscriptions adjusted with potential transaction costs are recorded under paid-up unrestricted equity reserve.
The Group from time to time directs free issues of shares to the members of the Board of Directors or key
executives, as approved by the AGM. The compensation is settled in shares and is accordingly recognised as
share-based payment in the Group’s financial statements. The fair value of the granted shares is determined
based on the market price of the Afarak Group share at the grant date. The total fair value is therefore the
amount of granted shares multiplied by the share market price at grant date. The cost is recognised as expense
in personnel costs over the vesting periods and credited to equity (retained earnings).
BLACK ECONOMIC EMPOWERMENT (BEE) TRANSACTIONS
The purpose of South African Black Economic Empowerment (BEE) regulation is to enable previously
disadvantaged people meaningfully to participate in the South African economy. The Group is committed
to making a positive contribution towards the objectives of BEE. Where the Group disposes of a portion of a
South African based subsidiary or operation to a BEE company at a discount to fair value, the transaction is
considered to be a share-based payment (in line with the principle contained in South Africa interpretation AC
503 Accounting for Black Economic Empowerment (BEE) Transactions). The discount provided or value given
is calculated in accordance with IFRS 2 and recognised as an expense. Where the BEE transaction includes
service conditions, the expense is recognised over the vesting period. Otherwise the expense is recognised
immediately on the grant date.
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LEASE AGREEMENTS (THE GROUP AS THE LESSEE)
Leases of tangible assets where the Group possesses a material portion of the risks and benefits of ownership
are classified as financial leases. An asset acquired through a financial lease agreement is recognised at the
fair value of the leased object at the beginning of the lease period, or at a lower current value of minimum
lease. An asset obtained through a finance lease is depreciated over the useful life of the asset or the lease
term, whichever is shorter. The leases payable are divided into financial expenses and loan repayment during
the lease term so that the interest rate for the remaining loan is roughly the same each financial year. Leasing
obligations are included in interest-bearing liabilities. Lease agreements in which the risks and benefits typical
of ownership remain with the lessor are classified as other leases. Leases paid under other lease agreements,
for instance operating leases, are recognised as expenses on a straight-line basis over the lease term.
IMPAIRMENT
At the end of each reporting period, the Group makes an assessment of whether there are any indications
of asset impairment. If such indications exist, the recoverable amount of the asset is estimated. In addition,
goodwill is assessed annually for its recoverable amount regardless of whether there are any signs of
impairment. Impairment is examined at the cash-generating unit level; in other words, the lowest level of
entity that is primarily independent of other entities and whose cash flows can be separated from other cash
flows. Impairment related to associates and other assets are tested on a company/asset basis.
The recoverable amount is the fair value of an asset less divestment costs, or the higher value in use. Value
in use means the present value of estimated future cash flows expected to arise from the asset or cash-
generating unit. Value in use is forecast on the basis of circumstances and expectations at the time of testing.
The discount rate takes into account the time value of money as well as the special risks involved for each
asset, different industry-specific capital structures in different lines of business, and the investors’ return
expectations for similar investments. An impairment loss is recorded when the carrying amount of an asset
is greater than its recoverable amount. If the impairment loss is allocable to a cash-flow-generating unit, it
is allocated first to reduce the goodwill of the unit and subsequently to reduce other assets of the unit. An
impairment loss is reversed if a change has occurred in circumstances and the recoverable amount of the
asset has changed since the impairment loss was recognised. An impairment loss recognised for goodwill is
not reversed in any circumstances.
Goodwill is tested for impairment annually at year end; for the 2015 financial year, testing took place on 31
December 2015. Impairment testing and the methods used are discussed in more detail in section 1.4 in the
‘Notes to the consolidated financial statements’.
FINANCIAL INCOME AND EXPENSE
Interest income and expense is recognised using the effective interest method, and dividends are recognised
when the right to dividends is established. Unrealised changes in value of items measured at fair value are
recognised in the statement of comprehensive income. These items relate to currency forward contracts.
Exchange rate gains or losses that arise from intercompany loans that are considered as part of the net
investment in the foreign entity are included, net of any deferred tax effects, in the translation reserve within the
equity. These exchange differences are recognised in other comprehensive income while accumulated exchange
differences are presented in the translation reserves in the equity.
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BORROWING COSTS
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset
forming part of the cost of that asset, are capitalised if it is likely that they will provide future economic benefit
and can be measured in a reliable manner. Other borrowing costs are recognised as an expense in the period in
which they are incurred.
INCOME TAXES
Tax expenses in the statement of comprehensive income consist of the tax based on taxable income for the year
and deferred taxes. Taxes based on taxable income for the year are calculated using the applicable tax rates.
Taxes are adjusted with any taxes arising from previous years. Maltese companies’ income taxes are recognised
and paid applying the nominal income tax rate which is 35%. Six sevenths of this tax is refunded when the
company pays dividend. Consequently the effective tax rate is 5%. The tax refund is recognised when the
dividend isdeclared. Taxes arising from items recognised directly in equity are presented as income tax relating
to other comprehensive income.
Deferred taxes have been calculated for all temporary differences between the carrying amount and taxable
amount. Deferred taxes have been calculated using the tax rates set at the end of the reporting period. Deferred
tax assets arising from taxable losses carried forward have been recognised up to the amount for which there is
likely to be taxable income in the future, and against which the temporary difference can be used.
TANGIBLE ASSETS
Tangible assets have been measured at historical cost less accumulated depreciation and impairment losses.
The initial cost of an asset comprises its purchase price, costs directly attributable to bringing the asset into
operation and the initial estimate of the rehabilitation and decommissioning obligation. Heavy production
machinery often contains components with different useful lives, and therefore the component approach is
applied. Material component replacements and repairs are capitalised. The repair and maintenance of lighter
machinery and other intangible items are recognised as expense when occurred.
Interest expenses are capitalised as part of the tangible asset’s value if and when the Group acquires or
constructs assets that satisfy the required terms and conditions.
Assets are depreciated over their useful lives using the straight-line method, except for the mineral resources
and ore reserves which are depreciated based on estimated or reported consumption. Land areas are not
depreciated. The estimated useful lives of assets are as follows:
Buildings
Machinery and equipment
Other tangible assets
15–50 years
3–15 years
5–10 years
Mines and mineral assets
Units-of-production method
The residual value of assets and their useful life are reviewed in connection with each financial statement and, if
necessary, they will be adjusted to reflect the changes that have occurred in the expected financial benefit. The sales
gains or losses arising from the decommissioning or divestment of tangible assets are included in other operating
income or expenses.
MINES AND MINERAL ASSETS
Measurement of mineral resources and ore reserves in business combinations
Mineral resources and ore reserves acquired in business combinations are recognised as separate assets. In
the recognition and measurement of mineral resources and ore reserves the Group utilises available third party
reports of the quantities, mineral content, estimated production costs and exploitation potential of the resource.
The probability of the ore reserve is also an essential factor. In the mining and minerals business, the probability
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is commonly described by classifying a mineral resource into categories such as ‘proven’, ‘probable’, ‘inferred’
and ‘hypothetical’. There are also generally accepted standards for the classification of mineral resources in
the business, such as the standards of the South African Code for the Reporting of Exploration Results, Mineral
Resources and Mineral Reserves (‘SAMREC’). The measurement of ore reserves is based on estimated market
prices, estimated production costs and quantities. In the Group’s statement of financial position, mineral resources
and ore reserves are presented as tangible assets. Rehabilitation liabilities related to mines are included in their
cost of acquisition, and corresponding provision is recognised on the statement of financial position.
Exploration and evaluation expenses of mineral resources
Exploration and evaluation expenditure relates to costs incurred on the exploration and evaluation of potential
mineral reserves and resources when new potential ore reserves are sought, for example by exploratory drilling.
Exploration and evaluation expenditure is carried forward as an asset if the Group expects such costs to be recouped
in full through the successful development of the area of interest; or alternatively by its sale; or if exploration and
evaluation activities in the area of interest have not yet reached a stage which permits the reasonable assessment
of the existence of economically recoverable reserves and active and significant operations in relation to the area
are either continuing or planned for the future. Exploration and evaluation expenditure includes material and other
direct costs incurred, for instance, by exploratory drilling and surveys. Overheads are included in the exploration
and evaluation asset to the degree to which they can be associated with finding and evaluating a specific mineral
resource. Exploration and evaluation assets are measured at cost and are transferred to mine development assets
when utilisation of the mine begins. The asset is then depreciated using the units-of-production method.
Exploration and evaluation assets are assessed for impairment if and when facts and circumstances suggest that
the carrying amount exceeds its recoverable amount. In particular, the impairment tests are carried out if the
period for which the Group has right to explore the specific area expires or will expire in the near future and future
exploration and evaluation activities are not planned for the area.
Exploration and evaluation assets acquired in conjunction with business combinations are accounted for at fair
value in accordance with the principles of IFRS 3.
Mine establishment costs
Mine establishment costs are capitalised as part of the mine’s acquisition cost and depreciated using the units-
of-production method when the production of the mine begins. The costs arising from changes in mining plan
after the production has begun are expensed as incurred.
Impairment
The value of mineral resources and ore reserves acquired in business combinations is tested for impairment if there are
indications of deterioration in the long-term ability to utilise the asset economically. In the test the cash flows generated
by the asset are assessed based on most recent information on the technical and economic utilisation of the asset.
GOODWILL AND INTANGIBLE ASSETS IDENTIFIED AT ACQUISITION
Goodwill represents the portion of acquisition cost that exceeds the Group’s share of the fair value at the time
of acquisition of the net assets of the acquired company. Instead of regular amortisation, goodwill is tested
annually for potential impairment. For this purpose, goodwill has been allocated to cash-generating units or, in
the case of an associated company, is included in the acquisition cost of the associate in question. Goodwill is
measured at original acquisition cost less impairment losses. Changes in purchase considerations, for example
due to earn-out arrangements, relating to acquisitions carried out before 2010 have been recognised against
goodwill in accordance with the earlier IFRS 3.
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The net assets of an entity acquired in a business combination are measured at fair value at the date of
acquisition. In connection with business combinations, the Group also identifies intangible assets that are
not necessarily recorded on the statement of financial position of the acquired entity. These assets include,
for instance, customer relationships, trademarks and technology. The assets are recognised at fair value and
amortised over their useful lives. The amortisation periods for these intangible assets are as follows:
Customer relationships: 2-5 years depending on contractual circumstances
Technology: 5-15 years
Trademarks: 1 year
RESEARCH AND DEVELOPMENT COSTS
Research costs are always recognised as expenses. Mine development costs are capitalised as part of mining
assets and depreciated on a unit of production basis. The development costs, which primarily relate to the
development of existing products, are expensed as incurred.
OTHER INTANGIBLE ASSETS
Other intangible assets are initially recognised on the statement of financial position at cost when the costs
can be reliably determined and it is probable that the expected financial benefits of those assets will be reaped
by the Group. Other intangible assets mainly relate to IT software utilised in support of the Group’s business
operations and they are amortised over 3-5 years.
INVENTORIES
Inventories are measured at acquisition cost or a lower probable net realisable value. Acquisition costs are
determined using the average cost method. The cost of finished goods and work in progress comprises
raw materials, direct labour expenses, other direct expenses, and an appropriate share of fixed and variable
production overheads based on the normal capacity of the production facilities. In open pit mining operations,
the removal costs of overburden and waste material (stripping costs) are included in the cost of inventory.
The net realisable value is the estimated selling price that is obtainable, less the estimated costs incurred in
completing the product and the selling expenses.
FINANCIAL ASSETS
Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or
loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets or as derivatives
designated as hedging instruments, as appropriate. The Group determines the classification of its financial
assets at initial recognition. All financial assets are recognised initially at fair value plus, in the case of
investments not at fair value through profit or loss, directly attributable transaction costs.
The Group’s financial assets include cash and cash equivalents, short-term deposits, money market
instruments, trade and other receivables, loan and other receivables, unquoted financial instruments and
derivative financial instruments.
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets
designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for
trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes
derivative financial instruments that are not designated as hedging instruments. Financial assets at fair value
through profit and loss are carried in the statement of financial position at fair value with changes in fair value
recognised in finance income or finance cost.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. After initial measurement, such financial assets are subsequently measured at
amortised cost using the effective interest rate method (EIR), less impairment. The EIR amortisation is included
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in finance income. The impairment losses are recognised as finance costs.
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as
held-to-maturity when the Group has the positive intention and ability to hold it to maturity. After initial
measurement, held-to-maturity investments are measured at amortised cost using the effective interest method,
less impairment.
Financial assets classified as available-for-sale are those which are neither classified as held for trading
nor designated at fair value through profit or loss. After initial measurement, available-for-sale financial
investments are subsequently measured either at fair value with unrealised gains or losses recognised as
other comprehensive income until the investment is derecognised, at which time the cumulative gain or loss
is recognised in finance income or cost, or determined to be impaired, at which time the cumulative loss is
recognised as finance costs and removed from the available-for-sale assets.
The fair value of financial instruments that are traded in active markets at each reporting date is determined by
reference to quoted market prices or dealer price quotations, without any deduction for transaction costs. For
financial instruments not traded in an active market, the fair value is determined using appropriate valuation
techniques. Such techniques may include: using recent arm’s length market transactions; reference to the
current fair value of another instrument that is substantially the same; discounted cash flow analysis; or other
valuation models.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
When necessary, the Group utilises derivative financial instruments, such as forward currency contracts
and interest rate swaps, to hedge its foreign currency risks and interest rate risks. Such derivative financial
instruments are initially recognised at fair value on the date on which a derivative contract is entered into and
are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is
positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in fair
value on derivatives are recognised on the income statement. The Group does not apply hedge accounting.
TREASURY SHARES
Own equity instruments, which are reacquired (treasury shares), are recognised at cost and deducted from the
paid-up unrestricted equity reserve. No gain or loss is recognised on the purchase, sale, issue or cancellation of
the Group’s own equity instruments.
FINANCIAL LIABILITIES
Liabilities are classified as current and non-current, and include both interest-bearing and interest-free liabilities.
Interest-bearing liabilities are liabilities that either include a contractual interest component, or are discounted to
reflect the fair value of the liability. In the earlier financial years discounted non-current liabilities have included
acquisition-related deferred conditional and unconditional liabilities. Certain conditional liabilities have included
an earn-out component that needed to be met to make the liability unconditional and fix the amount of the
future payment. Acquisition-related conditional purchase considerations that were payable in the Company’s
shares were presented as interest-free liabilities.
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit
or loss; loans and borrowings; or derivatives designated as hedging instruments, as appropriate. The Group
determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised
initially at fair value, and in the case of loans and borrowings, plus directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables, bank overdrafts, loans and borrowings, and
derivative financial instruments.
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After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost
using the effective interest rate method. Gains and losses are recognised on the income statement when the
liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process.
Amortised cost is calculated by taking into account any discounts or premiums and fees or costs that are an
integral part of the EIR. The EIR amortisation is included in finance cost.
PROVISIONS
Provisions are recognised when the Group has a present obligation (legal or constructive), as a result of a past
event and it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of
money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the
risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time
is recognised as a finance cost.
The provision for rehabilitation and decommissioning costs has arisen on operating mines and minerals’
processing facilities. These costs are provided at the present value of expected costs to settle the obligation
using estimated cash flows. The cash flows are discounted at a current pre-tax rate that reflects the risks specific
to the rehabilitation and decommissioning liability. The estimated future costs of decommissioning are reviewed
annually and adjusted as appropriate. Changes in the estimated future costs of or in the discount rate applied
to the rehabilitation obligation are added or deducted from the profit or loss or, respectively, decommissioning
obligation adjusted to the carrying value of the asset dismantled.
NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
The standard IFRS 5 requires that an entity must classify a non-current asset or a disposal group as assets
held for sale if the amount equivalent to its carrying amount is accumulated primarily from the sale of the item
rather than from its continued use. In this case, the asset or disposal group must be available for immediate
sale in its present condition under general and standard terms for the sale of such assets, and the sale must
be highly probable.
ACCOUNTING POLICIES REQUIRING MANAGEMENT DISCRETION AND KEY UNCERTAINTY
FACTORS FOR ESTIMATES
Preparation of the financial statements requires management to make estimates, assumptions and forecasts
regarding the future. Future developments may deviate significantly from the assumptions made if changes
occur in the business environment and/or business operations. In addition, management is required to use its
discretion in the application of the financial statements’ preparation principles.
The scope of the financial statements
The consolidated financial statements include the parent company Afarak Group Plc, its subsidiaries, joint
ventures and associated companies. Subsidiaries refer to companies in which the Group has control. The Group
gains control of a company when it holds more than half of the voting rights or otherwise exercises control. The
assessment of whether control is exercised requires management discretion.
The Group holds 51% of shares of Synergy Africa Limited. However, the shareholders of Synergy Africa Limited
have entered into a joint venture agreement with joint control over the company. The joint venture agreement
includes terms and conditions which give the other shareholder participating rights. Therefore, the Group’s
management has assessed, using its discretion, that the company and its subsidiaries are not consolidated into
the Group as subsidiaries but as joint ventures.
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IFRS 11 requires considering all facts and circumstances relating to joint arrangements instead of legal form
only, which influences the accounting treatment of the arrangements. Under the new standard Afarak’s
share in Synergy Africa Limited and its subsidiaries are consolidated under the equity method instead of the
proportionate method of consolidation. Synergy Africa Limited and its subsidiaries form a part of Afarak’s
mining operations in South Africa.
Allocation of the cost of a business combination
In accordance with IFRS 3, the acquisition cost of an acquired company is allocated to the assets of the acquired
company. The management has to use estimates when determining the fair value of identifiable assets and
liabilities. Determining a value for intangible assets, such as trademarks and customer relationships, requires
estimation and discretion because in most cases, no market value can be assigned to these assets. Determining
fair value for tangible assets requires particular judgment as well, since there are seldom active markets for
them where the fair value could be obtained. In these cases, the management has to select an appropriate
method for determining the value and must estimate future cash flows.
Impairment testing
Goodwill is tested annually for impairment, and assessments of whether there are indications of any other asset
impairment are made at each balance sheet date, and more often if needed. The recoverable amounts of cash-
generating units have been determined by means of calculations based on value in use. Preparation of these
calculations requires the use of estimates to predict future developments.
The forecasts used in the testing are based on the budgets and projections of the operative units, which strive
to identify any expansion investments and rearrangements. To prepare the estimates, efforts have been made
to collect background information from the operative business area management as well as from different
sources describing general market activity. The risk associated with the estimates is taken into account in the
discount rate used. The definition of components of discount rates applied in impairment testing requires
discretion, such as estimating the asset or business related risk premiums and average capital structure for
each business segment.
Tangible and intangible assets
Afarak Group management is required to use its discretion when determining the useful lives of various tangible
and intangible assets, which affects the amount of depreciation and thereby the carrying amount of the
assets concerned. The capitalising of mine development assets and exploration and evaluation expenditure, in
particular, requires the use of discretion. Similarly, management is required to use its discretion in determining
the useful lives of intangible assets identified in accordance with IFRS 3, and in determining the amortisation
period. This affects the financial result for the period through depreciation and change in deferred taxes.
Measurement of mineral resources and ore reserves
In the Group’s mining operations, estimates have to be applied in recognising mineral resources acquired in
business combinations as assets. In the recognition and measurement of mineral resources and ore reserves,
the Group utilises available third party analyses of the quantities, mineral content, estimated production costs
and exploitation potential of the resource. The probability of the ore reserve is also a key consideration. In the
mining and minerals business, the probability is commonly described by classifying a mineral resource into
categories such as ‘proven’, ‘probable’, ‘inferred’ and ‘hypothetical’. The measurement of ore reserves is based
on estimated market prices, estimated production costs and on the probability classification of the mineral
resource and quantities. Therefore, the Group’s management has to use its discretion in applying recognition
and measurement principles for mineral resources.
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Rehabilitation provisions
The Group assesses the rehabilitation liabilities associated with its mines and production facilities annually. The
amount of provision reflects the management’s best estimate of the rehabilitation costs. In determining the
fair value of the provision, assumptions and estimates are made in relation to discount rates, the expected cost
to rehabilitate the area and remove or cover the contaminated soil from the site, the expected timing of those
costs, and whether the obligations stem from past activity. These uncertainties may cause the actual costs to
differ from the provision which has been made.
APPLICATION OF NEW OR AMENDED IFRS STANDARDS
The Group applies new or amended IFRS standards and interpretations from their effective date or after they
have been endorsed for application within the EU.
In these financial statements the Group has applied the following new or amended standards and
interpretations:
» IFRS 3 Business Combinations The amendment is applied prospectively and clarifies that all contingent
consideration arrangements classified as liabilities (or assets) arising from a business combination should be
subsequently measured at fair value through profit or loss whether or not they fall within the scope of IAS 39.
This is consistent with the Group’s current accounting policy and, thus, this amendment did not impact the
Group’s accounting policy.
» IFRS 8 Operating Segments The amendments are applied retrospectively and clarify that:
• An entity must disclose the judgements made by management in applying the aggregation criteria including
a brief description of operating segments that have been aggregated and the economic characteristics used
to assess whether the segments are ‘similar’.
• The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is
reported to the chief operating decision maker, similar to the required disclosure for segment liabilities.
The Group has not applied the aggregation criteria in IFRS 8. The Group has presented the reconciliation of
segment assets to total assets in previous periods and continues to disclose the same in Note 1.5 in this
period’s financial statements.
» IFRS 3 Business Combinations The amendment is applied prospectively and clarifies for the scope
exceptions within IFRS 3 that:
•
Joint arrangements, not just joint ventures, are outside the scope of IFRS 3
• This scope exception applies only to the accounting in the financial statements of the joint arrangement itself.
Afarak Group is not a joint arrangement, and thus this amendment is not relevant for the Group and its
subsidiaries.
» IFRS 13 Fair Value Measurement The amendment is applied prospectively and clarifies that the portfolio
exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other
contracts within the scope of IAS 39. The Group does not apply the portfolio exception in IFRS 13.
The Group will apply the following new or amended standards and interpretations in the financial statements for
the year 2016 or subsequent financial years:
» IFRS 9 Financial Instruments will replace IAS 39 Financial Instruments: Recognition and measurement in its
entirety. The mandatory effective date of IFRS 9 is for annual periods beginning on or after 1 January 2018, early
adoption is allowed.
According to IFRS 9, at initial recognition, all financial assets are measured at fair value. For subsequent
measurement, financial assets that are debt instruments are classified at amortized cost or fair value either
through profit or loss or Other Comprehensive Income (OCI). The classification is based on the entity’s business
model for managing the financial asset and the contractual cash flow characteristics of the financial asset. The
new hedge accounting model is designed to align the accounting for hedging activities more closely with risk
management practices and to simplify certain aspects of hedge accounting. The Group is assessing the impact
of the standard to its financial statements.
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» IFRS 15 Revenue from Contracts with Customers as issued in May 2014, establishes a new five-step model
that will apply to revenue earned from a contract with a customer, regardless of the type of revenue or industry.
The principles in IFRS 15 provides a more structured approach to measuring and recognising revenue and will be
applied using the following five steps:
1.
2.
Identify the contract(s) with a customer
Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognise revenue when (or as) the entity satisfies a performance obligation
This new revenue standard is applicable to all entities and will supersede the current revenue recognition
requirements under IFRS. Either a full or modified retrospective application is required for annual periods
beginning on or after 1 January 2017. The Group is currently assessing the impact of IFRS 15 on the entities
within the Group.
» IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests in Joint Operations
The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint
operation, in which the activity of the joint operation constitutes a business, must apply the relevant IFRS 3
Business Combinations principles for business combinations accounting. The amendments also clarify that
a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in
the same joint operation while joint control is retained. In addition, a scope exclusion has been added to IFRS
11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting
entity, are under common control of the same ultimate controlling party. The amendments apply to both the
acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same
joint operation and are prospectively effective for annual periods beginning on or after 1 January 2016, with
early adoption permitted. These amendments will impact the Group to the extent that it undertakes future
transactions of this nature, as this accounting approach differs to that which it would currently apply.
» IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
The amendments address the conflict between IFRS 10 Consolidated Financial Statements and IAS 28 in
dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture.
The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute
a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognised in full.
Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however,
is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. These
amendments must be applied prospectively and are effective for annual periods beginning on or after 1 January
2016, with early adoption permitted. These amendments will impact the Group to the extent that it undertakes
future transactions of this nature, as this accounting approach differs to that which it would currently apply.
» IAS 1 Disclosure Initiative
The amendments to IAS 1 clarify, rather than significantly change, existing IAS 1 requirements.
108
The amendments clarify:
• The materiality requirements in IAS 1
• That specific line items in the statement(s) of profit or loss and OCI and the statement of financial position
may be disaggregated
• That entities have flexibility as to the order in which they present the notes to financial statements
• That the share of OCI of associates and joint ventures accounted for using the equity method must be
presented in aggregate as a single line item, and classified between those items that will or will not be
subsequently reclassified to profit or loss
Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented
in the statement of financial position and the statement(s) of profit or loss and other comprehensive income.
These amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption
permitted. The Group is assessing the impact of this amendment to its financial statements.
There are no other IFRS standards, amendments, IFRIC interpretations that are not yet effective and that would
be expected to have material impact to the Group’s financial statements.
1.3 BUSINESS COMBINATIONS AND ACQUISTION
OF NON-CONTROLLING INTERESTS
1.3.1 FINANCIAL YEAR 2015
Afarak did not carry out any acquisitions during the financial year 2015.
1.3.2 FINANCIAL YEAR 2014
Afarak did not carry out any acquisitions during the financial year 2014.
1.4 IMPAIRMENT TESTING
GENERAL PRINCIPLES OF IMPAIRMENT TESTING
Afarak Group has carried out impairment testing on goodwill and other assets as of 31 December 2015. The
following cash generating units were defined for the impairment testing:
» Speciality Alloys business (Türk Maadin Sirketi and Elektrowerk Weisweiler) with a vertically integrated
mining-beneficiation-smelting-sales operation in the specialty grade ferrochrome business; and
» South African minerals processing business (Mogale Alloys) which has ferroalloys smelting operations with
four furnaces;
The Group assesses at the end of each reporting period whether there is any indication that assets may be
impaired. If any such indication exists, the recoverable amount of these assets is estimated. Moreover, the
recoverable amount of any goodwill and unfinished investment projects will be estimated annually, irrespective
of whether there is an indication of impairment. As a result, no impairment was recognised.
At the end of 2015, there were no indications of impairment of any other assets, such as shares in
associated companies.
The joint venture Synergy Africa owns and operates mines in South Africa, These have been tested for
impairment at the joint venture level. This is further explained in note 13.
CHANGES IN GOODWILL DURING 2015
During the financial year 2015, the total goodwill of the Group decreased by EUR 4.7 million to a total of EUR
109
58.3 million. The decrease was mainly attributable to an exchange rate movement of EUR 4.4 million. A further
decrease of EUR 0.3 million was recognised resulting from the disposal of investment in associate. In 2014, the
synergy goodwill identified in the Mogale acquisition, related to Afarak Trading (previously known as RCS)
acting as a global sales entity for the whole Group, was initially tested within Speciality Alloys segment, into
which segment Afarak Trading (previously known as RCS) was included. To reflect the change in segments,
where Afarak Trading (previously known as RCS) is now divided to both segments to reflect the nature of
serving the whole Group, the Afarak Trading (previously known as RCS) synergy related goodwill is now
considered as a group asset and also annually allocated to both segments based on their relative revenue,
reflecting the volume of Afarak Trading (previously known as RCS) related benefits enjoyed by the CGU. The
changes are described below:
EUR ‘000
Goodwill 1.1.2015
Disposal of investment in associate
Exchange rate movement
Goodwill 31.12.2015
Speciality Alloys Business
FerroAlloys Business
Group Total
41,412
-307
-671
40,434
21,639
0
-3,724
17,915
63,051
-307
-4,395
58,349
The changes in goodwill during 2014 are presented below:
EUR ‘000
Goodwill 1.1.2014
Reclassification between segments
Exchange rate movement
Goodwill 31.12.2014
Speciality Alloys Business
FerroAlloys Business
Group Total
57,104
-9,052
-6,640
41,412
5,184
9,052
7,403
21,639
62,288
0
763
63,051
Goodwill as a ratio of the Group’s equity on 31 December 2015 and 31 December 2014 was as follows:
EUR ‘000
Goodwill
Equity
Goodwill/Equity, %
31.12.2015
31.12.2014
58,349
171,207
34%
63,051
182,245
35%
METHODOLOGY APPLIED IN IMPAIRMENT TESTING
For the cash generating units that were tested, the test was carried out by calculating their value in use.
Value in use has been calculated by discounting estimated future net cash flows based on the conditions and
assumptions prevailing at the time of the testing. Future cash flows have been projected for a five-year period,
after which a growth rate equalling projected long-term inflation has been applied (Speciality Alloys: 2%, South
African minerals processing: 6%). For the terminal year after the five-year estimation period, the essential
assumptions (e.g. revenue, variable costs and fixed costs) have been based at the estimation period’s previous
year’s figures.
110
The weighted average cost of capital (WACC) has been calculated separately for each cash generating unit and
testable asset, taking into account each business’s typical capital structures, investors’ average required rate
of return for similar investments and company size and operational location related factors, as well as risk-free
interest rates and margins for debt financing. The Group has used publicly available information on the peer
group companies’ capital structure, risk premium and other factors. The market interest rates reflect the rates
applicable on 31 December 2015.
The information used in the 31 December 2015 impairment testing is based on business units’ management
future forecasts, on general third-party industry expert or analyst reports where available, and to the extent
possible on the current business and asset base excluding any non-committed expansion plans. Forecasted
sales volumes and profitability are based on the management’s view on future development while also taking
past performance into account. Price forecasts are based on independent market forecasts. The cash flow
models have been prepared at constant foreign exchange rates. The management’s approach in preparing cash
flow forecasts has not changed significantly from the previous impairment testing.
Cash Generating Unit
Pre-tax discount rate
Speciality Alloys
South African minerals processing
2015
11.9%
24.1%
2014
14.9%
23.3%
The key reasons for the changes in the discount rates compared to 2014 were the changes in risk-free interest
rates in both cash-generating units.
The results of impairment testing have been evaluated by comparing the cash generating units’ recoverable
amount to the corresponding carrying amount based on the following judgment rules:
Recoverable amount divided by the carrying amount:
Conclusion:
< 100%
101-120%
121-150%
> 150%
Impairment
Slightly above
Clearly above
Significantly above
TEST RESULTS 31 DECEMBER 2015
The impairment test results were as follows:
Cash generating unit
Speciality Alloys
South African minerals processing
Goodwill
(MEUR),
pre-testing
Goodwill
(MEUR),
post-testing
Carrying amount
(MEUR),
pre-testing
40.4
17.9
40.4
17.9
63.4
66.4
Conclusion
Clearly above
Clearly above
111
The testable asset base (carrying amount) includes goodwill, intangible and tangible assets and net working
capital less provisions and deferred tax liabilities (in relation to purchase price allocation entries).
Key background and assumptions used in the cash flow forecasts of the impairment testing process are
summarised in the following table:
Cash generating unit
Sales volume
Sales prices
Costs
Speciality Alloys business
FeCr:
26,000 – 31,000 t/a
Lumpy Cr ore: 21,000 –
29,000 t/a
LC/ULC ferrochrome
with average Cr content
of 70 %, based on
external experts (Heinz
Pariser) price forecasts
Raw material costs
generally change in
line with sales price;
other costs growing at
inflation rate
South African minerals processing
Metal alloys: 81,000 –
85,000 t/a
Based on external
experts (Heinz Pariser)
metal alloys price
forecasts
Raw material costs
generally change in
line with sales price;
other costs growing at
inflation rate
Moreover, the USD/ZAR foreign exchange rate affects significantly the testing of the South African minerals
business. The foreign exchange rate used in the test was 13.55.
SENSITIVITY ANALYSIS OF THE IMPAIRMENT TESTS
The Group has analysed the sensitivity of the impairment test results by estimating how the essential
assumptions should change in order for the recoverable amount to be equal to the carrying amount. The
results of this sensitivity analysis as of 31 December 2015 are given below:
Cash generating unit
Speciality Alloys
Change in pre-
tax discount rate
(compared to the
level used in testing)
4.3% - points
South African minerals processing
10.2% - points
Change in free cash
flow (annual average)
-31.5%
-32.5%
Change in CGU’s
average EBITDA
margin
-3.8% - points
-7.7% - points
1.5 OPERATING SEGMENTS
Afarak Group has two operating segments, FerroAlloys and Speciality Alloys, which are also the reporting
segments. The operating segments are organised based on their products and production processes. The
current reporting structure was adopted in 2011. The Group’s executive management reviews the operating
results of the segments for the purpose of making decisions on resource allocation and performance
assessment. Segment performance is measured based on revenue as well as earnings before interest,
taxes, depreciation and amortisation (EBITDA) as included in the internal management reports and defined
consistently with the consolidated EBITDA.
112
The FerroAlloys business consists of the processing plant Mogale Alloys, Vlakpoort mine and the joint ventures,
the Stellite mine and Mecklenburg mine in South Africa. The business produces chrome ore, charge chrome,
charge chrome, medium carbon ferrochrome and silicomanganese for sale to global markets.
The Speciality Alloys business consists of Türk Maadin Şirketi A.S (“TMS”), the mining and beneficiation
operation in Turkey, and Elektrowerk Weisweiler GmbH (“EWW”), the chromite concentrate processing plant
in Germany. TMS supplies EWW with high quality chromite concentrate which produces speciality products
including specialised low carbon and ultra low carbon ferrochrome. Chrome ore from TMS that is not utilised for
the production of specialised low carbon ferrochrome is sold to the market.
The revenue and costs of the Group’s sales and marketing arm Afarak Trading (previously known as RCS) is allocated
to the segments in proportion to their sales. Afarak’s other operations, including the Group’s headquarters and other
Group companies that do not have significant operations, are presented as unallocated items.
Intercompany transactions are carried out on an arm’s length basis. The transactions between the segments have
been limited but the parent company has provided funding and administrative services to the Group’s subsidiaries.
The accounting policies applied in the operating segment information are the same as those in the consolidated
financial statements.
Operating segment information 2015
Year ended 31.12.2015
EUR ‘000
Speciality
Alloys
Ferro
Alloys
Segments
total
Unallocated
items
Eliminations
Consolidated
Group
External revenue
Rendering of services
Sale of goods
Total external revenue
Inter-segment revenue
Total revenue
0
95,555
95,555
924
259
91,515
91,774
0
259
187,070
187,329
924
96,480
91,774
188,254
Items related to associates (core)
Items related to joint ventures (core)
0
0
0
-414
0
-414
125
257
382
1,133
1,516
0
0
Segment EBITDA
12,740
7,467
20,207
-3,017
Depreciation and amortisation
-2,617
-4,678
-7,295
Impairment
0
0
0
-7
0
0
0
0
-2,058
-2,0581
0
0
0
0
0
384
187,327
187,711
0
187,711
0
-414
17,190
-7,302
0
10,123
2,789
12,912
-3,024
0
9,888
Segment operating
profit/loss
Finance income
Finance cost
Income taxes
Profit / loss for the period from continuing Operations
Profit for the period from discontinued operations
Profit / loss for the period
7,906
-11,274
1,236
7,756
782
113
8,539
Segment’s assets 2
150,216
129,187
279,303
12,519
-24,929
266,994
Segment’s liabilities
52,367
58,855
111,122
2,565
-18,000
95,787
Other disclosures
Gross capital expenditure 3
4,035
3,952
7,988
Investments in associates 4
Investment in joint ventures 4
0
0
0
0
-23,218
-23,218
Provisions 4
2,954
6,455
9,308
0
0
0
0
0
0
0
0
7,988
0
-23,218
9,408
1. Inter-segment items are eliminated on consolidation.
2. The assets and liabilities of the segments represent items that these segments use in their activities or that can be reasonably
allocated to them.
3. Capital expenditure consists of net increase in the year.
4. Balance sheet values.
Operating segment information 2014
Speciality
Alloys
Ferro
Alloys
Segments
total
Unallocated
items
Eliminations
Consolidated
Group
Year ended 31.12.2014
EUR ‘000
External revenue
Rendering of services
Sale of goods
Total external revenue
Inter-segment revenue
Total revenue
0
160
97,836
74,658
97,836
74,818
0
0
160
172,494
172,654
0
97,836
74,818
172,654
Items related to associates (core)
3
Items related to joint ventures (core)
3
-3,311
6
-3,311
Segment EBITDA
7,865
3,084
10,949
-2,502
15
0
15
132
147
0
0
0
0
0
-132
-132
0
0
0
175
172,494
172,669
0
172,669
6
-3,311
8,447
Depreciation and amortisation
-2,206
-4,466
-6,672
Impairment
0
0
0
-45
-5
Segment operating profit/loss
5,659
-1,381
4,277
-2,552
0
0
0
Finance income
Finance cost
Income taxes
114
Profit / loss for the period from continuing Operations
Profit for the period from discontinued operations
Profit / loss for the period
-6,717
-5
1,725
4,166
-5,431
12
472
1,773
2,245
Segment’s assets 2
148,276
146,514
294,790
9,645
-14,146
290,289
Segment’s liabilities 2
68,419
52,451
120,870
3,720
-16,547
108,044
Other disclosures
Gross capital expenditure 3
1,213
13,598
Investments in associates 4
Investment in joint ventures 4
70
0
14,811
92
22
-19,580
-19,580
Provisions 4
3,189
7,025
10,214
0
0
0
0
0
0
0
0
14,811
92
-19,580
10,214
1. Inter-segment items are eliminated on consolidation.
2. The assets and liabilities of the segments represent items that these segments use in their activities or that can be reasonably
allocated to them.
3. Capital expenditure consists of net increase in the year.
4. Balance sheet values.
Geographical information - Revenues from external customers
EUR ‘000
Other EU countries
United States
China
Africa
Finland
Other countries
Total revenue
Non-current assets
EUR ‘000
Africa
Other EU countries
Finland
Other countries
Total
2015
74,945
42,244
15,407
23,834
5,704
2014
77,530
41,282
3,090
23,351
7,040
25,577
20,376
187,711
172,669
2015
46,183
6,636
14
7,741
2014
53,835
5,177
25
9,385
60,574
68,422
Revenue figures are based on
the location of the customers.
The largest customer of the
Group is in the Speciality Alloys
business segment and represents
approximately 14% (16%) of the
Group’s revenue in 2015. In the
FerroAlloys business segment
the largest customer represents
5% (7%) of the Group’s revenue
in 2015.
In presenting geographical
information, assets are based
on the location of the assets.
Non-current assets consist of
property, plant and equipment,
intangible assets and investments
in associates.
1.6 NOTES TO THE INCOME STATEMENT
115
1. Revenue
EUR ‘000
Sale of goods
Rendering of services
Total
2. Other operating income
EUR ‘000
Gain on disposal of tangible and intangible assets
Gain on disposal of investments
Rental income
Other
Total
2015
187,327
384
187,711
2015
50
57
307
1,917
2,331
2014
172,494
175
172,669
2014
45
1,211
297
1,817
3,370
3. Employee benefits
EUR ‘000
Salaries and wages
Share-based payments
Pensions costs
Other employee related costs
Total
Average personnel during the accounting period
116
Speciality Alloys business
FerroAlloys business
Group Management and other operations
Total
Personnel at the end of the accounting period
Speciality Alloys business
FerroAlloys business
Group Management and other operations
Total
2015
-16,330
-293
237
-1,450
-17,836
2015
372
365
5
742
2015
402
365
6
773
2014
-14,325
-154
-241
-1,403
-16,123
2014
387
335
4
726
2014
355
339
4
698
4. Depreciation, amortisation and impairment
Depreciation / amortisation by asset category
2015
2014
Intangible assets
Clientele and technology
Other intangible assets
Total
Property, plant and equipment
Buildings and constructions
Machinery and equipment
Other tangible assets
Total
Impairment by asset category
Other intangible assets
Total
-1,740
-350
-2,090
-523
-3,280
-1,409
-5,212
0
0
-2,563
-341
-2,904
-398
-2,142
-1,273
-3,813
-5
-5
5. Other operating expenses
EUR ‘000
Rental costs
External services1
Travel expenses
Other operating expenses2
Total
2015
-673
-3,122
-1,059
-7,074
-11,928
2014
-825
-2,796
-855
-7,136
-11,612
1. Audit fees paid to EY totalled EUR 365 (2014: 412) thousand in the financial year. The fees for non-audit
services totalled EUR 29 (2014: 20) thousand.
2. Other operating expenses include shutdown costs of EUR 2,093 (2014: 2,324) thousand in the financial year.
117
6. Financial income and expense
EUR '000
Finance income
Interest income on loans and trade receivables
Foreign exchange gains
Other finance income
Total
Finance expense
Interest expense on financial liabilities measured at amortised cost
Impairment losses on receivables
Foreign exchange losses
Loss on assets at fair value
Loss on disposal, assets available for sale
Unwinding of discount, provisions
Other finance expenses
Total
Net finance expense
7. Income taxes
EUR '000
Income tax for the period
Income tax for previous years
Deferred taxes
Other direct taxes
Income tax for continuing operations
Income tax for discontinued operations
Total
2015
1,327
6,530
49
7,906
-1,734
-1
-8,867
0
-113
-642
83
-11,274
-3,368
2015
494
0
742
0
1,236
0
1,236
2014
1,785
2,379
2
4,166
-1,223
0
-3,141
-461
0
-546
-61
-5,431
-1,265
2014
-772
-24
808
0
12
0
12
EUR '000
Profit before taxes
Income tax calculated at income tax rate
Tax exempt income
Difference between domestic and foreign tax rates
Tax credit
Items recognised only for taxation purposes
118
Income tax for previous years
Income from JV and associates
Impairment losses
Tax losses not recognised as deferred tax assets
Non-tax deductible expenses
Previously unrecognised tax losses now recognised
Total adjustments
Income tax recognised
2015
7,303
-1,461
60
-1,542
3,717
557
0
83
0
-352
-96
270
2,697
1,236
2014
2,233
-447
639
432
2,031
-1,218
-24
-661
-1
-461
-434
156
459
12
On 31 December 2015 the Group companies had unused tax losses totalling EUR 24.6 (24.2) million for which
the Group has not recognised deferred tax assets.
8. Discontinued operations
EUR ‘000
Other operating income
Other operating expenses
Gain on disposal from discontinued operations
Profit for the period
2015
580
-357
560
783
2014
1,286
-713
1,200
1,773
The discontinued operation items relate to expenses in connection with the sawmill machinery and
environmental cleaning costs. The Group sold part of the saw mill equipment which positively affected profit by
EUR 0.8 (2014: 1.8) million that includes a release of EUR 0.2 (2014: 0.6) million from the provision in relation to
the discontinued wood business.
9. Earnings per share
2015
2014
Continuing
operations
Discontinued
operations
Total
Continuing
operations
Discontinued
operations
Profit attributable to owners of the
8,071
783
8,854
1,085
1,773
Total
2,858
parent company (EUR '000)
Weighted average number of
shares, basic (1,000)
Basic earnings per share
(EUR) total
Profit attributable to owners of the
parent company (EUR '000)
Weighted average number of
shares, basic (1,000)
Effect of share options on issue
(1,000)
Weighted average number of
shares, diluted (1,000)
Diluted earnings per share
(EUR) total
256,652
256,652
256,652
249,280
249,280
249,280
0.03
0.01
0.03
0.00
0.01
0.01
8,071
783
8,854
1,085
1,773
2,858
119
256,652
256,652
256,652
249,280
249,280
249,280
3,197
3,197
3,197
3,798
3,798
3,798
259,849
259,849
259,849
253,077
253,077
253,077
0.03
0.00
0.03
0.00
0.01
0.01
Basic earnings per share is calculated by dividing profit attributable to the owners of the parent company by
weighted average number of shares during the financial year.
When calculating the diluted earnings per share, all convertible securities with a potential dilutive effect are
assumed to be converted into shares. Share options have a dilutive effect if the exercise price is lower than the
share price. The diluted number of shares is the number of shares that will be issued free of charge when share
options are exercised since with the funds received from exercising options, the Company is not able to issue the
same number of shares at fair value. The fair value of shares is based on average share price of the period.
1.7 NOTES TO THE STATEMENT OF FINANCIAL POSITION
10. Property, plant and equipment
EUR '000
Land and
water
property
Buildings and
constructions
Machinery
and
equipment
Mines and
mineral
assets
Other
tangible
assets
Total
Balance at 1.1.2015
2,346
Additions
Disposals
Reclass between items
Effect of movements in exchange
rates
6,515
1,520
54,475
4,971
-893
-28
11,802
437
2,915
78,053
408
-5
339
7,336
-898
311
-297
-535
-8,391
-1,308
-329
-10,860
Balance at 31.12.2015
2,049
7,500
50,134
10,931
3,328
73,942
Accumulated depreciation and
impairment 1.1.2015
Depreciation
Disposals
Reclass between items
-3,060
-18,256
-7,230
-1,534
-30,080
-523
-3,280
-1,164
54
-245
3
-5,212
57
0
Effect of movements in exchange
rates
Accumulated depreciation and
impairment at 31.12.2015
Carrying amount at 1.1.2015
Carrying amount at 31.12.2015
Balance at 1.1.2014
120
Additions
Disposals
Reclass between items
Effect of movements in exchange
rates
257
3,455
840
300
4,852
0
-3,326
-18,027
-7,554
-1,476
-30,383
2,346
2,049
2,283
3,455
4,174
6,148
183
4,572
3,377
11,092
210
36,219
32,107
39,721
13,646
-277
-24
63
184
1,409
500
1,381
1,852
2,502
331
-22
46
59
47,973
43,559
61,745
14,369
-298
22
2,215
Balance at 31.12.2014
2,346
6,515
54,475
11,802
2,915
78,053
Accumulated depreciation and
impairment 1.1.2014
Depreciation
Disposals
Reclass between items
Effect of movements in exchange
rates
Accumulated depreciation and
impairment at 31.12.2014
-2,585
-15,735
-5,802
-1,363
-25,485
-398
-2,142
233
-1,135
-138
-3,813
22
-55
233
22
-1,036
-77
-612
-293
0
-3,060
-18,256
-7,230
-1,534
-30,080
Carrying amount at 1.1.2014
Carrying amount at 31.12.2014
2,283
2,346
3,563
3,455
23,986
36,219
5,290
4,572
1,138
1,381
36,260
47,973
Machinery and equipment include the prepayments made for them. In 2014 Mogale Alloys capitalisated interest
amounting EUR 0.4 million before the commissioning of the refining and granulation plant to produce medium
carbon ferrochrome.
11. Intangible assets
EUR '000
Goodwill
Intangible
assets identified
in acquisitions
Other intangible
assets
Exploration
and evaluation
assets
Balance at 1.1.2015
110,481
109,232
4,863
Additions
Disposals
Reclass between items
Effect of movements in exchange
rates
-307
123
-3
30
-11,720
-6,339
-645
-107
-18,811
699
529
Total
225,275
652
-310
30
Balance at 31.12.2015
98,454
102,893
4,368
1,121
206,836
Accumulated amortisation and
impairment 1.1.2015
-47,430
-92,683
Amortisation
Impairment
Reclass between items
7,325
Effect of movements in exchange
rates
-1,740
4,982
257
-1,753
-338
174
3,455
0
-12
840
-141,866
-2,090
0
12,481
4,852
Accumulated amortisation and
impairment at 31.12.2015
-40,105
-89,441
-1,914
-12
-131,472
Carrying amount at 1.1.2015
Carrying amount at 31.12.2015
63,051
58,349
16,549
13,452
3,110
2,454
Balance at 1.1.2014
Additions
Reclass between items
108,167
107,890
4,581
Effect of movements in exchange
rates
2,314
1,342
699
1,109
329
356
121
83,409
75,364
220,967
441
24
14
3,843
85
24
173
Balance at 31.12.2014
110,481
109,232
4,863
699
225,275
Accumulated amortisation and
impairment at 1.1.2014
Amortisation
Impairment
-45,879
-89,409
-1,350
0
-136,639
-2,563
-341
-5
-57
-2,904
-5
-2,319
Effect of movements in exchange
rates
-1,551
-711
Accumulated amortisation and
impairment at 31.12.2014
-47,430
-92,683
-1,753
0
-141,866
Carrying amount at 1.1.2014
Carrying amount at 31.12.2014
62,288
63,051
18,481
16,549
3,231
3,110
329
699
84,329
83,409
Other intangible assets include the prepayments made for them. Exploration and evaluation assets consist of
mine projects in variours mining projects in Turkey and South Africa.
12. Investments in associates
EUR '000
Domicile
2015
Non-core associates
Incap Furniture Oy *
Finland
Valtimo Components Oyj * Finland
122
Value at
reporting
date
Ownership
(%)
Reporting
date
Assets
Liabilities
Revenue
Profit
24.1
24.9
0
0
0
EUR '000
Domicile
Value at
reporting
date
Ownership
(%)
Reporting
date
Assets
Liabilities
Revenue
Profit
2014
Core associates
Specialty Super Alloys
SSA Inc
United
States
Non-core associates
Incap Furniture Oy *
Finland
Valtimo Components Oyj * Finland
92
92
0
0
0
20.0
31.12.2014
578
116
820
27
24.1
24.9
* Incap Furniture Oy and Valtimo Components Oyj are in a corporate restructuring process.
The income statement related items of associated companies of Speciality Alloys and FerroAlloys business
segments (´core-associates´) are presented above EBIT; the non-core associates in financial items.
During the financial year 2015, Afarak divested
EUR ‘000
1.1.2015
its holding in the associated company Speciality
Share of profit
Super Alloys Inc. This led to a loss on sale of
investment in associate of EUR 0.3 million.
Exchange rate differences
Proceeds from disposal
Movements in 2015
During the financial year 2014, Afarak did not
acquire or dispose holdings in associates.
Movements in 2014
EUR ‘000
Share of profit
Exchange rate differences
31.12.2015
1.1.2014
31.12.2014
92
2
15
-109
0
76
6
10
92
13. Investments in joint ventures
At the end of the financial year 2015, the Group had joint control over one jointly controlled entity, Synergy Africa
Ltd, in which the Group has a 51% interest. The acquisition of Chromex Mining Ltd, a UK company with mining
operations and prospecting rights in southern Africa, was carried out by this joint venture company. Synergy Af-
rica Group has been consolidated as a joint venture company in the financial reporting of the Group starting at 31
December 2010. Following the 2012 changes in the accounting standards the company changed the accounting
method from proportionate consolidation method to equity method.
Summarised financial statement information (100% share) of the joint venture, based on its IFRS financial state-
ments, and reconciliation with the carrying amount of the investment in the Group’s consolidated financial state-
123
ments are set out below:
EUR '000
Revenue
Other operating income
Materials and supplies
Employee benefits expense
Depreciation and amortisation
Other operating expenses
Impairment, net
Operating profit / loss
Finance income
Finance cost
Loss before taxes
Income taxes
Loss for the year
Group's share of loss for the year
Loss attributable to:
Joint venture owners
Non-controlling interests
2015
18,954
289
-13,595
-1,124
-1,855
-2,017
0
2014
11,153
212
-7,895
-1,493
-1,798
-1,980
-4,235
652
-6,036
1,891
-3,093
-549
306
-243
-124
-86
-38
-124
382
-2,256
-7,911
1,418
-6,492
-3,311
-2,839
-472
-3,311
Assets and liabilities
EUR '000
Non-current assets
Intangible assets
Mines and mineral assets
Property, plant and equipment
Non-current assets total
124
Current assets
Inventories
Trade and other receivables
Trade and other receivables from JV owners
Cash and cash equivalents
Current assets total
Total assets
Non-current liabilities
Interest-bearing debt
Interest-bearing debt to JV owners
Provisions
Deferred tax liability
Other non-current liabilities to JV owners
Non-current liabilities total
Current liabilities
Trade and other payables
Trade and other payables to JV owners
Current liabilities total
Total liabilities
Net Liability
2015
2014
4,187
24,543
2,824
31,555
1,239
419
747
1,264
3,669
2,668
30,712
3,761
37,141
1,911
546
166
511
3,134
35,224
40,275
26,423
32,573
1,665
7,046
5,624
73,332
5,255
2,163
7,418
23,679
34,406
1,725
8,820
5,004
73,634
3,648
1,385
5,033
80,750
78,667
-45,526
-38,392
Proportion of Group's Ownership
51 %
51 %
Carrying amount of Joint venture
-23,218
-19,580
At the end of 2015, Synergy Africa Group had 65 (56) employees. The average number of employees in full year
2015 was 63 (59).
IMPAIRMENT REVIEW OF JOINT VENTURE
General principles of impairment testing
Synergy Africa Ltd, the South African mining business which operates Stellite and Mecklenburg mines has carried
out impairment testing on assets as at 31 December 2015.
The statement of financial position of Synergy Africa has been assessed whether there is any indication that assets
may be impaired. If any such indication exists, the recoverable amount of these assets is estimated. Moreover,
the recoverable amount of any goodwill and unfinished investment projects is estimated annually, irrespective of
whether there is an indication of impairment. The South African mining business did not have any goodwill on its
statement of financial position at the end of the financial year 2015. Similarly to 2014, in view of the weak situation
in the chrome market, Synergy Group assessesed whether there is any indication of impairment and consequently
the assets of the business were tested for impairment. Contrary to the impairment recognised in the previous
year in view of the weak market conditions, no further impairment was recognised in 2015 subsequent to the
impairment assessment made on the assets of Synergy Group.
125
Methodology applied in impairment testing
For the cash generating units that were tested, the test was carried out by calculating their value in use. Value in
use has been calculated by discounting estimated future net cash flows based on the conditions and assumptions
prevailing at the time of the testing. Future cash flows have been projected for the life of mine with a 6% growth rate
equalling projected long-term inflation has been applied.
The weighted average cost of capital (WACC) has been calculated taking into account the business’s typical capital
structures, investors’ average required rate of return for similar investments and company size and operational
location related factors, as well as risk-free interest rates and margins for debt financing. Synergy Africa has used
publicly available information on the peer group companies’ capital structure, risk premium and other factors. The
market interest rates reflect the rates applicable on 31 December 2015.
The information used in the 31 December 2015 impairment testing is based on business units’ management future
forecasts, on general third-party industry expert or analyst reports where available, and to the extent possible on
the current business and asset base excluding any non-committed expansion plans. Forecasted sales volumes and
profitability are based on the management’s view on future development while also taking past performance into
account. Price forecasts are based on independent market forecasts. The cash flow models have been prepared at
constant foreign exchange rates. The underground production in the models does not solely come from reserves,
as some come from resources that are not yet converted to reserves. This increases the risk that some of the grades
may differ, and tonnes could possibly not be economically extractable. There is also the risk that costs could be
different than anticipated even though due care was taken in the cost evaluation.
The pre-tax discount rates applied in 2015 impairment testing was 23.64% for Mecklenburg mine and 21.52% for
Stellite mine. The cash flows in the Stellite mine impairment test review include both opencast and recycling of
tailing dam by way of using the shaking table technology. The cash flows in the Mecklenburg mine impairment test
review only includes underground operation. The Stellite mine model has a life of mine of 30 years whereas the
Mecklenburg mine model has a life of mine of 16 years.
The results of impairment testing have been evaluated by comparing the cash generating units’ recoverable amount
to the corresponding carrying amount.
Test results 31 December 2015
As a result of the tests carried out Synergy Africa did not pass any impairment as the impairment tests indicated that
the recoverable amounts from the mines exceed the carrying amount and consequently no impairment was required.
The testable asset base includes intangible and tangible assets and net working capital less provisions and deferred tax
liabilities (in relation to purchase price allocation entries).
The USD/ZAR foreign exchange rate affects significantly the testing of the South African minerals business. The
foreign exchange rate used in the test was 15.75.
126
Key background and assumptions used in the cash flow forecasts of the impairment testing process are
summarised in the following table:
Cash generating unit
Sales volume
Sales prices
Costs
Stellite mine
Concentrate:
Opencast mining of
169,500t/a in 2016;
193,000 in 2017 and
2018; 168,000 in 2019;
and 72,000 as from
2020 till 2045
PGM:
5,591oz t/a from 2018
till 2045
SA Chrome Ore – UG2
CIF adjusted for FOM,
based on external
experts (Heinz Pariser)
price forecasts
2018 forecast price for
PGM based on current
market price
Mecklenburg mine
ROM:
Underground 5,300t/a
in 2016; 140,600t/a in
2017; and is planned to
increase to an average
of 380,000t/a as from
2018 till 2031
SA Chrome Ore –
Lumpy CIF adjusted for
FOM, based on external
experts (Heinz Pariser)
price forecasts
The costs applied for
opencast operation is
based on the current
historical cost adjusted
for a reduction in
production cost per
ton as a result of higher
recoveries due to the
implementation of new
technology. This cost
has been estimated and
adjusted for inflation
for the opencast life of
mine. The cost over the
life of mine excluding
inflation is estimated to
be ZAR 745 per saleable
ton of chrome.
The costs for
underground are based
on past experiences
of our mining team in
underground operations
adjusted for inflation
rate. The cost over the
life of mine excluding
inflation is estimated to
be ZAR 550 per saleable
ton of chrome.
Synergy Africa has analysed the sensitivity of the impairment test results by estimating how the essential
assumptions should change in order for the recoverable amount to be equal to the carrying amount. The results
of this sensitivity analysis as of 31 December 2015 are given below:
Cash generating unit
Stellite Mine
Mecklenburg Mine
Change in pre-
tax discount rate
(compared to the
level used in testing)
Change in
free cash flow
(annual average)
Change in CGU’s
average Cost of
Production
Change in CGU’s
average EBITDA
margin
15.8% - points
12.7% - points
-57.6%
-60.0%
3.3%
9.9%
-19.6%- points
-33.1% - points
127
14. Financial assets and liabilities
31.12.2015, EUR '000
Non-current financial
assets
Non-current interest-bearing
receivables
Trade and other receivables *
Current financial assets
Current interest-bearing
receivables
Trade and other receivables *
Other financial assets
Cash and cash equivalents
Carrying amount of
financial assets
Fair value of financial assets
Non-current financial
liabilities
Non-current interest-bearing
liabilities
Other non-current liabilities
Current financial liabilities
Current interest-bearing
liabilities
Trade and other payables *
Derivatives
Carrying amount of
financial liabilities
Fair value of financial liabilities
Assets available-
for-sale
Assets held-to-
maturity
Loans and other
receivables
Liabilities
measured at
amortised cost
Total carrying
amount
597
33,165
441
3,519
23,407
0
19,644
80,176
80,176
0
0
597
597
33,763
441
3,519
23,407
0
19,644
80,773
80,773
2,975
1,969
12,133
11,783
0
0
0
2,975
1,969
12,133
11,783
0
28,860
28,860
28,860
28,860
31.12.2014, EUR '000
Non-current financial
assets
Non-current interest-bearing
receivables
Trade and other receivables *
Current financial assets
128
Current interest-bearing
receivables
Trade and other receivables *
Other financial assets
Cash and cash equivalents
Carrying amount of
financial assets
Fair value of financial assets
Non-current financial
liabilities
Non-current interest-bearing
liabilities
Other non-current liabilities
Current financial liabilities
Current interest-bearing
liabilities
Trade and other payables *
Derivatives
Carrying amount of
financial liabilities
Fair value of financial liabilities
Assets available-
for-sale
Assets held-to-
maturity
Loans and other
receivables
Liabilities
measured at
amortised cost
Total carrying
amount
587
34,406
499
9,213
19,447
1,656
13,332
78,554
78,554
0
0
587
587
34,993
499
9,213
19,447
1,656
13,332
79,141
79,141
0
0
6,263
6,263
42
42
5,866
5,866
22,052
4,066
22,052
4,066
38,289
38,289
38,289
38,289
* Non-financial assets and liabilities are not included in the figures
FAIR VALUE HIERARCHY
31.12.2015, EUR '000
Carrying amounts at the end of the reporting period
Financial assets at fair value
Level 1
Level 2
Level 3
Derivatives
Other financial assets
Total
Available-for-sale financial assets
Other financial assets
Financial liabilities at fair value
Derivatives
Total
129
0
0
31.12.2014, EUR ‘000
Carrying amounts at the end of the reporting period
Financial assets at fair value
Level 1
Level 2
Level 3
Derivatives
Other financial assets
Total
Available-for-sale financial assets
Other financial assets
Financial liabilities at fair value
Derivatives
Total
31.12.2015, EUR ‘000
Level 3 reconciliation
Acquisition cost at 1.1.2015
Acquisition cost at 31.12.2015
Accumulated impairment losses at 1.1.2015
Accumulated impairment losses at 31.12.2015
Carrying amount at 31.12.2015
4,066
4,066
40
40
-40
-40
0
31.12.2014, EUR ‘000
Level 3 reconciliation
Acquisition cost at 1.1.2014
Acquisition cost at 31.12.2014
Accumulated impairment losses at 1.1.2014
Accumulated impairment losses at 31.12.2014
Carrying amount at 31.12.2014
130
Interest-bearing debt
EUR '000
Non-current
Bank loans
Subordinated loans
Finance lease liabilities
Total
Current
Bank loans
Finance lease liabilities
Cheque account with overdraft facility
Other interest-bearing liabilities
Total
EUR '000
Finance lease liabilities, minimum lease payments
No later than 1 year
Later than 1 year and not later than 5 years
Finance lease liabilities, present value of minimum lease payments
No later than 1 year
Later than 1 year and not later than 5 years
40
40
-40
-40
0
2015
2014
2,970
5
0
2,975
5,071
22
4,532
2,508
12,133
6,238
5
20
6,263
5,039
70
757
0
5,866
2015
2014
22
0
22
22
0
22
70
20
90
70
20
90
FINANCIAL RISKS AND RISK MANAGEMENT
The Board of Directors of Afarak Group Plc has outlined the key risks of the Group in the Board of Directors’
Report. In the following section, the financial and commodity risks are presented in more detail with the related
sensitivity analyses.
SUMMARY ON FINANCIAL ASSETS AND LOAN ARRANGEMENTS
Financial assets 31 December 2015
In addition to the operating result and the cash flow generated from it the factors described below have most
significantly affected the year-on-year change in the Group’s financial assets at the 2015 closing date:
The Group’s financial assets decreased in consequence of various capital expenditure project that the Group
conducted during the year. The capital expenditure related primarily to the Speciality Alloys segment where TMS
continued the investment of fines tailing processing plant at Kavak to increase annual mining volume and the new
dust exhaustion at EWW which was commissioned in December 2015. Capital expenditure for 2015 also included
the dryer in the ferrochrome plant at Mogale Alloys, replacement of the furnace refractories during the shutdown
period and the acquisition of new plant vehicles. At Vlakpoort mine the Group continued investing to ramp up the
bulk sample operation. The cash flow effect for capital expenditure totalled EUR 7.3 million during the year.
131
Also repayments of financial liabilities reduced the Group’s financial assets during the year.
On 31 December 2015, the cash and cash equivalents were invested mainly in interest-bearing EUR, ZAR and
USD denominated bank accounts. The Group companies have given pledged deposits for EUR 0.6 (4.6) million.
Other financial assets comprise interest-bearing loans and other receivables.
During the year Mogale Alloys has been granted an increase in the overdraft facility of ZAR 50 million to ZAR
100 million to better manage its working capital.
TMS has also been granted a loan facility during the year of USD 500 thousand to finance the capital
expenditure projects at Tavas and Kavak mines.
Interest-bearing debt 31 December 2015
» Floating rate loans from financial institutions total EUR 7.8 (11.0) million. Fixed rate loans total EUR 7.5 (1.1) million.
» The interest rate of the South African loans is tied to the market rate of JIBAR. The interest rate on 31
December 2015, based on market interest rates at that date, was 6.63 % (5.83%). The interest rate margin for
floating rate notes was 3.0% (3.0%) p.a.
» The interest rate of the Maltese bank loan facility is tied to the market rate of LIBOR. The interest rate on 31
December 2015, based on market interest rates at that date, was 0.54 % (0.26%). The interest rate margin for
floating rate notes was 3.75% (3.75%) p.a.
» The interest rate of the Turkish bank loan facility is tied to the market rate of LIBOR. The interest rate on 31
December 2015, based on market interest rates at that date, was 0.45 % (0.26%). The interest rate margin for the
fixed rate notes was 0.75% (0.00%) p.a.
Capital Management
The Group’s capital management objective is to maintain the ability to continue as a going concern and to
optimise the cost of capital in order to enhance value to shareholders. As part of this objective, the Group seeks
to maintain access to loan and capital markets at all times. The Board of Directors reviews the capital structure
of the Group on a regular basis.
Capital structure and debt capacity are taken into account when deciding on new investments. Practical tools to
manage capital include the application of dividend policy, capital redemption, share buybacks and share issues.
Debt capital is managed considering the requirement to secure liquidity. The Group’s internal capital structure
is reviewed on a regular basis with the aim of optimising the structure by applying measures such as internal
dividends and equity adjustments.
The Group’s long term target for capital structure is to keep the equity ratio above 50%. At the end of the
reporting period, the Group’s equity ratio stood at 64.2% (62.8%).
The Group’s loans from financial institutions include financial covenants that if breached might have a negative
effect on the financial positon of the Company. The covenants that the Group is exposed to are: Interest cover
ratio of Afarak Trading Limited (previously known as RCS Limited) must not be lower than 5; Debt cover ratio
of Afarak Trading Limited (previously known as RCS Limited) must be greater than 3; leverage ratio of Afarak
Trading Limited (previously known as RCS Limited) must be lower than 1; the Group’s Net Asset Value must
be greater than US$ 175 million; Debt service cover of Mogale Alloys must be greater than 1.4 and Net Debt
to EBITDA of Mogale Alloys must be lower than 1.5. Management review these covenants regularly and are in
correspondence with the relevant bank if there is indication of breach. In the discussions with the banks the
Company would do the utmost to clarify the reason for such breach and present the financial plans to remain
within the covenant limits. As at the end of the reporting period there has not been any breach of covenant at
Afarak Trading Limited (previously known as RCS Limited). At Mogale Alloys both the debt service cover and
the Net Debt to EBITDA ended up in breach. Management will do the utmost to restore the situation within
the covenant limits. Despite the covenant breach during the year the same South African bank has granted an
increase in the overdraft facility to Mogale Alloys to better manage its working capital.
132
Financial Risk Management
In its normal operations, the Group is exposed to various financial risks. The main financial risks are liquidity risk,
foreign exchange rate risk, interest rate risk, credit risk and commodity price risk. The objective of the Group’s
risk management is to identify and, to as far as reasonably possible, mitigate the adverse effects of changes in
the financial markets on the Group’s results. The general risk management principles are accepted by Afarak
Group Plc’s Board of Directors and monitored by its Audit and Risk Management Committee. The managements
of the Group and its subsidiaries’ are responsible for the implementation of risk management policies and
procedures. Group management monitors risk positions and risk management procedures on a regular
basis, and supervises that the Group’s policies and risk management principles are followed in all day-to-day
operations. Risks and risk management are regularly reported to the Audit and Risk Management Committee.
The Group’s significant financial instruments comprise bank loans and overdrafts, finance leases, other long-
term liabilities, cash and short-term deposits and money market investments. The main purpose of these
financial instruments is to finance the Group’s acquisitions and ongoing operations. The Group also has
various other financial assets and liabilities such as trade receivables and trade payables, which arise directly
from its operations
(i) Liquidity risk
The Group regularly assesses and monitors its investment and working capital needs and financing, so that it
has enough liquidity to serve and finance its operations and pay back loans. The availability and flexibility of
financing are targeted to be guaranteed by using multiple financial institutions in the financing and financial
instruments, and to agree on financial limit arrangements.
The Group’s short-term liquidity at the end of the financial year was good, even though the unutilised credit
facility of EUR 45.3 expired on 31 December 2014. If the liquidity risks were to be realised, it would probably
result in overdue interest expenses and damage the relations with suppliers. Consequently, the pricing and other
terms for input goods and services and for financing could be affected.
The maturity distribution of the Group debt at the end of the financial year was as follows:
Carrying
amount
Contractual
cash flows
6 months
or less
6-12
months
8,042
22
13,310
4,532
0
-8,527
-2,744
-2,314
-22
-13,310
-4,532
0
-12
-11,243
-4,532
0
-10
-82
0
0
1-2
years
-3,469
0
-1,984
0
0
25,904
-26,391
-18,530
-2,407
-5,454
2-5
years
More than
5 years
0
0
0
0
0
0
0
0
0
0
0
0
133
31.12.2015, EUR ‘000
Financial liabilities
Secured bank loans
Finance lease liabilities
Trade and other payables
Bank overdraft
Derivatives
Total
31.12.2014, EUR ‘000
Financial liabilities
Secured bank loans
Finance lease liabilities
Carrying
amount
Contractual
cash flows
6 months
or less
6-12
months
11,277
90
-11,713
-2,636
-2,588
-90
-45
1-2
years
-6,490
-20
-57
0
0
-26
-124
0
0
2-5
years
More than
5 years
0
0
-47
0
0
-47
0
0
0
0
0
0
Trade and other payables
25,737
-25,784
-25,556
Bank overdraft
Derivatives
Total
757
4,066
41,928
-757
-757
-4,066
-4,066
-42,410
-33,059
-2,738
-6,567
(ii) Foreign exchange rate risk
The Group operates internationally, including in Turkey, Malta and South Africa, and is therefore exposed to
foreign exchange rate risks. The risks arise both directly from the outstanding commercial cash flows and
currency positions, and indirectly from changes in competitiveness between various competitors. The foreign
exchange differences arising from inter-company loans designated as net investments in foreign subsidiaries has
been recognised in the translation difference in the equity.
The Group is exposed to currency-derived risks that affect its financial results, financial position and cash flows.
In particular the exchange rates of US Dollar and South African Rand against the Euro have a significant impact
on the Euro-denominated profitability of the Group. The cash inflows of the business are denominated in US
Dollars, whereas a significant portion of the costs are denominated in the South African Rand. The fluctuation
of the South African Rand has a significant impact on the Group’s profit and loss as well as on the Group’s
assets and liabilities. In its risk management, the Group aims to match its cash inflows and outflows as well as
receivables and liabilities in terms of the currency in which these items are denominated.
The following tables present the currency composition of receivables and debt, and changes thereby relative to
the previous year-end.
31.12.2015, EUR ‘000
EUR exchange rate
1
1.0887
0,7340
3,1765
16,9530
Cash and cash equivalents (EUR)
EUR
4,026
USD
13,768
GBP
118
Trade and other receivables (EUR)
4,514
22,521
Loans and other financial assets (EUR)
821
913
Trade and other current payables (EUR)
134
Loans and other liabilities (EUR)
-3,784
-1,913
-828
-8,061
-15
TRY
227
41
377
-473
-335
ZAR
1,504
3,048
8,229
-5,258
-6,768
Currency exposure, net (EUR)
31,738
28,222
1,016
-162
755
Currency exposure, net in currency ('000)
31,738
30,725
746
-515
12,807
31.12.2014, EUR ‘000
EUR exchange rate
1
1.2141
0.7789
2.832
14.0353
Cash and cash equivalents (EUR)
EUR
2,740
USD
8,655
GBP
129
Trade and other receivables (EUR)
17,342
12,908
Loans and other financial assets (EUR)
39,952
Trade and other current payables (EUR)
-11,916
-2,795
-9
Loans and other liabilities (EUR)
-76
-10,108
TRY
67
545
-363
-488
ZAR
1,741
2,609
0
-6,253
-1,500
Currency exposure, net (EUR)
48,043
8,659
120
-239
-3,403
Currency exposure, net in currency ('000)
48,043
10,513
93
-675
-47,762
The effect on the 31 December 2015 currency denominated net assets by changes in foreign exchange rates
compared with the rates used in the Group consolidation is presented below. Due to the high market volatility of
the exchange rates, the range of change was kept at +/- 20%.
31 December 2015
20% strengthening
15% strengthening
10% strengthening
5 % strengthening
0% no change
-5% weakening
-10% weakening
-15% weakening
-20% weakening
31 December 2014
20% strengthening
15% strengthening
10% strengthening
5 % strengthening
0% no change
-5% weakening
-10% weakening
-15% weakening
-20% weakening
USD
7,055
4,980
3,136
1,485
0
-1,344
-2,566
-3,681
-4,704
USD
2,165
1,528
962
456
0
-412
-787
-1,129
-1,443
GBP
TRY
ZAR
254
179
113
53
0
-48
-92
-132
-169
GBP
30
21
13
6
0
-6
-11
-16
-20
-41
-29
-18
-9
0
8
15
21
27
189
133
84
40
0
-36
-69
-99
-126
135
TRY
ZAR
-60
-42
-27
-13
0
11
22
31
40
-851
-601
-378
-179
0
162
309
444
567
DERIVATIVES
The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating
activities (when revenue or expense is denominated in a foreign currency).
Operative foreign currency derivatives that are valued at fair value on the reporting date cause timing
differences between the changes in the derivative’s fair values and hedged operative transactions. Changes
in fair values for derivatives designated to hedge future cash flow but are not accounted for according to the
principles of hedge accounting impact the Group’s operating profit for the financial year. The underlying foreign
currency transactions will realise in future periods.
At the end of 2014 the Group had USD/ZAR foreign currency forward contracts and foreign currency options
hedging the operative cash flows. The nominal value and fair value of the contracts is stated in the table below.
The group does not apply hedge accounting.
EUR ’000
FX-Forwards
FX-Options
2015
2014
Nominal value
Fair value
Nominal value
Fair value
0
0
0
0
41,586
4
4,066
0
(iii) Interest rate risk
The Group is exposed to interest rate risk when Group companies take loans, or make other financing
agreements or deposits and investments related to liquidity management. In addition, changes in interest
rates can alter the fair values of the Group’s assets. The Group’s revenue and operative cash flows are mainly
independent of the changes in market interest rates.
To manage interest rate risks, the Group has used both fixed and floating rate debt instruments and derivative
instruments, such as interest rate swaps, when needed. At the end of 2015, the Group’s interest-bearing debt
was mainly based on floating interest rates; and there were no interest rate swaps in place. The Group aims to
match the loan maturities with the businesses’ needs and to have the maturities spread over various periods so
that the Group’s interest rate risks are somewhat diversified. Floating rate financing is mainly tied to the market
rates of different countries (United Kingdom, South Africa), changes to which will then influence the Group’s
total financing cost and cash flows.
136
The short-term interest-bearing receivables of the Group are mainly loan receivables and receivables on past
asset disposals. The Group’s interest-bearing liabilities have been discussed above.
The split of interest-bearing debt and receivables, also classified into fixed rate and floating rate instruments on
31 December 2015 and 31 December 2014 was as follows:
Interest rate profile of interest-bearing financial instruments (EUR '000)
Fixed rate instruments
Financial assets
Financial liabilities
Fixed rate instruments, net
Variable rate instruments
Financial assets
Financial liabilities
Variable rate instruments, net
31.12.2015
31.12.2014
3,500
-7,521
-4,021
33,184
-7,755
25,429
7,502
-1,102
6,399
36,705
-11,028
25 677
Interest-bearing net debt
28,151
32 076
The following table presents the approximate effect of changes in market interest rates on the Group’s income
statement should the deposits’ and loans’ interest rates change. The analysis includes floating rate financial
assets and liabilities. The sensitivity analysis is illustrative in nature and applicable for the forthcoming 12 month
period if the period’s asset and liability structure were to be equal to that of 31 December 2015, and if there were
no changes in exchange rates.
31 December 2015
Interest rate
change
Change in interest
income
Change in interest
expense
Net
effect
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
-664
-498
-332
-166
0
166
332
498
664
155
116
78
39
0
-39
-78
-116
-155
-509
-381
-254
-127
0
127
254
381
509
137
31 December 2014
Interest rate
change
Change in interest
income
Change in interest
expense
Net
effect
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
-734
-551
-367
-184
0
184
367
551
734
221
165
110
55
0
-55
-110
-165
-221
-514
-385
-257
-128
0
128
257
385
514
(iv) Credit risk
Credit risk can be realised when the counterparties in commercial, financial or other agreements cannot take
care of their obligations and thus cause financial damage to the Group. The Group’s operational policies
define the creditworthiness requirements for customers and for counterparties in financial and derivative
transactions, as well as the principles followed when investing liquidity. In the case of major sales agreements,
the counterparty’s credit rating is checked. To date, the Group has not faced any major losses due to this reason.
The Group’s key customers are major international stainless steel companies, and a number of specialist agents
selling to the steel sector, with typically long and successful business histories. Since the customers represent
one sector of industry, major changes in that industry’s profitability could increase the credit risk.
The Board of Directors of Afarak Group Plc has determined a cash management policy for the Group’s parent
company, according to which the excess cash reserves are deposited for a short-term only and with sound
financial institutions with which the Group has established business relations. The credit rating of all significant
counterparties is analysed from time to time.
During the financial year, credit losses booked through the profit and loss were not significant. The maximum
credit risk is equal to the carrying value of the receivables as of 31 December, and is split as follows:
Category
Interest-bearing
Cash and cash equivalents
Receivables from related parties
Other interest bearing receivables
Interest-bearing, total
138
Interest-free
Trade receivables
Other short-term receivables
Trade and other receivable from associate
Long-term receivables
Interest-free, total
Total
EUR ‘000
31.12.2015
EUR ‘000
31.12.2014
19,644
36,073
611
56,328
23,407
6,507
2,289
6,070
38,273
13,332
41,406
2,800
57,538
19,447
6,814
1,385
5,504
33,150
94,601
90,688
(v) Commodity risks
The Group is exposed to price risks on various output and input products, materials and commodities. Also,
securing the availability of raw materials without any serious disruptions is vital to its businesses.
The price risks on input materials and commodities are managed by pricing policies so that changes in input
materials and commodities can be moved into sales prices. This, however, is not always possible or there may be
delays as a result of contractual or competitive reasons.
The Group’s units that have production operations are exposed to availability, quality and price fluctuations in
raw materials and commodities. To diminish these risks, the Group’s business units seek to enter into long-term
agreements with known counterparties; although this is not always possible due to the tradition and practice of
the business. For the most part, because it is not possible or economically feasible to hedge commodity price
risks in the Group’s business sectors with derivative contracts, the Group did not have any commodity derivative
contracts in place as of 31 December 2015.
SENSITIVITY ANALYSIS - SPECIALITY ALLOYS BUSINESS
The effect of changes in the sales price of special grade ferrochrome, produced by the Group’s Speciality
Alloys business, to the Group’s operating profit and equity is illustrated below, assuming that the EUR/USD
rate were constant. The analysis is based on December 2015 price level. Since the products are priced in USD,
the exchange rate changes could have a major effect on the Group’s profitability in EUR. Full capacity for
simulation purposes is set at 36,000 t/a, and it is also assumed that only one ferrochrome quality is produced.
Various raw materials are used in ferrochrome production, including chrome concentrate and ferrosilicochrome.
The purchase prices of the main raw materials typically in the same direction as the sales prices, although
the correlation is not perfect and the timing may differ. In practice, therefore the net effect on the Group’s
profitability most probably would be lower than shown below. Electricity usage is also substantial, and hence
changes in electricity prices have a significant effect on profitability; electricity prices do not correlate with
changes in commodity prices.
Financial year 2015
Change in Sales price
(USD / lb Cr)
Change in
Operating Profit
Change in
Group's Equity
EUR ‘000
EUR ‘000
2,72
2,61
2,49
2,38
2,27
2,15
2,04
1,93
1,81
Financial year 2014
Change in Sales price
(USD / lb Cr)
2,74
2,63
2,51
2,40
2,29
2,17
2,06
1,94
1,83
20 %
15 %
10 %
5 %
0 %
-5 %
-10 %
-15 %
-20 %
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
23,129
17,347
11,565
5,782
0
-5,782
-11,565
-17,347
-23,129
21,973
16,480
10,986
5,493
0
-5,493
-10,986
-16,480
-21,973
139
Change in
Operating Profit
Change in
Group's Equity
EUR ‘000
EUR ‘000
20,912
15,684
10,456
5,228
0
-5,228
-10,456
-15,684
-20,912
19,866
14,900
9,933
4,967
0
-4,967
-9,933
-14,900
-19,866
SENSITIVITY ANALYSIS – FERROALLOYS BUSINESS
The FerroAlloys business’s smelting operation, Mogale Alloys, is able to change its product mix quite rapidly
and flexibly, and so only rough estimates on its sensitivity to commodity price changes can be given. Its full
production capacity is about 110,000 metric t/a of various metal alloys. Assuming, for simplicity, that all of
the Mogale capacity was used for charge chrome production only, and using the year-end 2015 sales price
indications for charge chrome, the following table represents a rough proxy of the sales price sensitivities. It
should also be taken into account that the profitability of the smelting operations can be substantially impacted
by changes in the USD and ZAR exchange rates and in electricity prices, as well as changes in market prices.
In South Africa the majority of the electricity supply, price and availability are controlled by one entity, Eskom.
Mogale Alloys may participate in Eskom’s electricity buyback program in the foreseeable future.
Financial year 2015
Change in Sales price
(USD / lb Cr)
Change in
Operating Profit
Change in
Group's Equity
140
1,10
1,06
1,01
0,97
0,92
0,87
0,83
0,78
0,74
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
20,903
15,677
10,451
5,226
0
-5,226
-10,451
-15,677
-20,903
15,050
11,288
7,525
3,763
0
-3,763
-7,525
-11,288
-15,050
Financial year 2014
Change in Sales price
(USD / lb Cr)
Change in
Operating Profit
Change in
Group's Equity
1,30
1,24
1,19
1,13
1,08
1,03
0,97
0,92
0,86
15. Inventories
EUR '000
Goods and supplies
Unfinished products
Finished products
Total
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
22,004
16,503
11,002
5,501
0
-5,501
-11,002
-16,503
-22,004
15,843
11,882
7,921
3,961
0
-3,961
-7,921
-11,882
-15,843
2015
2014
16,389
117
28,646
45,152
30,611
90
29,351
60,052
16. Trade and other current receivables
EUR '000
Trade receivables
Loan receivables
Interest-bearing receivables
Prepaid expenses and accrued income
Income tax receivables
Other receivables
Total
2015
23,407
415
3,519
3,307
5,058
5,073
2014
19,447
3,836
7,034
3,201
3,323
3,928
141
40,779
40,769
Prepaid expenses and accruals mainly relate to rental contracts, personnel expenses, VAT receivables and
accrued interest for loans. The values of receivables at the end of the reporting period closely correspond to
the monetary value of maximum credit risk, excluding the fair value of received guarantees, in the potential case
where the counterparties cannot fulfil their commitments.
The aging of trade receivables at the end of the reporting period
EUR '000
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61-90 days
Past due more than 90 days
Total
2015
12,708
10,936
96
99
-432
2014
14,121
5,579
176
0
-430
23,407
19,447
17. Cash and cash equivalents
Cash and cash equivalents in the cash flow statement:
EUR '000
2015
2014
Cash and bank balances
18,793
12,449
Pledged deposits
508
4,286
EURO ‘000
Cash and bank balances
Short-term money market investments
Total
18. Notes to equity
142
31.12.2015
31.12.2014
18,793
851
19,644
12,449
883
13,332
Number of
registered
shares
Number
of shares
on issue
Share
capital,
EUR '000
31.12.2013
248,432,000
244,187,283
23,642
Subscriptions based on option rights
11,130,434
11,130,434
0
31.12.2014
259,562,434
255,317,717
23,642
Subscriptions based on option rights
3,478,261
3,478,261
0
31.12.2015
263,040,695
258,795,978
23,642
There is no nominal value for the Company’s share.
The equity reserves are described below:
SHARE PREMIUM RESERVE
Related to the old Finnish Companies Act, the Company has a share premium reserve in relation to old share
issues, where the premium in excess of the par value of the shares subscribed has been recognised in the share
premium reserve.
PAID-UP UNRESTRICTED EQUITY RESERVE
Paid-up unrestricted equity reserve comprises other equity investments and subscription price of shares to the
extent that it is not recognised in the share capital based on a specific decision.
TRANSLATION RESERVE
The translation reserve comprises all foreign currency differences arising from the translation of financial
statements of foreign operations.
TREASURY SHARES
On 31 December 2015 the Company had altogether 4,244,717 (4,244,717) of its own shares, which was
equivalent to 1.61 (1.64) % of all registered shares. The total number of shares outstanding, excluding the
treasury shares held by the Company on 31 December 2015 was 258,795,978 (255,317,717).
The Company’s subsidiaries do not hold any of Afarak Group Plc’s shares.
SHARE ISSUE AUTHORISATIONS GIVEN TO THE BOARD OF DIRECTORS
The Annual General Meeting held on 8 May 2015 resolved to authorize the Board of Directors to issue shares
and stock options and other special rights that entitle to shares in one or more tranches up to a maximum
of 25,000,000 new shares or shares owned by the Company. This equates to approximately 9.6% of the
Company’s currently registered shares. The authorization may be used among other things in financing,
enabling corporate and business acquisitions or other arrangements and investments of business activities and
in the employee incentive and commitment programs. By virtue of the authorization, the Board of Directors
can decide both on share issues against payment and on share issues without payment. The payment of the
subscription price can also be made with consideration other than money. The authorization contains the
right to decide on derogating from shareholders’ pre-emptive right to share subscriptions provided that the
conditions set in the Companies’ Act are fulfilled. The authorisation replaces all previous authorisations and is
valid 2 years from the decision of the Annual General Meeting.
143
The Annual General Meeting authorised the Board of Directors to resolve upon acquiring a maximum of
15,000,000 of the Company’s own shares. The authorisation replaces all previous authorisations and it is valid
for 18 months from the decision of the Annual General Meeting.
TRADING INFORMATION
Afarak Group Plc’s shares are listed on the main market of the London Stock Exchange and on NASDAQ
Helsinki. Afarak shares are traded on the London Stock Exchange under the trading code AFRK and on the
NASDAQ Helsinki under code AFAGR. The ISIN code is FI0009800098 and the trading takes place in Pound
Sterling (GBP) and in Euros (EUR).
On 16 April 2015, Afarak announced that the Company intended to transfer the listing segment of its share
on the Main Market of the London Stock Exchange to a Standard listing from the current Premium listing.
The proposed change to a Standard listing was subject to shareholder approval and the Board sought authority
from the shareholders to transfer its listing on the London Stock Exchange. The purpose of the transfer is to allow
the Company to reduce the costs of its listing which arise from the regulatory burden applicable to companies
with a Premium listing, which would no longer be applicable following transfer to a Standard listing. The trading
arrangements for the Company’s shares on the NASDAQ Helsinki Stock Exchange and on the London Stock
Exchange remain unchanged.
On 16 April 2015, Afarak announced that the company had published a circular to shareholders in connection
with the proposed transfer of the listing segment of its shares on the Main Market of the London Stock Exchange
to a Standard listing from the current Premium listing.
On 9 June 2015 Afarak announced that the United Kingdom Listing Authority had given its approval to effect
the shares transfer on the Main Market of the London Stock Exchange to a Standard listing from a Premium
listing, and that the transfer had now become effective.
SHARE PERFORMANCE AND TRADING
During the financial year 2015, the price of Afarak Group’s share in London Stock Exchange varied between
GBP 0.25 (0.24) and GBP 0.33 (0.32) and in NASDAQ Helsinki between EUR 0.33 (0.21) and EUR 0.67 (0.42).
Afarak’s share closed in London at the end of the financial year at GBP 0.33 (0.25) and Helsinki at EUR 0.40
(0.32). The closing price on 31 December gives the Company a market capitalisation of the entire capital stock
263,040,695 (259,562,434) shares of GBP 85.5 (65.5) million and EUR 105.7 (83.1) million.
A total of 13,248 (23,013) Afarak shares were traded in London and 38,224,080 (20,927,217) shares in Helsinki
during the financial year, representing 0.01% (0.01%) of stock in London and 14.53% (8.06%) in Helsinki.
SHAREHOLDERS
On 31 December 2015, the Company had a total of 4,433 shareholders (4,030 shareholders on 31 December
2014), of which eight were nominee-registered. The registered number of shares on 31 December 2015 was
263,040,695 (259,562,434).
Largest shareholders on 31 December 2015
Shareholder
1 Nordea Bank Finland Plc *
2 Hino Resources Co. Ltd **
144
3 Joensuun Kauppa ja Kone Oy
4 Kankaala Markku Olavi
5 Clearstream Banking S.A.
6 Moncheur & Cie
7 Hanwa Company Limited
8 Afarak Group Plc
9 Hukkanen Esa Veikko
10 Danske Bank Plc
Total
Other Shareholders
Total shares registered
Shares
164,508,392
34,881,903
11,272,326
7,066,116
6,663,927
6,607,183
6,000,000
4,244,717
4,223,048
925,810
246,393,422
16,647,273
263,040,695
%
62.5
13.3
4.3
2.7
2.5
2.5
2.3
1.6
1.6
0.4
93.7
6.3
100.0
* According to the flagging notification of Aida Djakov published 25 July 2014, the total combined holdings of Aida Djakov and her
controlled corporation Atkey Limited are 68,526,701 shares representing 26.4 % of the total number of shares.
** According to the latest flagging notification of Hino Resources Co. Ltd (“Hino”) published 10 October 2014, the total holdings of
Hino are 49,991,903 shares representing 19.26 % of the total number of shares.
Afarak Group Plc’s Board members and Chief Executive Officer owned in total 7,813,287 (78,078,926) Afarak
Group Plc shares on 31 December 2015, including shares owned either directly, through persons closely
associated with them or through controlled companies. This corresponds to 3.0% (30.1%) of the total number of
registered shares on 31 December 2015.
Shareholders by category 31 December 20155
Shares
1-100
101-1,000
1,001-10,000
10,001-100,000
100,001-1,000,000
1,000,001-10,000,000
in excess of 10,000,000
Total
of which nominee-registered
Total outstanding
Number of
shareholders
% share of
shareholders
Number of
shares held
% of shares
held
752
2,148
1,312
190
22
6
3
4,433
8
16.96
45,522
48.45
1,133,151
29.60
4,466,944
4.29
0.50
0.14
0.07
5,257,160
6,670,306
34,804,991
210,662,621
100
263,040,695
173,362,087
0.02
0.43
1.70
2.00
2.54
13.23
80.09
93.7
1.6
263,040,695
100.00
Shareholders by shareholder type on 31 December 2015
Finnish shareholders
of which:
Companies and business enterprises
Banking and insurance companies
Non-profit organisations
Households
Foreign shareholders
Total
of which nominee-registered
% of share
capital
15.98 %
6.49 %
0.07 %
0.00 %
9.41 %
145
83.95 %
100 %
65.91 %
19. Share-based payments
The Company has three incentive-related option schemes, known as I/2005, I/2008 and I/2011.
Option rights relating to the I/2005 scheme are granted to the Group’s Executive Management Team and other key
employees and to non-executive directors, as recommended by the Board. The scheme entitles option holders to
subscribe for a maximum of 2,700,000 shares in the Company. The share subscription period is from 1 July 2007 to
30 June 2015 for various options series denoted with different letters, and the subscription price range is EUR 0.32 –
0.78 (with dividend and capital redemption adjustment). As a result of subscriptions made with the I/2005 options,
Afarak Group Plc’s number of shares may be increased by a maximum of 2,700,000 new shares. In accordance with
the terms of the option scheme the subscription prices will be recognised in the paid-up unrestricted equity reserve.
Option rights relating to the I/2008 scheme were granted to the Group’s previous CEO, Alwyn Smit, in October
2008. The scheme entitles the option holder to subscribe for a maximum of 2,900,000 shares in the Company for a
subscription price of EUR 2.18 per share (with dividend and capital redemption adjustment). The share subscription
period for 1,450,000 share options commenced on 1 October 2009 and on 1 October 2010 for the remaining
1,450,000 options. The subscription period matures on 31 December 2015. As a result of the subscriptions made with
the options, Afarak Group Plc’s number of shares may be increased by a maximum of 2,900,000 new shares.
Option rights relating to the I/2011 scheme are granted to the key personnel of the Company, as recommended by
the Board. The scheme entitles the option holders to subscribe for a maximum of 6,900,000 shares in the Company.
The vesting period is 1 July 2014 to 1 August 2017 for various option series denoted with different letters and
years. The share subscription price is calculated by a formula based on the Volume Weighted Average Price of the
Company’s share and varies between the option series.
Of the option scheme I/2005, options on A, B, C, D, E and F series have been issued to Afarak’s management
totalling 1,175,000 option rights, of the option scheme I/2008 a total of 2,900,000 options. Of the option scheme
I/2011 a total of 6,291,997 options were issued and 99,999 options were forfeited leaving a balance of 6,191,998
options. All options have been treated according to the principles set forth in IFRS 2 Share-based Payments
standard. Share options will be expired if not redeemed as agreed in the terms of options. The main terms of the
option arrangements are detailed in the tables below.
In May 2015 the Group has granted the CEO, Alistair Ruiters 1,000,000 shares in the Company. These will be
awarded in two tranches and vested based on completed year of service. The first 500,000 Company shares shall
be received once the first vesting period has lapsed, on 22 May 2016. The second 500,000 Company shares shall be
received by the employee on 22 May 2017. These shares have a lock-up period of two years form subscription date.
The fair value of the granted shares is determined based on the market price of Afarak Group share at the grant date
which was EUR 0.40 per share. The value at year end was EUR 182,870.24
146
On 14 August 2015, Afarak announced that it has resolved to offer 3,478,261 new ordinary shares in the Company
(“New Shares”) to Gujo Investment (Pty) Limited, one of the vendors of Mogale Alloys (a company acquired in
May 2009) under the settlement agreement announced on 11 October 2012. Following completion of the share
issue, the consideration for the acquisition was fully satisfied. All of the New Shares were subscribed for and the
subscriptions have been approved by the Board of Directors. The total subscription price of EUR 1,739,130.50 (EUR
0.5 per share) has been fully satisfied through offset against the settlement receivables of the Vendor related to
the Mogale Alloys acquisition.
Share option plan
Nature of the plan
Share
options.
granted to
employees in
2012
Share
options.
granted to
CEO in 2008
Share
options.
granted to
CEO in 2008
Share
options.
granted to
employees in
2010
Share
options.
granted to
employees in
2009
Share options
Share options
Share options
Share options
Share options
issued
issued
issued
issued
issued
Grant date
1.4.2012
28.10.2008
28.10.2008
17.5.2010
6.8.2009
Number of options
6 191 998
1 450 000
1 450 000
100 000
175 000
Options series
I/2011
I/2008
I/2008
F (I/2005)
E (I/2005)
147
Exercise period
1.7.2014-
1.8.2017
1.10.2010-
31.12.2015
1.10.2009-
31.12.2015
1.7.2012-
30.6.2015
1.7.2011-
30.6.2014
Dividend adjustment
yes
yes
yes
yes
yes
Exercise price (with dividend and capital
redemption adjustment)
Share price at grant date
Option life
Conditions
0.00 - 0.86
2.18
2.18
0.78
0.68
0.90
1.1 - 3.1
1.26
5.3
1.26
6.3
1.00
3.0
1.75
3.0
Employment
until the
vesting date
and target
share price
Employment
until the
vesting date
Employment
until the
vesting date
Employment
until the
vesting date
Employment
until the
vesting date
Execution
In shares
In shares
In shares
In shares
In shares
Expected volatility
45 %
44 %
44 %
56 %
46 %
Expected option life at grant date (years)
5.3 years
5.0 years
5.0 years
5.1 years
4.9 years
Risk free rate, Euribor 12 months
2.24%
4.33%
4.33%
3.11%
3.66%
Expected dividend yield
0.00%
0.00%
0.00%
0.00%
0.00%
Expected personnel reductions
0
0
0
0
0
Fair value at grant date (EUR)
0.14 - 0.46
0.33
0.33
1.06
1.20
Valuation model
Up and in
Call
Black &
Scholes
Black &
Scholes
Black &
Scholes
Black &
Scholes
Changes in share options issued and in weighted average exercise prices:
Weighted average exercise price (with
dividend and capital redemption
adjustment)
EUR/share
At the beginning of 2014
Forfeited options
At the end of 2014
Exercisable at the end of 2014
148
At the beginning of 2015
Forfeited options
Forfeited options
At the end of 2015
Exercisable at the end of 2015
0.83
0.68
0.83
1.25
0.83
0.78
2.18
0.26
0.26
Number of options
9,366,998
175,000
9,191,998
5,100,000
9,191,998
100,000
2,900,000
6,191,998
1,400,000
The exercise prices of existing share options and their years of forfeiting are presented below:
Year of forfeiting
Exercise price (EUR)
Number of shares
2015
2015
2017
0.78
2.18
0.00-0.86
100,000
2,900,000
6,900,000
The exercise price above represents the original contractual exercise price adjusted by dividends and capital
redemptions before the 2016 AGM.
20. Deferred tax assets and liabilities
Movements in deferred taxes in 2015
EUR '000
Deferred tax assets:
Unrealised expenses
Pension liabilities
From translation difference
Group eliminations
Total
Deferred tax liabilities:
Assets at fair value in acquisitions
Translation difference
Other timing differences
Total
31.12.2014
Exchange rate
differences
Recognised
in income
statement
Business
combinations
and
divestments
31.12.2015
1,587
988
983
608
4,166
6,395
0
1,805
8,200
-7
-30
-37
-972
-173
187
132
-826
-504
-944
-182
-686
-621
-1,565
608
815
1,127
710
3,260
4,947
0
1,002
5,949
-43
-43
0
0
Movements in deferred taxes in 2014
EUR '000
Deferred tax assets:
Unrealised expenses
Pension liabilities
From translation difference
Group eliminations
Total
Deferred tax liabilities:
Assets at fair value in acquisitions
Translation difference
Other timing differences
Total
21. Provisions
EUR ‘000
Balance at 1.1.2015
Additions
Releases and reversals
Unwinding of discount
Exchange differences
Balance at 31.12.2015
EUR ‘000
Long-term provisions
Short-term provisions
Total
31.12.2013
Exchange rate
differences
Recognised
in income
statement
Recognised in
equity
31.12.2014
1,824
1,052
8,822
849
12,546
7,332
0
1,175
8,507
1
12
13
244
56
300
-238
-64
755
-253
200
-1,181
574
-607
-8,594
-8,594
0
0
Environmental and
rehabilitation provisions
Other provisions
9,133
11
-247
642
-1,362
8,177
2015
9,309
99
9,408
1,081
495
-190
0
-155
1,231
2014
10,137
77
10,214
149
1,587
988
983
608
4,166
6,395
0
1,805
8,200
Total
10,214
506
-437
642
-1,517
9,408
The long-term provisions in the statement of financial position relate to environmental and rehabilitation provi-
sions of the Group’s production facilities and mines. The provisions are based on expected liability.
22. Pension liabilities
Defined benefit pension plans
The majority of the Group’s pension plans are defined contribution plans for which a total expense of EUR 0.8
(0.8) million has been recognised on the 2015 statement of comprehensive income. In addition, the Group’s
German subsidiary has defined benefit plans. The obligations relating to the plans have been defined by
actuarial calculations. The pension scheme is arranged by recognising a provision on the statement of financial
position. The present value of the obligation less fair value of plan assets totalled EUR 18.7 (20.0) million on 31
December 2015. The Group has considered that the value on 31 December also corresponds with the amount of
net obligation at the end of the reporting period. The Group does not own the assets of the pension plans.
150
Retirement benefit obligation
EUR '000
Present value of funded obligation
Fair value of plan assets
Net liability
Movements in defined benefit obligation
EUR '000
Defined benefit obligations at 1.1.
Benefits paid by the plan
Current service costs
Interest expense
Actuarial (gains) / losses
Closing balance at 31.12.
Movements in the fair value of the plan assets
EUR '000
Fair value of the plan assets at 1.1.
Expected return on plan assets
Benefits paid by the plan
Asset gains / (losses)
Contributions paid into the plan
Closing balance at 31.12.
2015
24,101
-5,367
18,734
2015
24,454
-781
393
510
-475
24,101
2015
4,500
98
-131
511
389
2014
24,454
-4,500
19,954
2014
20,187
-707
305
674
3,995
24,454
2014
4,092
143
-100
-40
405
5,367
4,500
The funded pension plan has been financed through an insurance company and therefore asset specification is
not available.
Expense recognised in statement of comprehensive income
EUR '000
Current service cost
Interest cost
Expected return on plan assets
Actual return on plan assets totalled EUR 0.50 (-0.04) million in 2015.
Principal actuarial assumptions
Discount rate
Expected return on plan assets
Inflation
2015
-393
-510
98
-805
2015
2.22 %
1.83 %
2.25 %
2014
-305
-674
143
151
-836
2014
2.12 %
2.43 %
2.25 %
The expected retirement age has been assumed to be in accordance with German legislation (RVAGAnpG 2007).
Similarly, the expected pension increases have been assumed to be in line with the German legislation, and mor-
tality expectancy in accordance with the German “Richttafeln 2005 G” has been applied in the valuations.
Historical information
EUR '000
Present value of defined benefit obligation
Fair value of plan assets
Deficit in the plan
Experience adjustments arising on plan liabilities
Experience adjustments arising on plan assets
Adjustments due to change in actuarial assumptions
2015
-24,101
5,367
-18,734
-81
-511
-393
2014
-24,454
4,500
-19,954
-398
40
4,394
PROVISION FOR RETIREMENT PAY LIABILITY IN TURKEY
In accordance with existing social legislation in Turkey, the Turkish subsidiary of the Group is required to make
lump-sum payments to employees whose employment is terminated due to retirement or for reasons other than
resignation or misconduct. The computation of the liability was based on the retirement pay ceiling announced
by the Turkish government. On 31 December 2015, the employee severance indemnity recognised in accordance
with IAS 19 the financial statements totalled EUR 0.8 (0.7) million.
23. Trade payables and other interest-free liabilities
EUR ‘000
Non-current
Other liabilities
Total non-current
Current
Purchase price liabilities (paid as shares)
152
Current liabilities to related parties
Trade payables
Payables to associated companies
Accrued expenses and deferred income
Current advances received
Income tax liability
Other liabilities
Total non-current
1.8 RELATED PARTY DISCLOSURES
1.8.1 Group structure on 31 December 2015
2015
1,969
1,969
0
6
9,673
209
4,797
100
6,036
579
21,400
2014
42
42
2,186
0
19,143
167
10,472
0
5,951
6
37,925
Name
Afarak Holdings Ltd
Afarak Investments Ltd
Afarak Mining Ltd
Afarak South Africa (Pty) Ltd
Auburn Avenue Trading 88 (Pty) Ltd
Destiny Spring Investments 4 (Pty) Ltd
Destiny Spring Investments 11 (Pty) Ltd
Destiny Spring Investments 12 (Pty) Ltd
Duoflex (Pty) Ltd
Elektrowerk Weisweiler GmbH
Intermetal Madencilik ve Ticaret A.S.
LP Kunnanharju Oy
Metal ve Maden ic ve Dis Pazarlama Tic Ltd, Sti
Mogale Alloys (Pty) Ltd
Afarak Trading Ltd (previously known as RCS Ltd)
Rekylator Oy
Country of
incorporation
Group's
ownership and
share of votes
(%)
Afarak Group
Plc's direct
ownership and
share of votes
(%)
Malta
Malta
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
Germany
Turkey
Finland
Turkey
South Africa
Malta
Finland
100.00
100.00
100.00
100.00
74.00
100.00
100.00
100.00
74.00
100.00
99.00
100.00
97.76
90.00
100.00
100.00
0.00
99.99
0.00
0.00
0.00
0.00
0.00
0.00
0,00
0.00
0.00
0.00
0.00
0.00
0.00
100.00
Rekylator Invest Oy
Rekylator Wood Oy
Rekylator Yhtiöt Oy
Türk Maadin Sirketi A.S.
Joint ventures
Synergy Africa Ltd
Chromex Mining Ltd
Chromex Mining Company (Pty) Ltd
Ilitha Mining (Pty) Ltd
Mkhombi Stellite (Pty) Ltd
Associated companies
Incap Furniture Oy
Valtimo Components Oyj *
Finland
Finland
Finland
Turkey
United Kingdom
United Kingdom
South Africa
South Africa
South Africa
Finland
Finland
100.00
100.00
100.00
98.75
51.00
51.00
37.74
41.05
44.24
24.06
24.90
0.00
0.00
100.00
98.75
0.00
0.00
0.00
0.00
0.00
12.45
24.90
153
* Afarak’s share of ownership in Valtimo Components Oyj can increase to 39.23% if the shares sold earlier, held as pledge, are not paid
in cash to Afarak.
Afarak disposed Afarak Suisse in 2015.
Afarak divested its holding in the associated company Speciality Super Alloys Inc. This led to a loss on sale of
investment in associate of EUR 0.3 million.
Dezzo Trading 184 (Pty) Ltd, Didox (Pty) Ltd, PGR 17 Investments (Pty) Ltd, and Waylox Mining (Pty) Ltd were
deregistered as at 31 December 2015.
1.8.2 Related party transactions
Afarak Group Plc defines the related parties as:
• companies, entities or persons having common control or considerable voting power in Afarak Group
• subsidiaries
• joint ventures
• associates
• Afarak Group Plc’s and the above mentioned entities’ top management
Related party transactions with persons belonging to the Group’s Board and management
Finnish accounting legislation, KPA 2:8 § 4 paragraph disclosure requirement
154
EUR ‘000
2015
2014
Salaries
Fees
Share-
based
remuneration
Salaries
Fees
Share-
based
remuneration
Kankaala Markku
Koncar Danko
Board member 11.8.2010 –
86
CEO 11.2.2013 – 20.5.2015,
Lillja Michael
Manojlovic
Jelena
7.5.2015
Board member 11.2.2013
onwards
120
Board member 11.7.2008
onwards, Chairperson 17.6.2009
- 7.5.2015
Board member 11.2.2013
Parodi Afredo
onwards. Chairman 8.5.2015
Smart Bernice
onwards
Board member 11.2.2013 –
7.5.2015
Board member 8.5.2015
Alistair Ruiters
onwards, CEO 21.5.2015
242
onwards
Board member 8.5.2015
onwards
Board member 8.5.2015
onwards
Rourke Barry
Ivan Jakovcic
Total
54
0
0
54
54
54
0
58
58
66
19
47
39
240
120
0
0
0
183
0
448
287
183
360
216
0
As some of the Board members have also had executive management roles, both the Board fees and the salaries
in relation to the executive role have been presented above.
The CEO receives an annual salary of EUR 360,000. He shall also receive 500,000 Company Shares as an
incentive for each completed year of service acting as the Chief Executive Officer, the first 500,000 Company
shares shall be received on 22 May 2016 and the second 500,000 shares shall be received on 22 May 2017 if he
is still acting as CEO at that time.
The Group makes no pension arrangements for the CEO beyond the statutory pension coverage, and there is no
set retirement age. The table includes the Executive Management Team remuneration excluding the CEO. The
CEO and Board members compensation has been presented separately.
Management remuneration
EUR ‘000
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payments
Total
2015
258
0
0
0
258
2014
185
0
0
42
227
BUSINESS REORGANISATIONS
The AGM held on 8 May 2015 resolved that the Board of Directors comprises of seven members. Mr Michael
Lillja, Mr Markku Kankaala, Dr Jelena Manojlovic and Dr Alfredo Parodi were re-elected to the Board. Mr Barry
155
Rourke, Dr Alistair Ruiters and Mr Ivan Jakovcic were elected.
On 21 May 2015, Afarak announced changes in the Company’s management structure so that its current
executive management team and board member Dr Alistair Ruiters was appointed new Chief Executive Officer
(“CEO”) of the Company. Dr. Danko Koncar, is now focusing on the operational matters of the Company as
Business Development Director, reporting to the CEO. Dr Ruiters continues to serve as a board member of
the Company. Further, Mr Michael Lillja, currently head of marketing and a board member, has assumed the
responsibilities of Marketing Director while continuing as a board member.
The current executive management team is as follows
Dr. Alistair Ruiters, CEO
Dr. Danko Koncar, Business Development Director
Michael Lillja, Marketing Director
Furthermore, the board has also reviewed the composition of the board committees.
The new committees are as follows:
Audit Committee
Barry Rourke, Chairman
Markku Kankaala
Ivan Jakovcic
The Nomination and Remuneration Committee
Jelena Manojlovic, Chairman
Markku Kankaala
Ivan Jakovcic
The Committee for Health Safety and Sustainable Development
Alfredo Parodi, Chairman
Michael Lillja
Markku Kankaala
FINANCING ARRANGEMENT WITH RELATED PARTIES
In 2011 Afarak Group Plc had entered into a USD 55 million standby loan facility agreement with its major
shareholder Kermas Ltd. The facility was available until 31 December 2014 and the loan term would have been
from the first draw-down until 31 December 2015. At the end of the financial year 2014, the Group has not drawn
down any of the loan. The expenses recognised for the facilities were EUR 0.1 (0.1) million.
The Group has a EUR 32.6 (34.4) million loan receivable and EUR 7.9 (6.4) million trade and other current and
non-current receivables from its joint venture companies. Trade and other payables to joint venture companies
amounted to EUR 0.2 (0.2) million. Interest income from a joint venture company totalled EUR 1.0 (1.0) million
during the financial year 2015.
156
The Group had on 31 December 2015 a EUR 3.5 (7.0) million receivable from Kermas Ltd.
OTHER RELATED PARTY TRANSACTIONS
The Group has sold its products and rendered services to related parties and joint ventures for a total value of
EUR 0.4 (0.2) million. The Group has also made raw material purchases from a joint venture amounting to EUR
9.4 (4.4) million and received services from a related party amounting to EUR 0.1 (0.1) million.
Dividends received from associated companies totalled EUR 0.0 (0.0) million.
On 31 December 2015 the Group’s parent company had short-term loan receivables from the members of the
Board amounting to EUR 0.0 (0.1) million.
1.9 COMMITMENTS AND CONTINGENT LIABILITIES
1.9.1 MORTGAGES AND GUARANTEES PLEDGED AS SECURITY
On 31 December 2015 the Group had a loan from a financial institution totalling EUR 8.0 (10.3) million. The
Group has provided real estate mortgages and other assets as collaterals for total carrying value of EUR 64.2
(71.2) million. Moreover, the Group companies have given cash deposits totalling EUR 0.1 (4.1) million as security
for their commitments. The value of other collaterals totalled EUR 0.5 (0.5) million as at 31 December 2015.
Afarak Group Plc has given guarantees for third party loans totalling EUR 1.3 (1.3) million.
1.9.2 COVENANTS INCLUDED IN THE GROUP’S FINANCING AGREEMENTS
One of the Group’s Maltese subsidiaries, Afarak Trading Ltd (previously known as RCS Ltd), was granted a
loan facility from a Maltese bank in 2013. As at year end 2015 the balance was US$ 7.6 (EUR 7.0) million and
the financial covenants attached to this loan were not breached during the year. The Group’s South African
subsidiary, Mogale Alloys also had bank facilities with local banks amounting to ZAR 87.4 (EUR 5.2) million at
year end and are disclosed as current financial liability in the financial statements. The financial coventants
attached to this loan were breached during the year. Management will do the utmost to restore the situation
within the covenant limits.
1.9.3 RENTAL AGREEMENTS
Liabilities associated with rental and operating lease agreements totalled some EUR 0.7 (0.8) million for the
period. Typically, the rental agreements maturity varies between two to five years, and normally there is a
possibility to continue these agreements beyond the original maturity date. For these contacts, their price
indexing, renewal and other terms differ contract by contract. As guarantees for these rental agreements, the
Group companies have made cash deposits of approximately EUR 0.0 (0.0) million as at 31 December 2015.
1.9.4 COLLATERALS GIVEN BY AFARAK GROUP PLC
Afarak Group Plc has given guarantees in connection with certain borrowings of Junnikkala Oy, the Group’s
former subsidiary which it sold in June 2011. These guarantees will continue to be in force until 30 June 2018.
Under the terms of the disposal it has been agreed that Junnikkala will pay a fee of 2% per annum to Afarak
Group Plc in consideration for the continuation of these guarantees. At 31 December 2015 the indebtedness
subject to these guarantees was EUR 1.3 (1.3) million in aggregate.
1.10 EVENTS AFTER THE REPORTING PERIOD
On 5 January 2016, Afarak announced that the Company has signed further sale agreements in relation to parts
of the saw mill equipment, acquired by the Company in 2008. The transaction from the discontinued operation
157
positively affects the Q4/2015 profit.
On 14 January 2016, Afarak announced that its subsidiary Türk Maadin Şirketi A.S (TMS) has been granted the
exploitation mining license for Eskisehir -Mihaliccik Karaagac “Eagle Field”.
On 4 February 2016, Afarak announced that its wholly owned subsidiary Afarak Trading Limited (RCS) has
entered into a long-term agreement with US company Carpenter Technology Corporation. Afarak Trading
Limited will provide low carbon ferrochrome.
On 11 February 2016, Afarak announced that Ilitha Mine has completed a Shaking Table plant. Ilitha Mine is part
of the Synergy Africa joint venture between Afarak and Kermas Limited. The Shaking Table technology, 13
already used in the mines of Afarak’s Turkish subsidiary TMS, will allow the company to treat the Tailing Dump
for chrome and increase Ilitha Mine’s total plant mass yield from currently 49% to 65%.This in turn will drastically
reduce the operating cost per ton. Full production is expected to be reached by Mid-March 2016.
PARENT COMPANY’S
FINANCIAL STATEMENTS
INCOME STATEMENT (FAS)
Note
1.1.2015 - 31.12.2015
1.1.2014 - 31.12.2014
EUR '000
Revenue
Other operating income
Personnel expenses
Salaries and wages
Pension expenses
158
Other social security expenses
Social security expenses total
Personnel expenses total
Depreciation and amortisation
Depreciation and amortisation according to plan
Depreciation and amortisation total
Other operating expenses
OPERATING PROFIT (LOSS)
Financial income and expenses:
Other financial income
From Group companies
From others
Interests and other financial expenses
To Group companies
To others
Financial income and expenses total
PROFIT (LOSS) BEFORE EXTRAORDINARY
ITEMS
PROFIT BEFORE TAXES
Income taxes
Income taxes
NET PROFIT
1
2
3
4
5
6
1,259
57
-861
-4
-30
-34
-895
-5
-5
-1,951
150
46
-556
-16
-28
-44
-601
-11
-11
-1,554
-1,535
-1,969
1,093
488
-51
-110
1,420
-115
-115
0
-115
1,877
159
-56
-206
1,774
-195
-195
0
-195
PARENT COMPANY’S
FINANCIAL STATEMENTS
BALANCE SHEET (FAS)
EUR '000
Assets
Non Current Assets
Property, plant and equipment
Machinery and equipment
Total property, plant and equipment
Investments
Shares in Group companies
Receivables from Group companies
Total investments
Total non-current assets
Current Assets
Receivables
Non-current receivables
Receivables from Group companies
Other interest-free receivables
Total non-current receivables
Current receivables
Trade receivables
Receivables from Group companies
Receivables from Holding companies
Other interest-bearing receivables
Other non interest-bearing receivables
Prepaid expenses and accrued income
Total current receivables
Cash and cash equivalents
Total current assets
Total Assets
Note
1.1.2015 - 31.12.2015
1.1.2014 - 31.12.2014
7
8
9
14
14
215,931
8,015
223,946
223,960
25
25
159
215,931
8,015
223,946
223,971
-1,535
-1,969
47,965
128
48,093
1
9,318
1,164
181
8
192
10,865
603
55,261
128
55,388
1
6,828
988
43
27
131
8,018
221
59,561
63,628
285,521
287,599
PARENT COMPANY’S
FINANCIAL STATEMENTS
BALANCE SHEET (FAS) (CONT.)
EUR '000
Note
31.12.2015
31.12.2014
10
11
EQUITY AND LIABILITIES
SHAREHOLDERS’ EQUITY
Share capital
Share premium reserve
Paid-up unrestricted equity reserve
160
Retained earnings
Profit for the period
Total shareholders' equity
LIABILITIES
Non-current liabilities
Liabilities to Group companies
Loans from associated companies
Total non-current liabilities
Current liabilities
Liabilities to Group companies
Accounts payable
Accounts payable to Group companies
Other liabilities
Accrued expenses and deferred income
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
23,642
25,223
246,433
-13,839
-115
281,345
1,248
5
1,254
113
77
86
441
206
922
2,176
23,642
25,223
249,800
-13,644
-195
284,827
1,248
5
1,254
66
36
833
24
560
1,518
2,772
TOTAL EQUITY AND LIABILITIES
283,521
287,599
PARENT COMPANY’S
FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS (FAS)
EUR '000
Note
1.1.2015 - 31.12.2015
1.1.2014 - 31.12.2014
Operating activities
Net profit
Adjustments:
Depreciation and amortisation
Unrealised foreign exchange gains and losses
Finance income and expense
Cash flow before working capital changes
Working capital changes:
Change in current trade receivables
Change in current non interest-bearing debt
Cash flow before financing items and taxes
Interests received from Group companies
Interests received and other financing items
Interests paid and other financing items
Income taxes paid
Net cash from operating activities
Investing activities
Acquisitions of subsidiaries and associates
Net cash used in investing activities
Financing activities
Repayments of non-current loans to group companies
Repayments of current loans given to Group companies
Non-current loans to group companies
Repayments of current loan receivables
Capital redemption
Net cash used in financing activities
Change in cash and cash equivalents
Cash at beginning of period
Cash at end of period
Change in the balance sheet
-115
5
-60
-1361
-1,530
-1,134
-324
-2,988
1,014
166
-110
1
-1,917
6
6
7,929
10
-555
15
-5,106
2,292
2,176
221
603
381
161
-195
11
-90
-1,683
-1,958
109
692
-1,157
0
147
-93
33
-1,070
0
0
6,350
0
-334
9
-4,884
1,141
2,772
150
221
71
2.NOTES TO THE FINANCIAL
STATEMENTS OF THE PARENT
COMPANY (FAS)
2.1 ACCOUNTING POLICIES
SCOPE OF FINANCIAL STATEMENTS AND ACCOUNTING POLICIES
The parent company has prepared its separate financial statements in accordance with Finnish
Accounting Standards. Consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards. Consolidated financial statements are presented separately
as a part of these financial statements.
162
Information on holdings in subsidiaries and associated companies and information on their consolidation is
presented in the notes to the financial statements.
All figures are presented in thousand Euros, unless otherwise explicitly stated.
VALUATION PRINCIPLES AND METHODS
Investments in associated companies and debt instruments are valued at acquisition cost, less eventual
impairment. Dividends received from Group companies and associates have been recorded as financial income.
The balance sheet value of property, plant and equipment is stated at acquisition cost, less accumulated
depreciation. Other assets have been stated in the balance sheet at the lower of acquisition cost or their likely
realisable value. Debt items are valued at acquisition cost. Loan receivables from subsidiaries and Group
companies have been valued at acquisition cost.
DEPRECIATION METHODS
Acquisition costs of property, plant and equipment are depreciated over their useful lives according to plan.
Depreciation plans have been defined based on practice and experience.
Asset
Intangible rights
IT equipment
Other machinery and equipment
Depreciation Method & Period
5 years straight line
2 years straight line
5 years straight line
TRANSLATIONS OF FOREIGN CURRENCY ITEMS
Balance sheet items denominated in foreign currency are translated into functional currency using the exchange
rates of the balance sheet date. Income statement items are translated applying the exchange rates prevailing at
the date of the transaction.
COMPARABILITY OF THE REPORTED FINANCIAL YEAR AND THE PREVIOUS YEAR
The reported financial year and the previous year were both calendar years and are thus comparable. The
Company has been actively restructuring its business, which has required various ownership and financial
arrangements. The transactions have had significant non-recurring effects on the Company’s income
statement, balance sheet and financial position, which make comparison of financial statements and
estimating the future more difficult.
2.2 NOTES TO THE INCOME STATEMENT
1. Revenue
EUR '000
By business line:
Services
Other revenue
Total
By geography:
Finland
EU countries
Other countries
Total
2. Other Operating Income
EUR '000
Gain on disposal of property, plant and equipment
Other income
Total
2015
2014
1,259
0
1,259
3
616
640
1,259
163
150
0
150
3
68
79
150
2015
2014
0
57
57
0
46
46
3. Depreciation, Amortisation and Impairment
EUR '000
2015
2014
Depreciation and amortisation according to plan
Intangible rights
Machinery and equipment
Total
4. Other Operating Expenses
EUR '000
Voluntary employee benefits
Premise expenses
Machinery and equipment expenses
Travelling expenses
Representation expenses
Marketing expenses
Administration expenses
Other operating expenses
Total
0
-5
-5
-2
-9
-11
2015
2014
-19
-63
-77
-32
-14
-9
-1,720
-17
-1,951
-3
-105
-84
-54
-15
0
-840
-454
-1,554
5. Financial Income and Expense
EUR '000
2015
2014
Other financial income
From Group companies
From others
Other financial expense
To Group companies
164
To others
Total
6. Income Taxes
EUR '000
Profit for the period
Adjustments for tax calculation
Taxable income
Tax advances paid
Tax deferral based on taxable income
Income tax of the period
Tax loss carryforward used
Net income taxes
Income tax receivable
Income tax payable
2.3 NOTES TO ASSETS
7. Fixed Assets
EUR '000
Machinery and equipment
Acquisition cost 1.1.
Disposals
Acquisition cost 31.12.
Accumulated depreciation 1.1.
Depreciation for the period
Accumulated depreciation 31.12.
Book value 31.12.
1,093
488
-51
-110
1,420
2015
-115
26
-88
-34
34
0
0
0
34
0
1,877
159
-56
-206
1,774
2014
-195
41
-154
-35
35
0
0
0
35
0
2015
2014
283
-6
277
258
5
263
14
283
0
283
248
9
258
25
Shares in Group
companies
Shares in associated
companies
Receivables from
Group companies
8,153
8,153
19,618
19,618
Total
313,750
313,750
8. Investments
Acquisition cost 1.1.2015
Additions
Acquisition cost 31.12.2015
Accumulated depreciation and
impairment 1.1.2015
Impairment
Accumulated depreciation and
impairment 31.12.2015
Book value 31.12.2015
285,979
285,979
-70,048
0
-70,048
215,931
Holdings in Group and other companies
Name
Afarak Holdins Ltd
Afarak Investments Ltd
Afarak Mining (Pty) Ltd
Afarak South Africa (Pty) Ltd
Auburn Avenue Trading 88 (Pty) Ltd
Destiny Spring Investments 4 (Pty) Ltd
Destiny Spring Investments 11 (Pty) Ltd
Destiny Spring Investments 12 (Pty) Ltd
Duoflex (Pty) Ltd
Elektrowerk Weisweiler GmbH
Intermetal Madencilik ve Ticaret A.S.
LP Kunnanharju Oy
Metal ve Maden ic ve Dis Pazarlama Tic Ltd, Sti
Mogale Alloys (Pty) Ltd
Afarak Trading Ltd (previously known as RCS Ltd)
Rekylator Oy
Rekylator Invest Oy
Rekylator Wood Oy
Rekylator Yhtiöt Oy
Türk Maadin Sirketi A.S.
Joint ventures
Synergy Africa Ltd
Chromex Mining Ltd
Chromex Mining Company (Pty) Ltd
Ilitha Mining (Pty) Ltd
Mkhombi Stellite (Pty) Ltd
-8,153
-11,603
-89,804
165
0
-8,153
0
-11,603
8,015
-89,804
223,946
Country of
incorporation
Group's ownership and
share of votes (%)
AfarakGroup Plc’s
direct ownership and
share of votes (%)
Malta
Malta
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
Germany
Turkey
Finland
Turkey
South Africa
Malta
Finland
Finland
Finland
Finland
Turkey
United Kingdom
United Kingdom
South Africa
South Africa
South Africa
100.00
100.00
100.00
100.00
74.00
100.00
100.00
100.00
74.00
100.00
99.00
100.00
97.76
90.00
100.00
100.00
100.00
100.00
100.00
98.75
51.00
51.00
37.74
41.05
44.24
0.00
99.99
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
100.00
0.00
0.00
100.00
98.75
0.00
0.00
0.00
0.00
0.00
Associated companies
Incap Furniture Oy
Valtimo Components Oyj *
Finland
Finland
24.06
24.90
12.45
24.90
*Afarak’s share of ownership in Valtimo Components Oyj can increase to 39.23% if the shares sold earlier, held as pledge, are not paid
in cash to Afarak.
Afarak disposed of Afarak Suisse in 2015.
166
Afarak divested its holding in the associated company Speciality Super Alloys Inc. This led to a loss on sale of investment in associate
of EUR 0.3 million.
Dezzo Trading 184 (Pty) Ltd, Didox (Pty) Ltd, PGR 17 Investments (Pty) Ltd, and Waylox Mining (Pty) Ltd were deregistered as at 31
December 2015.
9. Receivables
EUR '000
Receivables from group companies
Non-current
Loan and other receivables
Interest receivables
Total
Current
Loan receivables
Trade receivables
Interest receivables
Prepayments and accrued income
Total
Other interest-bearing receivables
EUR ‘000
Current
Loan receivables
VAT receivable
Total
Other interest-free receivables
EUR ‘000
Non-current
Other prepaid expenses and accrued income
Total
2015
2014
47,887
78
47,965
7,304
1,967
35
12
9,318
55,261
0
55,261
5,575
1,218
34
0
6,828
2015
2014
19
162
181
2015
128
128
34
10
43
2014
128
128
Current
Trade receivables
Receivables from associated companies
Other receivables
Total
Prepaid expenses and accrued income
Income tax receivable
Accrued interest income
Other prepaid expenses and accrued income
Total
2.4 NOTES TO EQUITY & LIABILITIES
10. Shareholders’ equity
EUR ‘000
Share capital
Share capital 1.1.
Share capital 31.12.
Share premium reserve
Share premium reserve 1.1.
Share premium reserve 31.12.
Paid-up unrestricted equity reserve
Paid-up unrestricted equity reserve 1.1.
Rights Issue
Capital redemption to the shareholders
Paid-up unrestricted equity reserve 31.12
1
1,164
8
1,174
2015
34
1
158
192
1
988
27
1,016
2014
35
1
95
131
167
2015
2014
23,642
23,642
23,642
23,642
25,223
25,223
2015
249,800
1,739
-5,106
246,433
25,223
25,223
2014
249,101
5,583
-4,884
249,800
Retained earnings
2015
2014
Retained earnings 1.1.
Profit for the previous financial year
Retained earnings 31.12.
Profit for the financial year
Total shareholders’ equity
-13,644
-195
-13,839
-115
281,345
-13,756
112
-13,644
-195
284,827
Distributable funds
Retained earnings 1.1.
Profit for the financial year
Retained earnings 31.12.
Paid-up unrestricted equity reserve
Distributable funds 31.12.
168
11. Liabilities
Non-current liabilities
EUR ‘000
Non-current interest bearing debt
Loans from Group companies
Total
Non-current interest-free debt
Loans from associated companies
Earn-out purchase consideration liabilities
Total
Current Liabilities
EUR ‘000
Current interest bearing debt
Other debt to Group companies
Total
Current interest-free debt
Accounts payable
Payables to Group companies
Other debt
Other debt to Group companies
Accrued expenses and deferred income
Total
2015
-13,839
-115
-13,953
246,433
232,480
2014
-13,644
-195
-13,839
249,800
235,962
2015
1,248
1,248
2015
5
0
5
2015
50
50
2015
77
86
441
63
206
872
2014
1,248
1,248
2014
5
0
5
2014
50
50
2014
36
833
24
16
560
1,468
Option rights
The Company’s option schemes are presented in the notes to the consolidated financial statements. The
Company has option schemes I/2005 (maximum 2,700,000 shares), I/2008 (maximum 2,900,000 shares, all
options granted to the Group’s previous CEO) and I/2011 (maximum 6,900,000 shares).
2.5 PLEDGES AND CONTINGENT LIABILITIES
EUR million
Commitments on behalf of subsidiaries
Guarantees
Commitments on behalf of others
Guarantees
Other own contingent liabilities
Leasing amd rent liability
Commitments and contingent liabilities total
31.12.2015
31.12.2014
11.9
1.3
0.0
13.2
10.7
1.3
0.2
12.2
169
Pension liabilities
The Company’s pension liabilities are directly in accordance with the statutory TyEL-system.
2.6 OTHER NOTES
Related party loans
The Company has short-term loan receivables from the members and past members of the Board amounting to
EUR 102 (217) thousand.
Information on the personnel
Personnel, annual average
(all employees)
Employees
Management remuneration
Chief Executive Officer
Board members
2015
3
2015
425
286
2014
3
2014
234
216
The CEO receives an annual salary of EUR 360,000. He shall also receive 500,000 Company Shares as an
incentive for each completed year of service acting as the Chief Executive Officer, the first 500,000 Company
shares shall be received on 22 May 2016 and the second 500,000 shares shall be received on 22 May 2017 if he
is still acting as CEO at that time.
The Group makes no pension arrangements for the CEO beyond the statutory pension coverage, and there is no
set retirement age.
INFORMATION ON SHARES AND SHAREHOLDERS
Changes in the number of shares and share capital
On 31 December 2015, the registered number of Afarak Group Plc shares was 263,040,695 (259,562,434) and
the share capital was EUR 23,642,049.59 (23,642,049.59).
On 31 December 2015, the Company had 4,244,717 (4,244,717) own shares in treasury, which was equivalent to
1.61% (1.64%) of the issued share capital. The total amount of shares outstanding, excluding the treasury shares
held by the Company on 31 December 2015, was 258,795,978 (255,317,717).
170
On 14 August 2015, Afarak announced that it has resolved to offer 3,478,261 new ordinary shares in the
Company (“New Shares”) to Gujo Investment (Pty) Limited, one of the vendors of Mogale Alloys (a company
acquired in May 2009) under the settlement agreement announced on 11 October 2012. Following completion of
the share issue, the consideration for the acquisition was fully satisfied. All of the New Shares were subscribed
for and the subscriptions have been approved by the Board of Directors. The total subscription price of EUR
1,739,130.50 (EUR 0.5 per share) has been fully satisfied through offset against the settlement receivables of the
Vendor related to the Mogale Alloys acquisition.
More information on shares, share capital and shareholders have been presented in the notes to the
consolidated financial statements.
INFORMATION OBLIGATED TO A GROUP COMPANY
The Company is the Group’s parent company.
Afarak Group Plc, domicile Helsinki (address: Kasarmikatu 36, 00130 Helsinki)
BOARD MEMBERS’ AND CHIEF EXECUTIVE OFFICER’S OWNERSHIP
Afarak Group Plc’s Board members and Chief Executive Officer owned in total 7,813,287 (78,078,926) Afarak
Group Plc shares on 31 December 2015 when including shares owned either directly, through persons closely
associated with them or through controlled companies. This corresponds to 3.0% (30.1%) of all outstanding
shares that were registered in the Trade Register on 31 December 2015.
31.12.2015
Board and CEO total:
Alistair Ruiters
Executive Director & CEO
Jelena Manojlovic
Dependent Non-Executive
Director
Markku Kankaala
Non-Executive Director
Shares
400,000
150,000
7,090,616
Options
600,000
0
0
Michael Lillja
Executive Director
71
200,000
Chairman & Non-Executive
Director
Non-Executive Director
Non-Executive Director
Alfredo Parodi
Barry Rourke
Ivan Jakovcic
Board and CEO total
All shares outstanding
Proportion of all shares
22,600
150,000
0
0
0
0
7,813,287
800,000
263,040,695
263,040,695
3.0 %
0.3 %
On 31 December 2014 the total number of registered shares was 259,562,434 and the Board and CEO’s
ownership corresponded to 30.1% of the total number of registered shares.
Auditor’s fees
EUR ‘000
Ernst & Young Oy
Audit
Other services
Total
2015
2014
201
28
229
277
20
297
171
BOARD’S DIVIDEND PROPOSAL
In 2016 the Board will propose to the AGM a new dividend policy and will recommend a EUR 0.02 per share
distribution where EUR 0.01 per share will be paid in May 2016 and subject to market conditions a further EUR
0.01 will be paid in August 2016.
SIGNATURES TO THE BOARD OF
DIRECTORS REPORT AND THE
FINANCIAL STATEMENTS
HELSINKI 31 MARCH 2016
172
ALFREDO PARODI
Chairman
ALISTAIR RUITERS
Member of the Board, Chief Executive Officer
JELENA MANOJLOVIC
Member of the Board
MICHAEL LILLJA
Member of the Board
MARKKU KANKAALA
Member of the Board
BARRY ROURKE
Member of the Board
IVAN JAKOVCIC
Member of the Board
THE AUDITOR’S NOTE
Our auditor’s report has been issued today.
HELSINKI 31 MARCH 2016
ERNST & YOUNG OY
ERKKA TALVINKO
Authorised Public Accountant
173
Auditor’s
report
G
A
F
A
R
R
O
U
P
A
K
5
AudiTor’s reporT
FinanCial inDiCators
translation
To The AnnuAl GenerAl MeeTinG of AfArAk Group plc
We have audited the accounting records, the financial statements, the report of the Board of Directors,
176
and the administration of afarak Group Plc for the financial period 1.1. - 31.12.2015. the financial statements
comprise the consolidated statement of financial position, income statement, statement of comprehensive
income, statement of changes in equity and statement of cash flows, and notes to the consolidated financial
statements, as well as the parent company’s balance sheet, income statement, cash flow statement and notes
to the financial statements.
responsibiliTy of The boArd of direcTors And The MAnAGinG direcTor
the Board of Directors and the Managing Director are responsible for the preparation of consolidated financial
statements that give a true and fair view in accordance with international Financial reporting standards (iFrs)
as adopted by the EU, as well as for the preparation of financial statements and the report of the Board of
Directors that give a true and fair view in accordance with the laws and regulations governing the preparation
of the financial statements and the report of the Board of Directors in Finland. the Board of Directors is
responsible for the appropriate arrangement of the control of the company’s accounts and finances, and the
Managing Director shall see to it that the accounts of the company are in compliance with the law and that its
financial affairs have been arranged in a reliable manner.
AudiTor’s responsibiliTy
our responsibility is to express an opinion on the financial statements, on the consolidated financial statements
and on the report of the Board of Directors based on our audit. the auditing act requires that we comply with
the requirements of professional ethics. We conducted our audit in accordance with good auditing practice in
Finland. Good auditing practice requires that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements and the report of the Board of Directors are free from material
misstatement, and whether the members of the Board of Directors of the parent company or the Managing
Director are guilty of an act or negligence which may result in liability in damages towards the company or have
violated the limited liability Companies act or the articles of association of the company.
an audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements and the report of the Board of Directors. the procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement, whether due to fraud or error. in
making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of
financial statements and report of the Board of Directors that give a true and fair view in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the company’s internal control. an audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements and the report of the Board of Directors.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
opinion on The consolidATed finAnciAl sTATeMenTs
in our opinion, the consolidated financial statements give a true and fair view of the financial position, financial
performance, and cash flows of the group in accordance with international Financial reporting standards (iFrs)
as adopted by the EU.
177
opinion on The coMpAny’s finAnciAl sTATeMenTs And The
reporT of The boArd of direcTors
in our opinion, the financial statements and the report of the Board of Directors give a true and fair view of both
the consolidated and the parent company’s financial performance and financial position in accordance with
the laws and regulations governing the preparation of the financial statements and the report of the Board of
Directors in Finland. the information in the report of the Board of Directors is consistent with the information in
the financial statements.
helsinki, MArch 31, 2016
ernsT & younG oy
authorized Public accountant Firm
erkkA TAlvinko
authorized Public accountant
180
www.afarak.com